Allen: Greed Stops Oil Co's From Building US Refineries

Economike: I consider you AMG's Economics Sentry, guarding the perimeter for any and all economic nonsense violations. Keep up the good work.

Paul Mattson, just to be clear about the tax, is that .75 cents per gallon on the cocktail programmes; or, as I think you meant, 75 cents or $0.75.

We wish it was .75 cents!

The environmental industry has forced our fuel suppliers to manufacture at least 27 different kinds of gasoline. It is extremely inefficient and causes unnecessary down time as they swing from one formula to another. Gasoline varies by state and even by city although nobody can predict where the gasoline will actually be burned unless it's sold to a local cab driver who stays near that city.

That and the Gore Tax are what runs our gas prices so high.

Cry me a frigging river.

Economike, clearly you know a whole lot more about this stuff than I do, but it makes no sense to me that any oil company would go out of its way to provide more product more cheaply when there is virtually no incentive to do so. Their product will only become more valuable as time marches on. I understand that as publicly-held companies they have a responsibility to investors, but in the overall scheme of things, the longer they hold out, the more money they'll make. Why produce more $2.40 gallons of gas in 2007, when in 2027 those gallons will be worth $5.40, or whatever? As for the cartel comment, simply a metaphor--a few squabbling kingpins provide the crack, and we smoke it. Besides, anything that smacked of price fixing would be illegal! And when would they communicate? They've got their invisible hands full just trying to keep tabs on the inbred Saudis, wackjob South American socialists and African genocidal dictators they do business with. A well-oiled, free-market machine!

As for my "idiocy" comment, take a look at the posts that came before mine, on my own views. Tit for tat. Perhaps I should just stick to astute rhetorical analyses like "knee jerk liberal" or "whining crybaby."

"Allen: Greed Stops Oil Co's From Building US Refineries "

Actually, that's democrats stop companies from building refineries....

The incentive to wait 20 years to pump oil makes no sense, to me. A corporation is not a living being, plotting his life events. You and I may think that way, as we plan for retirement. "Shall I sell that corner 2 acre lot now, or wait 20 years, when it will be worth more and I'll be 73 years old?" etc

Furthermore, critics of capitalism always claim the profit motive is an incentive for rapacious use of resources. Setting aside oil reserves for later is actually a conservation strategy.

The incentive to keep prices down is actually in the oil industry's interest. When oil products prices rise, we will see the market respond with investment in alternative energy. Seems like we are close to that now.

Mark -

Thanks.

johnross1876 -

You seem to assume that (1) oil companies don't compete with each other and (2) that they own enough reserves to control the market and (3) all oil reserves are equally valuable. None of these is true.

I recommend this brief article on Energy Economics for anyone seeking more insight into the oil market.

source

Oil companies don't mind a certain level of price because then it makes hard to find oil financially feasable to get. Of course, every time they get to this situation they also develop better ways of getting at it making it cheaper in the long run to drill in such locations. If the price is too cheap it actually hurts all the ancillary parts of the oil business like drilling, exploration and associated industrys. However to say that they oil companies want the supply of oil limited is just paranoid nonsense. A few more loony dictators might help matters a bit as well.

Big oil is the wrong target: the proper targets are the envirofascists and their aligned politicians.

What would be the additional cost per gallon if military expenses to protect oil supply were factored in to the price of gasoline, rather than being assumed by the taxpayers?

We could see $5.40/gallon this year, or the next, depending on global and weather events - both of which are beyond the control of those of us in Maine. By 2027 it will not be the cost of gasoline; it will be its availability and what is available as a substitute.

Country:

Your point is one I have made regarding the environmental impact of nukes, as a substitute for oil. JUST ONE dirty bomb would spew out WAY more problem, in terms of lives, $$, and long term impact on whooping cranes, than every single underground test and TMI rolled into one.

Make it a Soviet surplus thermonuke, and the impact is even more huge. Our singleminded reliance on mideast oil increases the likelihood of that specific radiation-based hazard. Reliance on nukes reduces it, by reducing dependence on oil, and reducing $$ to Arab whackos, Venezulan socialists and Mexican incremental invaders of the USA.

In short, we need to figure out ALL the costs of how we are now doing business. Not investing in and relying upon nukes has the cost as outlined above.

You seem to assume that (1) oil companies don't compete with each other and (2) that they own enough reserves to control the market and (3) all oil reserves are equally valuable. None of these is true.

I recommend this brief article on Energy Economics for anyone seeking more insight into the oil market.

source

Who owns the reserves is an important question. In fact, most of the global reserves (80% ?) are owned by national oil companies, not by private companies such as Shell, BP, Chevron, etc. Private companies are in competition more with various national concerns than they are amongst themselves. National companies such as those of Russia, Saudi Arabia, Iran, Venezuela, etc. are really in the "driver's seat."

