Come on Ace to say the left is really against OIL is total BS. Go take a look at the case of Coastal Carriibean Oils and Minerals. This company owned the rights to drill for oil and gas off the coast of florida in the gulf in state waters! They have owned these lease rights for 50 years. Its estimated to contain 3 billion barrels of oil. Guess who finally put the nail in the coffin of this company by denying its right to drill ?? Jeb Bush.

True, but it was pressure from the left and soft-headed middle that caused him to do that.

Well, Ace, it would be nice to think so, but I bet it was Republican backers as well... who owned coastal property. Few people want to be located near an oil operation, even if it's a few miles away.

I agree, though, that now is the time to pressure people over this issue. Not just a matter of environmentalists, but those who are worrying about the property value of their beach developments.

There's also the libertarian strain in economics which says, dogmatically I think sometimes, that we can never favor an industry with government support.

This is not dogmatism, any more than saying that gravity points downward is "dogmatic."

Free market economics shows why government "support" is a lie. It always consists of favoring one group at the direct expense of others. And it always is the direct cause of problems of equal or greater magnitude.

But right now there's an anti-competitive cartel selling us most of our oil, and for the market to truly work, there needs to be some viable competition. And that competition really can't come into being with the cartel willing and able to lower prices to drive them into bankruptcy if there should ever be serious investment in this technology. And then raise those prices, once again, after the competitive threat has been eliminated.

The fact that the OPEC cartel exists is objectionable, of course, but it no excuse for some kind of increased US government interference in this market.

The fact that OPEC is a cartel only means that the cartel acts, in effect, as a single producer. They form a block that fixes prices for its members, and prohibits them from selling below that price.

But OPEC is not the only producer in the world! There are literally thousands of places that produce oil, many of which are in the US.

The fact remains that OPEC, even if it is treated as a single producer, still sells its oil below the price of many independent producers. That means that oil purchasers are still getting the best available deal.

The solution is for the non-OPEC producers to beat the OPEC price. (Or bid the OPEC members against each other and invite them them dissolve, of course.)

If the price of oil rises, that creates the economic conditions that are necessary for our production and consumption patterns to change. THESE CHANGES ARE ESSENTIAL TO OUR LONG-TERM PROSPERITY!

Only with an increasing oil price are such changes economically justified. Otherwise, there's no reason to expend capital to, for example, develop and implement shale production methods. As long as oil prices are kept artificially low, there is no reason to invest in new production technology (or even a new car!).

By suppressing the price changes, you suppress the adaptation of our production and consumption behavior.

That is the exact opposite of the stated objectives of the protectionist plan, no?

Greetings,

Yes, those evile republicans who don't want development in their communitte - sort of like the same politicos who fought the building of wind generators of the coast of Mass. Oh, wait, wasn't that Mr. Kennedy and Mr. Cronkite?

Lots of people have an oil operations located a few miles a way. I grew up in the middle of the Texas oil and gas fields - have a well on my parents property.

From what I have seen and read, yes the left is against oil / gas / nuclear power / anything else they can think of.

What's worse is the left provides no alternatives. Conservation seems to be their only answer. What does the left recommend as a solution to the power problems? Burning buffalo chips?

Well if they start handing out drilling rights, they better mandate that more refineries be built to process the new fuel.

The price-point at which shale-oil is feasible is rapidly approaching -- I've always said it would happen around the $80-90bbl price point, and we're about at that now. However, I have a feeling that the government is using U.S. shale-oil deposits as the "stick" part of the carrot/stick argument against foriegn producers: either they ramp up production to get prices down, or we produce our own.

The problem is, volume production from shale-oil deposits is about a decade off even if we start *right now*. So it will do approximately zero to alleviate problems in the short term. Furthermore, it also does nothing to solve the problems with the lack of refineries, which is actually a bigger bottleneck than crude-oil availablility at this point.

OT -- Newly released figures show unemployment has dropped to 4.9%. How about a cowbell to lift our water-soaked morale?

http://www.foxnews.com/story/0,2933,168279,00.html

I know I read this site too much when I am able to identify a Phinn post after reading his first line. Thats not a bad thing.

NO BLOOD FOR GULF COAST OIL!

Support the troops by withdrawing from New Orleans now!!!

I'm nothing if not consistent.

Phinn - As I understand it, OPEC sets a market price above the cost of production of the independents, and enforces it by threatening to move to price below their cost. This fixes the market price at the level of the least efficient producer. How is that “the best available deal”? Also, how does this square with your assertion that “artificially low” prices discourage capital investment? Ace’s argument sounds right: (using made-up numbers for simplicity) if current artificial market prices are at $50, and available alternatives would require substantial capital investment and yield a cost of $40, that investment can be prevented by the threat of reducing the market price to $30. If the threat were actually carried out, that would be good (in the sense of bring price closer to actual production cost). But as long as it remains merely a threat, everyone gets screwed at $50. What’s the libertarian economic take on that? (And no, I haven’t read the L&E tomes on anti-trust, but I’ve been meaning to.)

