Desperate attempts to avoid responsible action with regard to energy production have yielded a bumper crop of responses that can only be described as monumentally stupid. They include: a) it will take [fill in excessive number here] years to achieve results, b) funding of alternative energy research will solve the problem, c) there is all this untapped oil in land already leased to oil companies, d) oil profits are excessive and a windfall profits tax will help consumers, e) it’s not lack of production, companies conspired to reduce refining capacity, f) it’s all the fault of “speculators”… and there’s a whole host of other less hare-brained but still wrongheaded positions including the need for “energy independence” or the notion that building refineries on closed military bases will provide significant help.

For now, let’s look at the idiocy that would have you believe that you are suffering at the pump because oil companies conspired to eliminate refining capacity. This one deserves particular scrutiny because we being assured that there is indisputable proof of the misdeeds of oil executives in the form of incriminating memos. In reality, the smoking gun is nothing more than a water pistol … a small one … oh, and it’s broken.

One should always be skeptical of assertions that an individual or a group of individuals is acting against their own interests. Sure, it happens all the time (see support for Obama), but never when they actually perceive the harm they are doing themselves, but when we are expected to believe that established businessmen, as a group, are foregoing a chance at earning money because they have the opportunity to stick it to the consumer, it should set off serious alarm bells.

Before getting to the “proof”, let’s take a moment to examine the reason this excuse for inaction has been trotted out in the first place. Is it the cost of refining or a lack of refining capacity that’s behind the precipitous climb in the price at the pump? Is there a legitimate argument to be made that, before considering drilling offshore or in ANWR as solutions, we should address the increased price of gas attributable to the refining process? Not a chance.

Consider, according to Department of Energy’s assessment of gasoline costs, the chief driver of gasoline prices is – wait for it! – crude oil. In the late 1990s, the price of crude, while still the chief component of the pain at the pump represented less than 40% of the total. By 2001, with the average price per gallon at $1.42, crude oil accounted for only 38% of the price at the pump (54 cents). Taxes accounted for another 30% (42 cents). Marketing, distribution and other overhead – excluding refining – accounted for another 14% (20 cents). The cost of refining, already beginning to rise not so much due to a reduction in overall capacity but because of the ever more varied environmentally friendly fuel mixtures in each and every state (and the introduction of ethanol to gasoline was only just beginning), accounted for 18% (26 cents) of the total.

The world has changed radically since then. By 2002, the percentage of the price attributable to the underlying crude had risen to 43%; by 2004: 47%; by 2005: 53%. By 2007, with the average cost of a regular gas at $2.80 per gallon, the percentage of it attributable to the cost of crude oil had risen to 58% or $1.62. Taxes remained unchanged at 42 cents so, as the price of gas doubled, the percentage attributable to taxes halved to 15%. Marketing and distribution costs fell to 10% of the total or 28 cents (the nominal increase of 8 cents per gallon in no small part due to the cost of transporting the fuel to your local gas station).

Refining accounted for 17% or 48 cents of the total. The percentage was down and, again, the nominal increase was due to the increasing cost of new refining requirements demanded by environmental regulations, which now include not just grades of the gas itself but the inclusion of varying levels of ethanol. Nationally more than half the gasoline sold contains some level of ethanol. In Hawaii, it is more than 85%. California increased the required amounts of ethanol in 2007.

Now, of course, at a time when, we can fondly remember gas at a mere $2.80 per gallon, the uselessness of blaming refineries is even more obvious. The price of gas has risen to an average in excess of $4.00 per gallon and that jump is due entirely to the cost of crude, which has soared from an average of about $68 per barrel to nearly $118 per barrel. Now, crude represents in excess of 70% of the price paid at the pump. That’s right, campers, you’re paying more just for the crude now than you paid for the finished product in 2007! Can it reasonably be argued that the problem is the cost of refining, which now represents less than 13% of the total cost?

So, what about the plot to harm consumers? Congressional investigations (sic) uncovered internal memos from Texaco and Chevron arguing that margins in the worldwide refining business were extremely tight and that a “surplus refining capacity” existed undermining the viability of the business. In each case, the internal memos argued that reduced excess capacity, either via plant closures or increasing relative demand, was the only way to improve margins. Hmmmm. Well, the only response I have to that is: “DUH!”

All the memos “prove” is that the authors had a grasp of reality at a time, in the mid 1990s, when there was excess capacity. In fact, every industry is economically driven to reduce excess capacity as much as possible (which moves resources into more productive avenues to everyone’s benefit, but I digress).

Meanwhile, the margins in the refining industry – and it must be remembered that businesses do not (and cannot be expected to) deliberately lose money on some segment of their business because another segment can offset the loss – were so thin that it was impossible to attract investment capital. This is not a new phenomenon. Margins in that sector have always been thin and, according to Cambridge Energy Research Associates (CERA) data, the costs, worldwide, of refinery construction have been rising steadily and at an ever increasing pace.

What happened is that unprofitable (and largely old, difficult to convert) refinery facilities were shut down at a time when insufficient capacity was not the problem it is today and the prohibitive cost, regulatory nightmare and continued animosity of the legislative powers that be have made attempting to opening new ones an enormous risk. Instead, investments were made in existing facilities and refining capacity has steadily increased (up more than 15% since 1993).

The allegation is nothing more than a lie. And last time, I checked, business executives responding rationally to market conditions – eliminating excess capacity and expanding existing plants as necessary – is proof of nothing more than intelligence … obviously lacking in the accusers.