May 15th Senate Hearings on Oil and Gas: We May Have A Problem
Posted by Robert Rapier on May 21, 2007 - 9:42am
On May 15th, the Senate Committee on Energy and Natural Resources conducted a hearing entitled Short-Term Energy Outlook Summer 2007: Oil and Gasoline. You can watch the web cast here. I have done so, and this essay will be about my impressions of the hearing.
You can find the testimony of the various witnesses at the links below:
Mr. Guy Caruso - EIA Administrator
Paul Sankey
Geoff Sundstrom
Kevin Lindemer
Mr. Sankey is an analyst with Deutsche Bank, Mr. Sundstrom represents AAA, and Mr. Lindemer is an analyst with Global Insight. The witnesses really knew their material, although Mr. Sundstrom seemed terrified and Mr. Caruso had to make sure some of his answers were "politically correct." On one occasion Mr. Caruso stated that the EIA does not foresee that cellulosic ethanol is going to scale up to even a billion gallons by 2030, and one senator said "Isn't that in direct contrast to what the president thinks?" Then some pretty nifty tap-dancing ensued.
The Q&A, in my opinion, was an embarrassing display of partisan politics, and revealed serious deficiencies in some of the senators' understanding of energy issues. Some Republican senators took the opportunity to push for coal-to-liquids and drilling in ANWR, and some Democrats did a bit of grandstanding over windfall profits - directly ignoring the answers the witnesses were giving them.
For example, Paul Sankey had explained that oil companies lost a lot of money in the 80's and 90's, and therefore investments fell off. A couple of different senators kept asking the same question again and again: "Yeah, but why aren't they investing today, with record profits?" Sankey's answer to this question was that they are investing today. His answer - delivered numerous times - was merely ignored.
Sankey didn't mince words at all, and at one point told the committee to keep in mind that these record high prices are less than half the level of the prices in Europe.
Anyway, here were some of the more interesting exchanges which I transcribed myself. Senator Craig Thomas was the first to demonstrate that he didn't understand the answer to a question:
Senator Craig Thomas: Most any time that you have great markets and so on, you also have investment, like in the refineries. When the market is there, and the price is high, I don't understand the lack of incentive to invest.
Paul Sankey: The incentive is there, and the companies are now investing, it's just not an issue that you can expect that 4 years after companies are making losses, that suddenly there is an exponential increase in investments in refining capacity. It's just not that simple. It's a very tough market out there for any kind of infrastructure investment, as I mentioned you have competition from the Canadian heavy oil sands, you have competition from Asia, in Europe; but these companies are increasing their investments. The fact is that the companies are deploying capital to the best of their ability. One disincentive for investment is brought about by uncertainties in regulation and government interference. One concern they have is that regulations will cause them to lose money if they invest now. In my opinion it's in your interest to maintain a stable regulatory environment to encourage investment.
Senator Craig Thomas: I agree with that. But if lack of infrastructure is causing the price to go up, and the companies are not investing in infrastructure then it seems to be a bit of a contradiction."
So, right after Sankey says they are investing, Senator Thomas can't understand why they aren't investing. I lost count of how many times Sankey went through this routine. You would think eventually his answer might sink in.
Immediately after the above exchange, Senator Ron Wyden from Oregon apparently awoke from a slumber, because he asked the same question:
Senator Wyden: Mr. Sankey, quick question. You stated that in the 80's and 90's, there were poor returns for the companies, and that contributed to their problems. But now we also have the problem of starving investment in refineries, but we have record profits. Certainly that's been the case for the last 5 or 6 years. Why wouldn't the companies have invested in refineries and in the infrastructure - the things that were missing in the 80's and 90's - in the last 5 or 6 years?
Paul Sankey: This goes to the same point. You had losses as recently as 2002, and there have been changes in regulations - potential threats to gasoline as the fuel you want to make in this country. If you are talking about an investment of 2 or 3 billion dollars, it's immensely expensive now to add refineries, and there are huge amounts of uncertainties over how much it will ultimately cost you because of all the other challenges that there are out there with global energy infrastructure competing away the staff and materials to do the job. But even amongst all that, we have some fairly significant investment going on right now. One of the subtleties here is that we may not be adding a tremendous amount of capacity, but in terms or our ability to upgrade more complex heavy, sour crude there is very definitely a surge of investment going on.
Senator Wyden: I can see the argument, and you make it eloquently in your paper for not going forward with investments in the 80's and 90's; it just doesn't make sense given these record profits.
You have to wonder whether he heard a word that Sankey said. Is he just posturing? Or is he not paying attention? Or does he not understand that investments are actually being made (as I show in later)? Yes, these are the people formulating our energy policy.
The other exchange that I watched in disbelief happened between Senator Robert Menendez and Sankey:
Senator Menendez: Over the past few years, it seems that bracing for the onslaught of record high prices at the gas pump has become as common as planning for the summer vacation. And we see prices rise and fall, we understand the concept of a changing supply and demand chain, that's not foreign to us, but when we see no singular event, no visible cause for the increase in prices, consumers scratch their heads and try to figure out what's happening. This is the 3rd year in a row in which consumers are facing gasoline prices above the $3/gallon mark. Yet there's no devastating hurricane this year; there's no single event at a refinery or in an OPEC country that explains why, in the first half of May, consumers are already experiencing sticker shock. Mr. Sankey, when you say there is no price manipulation through the whole supply chain, then why do prices seem to spike during times of greatest motorist activities such as the summer, and Memorial Day weekend? Now, I am sure that demand is part of the answer, but it seems that we find that it is in these time periods that the prices spike. Is that just convenience, that it just conveniently happens that way? Is it just a pure coincidence?
Now remember, Senator Menendez just said that he understands all about supply and demand, and now is asking if it's a coincidence that prices increase at the times of highest demand. If I had been a witness, it would have been hard for me to hide my disbelief at this question from another member of the Senate who happens to be formulating energy policy.
Paul Sankey: I would highlight once again, that BP has 2 of the 5 largest refineries in the U.S. effectively running at half capacity right now because of the safety issues. What happens in times of such tight capacity is that you have an extremely seasonal market. What happens is that at times of demand run-up, you begin to exceed available supply and prices rise exponentially, attempting to price out demand or encourage more supply. What you will find in such a tight market is that in winter you will suddenly get tightness in natural gas and heating oil, because there isn't that available spare capacity to address the sudden seasonal rise in demand, and when you get to driving season - because everyone loves to go to the beach on Memorial Day - what you find is that you exceed available supply and then prices rise exponentially.
Then Senator Menendez gets his facts completely wrong:
Senator Menendez: Isn't there a reality that we are paying for some industry decisions that actually reduced refining capacity in this country? I mean there was a time that we had greater refining capacity, and the industry reduced that refining capacity, and as a result of making that decision, consumers today find themselves with exactly the consequences that you have described in your testimony before.
Sankey then tried to explain something about the cycle, but did not correct Senator Menendez on the key point: Refining capacity has not been reduced; it is at an all time high. Some refineries have been closed down, but the expansion of the existing ones far surpasses the lost capacity from those that were shut down. See my essay addressing this.
But Senator Menendez continued:
Senator Menendez: My point is that the reduction in refining capacity helped drive up the cost.
Your point is incorrect, and you misinformed a lot of people when you made it. Perhaps this kind of misinformation explains some of your anger at the oil industry?
But don't take my word for it. Visit the EIA and see the numbers for yourself. Refining capacity has increased by 2 million barrels per day in the past 10 years. And in the past 5 years? The years that the senators complained that no investments were being made? Refining capacity has increased since 2002 by 700,000 barrels a day - 250 million barrels a year. To put this in perspective, that amount is equal to 10.7 billion gallons, or about double the entire ethanol production in the U.S. That's the amount of refinery expansion that a number of senators on the committee pretended never happened because they believe no investments have been made (and this on top of the investments to upgrade heavy, sour crudes and to produce ULSD and ULSG).
Final Thoughts
I don't know if the committee members are really so uninformed, or whether they were just playing politics. You got the impression watching the web cast that they were making some statements just to make sure those were picked up by the media, regardless of whether they were accurate. Senator's Wyden's comments are a perfect example. It was clearly explained to him that investments are being made, and then he turned around and asked why they weren't investing.
The comments from Senator Menendez may be another matter. He may actually believe that refining capacity has been reduced. But he is on the energy committee. He should understand the overall picture. This is important stuff, and we can't have energy policy being formulated by people who are either proceeding with half-baked ideas, or are just interested in scoring political points.
There is also one thing that all politicians must come to grips with. Let me make it crystal clear that I firmly support tough environmental regulations. I support the move to ultra-low sulfur diesel (ULSD) and gasoline. I support phasing out benzene in gasoline. I would also point out that Senator Wyden has been actively involved in this issue. But the politicians have to understand that these regulations do have consequences. If you tell refiners they must install equipment to produce ULSD, there are four things to keep in mind.
First, this necessarily redirects capital that might have gone into expanding refining facilities. Second, it increases the costs of producing the fuel. Third, this additional level of processing reduces the overall product yield. Fourth, and perhaps of greatest importance, it increases the complexity of the refinery. Those are the consequences. The more complex the refineries are, the more unreliable they are going to be. So, when you formulate these sorts of rules, don't sit around and scratch your heads and ask "Gosh, I wonder why gasoline prices are going up?" Part of the reason gasoline prices are going up is because of the policies you have enacted. Many of which - as in the case of the aforementioned environmental regulations - I believe were the correct policies to adopt. Nonetheless, these are issues that helped to bottleneck the refineries and crimp supplies - driving up prices.
