In November of 2021, U.S. President Joe Biden asked the Federal Trade Commission to examine oil and gas companies and their role in the rising price of gasoline. In a bizarre twist of cause and effect, some government officials and administrators see oil companies as the cause of higher energy prices rather than part of the solution.
Any oil industry insider will tell you that oil and gas companies live, breathe, and sleep efficiency. The industry over the years has become one of the most efficient and productive industries on the planet. The inefficient quite simply don’t survive.
Think of the capital and expense required to find, develop, produce, transport, process, and distribute a barrel of oil. The industry does all that and delivers its product to every street corner in the developed world for the price of a gallon of milk. Bottled water in some parts of the world is more expensive. Behind every gallon of gasoline lies billions of dollars of capital, miles and miles of pipe, and thousands of hardworking men and women.
Not only does big oil supply its product at a low price, but it delivers it with nearly 100 percent reliability. Rarely (again in the developed world) has the corner gas station run out of gasoline. Security of supply is neither free nor is it easy. Ask the chip industry.
The exceptional thing about big oil’s efficiency is the benefits of the efficiency have largely accrued not to the energy companies, but to consumers. Yes, there are times when oil companies make money. There are also lean years, though. Across the cycle, there is zero evidence of big oil capturing much value. Most of them struggle to survive.
Big oil, in short, has created enormous value and has kept very little of it. The consumer has received a massive windfall in the form of low energy prices. The utility of a gallon of gasoline or a thousand cubic feet of natural gas is infinitely higher than their current prices. Yet politicians and administrators make it tough on the producers of those products, even accusing them of driving prices up rather than helping to hold them down.
The magnitude of the value added, in our view, is the very reason politicians and administrators make the ridiculous accusation that oil companies collude to raise prices. People quite literally cannot do without their product, yet big oil delivers it to them at convenient locations for a fraction of its realized value and utility.
