Domestic Drilling, Barack Obama, and Executive Orders

Executive Orders are a favorite tool of Presidents to promote their political agenda. Some times they actually alter policy because they address issues that have no specific legislative limitations. In other cases, they are a form of protest or persuasion, because they go against the current law of the land. An example of this was President Bush's Executive Order to lift some of the restrictions on domestic drilling. Congress had prohibited the areas the order covered, but Bush wanted to make it clear that the Executive Branch supported such. That protest and the outcry of millions of Americans finally led to Congressional action in which they reversed the ban.

During the Presidential campaign and gasoline prices were pushing $4 a gallon, Barack Obama said he was open to any energy option to drive gas prices down. He was for nuclear energy (as long as it was always safe), coal (as long as he could tax it into bankruptcy), and domestic drilling (as long as you can guarantee there would be no environmental damage). This view was against all of Obama's historic policy statements and voting record.

Obama and Congressional Democrats have been philosophically for higher gas prices. The higher the prices, the better. He supports high gas prices as a way of conserving energy, to drive people to mass transit, and to force the development of energy alternatives. That has long been the primary position of Democrats for years, who describe our need for energy as "addictive" and that there is something fundamentally wrong with Americans because they demand more energy than other country in the world. I don't apologize for our quality of life or the technology necessary to maintain it, I expect our government to create the environment to get those needs met through free enterprise. Furthermore, many of his Congressional allies are singing a similar tune.

So why did Obama and company say they would support these traditional forms of energy? Because they needed the votes. In fact, for the last 60 days of the campaign, Obama ran as a moderate and even attempted more conservative positions than McCain (rightly describing the Arizona Senator's home bailout plan as "irresponsible").

The election is over, the real Obama is standing up and doing so tall with this bold announcement. I think it is being done immediately because he hopes that the adverse effects it will have on oil futures (projecting future demand effects gas prices today) will be seen as a remnant of the Bush Administration and he wants to get the liberals' bizarre conservation program of high prices back on track. Every day we are enjoying prices around $2.00 a gallon, we are wasting energy and destroying our environment according to the Democrats. Obama believes this must stop.

This is just the beginning. Many of the things you worried about Obama earlier in the race when he ran as a liberal, but saw fade away in his rhetoric as he worried about his electoral success, will come back in full force. Will the real Barack Obama please stand up? I hope not.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

How to Determine Gas Prices in a Year

I don't want to mislead with my title. I don't own a crystal ball and can't predict exactly what fuel will cost at certain times. However, we have all been studying fuel prices rather closely the last few years and have begun to be able to see linkage between certain events and gas prices.

For example, as prices hit an all time high and hovering around $4.00 a gallon in the early part of the summer, House Republicans declared they were have a "staycation" like many other Americans and taking care of business by focusing on energy. The theme of the ad hoc Congress was "drill here, drill now" and the public and media took notice of the action. So did the oil speculators who lowered the price of oil per barrel, which showed up in our gas prices.

Another example was Senator John McCain declaring that he was changing his historic position of being opposed to domestic drilling and stating that everything should be brought to the table for consideration (biodesel, coal, etc.), including exploiting oil in the United States. He placed particular emphasis on the latter because of how that view stood in contrast to the Democrats position of avoiding all domestic drilling. The results was the further lowering of gas prices.

So, oil futures are based on projected consumption (demand) and projected supplies. The lack of oil in this country is not based on scarcity (which is created by nature), but because of shortages (which is based on government policies). With that, the single biggest factor about future supplies and prices of oil is the government. Oil speculators are convinced that the Democrats are hostile to domestic production (just look at their voting record and stated postions) and that the Republicans seem to take the pursuit seriously. With that, here is a quick breakdown of the future of prices:

• If the Democrats win both the Congress and the White House, expect gas prices to grow exponentially. I project them to more than double the current $3.00 a gallon level by the elections of 2010. That $6.00 a gallon rate could be rather conservative.


• If the Republicans win both the Congress and the White House, expect a rather significant drop in gas prices as long as the Legislative Branch makes domestic drilling a top priority. If they do that, you could see prices back around $2.00 or even less within two years.
  
