By Alan Caruba
Having written about the energy industry and issues now for a long time, I hope I can be forgiven for being enraged by the comments by Sen. Charles Schumer (D-NY) in response to President Bush’s press conference Tuesday morning. There is simply no way to describe them other than false.
The Democrat Party has long made “Big Oil” their favorite punching bag, confident that the public has no idea what influences the price and supply of oil. Saying anything favorable to Big Oil is immediately deemed evidence that one is in their pay and whatever facts are offered are therefore invalid.
There are, however, some simple truths about Big Oil that cannot and should not be ignored. To do so leaves everyone at the mercy of energy policies that have created the situation in which the United States finds itself today.
Fact #1. The combined ownership of oil reserves by the independent, investor-owned oil companies such as ExxonMobil, Conoco-Phillips, BP, Chevron and others is barely 4% of the total known oil reserves in the world. By itself, ExxonMobil’s share is 1.08%.
Fact #2. Oil is a global commodity sold on mercantile exchanges for whatever price it can command. Speculation in oil prices is the primary reason they have been driven to utterly insane costs per barrel. It has nothing to do with actual supply and demand.
Fact #3. No nation on Earth is or can be “energy independent.” The geopolitics of oil is complex, but as nations such as China and India have seen their economies grow, their need for oil grows with it and thus they compete with long established industrialized nations for existing oil supplies. This competition has an impact on prices.
Fact #4. The OPEC nations, those in the Middle East and including Venezuela, control 77% of the world’s known oil reserves. Like Russia and Mexico, where the oil industry is controlled by the state, it is generally poorly managed. Several Big Oil companies that were induced to undertake exploration and development in Russia and Venezuela actually had their assets nationalized or stolen at prices well below their investment and value.
Fact #5. Energy is the master resource. All nations with any hope of growing their economies require it, mostly in the form of electricity, but also for oil’s role in transportation. The failure to have a national long-range energy policy that is based in reality can severely impact energy prices.
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Posted by Arthur as Economics, Environmental Issues, Oil Production at 7:04 PM EDT
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By Alan Caruba
When the government of the Soviet Union collapsed in 1991, the fall was attributed to all kinds of reasons. There was the failed invasion of Afghanistan, the symbolic fall of the Berlin Wall in 1989, and, after some desperate efforts by Mikhail Gorbechev, Communism as a guiding principle and economic system simply imploded. That’s the thumbnail version that passes for history, but Michael J. Economides and Donna Marie D’Aleo have another answer and it’s one you may not want to hear.
“In the second half of the 1980s the Soviet leadership came face to face with the problems that arose as a result of the dramatic drop in oil prices, and the necessity of increasing the volume of capital investments in western Siberia’s oil industry. They failed to provide adequate solutions to these problems. The consequences were a rapid decrease in oil production, a collapse of the consumer market, a growing deficit of the most basic consumer goods, and the bankruptcy of the Soviet Union.”
“From Soviet to Putin and Back: The Dominance of Energy in Today’s Russia” by the two authors cited above is not likely to leap on the bestseller lists, but for anyone who takes a serious interest in America’s future and in current world affairs, it is the book to read, not only for its excellent history of the rise and fall of the Soviet Union, and what replaced it, but for its unique insights regarding the role of energy.
Economides is Editor-in-Chief of Energy Tribune, a magazine for those who understand that (1) energy is the master resource, (2) is the primary force behind the rise of human civilization, and (3) is the grand determinant in geopolitical affairs. From our earliest times when muscle power was the only source to the modern era, energy in its many forms has ruled the affairs of man.
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Posted by Walt as Communism, Economics, Oil Production at 9:25 PM EDT
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By Alan Caruba
In early March, President Bush, addressing an International Renewable Energy Conference, was widely quoted saying that the United States has to “get off oil.” Earlier he had said that America was “addicted” to oil. These are such huge lies one wonders why he is telling them, unless perhaps he has quietly been investing in ethanol production.
For the record, “renewable” energy refers to solar and wind energy for electricity, and biofuels for transportation. None of these options can ever be expected to provide the electric energy America uses, nor will biofuels ever replace oil for transportation.
