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The Impact of Government on our gas prices

Updated on March 31, 2012

The price we pay at the pump for a gallon of gas seems to be changing almost daily. The conditions which impact gas prices involve many variables not the least of which is government action or inaction. It is well known that turmoil exists around the world in countries who supply oil to the rest of the world. This kind of impact can be understood to some extent but the amount of fluctuation in the price we pay is questionable at best. Individuals know that prices will fluctuate based on events but the speed in which gas prices fluctuate from week to week in some cases does not appear to make sense.

The impact of turmoil in foreign lands does not immediately affect the supply on hand at our local gas station but yet prices change on a moment’s notice. Each time there is a report of the price of a barrel of oil changing, the prices change. It takes weeks and sometimes months for the supply to be impacted but yet the price changes in relation to news reports. The impact of events in our foreign sources of oil is only part of part of the problem. Government does have some responsibility and involvement in the price we pay for gas. It comes from the action or inaction of government entities.

One of the recent events where government has had an impact of the future price of oil involved the disapproval of the Keystone Pipeline project. The pipeline would have accomplished several things. One it would have brought more jobs and increased revenue to government at all levels. Some reports have indicated that increasing the supply of oil will have no bearing on the price we pay for gas but they forget the impact of increased natural gas production. The increased production quantity of natural gas has reduced the price and the extra supply is exported to other countries.

Another involvement of the government is with the rate and quantity of oil leases granted by the government. Along with this come more restrictive requirements associated to comply with additional environmental concerns such as safety which in some cases may be needed based on oil spill events of the past. The level of oil production has been stated to be increasing based on news reports which may be true current levels need to be compared with pre-oil spill levels. The amount of reports associated with oil production in the Gulf of Mexico has been mixed. Some say oil production has increased while others indicate there has been a decline.

Another involvement by the government is the state and federal taxes paid on a gallon of gas. The amount of these taxes varies as the amount of state taxes is different from one state to another. It is true that these taxes support our road systems both nationally and within each state but it does point to another area where government impacts the price we pay for gas. One potential reduction in the price of gas involves the number of agreements states have negotiated in approving oil production on state land. Again this is not a guarantee of a price reduction for gas but the potential is there. The law of supply and demand has been around for a long time and has worked well if the government will let it. When increased supply presents itself in relation to the demand prices usually fall as producing larger quantities reduces the price of the individual production units.

Oil companies need to make a profit to stay in business and the cost of producing a barrel of oil impacts the price we pay. The resources we currently know exist within our borders vary but the projected quantity indicates we have more oil reserves in our country than exists in Saudi Arabia. Oil companies can impact our energy dependence by producing more oil from our resources. The costs associated with drilling and distributing oil are high in some cases but it costs less to distribute the oil we have in our country today rather than distributing it to foreign lands.

Other examples of oil production levels being impacted by government involvement can be seen in oil companies making decisions to drill off the coast of other countries. This should send a signal to our government that something needs to change. Government needs to encourage oil production within our borders not drive oil companies away to foreign lands. The restrictive nature and policy affecting oil company’s needs to be examined and actions taken to reverse the trend.

I agree that applicable environmental controls need to be in place to protect the environment concerning oil drilling but restrictions need to be sensible based on facts not opinions. Problems with drilling for oil and the process being used need to be resolved more quickly and not drag on for months and years which is presently the case today. Some of the problems are still not resolved. One concern currently being identified is water contamination in the area where drilling has or is taking place. The point being missed in the investigation is the process is working well in other areas where the concern has not been raised. Connecting oil drilling operations to water contamination is a stretch with points being made in some news reports. Granted the source of water contamination needs to be investigated and problems causing it corrected

Utilizing the oil and gas reserves we have is important to our economy not only today but for the future. Government involvement with the level of taxation and regulations must be restructured to be more business friendly. It needs to stop being a source which impacts gas prices negatively to impacting them positively with the right decisions.

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    • Dennis AuBuchon profile imageAUTHOR

      Dennis AuBuchon 

      6 years ago

      Thanks Larry

      Your comments are always welcome. Your experience with the oil industry adds great insight to this article and others like it on hubpages.

    • profile image

      Larry Wall 

      6 years ago

      Dennis:

      I can agree with most of what you said. According to the CIA World Fact Book, our proven reserves are far below Saudi Arabia. However, you are right, that regardless of the amount of reserves we have, they do us no good because of the restrictions on drilling.

      The other point I would like to comment is your statement about oil companies drilling overseas. Since, the government restricts areas where we can drill, the oil companies have to look for oil wherever they can find it, so that we have enough oil for the refineries in our country to produce the gasoline, diesel, jet fuel and other products that we demand.

      If oil companies were not allowed to make money on overseas investments, they probably would not have enough capital available to developed domestic reserves.

      Much of the profits of oil companies comes from overseas activities.

      We use to drill in some of the OPEC countries, until the industry was nationalized and we got our walking papers.

      For years, the U.S. oil companies had leases off the coast of California which they could not develop because of the moratorium that came into play following the Santa Barbara oil spill. It was only in the last six or seven years that the oil companies were refunded the bonus payments they made for the leases--without any interest.

      Oil exploration is a global industry. The United States is virtually the only nation that does not develop its own natural resources. Until the mindset of the nation changes and the NIMBY--Not In By Back Yard--attitude changes, we are going to see prices changes frequently because of overseas tensions, speculators and ups and downs in our own economy.

      It is a complicated industry, with no easy answers in sight.

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