• If you have divided government where different parties dominate the Legislative and Executive branches, you will likely see prices remain about the same with a continued upward trend.
  

Don't be fooled by arguments that passing legislation that encourages domestic drilling won't immediately lower prices. We know that serious discussion alone can achieve that. If Americans are concerned about lowering gas prices, they should be very deliberate about the way they vote.

A few weeks ago gas prices began to rise at a rapid rate. This was about the time the media began to declare that it was unlikely McCain would win. It is largely based on futures.

So what about the recent drop in gas prices? Everyone is thrilled with them going below $3.00 a gallon in many parts of the country. Why this is happening is the "bad news" to this otherwise exciting news. The current financial crisis is now having a direct impact on gas prices. Oil futures project that we are going to have people driving less, companies transporting fewer goods less often, and factories demanding less energy because of projected manufacturing declines. The good news of lower fuel costs is actually an omen of bigger economic problems.

Watch the headlines and observe gas prices. You will see the link. Think carefully how you vote, because it could profoundly impact your financial future.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Energy, Competition, and a Simple Lesson in Economics

For quite some time many Democrats and virtually everyone in the extreme environmentalist movement have discredited Republican calls to increase domestic drilling. Obama in particular has been very dismissive. Repeatedly he has told voters that we could begin building rigs today and it would have zero effect on gas prices for at least six or seven years. My sophomore economics professor would beg to differ.

When I took my first macroeconomics course in college, I remember the professor saying something that is considered unorthodox by many liberal economists today. He stated that “monopoly is virtually an impossibility today. As long as there is the possibility of competition, preexisting business must behave competitively. About the only way you can have a monopoly,” he argued, “is when the government sanctions such (e.g., utility companies).” The professor went on and noted that as long as businesses can enter the market place, the so-called monopolies have to keep prices down and products at a high enough level to deter competition.

For several years our US government has protected the virtual monopoly that has existed in the Middle East when it comes to oil. The Saudis, Iranians, and other energy powers have known that we will protect our trees before we help our families with lower gas prices. Therefore these competitors have driven prices without consequence. For years, the United States hasn’t even had a serious discussion on the subject of increasing oil supplies. Until now.

Now, what seems out of the blue, is a dramatic drop in oil prices. A few weeks ago it was close to $150 a barrel. Now, it is around $115. Obama is right, oil prices wouldn’t “drop a penny,” instead it has been tens of dollars and more should soon follow. Talk alone is beginning to break the foreign monopoly on oil. Our foreign competitors do not want a single drop of new source oil to be produced in this country. That is why they are increasing supplies in order to lower our prices. It isn’t because they suddenly like us. Our competitors hate the possibility of competition. What the liberals don’t understand is that competition works. Our foreign competitors get it. The Republicans who are occupying the US House and demanding more action on drilling understand it. But the liberals do not.

This only reaffirms my conviction that we need Presidential and Congressional leadership that understands simple economic principles. If our members of Congress don’t understand how competition works, they should do something else for a living. The same expectation should be there for any person who would be our President. We need leadership that understands the power of the market place and will harness that power to make the US energy independent and economically free.

In fact, I am fairly confident that if the Democrats occupy the Congress and the Presidency, I expect an exponential increase in oil prices. If Republicans win both we will see a rapid decline. If we split government, expect a stalemate. I think I know what most Americans desire.

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The Green Case for Domestic Drilling

Recently Republicans in Congress have done an excellent job of making the economic efficiency and national security arguments for increased domestic drilling. Democrats attempts to blame the speculators, "make sure the tires are filled," and calls to drill where the energy industry already has leases is falling upon deaf ears. Voters seem to know that those acres have been so thoroughly exploited that the translated cost per gallon to explore them will be higher than current prices. The industry needs access to new locations and it is pounding that drum effectively.

The current Republicans in the House are occupying empty Chambers and are demanding Speaker Nancy Pelosi to call Congress back and to tackle the energy crisis. Pelosi is invulnerable in her reelection efforts and has told other Democrats to make her the "fall guy" for failing to take action on energy. Republicans, like Congressman Kevin Brady of the Woodlands (Texas) and Ted Poe (of Houston) and others are reminding their colleagues that there already was an up and down vote on whether the Congress should immediately pursue an energy policy instead of taking a vacation. That was their vote for adjournment. If you voted for adjournment (which passed by only one vote), you voted against Congress immediately dealing with energy. If you voted against adjournment, you voted for Congressional action. That message may be getting through to voters and Republicans are beginning to look like that brash group that took over the Congress back in 1994.