In one of the most brilliant analysis of America’s dependency on oil, “Gusher of Lies”, by Robert Bryce, the author spells out the realities of a world in which, not just the United States, but all nations are going to be importing oil for as long as crude can be pumped from places around the world that include the Middle East, Russia, Africa, South America, and the deep ocean waters.
The problem is not a lack of known reserves of oil. The problem is the way the lack of knowledge by the consuming public is being exploited.
Yes, the price of a barrel of oil has reached and surpassed $107, but that price is subject to a myriad of factors that have nothing to do with scarcity. As OPEC president, Chakib Khelil, told reporters recently, “There is sufficient supply. There’s plenty of oil there.” He’s telling the truth. One factor is the falling value of the U.S. dollar. Oil that is priced in Euros has not risen nearly as much.
“Energy independence,” says Bryce, “is hogwash. From nearly any standpoint—economic, military, political, or environmental—energy independence makes no sense. Worse yet, the inane obsession with the idea of energy independence is preventing the U.S. from having an honest and effective discussion about the energy challenges it now faces.”
Nowhere is this more obvious in the campaigns of the Democrat and Republican candidates. John McCain, the GOP nominee, is committed to the global warming hoax that is based on the lie that the use of all forms of energy is contributing “greenhouse gas” emissions at such a rate the Earth is warming dramatically. It isn’t. There isn’t a scintilla of scientific data to demonstrate this. It has warmed about one degree Fahrenheit—naturally—since the end of the mini-ice age in 1850.
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Posted by Walt as Environmental Issues, Global Warming, Oil Production at 11:32 PM EDT
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By Alan Caruba
“The tripling of oil prices since the summer of 2003 has unleashed forces that within the next two or three years will bring oil prices tumbling back down to below $50 a barrel.” So said John Cassidy, writing about “The Coming Oil Crash” in the January issue of Conde Nast Portfolio. Yes, the price of oil will come down, though no one knows exactly when. It has topped $100 a barrel and there are indications it could go higher.
There are vast forces at work regarding the price per barrel of oil and one of them is the speculation that has driven up the cost despite the fact that there are ample supplies. The problem is not lack of oil, but whether it can be shipped to a waiting world. The potential for conflicts in the Middle East and elsewhere worries the marketplace.
Sebastian Abbot, an Associated Press reporter, points out that, “Hedge funds and other financial institutions have been buying and selling oil contracts in an attempt to generate profits.” Such trading has little to do with actual supply and demand and more to do with the kind of gambling that led to the sub-prime mortgage meltdown. And what goes up will go down. The cost of a barrel of oil is also tied to the value of the U.S. dollar whose decline against other currencies adds to the cost at the pump.
It is likely, too, that the lack of production capacity in the world oil market plays its role in the profits being made these days, primarily by national, as opposed to publicly owned oil companies. Rarely noted are the huge risks and huge investments taken by publicly owned oil companies. This is in marked contrast to the national oil companies representing some 70% of the world’s known oil reserves that, with the exception of the Saudis and other Gulf states, are almost universally failing to make adequate investments in exploration or the upgrade of their facilities.
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Posted by Walt as Economics, Environmental Issues, Oil Production at 7:45 PM EDT
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By Alan Caruba
The ugly little secret of Election 2008 is that it does not matter which candidate becomes your next President because all of them, Democrat and Republican, have energy policies that will keep America moving down the road to an inevitable lack of electrical energy and the oil, i.e., gasoline and diesel, needed to keep cars and trucks on the road. Throw in the need to heat homes and other structures in the winter and cool them in the summer, and you have a bad choice no matter who your choice may be.
In a recent Washington Times editorial, the energy proposals of the candidates were compared. All subscribe to the hoax of global warming and, with it, the notion that carbon dioxide (CO2), a greenhouse gas, has to be reduced or sequestered. Given that CO2 constitutes 0.038% of the Earth’s atmosphere, this might seem strange to anyone with any sense, but we are talking about politicians here.
