It's hard to watch the news, open the newspaper, or browse any blog these days without coming across something related to the price of oil and how high it has gotten. As Americans, the truly gluttonous consumers that we are, our knee-jerk reactions to high oil and gas prices range anywhere from glum assumptions of further price increases to outright panic to genuine outrage.
Our eyes popped out of our heads at $2 gasoline, then $2.50, then $3, then $3.50...and now the swiftly increasing price of crude oil has us shaking our heads yet again, wondering how high and how far the price of oil can really go. Instinctively, we regard the high price of oil as a bad thing. But it isn't.
Democrats, liberals, and progressives everywhere should be cheering the price of oil. We should be urging it onward, upward! Instead, we're worried. Now is the time for sacrifice, friends - an explanation after the fold.
In the interest of full disclosure, I work for an oil and gas exploration and production company in Oklahoma. We are a tiny, family-owned outfit that produces 50 bopd. Mom and Pop Oil, if you will.
Graph: The Price of Oil: 1994-2007
There has been a lot of talk about energy independence, energy security, and alternative energy floating around Washington and across the country. It's all very good and well, but there's not a lot happening to pry the hydrocarbon monkey off of our backs. There are many reasons for this, but the prime reason is that it just doesn't make economic sense.
Sure, wind, solar, cellulosic ethanol, biodiesel, and geothermal are great sources of energy, but look at the economics. They don't add up. The hydrocarbon is still king when it comes to dollars and cents. The only way to affect change on the energy production and consumption of this country is to make it worth it to go green. Government subsidies and tax code revisions are much less effective than the natural market.
So I say: Let the price of oil rise. Let consumers feel the pinch. Let Average Joe American do the math in his head of driving a 15 mpg vehicle 10 miles at $5/gallon. That's more than 3 bucks to go to the store. It will make people stop and think before getting behind the wheel. Simple economics will force consolidation of errands and tasks involving driving.
As the price of gasoline rises and more Americans become unwilling to drive so much, the market for alternative energy will truly jump forward. Progress in leaps and bounds will ensue as great incentives will exist for those that commercialize alternative energies and fuels.
Democrats are untrusting of large corporations, and rightfully so. History has shown us that corporate power must not be left unchecked. It is natural and understandable for Americans to feel anger and frustration at integrated oil companies for their profits, but there is a point in the pricing of oil that actually benefits us, the citizens, more than the oil companies.
Here's the deal: Oil companies don't want the price of oil to be this high. They don't want to see oil above $70, much less approaching $100. Intuitively we think that oil companies must be rejoicing and rolling in cash, but that isn't the case. They're nervous because the market will eventually correct itself. How will it do so? Demand will lessen, at first because of consumer conservation. But then, something funny will happen. Large-scale alternative energy will become economically competitive, and it will be inherently cleaner, a natural choice for consumers. If oil stays relatively cheap, there will be little incentive for consumers to change, and we all know that apathy is nearly as strong a sentiment in this country as greed is. Oil companies would rather have 50 years of consumers paying for $60/bbl oil than ten years of consumers paying $120/bbl.
Once this happens, the price of oil will drop considerably in an effort to retain customers. OPEC will try to curtail production to dry up supply. But it will be too late, and the days of oil will start to end. India and China will become the primary markets for hydrocarbon, but it is likely that once cost-effective alternative energy is acheived, it will be mandated throughout the world.
This is not the chicken and the egg. In order for cost-effective alternative energy to be developed, the price of oil must rise to historical levels. Only then will America's innovative might be brought to bear. We can't rely on our government to do this very well - after all, our current administration has brought us the ethanol boondoggle, which could still turn up positive results in the long-run, though it's unlikely to be anything of a large-scale solution.
Trust the market. Be prepared to pay higher prices and to sacrifice so that we may move through this rough time in the history of energy to emerge hydrocarbon-free. It's not going to be easy, and it's going to cost some money.
Resist the urge to "punish" the oil companies. They are only doing what our market allows them to as best as they can. Convince them that they can make more money in alternative energy, and they will do so.
In the end, do not fear the reaper. With his high oil and gas prices, it is the hydrocarbon companies for which he comes, not the American people.