It's time for the left to put up and shut up... plant those windmills off Massachusetts.

Quiggs,

What is wrong with setting a price that's above the cost of production of your competitors? That's the mechanism that compels other producers to lower their costs. That is the mechanism that creates market efficiency in the first place.

The fact of the matter is that the OPEC countries have exceedingly low production costs. Part of reason for that is the fact that their oil is relatively easy to extract.

When I say that it's the "best deal available," I do not mean that it's the best of all possible worlds. That's an inherently unrealistic way of looking at things. I'm saying that it's the best price of those producers who are actually in the market right now, selling.

And what happens if OPEC does drop the price to $30 (per your hypothetical numbers)? Who wins then? The consumer does. If $30 is below OPEC's own production costs, they will quickly go out of business, so the $30 price is not realistic, nor a problem (from the consumer's perspective) even if it is.

The fact remains that most non-OPEC producers cannot beat OPEC's price (even if that price is not as low as it possibly could be). Even if it represents a price that is higher than the price at which some of the member producers would be willing to sell if there were no cartel, it still represents the best price that is actually available on the market.

That is not the "price of the least efficient producer." Not at all. That is the price set by the OPEC producers that can afford to sell oil at that price because their production costs are so much lower than everyone else's. That's the price of the most efficient producer.

In practice, the market price is determined by the costs of the most efficient non-OPEC producer. That producer is always a kind of "threat" to OPEC, as you put it. Its price acts as the upper limit on the price OPEC can afford to offer. That is the producer that is really driving the market price.

In any event, what we are facing now is a supposedly unfair high price of oil. At $80 bbl, even the $40 per barrel alternative producer can afford to go into operation. If the alternative production methods are genuinely successful at $40 bbl, that producer will quickly force the $80 OPEC price right back down.

Rather than spend a whole bunch of US tax money trying to prop up the relatively inefficient US producers, what we should be doing is actively bargaining with the most efficient (lowest cost of production) individual OPEC member(s), constantly soliciting them to break from the cartel and undercut their partners.

Oil shale sounds good but you have to consider EROEI - energy returned for energy invested.

Recovery, especially in-situ extraction, requires a lot of energy as input. If we want motor fuels from oil shale, we're going to have to build a nuclear reactor to provide steam to get the oil out.

Are we holding our breathe yet?

And Canada has something like twice the oil shale we do, not to mention the tar sands.

Whitehall's point about energy cost is correct as far as it goes, but please note that the electrical energy produced by a nuclear reactor cannot at this time be used as motor fuel. This is the most efficient way yet proposed to turn electricity into useable gasoline.

And as for libertarians, don't we favor war and taxes whennecessary to protect the citizens from enemy nations? Well, this isn't even war or taxes. It's just a government-supported, national-security-essential industry. Strain at gnats, etc.

Won't need to be much of a reactor. I've read that the reactor in a LA class sub has enough oomph to power a small city.

We're due to retire a bunch of the LA boats too...

Of course heating up rocks using nukes will contribute to [gasp] GLOBAL WARMING.

You'd be amazed how much more production we can get out of existing wells with a $40 price. I was morn and raised in the heart of oil country and made my living in the industry, I can assure you that there's still as much left in the ground as has been taken out already. That's not counting shale oil, that's in existing fields recoverable with currently available means. We had $6 - $8 oil as recently as 1998, that was OPEC driving the price down to keep us from dependent on them, they'll do it again too, just as soon as we invest a lot in shale oil or actually start drilling ANWR. Don't expect any oil company to kick off a shale oil porgram without a lot of guarantees from Uncle Sam, OPEC will open the taps to keep that from happening.

Back in April, I got an e-mail containing an excerpt from an article (source unknown) which explained a really interesting theory about the world's oil supply.

It tells how there has been " for quite some time now, two competing theories concerning the origins of petroleum. One theory claims that oil is an organic 'fossil fuel' deposited in finite quantities near the planet's surface. The other theory claims that oil is continuously generated by natural processes in the Earth's magma."

The whole thing is too long to reproduce, but the last two paragraphs sum it up nicely:

"Excerpt 3: Example of a refilling oil field. The Eugene Island story was revisited by the media three-and-a-half years later, by the Wall Street Journal (Christopher Cooper "Odd Reservoir Off Louisiana Prods Oil Experts to Seek a Deeper Meaning," Wall Street Journal,April 16, 1999). Something mysterious is going on at Eugene Island 330. Production at the oil field, deep in the Gulf of Mexico off the coast of Louisiana, was supposed to have declined years ago. And for a while. it behaved like any normal field: Following its 1973 discovery, Eugene Island 330's output peaked at about 15,000 barrels a day. By 1989, production had slowed to about 4,000 barrels a day. Then suddenly - some say almost inexplicably - Eugene Island's fortunes reversed.

