Archive for the Oil Category

Bad bad bad Profits

Posted in Oil on May 22, 2008 by poyers

Hillary Clinton, like her rival, Barack Obama, she’s pushing a massive “windfall profit” tax on those “greedy” oil companies. “There is something seriously wrong with our economy when Exxon’s record $11 billion in quarterly profits are seen as a disappointment by Wall Street,” Clinton said Thursday. “This is truly Dick Cheney’s wonderland.”

No, what’s seriously wrong is that politicians such as Clinton can cynically manipulate public opinion to enact disastrous policies.

Indeed, rather than be upset at Exxon’s profits, Americans should be thrilled — and angry at a Congress that doesn’t seem to want to encourage the oil industry to make even more.

Our free-market economy is built on profit. Higher profits mean more jobs, higher incomes, more investment in equipment and people, higher standards of living. Yes, profits are the engine for all of this — and that includes the profits of “Big Oil.”

By signaling that supply is scarce, higher profits encourage more production. Except, that is, when Congress through its inept lawmaking stands in the way. And that’s the case now with the oil industry.

Congress seems almost constantly at war with the oil companies — slapping them with taxes and pillorying their CEOs while ignoring the fact that higher profits lead to more exploration, drilling and development.

If anyone is to blame for our current energy mess, it’s Congress. At least 20 billion barrels of oil sit untapped in Alaska and another 30 billion lie offshore. Such sources that could help satisfy U.S. demand for years to come. Yet, Congress has put them out of bounds.

Instead, Congress scapegoats oil profits. In reality, according to Ernst & Young, from 1992 to 2006 the U.S. oil industry spent $1.25 trillion on long-term investment vs. profits of $900 billion.

Truth is, oil industry profits are in line with the rest of American industry. In 2007, a record year, they earned 8.3 cents per dollar of sales. Beverage companies and cigarette makers, by contrast, earned 19.1 cents. Drug makers, 18.4 cents. Indeed, all manufacturers, 8.9 cents on average, made more than “Big Oil.”

Besides, we’ve tried windfall profits taxes before, in the early 1980s, and they were an utter failure. As the Congressional Research Service found, revenues produced for the government were nearly 75% below what was expected. Meanwhile, domestic oil output fell 8%, while oil imports surged 16%.

That’s just poor policy, and even worse economics.

Remember: Oil companies don’t really pay “windfall profit” taxes, anyway. You do. Some 50 million Americans today own oil company stock, either directly or through 401(k)s and mutual funds. Don’t be suckered: “Windfall profits” taxes come right out of your retirement account, not out of the oil industry’s business.

Oh sure, Big Oil’s profits are up. But so are the taxes they pay. In 2006, that came to $90 billion — up 334% in just four years.

This is how Clinton-style populism works. It starts with ignorance and ends with serious damage to our economy.

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Alaska vs. Polar Bears

Posted in Oil on May 22, 2008 by poyers

The state of Alaska will sue the U.S. government to stop the listing of the polar bear as a threatened species, arguing the designation will slow development in the state, Gov. Sarah Palin said on Wednesday.

Palin said the state will file a lawsuit in U.S. District Court in Washington challenging U.S. Interior Secretary Dirk Kempthorne’s decision to grant Endangered Species Act protections to the polar bear.

The Republican governor has argued that the ice-dependent polar bear, the first mammal granted Endangered Species Act listing because of global warming, does not need additional protections.

“We believe that the listing was unwarranted and that it’s unprecedented to list a currently healthy population based on uncertain climate models,” said Alaska Assistant Attorney General Steven Daugherty.

Even though Kempthorne enacted a rule aimed at precluding any new restrictions on oil and gas operations as a result of the listing, the Palin administration believes a wide variety of other development activities in Alaska would be hampered if the listing goes through, Daugherty said.

Any development or activity requiring federal permits or using federal funds would have to engage in a “consultation” process to ensure that polar bears are not harmed, he said.

That consultation, mandated by the Endangered Species Act, “is a long and time-consuming process,” he said. “It’s just, basically, a big time-and-money-waster.”

Why not just limit the hunting of polar bears if you are worried about the size of their population (which has been growing and is healthy by the way).

Oil “hearings”

Posted in Oil on May 22, 2008 by poyers

It probably is not very accurate to call them hearings as there is not a great deal of listening going on by our wonderful senators:

Senator Chuck Schumer claims that coercing Saudi Arabia to increase oil production by 1 million barrels a day would drop the per barrel price by $25, saving Americans 62 cent per gallon at the gas pump. Yet, somehow, that same amount of oil coming from Alaska’s Arctic National Wildlife Refuge would only ease oil prices by a penny.

In a Senate floor speech he gave on May 13th, the New York Democrat insisted that:

“If Saudi Arabia were to increase its production by 1 million barrels per day that translates to a reduction of 20 percent to 25 percent in the world price of crude oil, and crude oil prices could fall by more than $25 dollar per barrel from its current level of $126 per barrel. In turn, that would lower the price of gasoline between 13 percent and 17 percent, or by more than 62 cents off the expected summer regular-grade price – offering much needed relief to struggling families. “

Schumer repeated these words almost verbatim when grilling oil company executives during yesterday’s Senate Judiciary Committee hearings.

