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Thursday, November 10, 2005

Big Oil takes Senate back to school

The Australian:

ExxonMobil chairman Lee Raymond dispassionately explained why oil companies and politicians would find it difficult to agree, noting the different timelines his industry and the politicians worked under. 'In politics, time is measured in two, four or six years, based on the election cycle. In the energy industry, time is measured in decades, based on the life cycles of our projects.' ExxonMobil had just announced the first oil and gas production from its Sakhalin-1 Project in Russia's far east, he said. 'We began work on the project over 10 years ago, when prices were very low, and we expect it to produce for over 40 years ... that's more then 50 years for one project. Fifty years is 25 congresses and 12 presidential terms. Fifty years ago, Dwight Eisenhower was president of the US.' He warned that short-term policy fixes for oil industry problems were a recipe for disaster, highlighting Washington's response to the 1970s oil crisis. 'First price control, then punitive taxes were tried to manage petroleum markets. They contributed to record prices, shortages and gasoline lines. As the government withdrew from attempting to manage the markets, prices began to come down.'
Price controls and taxes all always attractive to politicians but are absolutely the worst way to increase supply and hence lower prices. Unfortunately, very few politicians have even a basic understanding of economics. It is easy to stir up populism against rising gas prices. It is much more difficult to lead people to an understanding of what causes high prices and what we can actually do as a society to combat that. Sadly, we don't seem to have any leaders capable of this task.


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