3 Hidden Costs of High Oil Prices
As a barrel of oil hovers around $130, the news has been bombarding us with the obvious effects of high oil prices. As most people weep at the pump, some environmentalists are rejoicing. Gas consumption is down, but there are additional hidden costs to high gas prices that leave even green minded folks with a frown.
1-Difficult to Extract Oil & High Environmental Impact
High oil prices are making it economically viable to utilize oil that is difficult to extract. One example of this is just north of the border.
In the U.S., our single biggest source of foreign oil is from Canada. Although this may be reassuring from a foreign policy standpoint, much of this oil comes with a steep environmental price tag. Known as tar sands oil, 2 tons of sand are needed to produce one barrel of oil in a very resource and energy intensive process.
One technique that is used is to mine the sand leaves huge holes in the earth and devastates the ecosystem. Another technique involves injecting steam underground, requiring large amounts of energy. Tar sands oil generates 2-3 times the greenhouse gas when compared to conventional oil.
“It is quit alarming from an ecological standpoint,” said David Fields of Greenpeace Canada. “Developing the tar sand will make it impossible for us to effectively tackle climate change.
2-Difficult to Extract Oil is an Unreliable Supply
There are reasons why many sources of oil were overlooked in the past. Some are in areas that are populated, making it difficult to obtain permits. Other oil reserves rely on large amounts of energy, making the operation vulnerable to fluctuating energy costs.
Going back to the Canadian tar sands example, large quantities of natural gas are needed to extract this oil. In the cool Canadian climate, large amounts of natural gas are also used to heat homes. If natural gas prices spike or Canadians prioritize conservation of natural gas reserves over short-term profits, this source of oil could dry up.
3-Oil Companies are More Powerful as Profits Increase
In 2007, Exxon made nearly $1300 a second in profits. With record high corporate profits, Exxon reported annual earning of $40.61 billion. While Americans are spending at the pump, the power of this company is increasing. Unfortunately, some of the companies that are rolling in dough are not necessarily ideal corporate citizens.
Exxon has refused to pay court ordered fines for the Exxon Valdez oil spill in 1989 to help compensate the fishermen for loss of their livelihood. The company has also supported groups that question global warming, a practice that has even been criticized by other oil companies.
The political power of oil companies is staggering and is a special interest that is often not in line with what is best for society. The oil industry has donated $180 million to political candidates since 1989. 89% of political donations made by Exxon went to republican candidates.
As with all complex situations, there are numerous positive and negative aspects. What other hidden factors do you find noteworthy?
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May 29th, 2008 at 12:47 am
Thank you for pointing out some of the environmental hazards of excessively high energy prices. Others include a renewed desire to exploit oil bearing shale rock in the US – a source that has similar environmental impacts as oil sand exploitation.
I also worry very much about the increased use of biofuels as oil substitutes. The effort is leading to increased deforestation in places like Southeast Asia and Brazil as big businesses recognize that they can make a quick profit by burning down large areas of forest and planting crops like soybeans and palm trees for palm oil. http://seattletimes.nwsource.com/html/nationworld/2003612448_palmoil11.html
Even the non commercial use of wood for heating can cause significant long term problems as many people who are already economically stressed move away from cleaner burning fuels like propane towards cheaper alternatives like gathered firewood. In places like Haiti, essentially all burnable wood has been gathered without replacement, causing soil depletion and turning what was once a lush tropical island into a moonscape.
If we want to discourage energy use, high taxes on energy fuels would be a better long term solution than allowing fossil fuel companies to capture all disposable income.
May 29th, 2008 at 12:44 pm
Fascinating. I had no idea there was so much involved. The question is though, what are they doing different now at $4 a gallon that they were doing when gas was $2 a gallon? Nothing! Except of course doubling their profits!
JJ
http://www.Ultimate-Anonymity.com
May 29th, 2008 at 12:53 pm
http://www.lucianne.com/routine/images/05-02-08.jpg
May 29th, 2008 at 12:53 pm
Seems like a bit of a half truth to be talking about the large profits of the oil companies doesn’t it? Can anyone tell me the profit margin for an oil company? That would be ~8% – 9%. That means they make $.08 – $.09 on every dollar we spend. How much does the government take in taxes? ~11%, how about your water authority, what do they make….Anyone? That would be ~10% – 11%. Given that we are attacking the oil companies for their excessive profits logic dictates we attack the water authority for their high profit margins and we attack the government. We can’t attack the government, they use that money for good things right…?Right? Before you decided to attack an industry that is doing well perhaps you should do that math. If you factor in inflation, supply and demand, and speculation you come up with the current price of gas. Even OPEC says that they think the market should be around $60 – 70$ a barrel. Looking at net profits of a company is a silly way to understand how things work. Any industry that sees its market expand will see its profits grow. Wake up, do the math, and stop looking in the wrong direction.
