Open Oil Letter

Letter from Congress here.

You know, it was just seven years ago that I was finishing at Emory, preparing to enter the job market, preparing to start driving to work everyday from Douglasville, and the gas price for regular unleaded at the QT on Briarcliff and Clifton was at $0.739 per gallon. It was low at the time, but still stuck around a dollar per gallon.

In seven years we have now seen that price QUADRUPLE from April 1999. In April 2006, that same station is now charging $2.899/gallon, for an increase of 293%. Annualized, that is about a 40% increase per year for seven years. (Go ahead and check; I'll wait.)

A large portion of this increase has occurred in the last two years. In April 2004, this same station was around $1.49/gallon (I don't remember the exact number as clearly as 1999). This is a 100% increase from the 1999 level. However, we have seen almost another 100% increase from this point within the last two years, with a sharp jump coming after January 2005.

Now.....

Over the last ten years, we have see merger after merger within energy services, leading to only a few huge players in the field (ExxonMobil; ChevronTexaco; BP-Amoco; ConocoPhilips being the largest players).

With these mergers becoming finalized after years of local, state, federal, and international approvals and internal consolidations, we are now seeing these 800-pound gorillas learn just how much of a hammerlock they have. They control almost HALF of this country's fuel stations and, as such, have a disproportionate effect on the market through its wielding of power as oligopolies (or to put it in a meaner tone, cartels) tend to do.

Let's add on having to deal with foreign issues as well, considering how dependent this country is on foreign oil. Between terrorist attacks from Middle East nations, despotic states i.e. Iran sponsoring terror, internal strife in Nigeria, and would-be dictators elsewhere (yes, that means you Venezuela), that is another unhappy element squashing supply.

Next, let's add weather and climactic phenomena to the mix. Pollution from drilling, pollution from development, warmer climes worldwide, with an occasional weather tragedy to knock production offline (and Katrina wasn't even the worst-case scenario for knocking production offline!)

And finally, a pinch of diminishing supply. Oil is NOT an infinite resource, and in recent years it becomes harder and harder to find. I will grant that this leads to higher costs in discovering and processing to the pump, but with an economy of scale that these behemoths have, it doesn't add too much onto the consumer cost. It has a lot more to do with diminishing supply. And from economics class, we all know what happens with a diminishing supply curve.

I'm not adding in any sort of Peak Oil theory here, because that has floated around for 60 years. It will happen at some point that we will have consumed more than half the world's oil, but no one knows when or if, so it's not a truly measurable item at this time.

So, that's how we can get quite easily to a quadrupling of prices in four years. With nothing to really stop the tide at this point. Our energy policies to this date have been all talk but no action - it still focuses on oil, oil, oil, but not a lot of alternative solutions.

But is there a realistic, cost-effective solution, that could work? Ethanol and other alternative-fuel vehicles are starting to gain in popularity, but are still too cost-prohibitive to be realistic, widespread solutions. Of course, if a gallon of gas goes over $4.50, they may not be bad options. However, I don't think anyone wants that, except for oil executives wanting retirement packages worth $144,000 per day.

Purely electric vehicles? Perhaps in a few years, but again there is a cost prohibition, and as of now most fully electric vehicles don't have the power needed to go as fast or as long as people want - having to re-charge every 80-100 miles is not really a great option to filling up at the tank every 350 miles.

More drilling and refining? All well and good for assisting in domestic supply, but we still have the same environmental risks, it runs out sooner than later, and we are still beholden to foreign interests and foreign incidents. A short-term solution at best for prices, but could create more long-term problems environmentally.

I would hope that, within five to ten years, there may be more realistic alternatives to the millions of internal combustion engines that roar each day. Perhaps with further technological evolution, they may be possible to create, and could be cost-effective. I'm just hoping that happens before we see the price of oil hit $100 a barrel.

Of course, if you're a shareholder or investor in any of these energy companies, you are loving how much your stock has gone up and how much more it will probably go up based on company earnings. I'm not talking about whether one should buy stock in them or not because that would be a completely different piece.

At least capital gains from holding the stock can pay for the extra amount you need to pay to fill up your car at one of their service stations.