March 15, 2012

Elizabeth Schulte reports on the factors causing pain at the pumps for working people--and why neither party has a solution to a new round of skyrocketing prices.

FOR NEWT Gingrich and the other Republicans, it's just another talking point at a campaign stop or a candidates' debate. But for millions of people who depend on their cars to get to work or school, it's a punch in the gut.

The national average cost for a gallon of gas reached $3.80 a gallon on March 12, according to the AAA. In four states--Alaska, California, Hawaii and Illinois--the average was more than $4 a gallon, and in five more places--Connecticut, the District of Columbia, Michigan, Oregon, New York and Washington--the price hovered just five cents under $4.

This is taking a devastating toll on millions of workers who are just trying to make it week to week. According to a recent CBS News poll, 67 percent of Americans say high gas prices have caused a financial hardship in their households. Of those, 38 percent say that hardship is serious.

According to the Brookings Institute, 80 percent of households with annual incomes of less than $50,000 own cars, and over a third own more than one. These low- and moderate-income drivers traveled about 10,000 miles a year in their vehicles and spent about $1,500 on gas annually in 2010, when the average price was about $2.80 a gallon. Every dollar increase costs an extra $530 per year.

Gas prices soar at an Exxon station in Washington, D.C. (Paulo Ordoveza)

So the choice for many working-class families still facing the consequences of the long recession will be either cutting back on other necessities or going further into debt.

The Republicans attacked the Obama administration for rising gas prices, but of course, they don't have any solutions. Gingrich claims that if he's elected president, he'll bring gas down to $2.50 a gallon. How? Gingrich's supposed two-year plan is best summed up by the title of his 2008 "handbook" Drill Here, Drill Now, Pay Less.

Gingrich says his goal is for the U.S. to declare its "energy independence" from "foreign" oil--and that means drilling in Gulf of Mexico along the coast of Louisiana and other states, immediate construction of the Keystone XL pipeline that will transport tar sands oil from Canada, and, yes, eliminating the Environmental Protection Agency.

The Obama administration also says its goal is "energy independence." Obama likewise supports more drilling, including opening up Alaska's Arctic coast. He only announced that he would postpone construction of the Keystone pipeline after people concerned about its devastating environmental impact protested in large numbers.

Opening up once-protected public lands and coastlines to drilling is, in fact, a key piece of what the Obama administration calls its "all of the above strategy," which includes "clean" energies like coal and nuclear and alongside solar and wind power.

In January, the administration directed the Interior Department to hold a lease sale in the Gulf of Mexico, which officials estimate could lead to the production of 1 billion barrels of oil and 4 trillion cubic feet of natural gas.

While Democrats and Republicans alike are concentrating on the rush to drill, the numbers show that, in fact, net oil imports as a share of domestic consumption have declined in each of the last three years, while oil production has risen.

As Public Citizen's Energy Program Director Tyson Slocum pointed out:

[D]emand for U.S. gasoline has plummeted. It's down 5.4 percent--or nearly half a million barrels a day--from a year ago, marking the 24th week in a row that year-on-year demand is lower. At the same time, retail gasoline prices are up nearly 12 percent from a year ago--and continue to rise. Something isn't right here.

THE DECLINE in consumption in the U.S. is in large part the outcome of the economic downturn. "Last year, Americans paid more for gasoline than in any other year before," said Gal Luft, executive director of the Institute for the Analysis of Global Security in congressional testimony in December. "In other words, we became more self-sufficient and more fuel efficient and at the same time we became poorer and deeper in debt."

The White House and the industry experts contend that the price increases are the result of international supply and demand, and that while the U.S. may be using less oil, other countries--Indian, China and Brazil--have increased demand for oil production.

But the answer lies closer to home--on Wall Street.

Speculators run amok are behind the out-of-control prices at the pump. In a recent report, Dr. Mark Cooper of the Consumer Federation of America argues that speculation added $600 to the average family's gasoline expenditures in 2011. According to Cooper, investors bidding up commodity prices has created a growing disconnect between cost of acquiring and refining crude oil and the actual market price for gas.

Slocum gave a recent example during congressional testimony in November:

One Wall Street bank, Citigroup, was forced to divest its highly lucrative commodity trading division, Phibro, in 2009 (selling it to Occidental) after reports that the head of the unit's oil trading desk, John Hall, was due a $100 million bonus triggered by the massive profits made speculating on crude oil during the record price run-up.

Meanwhile, anger is running high among the people who actually have to pay to fill up their cars. And the anger isn't just directed at the Obama administration. According to a Bloomberg National Poll, 66 percent of respondents say that it's oil company greed and price gouging by oil-producing nations that is causing the price hike.

As gas prices hit workers already struggling to make ends meet, oil companies are doing better than ever. According to a report "Big Oil's Banner Year" by the Center for American Progress (CAP), the top five oil companies--BP, Chevron, ConocoPhillips, ExxonMobil and Royal Dutch Shell--produced less oil in 2011 compared to 2010, but made a record-high $137 billion in profits.

How did they do it? They made the soundest investments of all--in lobbyists and campaign contributions. The big five oil giants spent $1.6 million on campaign contributions and $65.7 million on lobbying efforts. As CAP notes, "For every $1 spent on lobbying in Washington, the big five received $30 worth of tax breaks." That's a 3,000 percent return on every dollar invested.

When the Obama administration proposed repealing the $4 billion in subsidies that oil and gas companies receive each year, Republicans were in an uproar. But this $4 billion is a few grains of sand on an oily Gulf Coast beach compared to the total breaks the industry receives.

While American workers are chastised to get out of their cars and stop wasting natural resources, these numbers tell the real story about gas prices. For the oil company bosses, no price is too great to pay--whether it's billions in lobbying dollars, ecological devastation or millions of workers choosing between gas and food--in their pursuit for profit.