Tuesday, June 24, 2008

What to do about oil production?

The argument is being made by oil and gas industry representatives that it is time to open up the outer continental shelf (OCS) to drilling for oil and gas; the OCS has been placed off limits by the US federal government. When asked (during a US Congressional hearing) why there’s been no activity on the 68 million federally controlled acres that are available for drilling oil, those same industry representatives stated there was no drilling equipment capacity available. The turn around time for drilling platforms and supplies is approximately 5 years from order to delivery; we’ve got time to consider the ramifications.

The US uses 20.5 million barrels per day (b/d) of oil. The total estimated SWAG (Scientific Wild A** Guess) for the OCS is 27 billion barrels of recoverable oil. Add to that the ANWR oil reserves most optimistic SWAG of 11.8 billion barrels of recoverable oil and you get 39 billion barrels; 5.2 years of oil reserves untapped. The most optimistic projections of daily production from these reserves total about 3 million barrels of oil per day (b/d); about 15% of the daily US consumption. That brings us down to only 8 million b/d of imported oil; assuming none of the other US fields slow down at all. All this new capacity can be online in 7-10 years. What would you have the Sheik do with the money he’ll make from you in the meantime?

Year after year gas prices have spiked higher each summer driving season, and this year is no exception. The oil and gas industry says it doesn’t have the refinery capacity to change from producing winter to summer oil based products quickly enough. In the 1990s they sold a large chunk of the refinery capacity to independent operators; reduced their own capacity. Meantime, they optimized production at their remaining refineries to more than 90% utilization; great for profits, bad for flexibility or damaged (tornado, hurricane, industrial accident, etc…) capacity offsets (e.g., the BP refinery accidental explosion and fire here in TX).

So, can we get some help from auto manufacturers in conservation (autos consume the majority of oil based products in the US)? Nope. The association of manufacturers is suing to stop the California Air Resources Board (CARB) from imposing restrictions on automotive green house gas emissions (only way to do that is to use less fuel). In the 1990s CARB had imposed a requirement for cars that were zero emission vehicles (ZEV). GM leased multiple ZEV vehicles to California citizens while it lobbied the CA legislature to repeal the aforementioned requirement. When the lobbying effort proved successful the ZEV lease vehicles were repossessed at the end of the lease agreement (even though quite a few leaseholders wanted to purchase their cars) and GM scrapped them.

GM also displayed the Volt, a plug-in, full series hybrid car (moved by electric motor only, using an internal combustion engine to crank the generator exclusively), but said batteries to make the car feasible weren’t commercially available. However, the folks at General Dynamics Land Systems had already field demonstrated a four ton Humvee replacement that was a full series hybrid truck (getting 250% better mileage than the Hummer).

I hear the cry to, “let the markets work,” but the markets have discovered that profitable is more fun than responsible activity. We were on this road in the 1970s and are here again (see other posts), because we’ve demonstrated an ability to forget the past. To quote Bill Engvall, “Here’s your sign!”

Monday, June 16, 2008

Back to the 1970s at the fuel pump!

In a previous post I stated that history was repeating itself in the form of a debt driven economic crisis; the 1986 S&L debacle becomes the subprime mortgage fiasco of today.

We return to the past once again, 1972 this time, to relive that well-marketed, short-term supply problem that drove prices at the gas/diesel pump sky high, this time in the form of developing world economic demand straining the producers ability to supply enough fuel.

The oil and gas industry once again states that the solution is to let them drill for crude oil wherever and whenever they want.

That answer is as wrong this time as it was the last time. What brought the price of hydrocarbon based fuels down, by 1985, was conservation. The problem rears its ugly head again, because after the price of a gallon of gas/diesel went way down, due to sub $10 per barrel crude oil, all the conservation measures were quickly thrown away; replaced by pseudo-conservation methodologies.

Enter the Corporate Average Fuel Economy (CAFE) standards that would hold the line on fuel consumption without price controls (that had failed earlier in the crisis).

The first problem that arose was the cheap price of fuel; concerned citizens subdued themselves when they paid less at the pump. Those still concerned about overt consumption were labeled tree-huggers, whiners, nut-cases, etc…

The second problem with CAFE was the light truck exemption, deemed necessary for the folks who needed a truck on the job. Except that CAFE was met by eliminating large family sedans and station wagons, that were replaced by Sport Utility Vehicles (SUVs) and mini vans; family vehicles covered by the light truck exemption (allows these new types of vehicles to remain beyond the reach of CAFE).

Those of us who thought the price of gas/diesel should remain higher, by means of increased state and federal taxes on consumption thereof, were scoffed at generally. The tax revenue generated could have been used to operate, update and maintain state and federal road and ground transport infrastructure that was being worn out, by heavy usage, at a much faster rate than it was being serviced.

Well, we’re at it again! Supplies seem to be meeting demand; no station closures or waiting lines yet. Still, the price per gallon of fuel is exceeding $4 at the pump; excuses roll out as profits roll in to oil and gas industry coffers.

Once again the hydrocarbon providing companies are demanding that they be able to go wherever they want and to do as they please, without pesky taxes or regulatory oversight.

Of course, there are those of us saying (after, “I told you!”) that conservation and alternatives need be applied first. Then, maybe open some access to previously protected places to the hydrocarbon producers: taxes and regulatory environment fully operational at every site and company involved in petrochemical associated industries.

Education in TX needs serious attention...

A great education can give our children the building blocks they need to become confident and the incentive to create the basis for the ‘next big thing’ that will drive the world’s economy; from right here in Texas.

The extraordinary expansion of the world’s economy, upon which many a Texan has thrived, has been driven by advances in the Industrial Revolution and the beginning of the Information Age. The most recent century of developments in both economic drivers originated here in the USA. Texas has been a partner in these expansions, but the main innovative force has almost always been associated with the education strongholds of the east and west coasts of these United States.

There is a need to build a foundation that will allow leadership in economic growth (the next big thing) to be drawn primarily from right here in the Lone Star State. The foundation is education; from pre-K right through post-doctoral studies.

Here are some ideas to ponder for investing in education in Texas:

*Three trimesters per school year; two or three weeks break between trimesters and a week break in the middle.
* Pre-K through 12th grade would normally take 14 years, but could be accelerated to as few as 12 years or increased to as many as 16 years, as needed.
* Technical/Vocational secondary school alternatives.
* GED programs could be made available at high school and community college campuses, as needed.
* Multi-media teleconferencing could make classes available statewide, so that every school need not provide every class curriculum for itself.
* Multi-media teleconferencing could also provide study assistance for students, during and after school hours, statewide.
* Electronic texts could make the best books available statewide, easier and less expensive than providing multiple hardcopies at each and every campus.

These are just a few of the ideas I have for making schools in Texas better and more affordable, so that folks will come to know that they can find the best educated workforce and brain-trust right here in Texas.