But I have to tell you that I am sick of the way these hearings are being conducted. I want you guys to put your heads together and formulate a coherent energy policy. Stop playing politics with this. It is far too serious a matter. The committee members also need to get up to speed ASAP on energy issues. We don't need members on the energy committee who have a tenuous grasp of these issues. Finally, listen to what your experts are telling you. If you are going to call expert witnesses to testify, don't completely ignore their testimony just so you can quote your canned sound bites. START SOLVING SOME FLIPPING PROBLEMS!
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When Sankey said
"One of the subtleties here is that we may not be adding a tremendous amount of capacity, but in terms or our ability to upgrade more complex heavy, sour crude there is very definitely a surge of investment going on."
Instead of completely not listening and questioning the lack of investment, an intelligent person paying attention might have probed the type of investments rather than keep asking why there is no investments (when it was clearly stated that there were).
You assume these politicians are not intelligent. I assure you that they are but their focus is on their own personal power and on getting re-elected, not on solving problems. Now you may say that is not intelligent but from their perspective they are bombarded every year with supposed threats to civilization and most of them have not blown up in their faces yet. So they feel fully justified in ignoring such dire cries and instead in believing that things will continue exactly as they have continued. In other words, these politicians are intelligent, very literate, but completely innumerate. See my sig. ;)
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
The presence of the television cameras changes the debate. Suddenly it becomes an infomercial aimed at the American couch potato. Reasoned analysis is neither desired nor useful.
Later on they will read the report or have one of their staffers do so and (hopefully) that, along with the ususal political concerns, will guide policy.
I think you are correct, the staffers have a lot to do with matters. I know many politicians. Some are extremely intelligent, some are not at all. Their effectiveness almost always depends in no small part to the skill of staff and operatives working on their behalf.
All politicians I've met (bar one) have been very intelligent or at least very cunning when lacking in hard IQ.
What all politicians who run for more than one election term understand: You need to get re-elected. All else stems from that.
The longer versions goes something like this:
1) Change is slow
2) To be able to fuel change, you must keep working at it
3) Due to 1+2, you need to be at it for a long time
4) To be at it for a long time, you need to get re-elected
5) To get re-elected you need to be popular
6) To be popular, you need to echo the sentiments of the voting masses (not minorities)
7) To really compete against others, who are also popular, you need to have a lot of funding to get coverage
8) To get lot on funding, you need to echo the sentiments of those who can fund you
9) Often the sentiments of masses and funders are in direct conflict and you have to betray one or the other
10) When in doubt, betray the masses, because priority no. 1 is to get re-elected and funders have longer memory than voters and in this day and age coverage means more than being popular due to your opinions.
Q.E.D.
And once you do the loop 1-10 plenty of times, it becomes an automaton. It runs by and feeds itself. Pretty soon, it becomes the major goal, not just the sub-goal to help you get things done.
Thus, everything is for sale, except the ability to get re-elected.
There are of course the select few who have strong principles, but they don't usually last for very long in this game, unless their principles happen to be miraculously in-line with both the voters and the funders.
exactement. For those interested, I would direct you to Richard Fenno's Homestyle or David Mayhew's The Electoral Connection.
This is pretty correct. Most local politicians that i know personally are intelligent and highly principled.
When it comes to advancing an agenda (say putting more of the budget into transit rather than road widening) they rely on their staff to tell them how far they can push it without getting thrown out of office, or what aspects of issues are really important to voters so compromises can be struck etc.
At the federal level its probably all too easy to become divorced from reality.
Presumably at higher levels the game becomes much harder as well, so to survive one has to throw those principles away (if one had them to begin with).
10 sums it up, the rest is chaff.
OH my GOSH!
BRAVO to You! This sums it all up. I'll drink to that, and I'll buy the house a round, heck, make mine a double with that!
You have just officially summed it up for all career politicians. It's all about re-election. It's all sad but true. (Metallica song ring a bell?) It all boils down to re-election. Tell them what they want to hear, must get re-elected. The means justifies the end!
I had thought about running for politics in my younger days, but on reflection, i just couldn't sleep comfortably!
sheisters
Why would the refiners want to add capacity when there will not be any more oil available to refine!!!!!!!!!!!!!!!!!!!!!!!!!! This is so simple even a congressman could understand it if they knew the facts!!!!!! We need to add more capacity to other forms of energy not gasoline because the capacity will not be used long enough to pay for the large investment.
Nowhere is Now Here!
I just got raked over the coals about this statement in particular, and my partner informed me of:
Spectacular finds in Bohai Bay
Nine billion barrels of crude in open pools in Iraq
Giant discoveries off the Gulf Coast
Russian expansion in crude output
All I did was opine that perhaps refinery construction was low priority because the oil experts already knew that there wasn't all that much to refine.
Am I crazy?
No, you absolutely correct. Unfortunately, the correct view is held by a very small minority at this time. But, give it time.....
As with most people, including so called experts, she's completely missing the point ... there's loads of fossil fuels around ... we just can't get at it quickly enough to supply the desires of 6.7 billion people.
Xeroid.
I agree with your assessment of this hearing and the way that these experts testimony was ignored. Given the apparent density of the mindset of some of these senators, it's not suprising that nothing seems to be accomplished.
Having tried to spend time with my representative on this issue, one thing becomes abundantly clear...they are distracted by other concerns and "bad news" delivered to the public is generally not seen as a good thing, particularly by the Congressional staffers.
As for Caruso, given the recent past track record of the EIA in their predictions, it seems the "happy talk" about supplies and prices is wearing a little thin.
Caruso looks like an idiot and talks like an idiot. He is a man who should have been demoted or let go years ago. Worthless. Not surprising that EIA's predictions are not worth anything.
Nice Summary Robert!
I think we will see this same psychology in various forms as we enter this era of expensive energy.
There will be an expectation of a "fast food" solution, ready just-in-time, and when people see/realize the problem.
And, the blame game when there isn't a short term solution.
I'm sorry to keep harping on this Robert, but I keep seeing this mindset in the refining industry. They are investing, but mostly in upgrading to refine heavier crude. Is this the only area worth investing in the future? Isn't this an admission that we have at least peaked on light, sweet crude? This fact alone is cause for HUGE concern and I am surprised you have not highlighted it more.
Robert has already stated that light sweet peaked. The general agreement on light sweet was a 2004 peak. That peak date is agreed upon from Campbell to some cornucopians. There is very little dispute of that peak. The focus is now on heavier crudes, hence the focus on refining heavier crudes.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Yes, but this does not jive with what Robert has said about the crude runs going through refineries lately. He has stated that the grade of crude has not changed in 10 years. My point has been that some of the refinery problems we have been experiencing as of late have been due to heavier grades of crude going through the system. If there is more availability of heavier crude (and cheaper) then those plants designed to run heavy are being worked harder than usual. Those that run only lighter grades are not being run at capacity.
That's not what I said. Crudes have heavied up in the past 10 years. But they have been stable now for several years. However, if you look at the data:
http://tonto.eia.doe.gov/dnav/pet/hist/mcrapus2m.htm
You will see that the most recent statistics show a very recent trend back toward lighter crudes. You are almost certainly seeing the BP effect there. The crude runs from January and February were lighter than at any time in 2006.
If you look at 2006, though, the gravity was the same as in 2002. If you go back a few more years, though, you will see that the crude today is heavier than it was in the late 90's.
But what about those refineries running ONLY heavier grades? Is there any way to see what kind of capacity they've been trying to operate? There is probably nothing out there that breaks this out.
But what about those refineries running ONLY heavier grades? Is there any way to see what kind of capacity they've been trying to operate? There is probably nothing out there that breaks this out.
Those numbers are for oil "input to refineries". Does that necessarily tell us the gravity and sulfur content of the US oil stockpiles?
Those "stockpiles" are primarily the refinery tanks that are feeding the crude units.
Following is a link to a 2005 Econbrowser article on light/sweet versus heavy/sour crude. The second link, from the article, shows the declining gravity (getting heavier) and increasing sulphur content of non-Opec oil production.
http://www.econbrowser.com/archives/2005/08/sweet_and_sour.html
http://www.econbrowser.com/archives/2005/08/sour_production.gif
Note that the chart is mislabeled. The bar graph is API Gravity.
Interesting comment from the article:
I just think in light of all the work Stuart et al. has put together and the fact that we KNOW light crude has peaked worldwide, it is really a no-brainer that we are oversupplied in sour crude, but DO NOT have the refining capacity to turn it into enough finished product to meet demand.
Therefore, we try to import more finished product to make up for the shorfall in domestic manufacture of the product.
Therefore, we have more refinery problems for those sour crude-capable refineries running nonstop.
Is this out in left field somewhere?
As long as you treat it simply as a working hypothesis and then look for data, you are ok. Just don't take the hypothesis as gospel unless/until data verifies it. Could the heavier crude units be down more often because of being run harder? It sounds plausible. However, as I noted elsewhere, I have read at least one article that pointed out that two west coast refineries were down for upgrades to handle more heavy crude so in at least those 2 cases the outage was planned and intentional with the end result being more flexibility.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Im with Dragonfly on this point about lack of supply vs too much demand.
