Why Not Sell Oil To Ourselves?

I know I am kind of enamored with this oil topic lately, and both of my readers might be getting a little tired of it. However, a comment came in the other day that is common to most perspectives when I explain my stance on drilling. I have talked about the answer before in a general sense, but her is a more specific answer. The question asked was:

"You say that opening drilling in ANWR won't effect the cost of oil, but can't we as the U.S. who is drilling for our own oil charge ourselves a lower cost for the oil we actually have in our own ground?"

There are couple of misconceptions that are common among most people. The main one highlighted by this question is that people think "the government" owns the oil that is extracted. They do not. The companies that buy the leases own the oil. The two biggest "American owned" companies are ExonMobil and Texaco-Cheveron. Even these companies have interest around the world that would be jeopardized if they started snubbing other countries and causing the price to drop. Another overlooked fact is that leases are offered to the highest bidder. They may not be American owned companies.

The next step in the Supply chain is refining. Now if you first check out who is doing the worlds refining here. Then you add up all of the top listed American refineries production capacity is. What you come up with is a US production level of gasoline at a rate of nearly 4 million BPD. While you are there look at some of the players and where their refineries are located. Even the "American" companies. However, if you check that status of US oil consumption here, what you find is that in 2006 (the latest data) we used 20,167,000 gallons per day. See the problem? How do you get gas from oil that you don’t have the capacity to refine.

So in conclusion, most of them are not strictly American owned. To demonstrate the importance of this I offer this story. I once worked for Phillips Petroleum in their Benzoyl Peroxide facility. Phillips was a British owned Company, headquartered in Germany, with nearly half of it’s major production facilities here in the states. The "price of gas" is what matters to most of us. The supply chain that moves petroleum from the ground to the gas tank is never wholly American.

Another thing that makes this true and what happens in all inidutries including oil is to consider what used happen at the Ridge Tool factory where I used to work. We once made, packaged, and shipped to location pipe wrenches that had "made in Korea" written on the box and on a tag we stuck in the box. I saw the metal get delivered on the pallets with the rest of the raw parts right from the foundry down the street. We machined them right there. Then we shipped them. What did that have to do with "Korea"? I asked one of the salesmen. He said that they regularly worked deals. Foreign producers would send their specs and molds to a like competitor overseas. They would agree to produce each others parts one-for-one in order to gain many mutual benefits. Logistics being the most predominate. Shipping 100s of thousands of tons of steel across the water can be costly. So they just traded across instead. This only worked as long as mutual competitors were on good terms.

Oil works the same way. These companies might deliver American drilled oil from American soil. But really in the end they are selling oil that was originally sold on the open market to the Americans from the Saudis. But the American sold theirs to the Chinese. The Saudis and the Americans agree to save each other money by delivering from the nearest supply.

Let us face it, oil is oil. If that doesn’t make it clear enough, most Americans understand expecting the companies they invest in to make profitable decisions. In the end, all of the oil and refining companies answer to their share holders first. What do you think would happen if those companies said to their stock holders, "we are going to sell our oil at a lower cost to just the Americans, thus reducing our own profitability." My guess is the next day they wouldn’t have stock holders. Especially the foreign ones who actually have money to invest these days. Besides that, the reduction in global supply would increase the price of oil. Our trading partners would be blamed the rising cost due to the "selling just to ourselves" decision. Many of our suppliers would get mad and reduce the amount they sell to us. Since we only produce 2% and consume 25% of the global production, that would be very bad in the very short and long run.

Much like many drug addicts believe they are in control of their own addiction, so do many Americans believe the government is in control of the US’s energy fate. "They" are not. This should scare the heck out of us, but the writers strike is a thing of the distant past, and new episodes of 24 will be on soon. It will be too easy to forget about it.


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