TOPICS > Economy

Tracking Oil’s Journey From the Pipeline to the Pump

April 10, 2008 at 6:40 PM EDT
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The price of oil fell slightly Thursday after reaching a record high a day earlier. In the second installment of our series on the consequences of the high price of oil, Lisa Margonelli, a fellow with the New America Foundation, discusses her book "Oil on the Brain: Adventures from the Pump to the Pipeline."

MARGARET WARNER: Now, the second in our series of conversations about the consequences of the high price of oil, which closed today at more than $110 a barrel. Ray Suarez has our interview.

RAY SUAREZ: For tonight’s conversation, we turn to a writer who spent four years researching the oil supply chain from the well site to your gas tank.

Lisa Margonelli is author of “Oil on the Brain: Adventures from the Pump to the Pipeline.” She’s a fellow at the New America Foundation who’s written widely about global culture and the economics of energy. She joins us from Oakland, California.

And, Lisa, in your research, you watched how oil and money move around the world. What are the consequences of $100-plus-per-barrel oil that maybe can’t be immediately seen by American consumers?

LISA MARGONELLI, Author: Well, I think most of us are really focused on the price at the pump. And what we don’t realize is like how much that aggregates into an enormous amount of money.

And right now we’re spending more than $1.2 billion a day on gasoline alone in the United States. And about five years ago, we were spending less than half that. So now we’re spending $600 million or $700 million a day on getting no more than what we were getting in 2003.

So I guess the question is, where are we getting that money?

And one thing that we kind of can see from the numbers is that people are paying for it on credit cards. They’re changing the way they shop at the grocery store, so they might be cheaper cereal or they might be a different kind of chicken that’s cheaper.

But they’re not really taking their foot off the gas pedal, and I think that that’s a real concern. In the last month or so, we’ve kind of drawn back by about 1 percent, but that’s really very small compared to the amount that the gas is costing us. So people are kind of in a bind.

Americans still oil dependent

RAY SUAREZ: So not taking their foot off the gas pedal, meaning they're still coming up with the money somehow. Where is all that added spending going? Where does the money go in this oil supply chain?

LISA MARGONELLI: Well, not very much of it goes to your local gas station, that's for sure. Those guys make about three cents a gallon selling you gas, and it's kind of freaking them out, because, of course, the gas that they put in their tanks is costing them a lot more.

And with the price rising and falling every single day, they have to kind of borrow money to put gas in their tanks. And then they have to guess whether the prices are going up or down and how they're going to calibrate that, because we've become ferocious shoppers and will cross the street or will drive five or ten minutes just to save a penny a gallon.

So what's happening is, is that those people are really struggling to get us inside the store, where they can sell us Skittles or Cokes or anything to make a profit, because they're making almost nothing on the gas.

I think it's also squeezing the truckers. One thing is that gas stations and truckers both get abused by people. People get really angry at how much the gas costs.

And so I've talked to truckers who've said that people have come and started screaming at them in the middle of a gas station as they're trying to refill the station's tanks.

And the other thing that happens is, in the gas stations themselves, people try to drive off without paying, they abuse the gas station attendants, they pull all sorts of scams in gas stations anyway, but people are incredibly resentful of the price.

Effect on oil producing countries

RAY SUAREZ: Has the money, the added money, pouring into the world economy into those countries where the oil is located, has it benefited the people who live in those countries?

LISA MARGONELLI: Well, to some extent, it has benefited them. You know, you'll see in Venezuela there are more food programs, there are doctor programs. In other countries, there's a lot more money sloshing around.

But that money really contributes to kind of a cycle of corruption and poverty. It doesn't really grow a real economy. Countries that rely upon oil devote a lot of their resources to extracting money from the outside world or extracting money for the oil and they don't devote a lot of resources to extracting taxes from their populations, which means they don't have much of a relationship to their population.

And so for a lot of countries that produce oil, they are not really seeing very much. Recent studies have shown that both Venezuela and Iran, people are feeling that they have kind of a falling standard of living, even after five years of dramatically rising oil prices.

Oil part of 'cycle of violence'

RAY SUAREZ: What about very short-term gains? Is there added employment? Is there money to be made, in places like the delta region in Nigeria or the oil areas of the gulf?

LISA MARGONELLI: Well, I think there is money to be made. There's money to be made if you can get your hands on some kind of government contract, definitely. And there's money to be made if you work for the government and you can think of a new way of getting more money for the oil.

But the other thing that's happened is that, as prices have risen for oil, there's become a really reasonably large black market in oil and crude oil and gasoline around the world. It happens in Nigeria. People steal oil directly out of the pipelines, and they bring it to tankers offshore and sell it.

And it also happens in Iraq. There's a lot of oil sort of sloshing around the borders there. And there's a lot of oil being stolen from pipelines also in Colombia, in places like Chechnya. Whole tankers sometimes disappear off the coast of Indonesia.

In these places, people are -- the oil is part of kind of a cycle of violence, because when the price of oil rises it's more lucrative to chase the stuff, and then you can trade that oil for guns and for more money, which then escalates the violence again.

Interaction in a global market

RAY SUAREZ: Who are some of the unexpected participants, some of the less-known players, standing between the oil field and the pump in your neighborhood?

LISA MARGONELLI: Well, I think one of the most interesting ones was the guy who was responsible for sending oil up over $50 a barrel in 2004. You know, I know that sounds kind of nostalgic now, $50 a barrel, but oil was around $48 a barrel.

There was a lot of struggling in Nigeria. There was a lot of fighting going on that summer between different militia groups. And then there was kind of a lull. The price of oil went down a little bit. And the militia leaders went into a peace conference with the president, and then, all of a sudden, one of them was unhappy.

His name was Asari-Dokubo. And he stepped out of the peace talks, and he picked up his cell phone, and he called a Reuters reporter in Lagos, and he said, "I'm going to take on the government, and I'm taking out one of the gas facilities."

And that got relayed immediately to the oil market in New York, where the price then shot up over $50 a barrel that day. And it's so interesting because, you know, for many, many years, the villages that sit near the well heads have been very, very far away from consumers.

I mean, it's kind of like Las Vegas, you know? What happened at the well head stayed at the well head and it never got out to us. We never heard about it.

But here we had some guy picking up his cell phone, calling Reuters, and transmitting his dissatisfaction directly to us at the pump, because, within a few days, we were feeling the pinch at the pump.

And I think that increasingly in the global oil market we're seeing that, you know, it is all one place, and we are all connected, and we can't really escape from that, and we have no idea what the repercussions are going to be, ultimately, except I think probably Americans are going to pay a lot more money for their gas.

RAY SUAREZ: Lisa Margonelli, thanks for joining us.


MARGARET WARNER: We'll have more conversations in our series next week.