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The Real Cost of Oil

May 7, 2013
The Real Cost of Oil
  • The price of Fuel Oil and Gasoline may be in the vicinity of a three dollars (2007) a gallon, but the true cost is much more. An illustration may show the difference more graphically.
    A widely reported recent study in a Snow-Belt state pointed out that #10 million dollars annually was spent on salt to clear the roads. However, the same study pointed out that the state spends $500 million annually to repair damage done to roads, cars, bridges, and the environment by salt. The price of the salt is $10 million but the cost of using it is $10 plus $500 million or $510 million.
    An alternative chemical, having zero impact on roads, cars, and environment, is available. Its price is ten times as much as salt ($100 million), but its total cost is the same as its price. Thus, using the alternative will generate $410 million of positive cash flow to the public coffers. Simple decision, right? The proverbial “no-brainer”. (Unfortunately, the state decided to keep on using salt, using for justification the same logical gyrations that keep us thinking that oil is cheap. The imperfections of the political process are another subject, however).
    Think it through.
    Oil costs the same as the spring water in my office bubbler. The spring water is bountiful, comes from the next town, requires no treatment or refining, and passes through a minimal distribution chain. And since the spring that produces the water is constantly being replenished, the cost of raw material is nothing.
    Oil, by contrast, comes from many feet under the sands of the Mideast. It is a rare commodity, found in only a few locations. The supply is finite. It’s purchased from foreign governments (who we know are becoming rich from the revenues), transported to refineries (themselves a great source of pollution), loaded onto supertankers, shipped halfway around the globe. It then goes through several distribution tiers before winding up in your basement for the same price as that spring water from the next town. Two conclusions are possible: either the spring water business is the most profitable enterprise known to man and we are fools not to be in it, or the price of oil is significantly less than its cost.
    What is the real cost of oil? The figure is so obscured that we can only guess at it. We know that the consumer in Europe who is buying oil that comes from beneath the same sands as does ours is paying $5.50-$7.00 per gallon. Since the oil is the same, the only difference is how these governments and ours have chosen to depict the cost.
    Is is a simple matter to think of other factors that should be considered in the cost of oil. Two words, “Gulf Wars”, could have substantial impact. What about the cost of protecting shipping lanes and cleaning up oil spills? What are the environmental costs of unbridled consumption encouraged by the artificially low price? You need more of an intellect than mine to properly quantify these into dollars, but id does not take a genius to recognize the cause and effect between our current fiscal crisis (national deficit, collapse of the banking industry, and recession) and the artificially low price of oil.
    The Energy Crisis of the 1970’s, unpleasant as it was, shocked the nation to action. President Carter called the need for conservation ” The Moral Equivalent of War”. Ant the programs worked, but we did not like the taste of the medicine and promptly returned to the excessive “prosperity” of the 1980’s, increasing our reliance on foreign oil with each succesive year. The momentum on conservation was lost. Solar tax credits were repealed, and the miles per gallon requirements for cars were scaled back. Many of us, but especially the Ivan Boeskys, Micheal Milkens and Donald Trumps of the world, thoroughly enjoyed the ride, but now most of us are facing the harsh reality of our energy irresponsibility. Don’t look to our government to bail us out. The special interest are all for “cheap power” and will do almost anything to keep the status quo. As for Congress, they are chameleons who will respond to the issues that the polls tell them will result in re-election. That leaves it up to you.
    As a nation we have proved too individualistic to band together toward a common goal, unless a good war is involved. OK, lets go back to Jimmy Carter’s concept and declare war, but a war where compact fluorescent light bulbs replace bombs and Wood Burning Stoves substitute for tanks. It’s a war we will lose only if, as we did in the 1980’s, we stop fighting.
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