Let’s face it – they are called oil companies for a reason. They certainly are not called alternative energy companies. Just a few months ago, we were looking at the bitter end of the gas nozzle and forking over a little more than $4.00 a gallon for gas. Then a few weeks before the election, the prices started dipping downward.
Ah, sighed many die-hard, “drill baby drill” enthusiasts, the sinking gas prices were surely due to the potential for drilling in coastal, off-shore areas that had previously been protected from the oil companies’ screeching demands. The fact that the results of such drilling would not be seen for 10 years was simply a nuisance factor that drill supporters chose to ignore.
Photo credit: Solarnavigator
The oil companies have made record profits over the past year and are in no danger of going broke from falling gas prices. But, consider this. The higher gas prices actually affected the driving habits of American motorists. The higher prices also made SUVs, Hummers, and the other outrageous gas guzzlers extremely unattractive to drive. Combine the two modifications – driving habits and consumer vehicle preferences – and you have a decrease in the demand for gas triggered by high per gallon prices.
Ouch. The oil companies were now looking at a decrease in demand for their product. Perhaps they had helped drive the prices too high. The solution of course was to bring down the price of gas which would, in turn, trigger motorists to once again drive like there was no tomorrow. At least that was what the oil companies certainly hoped.
Bringing down the gas prices also has the effect of making it less attractive to invest in alternative energy sources – especially if consumers no longer see the alternatives as economically feasible. Thus, producing ethanol may be cost prohibitive with the result that ethanol will be much more expensive than regular gasoline once gas prices drop.
Oil companies mouth platitudes about their desires to invest in alternative energy solutions, yet take their billions of dollars in profits and spend them on other more lucrative endeavors. The five biggest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends in 2007, up from 30 percent in 2000.
In the first three months of this year, Exxon Mobil Corporation, the world’s biggest publicly traded oil company, shelled out $8.8 billion on stock buybacks alone, compared with $5.5 billion on exploration and other capital projects.
Oil companies have not changed their names to alternative energy companies, and they never will. Look for gas prices to stay low in an effort to lull Americans back into their old driving habits and their penchant for gaz guzzlers. After all, oil companies will be oil companies. Think about it – and it should make sense.
Photo credit: Canadiangeographic