May 29th, 2008 at 12:59 pm
He’s a little factoid the writer of the article just happened to conveniently forget including. It costs $13 a barrel, to extract oil from the mud. Hardrock mining can be economic if there’s as little as $20 worth of metal in solid rock.
May 29th, 2008 at 1:07 pm
ummmmm how about the fact that no refineries added into the untied states since the 70’s because of the EPA? so blame your own tree hugging selves over the gas prices (which I’m not against tree hugging in fact i love trees but the problem is the ability to turn it from crude oil into refined unleaded gas. we have plenty of crude but no way to process it.
any other questions?
May 29th, 2008 at 1:12 pm
Fuel, food and enmvironmentally friendly plastics and oil can all be manufactured FROM THE HEMP PLANT. Hemp is 4-5x more efficint for fuel and oil than trees and grows much quicker and easily, since it is technically a weed. It can also be used for healthy medicine with no harmful side effects. So WHY is HEMP illegal? Other countries have removed their dependence on foreign oil by farming hemp. Why not The US? Corrupt politicians, perhaps?
May 29th, 2008 at 1:13 pm
You forgot a few, like the steps that would be most important and that would have the most impact on gas prices:
1. Allow drilling of untapped oil supplies at home (ANWR, Gulf of Mexico, etc.)
2. Reduce or remove the 15% gas tax.
3. Reduce or remove taxes on oil companies.
4. Reduce the amount of different gas blends the oil companies are required to refine (at least 60 currently) due to strict environmental restrictions.
5. Reduce environmental and bureaucratic barriers for building new refineries and expanding existing ones.
Unfortunately, I can’t say I’m surprised these items are missing from your list of supposed “hidden costs” since most practical scenarios involving the lowering of prices run counter to the agenda of this site. While you do bring to light some legitimate reasons that drilling for oil in certain scenarios would be cost prohibitive, there are many other scenarios where overly protective government environmental restrictions are the only thing prohibitive.
May 29th, 2008 at 1:30 pm
The political power of environmentalists is also staggering and is a special interest that is often not in line with what is best for the planet. Don’t forget that either. Yes, as oil prices go up, it does make going after those last few oil resources economically feasible. So what? Oil prices are still going up. As oil prices go up, oil consumption goes down. I don’t understand why you insist on attacking oil companies. Many other industries have bigger profit margins than the oil industry. They just happen to be in an industry that supplies a very important resource. Your cause would be better served if you focused on alternatives. What would you do if oil companies didn’t exist by the end of today? How would you power the world? What is the alternative? Focus on those alternatives if you want to stop pollution and oil companies. You can probably change more by doing positive than negative. I’m not a republican or somebody who works for oil companies. Just using some logic here.
May 29th, 2008 at 1:32 pm
Oil will come to an end. The American Southwest is the best place to build desert solar thermal electric power plants. It is the cheapest, fastest, known technology path to putting renewable, ultimately sustainable power to the existing grid. Barring a tech breakthrough in fusion, when the curve for oil running out crosses the curve for cost to build the desert plants, predatory and rogue capitalism will take over and things will happen. Right now, the best deal in town is to keep oil prices high and get suckers to over-use it in SUVs, unnecessary flights, etc and let the cash flow in. The money boys will say when, and the environment will play no bigger part in the action than it does now.
May 29th, 2008 at 1:35 pm
This whole article could be shortened to:
The Hidden Cost of High Oil Prices: They subvert my personal political agenda
May 29th, 2008 at 1:48 pm
Exxon hasn’t “refused to pay”. The article you cite quite clearly states that the case is tied up in appeals, and with good reason. As for the complaints that companies that invested in land and oil rights and that now that land and those rights are worth more – SO? Isn’t that EXACTLY what happened with the West Coast housing bubble? You bought a house. Your house appreciated at 25%+ per year. If you sold your house while values were high you made a killing. If you didn’t then you’re getting killed. Is anyone going to cry for Big Oil when and if the oil bubble bursts? No. So stop crying at a time when they’re making money and instead buy some of their stock.
May 29th, 2008 at 2:15 pm
Would be nice if we had some clean nuclear alternatives to turn to. But wait, you environmental alarmists killed that off years ago. You created the mess we are in yet you continue to blame the companies that provide the energy the world thrives on.
May 29th, 2008 at 2:58 pm
The oil is running out and everything that we have built with our amazing technological age relies on cheap abundant oil.
