WASHINGTON, Aug. 22 (UPI) -- Although consumers feel the pinch at the pump and gas prices may continue to rise with the Labor Day weekend holiday approaching, President George W. Bush's drive to bring stability to the Middle East will ultimately lead to lower gas prices, Vincent DeVito, former Acting Assistant Secretary of the U.S. Department of Energy, told United Press International Monday.
Dealing with immediate consumer concerns over high gasoline prices right now falls lower on the administration's priority list than the war on terror, DeVito said.
DeVito is head of International Energy Strategies, a domestic and international energy law and consulting practice firm that concentrates on the development, regulation and financing of energy projects.
The following is the transcript of the interview.
UPI. Why are prices at the pump so high?
DeVito. Supply, demand and profit-seekers likely exploiting current world events to their benefit and gain. Many claim that refinery capacity, unexpected economic growth in China and India are the prime culprits. However, it should be noted that earlier this decade we weathered a refinery breakdown, political instability in Nigeria and Venezuela, supply disruption from the Middle East and the largest terrorist scourge on our soil. All during a period of similar economic circumstances, and we did not see the record-breaking prices we are having today. Further, the circumstances today are not so vastly different from one year ago to warrant increasing prices. Last year, in meetings at the White House and at the Department of Energy, we spoke of a fear premium on a barrel of oil. Essentially, we were of the understanding, at that time, that Wall Street was hedging against the possibility of a catastrophic supply disruption. Today, that fear premium is nearly double than a year ago without any tangible or verifiable rationale. That is why it seems to me that the oil producers are pushing the envelope to see what the consumer market will bear in the terms of prices at the pump. While speaking with numerous OPEC nations last year in Amsterdam, we were assured that production increases were imminent. The Saudis made these same assurances in public on several occasions. Unfortunately, Wall Street refuses to the accept assurances of production increases and continues to rely upon fear factors that feed into a growing fear premium.
Q. How are high gas prices affecting the Bush White House?
A. The prices are exerting a political and economic toll; however, I am sure the president understands the dynamics his policies have over current prices. The president is focused on winning the war on terror. That is his most critical job and, in the long term, inures to our benefit. However, with the war on terror being such an all-consuming effort, other matters naturally fall lower on the priority list. The rising cost of energy is one such item and President Bush must use his political capital judicially. While instability in the Middle East can be easily blamed for the current gas prices, the president's drive to bring stability to that region will eventually lead to lower prices.
Q. Is there anything the administration can do about high gas prices?
A. Yes, the president could begin to focus on immediate consumer conservation. While the government cannot immediately lower prices, consumers can achieve that result by using less gas. Unfortunately, this is not easy for the president. If the president acts logically and mentions consumer conservation, the market will spike up in a knee-jerk reaction to his words as if they equated to a declaration of an energy shortage, crisis or rationing. To right such a knee-jerk reaction, the president would have to exert much political time on public education and it is unlikely he would do so with so much riding on his relentless pursuit to win the war on terror ultimately, upon which, all of this pivots.
Q. Is there anything in the Energy Policy Act of 2005 that will give Americans relief from the high gas prices?
A. Not for the short term. In fact, the market reacted poorly to enactment of the bill. Yes for the long term. Investment in renewable energies, alternative fuels and alternatively fueled vehicles are all positives for addressing future energy concerns. Unfortunately, the Energy Policy Act did not address or study the possibility of Corporate Average Fuel Economy standards requiring stronger efficiencies for SUVs.
Q. Is there anything oil companies can do?
A. Oil producers can revisit their pricing policies to be sure that their pricing analysis and measures are fair to the extent that their numbers can support more than a how high can we go pricing scheme. At some point, corporate governance must take a leadership role here. The one benefit from high oil prices is that it makes it more economical for producers to extract oil from difficult states and locations. For instance, extracting oil from the Canadian Oil Sands is not feasible at $20.00 per barrel of oil; however, at $30 to $35 per barrel, the Canadian Oil Sands are a marketable, secure resource.
Q. In some cities, prices topped $3. How high can prices go?
A. I paid 2.99.9 today for 30 seconds until I realized I pressed the wrong fuel grade. This Labor Day, prices in most large cities will hover around the $3.00 mark. The price at the pump will stop rising after they start to have a staggering impact on inflation and profits to the oil companies begin to fall. Prices can hit $3.50 at the pump for holiday travel this fall when airline and ground transportation gets in full swing again. This will be difficult for companies and consumers alike to absorb.
Q. Is relief in sight?
A. I am concerned that there is no immediate relief in sight. The winter heating season is around the corner, the refineries will need to convert, and Iran is returning from the back burner. The White House controls U.S. Energy policy; however, the Department of Energy should seek to be a stronger voice and begin to speak of the need for consumer conservation to facilitate short term solutions. If we cannot control supply, we need to work on demand and the government must take the lead on curtailing demand. Complacency by government agencies and Congress, on the issue of energy conservation, is coming to a head.