My Answer to Energy Prices

This is a post of what I've written to my Senators and Representative regarding energy prices and a possible solution. I am NOT in love with the solution, because it's not a totally free market solution. On the other hand, I'm hating $3 per gallon for gas, and I do think there's a glitch in the way the market works that, if corrected, could make a difference. Here's the letter... it's self-explanatory (I hope... I sent it to elected officials and if it's not pretty clear, they just won't understand it!):

Dear Senator,

I have a possible solution both for energy costs and for getting popular support for drilling in ANWR and off of the coast.

The biggest problem with gas prices is obviously the cost of a barrel of oil. Oil, no matter what the source, is priced on the world market at world market prices. Therefore, if a well was drilled right next to a refinery in Texas, the cost of the oil is still figured at $70+ because that's the world price.

My solution, though I don't love it because it is not totally free enterprise and I'm a died in the wool capitalist, is to create a DISTINCT MARKET, at least for oil drilled on public lands. Create a subset market, so there is one market for oil on the world market, and a separate market for domestic oil that will never be sold on the world market. There really is no reason that the cost of the oil from the derrick next to a refinery in Texas should cost the same as oil from Venezuela, except that both are purchased on the same market, as though the Texan could or would sell his oil to China.

The solution works like this: Create a secondary (subset) market for oil produced domestically for domestic consumption on public lands. Allow the oil companies to profit as much from the that oil (as a percentage) as they do from foreign oil. Our price at the pump would be the average of the number of foreign barrels used, and the lower cost number of domestic barrels used. Yes, it's government interference in the free market, but it also reflects reality and still provides a profit incentive for the oil companies. Particularly when the risk to the oil companies is reduced by allowing drilling on PUBLIC lands with known oil reserves where their risk of a dry well is greatly reduced.

I don't think the oil companies are gouging, but the way the market works, there is an unrealistic cost because the market is based on a world price, even when the ACTUAL cost for domestically produced oil does not, in reality, have to have that cost.

If people knew that domestically produced oil for domestic consumption was going to be priced in such a way as to reduce the price at the pump through cost averaging, they'd be FAR more likely to support drilling in ANWR and off of the coast. Especially since the reduction of the cost at the pump could be dramatic, since the cost of the domestic oil (even with the appropriate profit margin for the oil companies) could easily be a third of the world price. If it was 50/50 domestic to foreign, and the domestic price was 1/3 of the foreign oil, the average price would go from, say $70 (and the commensurate price at the pump) to $46. If there is a direct correlation between gas price at the pump and cost of a barrel of oil, that means $3 gas would be $1.97. People would FEEL that!

This seems to me to be a really good idea, and one that would actually make a difference, reflect reality, and still allow for profitability. Plus, it has the advantage of being a very REAL reason for people to get behind new drilling an refineries.

Respectfully,

Pat (name withheld for this post)

So... Good idea or bad idea? Don't like the interference, but, then again, if what is created is a separate market, just domestic, it's still capitalism. It's just fixing a hole in the system, because there truly is no reason for domestic oil that will never be on the world market to be priced as though it is. And, the caveat of oil produced on public lands, as opposed to private land, and in the hands of big oil drilling where they KNOW there is oil, rather than wild-catters that are taking a more entrepreneurial risk, assuages my fears that it's too anti-capitalist.