The reason we’re not drilling oil in the US is because there is very little left–oil production peaked in the USA in 1971 and will never again return to those levels because there simply isn’t that much oil–even ANWR would only supply us for something like 3 or 4 months
People in Africa are going to start starving first as first-world farmers become unable to pay $6 a gallon for diesel fuel.
The effects on the global industry will be crippling as demand exceeds supply and shortages become commonplace.
We’re in the first couple years of oil production decline right now. These will be remembered as good times, with plenty of abundant energy for everyone to waste.
May 29th, 2008 at 3:44 pm
Go Ron Paul!!
May 29th, 2008 at 3:47 pm
Just like in the old days, cars will be for the rich only, the poor saps will go back to living and dying in one dusty old town
May 29th, 2008 at 3:58 pm
I used to get mad at the high oil prices until I just accepted it as a fact of life. Now I just try to reduce my gas consumption, by doing things like slowing down http://www.slowdowntosavegas.com/
May 29th, 2008 at 4:08 pm
Its funny how all the normal people I talk to are against high gas prices, but when you put the blame squarly where it rest. Oil companies. You get all sorts of supporters. Funny wonder how much the oil companies paid you to post on comments and forums. And yes I dont care if it is .09cents or $2.00 per gallon or barrel or however you want to measure it. you cant compair it to the water, or other utilities, because they are not a monopoly. Unlike oil. I am actually glad that oil is high. Look at how many back yard mechanics are converting cars to electric. Look at how many new companies are making electric cars that the big automakers said were impossible. And now i have a reason to trade in the minivan for a 2 seater. So i have to thank you oil companies for pricing yourselves right out of the market.
May 29th, 2008 at 8:12 pm
I have to agree about the oil profits. You have to look at the profit margin per unit of gas. When you take that into account the oil companies are not always at fault. On the other hand, people who want business and don’t want any responsibility to the environment are short-sighted. Profits and nothing else without any social or environmental responsbility is not wise either. Case in point is the destructive damage of extracting oil from sand in Canada. Also, look at the environmental destruction of extracting coal from places like KY and WV. Profit motive is fine but it doesn’t come without responsibility which some people and corporations don’t seem to give a crap about.
May 29th, 2008 at 8:19 pm
In reality, slightly higher gas prices are good. In march, there was a huge decrease in miles driven. This reduces demand helps to curb the price of gas somewhat. Now if the value of the dollar will stop decreasing then perhaps the prices will stabilize. I do not think it should be allowed to drop below $3/gallon though. Otherwise, people will just go back to the old ways as usual of driving when they want and buying pig butt SUV gas guzzlers.
May 30th, 2008 at 12:10 am
Poverty is the worst form of pollution and only wealthy countries can afford to practice pollution and climate control. To paraphrase Heroditus: It is better to be envied than pitied.
As the rich trade in their SUVs for hybrids, the car lots overflow with them. Soon, being cheap and plentiful these are the only vehicles the poor can afford. But can they afford to put gas in them.
By not developing Americas domestic resources we reduce the amount of OPEC oil available to other countries and put upward pressure on the prices citizens of Europe and Japan pay at the pump.
FOREIGN WARS OR DOMESTIC OIL
If the US Government spent a trillion dollars over 8 years on domestic oil production from known reserves in the Gulf of Mexico, the Continental Shelf and coal gasification instead of War in Iraq gas would be $2 a gallon or less. America could quit sending billions to countries that sponsor terrorism. And reducing our trade imbalance keeps jobs in America. Every billion of trade deficit costs 13,000 jobs. $400 billion for oil last year: do the math.
America has 1/4th the coal on planet earth. South Africa is producing 300,000 barrels of gas and diesel a day from coal. And synthetic fuel from coal is cleaner burning than gas. And it can be produced cheaper than from $100+ a barrel crude oil.
Harness your anger at the pump. Call you’re US Senators and demand domestic production in this decade. Raise your voice or the oil companies and politicians will assume you are ready to pay even more.
May 30th, 2008 at 12:07 pm
Hey Michael Lewis, You have a great point about the rich trading in their SUV’s for hybrids because I have seen a great deal of SUV’s with for sale signs in the windows lately. And your question of can the poor afford gas for these cheap SUV’s nobody wants to drive anymore is a good one.
My question is how much longer is there going to be gas for them to fill with even if they do have enough money for it. I was reading this article called The U.S. Oil Supply — A Look At Our Future Oil Needs and it helped me better understand why gas is rising and what it means financially. It gave me a glimpse into another side I didn’t really think about, regardless of the ever worsening environmental effects.
June 29th, 2008 at 6:45 am
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