Having read all the posts below at this time stamp no one on this site states the obvious point that until very recently there was always excess refining capacity for the U.S. market. Always. Always. Always for 75 years there has been enough capacity to prevent shortages. Or at least so close that a tanker or so could cover a shut down.
Now all of a sudden there is not enough capacity. How did this reality come about. CERA and others have been predicting increasing demand every year until 2020. Of course we will need more refining capacity. But we don't have it. No one built it. Either in the U.S or over seas. Why not?
If everyone of importance is forecasting increased demand for 20 years out (back in 2000) and crude will not be scarce for 20 years (back in 2000) then building more refining capacity should have been a no brainer. You could forecast demand and supply and see a shortfall of supply of refined products.
Apparantly most refining people were not really convinced that demand would go up significantly and/or oil would stay plentiful and cheap through that time frame. Therefore no investment. Too much risk.
So I am watching what some people in the oil industry actually did vs what other people in the oil industry actually said and the two realities are not the same.
One last point for Robert. If all the investment in refineries is to convert current capacity of light sweet to the same capacity of heavy sour than capcity has not increased. This is where the investment has been, getting ready for heavy crude replacing light sweet. Lots of investment by the industry. But to say that investment is increasing capacity is a bit misleading.
20 years ago the same investment would have increased capacity. Today investment just maintains capacity. We have talked about this on TOD and it is another piece of why it is becoming harder and harder to increase supply, independent of a geological peak.
If everyone of importance is forecasting increased demand for 20 years out (back in 2000) and crude will not be scarce for 20 years (back in 2000) then building more refining capacity should have been a no brainer. You could forecast demand and supply and see a shortfall of supply of refined products.
See Sankey's comments about losses in 2002. If you are losing money, you aren't investing a great deal in capacity. Also, BP has a lot of capacity out of commission right now. Don't overlook the significance of that.
One last point for Robert. If all the investment in refineries is to convert current capacity of light sweet to the same capacity of heavy sour than capcity has not increased. This is where the investment has been, getting ready for heavy crude replacing light sweet. Lots of investment by the industry. But to say that investment is increasing capacity is a bit misleading.
Well, your point is inaccurate. All of those investments weren't merely to convert capacity. Total capacity has actually increased, which is the point I made in the essay.
"Well, your point is inaccurate. All of those investments weren't merely to convert capacity. Total capacity has actually increased, which is the point I made in the essay."
Robert,
I get your point. I still maintain that capacity has not increased nearly enough to meet the FORECAST Demand. My understanding is that the high prices of the past 2 years have slowed demand from the Forecast level of 2007 from 5+ years ago. If demand destruction, worldwide, had not occured recently than demand & prices would be even higher than they are today.
So either increased capacity didn't happen fast enough to keep prices moderated or demand increased faster than forecast. I do not see evidence that supply has increased more in the last 2 years than forecast 5 years ago. Correct me if I am wrong.
I really dislike talking about supply vs. demand in the present because by definition they must equal. They key is where people thought demand would go with prices in the $2.00/gallon range. I submit we are way under capacity for $2.00 gas which is what people expect and $30/barrel crude would give us. And where is that $30/barrel crude we have been promised for 2 years?
The public doesn't get the nuanced debate (I just had one with co-workers taking your position) they just blame OIL COMPANIES for not maintaining supply. The OIL COMPANIES (Exxon, Shell, CERA, etc) are to blame here because they always say prices will go back down WITHOUT demand having to go down. Obviously that is not happening now.
20 years ago the same investment would have increased capacity. Today investment just maintains capacity. We have talked about this on TOD and it is another piece of why it is becoming harder and harder to increase supply, independent of a geological peak.
But as Robert has shown, refinery capacity has increased significantly over the past decade. That's what the EIA numbers show (vs just a switch from light to heavy). It's just that demand has risen even faster and, due to a tight world market, imports of gas are down.
Well, I would not doubt that because we haven't run out of light crude. It's still out there, so we built more capacity to sell to the demand, but somewhere along this timeline, companies have started to make the decision that they had better get ready to refine some heavier crudes.
So sure, we have built in more capacity at the same time trying to upgrade for heavy. Transition points are not abrupt, they are a mixture over time.
Whose job would it be to fund, build, and maintain unused capacity for the expressed purpose of keeping it around as EXTRA? In order to create unused capacity in the electricity markets, the US had a system wherein the state regulators guaranteed a minimum rate of return and a full cost recovery for building unused capacity. With deregulation, we have since moved pretty far from that model, and I wouldn't expect to see it soon in petroleum refining. If gasoline is a public utility, it should be regulated as such. It is not.
Good point, lago.
Can someone give the exact details of which state/county/municipality that has volunteered to have a massive new heavy oil refinery in their back yard?
In the Democratic debate, John Edwards said that we have a demand problem when asked why prices are so high. The irony is that one of the commentators on MSNBC "corrected" him after the debate to say that we had a refinery problem. See, it is not just Senators who are ignorant, willfully or otherwise.
John Edwards was almost uniquely honest in his answer. The blind spot which prohibits other Senators from understanding or telling the truth has to do with demand. Once you take on demand, you have to implicitly admit that it is your constituents who are a major driver of the problem. Once you do that, you introduce an element of risk --- the risk being that you may not be reelected. With the possible exception of Wyden, these are not stupid men and did not get to where they are by being stupid.
What you did not mention is that Sankey said that one of the oil companies greatest fears is that demand will be reduced. If demand is reduced, their investments will turn to shit. But he was sending a message to the Senators. They have the power to influence demand, hint hint. But they would rather rail againt the refiners and the oil companies. Much more popular. It is fun to rail against the oil companies. To rail against the consumer not so much.
What you did not mention is that Sankey said that one of the oil companies greatest fears is that demand will be reduced.
This was in fact an important point. On the one hand, the senators were saying "You need to be investing." On the other, they are supporting a 20% cut in gasoline demand in the next 10 years. Now, I don't think that's going to happen just because policies are passed to make it happen, but if you can see that the political tide is strongly against the product you are churning out, why invest billions?
Vaguely reminds me of California's energy bill of a few years ago. The proponents were touting how competition would stimulate new power plant constuction and therefore drop the price of electricity. The glitch was that as long as forecasts for prices were all showing a likely drop, no one wanted to build a power plant and lose money! We wound up with higher costs and shortages (greatly assisted by the corruption and manipulation of the market if course).
I did an analysis of the California deregulation plan while in B-school back in 1996/7.
My conclusion was similar to yours. By deregulating we would REQUIRE shortages and resultant high prices before anyone would build new capacity. New capacity attracted to high profits would flood the market leading to a glut and a crash.
Eventually, rising demand from low prices would suck up the glut and produce shortages.
Other logical consequences were that short-lead time, low capital cost capacity would be built but with high fuel consumption - all to take advantage of market swings and avoid having too much at risk.
Hello and thanks again, Robert,
re: "Now, I don't think that's going to happen just because policies are passed to make it happen, but if you can see that the political tide is strongly against the product you are churning out, why invest billions?"
So, umnnn, what do you think we should do?
It seems we (here) agree that conservation (consuming less) is good because it delays the onset of either "peak" or the edge of the plateau (depending in the "when is peak" conversation)...yes?
At the same time, OCs not just worry about, but actually *fear* "demand will be reduced". (Yes?)
So, they "won't"/"can't" (from their position) announce even the concept of "peak" in a meaningful way...(?) (As an example, but not to take away from my point...it seemed to me the Chevron ads were somewhat disingenuous in this respect.)
So, re: "... if you can see that the political tide is strongly against the product you are churning out, why invest billions?"
Well, where do the OCs *want* "the political tide" to be?
In other words, who is really in a position to talk about the problem (finite supply/"peak") in terms that matter?
More proof that we have the best politicians that money can buy.
More evidence that the US political system is fundamentally and inherently dysfunctional. IMHO, the country has become too large to be governable; the FedGov has certainly become too large to be manageable. No effective leadership or rational policy decisions can come out of this political system.
I believe that as the energy situation gets worse, we will see calls for secession from the "Union." I can see some of the Western States wanting to leave.
Interesting thoughts but if that really happened I think we'd have another Civil War. Do you think National Guard members in those Western states (the ones that are not in Iraq) would take up arms against the United States of America? I don't think they would unless they saw themselves as citizens of their state first and citizens of the USA second. So who would do the fighting for the Western States?
I posted this a few days ago, but I'll do a quick recap. It is not generally known, but is right there in the US Constitution as plain as day, that there is a perfectly simple, legal, and peaceful method to dissolve the Union.
The states have the power to call a constitutional convention without the prior approval of the US Congress. Any amendments proposed by said congress go directly to the states, and become law upon ratification of >3/4 of the states.
There is absolutely nothing preventing said convention from proposing an amendment that would terminate the constitution and disband the federal government altogether. There is in fact already a legal precedent for such an action: our present constitution was proposed by such a convention originally convened to amend the Articles of Confederation. There is therefore nothing that either the Congress, or the Supreme Court, or the President could LEGALLY do to stop it. Whether such a chain of events would trigger a declaration of martial law by the POTUS to prevent the dissolution, we can only speculate. However, note that this in itself would actually be a coup d'etat and would also effectively nullify the constitution, with less legal or democratic justification. The ultimate loyalty of the military would thus also be a matter of speculation.
