Category Archives: Energy

A rational reason for high oil prices

 

"There is no rational reason for high oil prices," writes Ali Naimi, Saudi Arabian Minister of Petroleum and Mineral Resources, in today’s Financial Times. Well, I can think of one– if oil prices were lower, the world would want to consume more than is currently being produced.

Blue line: total world oil production, millions of barrels per day, annually, 2002 to 2011. Red line: global oil production in 2002 times (yt/y2002)0.75 where yt denotes global world GDP in year t as reported by IMF. 2011 world GDP growth estimated at 3.9%.

world_oil_gdp_mar_12.gif

The question is not whether there is a rational reason for high oil prices, but rather whether there is a rational reason the world is not producing 100 million b/d today. And if anyone knows the answer to that question, it should be Saudi Oil Minister Ali Naimi.

A rational reason for high oil prices
James Hamilton
Wed, 28 Mar 2012 19:02:47 GMT

It’s So Maddening to Bruce

Public policy should try to make prices of goods and services equal their social cost, especially at the margin.  If production of energy pay its entire social cost in for example environmental degradation, then its output should be taxed to drive the costs to producers to equal the social cost.  Monopolies should be broken up to do  the same thing.  Do our politicians seem to do that?

You be the judge from this recent event:  The Reaction of Washington to Rising Gas Prices.

Here’s what President Obama’s up to:

Obama’s lead pollster and senior strategist Joel Benenson told reporters Thursday that to appeal to voters who believe they’ve been especially hurt during the recession, the president needs to tie Republicans to lucrative benefits for the oil industry, and advocate for tax fairness and new investments in manufacturing and high-tech jobs…Although White House officials conceded early this month that there is no direct and immediate linkage between ending oil company tax subsidies and reducing gasoline prices, the president nonetheless tried to blend company profits, petroleum market speculation, and pump prices into the same populist message.

It seems the main thing the President is up to is trying to accomplish is to divert voter’s ire from himself, by having them believe that’s he trying to avoid profits for big oil, even that will do nothing to help those who buy gas.  There no apparent interest in equating the costs of producing oil with its price.

Tax policy for the oil industry should be to avoid wedges between social and private costs, not to serve some wave of outrage about profits in production of a good.

Are Republicans any better?

Take it away Senator Mitch McConnel (Republican leader in the Senate):

Senate Minority Leader Mitch McConnell, in a statement, denounced the president’s efforts to pass a version of a measure previously defeated by the Senate in 2011. Suggesting the president’s interest in repealing oil company tax breaks was an election-year gambit, the senator said he opposed the bill because it did little to lower $4-a-gallon gas and would instead “raise taxes on energy manufacturers.”

Republicans aren’t interested in letting prices rise if needed to reflect increasing scarcity of oil as an exhaustible resources.  In the end Republicans are not pro-market; they’re pro business.  It’s not good policy.

I’m not familiar with the tax policy of the oil industry that much.  If the tax changes proposed end subsidies for oil production that keep oil prices and product price below their social costs they should be repealed, as the the President has proposed.  If the tax changes proposed drive cost of oil production above or further above the social cost of its production, the Republicans are right and the tax policy should be kept unchanged.  This may be true to the extent that oil tax policy lets costs of oil production be reflected in calculated oil profits.

It does feel like our leaders are using a rational anything like this.

Explosive Breach of Condit Dam

 

A lot dam removal activity is underway in the Pacific Northwest

Explosive Breach of Condit Dam on Vimeo on Vimeo

Explosive Breach of Condit Dam
Paul Kedrosky
Sat, 05 Nov 2011 07:06:45 GMT

The Romance of Technology

Anybody in the energy industry should find this compelling reading.

Jo Walton:

Rothfuss Reread: The Wise Man’s Fear, Part 4: Well Over The Hill: Stargazer considers the poetry of real life power generation:

Somewhere, right now, a turbine is spinning in superheated steam above a great flame, gnawing ceaselessly day and night as a vast swarm of servants scurry about the globe to feed its insatiable appetite so that you may read these words from afar or speak to distant loved ones. Nations pour out gold and blood onto desert sands and throw away lives down deepest caves, burn down whole forests and flood river valleys that once were home to millions, all in the name of feeding those flames. Adepts labor cleverly to reduce inefficiencies as much as possible through ever more intricate patterns scrawled in copper and silicon, inventions from the University doubling your gas mileage and letting your cell phone hold its charge a little bit longer. And the most foresighted of those adepts dream of harnessing the greatest fire of all, ever circling overhead, by stealing right from the sky its power, or harnessing it through its stepchild, the ever-restless softly blowing Wind.

The Romance of Technology
J. Bradford DeLong
Sat, 24 Sep 2011 16:27:00 GMT

Where can America find more income and jobs?

