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Will $3 gasoline be enough?

By Henry Lamb
web posted May 1, 2006

A $60 fill-up is certainly enough to get fingers of blame pointing in every direction: Democrats blame Bush; pundits blame "big oil;" and consumers blame the powers that be. The real cause of the ridiculously high gasoline prices is generally ignored.

The underlying cause, of course, is the incontrovertible fact that demand has outstripped supply. There's plenty of oil in the world; the problem is that the available oil cannot be extracted and refined into usable gasoline in sufficient quantities to meet the world's demand.

Why? Thirty years of environmental advocacy has produced a majority in the United States who would rather pay $3 per gallon, and even more, than to allow oil to be extracted from the frozen tundra of Alaska, or from the Gulf, or from any other place.

Not a single refinery has been built in the U.S. in thirty years. Arizona Clean Fuels has been trying since 1989 to build a new refinery East of Phoenix. Having finally gotten an initial permit, environmental organizations are gearing up their opposition.

Extremely high gasoline and energy costs are the price society must pay for the environmental protection it has demanded.

Ethanol is not the answer. Increased use of ethanol will help, but it can never replace oil as the primary transportation fuel. An acre of corn produces 160.4 bushels, from which 57.3 gallons of ethanol can be made. Used as E85 (85% ethanol, 15% gasoline), an acre of land would produce the equivalent of 67.4 gallons of gasoline. The daily gasoline consumption in the U.S. is 320,500,000 gallons.

The entire 73.6 million acres of corn harvested in 2004 would supply only 15.5 days of gasoline replacement. There simply is not enough land available to produce enough corn, or other crops, for ethanol to make a significant dent in gasoline demand. Moreover, current environmental policy encourages taking agricultural land out of production, not expanding production.

Corn Harvest, 2002
Click for larger version

The price at the pump is affected by more than supply. While pundits point to excessive corporate profits, and politicians investigate price-gouging, the obvious extraneous costs are overlooked.

Federal and state taxes take more than twice the amount retained as profits by the oil companies. Many local communities impose additional taxes. Politicians are not calling for the repeal of these taxes.

Regulatory costs are more difficult to identify. The EPA requires dozens of different gasoline formulations for different parts of the country, and these formulations change with the seasons. These changes are cost-intensive, and add to the price at the pump. Clean air regulations at the refinery, and other environmental regulations at every step of the production process, also add to the price at the pump. These are the requirements society has demanded, and they must be paid by the consumer.

The greatest pressure on price is the burgeoning demand from China and India, and the growing dependence in the U.S. upon foreign oil. As a percentage of total consumption, domestic production has declined steadily for 30 years, and currently accounts for only 40%. America is importing 60% of its oil from foreign sources, many of which are blatantly anti-American.

Where does it go?Future generations must, and surely will, develop new energy technologies for transportation. Until these new ideas emerge, constraints on using readily available petroleum resources are driving transportation costs ever higher. Every one-cent increase at the pump sucks a billion dollars a year out of the U.S. economy, 60% of which goes to enrich other countries.

Three-dollars per gallon may not be enough to make an environmentally-sensitive majority take another look at the value of keeping the frozen tundra of Alaska, and other known oil reserves, off limits to production. Finger pointing and political posturing, however, will do nothing to solve the fundamental problem.

The price at the pump will continue to rise until it reaches a point that forces a realistic assessment of the value of affordable transportation, compared to the value of keeping frozen tundra, wastelands, and oceans free from oil production.

People who are suffering because the price of gasoline is so high, need to know that their pain is the direct result of those who have prevented the development of the resources that are available. Had the reserves in Alaska, and elsewhere, been developed when the need was apparent, and had refineries been permitted when they were needed, the supply today would be much closer to meeting the demand in the U.S.

Three dollars per gallon may not be enough. But it is getting close.

Henry Lamb is the executive vice president of the Environmental Conservation Organization (ECO), and chairman of Sovereignty International.

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