The WSJ opinion piece you link to is over two years old. Not only is it a "puff piece" to make some people feel good, it is sadly out of date. I will take one example from it -

Since that was written, the cost of extracting oil from the Alberta tar sands has doubled. Not only has the cost doubled, the long term sustainability of this is in serious question because of the tremendous amounts of natural gas and water required for processing the tar sands into useable oil. I suggest you do some independent research on the long term viability of depending on Alberta tar sands for oil supply. I would, at the same time, question whether, "Conventional Canadian wells already supply us with more oil than Saudi Arabia."

Why did you provide a link to an article that is not only so out of date, but also filled with so many errors and omissions?

thejohnchapman - It would be very difficult to substitute nukes for oil in transportation, which is where over half of all oil is used.

Agreed. However, it could make for cheap manufacture of hydrogen (for near future transport tech), cheap power of electric rail, and naturally, every downtick in the world usage translates into lower prices, fewer $$ in pockets of those who want to kill us PER GALLON, fewer gallons used at that lower price, greater ability to sustain an Arab boycott, and maybe a shot at becoming a net exporter of oil.

We can then play the food boycott card.

It isn't the whole solution, but according to your numbers, it might be a third of it. We still have quite a bit of oil ourselves, just not enough.

We've got to cut back on our use of oil and all energy in general. The "good old days" are over and those who cut back will have money to put in the bank.

Country, you make a good point about the cost to the economy of foreign policy decisions regarding Middle East.

I always laugh at Rush when he says the first Gulf war was fought, "to maintain the free flow of oil at market prices."

Yeah, except the cost of the war is not figured into the market price of oil, Rush.

Which means the price of Persian Gulf oil isn't really a market price.

After all, the cost of North Sea storms in reflected in that oil's price. And the cost of Alaskan winters in reflected in Prudhoe Bay oil price. But the cost of insane Islamo's and Israeli aid is not in the Persian Gulf oil price. That's in the Defense budget and Foreign aid.

Country -

We agree. This shows why those who assume that American oil companies can limit the current supply of oil for future profits are mistaken.

Puff piece? OK, it's out-of-date, by two years, with respect to cost of lifting Alberta shale, but do you disagree with the general idea that risk of losing capital is preventing further development of oil production? Does that make people feel good?

Why did you provide a link to an article that is not only so out of date, but also filled with so many errors and omissions?

Because it's not. For one thing, I try to be careful in spotting "errors and omissions." Why can't you? This is correct: Conventional Canadian wells already supply us with more oil than Saudi Arabia. See here, for example.

Mike - First of all, it's not "Alberta shale", it's Alberta tar sands - more recently referred to as oil sands to make people feel better. Basically it's bitumen, the same as Orinico in Venezuela.... Tar. Oil from shale is even harder to extract. But, the tooth fairy lives on...

I don't understand this, but then I don't pretend to have a good grasp of economy as it's presently practiced -

If you mean that there are other places people can put their money more safely than investing in questionable oil extraction; then yes, I don't disagree. How much money has been lost by investors on oil shale development over the last thirty years? Oh, I forgot that was financed by the taxpayers.

Where are my errors and omissions? You clearly screw up in presenting your case. Show me some facts that Canadian conventional oil imported to the US exceeds that of Saudi Arabia. Tar sands production is now about a million barrels/day. What is Canada's production of conventional?

Quote:
but do you disagree with the general idea that risk of losing capital is preventing further development of oil production?

If you mean that there are other places people can put their money more safely than investing in questionable oil extraction; then yes, I don't disagree.
Huber's thesis is that new investment in higher-cost lifting and extraction is risky to capital because the Saudis can flood the market to depress prices long enough to put new higher-cost producers below profit margins.

Canda's total daily production is about 2.3 million/day. Therefore conventional production is about 1.3 million/day. This exceeds daily imports from Saudi.

statcan.ca

I have no knowledge of Huber's thesis, but I can say that based on recent research there is some question as to how long the Saudi's will be capable of "flooding" the market.

PS. Since the US is now importing over 2 million bbls/day from Canada, what are the Canadians running on?

I agree that we should find ways to reduce severly dependency on foreign (by that I mean unstable regimes) oil. By some annoying quirk of nature much of the world's oil seems to be under the world's political hotspots. Its not anti-oil company or climate change hysteria which says this is a wise move its basic common sense.

You can read Huber's thesis in the link I provided about Energy Economics. I agree with you that there's some question about the Saudi's ability to flood the market. At some point, demand for oil will exceed their capability to meet it. The world market may already have arrived there.

Canada imports about 55% of its oil consumption.

That was a test question and you get an A. Canada imports about one million/bbls/day to the East Coast as there isn't a pipeline connection that can handle that much oil from the western sedimentary basin, where most of their oil is. (I have a friend that's been with the Geological Survey of Canada for thirty years.) :wink:

I'm glad that someone made the point that there are,in fact, larger companies that ExxonMobil. ExxonMobil is in fact, the seventh largest. All the others larger are State run companies. ExxonMobil is just the largest in the US.

This is important because it illustrates their ability or more accurately their inablility to manipulate prices. Would they manipulate prices if they could? Who knows, perhaps they would, but it is irrelevant because they are in no position to do so. They are just players in the world oil markets, and the price of oil is moving in reaction to market forces that are far beyond the control of ExxonMobil and the US government for that matter.