 

In January 2008, ExxonMobil and Norway’s Statoil announced a promising discovery in the Julia Field in the Gulf of Mexico that may contain a billion barrels of oil. In October of that year, Exxon applied for a 5-year extension of the lease for time to develop a suitable development plan. To the company’s surprise, the U.S. Department of Interior denied the request in February 2009, and has continued to turn down subsequent appeals. The company has filed a lawsuit to have the decision overturned.

The Wall Street Journal reports:

Exxon’s lawsuit said the government has granted "thousands" of extensions over time. It said the government’s denial of its extension relied on legal interpretations that it "had never before applied and had never before articulated." Statoil asserted in its lawsuit that no request for an extension for a deep-water development "had ever previously been denied."

Jim Brown reports that the Julia well was drilled in 6,500 feet of water to a depth 31,160 feet, numbers that continue to dazzle me with the scope of the engineering challenge involved. Brown also offers this commentary:

Exxon is known for moving slowly in developing plans for offshore production but given the complexity of developing oil fields six miles below the surface that is to be expected.

The government said Exxon did not present a firm plan for producing the oil. Duh! You have to drill it first and one exploratory well does not give you enough information to develop a "firm plan" for producing the oil in an entire lease. Nobody had ever been required to provide a firm plan in the past. This was a new and previously unneeded requirement….

Ignore the fact that thousands of workers and tens of billions of dollars would pour into this development. Ignore the fact that the federal government would receive roughly $11 billion in royalties off this development. Ignore the fact that by arbitrarily refusing the extension the production of this oil has been set back by a minimum of 5-7 years. If the lease has to go through the auction process again and someone else wins and has to develop the seismic data, drill exploratory wells, etc it could be 10-15 years before the oil is produced. This is mass stupidity at the government level.

It already took Exxon years to do all the preparation just to drill the initial exploratory well. It will take any new bidder those same years to repeat the process.

And in a separate story August 15, Brown had this:

Noble announced last week another deepwater rig was leaving the Gulf of Mexico for work elsewhere. The Noble Paul Romano had been idle since June 2010 and it now going to work for $325,000 per day for Gujarat State Petroleum in Egypt….

Since the moratorium was canceled Chevron has received three deepwater permits, BHP Billiton had four wells approved and Shell won five permits. There have been some singles awarded to other companies. The major drillers are not expecting a return to faster permit approvals until the end of 2012 or early 2013….

The rig utilization rate in the Gulf is now 54% compared to 78% worldwide.

An idle rig impacts over 1,000 workers. Some estimates are higher depending on how deep you go into the onshore support structure. Rigs have two complete shifts so a rig with 150-200 workers has twice that many with one half onshore at any given time. For an active rig there are dozens of support vessels moving men, equipment, supplies, food, etc back and forth from shore. There are the support companies like Schlumberger, National Oilwell, Weatherford, Cameron, etc, that operate as contractors to the rigs.

On shore there are supply houses, fabricators, helicopter services, regulators, inspectors, engineers, etc that work constantly to keep the rig operating.

Having these rigs on standby means they have a skeleton crew keeping the engines running and keeping the lights on. Everyone else is drawing unemployment.

That’s about 10 rigs that have left the Gulf so far, and half those that remain are idle.

In other news, President Obama is planning to deliver an important speech early next month detailing the Administration’s new plans for promoting jobs growth.

Where can America find more income and jobs?
James Hamilton
Tue, 23 Aug 2011 23:06:17 GMT

French fracking fracus

There is oil in shale formations in France, possibly even shale oil under the Eiffel Tower, and at least for now it looks like that is where the oil will remain. According to a report by Bloomberg News, a parliamentary committee agreed on a proposal to ban hydraulic fracturing in the country, the full parliament is slated to vote on the issue later this month and the proposal could become law by July.

A parliamentary committee yesterday agreed on a ban that removed the possibility of fracking even for “scientific experiments.” Both houses of the French parliament are slated to vote on the bill this month and it could become law in July.

Companies that were planning to use the technique will have their permits canceled under the proposal, which also includes jail time and fines for fracking and the creation of a commission to oversee research and evaluation of unconventional oil and gas exploration.

The view from Paris:

“I’m against hydraulic fracturing,” French Environment Minister Nathalie Kosciusko-Morizet has said. “We have seen the results in the U.S.,” with its “devastated countryside” and “sullied water tables.”

The French Environment Minister concluded remarks to developers with, “Now go away or I shall taunt you a second time.”*

*Just kidding, but really – “devastated countryside” and “sullied water tables”? I guess if you know no more about fracking than you saw in Gasland and the New York Times maybe you’d think so, but surely standards for policy analysis should be higher than that.

Knowledge Problem

via French fracking fracus.

Should buildings be wired for DC power distribution?

Knowledge Problem

via Should buildings be wired for DC power distribution?.