Everyone assumes that the civil war proved that dissolution of the union is now impossible. At least that is what TPTB would like everyone to believe. If the dead weight of the federal government got to the point where it was far more trouble than it was worth to maintain it, you might be surprised how fast the states could pull this trigger.
For those interested its Article 5 of the Constitution. But it takes 2/3 of the states to call a convention. Lotsa luck with that.
the institutions of government are meant to promote stability, not change.
http://www.theoildrum.com/story/2006/2/15/104340/306
If big business saw a dissolution as an economic threat you would have PR firms running all sorts of grassroots campaigns to nullify any attempt at fomring a Union... if big business can see a good angle in it, you'll get it without blood.
Money talks.
"You can never solve a problem on the level on which it was created."
Albert Einstein
And as I remarked, there is nothing "perfectly simple" about this amendment process never mind getting such a constitutional convention called. (It's been tried many times and failed most everytime.)
Yet, there is another way that is conceivably "perfectly simple, legal, and [perhaps] peaceful method to dissolve the union," or at least get the ball rolling without resorting to the overwrought amendment process.
Article X of the Bill of Rights: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States, respectively, or to the people."
Because there is nothing in the Constitution about succession or such a prospect, there is no unlawful reason under the Constitution why any state couldn't think to do so. Of course, actually doing so is a whole other matter.
Still, should several states actually propose to do so and coordinate their efforts (I.e., the Pacific NW along with a chunk of northern California), it might propel everyone else into serious thoughts about the same. If nothing else it would bring to the fore how it is not unConstitutional to propose it or actually secede.
On the other hand, as Prof. Goose pointed out, "the institutions of government are meant to promote stability, not change"; and certainly not without "a public outcry or political instability heretofore unseen".
A related question is how the federal government would react or how a President would argue, as Lincoln did, against any such secession and potential dissolution of the way things are. Barring the combined political outcry and instability borne of obvious Constitutionally ingrained failures (as if that's so unusual), I do not envision anyone in DC suddenly agreeing to relinquish their Constitutionally endowed powers.
So, overall, I disagree with WNC Observer that as he proposes this could happen fast; only in a state of disaster. But this would not lend itself to a neat and tidy coordination among the fractured fifty state interests.
In any event, should any state simply propose to secede as I suggest they can, backed by a large majority of a state's populous, it would toss up into air the whole kit & kaboodle Constitution and the government now attached to it. Especially the question: Who's sovereign? We the People or The United States of America government (as drawn and quartered up by our ancient and woefully unresponsive Constitution)?
Interesting questions, all of this. Sadly, I do not believe we've either the time or inclination to resolve any of this ahead of all the problems we face. By the time this country splits up or falls apart, whatever the Constitution says won't matter.
Random thoughts...
One can envision scenarios where the people think of themselves as citizens of their region first, or at least that they are alienated from certain other regions. Just over 20% of the US population lives in the strip from north of Boston to northern Virginia and within 100 miles of the Atlantic. That region is not going to be energy self-sufficient, and over time, could generate a great deal of resentment as it bids up prices in other regions in order to import energy resources. Large parts of the country already think of themselves as "not like" the people living in the BoWash corridor. The further west you go, the more prevalent such attitudes are. Note that no candidate from that strip has been elected President since JFK.
Given global warming, increased drought across portions of the Great Plains could easily cause them to become desert again. The sand dunes in the Sandhills region of Nebraska were mobile as little as 500 years ago, and some estimates are that a decrease of as little as 1" of rainfall per year would be sufficient to kill off the grasses and put them in motion again. Similar situations could evolve from as far north as Canada to at least the Texas panhandle, and could happen fairly quickly. Imagine a situation in, say, 50 years where it is becoming very hard to keep interstates, rail lines, natural gas pipelines and high-voltage power lines in operation to move energy resources from the West to the East. If Mother Nature is determined to put a 300-foot tall sand dune on top of the Union Pacific rail route, keeping it open will be... difficult.
I've been toying with an outline for a novel set about 60 years in the future where Colorado and Wyoming are the focal point for a movement to split the US in two, divided by the rapidly growing "Great Plains Desert".
Dislike of the northeast doesn't increase as you go west -- it goes up, and then comes back down at the West coast.
IMHO, the major factor which is going to trigger a breakdown of farming in the plains is probably not an change in rainfall, but the depletion of major aquifers. Without fossil water, large chunks of what is now farmland will be too dry to farm most years, and we've got only about 30 years of water left in many areas.
Cascadia.
Many people in western Canada have more in common with people in the NW US then either has with people in the NE.
And yet many on this site, RR for instance, still favor large federal taxes on fuel consumption.
It's all about choosing the lesser of evils. Could I implement such a tax, and do it without enriching the government or breaking the backs of consumers? Yes, I could. Can they politicians all work together and do it? Doubtful.
I scammed that quote from James Hanson in the preceding article because it states the obvious need to ration the remaining fuels in order to build the infrastructure necessary to get us to the next level technological civilization.
Pyrolysis and the resulting agrichar, biobutanol and solar are the promising technologies that can enable such a transition, but unless we parcel out the remaining in a fair manner, there won't be anything to transition from.
As you can see now it will be left to individuals and industry to achieve this. Our government, to steal a line from Kunstler, "will barely be able to answer the phones."
Robert
Thanks for this key-post, it entirely relevant to some of the biggest problems in the country. Our congress represents themselves first, then their rich contributors. The public and the country are the puppies being kicked off the hind teat.
Robert, this is normal operations for the Congress of the United States. I have sat through hearings on other matters (back in the 1980s when I still lived near Washington, DC) and I've seen this pattern before. Politicians who drop into this mode of operation NEVER respond to facts. Politicians operating in this mode are playing to what they hope is a kind of populism that will push their personal star higher in the political sky. Facts are irrelevant to this "discussion" when politicians are operating in this mode.
You cannot win this war in the Congress of the United States. Somehow you have to turn the tide amongst the average people out on the street. They have to be educated on what the truth really is, because as long as Joe Sixpack believes this, so will these politicians. And they will go down the line ever closer to absurd regulatory interference.
This is a clear example of why I don't hold out much hope for the US until things get so much worse that it may be too late. These politicians are nothing but demagogues, Robert. They are NOT going to craft a sane energy policy. They will craft an energy policy that will get them re-elected and which will empower them and their party, even at the expense of the greater good of the nation.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
All true, but I think this is representative democracy in action. Speak the truth and thou shalt not get elected. Get elected and thou shall shalt not speak the truth. We get the politicians that are system in designed for. Yes we have demogogues but that is what we ask for, that is what we respond to. I would love a demogogue who responded to what I wanted.
In this instance, the truth is that demand must be reduced. These politicians were not elected to reduce demand; they were not elected to create suffering or the perception of suffering. They were elected to continue the United States of Cornocopia and to advance and enhance the religion of growth and infinite consumerism at rock bottom prices. The system selects out for these individuals and they know it. Find me an honest poltician and I will show you one who might be running for office but won't be in office.
The last major politician who preached the religion of "less" was turned out handily by Ronald Reagan. No sweaters for us; this is America. A nation of small cars is a nation of emasculated males, or so they believe. The soccer moms of America must have their Escalades to protect the children even if they are condeming their children to a future of suffering.
It cannot be representative, at least not of the people, because those with the most power and influence over politicians are not humans, but legal entities called companies or corporations.
"You can never solve a problem on the level on which it was created."
Albert Einstein
Hi NZ,
Thanks,
re: "those with the most power and influence over politicians are not humans, but legal entities called companies or corporations."
Do you see any way to deal with this at all?
Taking away the legal right of corps to exist w. the status they currently enjoy?
I wonder who among corporate decision-makers understands the problem of finite energy resources? (And do they sleep at night?)
PS I thought the Einstein quote was more along the lines of "Everything has changed, except our way of thinking, and thus we drift toward unparalleled catastrophe." (Which would be a slightly different meaning, perhaps.)
I am no expert in commercial law, but I have a close friend who is a corporate lawyer and she is disillusioned with the power that companies have due to their legal standing too. I suspect that commercial law, like many of the systems we have errected, is a victim of both complexity and undue influence by those who helped create it with their own interests in mind... how do you fix/deal with it? Who knows... but I think you need to begin by getting more people to really understand what the problems are first...
I have read other versions of the Einstein quote too. I'm not sure what the correct one is...
"You can never solve a problem on the level on which it was created."
Albert Einstein
They already figured this one out.
Why do you think they created the entitlement class? why do you think they are dumping 20 million illegals on us fully knowing it is economic ruin for the people?
They have made it impossible for the people to rise as one, and thus have insured their personal survival in power.
Or so they think.
I was, still am and always will be a strong supporter of both maximum term limits and maximum age limits for the offices of President, Vice President, Senator, Congressman and Supreme Court Justice.
We do not need so many old semi-senile people (trying to) running our Country.
One 6 year term for Pres & Vice Pres, one 4 year term for Senator, One 2 year term for Congressman and a 15 year limit on the term for Supreme Court Justice with a mandatory retirement upon reaching the date of their 70th birthday for all elected officials.
