There They Go Again – Gas Prices Spike … Just Because They Can.

America will become the largest producer of energy in the world by 2020. We are already on our way to achieving our goal. Some energy solutions will cost more but be more efficient. Some will cost less and provide useful benefits. Some solutions will look the same as today’s solutions while others have not been invented yet. We will accelerate Moore’s Law and experience leaps of innovation every year. Businesses and consumers will have a chance to choose the energy solutions that are most effective for them and some costs will ultimately fall.

The Undertakers, deniers, and those industries that fear competition will put up roadblocks to stop Americas progress to our all-of-the-above energy sustainability goal. They will spend billions advertising how they are the ones actually solving the problems for you. They have the newest technology to do the same things they have done for decades better. Trust them, they care and they are on the case. You’ll note they never use the words : “competitive energy options and at a lower price to consumers”. Funny, I thought this is exactly what America was looking to these titans of energy to deliver as well?

Do you know why I believe we will achieve a 2020 energy sustainability goal more passionately today than even last week? Because “there they went again” this week in California – raising gas prices at the pump to new crazy levels for a new mythical reason.

Another Big Foot Riding A Unicorn! (BRAU!) moment for all California consumers and businesses.

4 weeks ago a fire occurred at a Chevron refinery in Northern California. Within 3 days, retail gas prices in California increased by 30 cents at every-single gas station in California. How can a business person or a consumer plan for this kind of financial surge just because the gas industry is so inefficient and their production level so strained that one fire at one plant can increase the cost of doing business in California by $100 million in a week? How is it possible that there is no refining capacity to handle production issues at one plant without putting the entire system at such risk. How can prices shoot up immediately at retailers that did not even experience the fire or loss of production? Talk about a massive transfer of wealth.

How stupid can our state (we-the-people) be to rely on one form of energy and one distribution system to power gigantic sections of our economy like vehicles? How careless can we be to allow a market blip to impact every person in the state. Why do I feel like such a sucker? Fires happen and people have insurance to cover losses. Why am I paying for their fire as a consumer at the pump yet when the insurance claims pay off, receiving no rebate? Well the answer is even more simple, I ( we) never bothered to buy any insurance to mitigate this risk. What to do now?

I have an update. The Chevron fire was put out in one week, refining capacity was restored 2 weeks after that and we are back on track. Except for this little tidbit: the increased price at the pump DID NOT FALL and noone did a damn thing about it. As I said, I’m a free-market guy so perhaps the only thing that could be done is for consumers to express their dissatisfaction with the business-killing effects of outrageous and seemingly discretionary price escalation during tough economic times. The problem is there are simply no available options to express your disapproval. Yes, the Chevy Volt, Nissan Leaf, Prius, and Tesla ModelS owners are laughing their asses off but for the 99.9% of the public the traffic patterns are not allowing them to bike-to-work and their pocket books are not allowing them to park to gas powered auto and buy a new alternative vehicle at this time. What they really want is for the oil and gas industry to become more efficient and effective so they can smooth price spikes and produce a product that is more cost-effective. People pay more for items that are more efficient, innovative and better than others. No one thinks it is a good capitalist model to pay more for the exact same thing just because their options are so limited.

Well guess what? I have another update.
This week an Exxon-Mobil refinery in Los Angeles had a power problem, and 2 refineries in Northern California shut down for routine maintenance. The impact to consumers and businesses in California in a 7 day period? Gas prices shot up 50 cents per gallon in one week! This is an unprecedented increase of over 15.5% in 4 days on top of the 4.5% increase last month -a combined 20% increase in less than 5 weeks. Just how inefficient is this industry when coming off of a fire at a Chevron plant that increased prices at every other gas outlet in the entire state by over 30 cents, they have no capacity to absorb a power problem at one Exxon refinery in LA without adding another 50 cents to every-single driver in a state with 33 million people? This is bad for every business and consumer in the entire California economy and it has to stop!

Why is this happening and why is it happening now?
Just to be clear:
1. Switching to summer or winter fuels is something that is a given and already factored into price fluctuations.
2. Normal maintenance and repair is also factored into the pricing and smoothed over a fiscal year.
3. Wage growth for the industry is consistent in 2012 and is not spiking or driving up costs.
4. The price of the oil leases has not changed in years so they are not driving up producer costs either.
5. The percentage of taxes built into each gallon of gas has not changed in over 5 years in the state.
6. No new war has been declared.
7. The regulation imposed on the California oil and gas industry for refining has been unchanged for the last 4 years.
8. The Prime Minister of Israel admitted his red-line that might be the driver for a strike on Iran will not be crossed until the new year so even that threat to oil supplies can’t be a reason for the rise in prices this month.
9. The Strait of Hormuz is open for business and Egypt has its lanes open as well.
10.There is also supply in the system and the access to that supply is not adding 20% to the refining cost over a 5 week period.

