High gas prices a boon to consumers!

Yeah, we all bitch about the price of gas these days, but this article, written by Jay Hancock, of The Baltimore Sun, illustrates some of the positive effects of high oil prices. The examples cited show that progress in the petroleum industry, spurred by the promise of high returns from $60/barrel oil, will lead to lower oil and gas prices in the future, along with reduced oil consumption and an increase in alternative fuel use.

Adam Smith might have his hand on the gas pump

Jay Hancock

August 21, 2005
BLOODY SHAME about those high oil and gas prices.

They're causing billions of dollars to be invested in petroleum production, which will increase supply. They're discouraging unnecessary driving, encouraging use of public transit and fuel-efficient cars and cueing industry to cut fuel costs, which will decrease demand.

And they're triggering billions more to be invested in new technologies such as solar power and hybrid engines, which will offer alternatives.

I hate to say it, but if this keeps up we might avoid a 1970s-style energy crisis, with its shortages, gas lines, severe recession and petroleum prices a third higher than they are now, adjusted for inflation. We might even set the stage for a new era of low oil prices, like we had in the 1980s and 1990s, or at least new stability.

Can't Congress do something about $2.60-a-gallon gas?

Check out the damage caused by exorbitant oil prices, as reported by news outlets across the globe.

In Libya, which has some of the biggest untapped crude reserves in the world, lifted sanctions and the prospect of getting $60 or more for a barrel is helping induce Chevron, Marathon and numerous others to open millions of acres for drilling.

Exploration is also creating jobs and expanding supply in Russia, Angola, China, Algeria, Britain, India, Canada, Azerbaijan, Nigeria, Poland, Malaysia, New Zealand and Trinidad and Tobago, reports Oil & Gas Investor.

The profit signal sent by $60 oil is so strong that last month the number of exploratory rigs around the world hit its highest level since 1986, says Baker Hughes, the petro services company.

Where are the energy czars and price controls to stop all this when you need them?

Capital projects are booming in the equipment and "downstream" sectors, too. Companies in South Korea, China, Singapore and the United States are addressing a drilling-rig shortage by building new hardware.

Chevron is expanding its Pascagoula, Miss., refinery by a fourth. Kinder Morgan and Sempra want to spend $3 billion on a pipeline bringing natural gas from the Rockies to the Midwest and East. Texas-based Valero and ConocoPhillips are spending billions to improve their ability to process sour crude, which is cheaper than sweet and will help bring down prices.

Thai Oil is spending $1 billion on new output capacity. Brazil just announced plans to increase processing capacity by 20 percent. China and India have doubled refining capacity in recent years.

In short, high prices have spurred the global petroleum industry to make up for decades of miserable investment and operating with rickety equipment. We're finally investing in the future and ensuring our ability to produce energy for our children.

Darn it. I hate it when that happens.

As rising oil prices make alternatives look attractive, we're also getting the strongest incentives in two decades to reduce our petro addiction and take the next step.

Public transit use seems to be rising. Ridership on the MARC commuter rail system is up 13 percent since 2003 despite ridiculous breakdowns and delays, The Sun reported last week. Public transit ridership also seems to be up mildly in places from Washington to St. Louis to Los Angeles, according to various newspaper reports.

Sales are soaring for "hybrid" vehicles that run on gas and electricity. Toyota doubled production of its Prius hybrid this year. Ford has a hybrid SUV. GM has a hybrid truck and says it could produce a fuel-cell car that runs on hydrogen by 2020.

Florida-based FPL Group is building up to 750 megawatts' worth of wind-powered electricity generation this year - nearly half the capacity of Constellation Energy's Calvert Cliffs nuclear facility. Frederick-based BP Solar, a division of BP PLC, is expanding again after downsizing in 2003, the Frederick News-Post reported a few months ago.

Weirder and wilder stuff is on the way. Venture capitalists, the people who brought you Silicon Valley and the computer revolution, have gotten interested in energy. One of the partners at Baltimore's New Enterprise Associates is a Nobel Prize winner searching the globe for alternative-energy investments.

Gee, that doesn't sound so bad, actually. Maybe higher prices are part of an invisible hand creating economic order, as described by Adam Smith. Maybe $60 oil is beaming signals across the economy that will boost supply, cut demand and eventually lower prices, as described by Friedrich Hayek. Maybe we didn't need the energy bill Congress just passed.

Maybe, in a free market, the solution to $60 oil is - $60 oil.

Pretty easy to see that imposing price caps, subsidizing oil refining, imposing higher pump taxes, and various other government hammers typically used to keep prices down will undermine all of these efforts.