The economic case for increased domestic drilling is simple. It will quickly lower gas prices by increasing future supplies. What most Democrats fail to realize is that the threat of increased production can lower prices. A thorough debate on the subject in the last few weeks has already lowered the price per barrel to around $116 at this writing, from being around $150. This is without a vote and without new exploration. This is merely due to rhetoric. Imgaine the impact once we increased drilling. Our current prices are based on futures. With the Republicans winning the recent debate, the future looks brighter for oil supplies and we are seeing it at the gas pumps.

The national security argument is just a logical. Many Democrats are arguing for tapping into the Strategic Reserve in order to help lower prices. This has only served as a reminder to voters of how dependent we are on foreign oil. In 1970, we imported 24 percent of our oil. Today it is nearly 70 percent and that number continues to grow. If foreign countries decided to stop supplying us, we would be in a true crisis. Security, as well as prosperity, are wrapped up in our energy future.

Republicans now need to make the moral case. Increased domestic drilling is the green thing to do. For years we have been told by environmentalists that this planet is little more than a "big blue marble." Simply put, environmental disasters on any part of the planet has an adverse impact on the entire planet. If that is the case, who better than the United States to increase drilling? Right now, Cuba and Venezuela are eyeing off shore drilling opportunities near the United States. Do we prefer their technology, safety standards, and labor over that of the US? Any time the United States can take the lead on drilling; people, animals, and prestine environments are better protected compared to the means of any other country.

I have suggested this to Members of Congress and others for quite some time and it seems the argument is beginning to have some traction. I visited with Rep. Kevin Brady (R-TX) about this last week and he has assured me that it will become an important argument Republicans will use as the GOP continues to take over the empty House Chamber. All I can say is it is about time. With the moral case joining the economic and national security arguments, the Democrats could find their hopes for the 2008 elections running out of gas.

Republicans Look Like Young Turks of 1994

Remember the "Young Turk" Republicans of the early 1990s that eventually took over the Congress? Led by than Congressman (and future Speaker) Newt Gingrich, Republicans took on the Congress at every turn. It pointed out the corruption that was seen through out the Congress. Members wrote hot checks on their Congressional checking account without consequences and these Republicans reminded voters of such disgrace. The GOP changed the power and structure of committees, taking away the autocratic nature of chairmanships. Virtually every day members of the GOP went on to the House floor denouncing the Democrat's behavior, regardless if Congress was in session at the time.

This approach offered promise to a country that had grown tired of a corrupt and "do nothing" Congress that had ruled the country under one party for decades and resulted in the "Revolution of 1994." These vigorous members saw a net increase of 54 House seats in that election, and a pick up of 8 seats in the US Senate. But it didn't stop there, Republicans won 472 legislature seats around the country, the mayor's office of two big Democrat cities (New York and Los Angeles), and the GOP took control of 20 state Legislatures. The Republican Party became the majority party over night.

The issues against the Democrats in this Congress is even bigger than those in 1994, in my opinion. We have a credit crunch that is being solved by bailing out lending institutions and having the government going further into the banking industry. We have had the price of gas almost double since the Democrats took over just two years ago and they want to solve our energy problems by demanding to make sure we fill the air in our tires. We are successfully waging a war on terror in Iraq and the Democrats are demanding that we pull these troops out before our task is completed.

The energy issue alone is important enough that the Congress should have done what many Americans are choosing to do -- saying "no" to a vacation. Republicans took the House floor today without lights and with little hand held cameras and denounced their Democratic colleagues for failing to do their job. The Democrats went home to run for their political lives and will have a horrible record to try to defend. Yes, it is beginning to look like the good old days!

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What's Up With Oil?

