Big oil is not the problem

Apr 082008
Authors: Nick Hemenway

As you drive around town, it is hard not to notice how quickly gas prices have gone up, and it’s only April.

With the peak driving season just around the corner, many have predicted gas prices will break $4 per gallon this summer. Naturally, people get angry, but we should be careful where we focus our frustrations.

Last week, executives from the five largest oil companies in the U.S. were questioned by Congress – specifically addressing their profit margins and investments into the renewable energy field.

As could be expected, members of Congress took the opportunity to accuse the oil companies of attacking consumers through high energy prices. At the center of the tirades was Rep. Edward Markey (D-MA), who called the billions made by oil companies unjustifiable, claiming “it’s time for them to come to explain to the Congress, but more importantly to the American people, what they plan on doing on alleviating this enormous attack upon consumers and upon the American economy, which oil prices represent.”

Politicians attack oil companies because they are an easy target to prop up in front of the angst felt by most Americans. However, oil companies have less control over prices than you would think.

The majority of the cost of gas comes directly from the crude oil prices. Controlled by the Organization of the Petroleum Exporting Countries, an international cartel of twelve countries meant to control global oil production, the price of oil is largely out of our hands. The U.S. Department of Energy reports this price to make up 53 percent of the total cost of gasoline.

After additional refining costs and taxes each take an additional 19 percent, the evil oil companies only get about 9 percent of the total cost to transport, market and distribute the end product – a reasonable margin for any company. Since the United States is the third largest producer of crude oil in the world, it can be expected that these profits will be measured in billions of dollars.

Many people then suggest oil companies simply reduce their profit margins. Unfortunately, businesses need to make a profit in order to survive. They must balance their competitive edge with the need to satisfy their shareholders.

Markey went on to grill Exxon over their small investments into renewable energy sources relative to other companies. The last time I checked, in the free market, businesses have the right to pursue or not pursue any new developments in their industry. Congress can’t dictate how aggressively these companies research alternative fuels.

The reality that we have to accept is that our economy depends on oil. The current environmentalist movement would have you think oil is this evil substance that is responsible for the death of Bambi’s mother and that only people who hate the environment even utter the word oil.

While we always need to be looking for the next great technological breakthrough, we have to put aside these fantasies and deal with what is in front of us. Even if a plentiful energy source better than oil was discovered tomorrow, our economy would still be dependent on oil for at least ten years, if not much longer.

With this in mind, the only sure-fire way to lower energy costs is to focus on what we can control.

We have to stop listening to the lies about places such as the Arctic National Wildlife Refuge in Alaska and allow drilling in these massive oil deposits. In doing so, OPEC would lose their monopoly on oil prices, and they would have to compete with our domestic supply.

Instead of trying to pin the blame of high energy prices on business executives, Congress should do their job and serve our nation by working with oil companies, and not against them.

Nick Hemenway is a senior mechanical engineering major. His column appears Wednesdays in the Collegian. Letters and feedback can be sent to

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