John McCain is the biggest believer in global warming among those still running. He has co-sponsored a bill with Sen. Joe Lieberman that would impose an economy-killer in the form of a “cap-and-trade” arrangement on American business and industry that would have them wasting money on emissions “credits” they could use, trade or sell. This plan has been a total failure in Europe and, of course, ignores all the emissions being produced in places like China, India, Russia, the continents of Africa, South America, etc. It is idiotic.
Hillary Clinton hates “Big Oil”, possibly because they may not be among her biggest contributors. She is calling for increased fuel-efficiency standards, but I keep telling people there is just so much energy that can be squeezed out of a gallon of gasoline. It's called the Law of Thermodynamics. Much of the current energy is wasted in the form of heat and the rest keeps your pistons providing power to the wheels. This isn’t rocket science, but there are limits to efficiency, even if there are no limits on stupidity.
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Posted by Walt as Economics, Oil Production, Presidential Race at 10:50 PM EST
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By Alan Caruba
A little news item in an April 15 edition of my daily newspaper was headlined “Saudi Arabia proposes to boost oil production.” The increase was intended to “meet domestic and international demand while insuring ‘fair’ world prices”, said King Abdullah. Indeed, OPEC, the oil cartel, had twice cut production, “contributing,” said the news item, “to relative stability that has kept benchmark crude between $50 and $60 a barrel—down from the record highs of more than $78 a barrel last summer. Current prices are around 40% above 2004 levels.”
The world is not about to run out of oil, but the price is likely to remain where the Saudis and other oil producing nations want it, knowing that too high a price retards the billions that must be invested to find new reserves and then extract, transport and refine it. They know that the world is growing hungrier for oil as nations like China and India industrialize and become major economic centers.
The oil we use today is the result of careful decisions made a decade or two ago by the world’s greatest masters of risk, the oil companies whom we trust to keep the world’s economic engine running. If the price was less in the past, it is because fewer nations were competing for it and that it could be extracted from places less costly than deep oceans.
These days when I hear our politicians talk of “energy independence” while often refusing to allow our own reserves of oil and natural gas to be tapped, I am mindful that they are deceiving us.
This was clarified in an excellent policy analysis published recently by the Cato Institute. The authors are Eugene Gholz, an assistant professor of public affairs at the University of Texas at Austin, and Daryl G. Press, an associate professor of government at Dartmouth University. It had six pages of footnotes as an indication of how thoroughly researched it was.
It’s title was “Energy Alarmism: The Myths That Make Americans Worry About Oil.”
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Posted by Walt as Environmental Issues, Oil Production at 2:15 AM EST
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By Alan Caruba
“A petition seeking Endangered Species Act protection for a rare loon that breeds in Alaska’s National Petroleum Reserve has been accepted for review by the U.S. Fish and Wildlife Service” noted a May 29, 2007 Associated Press article. “Conservationists hope an eventual listing of the yellow-billed loon will curb petroleum development in the 23-million acre reserve that covers much of Alaska’s North Slope.”
So, at a time when a $100 barrel of oil makes economies around the world quiver, the “conservationists” are more interested in a yellow-billed loon than in your ability to drive to work, pick up the kids at school, or just go anywhere in your car. Thank you, environmentalists everywhere, thank you for being so obscenely oblivious to reality.
However, yellow-billed loons are not sufficiently illustrative of alleged dangers to species in the frozen North. Polar bears, however, are. Polar bears are the poster children of global warming and we all “know” that all the ice is melting in the Arctic, the bears are drowning or just damn well running out of food because “human activity” is affecting an environment in which they have lived and thrived for millennia.
If you believe such nonsense, let me first remind you that the scientific name for polar bears is “Ursus maritimus”, bespeaking their distinctive ability to swim anywhere they want.
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Posted by Walt as Environmental Issues, Global Warming, Oil Production at 7:32 AM EST
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by Thomas E. Brewton
New greenhouse-gas regulations will impinge upon personal freedom and distort the economy
Rising hysteria about the alleged greenhouse-gas role in global warming will predictably bring about a new miasma of self-contradictory and harmful regulations.