Charlie Maxwell, a world recognized oil analyst, said that ExxonMobil, when it comes to controlling world oil supplies, are just like every other oil bidder- " they go begging".

I got a PM from a member of this forum asking about the Alberta tar sands and I thought I should post part of my reply here.

I think water may well be the limiting factor. Water will also be the limiting factor in much else of what goes on. There is only so much fresh water to go around. We're limited by the hydrologic cycle, whether it's processing tar sands to oil, irrigating crops, or providing water to flush toilets. It could well be that water will displace oil as our main concern in the future.

Mark

You make a good point regarding the real COST of oil. It reminds me of some other costs.

What strikes me about the whole oil debate is the ideal of ever increasing consumption of consumer goods that undergirds the western way of life, America being the leader. It looks as though we would rather fight than switch to an ideal of “enough.” The current system of representation, shaped as it is by liberalism’s desire to make the world safe for power and profit and thus its privatization of the voice of limits inherent in religion, will never be able to address the problem of energy. It is trapped by its own values that put a premium on having and getting as opposed to being and giving. You can’t marshall a comprehensive energy plan for the future, at least not one that encourages an economy of care and enough, without an adjustment in values. That won’t occur as long as religion is regarded, as liberalism would have it, as a private matter.

The real cost of oil also has to do with the real consequences of privatized religion, the enshrinement of absolute individual freedom and the national mind set of rights and entitlement this has created. A national religion of a nation-inventing sovereign people, the sin of being un-American, a redemption-promising American Dream and all those sovereign people who believe in reason and good will is a poor substitute for recognized religion. The problem is too many of our religious leaders have been seduced by this substitute and so are hard pressed to deal with anything but symptomatic manifestations of the problems it helps create like abortion, homosexuality and the like. The cost of oil and the social network of institutions and values that support the outlook on life oil is part of are in need of analysis. Christians can’t know what to come away from and what to embrace without a massive revival in tools of discernment.

We don’t need another Great Awakening to bring more souls into the Kingdom. There are already enough Christians in our nation to operate as a critical mass in a cultural shift. What is needed is a reformation in the Christian community to enable it to come to grips with what is happening both in and around it. Only then will it be able to offer a vision of healing, justice for all and a stewardship of limited resources that speaks comprehensively to the public square. Should that ever come into being the COST of being in this world as a representative of such an outlook will become apparent. Perhaps if our religious leaders talked more openly about the cost of discipleship, exposed the civil religious outlook that controls public options and began to lead Christians into an expanded Body life that grapples with biblical wisdom we might have more to offer in the public square. Unfortunately the COST of moving to such a place to stand is not something we’ve been led to think is necessary but that makes us no less accountable to God and one another for what we do now.

As you might imagine, like liberalism’s life encompassing replacement of recognized religion, I understand my redemption in Christ to encompass all of life. But that is not something I can work out the meaning of all by myself. The COST of that, just like the cost of oil, is something I need to share with others.

Country

Thanks for the practical observations. I think you have exposed the fallacy of depending on limitless resources and technological fixes. Everything is interconnected in some way and, thus, more complicated than we might imagine. Of course this doesn't require demeaning technology's life enhancing contributions. Its all about the framework of values that exist prior to technology. They are what, humanly speaking, drive the future into the reality of rewards and consequences from which there is no earthly escape.

Alan - with all due respect, I think we should learn more about Buddhist practice.

The notion that human productive capacity is limited by known resources has an illustrious history. I'd guess that back in the Stone Age some smart guy predicted we'd be suffering as soon as we ran out of rocks. And probably some wise old bird chimed in that our ideology of an increasing abundance of rocks was a sure symptom of spiritual imbalance and arrogance.

The early classical economists, including Adam Smith and David Ricardo, believed that the supply of arable land, not energy, was the constraining limit to human productive capacity. This idea explicitly was advanced by Thomas Malthus in An Essay on the Principle of Population (1798), from whom we get the adjective Malthusian.

Malthus' ideas enjoyed a revival in the last century as the Population Explosion. Today, given the (1) falling off of global birth-rates and (2) advances in global agricultural production the Population Explosion is about as trendy as disco. It was a quaint fad that will probably return in new form some other day.

In the nineteenth century, many economists came to believe that exhaustion of known energy supplies would lead to a decline in productive capacity. Stanley Jevons, for example, argued in The Coal Question that industrial vitality would decline as the cost of coal rose.

The Coal Question

To quote Jevons' biography -

It's easy to draw a straight line from a trend and call it a prediction, but history is full of unexpected twists and turns. Remember Feldstein's Law - "If things can't continue this way, they won't."

I hope these quaint and discredited notions of limits to human productive capacity will serve to remind those among us who believe that we must "cut back on all energy in general" that human conceptions of "limits" in this regard are really only the limits imposed by our imaginations. Energy production is limited only by human ingenuity.

Meditate on that for an hour or two, or maybe a day or two, and then tell me why you think that's true.