So ask yourself if you can find a valid reason for gas prices to rise by 80 cents per gallon over any 5 week period?

Folks, we need to open our eyes and realize just how stupid we are acting when we pretend there are any legitimate excuses for continuing to finance an industry that is less efficient than the very government we constantly complain about. When we fought two wars, did your taxes go up? No. Did this mean the government had so much excess capacity that the country just absorbed the extra unexpected cost increase? Apparently, if debt is capacity and the people are going to eventually pay it back, then I guess the answer is yes. Is this a good model? Hell, it’s the one we seem to have but here is the point: under most circumstance, when an unexpected need arises that requires additional funding, the solution is a temporary infusion of cash , a tax, a loan, more debt or to cut somewhere else to compensate. However, the selected solution then “expires” once the funding need abates. This just does not seem to happen when it deals with the pump.

Unfortunately, when it comes to prices at the pump and the oil and gas industry, temporary emergencies result in INSTANTANEOUS increased cash infusion by consumers and businesses YET they simply never seem to abate back to the pre-emergency level. It is for this specific reason that I throw the flag on the industry.

“15 yards and loss-of-down against the industry for a personal foul – roughing the consumer and intentional grounding of the facts”.

Let me give you an example of how efficient and adaptable Southern Californians can be and how they may inform the oil and gas industry. Last weekend the busiest stretch of freeway in the United States was closed to a major construction project. More people use this stretch of road than any other stretch. Literally, everyone in Los Angeles was told to either stay home and have a block party with your friends or find a alternative route because no cars could use this road for an entire weekend. Do you know what happened? People dealt with it.

No business raised their prices for that weekend. New tolls or taxes increased nor did they appear on the alternate traffic routes throughout the Los Angeles region. No other city in the state saw any negative financial impact due to closing the largest freeway in the state. The city, county, or state did not raise taxes because fewer people bought gas that weekend. As you know, there are aporox. 65 cents per gallon in taxes that pay for roads, transit and other things in the state – if no one drove that weekend, surely there was less gas sold and fewer taxes collected. California sucked it up.

We have so few options in California that do not consist of one person in one car trying to conduct commerce. Most people felt the oil and gas industry should respond to disruptions in their systems as well without always smacking the consumer across the financial brow. These are multi-billion dollar industries with the best and brightest minds on their staffs and making up their boardrooms. Where are their contingencies and capacity building plans. It is a juvenile response for the reflex to always be: “never let a good crisis go to waste when we can charge as much as the market will bear. After-all, the average consumer has no choice but to fork over the cash anyway”.

Yes, the entire industry can do whatever they want in a free-market but do you really accept the gas industry is really playing in a free-market? After-all, most of the raw oil is extracted from public-land in the first place under very favorable leases. The price paid to the public ( we-the-people of the State of CA through these leases) is fixed and does not increase when the prices at the pump increase. In other words the normal big cost drivers in business seem to have just are not evident and do not seem significant enough to justify a 20% increase to consumer prices.

One last point. While it is true there have been no new refineries built in the last 25 years, it is also true that technology has always increased productivity of existing industries. I use as an example that the US produces more agricultural product in its history using only 20% of the farmland it used in the 30’s. My computer on my desk is more powerful than the computers on the lunar vehicle that put a man on the moon and brought him back. As a matter of fact, my smart phone may be more powerful than the computer on my desk. An most importantly, every single American s doing more with less every single day in order to compete, survive and hopefully thrive. No one is stopping the oil and gas industry from using better technology and equipment at their existing facilities to increase productivity. Using the fact that no new refineries have been built is a weak defense to justify crazy prices.

Well, the days of being held hostage to any single industry are coming to a close as more and more energy options come on-line. Options for energy solutions are the new insurance-policy against market wrecking reliance on one solution. In the near future -2020 – when the options are fully implemented, a fire will occur at a refinery , an energy fluctuation will occur at another, routine maintenance will happen at yet another and none of this activity will not result in an system-wide increase of one thin dime to many consumers. Consumers will simply switch to one of their other energy options that did not incur a major event.

We will be a better economy as a result.

We better get going with the development of more options for consumers and businesses. Based on the current business model of the oil and gas industry they will not be the drivers of this needed change. They are not bad people, they deserve everything they can get; however they have to get it from you and I and as soon as we get our act together and force the development of better options, our prices at the pump are only going upwards forever. As a matter of history as long as it seems the economy is showing moderate growth and Americans have a few more dollars in their collective pockets, we’re in for another round of mythical increases.

As a capitalist myself, it is not my job to go broke making sure someone else makes a mint off of a commodity product. I want businesses to do well, especially mine. I want options and I want to pay the least I can for a commodity like gasoline. I want a better deal for my dollar and I know I am not alone. These crazy price increases must end.

There they will “go” again if we let them get away with it.

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