Yet Schumer’s daily magic number of 1 million barrels is the exact increase experts believe we would today be pumping through the Alyeska pipeline had Bill Clinton not vetoed ANWR drilling back in 1995.  And even the most rabid anti-domestic-drilling Democrats don’t take issue with that figure. 

So then, the increase he demands of “Bush’s friends,” the Saudis – which he claims would reduce prices by up to 25 percent — is the exact amount he argued earlier this month would only “reduce the price of oil by a penny” were it coming from ANWR – eco-sacred breeding ground of the Porcupine Caribou.

It doesn’t take a Ph.D in economics to know that both figures can’t be right.

Nor one in Poli-Sci to know why they’re so starkly different nonetheless.

Oil and gasoline

Posted in Oil on May 13, 2008 by poyers

Lousy politicians!

Gas prices soaring? It’s because oil companies want “excess profits,” as Barack Obama puts it. Right?

Wrong. The truth is more complicated.

Let’s look to California driving capital of the world. Officials there watch gas prices carefully. During March and April, a state analysis found that “distribution costs, marketing costs and profits” made up about 10 cents of the cost of a gallon of gasoline, which ranged from $3.46 to $3.89. Notice that that dime is less than 3 percent of the total retail cost, and profits account for only part of it. So those “excess profits” are actually well below 3 percent of retail costs.

Of course, that’s little comfort to tapped-out drivers. And the big oil companies are certainly making big money — Exxon Mobil alone earned $40.6 billion last year. But such profits follow naturally when a company sells a product that so many people want to buy. Some recent history offers us a bit of perspective.

In 1998, a recession in Asia created an oil glut. Prices plunged to historic lows (near $10 a barrel), and American drivers reaped the benefits, with gas dipping below $1 per gallon. So how did Exxon fare in those days of low prices?

According to Forbes magazine, Exxon earned more in profits than any other American company in 1998. Sales increased 3 percent over 1997 and profits jumped 12.6 percent, to $8.4 billion. Again, remember: Oil was remarkably cheap that year, yet Exxon earned double-digit profits. Few complained then.

The lesson is simple: When a company sells a product people want, it tends to make money, in good times and in bad. For years, oil has remained a product that Americans want — and today’s high prices have done little to change that.

A few months ago the FTC said this about high gas prices: “All of the increase can be attributed to increased crude oil costs, because gasoline inventories are as ample as they have been for several years, gasoline consumption is declining to a near-record extent, and refining margins — the difference between the cost of crude oil and the wholesale price of gasoline — have fallen.”

So who’s making the big money? The countries that produce crude oil. Crude represents more than half of the cost of each gallon of gasoline sold. Federal, state and local taxes represent another fifth.

Yet some insist we punish “big oil.” During one presidential debate, Hillary Clinton announced that “the oil companies reported the highest profits in the history of the world. I want to take those profits, and I want to put them into a strategic energy fund.”

But confiscating oil company profits is a lousy idea. Profits are what keep them in business. It allows them to invest in refining and delivery systems, and search for new deposits of petroleum. Profits fuel our capitalist system as surely as petroleum fuels our national economy. Plus, “big oil” returns billions to stockholders through dividends, and millions of Americans own its stock through their mutual funds and 401(k)s.

The best way to cut prices in the long run would be to increase supplies. Policymakers could help do this if they would allow drilling off-shore and in a tiny section of Alaska’s barren Artic National Wildlife Refuge.

It makes no sense to keep so much domestic oil off-limits, especially with prices climbing. As long as we do it, we’ll pay more than we need to for each gallon of gasoline and keep sending big profits overseas. Let’s stop stalling — and start drilling.

In support of Big Oil

Posted in Oil on May 13, 2008 by poyers

Where is it written that the cost for a product or service should be frozen in place and in time, never to rise again, or to rise at a pace commensurate with our incomes? People who think this way know little to nothing about supply and demand and less than nothing about the profit motive. That’s because at least three generations have been raised on the notion of entitlement, and when one feels entitled to something, one believes someone else should pay.

Senate Democrats last week sought to ingratiate themselves with voters, while doing nothing to produce more energy, with a familiar attack on “big oil.” They want to repeal $17 billion in tax breaks for the oil companies over 10 years and on top of that impose a windfall profit tax on companies that don’t invest in new energy sources. This is political expediency at its worst.

It is a myth that oil, no, energy companies are not investing in and exploring alternative resources.  Chevron alone has spent over $20B on alternative investments.  ConocoPhillips close to the same. 

President Bush’s trip this week to Saudi Arabia is “highly embarrassing” because he is “calling on the Saudis to produce more oil when we are not doing it ourselves.” The last refinery built in America was in 1976. Tighter government regulations are the main reason. That’s how unserious we are about our energy “crisis.”

