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The Leavenworth Times - Leavenworth, KS
  • Letter: Why gas prices are so high

  • In the second presidential debate the question was asked about the Department of Energy's role in lowering gas prices.
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  • To the editor:
    In the second presidential debate the question was asked about the Department of Energy's role in lowering gas prices. The answers from each candidate centered on their energy policies while failing to mention that DOE does not have control over gasoline prices, with the possible exception of tapping the nation's strategic petroleum reserve in the event of an emergency.
    There's a perfect storm of sorts that could bring relief in the coming months and years.
    China's growth has been decelerating faster than most people had forecast. Petroleum demand in China has slowed from more than 10 percent growth in imports over the first half of the year to about 1 percent currently – and that should have an impact on world prices as a whole.
    We are also seeing an increase in OPEC production, in part to offset the drop-off of production from Iran. There is still a great deal of uncertainty regarding Iranian exports due to sanctions from the U.S. and Europe.
    Iraq has become a bigger supplier to the market and has ramped up production considerably.
    But the conversation nowadays must also include mention of the surging production in Canada and the United States.
    According to the U.S. Energy Information Agency, North American production is growing faster than any supply system in the world. In early October, U.S. crude production hit a 25-year high, growing 750,000 barrels a day over this time last year. Add to that the growth in Canadian crude production – and there's an extra 1.5 million barrels a day on the market.
    So, with China's demand slowing and the Middle East producers ramping up production, why aren't we seeing lower gasoline prices today?
    It's because energy is a global commodity, a global market. North America's frenetic production is tempered by transportation bottlenecks.
    Meanwhile, North Sea oilfields have lost 800,000 barrels of capacity a day, about half of which usually moves to Africa and the U.S. As a result, Europe is importing 600,000 barrels a day more now, with most of that product coming from the U.S. refineries along the Gulf Coast.
    The good news is that the winter market is expected to be better supplied – not just because North Sea production will be brought back into the marketplace on the order of 250,000 to 300,000 barrels a day, but the U.S. production is still increasing.
    But this boom doesn't mean Americans will be consuming the oil flowing from all the new drilling operations in North America. We could actually see an oil glut on the U.S. Gulf Coast in the year ahead, and as a result oil produced by U.S. and Canadian drillers will end up being exported.
    Page 2 of 2 - Because crude oil is a commodity, supply and demand will dictate whence it flows, and where. No American president controls the global oil market.
    What a president can do, however; is direct the Department of Energy to start looking beyond oil. The U.S. needs an alternative energy future that eventually will replace gasoline as the fuel that powers our economic engine. If we don't start planning for the future, we will most likely continue to pay higher costs for gasoline, but we will also abdicate our position in determining what that alternative energy future will look like.

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