Oil prices are dropping and people are beginning to wonder why. Sure, $136.64 a barrel is still ridiculously high, but it is significantly less than the $150.00 that, a few weeks ago, seemed inevitable. Furthermore, you would be hard pressed to find a period during this time of the year when oil prices dropped. This is, after all, sumer time. Summer, when people go on vacations and consume gas at its highest level during the year. Ironically, that is exactly one of the reasons oil prices have gone down. People are consuming less gas now then they typically do during the summers. Oil prices are driven by speculation -- whether or not people will be buying more or less oil in the future. The decline in summer travel is just such an indicator.

There are other factors that are affecting the price per barrel:

* A major presidential candidate has announced that he supports more domestic drilling in the United States. John McCain has stood against such expansion and his announcement has become a warning shot over the bow of foreign countries.

* McCain's statement may have contributed the to announcement by the Saudis that they may in fact increase production. That too affects the way speculators look at oil.

* Now virtually everyone is embracing alternative energy. I have noticed that even the largest oil producers in the world are now beginning to look into alternatives. Just today I saw an ad by one of America's biggest oilmen, T. Boone Pickens, discussing his company's expansion into wind energy.

* The dollar is seeing an increase in value. A strong dollar leads to lower prices, which is great news for consumers of all products and services.

The drop in prices today is at $6 a barrel. We have yet to see it at the pump as retailiers take a "wait and see" attitude. But, I believe that if the US continues to stay serious about energy independence, we will find ourselves enjoying lower gas prices and other "blessings of liberty."

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Will Criminal Cases Follow Oil Speculation?

Around a decade ago oil cost around $11 a barrel, now it is hovering around $150. Was there almost a fifteen fold decline in its availability or a similar increase in its demand? Why is there this huge disparity in just ten years? How does it seem like just yesterday that the major headlines for a week was oil breaking $70 a barrel for the first time in history?

The massive increase in the cost per barrel has led to charges of "speculation" and "price manipulation." Some are even beginning to use terms such as "criminal" because of the enormous economic impact due to lost jobs and high prices.

Whether or not they take the extreme move of making this activity "criminal" (like Sarbanes Oxley did with accounting), it is still too early to say; but I think it is safe to assume that some are going to try to figure out ways of pursuing civil action. How, I don't know, but the situation is very hostile for those in this business.

Can the actions of those who set these commodity prices be defended? Let us, just for a minute, give them the benefit of the doubt. These prices aren't made simply on the basis of current supply and demand, but also the future. There is little doubt that supply won't likely increase any time soon, especially with the Democrats in Congress making it perfectly clear they have no plans to let bill that incourage such pass. And demand? Ten years ago, China was a non-player in oil consumption, today it is the number two consumer in the world and growing. Over 1,000 cars are added to its roads daily and demand increases by almost 10 percent annually. It is safe to assume this demand is only going to continue or increase. There has been a comparable increase in demand by India and other developing countries in recent years. These too have driven prices.

I personally think the rise in the cost of oil is not nearly as "wild" or "speculative" as the media would like one to believe. Those who are crying such are typically the same people who are undermining our efforts to increase supplies. Unfortunately, I don't expect reason to prevail, but vengeance. I'm sure that will do a great deal to lower gas prices.

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Are the Saudis Getting McCain's Message?

At any moment I expected the great Rod Sterling of the Twilight Zone to pop up to explain the merge of what appeared, on the surface, to be two separate stories. The first is McCain announcing that it is time to reverse the ban on offshore oil drilling in this country. The Senator has been resistant to such for years and his announcement is creating quite a stir. It is the type of policy position that could help him to seriously differentiate himself from Barack Obama.

About the same time we got an announcement from the Saudis that they are considering an increase in production. This comes after President Bush requested such and they informed him it wasn't going to happen. There is legitimate concern that the Saudis have scarcity problems of their own. But now, just a couple of weeks later, they are talking about loosening the pipelines? Do you hear that Twilight Zone music popping up yet?

Ironically, I wrote about this just last Wednesday when I discussed how to lower gas prices in 30 days or less. In that post I stated "A few liberal Senators with a history of opposing drilling in this country, coming out in favor of such" would make a difference in those gas prices. When it comes to oil policy, McCain has acted like a liberal, in my opinion. My tea leaves seem to be reading correctly and this policy is well received, both by conservatives who have demanded energy independence for decades, and independents who are simply trying to make ends meet. Other things we need to see happen to drive down prices are Congress stepping away from lecturing the oil industry and follow up with getting involved in constructive discussions to build a strategy to solve these problems. It is time to solve problems and stop pointing fingers.