Anyone else support term and age limits on Federal Elected Officials?
With over 300 million people in this country I think we can find more than 335 qualified people to SERVE their fellow countrymen for a short time and then go back into the population to live under the laws they have enacted.
Strange and counterintuitive as it may seem, I suspect that it would actually be a lot easier to find those qualified people in a country of 30 million, or even better still 3 million. Small countries are governable, big ones aren't.
This why I propose a draft system but instead of sending the draftees off to War, make them serve in government instead. The lowest number gets to be Prez. At combat pay too.
Oh yeah...NO reupping.
Edit. Ooops... replied both times to wrong post. Shoulda been to JK.
Hi WNC,
Thanks and what about the role of corporations (esp., perhaps, multi-nationals) in the political process?
How does this enter into it?
I know too many sharp as hell folks in their 80's to think that comment has any merit.
Yes indeed, after decades of the oil industry spouting off about the wonders of markets and their apologists posting across this blog, we get an attack blaming our agreeably lame politicians, many of whom the oil industry own. Hah...and whose playing politics?
Lets bring the price of gas to five dollars a gallon and keep the oil industry to five percent profit, its a dying industry, and good riddance after all. There's absolutely no reason to try and convert their giant monopoly bureaucracies to any alternatives, just let them fade away like the kings and their minions of old.
Of course you don't want to give DC all that money, so none of the energy tax can go to the established bureaucracies, let it go to local governments and small new energy companies. Let's really get serious politically and the first step is realizing neither the oil companies or DC are going to do anything. So start by telling your co-workers and neighbors we need to pay five dollars a gallon.
Actually, what I would prefer is to nationalize the refining and distribution networks, and then reorganize them into statewide citizen-owned cooperative utilities. I would do the same with natural gas, electricity, telephone, etc. Essential public services should be owned by the public - the public, NOT the government. The governing boards should be directly elected by the public, NOT appointed by the government. This is the only way to assure that these services are responsive to the public, and to assure that the right balance is struck between price and quality of service. These things are all natural monopolies or might as well be (we aren't going to be seeing any more "gas wars" between nearby gas stations - remember those?), there is no magic of the "invisible hand" that requires that any of these be privately owned. As has been discussed repeatedly, demand is not going to be able to increase, thus the need is only for the infrastructure to be maintained, not expanded. That does not require that massive amounts of investment capital be raised, only that these assets not be so excessively milked that reinvestment for maintenance is neglected.
Exploration and production are a whole other game, and that game requires entrepreneurship and private investment capital.
I'm sure that there will be a few people that are outraged at my views. You are entitled to your opinion, but I am also entitled to mine. My suggested model has not been tried anywhere. The neoliberal capitalist model has been tried, and it is being found wanting, as has government-owned state socialism.
The governing boards should be directly elected by the public, NOT appointed by the government. This is the only way to assure that these services are responsive to the public, and to assure that the right balance is struck between price and quality of service
Oh really? It seems that a particularly rapacious and self-serving "energy board councilman"----let's call him "Hugh Chavis"---might very well promise utterly unsustainable and damaging "rebates" to certain key constituencies, and damn the future.
For instance, distributing short-term money extracted quietly by neglecting necessary maintenance, or nuclear & industrial safety, with a bureaucratic coverup and buy-off of compliant local media.
How well will that go over versus a dorky PhD in engineering and an actuary who are very sober and come up with plans that require sacrifice now?
Hugh the hustler will always win.
What makes you think that people in "government" or "business" are somehow morphed into aliens distinct from the "public"? Everybody's just homo sapiens when you get down to it.
First of all, you don't have just one guy elected to run each co-op -- you have an elected board of several trustees, preferably on staggered terms.
Will they be perfect? Very likely not. But if they screw up too badly, the voters will be giving them the boot -- or at least that will be their option if they choose to exercise it.
The point is to give people some real say about services on which they are absolutely dependent. What they make of that say is up to them.
Vacuous grandstanding at committee hearings doesn't do as much harm as you think. The important thing to understand is that the legislative branch of the world's most powerful nation is run behind the scenes by a small army of 22-year-old congressional staffers. They're an intelligent, hardworking bunch of kids.
Excuse me? If they are so intelligent and are running the country, we wouldn't be in so many deplorable messes.
They might be intelligent and hard working, but at 22 years of age they are no where close to being graduates of the school of hard knocks yet. Yes, this does explain a lot.
Unrealistic thinking about energy future?
55,000 Acres in the desert west of Albuquerque! I wonder where they are planning to get all the water for all that green grass and all those trees and shrubs? And to cook with, shower with, flush the toilet with, wash the SUV with, etc...
Looking at the US situation from Europe I don’t see what the fuss is about regarding US refineries.
The US neither produces enough crude nor refines enough gasoline for it’s own consumption, it then goes onto the world market do purchase the shortfall of both commodities.
The prices paid are world prices, not US prices … we are all paying the same for the gasoline.
If there is a shortfall of refining capacity it is worldwide not just the USA! There are other people in the world beside Americans.
Xeroid.
I think that's the issue. If imports come to the rescue for the U.S. supply (over and above the level to which imports already supply our market) what effect will that have on global markets? Are Europeans going to have to conserve petrol for their own summer driving season in order to keep U.S. markets supplied? It seems to me that the danger of shortages is more likely to be transfered to other, poorer countries this summer than be experienced in the U.S. or western Europe.
Yes...it is a global market...if the USA can afford to pay then the ones least able to pay will go without......
Unfortunately we have along way to go before deamnd is destroyed in the USA, $3.55 venti cappucino at Starbucks, $3.29 regualer unleaded.
Hello. I wanted to say that despite the general truth in those words, if the USA can afford to pay then the ones least able to pay will go without......, people always forget a simple math. In Europe, albeit the great taxes in gas prices, which drove people to buy cars with a lot more mileage than in the US, urbanism is a lot different. In Europe, Mass Transit exists and people are still far more concentrated than in America (despite the 90's recklessness in this respect). If Crude increases a certain percent, gas prices in America are way more affected (in percentage) than in Europe (because of those taxes). American way of Life, that is what is at stake here. Not exactly the rich vs the poor, but an urbanism problem.
Any mitigation policy will be easier in Europe than in America for these facts alone. And I am not that so sure about the "problems" arising first in the poorest and only lastly to America. Americans are way too spreaded.
"It seems to me that the danger of shortages is more likely to be transfered to other, poorer countries this summer than be experienced in the U.S. or western Europe."
You may well be right.
In April South Korean refiners took advantage of high US gasoline prices to ship product to the West Coast. This in turn has strained the domestic market, and last week gas prices hit a nine-month high.
Korea has an 'early warning system' for oil shocks, an index of some twenty or so key variables which includes interest rates as well as oil prices. According to the Korean Times (behind news service paywall so no link I'm afraid, but you may find it by Googling) the EWS index is on a scale from 0 to 5 and works as follows:
'Normal' (0-1.49), 'Advisory' (1.5-2.49), 'Watch' (2.5-3.49), 'Warning' (3.5-4.49) and 'Emergency' (4.5-5.0).
When Dubai crude briefly went above $70 last Sept, the index entered the 'Watch' zone and stayed there until the end of April this year when it went to 3.54, entering the 'Warning' zone. With the increase in gas prices last week, the government may now introduce measures to curb demand.
Here's another source which seems to confirm this story:
This is a global issue. American motorists may gripe about high gas prices, but they don't seem to have grasped yet that their profligacy is creating an energy black hole which is increasingly exerting its destructive force on lesser economies.
You forget that South Korea is far from being poor.
Luis,
I don't think so, and I think you're perhaps missing the whole point. South Korea isn't poor, but it is 'poorer' than the US and Western Europe, and that was the context that Kenny used.
This is what Jeffrey Brown (Westexas) and others have argued would happen as global oil supply plateaus or even declines in the face of growing demand. It's not just the bottom tier economies that suffer. Sooner or later the bidding war will begin to affect upper tier nations, and if it's got to the stage where an economy like South Korea may have to start imposing a form of rationing, then things are getting pretty serious.
Some will argue that this is a petroleum products issue rather than a crude oil one, but I think the signs are there that later in the year the two are going to merge.
Well, perhaps it is more a problem of petrol distribution rather than richness of the country. I see your point, but there are also many other variables to take into account:
- who are your friends? Are you in borders with nations oil-hungry like China and Japan? Do you have relatives in the Kremlin? Do you belong to a great power group like Europe?
- do you have a conscious government? One that cares about the future stocks of petroleum? One that is aware of consequences and is sufficiently corageous to make draconian measures in times of trouble?
- Are you at war with one or more of your neighbours? Perhaps you are. Is that a danger to your petrol market?
As you see it is not a matter of richness. I argue that Poland and many other countries have a poorer GDP PPP that South Korea but are not that concerned. Hell, I come from a lower GDP PPP country (Portugal) and I don't see such draconian measures being considered.
"I argue that Poland and many other countries have a poorer GDP PPP that South Korea but are not that concerned."
From yesterday's FT Polish Bulletin:
Unfortunately Luis, the lights will be out in Africa long before Americans are prepared to change their way of life, even less re arrange their urbanisation patterns.
Americans will bellyache as much as they like about $20 gasoline but they will pay it, they wont like it, but they can and will pay. Other nations may not be so lucky.
