Our refining capacity is low because of the many years of environmental lobbyist setting the agenda for government policy and regulation. This was done under both parties and through most of our elected officials. It became popular to be 'for the environment' and we simply restricted and regulated refineries out of business with bureaucratic red tape. To make profits refining oil, like any refined product, is by volume. You have to refine an unreal volume to offset the environmental mandates and restrictions set by the government on this industry. This is why no one is doing it, it isn't profitable.
Make it profitable for refineries again, and give them an ample supply of domestic crude, and we may see $3 gas once more. Otherwise, hold on to your wallet, it is going to get rough.
We have too much demand for the supply. This is the fundamental problem. You can argue that we need to decrease demand all day long, but Americans are not great at conserving, so this method of fixing the shortfall is futile at best. We will not be able to significantly reduce consumption for more than a decade, if then. If nothing else, because we actually grow that much and consume that much more each year. Any reductions we make, will only slow the growth in demand from this year to the next. This is not a solution to the problem, the solution in this case is to increase supply.
Now I am a supply-side economist, I say we flood the market with oil, hell.... start killing whales and refining the blubber again if you need to, but flood the freaking market with oil! If the Yuppies can drill ice core samples in ANWR at 60 sites, why can't we drill for oil in 10~20? Let's get at it, get the oil outta the ground and on the market. The sooner that happens, the sooner we start to see a sharp decline in gas prices.
You have to understand, this is not a linear curve or net sum gain. Once supply is greater than demand, the price falls to its low point rapidly. It then becomes an important factor to sell oil, as cheap as possible, just sell it! We have more than we need, demand is quenched, and we can set the price as consumers. Suddenly gas wars break out and we are being inundated by gas companies who want our business badly!
This is why I favor some initiative for alternative fuels to replace fossil fuel engines. I want to drill for oil, but I want us to pursue an aggressive plan to implement such a system in 10~15 years. I like the T. Boone plan, but I think our plan should be comprehensive and should include new domestic drilling and refining, easing restrictions on those industries, flooding the market with domestic crude, and working on alternative energy as a top priority.