It is imperative for McCain to take positions such as this on issues like these if he has any intention of winning in November. He desperately needs to simply get on the side of the rest of the country when it comes to issues of where we feel as though we are being abused by the government. Be it excessive taxes that prevents people from starting or growing a business, regulation that makes it costly to fuel our cars, or policies that simply undermine our personal and economic freedoms. He needs to get on the right side and he needs to do it now. This announcement is an excellent first step in that objective.

Slideshow from the Associated Press.

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Solving the Energy Crisis in 30 Days or Less

Since the media loves words like "crisis," I will use it; but it is certainly over used. Furthermore, our problems are not in energy but in policy. We have plenty of energy to fuel our cars and we could cut our prices by close to half in about a month if our elected officials had the courage and desire to do so. The majority in Congress have neither.

Thirty days seems ridiculously short and cutting prices in half, ambitious, but I sincerely believe these are goals that are realistic and should be pursued today. How?

* Congress could simply open a serious debate on making the hundreds of years of oil available in this country subject to drilling (in Alaska, the Dakotas, Florida, etc.).

* A few liberal Senators with a history of opposing drilling in this country, coming out in favor of such.

* Hearings on the subject in which Members of Congress strategize with oil industry leaders rather than lecturing them as if they were poorly behaving school children.

If these simple things happened -- without a single drop of new oil being pursued in this country -- the drop of oil prices would be exponential. The threat of the US becoming energy independent would be enough to throw the market into a tailspin. The world knows our ability to produce is legendary and the last thing out international competitors want us to do is produce in this area. A serious debate alone would drive our competitors to making sure it is a moot point. A similar debate in the 1980s led to a dramatic reduction in the price of oil per barrel.

So why isn't it happening today?

* The current Congress has a majority of members who actually want gas prices to be higher. Yes, you read that correctly. Many talk about America's desire for fuel as if it were an alcohol problem. In an environment such as this, you will never get actions that will drive prices down.

* This is going to sound a little conspiratorial, but I believe the majority of this Congress wants high prices, lost jobs, and economic downturn. It is the politics of "us vs. them" and economic decline that makes them believe they could have a more sizable majority in 2009 and one of their own in the White House. The Democrats need economic decline and they are our economy's woes biggest advocates.

I said at the very beginning of this post that the problem isn't energy, but policy. It isn't scarcity (which is caused by nature), but shortages (which is due to poor policy). We need to hold this Congress accountable. Tell them to stop lecturing the executives that represent the energy industry and support the owners of them (the many individuals of all economic groups that own stock in these publicly owned companies). Finally, sign the petition to get this problem solved today. Drill Here. Drill Now. Pay Less. A serious discussion alone could change everything.

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First New Refinery in Decades

There are only a few operating refineries in the country. The bureaucracy to get a license for such is years and the political environments are very hostile to the development of energy independence -- a stated priority of virtually every politician. With the average cost of gasoline approaching $4 a gallon, that might all be changing.

For the first time since 1976, the International Herald Tribune is reporting that the path is being open for the creation of a new refinery in South Dakota. This is the first new one in this country since 1976 and should have the capacity to produce 400,000 barrels of crude from Canada daily. This will certainly contribute to lower energy prices.

In addition to being good for energy independence, it has the potential of creating almost 5,000 short term jobs in the plant's construction and 1,800 long term jobs for those who will work at the plant once completed. The company, Hyperion Resources, has indicated that those jobs will have an average salary of $20 to $30 an hour. Good paying jobs in a part of the country that needs them.

I, for one, am mainly pleased to simply see that the US is taking some small step in the effort towards energy independence. If you want to call $10 billion, the cost for the project, small. Energy independence, which makes our economy strong, our people prosperous, and our nation more secure from our enemies (who are the biggest beneficiaries of our current energy crisis) needs to be at the top of our nation's priorities. Steps like the opening of this refinery are certainly actions in the right direction.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.