Oil is a global market and as laudable as sharing a finite resource is, it isnt going to happen, never underestimate humans capacity for greed.
Market forces will drive prices so high as to make sustainable renewable energies viable...but in the meantime there will be alot of hardship for those unable to pay.
"Unfortunately Luis, the lights will be out in Africa long before Americans are prepared to change their way of life, even less re arrange their urbanisation patterns."
So right...
"Americans will bellyache as much as they like about $20 gasoline but they will pay it, they wont like it, but they can and will pay. Other nations may not be so lucky."
This I won't buy... a world recession will begin before this happens. China won't take it, India won't take it, and neither will USA or Europe be able to cope with the falling third world while gas prices are that high.
"there will be alot of hardship for those unable to pay."
I agree.
This part of the thread is where we get to the nub of the issue - the US is paying world prices for gasoline. Even if the US refiners had invested sufficient to supply 150% of the US market, you would still be paying world prices because the US would be a major finished products exporter.
The whole hearing was a waste of time; and as Robert states, merely an exrcise in grandstanding. Hopefully a little bit of useful information seeped out into the great unwashed.
Two glimpses of our future. . .
http://www.nytimes.com/2007/05/21/world/asia/21india.html?_r=1&hp&oref=s...
Electricity Crisis Hobbles an India Eager to Ascend
5/21/07
http://www.energybulletin.net/22775.html
Published on 18 Nov 2006 by Wall St Journal. Archived on 23 Nov 2006.
As Fuel Prices Soar, A Country Unravels
by Chip Cummins
Conakry, Guinea
I posted a link to the NYT in drumbeat. My apologies if you beat me to the punch. But the extent to which India's economic growth has outpaced its energy infrastructure and is hanging on that thread of backup diesel generators (or outright dependence on diesel-fueled electricity) is a bit frightening.
What I found interesting in poorer and developed countries is how better off residents/citizens are getting around (for the time being) the recurring blackouts--by running their own generators.
It's not that fuel is not available. It's available, if you can pay for it.
As I have previously described, I know a foreign diplomat, living in Africa, who got around the recurring blackouts by moving to a private compound where every house has its own generator. The above NYT article describes a middle class family that is debating between a vacation and buying their own generator.
I know a guy in Dallas who just bought a generator, based on a V8 automobile engine, that will meet 100% of the electrical load for his 3,500 square foot home. I think that it is modified to run off either natural gas or propane.
I would expect to see a move toward private compounds in the US with some kind of back-up generating capacity
Well, that will certainly make it easy for the mobs to know where to look. Those private compounds had better invest in some heavy duty back-up security as well.
Thus my prediction that everything is peachy for energy producers--"Until the angry soccer moms start rioting at the gates of the mansions of the energy producers."
As I have said before, I would not advise big black H2 Hummers with bumper stickers saying "I love $100 oil." (I suggested old, lime green Volvos with Greenpeace bumper stickers.)
I look at articles in the paper with people cutting back to pay the increases in fuel bills.
"I will take a lunch instead of eating out"
"I will eat out 1 time less each week"
"We will vacation, just closer to home"
All these cut backs will affect someone, somewhere. I cannot figure out why the stock market is up when consumer spending is 76% of GDP.
I think it is far easier to plan for expansion than reduction. Reduction involves cutting peoples hours back or laying off workers. I think as this picks up steam you will see a reaction from the working and non working alike as they start to compare notes with each other.
Front page Oregonian electricity rates may rise 13%. PGE a local utility wants a rate set with automatic pass through of increased costs associated with Nat gas fired generators. This request is unprecedented. Usually they match up income/expenses/rates every year or two with the PUC.
This is very uncharted territory imho. The higher gas prices get or if there are nation wide reported shortages I suspect PO will get a wider audience quickly.
Jeffery, you better get ready for some (more) public speaking requests, imo.
All these cut backs will affect someone, somewhere. I cannot figure out why the stock market is up when consumer spending is 76% of GDP.
Collectively, the central banks of the world have allowed the creation of an enormous pool of money. Much of that has ended up in derivatives -- fundamentally, no more than bets on which way the stock (or other) market will move, rather than investments in the underlying companies themselves. The dollar value of the "bets" on which way the Dow Jones index will move is significantly greater than the value of the stocks themselves. The underlying business is less important to whether the market will go up or down than how the "big boys" are betting.
Cain's Law™ says: "Any situation where it easier to become wealthy by manipulating financial instruments than by producing goods and services will end badly." In 2006, the top 25 hedge fund managers "earned" a total of $14 billion (yes, with a "b"). That's not how much their funds earned, that's how much they personally took home. The Big Five Wall Street investment banks paid their employees over $36 billion in bonuses in 2006 (again, with a "b"). This will end badly. The hard part is predicting when that will happen.
Cain's Law - that is good.
I have been giving this some thought after my post above and came to a similiar conclusion. I was originally thinking it might all be US Gov contracts.
So given "X" what would you invest in? I'm thinking a strong position would be a small farm, and physical assets.
Chrome spinners on the Hummer and a M2 on the Volvo roof might work. :-)
How about a 1991 VW Fox with one hubcap missing? :)
What about old Mercedes diesels with bumper stickers "Make Levees Not War" and "New Orleans, Proud to Swim Home" ?
Best Hopes for Safe Transportation,
Alan
I watched a good programme last night called "Cooking in the War Zone", in which this chap goes to hotspots around the world and looks at their lives through the lens of food.
He visited a family in Afghanistan living on food aid. they were using plastic bags for fuel to cook with. It was all that was readily available for them to use.
Whatever is available will be used, regardless. I doubt that the rich or the nation state will do any different, they will use what is available. Initially what is convenient, even if it costs more (money can be created out of thin air afterall), afterwards they will use anything available.
There's plenty of cautionary tales from years gone by which tell of people burning everything (furniture, etc) to keep warm and eating everything (shoes, people, etc) to live. In Britain they are looking to loosen their strict planning regulations to allow more flexibility in home energy and heating. I think we are going to see an increase in complexity in many areas, energy production being only one.
An increase in complexity, in energy production, in AMERICA?
A loosening in strict planning regulations to allow more flexibility in home energy...in AMERICA??
That's a laugh.
One look at the bylaws of any homeowner's association will pull you right off that horse.
I think price must rise quite a bit higher before conservation get's serious. The "recreational" use of electricity such as movies, sports bars and taverns, 24hr drive thru McD's,etc. etc.will need to go so we can heat homes if the nat gas problem comes knocking. Coupled with the resultant unemployemnt yikes!
Try telling anyone that thier favorite sports bar should be shut down and you had better be ready. You will be lower than slug slime.
Will will have to be priced out of these 'nessecities'. The public will not stand for this willingly, and the politicians know this all too well.
I have often thought that the Hollywood types should do their part to cut down on fossil fuel use by advocating that movie theaters be closed. Think of the amount of energy used (and CO2 released) to drive to and from movie theaters--and to heat and cool huge auditoriums.
Hello WT,
Excellent point! Just like pro-golfers Phil Mickelson [who has dna offspring], and Tiger Woods [child on the way], need to be the MSM-stars leading the way to plow golf courses into vege-gardens.
I feel at some future tipping point: Parents will place the possible future survival of their offspring at a higher value than any possession. In a fast-crash scenario: a concerned, newly PO-informed parent would easily trade a brand-new 2010 Hummer for a bicycle and wheelbarrow for their child, then gladly accept the massive financial loss if it helps their child live longer.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Obviously, we will not be invited to many parties...
India-Iran LNG deal hits roadblocks
http://wyden.senate.gov (Ron Wyden, D-OR)
http://menendez.senate.gov (Bob Menendez, D-NJ)
http://thomas.senate.gov (Craig Thomas, R-WY)
Go ahead and drop a note to these folks' email boxes, and tell them that a blog that gets over 10k unique visitors a day isn't very happy with their behavior in committee...but it will really only matter if you are in their constituency, in this case their state.
Yeah, I had already tried to get a message to Wyden making sure he was aware that his statements were in error. But more disturbing to me than the way they wanted to point the fingers at the oil industry was just watching the way these guys operate. They don't listen to their witnesses. You watch this charade and you think "We don't have a chance. The doomers are right." It's like these guys don't take this seriously; their careers are more important than their country.
It is especially bothersome since they are on the gateway committee in the Senate for all energy related legislation that will come out of Congress--usually folks are placed on certain committees because of interest, geography, or skill sets.
(E.g., Bingaman and Domenici, (D and R of NM, respectively) head the Energy Cmte in the Senate and are quite fluent in these matters in my experience.)
But yes, good policy is only sometimes the motivation for congresspersons. It's true; they have to keep their jobs to keep their influence. (insert witticism about necessary and sufficient conditions here).
Robert I wonder if your company is ready for the coming witch hunt.
I wonder if a few of the majors might break themselves up to become smaller and more nimble and less of a target. The lack of big oil fields makes big oil a bit of a dinosaur.
If big oil decides to break itself up it would really juice the economy assuming the pieces are sold to highly leveraged private firms we would be converting a lot of wealth to long term debt on one side and the stock holders would get a real bonus sending short term share prices through the roof. Longer term these smaller indebted companies would have to borrow more to grow and would probably do a better job at producing the remaining prospects. The sales profits can readily be used to cloud the issue of overall profits.
