What's behind the 'perfect storm' of rising gas prices?

By STEVE SNYDER Examiner editor

As gasoline prices surge past the $3-a-gallon mark, it's tempting to blame "Big Oil" for "price-gouging," the idea being this is all part of a conspiracy to control oil supply.

Price-gouging? Perhaps, and indirectly. I'll touch on that later.

But, if so, it's not because Big Oil controls the world's oil supply. No, not with more countries nationalizing their oil fields, and that's least of the reasons this doesn't ring true.

If the general public, in Navasota, Grimes County and beyond, wants to get at a "culprit," it needs to start learning two words: Peak Oil.

Simply put, oil is a finite commodity, crackpot theories about being able to produce oil in a week with sufficient heavy pressure aside.

The bottom line question is - when will worldwide supplies peak and how steep will the downslope be? (The follow-up question is, how prepared will the U.S. economy be, since, unlike the near-equal distribution of global warming, peak oil will hit America harder than anybody else.)

King Hubbert was a geophysicist who worked at the Shell research lab in Houston, Texas. He made several important contributions to geology and geophysics, most notably the Hubbert curve and Hubbert peak theory, or peak oil.

Hubbert predicted the production of individual oil fields, and the U.S. as a whole, would follow a simple bell curve. His next step was to predict when the U.S. would hit the top of this curve and peak.

His prediction, in 1956, was that this would happen sometime between the late 1960s and early 1970s.

The answer, which put Hubbert's name on the market in oilfield geology, was 1970.

He then went on to try to tackle world production, and projected 1995 as the peak year.

Well, he was wrong, but disciples of his think they know why. He didn't take into account how much the 1973 and 1979 oil embargos would promote energy conservation, and the balance sheets of Organization of the Petroleum Exporting Countries (OPEC) members aren't always transparent.

So, when is Peak Oil going to happen? Bearish predictions say anything from "right now" to around 2015. Bullish prognostications say 2030, 2040 or even later, and that we don't need to worry.

Well, this may get back to the question of oil company price-gouging allegations.

If you're a major oil company, an ExxonMobil or Shell, why spend money on a bunch of new refineries if you believe world oil supply is about to peak and that, if you do need refineries, they will have to be ones specially built to refine poorer-quality oil?

Part of the price problem right now is that major refineries haven't been built in decades. Right now, those that are in operation run at 95 percent of capacity, putting a lot of stress on them. Bottlenecks from off-line refineries are part of the price problem right now.

And, domestic refineries don't even meet all our needs. In addition to all the crude oil we import, about 20 percent of the refined gasoline in our cars is imported, rather than being refined domestically.

Of course, that adds to the price of the gasoline the oil companies distribute. Now, that's not to say this is a price-gouging policy; after all, major oil companies have also reduced their spending on oil exploration in previous years. However, that fact, combined with the lack of spending on refineries, suggest that oil majors might just be thinking that Peak Oil is closer rather than farther away.

At the same time, the weakness of the U.S. dollar, due to budget deficits, trade deficits, and other economic slowness, adds to the problem, making oil more expensive for another reason.

So, our pain at the pump has a variety of causes. Serious increases in auto fuel economy will lessen the pain, but even passed by Congress today, will take time to work through the system.

Short of that, there's other steps we can take. Properly inflating tires, avoiding jackrabbit starts and "bundling" trips together are part of the answer, but by no means all.

Remember, crude oil gets used for a lot of other things, as well. Do we really need so much food shrink-wrapped in so much petroleum-based plastic, for example?

Some things are NOT the answer. Like ethanol. It has about 15 percent less energy than gasoline, for one thing. In American mass agriculture, it takes massive amounts of natural gas for fertilizers and pesticides to grow corn, and U.S. natural gas production peaked earlier this decade.

At the same time, new presidential mandates to increase the amount of biofuels, whether ethanol or other substances, in our fuel supply have sparked the latest Big Oil claims that they can't affordto build new refineries, because of the uncertainties the biofuels mandates have caused.

What is part of the answer is public awareness of the issue, public awareness of the complexity of the issue, and public awareness that solutions may not be easy - or painless.

As for the "answer" on the refineries issue, maybe the federal government needs to start a strategic gasoline reserve in addition to its strategic petroleum reserve - including building a refinery or two to make that gasoline.

Contact Steve Snyder at editor@navasotaexaminer.com.