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Why must we pay so much for gas? (03/11/2012)
By John Edstrom

Early last week President Obama was forced to the dubious expedient of lobbying Senate Democrats to vote down a measure to keep him from blocking the construction of the Keystone oil pipe line from Canada, projected to bring in an additional 225 million barrels of oil yearly from that friendly, stable, and contiguous nation to our north, and thus reduce our reliance on suppliers like OPEC, Venezuela, and Nigeria. Its backers tout many benefits, among which are 20,000 direct and 100,000 jobs ancillary to the project, as well as price stabilization and reduction brought about by an increased, reliable source of crude oil. Despite Obama’s efforts, eleven Democrats defected to vote against him with the Republicans.

Ignoring Canadian threats to run that pipeline and its crude to Vancouver where it can be shipped directly to China and Asian markets, its critics on the environmental left charge that, somehow, the Keystone will actually increase midwestern (at least) gas prices by enabling the export of finished petroleum products from deep water Gulf seaports. They also claim that any additional supplies of gasoline won’t effect prices until they actually hit the market years hence.

However, they also blame “speculators” for driving up gas prices and postulate that some sort of U.S. legislation could somehow manipulate world oil markets more effectively than the speculators. This illustrates much ignorance of how markets work, not the least of which is how additional supplies scheduled to come online tend to dampen a bull market in futures.

On a simpler level an article in the Friday Minneapolis Tribune, “Gas price ‘haven’ eases our pain at the pump,” illustrates very nicely how increased supply creates lower prices. In a nut shell, it demonstrates that last week’s average price of gas in Minnesota, $3.60 per gallon, remained well behind the $4.00 + price on both the East and West coasts. The difference, of course, is a bountiful Midwestern supply of crude from Canada, and now the Bakken fields in North Dakota. This oil, too, can be finished and sent overseas, but there is plenty to sell to Midwestern refineries without the extra transportation costs, and our relatively cheap price at the pump is the blessed result.

So, the President will be increasingly forced to defend his obvious and naked calculation that Americans and our economy, still gasping along under his guidance, must absorb increasing pain at the pump, when the antidote is readily available. This is because, one must assume, he feels that the high gas prices generated by his policies will force the development of “green” energy somewhere in the rosy future and, in his mind, we’ll all be better off.

In the meantime, despite massive subsidies, wind energy can’t get by storage and transmission problems, while the latest project in Minnesota was derailed by the tender concerns of environmentalists for birds and bats. The holy grail of the electric car is finally having to answer the difficult question of why, operating as it does on coal-generated electricity, it is superior to the standard Detroit gas burner. And the underlying assumption driving the whole massive disruption of the American economy, jobs, and our standard of living, global warming, or is it climate change, is no longer salable to a skeptical American public, much less the emerging global players, China and India.

This will all make for an interesting election next November.



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