Monday, July 24, 2006

Why Cheap Gasoline Ain't Good

Gripe if you may, but I don’t mind $3/gal gasoline.
I realize that’s heresy, and I could be burned at the stake for making such outlandish statements. But as my friend, petro-economist Karr Ingham eloquently stated over lunch today at the Petroleum Club with a few fellow journalists, $3 gasoline beats no gasoline at any price.

Ingham described how $73/bbl oil is actually good for us, and not just the Texas economy. At prices north of $70/bbl, the oil exploration companies are able to go find more deposits of oil and gas that would have been too expensive to locate at $20/bbl.

There are other residual, positive effects of higher fuel prices.
Tax revenues are up for the state based on the levies imposed on oil production—which raised a thorny question: Why is oil the only natural resource that is taxed as it is produced?

Where is the wisdom in slapping a fee on a commodity that is so vital to our national economy…yet, the powers that be (stupid) in Washington have no compunction over garnishing cash from energy companies. These are the same Mensa's that believe the US offshore oil and gas industry should be concentrated in the hurricane magnet that is the Gulf of Mexico, eschewing any drilling on the East or West coasts of these oil-parched United States.

Hey, if taxing production is such a swell idea, why not put a production tax on something that’s BAD for you—like tobacco?
That’ll never catch on.
Makes too much sense.

Meanwhile, Exploration and Production operations will contribute up to 18% of the sales taxes generated in the state this year.

Higher fuel prices have also meant boom times for towns like Midland, Odessa, Wichita Falls, and Lubbock, as well as Houston and Dallas. That’s because more workers are earning salaries, and spending their pay on other things…like clothing and food and transportation and housing. You know, contributing to the economy.

Trickle up, or trickle down, the money’s flowing like a river in Texas.

Did you know that independent operators are actually producing more crude oil in Texas than the major conglomerates? The Texas Alliance of Energy Producers, who hosted the luncheon, reports that 96% of the wells drilled in the state last year were performed by independents, producing 86% of the natural gas, and 90% of the crude oil in Texas.

And there’s more to come, so long as oil prices stay in the $70/bbl range, because only 15% of what is in the huge, Barnett Shale formation has been extracted thus far. That’s not to say it’s going to last forever…but it bespeaks of continued flush times for independent operators and the companies that service them.

You see, finding those deposits take money.
Drilling for those deposits takes money, too.
Producing and transporting to market what’s being discovered is also a money-maker…and it all funnels back into the public cash flow eventually, either through tax revenues tapped for spending on roads, or through retail purchases by the men and women being paid to keep the home fires burning and the porch lights on.
And your car filled with (relatively) cheap gasoline.

A final point to ponder: If you took the price of gasoline from 1979 and multiplied it by 3% a year through today, you get a price in the $2.15/gal range…add the taxes, and look where we are. At $3/gal you will have gasoline to buy. At a cheaper price, with less funding for exploration and production, fuel becomes a scarcer commodity.
I don’t want that—do you?

4 comments:

John Coby said...

That is a whole bunch of excuses wrapped up on one blog.

It is like a "Dirt sandwiches are GOOD for your childs" mentality.

The bottom line is the bottom line. I am paying $2700/year more for gas than 5 years ago.

Anonymous said...

My first DVD player cost me almost $400. By the logic you seem to be using, that DVD player should now cost me at least $500.

Technology is making oil exploration easier and less expensive, but as long as we keep buying gasoline ay $3+ per gallon the oil companies and refiners have no incentive to find enough new source to drop the price down to below $2.

Brent Clanton said...

John, please see my comments in Wednesday's column. Your bottom line is the same as mine; the dollars are worth less now than 5-years ago, however.
-bc

John Coby said...

You aint kidding. I am just tired of the President of the United Excuses. There is an excuse for everything.

Gas is $4.00 a gallon in Europe.
Gas hasnt kept up with inflation.
No new refinerys have been built
I need more whine.

And it doesnt stop with gas.
I inherited a recesson.
No one could have prevented 911
Axis of evil
It was Clinton's

I would rather see some one take responsibility for what is going on in the US and TAKE ACTION to resolve it.

I am tired of excuses.