how to perpetuate an energy crisis
and frame the free market for it
it’s one of the oldest, longstanding plays in the fascist/socialist playbook:
enact regulation that breaks markets
cause market failure
blame markets
enact more regulation to “fix it.”
and here we go again. again.
this is literally the stupidest thing you could do to bring down energy prices. you’re taxing producers which will reduce their profits.
this will:
result in price hikes
prevent outsized profits from attracting investment to the space which would increase supply, reduce price, and reduce profits.
that’s how free markets work.
the cure for high prices is high prices.
if i can make X return in other businesses but 2X in oil, that’s where the capital flows. but, if the response to scarcity relative to demand (which comes in the form of high returns to capital) is not allowed to signal this fact and attract the additional investment that would fix it, then it doesn’t get fixed.
the UK is even going one step stupider: they play to use the money taken by this tax and give it to “customers” so they can better afford to pay the high prices. so, not only are they attenuating supply response, they are subsidizing consumption at the same time.
you might as well try to create affordable chicken by taxing poultry production and subsidizing KFC.
it take a special kind of stupid to think this is going to do anything other than create persistently high prices.
the US is actually going one stupider here. we have been limiting lease availability, raising lease prices, killing pipelines, and preventing every kind of rational market adaptation while making pointless performances of political theater like “tapping the strategic reserve.”
we too are making supply unable to respond properly to price and trying to monkey with the mechanisms.
worse, we’ve been running down our refining capacity by making it impossible to build refineries. the last major new refinery to get a permit in the US was in 1977. since then, we’ve been running down the numbers and keeping capacity flattish by upping efficiency.
the US consumes ~20 million bbl/day. so we cannot even keep up with demand using our refining capacity, much less rebuild supply. and capacity is starting to drop. and based on the retirement schedules of currently permitted plants, this is likely to accelerate. it has halved in the northeast in recent years. and they wonder why they’re running out of diesel…
longtime gatopal™ doomberg discusses at length HERE.
the chicken is very much worth subscribing to.
this is a classic oligopolistic system where those who were big supported a regulation to prevent any new entrants from joining the market. as a result, they have enjoyed 40 years of being the only game in town and never faced competition from new entrants.
this '“EPA protection” is not protecting you, it’s protecting refiner profits that later governments will go on to vilify.
as capacity has been on the wane of late and demand and prices have just exploded, refiners are now enjoying MASSIVE margin expansion. and they are not going back down soon. because that’s what oligopoly does. it prevents adaptation and secures durably outsized profits for the anointed few.
this is due to what is known as the 321 crack spread. 3 barrels of oil becomes 2 of gasoline and 1 of diesel. so the revenue from 2 and 1 cumulate and you use 3 as the input and then subtract the cost of the process. there is no way you get durable spreads like this in a free market system. but you will in an oligopoly, especially one with lower capacity than organic demand.
had we been building new refineries since the days of disco, we’d have a more modern, safer, cleaner, more efficient, more responsive, and more capable set of plants now. we could readily take oil and make it into gasoline and diesel and the competition would be fierce, not suppressed. we’d likely have some excess flex capacity to handle surge demand and moderate prices.
but we don’t.
and now the US is mumbling about going after refiners with windfall taxes.
as in the UK, this will only accelerate the problem. it will prevent investment in existing plants and the EPA will not allow any new ones.
we’ll spiral costs higher still by hamstringing exploration and pipelines which is driving the price of natural gas to 15 year highs that are ~triple the levels the fracking revolution brought us.
natural gas is a large input cost for refineries.
so prices are exploding, stockpiles are dangerously low, oil and gas supply cannot react properly, and we could not refine it if it could.
and every single one of these things is driven by government policy breaking markets.
and every single solution being peddled will break them further.
because we are led by deeply unserious people, economically and business illiterate demagogues, and outright fools and wreckers.
this could all be fixed, robust, and stunningly self-sufficient and self-sustaining in about 3 years if they would just get out of the way and stop blocking and interfering with things.
the US energy system could be the envy of the world.
instead, like all else these collectivists touch, they will run it into a ditch.
because that’s who they are.
The staggering cost of economic illiteracy is the debt that keeps on keeping on.
Governments are getting better at creating problems and blaming private individuals/industry for it. In Canada, there are massive delays at airports due to vaccine passports and testing (yes, still) and the Trudeau government is blaming out of practice travelers.