Saturday, October 6, 2012

How to bring down oil prices, with no socialism

As I woke up today, I saw a Facebook post from one of my friends complaining how gas prices are too high (as we all are). I then made the connection between oil and banking. The Glass Steagall Act that passed in 1933 separated commercial banks and securities, so that the places where people's money was put to invest was not in a high-risk environment, to prevent the money of ordinary people being lost when investments do not pan out.

We need to do the same thing with oil in America. Currently in oil, companies can produce, distribute, and retail gasoline from well to pump, without ever needing to hire another company in the process. This is dangerous because it raises the costs of entering the market. When Exxon, Chevron, BP, and ConocoPhillips can control the entire process of drilling, distributing, and selling the oil to customers, the costs of entering the market become extremely high. This is a major problem. It is prone to other companies leaving the market, and those are the only oil companies that have large operations in America on the Fortune 500 list, excluding conglomerates like Koch Industries. It means that it is hard to enter the market, which hurts competition, which means they can set the prices anywhere they want.

This hurts the American economy. I propose that like Glass-Steagall we put a regulation on the oil industry to separate the three stages of the oil industry so no company can produce, distribute, and retail the entire process on a drop of oil so it must be moved between companies. This will bring down the costs of entering the market and make it possible for local companies to compete, which will bring down the cost of oil. When there are a lot of different companies working on it.

  1. The first level will of course be the producers. These people will drill the oil and then sell it to:
  2. The second level who will be the distributors. These people will move the oil around the country and sell it to:
  3. The third level who will be the retailers. This is where small Mom and Pop gas stations will be able to set up operations so that there can be real competition.
By having multiple distributors, the producers will sell to the distributor with the lowest price. There will probably be distributors in local regions, competing against larger distributors, and by offering the lowest price to the retailers and competing with other distributors, the price should come down. By changing the economy so that producers can't distribute, it will be possible for small start-ups to start drilling wells in many places, which will create competition, which will bring down the initial price of oil. This means the distributors will purchase from the producers with the lowest price, creating an incentive to bring the price of drilling oil down and keep it down. The retailers will not be owned by one corporation, and will be something that can be extremely local. It will be easier for small gas stations across America to be owned by a single local family to be economically viable. When they buy from the distributors, they will have a lower initial cost and can bring the price of oil down below $2/gallon. Some people will also foresee the coming of an alternative energy economy based on hydrogen (Which is the only alternative fuel for transportation I see real potential in given production costs, distribution, and fueling time. It also works pretty much everywhere.) and put in hydrogen pumps at their stations which will create the infrastructure they need, which will diversify America's energy consumption, and bring down the demand on oil hence the price. Because hydrogen is far more abundant than oil and far easier to get, it will not have the problems that oil has currently of high prices, be able to compete with oil, which will bring down the cost of transportation nationwide, which will bring down the cost of everything else. Not to mention it is also better for the environment!

This is a real economic stimulus for America. Break up the oil companies! We don't trust them. Anti-trust!

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