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Raymond J. Learsy Headshot

The President's Speech, The Leopard's Spots, Our Energy Security

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In his State of the Union speech last night the president characterized the nations historical moment as being engaged in a "defining struggle". And yet, as critical as that may be, the President has called forth an energy security program that requires only marginal sacrifice with a plethora of safety valves. Reducing gasoline consumption by 20% in ten years should be doable. But why only 20 percent?! And why haven't we started years ago?

Brazil, a nation that is not currently viewed as being engaged in a "defining struggle" has accomplished much more than we are being asked to do, through simple good sense and sensitivity to the environmental damage being done by green house gas emissions.

Here is a nation:

- Where forty percent of "gasoline" is ethanol content.
- Where all new cars built are flex fuel
- Where some 35,000 gas stations pump gasoline and ethanol
- While there are less than 1,000 in the United States
- While we permit imports of gasoline duty free but levy 54 cents a gallon on ethanol imports from Brazil. Go figure!?

But the oil patch should not despair. President Bush is an oil man first and foremost. As the saying goes "The leopard doesn't change...." To assure his friends would neither be disappointed or take an earnings hit the President announced a doubling of the Strategic Petroleum Reserve. Was this done in consideration of national security, or to salvage a falling crude oil market.

Consider the following. Doubling the SPR will call for the purchase of some 700 million plus barrels of oil. At yesterday's closing price of $55/bbl that comes to nearly $40 billion dollars of additional transfers to the "long suffering"oil and gas industry. During the course of the day Secretary Bodman, our Energy Secretary and our ambassador plenipotentiary to the oil and gas patch, announced that the Department of Energy would begin adding 11 million barrels to the SPR.

What happened? In what had been a falling market for crude, the price jumped on this announcement by $2.40 a barrel on the New York Merc, the biggest single day gain since November 20, 2006. This upward fix on crude oil prices, just as they were beginning to slip significantly, will result in an additional tax on all of us in the guise of higher crude/gasoline prices. In effect we pay twice. Once for the oil going into the SPR, and again for the market impact it has on crude oil and in turn gas prices. We have been put in a position of, in effect, trading against ourselves. Many would willingly pay more for gasoline if it was part of a strategy to wean us away from gasoline consumption and to reduce carbon dioxide emissions. But to be paying more for the greater glory and profits of the oil industry? Only an oil man President could foist that on us at this time of falling crude oil prices.

P.S. A thought, why couldn't the Saudis', Kuwaitis', and the other producers in the Persian Gulf-Iran excepted-transfer oil to be held in the SPR reserve on their behalf for release in case of emergency -- sort of off-site storage -- as is commonplace in many industries. After all we are spending nearly $100 million a day having our Navy safeguard the sealanes for these producers. Off-site storage would be a minimal quid pro quo. In the normal world it would simply be classified as good customer/supplier relations.