And by taking on such a large debt the buyers can easily show minimal profits for years to come even as revenue explodes. Not to mention taking the pieces of big oil private will hide most of the financial moves from the public.
Hi Memmel,
The big oil companies have sold a lot of their assets in the US-particularly producing oil fields that are past their peak and refineries. The largest refiner in the US is Valero, not one of the big oil companies, and they have specialised in heavy crude.
They've turned the cash into share buy-bazks and huge bonuses and retirements for management though. Poor old stockholders get the scraps. Its a pure rxample of the Goldrn Rule-them that has the gold makes the rules.
If big oil decides to break itself up it...
Ask yourself why there were so many mergers in the first place. The reason is that many of these companies - Chevron alone, or Texaco alone - did not have the scale to tackle several multi-billion dollar projects each year. The remaining oil out there is expensive to produce. These guys need large scale organizations to afford the investment.
Breaking them up will just leave those investments in the hands of the NOCs like Saudi Aramco.
Feel the power of the Dark side Robert! Let your hate grow!
:-)
Since you are in Scotland why not check out a title from one of Scotlands lesser known sons? Try a diversion from all this humdrum oil stuff. All I can promise is it is unlike anything you've ever read before.
Read it and you'll be quoting too..."Where, in the name of all unholy things, did you acquire that stuff"
http://www.gutenberg.org/dirs/etext98/vrctr10.txt
If the oilcos actually posted losses for a number of years they have a ready answer for questions like that. Just bring along the earnings reports.
No, no, no.
You are all confused:
" Brazilian biofuels can meet world's total gasoline needs - expert"
http://biopact.com/2007/05/brazilian-biofuels-can-meet-worlds.html
This means that those greedy OilCos will be driven to bankruptcy and we can enjoy those growing SUVs till eternity.
So, take that all you doomers.
PS Don't forget to turn your sarcasm detector on...
That looks like a good one for today's Drumbeat.
Stories like this will help me populate Drumbeat. I don't know how Leanan manages this 7 days a week.
no kidding, though I imagine getting blurbs over at po.com helps a little--plus I am betting she has a search strategy refined with her experience.
Stoneleigh is going to be helping out too, thankfully.
Still, I try to thank Leanan for what she does every day. She rocks.
And the hot air coming from idiot congressmen is more than sufficient to supply 100% of the nation's space heating demand.
I certainly don't have much confidence in either Congress or my state legislature to mitigate our energy problems.
In the US, the states have the ability to incentivize the use of economical autos through the license fees on yearly auto registration, but they have done little or nothing.
Vermont has been rangling over a tax on guzzlers, but this is for new cars only.
In California, the Governator rides around in a hydrogen Hummer and makes an appearance on TeeVee which features an 800 horsepower biodiesel low-rider. Meanwhile, they refuse to raise gasoline taxes. But they're more than happy to issue multi-billion dollar indebtedness to build more and more roads and at the same time cut public transportation funding by more than a billion dollars.
Comgressman Bartlett and Udall formed the Peak Oil Caucus, but have only introduced a resolution in 2005 calling for peak oil mitigation. Hasn't passed. Then the GAO comes out with a very vague report claiming peak is somewhere in the far away, misty future.
We're on our own, folks.
Politics are fascinating - one of the most important tools in any political situation is to create the framework of the debate.
And it is working - for years, Americans have heard, in the background, that the critical problem is refineries. For years and years - roughly the amount of time that a president with a background in oil, a vice president whose last job was with an oil services company, and a woman who just happened to sit on the board of an oil company have held office. Originally in connection with environmentalists, who were threatening the American Dream, now more often in terms of price gouging. (And note, always with a focus on 'enemies' - modern America seems unable to avoid discussing any subject without seeing it as a conflict.)
And yet, I think there is some spare refining capacity available at the moment - those Asian countries having their Aramco deliveries cut should have some spare capacity, shouldn't they?
But apart from an interesting tanker article - noting there isn't any slack in tankers for shipping refined products - nobody says a word.
Spare refining capacity likely exists - the problem is, having their deliveries cut is the technique being used to increase refinery capacity, and even now, they can't ship enough refined product to the U.S. to meet American demand. Other reasons for this can be conjured by the invisible hand - for example, the Saudis are supplying oil to their special friends, keeping the profits in the family so to speak, instead of letting the Koreans, for example, get a cut by selling refined products at a markup to the U.S.
The system has reached its limits - and Americans seem to have a hard time accepting that.
Peak oil is measured by what comes out of the pipeline - and these days, the storage tanks are also losing their role as a swing producer, it seems - at least in the industrial world. And to the best of my knowledge, the non-industrial, non-oil producing nations have never had much in the way of storage capacity to begin with. Peak is here, not that most people believe the statistics - besides, calling peak is so 2006. In 2007, we have important things to discuss, like how much profit oil companies can expect if they invest in major projects with long lead times - after all, extracting profit outweighs all concerns in the oil extraction industry. Price manipulation is hard to prove in a court - and easy to do in the real world with a limited number of players interested in maximizing their profits.
But please, let's talk about refining - it makes the oil companies seem to be in charge of a manageable problem. Geology is the sort of extraneous discussion which just mars rational discourse about supply and demand, where the invisible hand performs its magic. After all, somebody has to sacrifice if Mexican or Venezuelan exports are declining - anybody but Americans, that is.
And yet, the sacrificing has just started on the world stage. Not that most people are aware of it, even in the hallowed halls of the Capitol. A generation ago, it seems as if they had a better grasp of reality - maybe because the first oil shocks happened during a major war, with many politicians having direct experience of both the Great Depression and war, and the reality of declining oil production was not possible to ignore - it was happening in America, in real time, after all.
These days, we have reality TV.
For instance, I give you the latest press release from U.S. Senator Pete Domenici, ranking member of the Senate Energy and Natural Resources Committee, R-NM.
It is overly simplistic and ill-informed, but it's better than the tripe the other three members in RR's post were spouting.
(Read through Bingaman's, they aren't much better...the committee website can be found here.
The HoR equivalent can be found here.
Say hi to Representative Dingell for me.)
In a global market with increases in demand almost everywhere, will an increase in domestic production make much of a difference? Will the domestic oil companies promise to keep that oil at home? In any event, will this increased production actually have an impact on peak oil? Will it delay it? If so, fo r how long and for how much?
By the time this supertanker called the United States gets turned around,won't we have some new obstacle to crash into? Domenici acts like we have actually figured out how to solve this problem. And has he actually calculated the percentage contribution from biofuels. And does anyone care what the impacts will be on our land, soils, water, and air? And what about those of us eating things besides corn which will also be impacted, either by biodiesel or crop displacement.
So, if refinery capacity is a serious issue, I guess he thinks something will be fixed by expanding capacity. But wait, I thought we were alos going to impact demand by higher fuel standards. Guess not.
It is also so f***ing hopeless. I would feel better if he just said he has no clue.
jbunt
The problem in the US can be somewhat illustrated the 1950's movie "Sunset Boulevard" in which Gloria Swanson, a much past her age actress walks down the staircase still believing that she was a young beauty desired by all of her loving fans (living in the past, i.e., delusional). The vast majority of the US population still believes that the US oil companies have vast power - (living in the past, i.e., delusional). The 200 largest US domiciled oil companies, combined, produce less oil on US soveriegn territory than the one Mexican oil company produces on Mexican sovereign territory.
The difference is that Gloria didn't have enough nukes to wipe out 95% of the life on this planet.
Prof: The MSM remains an obstacle. When this guy puts out a press release, it has no context to the average reader. An attached comment by the newspaper explaining that the massive oil reserves he alludes to equal 14 days world oil usage would clarify the issue.
Hello TODers,
As usual: more Wild & Crazy specuation ahead!
I am certainly no Constitutional expert, but imagine if Congress, POTUS, and SCOTUS made secret negotiations:
1. POTUS would issue a National Security Directive that would promote full-on Peakoil Outreach to the huddled masses everywhere.
2. Every member of Congress would be free to discuss and promote radical legislation in support of Foundational change. In exchange for this action, which would obviously prevent most from being re-elected until the electorate fully understood PO & GW: they and their families would be guaranteed occupancy in Prince & Gates Four Seasons Eco-Tech Luxo-Bunkers with full Blackwater sniper protection, or other alternatives previously discussed by me. This should prevent WT's SUV-driving soccer moms from storming these bunkers; these mothers will be incentivized to calmly study TheOilDrum instead. =)
3. As first-mover pioneers to transition change, the Congress would send a strong message, backed with appropriate legislation, forcing rapid relocalized permaculture, massive RR & TOD funding [go Allen Drake!], and radical conservation backstopped with massive building of bicycles and wheelbarrows, and hopefully spiderwebriding in optimal locations. As the electorate becomes PO-informed, then gung-ho for change: the leaders would then be free to go out into the communities to further cheerlead for mitigation. Many might find themselves re-electable if they act wisely.
Recall my posting in yesterday's Drumbeat: Zimbabwe bicycle prices went up 2,000% [TWENTY-FOLD} in a year! Example: a $200 bike at Walmart would cost you $4,000 if a person delayed their purchase too long! This would be a crippling financial blowback that could be easily averted by shifting a small % of military funding to building Strategic Reserves of bicycles & wheelbarrows early [along with the supporting factory infrastructure for the required ball-bearings, tires & tubes, and other parts].