"The field, operated by PennzEnergy Co., is now producing 13,000 barrels a day, and probable reserves have rocketed to more than 400 million barrels from 60 million. Stranger still, scientists studying the field say the crude coming out of the pipe is of a geological age quite different from the oil that gushed 10 years ago. All of which has led some scientists to a radical theory: Eugene Island is rapidly refilling itself, perhaps from some continuous source miles below the Earth's surface. That, they say, raises the tantalizing possibility that oil may not be the limited resource it is assumed to be."

Now wouldn't THAT put a kink in Greenpeace's collective colon?

Hi All,

I normally would not be for much intervention in any market by the government (because they F#$@ it up generally). Still, we have a critical need for new refineries. Does the average person know that we have not built any new refineries for decades? We have approximately half (OK that probably overstates it a bit) the refineries that we had when I was young. I recently read some article that refineries were running at 97% capacity. Increasing oil supplies is meaningless if you can't refine that oil. So-called environmentalists have blocked such things (I want a study on their energy use--I would bet they are not living in a unabomber shack as you would expect for true environmentalists). The government may reasonably decide that for security reasons they must force through some new refineries.

I also think that we should take a page from the French (I know, the horror :) ) and build some more nuclear plants. I have degrees in physics, and I know that the disposal problem is a real one. Still, making that problem a bit worse in the short term does not seem to be a big deal to me. We have old plants which I would assume could be retrofitted with new equipment for minimal cost for the obvious benefit. Other than for the actions of nutty environmentalists (first ones out to irradiate themselves on the beach or in a tanning salon), why does this not happen?

Mike

Hi Doug,

Oil is based upon carbon as living things are. I know nothing about this directly, but it seems obvious that oil was originally plant material mostly (I have heard other theories; and I frankly hope that they are true, but it is beyond my knowledge and study). Why is it strange to find that such prehistoric sources might still be active geologically? It does not surprise me at all. Why assume that it is all static?

Mike

Good point, Mike. The fact that SOME long-dead-and-buried plant and animal matter has been converted into oil does not necessarily mean that ALL of it has.

This process could be going on for a long time yet. But the rub, as pointed out in the article I quoted, is that while individual fields like the Eugene Island one may refill quickly, on a global scale it is obvious that the process (whatever it is) can't keep up with current consumption rates.

One way or another, we will still have to develop other means of producing and distributing energy.

Oh, and let's not forget another point that someone made back in the days of the 1970s "energy crisis": it wasn't so much an energy crisis as it was a transportation crisis - over 60% of the world's oil consumption goes toward satisfying the need of the internal combustion engine.

If someone ever comes up with a new prime mover to replace the IC engine, one that either doesn't run on oil or uses a tiny fraction of what is currently used, then US dependence on foreign sources could end almost overnight and EVERYthing changes.

On purely economic grounds, there is no justification for government interference with the international market for oil. The market will provide the most oil for the lowest price. However if we consider the National Interest of the U.S. more than just economics, then shale oil and nuclear power should be subsidized so as to deny our advesaries money and power and to retain complete control over our power sources. It is absolute lunacy to allow the middle east dictatorships any control over our economy. Why hand a loaded gun to your enemy?

I think another part of the solution is solar energy, just slap a couple of panels on roof tops. They charge batteries during the day and run of those by night.

It's possible to hook these panels to the power grid, so any shortfalls will be made up. Additionally, power stored in batteries can actually flow onto the grid, so if you go on vacation, all that stored electricity flows onto the power grid, and in some states, the electricity company is required to pay you for it. Basically you end up with a community power grid run from solar panels. You use some extra electricity, you pay for it from the grid, use less, and you support your neighbor while getting paid for it. While it doesn't mean an end to coal or oil based power generation, mass use of solar would put a serious dent in it.

I think the issue of shale is the only factor which would keep oil prices from getting insane crazy. However, if it takes 10 years to actually produce it, it means that the effective price cap shale oil represents is increased drastically.

The idea of regenerating oil fields is interesting.

Hi Ring,

I do not know your level of technical expertise, but solar panels are not normally very practical. They are a special application. It is not easy to make them cheaply (more energy to make them than they are worth usually). The planet runs on the sun, but direct conversion into electricity is rarely feasible. Passive use of solar energy is often well worth the effort though.

Mike

If national security is the issue, then just ban imports from whatever Middle Eastern state you want to target. Like we do with Cuba. It's not good to do this, but it's one of the least destructive alternatives.

Tinkering with the price of oil or other subsidies hurts everyone to a much greater extent.

Hi Ace,

Where do those nasty Republican domestic producers find their buffaloes? I have only seen them in Yellowstone. I was sort of surprised that they let me get right next to them (what was I thinking considering their drill-bit-like horns! :) ). I did not meet a damn one of them that gave even a single horn to any Republican. :)

Mike

ah still don't trust them OPECers.