Socialism, the secular religion of liberals and Progressives, preaches that only intellectual councils, led by Al Gore, are smart enough to see clearly how everyone else must behave and to impose the necessary regulations. Universal, bitter experience demonstrates, however, that regulatory agencies cannot possibly foresee all the effects of their actions.
The free-market adjustment of millions of people can and does uncover a wealth of alternatives beyond the ken of any state-planning group and makes gradual adjustments without the unsettling abruptness of one-size-fits-all Federal regulation.
Steve Forbes, in the current edition of Forbes Magazine (DeCAFE is Healthier http://members.forbes.com/forbes/2007/0618/019.html ), notes a few of the destructive effects of mid-70s Congressional mandates for automobile fuel efficiency (CAFE). Among them: automobile accident death rates increased (smaller, lighter cars are more easily crushed); counter-productively, higher fuel efficiency induced more driving miles and higher gasoline consumption; and handing the automobile market to smaller, lighter cars undercut the American automobile manufacturers, leaving the industrial Mid-West a rust bowl with massive unemployment in the 1970s and early 80s.
In contrast, Mr. Forbes observes, the only really effective regulator is the free market via higher gasoline prices. In real life people ought to be able to make their own decisions about how to spend their money. The sharp decline recently in SUV sales makes clear that people can adjust rationally to economic market forces without the help of the Federal government.
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Posted by Walt as Economics, Oil Production, Taxes at 10:31 PM EST
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By Alan Caruba
Finding, extracting, transporting, and refining crude oil is a very expensive business. It is also a very risky one. There are no guarantees that one will find oil and, finding it, there are no guarantees that the investment and all the assets involved will not be stolen by the governments that invite oil companies to tap their natural resources.
If you want to know why gasoline and everything made from oil is going to cost more in the years ahead, I give you, ladies and gentlemen, Hugo Chavez, dictator of Venezuela, and a number of other nations who have engaged in extortion.
On June 26, Hugo Chavez told the Big Oil companies that had invested in Venezuela’s Orinoco Belt that they were going to have to sell their assets at a ridiculously low price to Petroleos de Venezuela (PDVSA), the state oil company. They were instructed to hand over majority control as part of Chavez’s nationalization program.
In power since 1999, this disciple of Fidel Castro fired 75% of the managers of the state company after they staged a strike in 2003. Only the increased investment by foreign-owed companies kept Venezuela’s oil industry from total implosion. This year he showed his appreciation by forcing out British Petroleum, Chevron, Total, and Norway’s Statoil. ConocoPhilips and Exxon Mobil Corporation have since concluded they too could not continue their operations in Venezuela.
The popular myth about Big Oil is that it wields such great power that nation states cannot resist them. The reality is that, faced with dictators like Chavez, often the only alternative is to leave or cut the best deal they can. The other reality is that Venezuela’s oil production has declined 25% since Chavez, a committed Communist, crushed the strike. With the major oil companies departing, how much greater a decline lies ahead? That is just one reason gasoline will cost more.
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Posted by Walt as Oil Production at 12:43 AM EST
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By Alan Caruba
An article in the March 19 issue of Business Week magazine caught my eye. “Why Hybrids are Such a Hard Sell” was the topic and reporter David Welch began by writing, “Given all the buzz about hybrids, not to mention the greening of the citizenry, you’d think they would be easy to sell. They’re not.”
The sale of hybrid automobiles constitutes an anemic 1.8% of all vehicle sales, down from a peak of 2.1% in October 2006.
I would suggest that Americans aren’t all that “green” despite the endless print and broadcast media harangues that our wonderful lifestyles are to blame for everything from hurricanes to frizzy hair. Those who have tried to be green have found that there are considerable additional costs involved and this has proven particularly true of hybrid cars that include batteries to permit electricity to partially replace the use of gasoline.
“One major reason is that hybrids typically cost $3,000-plus more than conventional cars,” noted the reporter. “With gas at $2.50 a gallon, it would take ten years to recoup the extra $3,000 cost of the Accord hybrid.” The cost of the batteries account for about half the hybrid premium and “cheaper lithium ion cells won’t appear for several years.”
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Posted by Walt as Economics, Oil Production at 9:30 PM EDT
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