Price Of Gas: How Production And Subsidies Help And Hurt At The Pump

In the past few weeks and months the price of a gallon has been on a steady rise at the pump, with many of the experts on the subject saying that they didn't see an end in sight...at least until the $5.00 p/gal mark has been reached. Well the past couple of days has seen a few changes in the present administration's policy on recovery of the precious commodity, crude oil. There are also changes being asked for by the administration that will change the way the oil companies get paid, a change that the oil company advocates are resisting. And, if you read my last politically oriented Hub, you may start to see a pattern in these objections. After looking over both of the proposals, it is my opinion that both will be not only good for our economic recovery, but for the American people as a whole.

The Administration has finally given in to the assertion that the restrictions on the oil companies are inhibiting the development of new resources and our ultimate independence on foreign oil. In the Presidential Address on Saturday, Obama indicated that they were starting to have a change of heart on a few of the issues. In his speech he said that he would make previously restricted, federally protected areas open to development...on the condition that no real long term damage is done. This proposal would open millions of acres of potential oil fields to the companies that would recover the oil.

The bill proposed would expand and accelerate the development of Alaskan interests, it would also expand drilling off the Atlantic coast. In the weekly address, he said that the government would start annual lease auctions for leases on the 25 million acre Northern Slope. A move that the industry has been begging for for many years. They have provided in the proposal that an impact survey would be accelerated to speed the opening of potential areas offshore in the Atlantic. There are various other incentives and perks that come in the proposal to incite a brand new "Black Gold" rush.

Now the bad news...at least for the big oil companies. Also in the address the President talked about the various tax breaks and subsidies that the oil companies are getting every year. He said, "In the last few months, the biggest oil companies made about $4 billion in profits each week. And yet, they get $4 billion in taxpayer subsidies each year. Four billion dollars at a time when Americans can barely fill up their tanks. Four billion dollars at a time when we’re trying to reduce our deficit.”The proposal also will cut off, or at the least reduce significantly, the subsidies that the oil companies are getting.

When the government subsidizes something like the oil drilling companies it is generally to make up for losses that the company suffers due to some kind of decision that the government made. The subsidy the President spoke of is to help to keep the cost of gasoline and heating fuels down and corporate losses at a minimum. At least, that was my understanding of the big oil company a subsidies. Hmmm, guess that's what I get for thinking.

Dictionary.com defines subsidy as: "A sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive." With the nation average of a single gallon of this precious commodity at over $3.96 at the time of this writing...for regular unleaded, I think the value of the subsidy had kinda gone out the window. If you look at the sheer amount of money the companies throw at lobbying efforts, the taxpayer pays the companies to fight harder in their own self interests. As would be expected, the oil companies love and hate the proposal almost equally.

The "Drill-Here-Drill-Now" stand that the Republican party has taken in the past would almost seem to apply in this case...almost . I mean, I don't believe that all of the areas that are being federally protected, as wildlife and other types of sanctuaries are, will be up for auction. But, you can be sure that the offered leases are quite attractive to the drillers, and much profit and economic recovery could be made with these simple moves. In spite of the limitations that will still remain.

In spite of the good that is obvious here, there are many legislators that will go against the, or at the least, against the reducing/eliminating of the subsidies. Remember what I was talking about in the article "U.S.of A" about favors being owed for campaign contributions, this comes into play here in a very large proportion. You see, the companies want their cake and eat it too...then get everyone else to buy them some more! How the votes will actually go when it comes down to it is anybody's guess.

When looked at these proposals would start almost immediately creating jobs in areas that are sorely in need of them, and would promote economic growth for the areas concerned almost immediately, and this effect wouldn't be short term. The increased exploration would also decrease our dependance on foreign sources.

The subsidies were started in order to drive down the cost of gasoline, heating fuels, and other fossil fuels. And, if the national average price is any indication a person has to wonder about the price if the subsidies were removed. Keep in mind when considering this though, 4 billion in profits last quarter. Their top 5 lobby spenders spent a combined $63 million in lobbying, for their causes ...not the public's.

Since it doesn't appear that the subsidies are driving down the prices at the pump, and other places, the subsidies would seem to fit a little better more in the area of developing new renewable sources, or furthering the technology that we already have. In the long run the oil companies stand to make more in every aspect if they take the loss of the subsidies and make up the losses in the renewed American interest.