Regulation is the Key to Stable and Strong domestic Oil

Regulation of Oil create wealth when linked to Government control of supply and production.

The truth about Oil and it’s ability to create strong healthy oil companies and wealth has always been linked to Government control of supply and production. The idea  that our economy will thrive with unregulated Oil is false. We have been hearing this from Republicans for years now. 

This theory is  based on an illusion.

The idea that there is somehow a free market that will allow American oil companies to flood the market with Oil and Natural Gas. Prices stay high. The story goes on that this increased supply will then reap more money and more jobs.  So as they think the more oil produced prices will stay high.  Its is a crazy idea. 

This dumb idea defies the first rule of economics: Supply and Demand pricing.  

The fallacy is this short term boom will  somehow  equate to stable long term growth and jobs that are really good for our country. If this were true why would we have within the last two years over 160,000 people lose their jobs in the United States?  The City Houston has been disproportionately hit and many companies and people are feeling the pain of layoff as the price of oil dropped from $100  to 40 dollars a barrel. The price dropped because too much oil was produced so supply was too high. 

The Price Dropped!  The industry collapsed when more oil was produced. It was produced too quickly. This is the law of supply and demand. More supply of anything the cheaper it gets

The truth about Oil and it’s ability to create wealth has always been linked to Government control of supply and production.  

 In Texas this regulation of Oil has been going on for a 100 years. You could say the first  ” price fixing ” or keeping  Oil Prices high was not “OPEC” Organization of Exporting Companies.  The first was was the “Texas Railroad Commission”.  The Texas Railroad Commission was founded in 1890 to manage railroads and ports in Texas and further In 1917 it took on the new regulation of Oil.  The TRC  was originally set up to prevent the proliferation of extortion and fixed prices inherent to the early Railroads which many were monopolies in some Texas Ports. In 1917 it started regulating  Oil. It was very controversial in the beginning of 1917.   Oil regulation in Texas was very unpopular when it was first implemented. Wildcat drillers had come form all over to Texas and lost everything. 

In 1917 Texas was experiencing the East Texas Oil Boom.  It was the biggest Oil Boom in world history.  That year the price per barrel dropped to .25 Cents per barrel.   This price drop blew out many oil companies, people and it destroyed jobs.  The State of Texas wanted to regulate the industry and so the TRC was given the job to slow down the rate of oil Production. It regulated well-heads and the rate of pumping oil per-well. Yes the State of Texas was gonna smooth out the supply chain to create and create an incredible long Term Oil Industry.  There would be no more boom bust business cycles.

The Texans  wanted to slow down production for two reasons.

1). Conserve the oil resource

2)  Fix the price so companies would not go boom to bust. .

When you pump oil out of a well too quickly you “waste” the well.  It collapses the strata where the oil is located in the ground.  So if you have say 1 million barrels of oil to recover from a well you will only get 500,000 barrels of recovered oil when pulled out too quickly.

It got so bad in Texas that when the new law was was issued set to control well-head production levels the state has to enforce the law by sending the State Militia into the oil fields. Drillers didn’t want state to  enforce the New Rules. So effectively the Texas Railroad Commission’s (TRC) controlled over 60% of the production in the United States.  So from 1917 to 1972 the price of Oil was set by the Texas Government and the TRC worldwide.  

Domestic regulation of supply moved oversaeas

In 1973 the control of supply and pricing  was moved overseas. The major American Companies wanted to go global and play games with supply so they helped promote   “OPEC” to control the market supply. If you could get $1.50 a gallon vs 50 Cents a gallon.  So in 1972 Gas was 49 cents a gallon. In 1974 it was $149 a gallon.  The big producers had played out the Cheap Oil and Wanted to find new sources overseas and off shore. They needed higher cash flow for the added cost of doing business. 

So it was no surprise to me when I read the Houston Chronicle Headline last week:

Finally when I read the headline in the Houston Chronicle yesterday:  “A new supply of hope” again where OPEC was cutting production.  Texan’s in the oil business wanted OPEC cut production. They were happy OPEC was cutting production. That would mean less oil produced.  Just on that headline of cartel control of the price OIL jumped from $40 to $50 in one week. Oil people knew this was good for the Industry. Why don’t the Republicans Understand this?

After reading this I  was reminded how foolish the argument by  the Republican Party.  This foolishness totally ignores economics and history. 

Strong Regulation is the Key to a stable strong American Energy Industry. 

 What we have learned from this latest downturn in Oil prices is there needs to have prudent regulation of the Oil and fossil fuels industries for environmental reasons and for a healthy American Oil industry.

So the Republican idea of Flooding the industry with huge surpluses of oil is wrong and it will not make a stable American oil industry. The Republican Plan will hurt the business and put back in Boom to Bust cycle. 

The Democrats understand the need for Prudent Strong Regulation on oil and fossil fuels. We need to conserve our resources and not decimate American Wilderness. There  leadership will be good for the long term Oil Industry.

By implementing  regulation  and exporting Natural Gas (LNG) around the World we will increase employment and create many new jobs in the Oil and Gas industry.  Also, Natural Gas will cut by over  2/3 the rate of Carbon per BTU into our atmosphere. This Natural gas Boom will help mitigate Climate Change and take over for Coal as a producer of  Electricity which is very polluting and hazardous to the environment. Coal must be phased out.

Republicans would destroy the American, Oil, Gas and Fossil fuel industry with their illusions.

There is no Free Market for oil  and has not been one since 1917 when oil was 25 Cents a barrel. 

 

 

Citations:

Houston Chronicle

Story of Oil

History of Texas Railroad Commission

Arab Oil

Enron Papers

Cultural History of Texas