Thursday, May 22, 2008

Energy Illiteracy

Just when you thought Congress couldn’t be any stoopider, they have once again convened an Inquisition to grill the titans of the energy industry on why gasoline is costing north of $4/gal.

Sen. Richard Durban of Illinois was troubled that the CEO’s of Exxon, Shell, BP, et al, might not be troubled about high energy prices. "What have you done to us?" he squawked yesterday.

Perhaps Durban should be more troubled about what that his own colleagues have done to us—and domestic oil production—by imposing restrictions on the oil companies’ exploration efforts, and creating a regulatory morass that has hampered effective growth of refining capacity. Me thinks the Senator doth protest too much.

Their answers to higher gasoline prices?
Stop filling the strategic petroleum reserve.
Suspend fuel taxes between Memorial Day and Labor Day.
Encourage the growth of corn for fuel instead of food.

Halting strategic petroleum reserve additions would only divert a 2-months’ supply of oil away from the storage facilities, and into the production pipeline. Suspending fuel taxes would create a domino-effect of economic horrors, resulting in higher unemployment, stimulate additional gasoline consumption, and stall vital maintenance to the national highway system. And growing corn for fuel has resulted in a pair of unintended consequences: Higher food prices borne from the scarcity of grain, and higher consumption of fuel because the ethanol-mixed stuff produces less energy than the real stuff.
Stoopid Stoopid Stoopid.

I spoke this week with Jane Van Ryan at the American Petroleum Institute, an organization unabashedly all about promoting the interests of the oil companies. (Don’t turn up your nose on that notion: this is not an us vs them issue. It’s a problem WE all must reckon with.)

Ms. Van Ryan correctly identified the primary culprit in all of these arguments, debates, and congressional hearings: Energy Illiteracy. Just as Literacy has been a core social issue in this country—if you cannot read or write, you are a burden to society—so is energy illiteracy a core economic issue.

My friend, Keith Fitz-Gerald, at Money-Morning, correctly identifies this as a Supply and Demand issue—meaning, there are things we should be doing on both sides of that equation.

Increase supply and diminish demand.
Seems simple enough.
Why can’t our national leadership ask those kinds of questions, instead of probing into how much money oil company CEO’s made last year?

Why can’t we create incentives for less consumption at the pump, instead of funding the diversion of food stock for fuel stock (thank you, Corn lobbyists)?

If Congress is so gung-ho to meddle in the oil business, why not place a moratorium on speculators driving up oil prices. What the flip does a company like Goldman Sachs have to do with holding oil futures? Last I checked, they didn’t have a refinery in the corporate parking garage. The point is, let the oil producers and refiners manage the supply of crude without interference from the money grubbers on Wall Street, who don’t have any skin in the game.

There are a lot of smart people in this country who could, with the proper funding and incentives, create doable, viable alternatives to lessen our dependence on imported oil.

Congress should get off their high horses and listen to what the oil companies have been telling them for years: Open more land to exploration and development, reduce demand by incentivizing conservation, and fund the researchers who can use their brain power to think our way out of this mess.
What's so hard to understand about that?


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Anonymous said...

Start your own show via podcast. It looks like your still in touch with your old guests. Include the people who no longer appear on BizRadio like the "Bond Babe" and John Bott. Who needs a radio station, with the internet you have the world.

John P, Grand Rapids, MI

Brent Clanton said...

Thanks for the kind words, John.
John Bott and friends can be heard in Houston each Tuesday and Thursday evening at 6pm on KSEV-AM/700.
Leslie Gaylord, the "Bond Babe," sends her regards!

Anonymous said...

20 million barrels of oil a day, or 146 billion gallons of gas a year we consume in the US; and its growing...I think if you do the math, even looking at the most opmistic projections of oil that can be pumped out of the ground in Anwar, the answer is not drilling more. The 10 year time frame that even the oil industry conceedes is minimum for the infrastructure to get out even the first drop of oil, does not help us out of our prediciment. "We should have been able to drill those fields decades ago" some will say, and at our current consumption rate that area would provide 3-5 years of oil... and continue to stall an attempt to switch our thinking about the situation we have gotten ourselves into beacause of a century of cheap energy. Regardless of whether peak oil is upon us, or a decade away, its coming. The era of using the power of ancient sunlight stored for millions of years is coming to an end. Its time to pay the true costs, and rethink our entire way of life. Chris M. Houston TX.(Where cheap oil is going to be a hard habit to break)

Enjoy Gas said...

A barrel of oil can provide about 6 billion BTU's of heat when burned stochiometrically and sells for a little over $120 (about $20 per 1 million BTU's). Natural gas sells for about $10 per million BTU's and coal sells for about $5 per million BTU's. Since both coal and NG can be converted to liquid hydrocabons for under $5 per million BTUs, the current high price of oil is not sustainable in the long run. But for the near term, old producers have no reason not to hold us "over a barrel."

The problem is that if one invests in coal convertion technology or drilling to produce new oil, the current oil suppliers can actually sell their oil for as little as $5 per million BTUs and still make a profit. Investors would be foolish generate new supplies only to have the "big boys" jerk the rug from under them economically and then buy their investments for pennies on the dollar at the bankruptcy sale.

It's frustrating, but unless our representatives figure out how to force price manipulation out of the market and protect new investments from being undermined, no amount of hand wringing and whining will work to bring the market into ballance. You are right that there are smart people that could improve supply and reduce consumption, but at least for now, no one seems to have a path forward that achieves these goals. It will eventually happen, but for now, the sources are not under our government's authority.

Before you decide to give up though, I suggest you Google "Lindsey Williams" for another view of the situation. His videos are well worth the time required to hear his message.