What we can do about energy prices

Photo of David Holt
David Holt
President, Consumer Energy Alliance
  • See All Articles
  • Subscribe to RSS
  • Bio

      David Holt

      David Holt is president of the non-profit organization, Consumer Energy Alliance. Consumer Energy Alliance was formed to help support the thoughtful utilization of all domestic energy resources to improve domestic energy security and reduce consumer prices. The mission of Consumer Energy Alliance is to improve consumer understanding of our nation's energy security, including the need to reduce reliance on imported oil and natural gas, maintain reasonable energy prices for consumers, and continue efforts to diversify our energy resources.

      As part of its efforts to build dialogue between consumers and the energy sector, Consumer Energy Alliance played a key role in the recent Mineral Management Service’s (MMS) Five Year Plan for the Outer Continental Shelf. Working with an expansive coalition of energy and consumer groups, CEA helped deliver tens of thousands of public comments in support of thoughtful offshore oil & gas development – including the areas offshore Alaska and Virginia.

      Consumer Energy Alliance now has more than 115 consumer and energy groups as part of its Alliance. Through its various activities, CEA works to continue to expand dialogue and develop joint messaging among the energy and consuming sectors.

What a difference a few months can make. In January, gasoline hit $3.37 per gallon on average nationwide — its highest-ever price in that month. Fast-forward to March and the average is $3.86 per gallon, an increase of 49 cents over two months. A 25-cent increase in the price of gasoline translates to a $35 billion price tag for the broader economy. It’s important to note this figure only accounts for direct costs and doesn’t take into account increased costs facing U.S. businesses and consumers due to higher prices for transportation and other goods. It’s clear that when gas prices rise, consumers cut back in other areas and the whole economy suffers.

For example, a one-cent increase in the average price of diesel fuel costs the trucking industry an additional $370 million. Every dollar per barrel increase in the cost of oil raises the airline industry’s fuel bill by $420 million. In the agricultural sector, last year farmers paid almost 85 percent more than they paid in 2000. To put this into perspective, the average tractor holds 270 gallons of fuel. At today’s prices, one fill-up costs the American farmer almost $1,000.

Yet while the problem is clear, the blame and solution are much less so. Liberals, seemingly in a race to insulate the president from blame, are eager to throw their hands in the air claiming we are helpless and are at the whims of speculators and other nations. At the same time, Republicans are rallying behind the idea that we can solve the problem by increasing drilling. The truth is somewhere in the middle.

A recent Associated Press review stated that no matter how much oil we produce, none of it will affect gasoline prices. This idea has been echoed by the president during his energy tour this week. However, the review contained many flaws, not the least of which was that it focused on the past, specifically when the United States was facing declining oil reserves with no relief on the horizon (thanks, in part, to the perpetual obstruction of most of America’s offshore resources and oil shale in the American West).

Today, however, we are facing a much different set of circumstances. New technologies have allowed us to gain access to resources that could fundamentally reshape the world oil market. For example, according to a recent report by the Institute for Energy Research (which cites data from the Energy Information Administration, the U.S. Geological Survey and the Department of Energy), the United States holds more than 1.4 trillion barrels of technically recoverable oil (more than five times the amount of oil in Saudi Arabia) and 2.7 quadrillion cubic feet of recoverable natural gas. Additional studies show that the expansion of certain energy-extraction technologies, including hydraulic fracturing, has made it possible for North America to achieve self-sufficiency by 2030. Removing the world’s largest consumer of oil as a major purchaser from the global marketplace would, without a doubt, significantly affect global markets, and by extension prices at the pump.

In the short term, the president can and should do more. Speculators have a hard time speculating if the actions policymakers are pursuing don’t match their narrative. This is a fact noted by Larry Kudlow and other well-known economists.