Friday, November 25, 2005

The High Price of Gasoline

One of the big questions these days is, “Why are gasoline prices so high?” The easy answer is that Big Oil is raping the little guy, making huge profits at the expense of the poor and those on fixed incomes. Big Oil, the theory goes, raises prices during disasters, thereby making “obscenely” high profits while much of the rest of the nation suffers.

That is the easy answer, but it is the wrong answer.

The U.S. oil industry is getting blasted by Members of Congress at the same time that Congress is preventing oil companies from new drilling and building new refineries.

Big Oil catches grief over its millions of dollars in profits in the most recent quarter of 2005 while the Tax Foundation reports that the industry paid $2.2 TRILLION in taxes over the last 25 years. The taxes paid to the U.S. government are THREE TIMES as much as industry profits during those same 25 years.

Conoco Philips reported third-quarter profits of about $3.8 billion. That’s a lot of money, isn’t it? That comes out to a profit margin of 7.7 percent on sales. ExxonMobile makes even more. For every dollar of sales Exxon gets nearly nine cents in profits.


But wait. McDonalds made 13.8 percent and Coca-Cola made 21.2 percent in the last quarter, and Google made 24.2 percent. Merck, Bank of America, Microsoft and the Citigroup all made much, much more than that. And here’s the one that ought to make you think: Two of the nation's largest newspaper chains grumble when they don't make over 15 percent on sales.

In fact, the oil and natural gas industries are less profitable than banks, pharmaceuticals, software companies, the telecommunications industry and many more.

The main cause of high prices and our domestic energy shortage is that for decades liberals in Congress and the environmentalists push tax increases on fossil fuels and oppose nearly every effort to increase domestic supplies of oil and gas. Believe it; it is the truth.

Former Indiana Rep. Roger Zion (1967-75), honorary chairman of 60 Plus and early '70s chairman of the House Republican Task Force on Energy, recently made the following points:
  • Nevermind the huge strides made in clean coal technology, we get stifling opposition.
  • Nevermind the extraordinary safety record of nuclear power plants, we get regulation.
  • Nevermind conservation efforts while drilling for more capacity offshore in the East, West and Southeast Coasts, we get blocked access.
  • Nevermind conservation efforts and the advance of proven environmentally sound techniques to open more drilling in public lands, we get demagoguery.
  • Nevermind the massive contribution to energy independence that may be had by opening up the ANWR, we get denied access.
  • Congress claims it's doing everything it can to alleviate high energy costs and eliminate shortages. Don’t you believe it. Congressional cowardice and environmentalist whacko-ism have resulted in the following:
  • No new refineries have been built in 29 years
  • No new nuclear power plants have been built in the last 32 years (France has built 58 that now generate 80 percent of the country's electricity)
  • A host of new regulations and blocked permits have held back development of new coal mines that produce clean coal and could provide much of America's electricity needs.
You don’t have to love Big Oil to find that the real culprit in the high gasoline price issue is not Big Oil. All you have to do is to look at the facts.


Anonymous said...

First, comparing profit margins to companies like McDonalds and newspapers doesn't really jive- oil/gasoline is a necessary commodity. People really have little choice but to buy it.

Second, I don't have a problem with the oil industry's profits. But I'm wondering why we keep giving them tax breaks.

It's hard for me to feel sorry for the road-warriors, the people who bought SUVs that never leave the pavement. I don't have a car- I use public transit and ride my bike. But then, I live in the city.
However, once I do buy a car, I'm getting a diesel. That way I can make my own fuel for under $0.50/gallon

James Shott said...

Welcome back, pupp.

Every company needs to make a profit to stay in business. Less than 10 percent isn't an especially high margin, as the data I used show. Whether you produce a necessary or a desirable product shouldn't be relevant to how much of a profit you make. Higher profits attract investors, and that is crucial for a business to thrive.

Reread the part about how much in taxes the oil companies have paid over the last 25 years, compared to how much they've profited. When you pay three times as much in taxes as you keep, that doesn't indicate much tax preference, to me.