There would be plenty of oil available to the United States if the oil companies were allowed to get it: Eighty-five percent of offshore oil is off-limits. Responding to objections to offshore drilling by environmentalists and their allies in Congress, it should be noted that some of the strongest pro-environment nations in Europe – Denmark, Norway, the United Kingdom – lease offshore locations for oil exploration. The technology has become so good that during Hurricanes Katrina and Rita, one thousand offshore wells were destroyed (in the Gulf of Mexico), but not one leaked. Australia has allowed offshore drilling for 40 years without any environmental damage.

In addition to the sinking value of the dollar, here is the main problem: According to the Department of Energy, U.S. oil production has fallen approximately 40 percent since 1985, while the consumption of oil has grown by more than 30 percent.

According to government estimates, there is enough oil in areas accessible to America – 112 billion barrels – to power more than 60 million cars for 60 years. The Outer Continental Shelf alone contains an estimated 86 billion barrels of oil and 420 trillion cubic feet of natural gas. Had President Clinton not vetoed exploration in the Arctic National Wildlife Refuge (ANWR) in 1995, when oil was $19 a barrel, America would currently be receiving more than 1 million barrels a day domestically, all of it taken by better technology than existed more than 30 years ago. That was when the Alaskan pipeline was built despite protests from environmentalists who claimed it would destroy the caribou. It didn’t, but the environmentalists are back with the same discredited arguments. Because most of the oil remains “off-limits,” we are becoming more dependent on foreign oil.

No, we can’t “drill our way out” of our addiction to oil, but we can make the transition to other energy sources easier while lessening our dependence on foreign oil and propping up dictators who use our money to subsidize terrorists. A slow transition will also give us time to consider more fuel-efficient cars and greater use of public transportation, even bicycles for short trips. Bikes would help more of us lose weight and get in shape. A friend bikes to work every day, saving gas, car payments, insurance and repair costs.

The specter of a president of the United States going hat-in-hand to Saudi Arabia to plead for more (and more expensive) oil from the dictatorship that underwrites an extreme form of Islam that is out to kill us is obscene. President Bush ought to be rallying Americans, not embracing people who don’t allow women to drive cars.

Some oil data

Posted in Oil on May 9, 2008 by poyers

According to the US Department of Energy, US oil production has fallen approximately 40% since 1985, while US consumption has grown more than 30%.  So in real barrels, US oil production is now below five million barrels a day.  It was approximately nine million barrels a day in 1985. 

We have cut our production in half.  And you can see one of the results of this is the price that we are paying for oil-related products today.  At the same time, while in the last 23 years we have cut our production in half, the government has put billions of barrels of domestic oil and natural gas off limits to domestic exploration.  According to federal government estimates, there is enough oil in the areas that we now place off limits, 112 billion barrels to power more than 60 million cars for 60 years without importing a drop.  However, this domestic supply is off limits.

Had President Clinton not vetoed exploration in ANWR in 1995 — oil was $19 a barrel in 1995 — America would currently be receiving over a million barrels a day from Alaska.  Experts estimate that ANWR contains 5.6 to 16 billion barrels of recoverable oil.  The Outer Continental Shelf in the United States contains over 44 billion barrels of oil, and 232 trillion cubic feet of natural gas.  Eighty-five percent of the outer continental shelf is off limits to domestic exploration.  In the Gulf of Mexico, there is enough natural gas to heat 60 million homes for another 160 years. 

Just some very brief and high level informaiton to share.  The information out there about new possible supplies of oil and other energy is vast.  But this is a good start to spur conversation and discussion.  

Addressing the high oil prices

Posted in Oil on April 25, 2008 by poyers

Mr. McCain and Mrs. Clinton have brought up a temporary solution to high oil prices for the summer; a tax holiday from Memorial Day to Labor Day.  In essence, the 18% or so gas tax the federal government currently charges would be eliminated for four months.  It sounds nice and might have a short-term effect, but there is no real solution in this grandstanding at all.  It is just politicians assuming that we are dumb.  For the record, Obama is against the idea; although in 2000 he supported a similar plan in Illinois.  This time he is against it because the funds go to repair and expand the highway system.

What if we were to try these three measures?  Would they have any impact on the price of gas?

  • End state fuel-mixture mandates — Our refineries have to produce upwards of 30 different formulations of gasoline for different states. It makes our supply chain brittle when it should be flexible and leaves us vulnerable to sudden price hikes when refineries have problems.
  • Begin expediting the approval process for more refineries — We have not built a new refinery in the US for 30 years. We keep expanding the capacity at existing refineries instead, and that also leaves the supply chain vulnerable to disruption when a refinery has to shut down. They now have to run at full capacity constantly in order to meet demand and keep prices down. Over the last two decades, we also now have to import more and more refined gasoline instead of crude to keep up with the demand, thanks in part to a lack of refinery capacity here in the US.
  • Allow more domestic drilling — Oil, like any commodity, increases in price when demand goes up and supply doesn’t meet it. With China and India vastly increasing their demand, prices have gone up accordingly. The only way to get the prices down is to either reduce demand or increase supply. That means the US has to start using its own resources rather than living off the resources of others.