The Cost of Failed Leadership at the Gas Pump

Posted on October 5, 2012


This Costco gas station in Alhambra is set to reopen by noon on Saturday. It and 14 other Costco stations in Southern California shut their pumps this week as wholesale fuel prices soared. (Bob Chamberlin / Los Angeles Times / October 5, 2012)

A friend emailed me with his impression of this gas price debacle in California and how Obama’s failed leadership echoes the Jimmy Carter presidency.   Because the correlation is a little more involved than that, I decided to develop some talking points to navigate him safely past the new breed of progressive Obama apologists – the so called ‘fact checkers’.

Re the gas prices and closures.   Two contrasting arguments depending on who you are discussing this subject with.  Actually two arguments with a lot of sub-arguments.   Here they are:

1.  Our gasoline situation in California is Obama’s fault.  We’re paying too much for oil because of Obama’s failure to exploit available domestic energy – hence we’re paying too much for gasoline – crude oil being the main material component in the refining of gasoline.

2.  Obama doesn’t own the spike in gas prices in California, nor the shortage.  Obama didn’t cause the fires at the refineries or the consequential shutdown of the refineries leading to supply shortage.

Here’s how I see the problem.  While it is technically true that American produced oil is subject to the market value of oil internationally and that even significant increases of American oil hitting the international market might only have a marginal impact on the price of a barrel of oil, there is another factor – oil is traded as a commodity and as a future.

The fact that we are far from energy independent, leaves us vulnerable  to the speculative ‘shocks’ in the commodities market, when a foreign oil producer could be involved in a military conflict that leads to the shutdown of oil production there.

The Middle East / Arab / Northern Africa situation always looms as a stalking horse in the minds of oil traders.  What if we had available increased capacity to account for the shortfalls elsewhere in the world?  This would temper some of the volatility related to traders buying and selling on worst case scenario expectations.

However, as Mitt Romney pointed out in the debate, we cannot even project greater energy independence, because the federal government prohibits recovery of oil on public lands, due to excessive environmental regulation.

Another solution to the shortage problem is lack of refining capacity.  The government throws so many roadblocks in the way of energy producers that once they calculate the capital investment as versus the expected profits, the numbers just don’t add up.  So, very few new refineries adds up to more opportunities for existing providers to game the system with frequent shutdowns due to accidents, fires or mechanical / safety issues.  Disclaimer, I know of no investigations that have substantiated this,  so my suspicion is merely conjecture.

The producers will argue that it is extremely difficult to upgrade aging refinery systems without shutting down some part of the production chain.  There is probably some validity to that as well.  Bottom line, if a President wanted to expand refining capacity and production, he’d work with Congress to reevaluate the Red tape that could be reasonably and safely foregone in order to promote more production.

Last item.  California’s ‘Summer and Winter’ blends.  Obama could take into consideration, the state of the economy and boost recovery by ordering the EPA to relax the costly process and ingredients in these special formulations.  Maybe tie a moratorium on the formulations to some kind of meaningful economic growth indicator.

California should be and could be a growth engine of a national economic recovery.  It is not, because federal policies are handcuffing business and making economic activity very unprofitable in this state.

Rhetorical question ahead.  Do you think refinery shutdowns and maintenance would ever lead to spikes in gasoline prices in Texas?  Our own Democrat party leadership deficit in Sacramento doesn’t make a solution any more likely.   The Democrats here in California are perfectly happy that you are being hit with $4 to $6 a gallon gas prices.  Their answer is ride a bike or a bus everywhere.

My answer to them is – “you first!”

But Obama can’t pass that buck anywhere else.  He may have only been a participant in the breaking, but as POTUS, he’s responsible for full ownership of the repairs.   With any degree of luck and providence, the bill will be paid on November 6th.