Tags: gas | prices

No Justification for Gas Prices

Wednesday, 25 Jul 2007 12:25 PM

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Gasoline prices are still over $3 per gallon. Whenever OPEC (Organization of the Petroleum Exporting Countries) decides to increase the price of oil — which now ranges in the upper $60s to $70 a barrel -- OPEC's price becomes the world's price and non-OPEC nations adopt the OPEC price as theirs.

A major factor in determining the profits of oil producers is the cost of drilling wells and pumping oil. Petroleum that is closest to the surface -- such as Mideast oil, particularly Saudi Arabian oil -- is cheapest to extract. Among the highest cost per barrel is the offshore oil extracted from the North Sea by Great Britain and Norway. Yet, all oil-producing nations use the OPEC price.

Surely, if ever there was a case that demonstrates the power of a cartel, it's OPEC. If ever there was a violation of the Sherman Anti-Trust Act, this is it.

But what are we doing about it?

In 1978, an independent group sued OPEC. In 1981 the case was dismissed -- not on the merits -- by a United States Court of Appeals on the grounds that the policies of OPEC members were "acts of state" and thus immune from lawsuits.

The struggle against OPEC goes on. A bill recently passed by the House, 345 to 72, and by the Senate 70-23, despite a letter from the President threatening a veto, authorizes the Department of Justice to sue OPEC nations in U.S. courts. The sponsors of the legislation are Senator Arlen Specter, R-Pa., and Senator Herb Kohl, D-Wis. The votes in both Houses were with veto-proof majorities. The legislation, known as HR 6, is expected to go to conference after the scheduled August recess.

Whether or not a suit will be brought by the Department of Justice, the only party permitted under the legislation to initiate a lawsuit, is already clear. It won't in the Bush administration. The President has made clear he is opposed to such litigation.

Every presidential candidate, Republican or Democrat, should now be asked -- "If you become President, will you direct the Department of Justice to sue OPEC?"

There are those, like Senator Pete Domenici, R-N.M., who oppose the legislation. Senator Domenici said, "OPEC producers could just decide not to sell oil to us any longer. They would suffer the loss of some profits, but our entire economy could come to a grinding halt."

The United States gets 60 percent of its oil from foreign countries, the largest portion, I believe, from non-OPEC countries such as Canada, Mexico and Nigeria. The Domenici argument does not hold up because the OPEC countries will not stop selling to us for several reasons.

First, while the lawsuit is pending, the U.S. will be paying the OPEC cartel price. Those countries have an economy based primarily on the sale of oil, so it is highly unlikely they will refuse to sell to us. Secondly, countries like Saudi Arabia and Kuwait depend on the U.S. to maintain their security and defend them when they are threatened, as we have done in the recent past. If the lawsuit is successful, I have no doubt the assets of the offending nations in the U.S. would be subject to seizure. These assets are enormous and are a bargaining chip for future relationships.

The oil companies selling gasoline in the U.S., many American-owned, are happy with the current situation. OPEC has helped to increase their corporate earnings. Their profits are at record highs, but they must obey any order issued by a federal court.

Experts say another major reason for high gas prices is the lack of refinery capacity. Many U.S. cities and states apparently refuse licenses to build new refineries, or at least refinery companies think it too difficult or expensive to build new refineries and prefer to simply enlarge existing facilities. The U.S. government can override local zoning ordinances and obstacles imposed by cities and should do so in this case. Obviously, that would require a U.S. agency to work with a proposed refinery builder and plan with that builder using some kind of Request For Proposal to design the most up to date, environmentally safe facility. The Congress is considering legislation to deal with this issue.

There is much more that could be done by our government and the private sector. We should immediately create a new "Manhattan Project" -- which is the code name for the massive program that built the atomic bomb in World War II. That successful project cost $2 billion dollars, which in today's dollars today would be $21 billion. The Energy Manhattan Project should explore the use of alternative fuels and more important, a way to make them available at reasonable prices. Alternative fuels, which tend to be expensive, can be suppressed by OPEC and other nations through a process known as "sweating" -- dropping their oil prices for a sufficient length of time to make competitive products unprofitable, and then raising them again. Therefore, long-term contracts with alternative energy suppliers must protect them against manipulated oil prices.

In the classic film "Born Yesterday," a dumb blonde played by Judy Holliday has her eyes opened about the true nature of her boyfriend's crooked business. In a classic moment she suddenly cries out, "It's a cartel!" She then dumps the boyfriend and leads an honest life.

Congress could learn something from this movie. When it comes to the OPEC cartel, both Republicans and Democrats are behaving like dummies. I don't think either party is truly interested in solving this problem. I have no doubt that many legislators are in the pockets of the oil companies. Were they truly interested in protecting the public from OPEC, they would have done something real and effective long ago. Today we have an opportunity to find out if among all those running for president on any party line -- Republican, Democrat or Independent -- there is someone out there willing to take on this vital issue.

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