So I just finished watching the cloture vote in the Senate regarding the procedural move to vote to bring a vote regarding the proposal to eliminate oil company subsidies. (Gotta love our government, we vote about the possibility to vote)
In any event, I wanted to give some clarification and perhaps some perspective on why this vote is nothing more than a dog and pony show, setup specifically for an election year.
"End the greedy oil subsidies yeah! Those bastards rake in billions in profits and use OUR tax dollars? Get them, burn em!!! Yeah Yeah!"
Sounds good right? Should help some right?
No, and not really.
Fill up the tank and drive on past the orange border for more
This cycle of pillory the oil companies for gas prices has been going on since the 70's. Before gas it was home heating fuel and before that...well you get the idea. You can almost always assure that one thing will always come up in an election year, and that is fuel prices. It's been that way every election since we've started burning dead dinosaurs.
We have this desire and want to see our elected representatives do something, anything to help alleviate our common day struggle just to go places, heat things, and live which requires fuel to do. The problem though?...They cannot do jack fucking squat most of the time. Lets look at gas prices for an explanation of why.
Gas in the nation is averaging close to 4.15 right now for a gallon. Why is this? Simple answer really. The Free Market....Yes our glorious and wonderful free market screws over the little people, again. Big surprise here but the devil is in the details. How do you ask?
Well a funny thing happened on the way to the gas market. We in the United States passed a cash for clunkers program. This on top of the auto bailout, bolstered a suffering auto market in the nation. Companies like Ford, GM and Chrysler are now actually making profits and look to be on a road to sustainability for some years to come. So essentially we had a TON of new fuel efficient automobiles go out the door and a TON of old fuel guzzling ones get off the road. What effect does this have? It drives demand down.
Some of you are undoubtedly asking your screen "But IdBecrazyIf, you'd have to be crazy silly. My Econ 101 teacher said when demand goes down and supply stays same, prices comes down!"
To which I would agree, but there are extraneous forces at work here.
Enter stage left, Natural Gas.
To refine oil requires electricity. A LOT of electricity. To get this electricity requires a fuel to power all the juice making turbines. For the longest refineries used a varied sort from plugging into the power grid and relying on the central coal fire plants, to even having plants on site to produce the juice. Recently though...a trend has been happening.
Fracking. I know what the hell does fracking have to do with gas prices right? Just follow me through here. Fracking has opened up a plethora of natural gas production. So much so that prices have plummeted. They have plummeted so much that some refineries are specifically building or have built natural gas plants on site at the refinery. This in turn has actually lowered production costs in many of the final products of refining.
I know I know, your inner Econ teacher is wanting to slap me across the face. You would think all this lowering should eventually lower are prices at the pump right? Not with Captain Free Global Market!
Starting some time around December of last year. The US now EXPORTS more gas than it imports domestically. What does this mean for us at the pump? It means we have to compete as consumers with everyone else on the globe. So effectively we are feeling gas at a price that honestly the rest of the world deals with. In fact we're still lucking out because oil is traded on the dollar. And because its traded on the dollar, everyone else has to pay an exchange rate to get that barrel of oil. We get the black shit at premium prices because of our world economic status.
So if you were Exxon or Shell or whoever, and you found that your refining costs had plummeted and gas sold in Brazil netted you X% more in profit, what would YOU do? Exactly. See the lowered production costs have allowed exporting to become profitable again by eliminating that extra cost of transport.
Now lets talk about those Oil Subsidies as the closer. What do they actually consist of?
Domestic Manufacturing Tax Credits - 1.5b
Percentage Depletion Allowance - 1b
Foreign Tax Credits - 800m
Intangible Drilling Cost Credits - 750m
Of the above credits the one most egregious is the Percentage Depletion Allowance. All corporations are allowed to some degree to write down a portion of their capital equipment costs. For the Oil Companies, they get a unique status in that oil in the ground is considered capital equipment for the purposes of depletion calculations.
Of the most sense, is the Domestic Manufacturing Credit, this gives credits to oil companies when they keep refineries and produce both oil and fuels in the United States.
Of all of them, would eliminating any of them really bring prices down? Would they really bring them up? No and no. Not a single one would make any changes to the market situation I described to you above. About the only thing that MIGHT, and I stress MIGHT, change prices at the pump would be to surcharge fuel being exported. Essentially make selling said gas look more attractive here than somewhere else.
In any event, nothing done today would have changed anything at the pump.
Which is why today's clown show in the senate was nothing more than a setup for November.
Fri Mar 30, 2012 at 5:18 AM PT: Wow, spotlight. Thank you!
This diary wasn't meant as a justification for the subsidies, they're overall pretty stupid and need to go. Just a reminder that these subsidies have ZERO impact on prices at the pump and all this was yesterday, was political posturing.
Also bear in mind that many of these subsidies are available to ALL corporations, things like the Domestic Manufacturing, Percentage Depreciation, and Foreign Tax credits.