| DeFazio Open Letter on Oil Prices | | Print | |
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Open letter to the citizens of the 4th Congressional District: Dear Friends: In 2001, the Cheney energy task force drafted a secret industry wish list. The price of a gallon of gas was $1.02. In 2005 the President signed the Republican energy bill. The price of a gallon of gas was $1.83. In 2006, the President declared that our nation was addicted to oil. The price of a gallon of gas was $2.12. The president promised price relief, but instead today we are facing $4/gallon. The long-term solution is to get past the President’s veto pen and pass legislation to lead the United States away from its addiction to oil. The House has passed legislation to foster a new energy independence by expediting the deployment of renewable energy technologies and setting strong energy efficiency targets. This is the responsible future for America, one where we undo the damaging impacts of climate change, polluted air, and dependence on finite energy resources. It will take years to become more energy efficient and independent. In the interim, consumers don’t need to be price gouged by the oil and gas industry. The price of oil has skyrocketed and American consumers are demanding solutions. And there are two effective solutions that could be enacted today:
Speculation is a legal and necessary part of any commodity market, but price manipulation is unfair, illegal, and harmful to our economy. Here’s what Wall Street analysts said to the Energy and Commerce Committee earlier this week. “Prices would probably drop over a reasonably short period of time back to somewhere closer to the marginal production cost of oil, to $65 to $70 . . . and I think gas prices would reflect that in a relatively short order," [Mike Masters, a hedge-fund manager]Fadel Gheit, managing director and senior oil analyst at Oppenheimer & Co., said prices could come down to a range of $45 to $60 a barrel.“I think the amount of speculation is really substantial, [and] I don't think it would take 30 days after the President signed the bill, it would happen more quickly than that . . . as soon as Congress passed it, commodity funds would withdraw their positions." [Edward Krapels, a special adviser at the consultancy Energy Security Analysis Inc.]The deregulation of the commodities markets earlier this decade has also led to manipulation of other commodity prices. For example, the price of copper and other metals have exploded since the passage of the Enron loophole. There are no supply and demand constraints in the metals markets, but the prices have skyrocketed with no explanation left but manipulation.
The only immediate solution is to reign in market manipulation of commodities. If Congress were to simply close the Enron loophole and reregulate the commodity markets, credible industry experts say that American consumers would see oil prices cut by up to 50% in 30 days. The House took the first step by passing H.R. 6377, Energy Markets Emergency Act, which will direct the Commodity Futures Trade Commission (CFTC) to use its full authority and most potent emergency tools to curtail excessive speculation and other practices distorting the energy market. And I will continue to push for more comprehensive legislation to override the anti-regulatory Bush Administration to remedy price manipulation and $4/gallon gasoline. The Bush Administration and big oil are perpetuating a great myth on the American public; that drilling restrictions are blocking supply. Many oil executives claim the abrupt run up in oil prices is solely a fundamental supply and demand problem, but the evidence suggests that is an exaggerated claim. Oil demand has begun to shrink in the United States, China and other nations have eased subsidies on gasoline and diesel, and Saudi Arabia has increased production. Demand is dropping, supply is up, but the price of oil has inexplicably gone up. The oil industry executives who deny price manipulation exists suggest there is a supply and demand problem. The industry’s own actions prove that theory wrong. Combined, oil and gas companies hold leases to nearly 68 million acres of federal land and waters that are not currently producing oil and gas. Oil and gas companies would not buy leases to this land without believing oil and gas can be produced there, yet these same companies are not producing oil or gas from these areas already under their control. In fact, according to the Department of the Interior, of all the oil and gas believed to exist on the Outer Continental Shelf, 82% of the natural gas and 79% of the oil is located in areas that are currently open for leasing. The federal government has encouraged oil and gas development and the amount of drilling on federal lands has steadily increased. The number of drilling permits has exploded in recent years, going from 3,802 five years ago to 7,561 in 2007. Between 1999 and 2007, the number of drilling permits issued for development of public lands increased by more than 361%. The bottom line is that oil and gas companies have greater access to federal lands and thousands of new drilling permits, yet gasoline prices continue to rise dramatically. This contradicts the argument that more drilling means lower gasoline prices. There is simply no correlation.I am a cosponsor of H.R. 6251, the Use it or Lose it Act, which ensures that the oil industry uses the leases they already have or risk losing the right to bid on future leases. That’s just common sense. The oil industry claims that it takes time to develop fields and that there is a lack of oil drilling equipment to develop these fields. Would opening new leases resolve those constraints or just make them worse? It is clear that new leasing is not the answer.
The single biggest pool of oil in the United States is not under the Arctic National Wildlife Refuge (ANWR), but rather next door in the National Petroleum Reserve-Alaska (NPRA). It is important to keep in mind that 91 million acres in Alaska are already open to drilling. It is only a small part of Alaska's pristine Arctic tundra, on the North Slope, that has been set aside as a wildlife refuge. Studies done by the Bureau of Land Management and the General Accounting Office separately concluded that there is "a greater than 50 percent chance that no economically recoverable quantities of oil would be found in the refuge." The Department of Energy estimates that opening ANWR would reduce the price of a barrel of oil by 75 cents in 2026, or 2 cents at the gasoline pump 18 years from now. That is neither significant nor prompt relief. Just to the west of ANWR sits the NPRA with at least 10 billion barrels of recoverable oil. In 1996, the Republican led congress opened it up for exploration and the Clinton administration promptly leased three million acres of this 22.6 million acre reserve. Despite the rapid increase in oil prices, the industry has only managed to drill 25 exploratory wells in the reserve. Nor have they begun to build a link to the nearby Prudhoe Bay pipeline. It is revealing that a reserve that is open for business with an estimated 10.6 billion barrels of oil in it has been largely ignored by the industry. Maybe the oil industry doesn’t really want to drill, increase supply and lower prices and profits? The industry needs to order additional rigs and develop the leases they already hold. In summary, the fastest way to bring price relief is to reign in market manipulation of oil, which experts believe would cut oil prices by up to 50% in 30 days. We must then begin a transition to a sustainable energy future by breaking our dependence on OPEC. That can be accomplished by demanding the industry drill their current leases. In the long term, the United States has to fully implement renewables, conservation and clean fuels.
Sincerely Peter A. DeFazio Member of Congress
Click here to see Congressman DeFazio speak about this on the floor of the House.
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