In Case You Think It's Automatic

The reason you are paying so much for gasoline now is because you paid too little then.

Ignoring the conservation measures which have never been put in place thanks to our hedonic population, prices are high and will remain high because the energy industry has neither the equipment nor the personnel to bring significant amounts of oil and natural gas from new sources. Drilling rigs are in such short supply that a Colorado company had to hire one from China, along with the crew to run it.

The greens do not have to worry about our drilling in the Alaskan National Wildlife Refuge any time soon. There’s nobody to do it and nothing to do it with. We are short on everything from geologists to refineries to pipelines, Twenty-five years ago there were almost 5,000 drilling rigs in the US; today there are, maybe, 1,500. Back then there were 11,000 petroleum engineering students; today there are 1,700 even as the majority of those engineers who are now on the job reach retirement age.

Since 1981 the big energy companies have laid off over a million workers, which figures out to be 70 percent of their workforce, most of which was at least somewhat skilled. To reassemble a fraction of that workforce cannot be done by snapping fingers.

How did this happen? Simple. In the early 80s the price of energy collapsed. Oil currently selling around $60 a barrel was to be had for $10 a barrel. The industry which had geared up to go gang busters during the energy-short 1970s was stuck with too much oil, too many people and too much equipment. The top executives, traumatized by the experience, said never again and they stopped exploring for new oil and gas or investing in equipment. They sold off what they could and went into hibernation. Everybody else guzzled cheap gasoline and let the future take care of itself. And it has.

When energy prices zoomed upwards these last few years, the industry remembered the last boom time and spent its new found riches declaring dividends or buying back its own stock. This works out well for shareholders; for others it will be a cold winter.

There is nothing automatic about a steady, secure fuel supply at reasonable prices. The free market does many good things. That’s not one of them. Either plan ahead or shiver. It doesn’t just happen.