4. The auto-makers would rapidly shift to building RR & TOD equipment, bicycles and wheelbarrows, etc, etc, financed by another shift of military funding. IMO, no sense wasting the machining and assembly skills of these workers by the present course of converting them to McDonald's workers.
5. Obviously, the energy requirements for this shift would be very high. Worthless products and services would be forbidden: sun-tanning salons, Disneyland, video-gaming, IPODs, etc. These will die anyhow from high fuel prices--we are just legislatively speeding the process along.
6. Sequential building of biosolar habitats will require realistic political boundaries drawn along the geography of natural watersheds: Colorado River State, Columbia River State, and so on.
7. Detritus Spiderwebs will inevitably shrink. Planned shrinkage might start with AZ & NV; being at pipeline spiderweb ends from TX & CA. Evaluations made to determine what migration % will move to the fifteen Detritovore States of the Hirsch Report and what % will go to the Biosolar Sates of Cascadia, New Vermont Republic, Great Biosolar State of the Great Lakes, and Biosolar Alaska, etc, etc.
Okay, this is just a brief overview, but those who have read my many postings can visualize the greater temporary complexity required to provide supportive resiliency until lifestyle simplification is the normal course of events.
"It will take all of us, working all the time. But isn't that the whole point?" -- I forgot the original author to credit.
http://www.uni-kiel.de/sino/ar/sk/12a_1970s.jpg
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Bob, I sure wish you'd get off the wheelbarrow fixation, the damn things are hard work! How about goat carts, like in the movie Porgy and Bess?
What you really want are garden carts - the type with a pair of bicycle wheels. Balanced and easy to handle, they could even be hooked up and towed BEHIND those bicycles.
Bob, I sure wish you'd get off the wheelbarrow fixation, the damn things are hard work! How about goat carts, like in the movie Porgy and Bess?
Bob, I sure wish you'd get off the wheelbarrow fixation, the damn things are hard work! How about goat carts, like in the movie Porgy and Bess?
Hello Oilmanbob,
Thxs for responding. No doubt that it is hard work pedaling bicycles, or moving goods in carts, wheelbarrows, garden carts, trikes, etc. Ask TODer Beggar, for example. I am even in favor of goat-carts, donkey-carts, oxen carts, too--- but I don't see a lot of animal husbandry going on in our urban and suburban centers.
But please consider the alternative: how much MORE WORK it will be without these tools to leverage human exertion levels.
Most of the experts on TOD, and elsewhere, seem to be saying that the summation of all the current techno-solutions will only provide a fraction of the energy we need, and that even attaining this minimal requirement will need tremendous FF-resources to provide the ramping source. I believe human labor will have to fill this energy gap.
But I am always ready to read about a better plan. =)
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Nate Huygens had a great little find that he posted to the This Week In Petroleum commentary.
I think this says it all. They are trying and they cannot keep up. And worse, if Ace is right about all liquids peak in early 2009 at just over 87 mbpd, most of this capacity is going to go to waste.
Prediction: The people who try to construct oil company conspiracy theories out of whole cloth will come back after peak and try to construct another conspiracy around the over building of capacity.
The problem here is demand... damned exponentially growing demand. In other words, the problem is all of us who consume oil products, which is 99.999% of those reading this (and maybe a full 100%). In other words, we have met the enemy and he is us.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
For those of us who are inclined to tilt at windmills, the upcoming release of "Escape From Suburbia" offers an opportunity to help a few more people realize that they are about to be run down the Peak Oil Mack Truck.
Not that it is of any consequence in the big scheme of things, but I thought Mr. Sundstrom of AAA was a complete waste in this hearing. The only role he seemed to play was to represent the opinion of John Q. Public by saying "We don't like it when gasoline is expensive. We want it to be cheap again!" Yes, thanks for that input Mr. Sundstrom.
I thought Mr. Sankey was particularly impressive however. He knew his stuff.
I thought Mr. Sundstrom of AAA was a complete waste in this hearing.
Did you watch the hearing? Did you like it when they asked him about the role coal to liquids might play? He was obviously dumbfounded and had no idea how to answer that question. So he said something generic about maintaining a consistent energy policy.
I thought Mr. Sankey was particularly impressive however. He knew his stuff.
Agree completely. Knowledgeable and articulate. He will be invited back. If they will only listen to what he is saying next time. Although in fairness, some did ask "What can we, as the Senate, do to help?"
Hi Robert,
Thanks. This is so important, and I'm grateful you put the time in, esp. on transcribing.
re: "Now remember, Senator Menendez just said that he understands all about supply and demand, and now is asking if it's a coincidence that prices increase at the times of highest demand. If I had been a witness, it would have been hard for me to hide my disbelief at this question from another member of the Senate who happens to be formulating energy policy."
I may be playing devil's advocate here, but...has anybody sat down and told these guys that the quantity of oil is finite? (I mean, really talked to them, until the "light bulb" went on.)
From what I read here, it almost seems that the (very ingrained) assumption is the opposite. Given that, the responses make sense. That is, I can see how things don't add up - to them.
For example,
re" "...why do prices seem to spike during times of greatest motorist activities such as the summer, and Memorial Day weekend?"
Well, given the assumption (and lack of thought about) infinite supply, why not just crank up supply? (hmnn?)
Then, too, has anybody sat down with charts showing the increase in consumption year over year?
I know to the versed, these concepts are axiomatic. Still, my sense is that to an individual, the idea that the total number of individual consumers continually increases - just does not cross their minds.
I don't know...just seems to me that there are some fundamentals lacking. And that...without addressing those directly, no one is going to get anywhere.
Now, this makes me wonder if *anyone* (Mr. Sankey, say) is in a position to have this "little talk"?
I mean...if it's the case that the OCs are pointing to "above-ground factors", and not just coming out directly WRT "peak", (or even the concept of finiteness)...then, is it possible to have a real conversation?
Do you see what I mean? (It's like talking to a friend and realizing there's some crucial info missing...most of the time, in normal conversation, someone would say..."Hey, I guess you didn't hear about X...")
for example,
re: "Sankey didn't mince words at all..."
Well, did he talk about "peak"? Or "impending decline"? Or anything that might help get the real point across?
Anyway, Robert, I'm no doubt naive. Still, welcome your comments.
Well, did he talk about "peak"? Or "impending decline"? Or anything that might help get the real point across?
This is an important point, and one that I think you are the first to mention. I don’t recall ever hearing anyone mention the possibility of a peak, or for that matter the fact that oil is a depleting resource. Sankey did allude to the fact that the remaining oil is largely in the hands of regimes unfriendly with the U.S., and that the easy oil has been found. He got pretty close in his written testimony with this:
But then he followed up with “Let the markets work and be prepared for emergency measures this summer.” I also haven’t mentioned what was in his written testimony about ethanol:
My first post around here...
There was a very telling commentary in today's New York Times:
http://www.nytimes.com/2007/05/23/opinion/23zarb.html
A little history from:
http://en.wikipedia.org/wiki/Frank_Zarb
"Mr. Zarb is currently Chairman of NIFA (Nassau County Interim Finance Authority) and Interim Chairman and Lead Director at American International Group and a director of Lower Manhattan Development Corporation."
"Prior to joining Hellman & Friedman in 2002, Mr. Zarb was Chairman of NASD, Inc. and the Nasdaq Stock Market..., (etc)"
Note that Mr. Zarab was Gerald's "Energy Czar" way back in 1974 and dealt with the OPEC Oil Embargo. He should know his stuff, if any of those financial experts do. He is the perfect NeoCon economist. Yet, in this important piece, does he say ANYTHING about Peak Oil??
He says: "Supply is determined by how many barrels of oil producers are willing to pump, refine and transport at any given time..." Think about that. What he does NOT do is use the words "able to pump". His cornucopian optimism shines right thru his words.
And, what does he want to do? His main solution is to raise the gas tax by $1.50 over a three year period. Of course, were Congress to vote such a plan absent a crisis, the voting public would throw out all who supported it. Where was he back in 1975, when a tax increase or $0.25 might have been added? Or, in 1981, when another $0.25 might have been added? Or, after the Gulf War, when another $0.50 might have been added, giving a total of $1.00? By now (2007), an effective tax rate might be $2.00/gallon, given inflation. The pump price would still be below that seen in Europe or Japan.
I suggest that when Peak Oil arrives, it will be too late to use the taxing mechanism to slow demand. That's because the price of oil will go very high as the demand will likely continue to increase while the supply declines. (Probably a "Duh" observation to followers of The Oil Drum.) No, when we are past Peak Oil, there will be a need for a dramatic re-direction of the economy, a shift in resources from what we've all been doing to working to build the alternatives. It takes energy (and money) to build new energy systems. The average person will not be able to enjoy "the American Dream" in the same way as has been experienced since WW II. The only way to accomplish the transition without complete economic chaos would be with rationing and that should include ALL transportation fuels, including that for aircraft.
We are told at the very start he will tell us "How to Win the Energy War". Yet this supposed "expert" doesn't mention Peak Oil, which looks to be the real problem. Are we not doomed to await our fate, as if tied to the railroad tracks, hearing the whistle as the train approaches?
E. Swanson, MsME Ret?, AAAS, AGU