Sushi Money

In a historic, if not desperate move, President Bush finally lifted the executive ban on offshore oil drilling.  What took him so long?  For almost eight long years we have heard the Republicans talk about an energy plan, but they couldn’t put a package together even when they had the majority.  Which in itself is somewhat amazing.

But President Bush finally recognized that Congress was too politically afraid to do anything except blame the oil companies, and each other.   Will anything happen now?  Will the Democrats in control of Congress be forced to hold hearings and consider changing the law?  Maybe.  But they can stall for a long, long time.

“The only thing standing between the American people and these vast oil resources is action from the U.S. Congress,” Bush said in a statement in the Rose Garden. “Now the ball is squarely in Congress’ court.”

“For years, my administration has been calling on Congress to expand domestic oil production,” Bush said. “Unfortunately, Democrats on Capitol Hill have rejected virtually every proposal. And now Americans are paying at the pump.”

Congress must now change the law in order for oil companies and U.S. states to explore off the coasts of the nation.  Even if that happened tomorrow most people recognize that we are years away from increasing oil production in the U.S. 

But those are precious years indeed.  Between alternative energy sources, better mileage vehicles, reduced driving by consumers, and greater oil supplies over time, we just may see prices come down.   Will we ever see the lower prices of a few yeas ago?  Doubtful.  But even if the price of oil fell by a third, we could see pump prices close to a dollar lower.

For now President Bush’s actions are welcome if for no other reason than someone in a leadership position is doing something.   We’ve called for an Energy Summit before, and maybe this is the first step on that path.

So let me get this straight.   Officials around the world and within the U.S. say oil prices are at record highs because of the fundamentals of supply and demand.  We don’t have enough supply, and there’s too much demand. And speculation is not to blame.

And yet the great oil debate continues with many of the oil producing nations saying they don’t intend to increase supply because there is not enough demand and the market doesn’t warrant it.  Instead they blame excessive speculation as the real problem.

OPEC’s Secretary General Abdullah al-Badri called for measures to curb market speculation, a factor the Organization for the Petroleum Exporting Countries has said is driving prices to unjustified levels.

“We are not happy with the current level of price for one reason. It has nothing to do with the fundamentals,” he told the Reuters Global Energy Summit on June 10.

Saudi Arabia’s oil minister Ali al-Naimi says: “I am convinced that the supply and demand balances and crude oil production levels are not the primary drivers of the current market situation and that markets are already well-supplied.” (At the Jeddah Energy Meeting in June.)

He also says, “Supply is enough. The price is driven by many, many causes — most of which is speculation.” (At the World Petroleum Congress in Madrid June 30)

But others disagree, and even commodity experts within the U.S. argue over the Hunt for Oil Villians with many believing that speculation and futures contracts play little role in price increases. 

But then there’s the oil companies. Oil executives also think it’s a supply and demand issue.  The oil companies cite the lack of new supplies, and not speculators, as the reason for high oil prices.

Tony Hayward, chief executive of BP said the argument that financial investors buying oil futures were behind oil’s record levels was a myth.   “Supply is not responding adequately to rising demand,” he said at the World Petroleum Congress in Madrid.

At the same conference, Shell chief executive Jeroen van der Veer said “We don’t think that the financial markets are leading the speculation, probably they follow what other people fear as long-term fundamentals; I do not think that you can blame speculation for the oil price.”

Sounds like the U.S. is being squeezed from all corners and no one knows what the heck is going on.  And yet here we are with oil over $140 per barrel.  

Meanwhile the U.S. Congrees is scrambling to do something, anything, to placate voters.  And instead of blaming oil companies as they’ve done for decades, they’re finally looking for solutions.  Apparently they’ll do anything to prevent increased drilling, so Congress is trying to reign in speculation with at least nine proposed bills.

And this is not just a U.S. issue of course.  Officials in the UK are now trying to determine what’s to blame for high oil prices.  And think of the effect on poorer nations, and those living in poverty?  It’s a harsh reality, but the number of people suffering and dying from hunger is only increasing as fuel prices influence global economics.

Senator John McCain is now pushing for Energy Security and an expansion of domestic oil production.  Personally I think it’s about time.  It’s a valid point: In 1969 we sent astronauts to walk on the moon, yet in 2008 we are bankrupting our economy because we have not planned ahead for energy independence. 

The U.S. has not increased domestic U.S. oil production capacity in over 30 years, and instead we have placed ourselves in economic servitude to hundreds of foreign oil producers.   The last U.S. oil refinery was built and began operating in 1976, and for many years since refineries have operated near 90-100% of capacity.  Yet in over three decades, no new refineries have been built due to the burden of environmental and political regulation. 

And the U.S. is the only country in the world in which oil companies have been legally prevented from drilling for new oil reserves in order to produce enough gasoline and diesel fuel to supply our needs.  

If the Global War on Terrorism is about protecting America and other free nations at home, then we should be willing to do whatever it takes to bring down oil prices.  Our national security is not solely affected by terrorists abroad who wish to do us harm.  National security is also about economic viability. People are afraid of being able to sustain themselves and their families over the long term.

In the name of environmental activism and global warming mania, the U.S. and other nations have seemingly become bent on a course of economic self-destruction that harms not only U.S. families and individuals, but possibly has led to increased hunger and starvation of millions of humans across the world due to biofuel emphasis such as ethanol production.

œIt™s very hard to imagine how we can see the world growing enough crops to produce renewable energy and at the same time meet the enormous demand for food, says Professor John Beddington, the UK’s Chief Science Advisor at a sustainability conference in March 2007.   œThe supply of food really isn™t keeping up.

“By 2030″, he said, “the world population would have increased to such an extent that a 50 per cent increase in food production would be needed.” By 2080 it would need to double. But the rush to biofuels “ allegedly environmentally friendly “ meant that increasing amounts of arable land had been given over to fuel rather than food.

It’s a delicate balance.  U.S. environmental regulations are a good thing in general.  We appreciate and need clean air, water, forests and resource diversity. But taken to the extreme, we can tie our hands economically and end up hurting real people and the ability to grow the economy. I’m all about conservation and stewardship of natural resources. But people must come first in terms of the decisions for how we balance resource use. I don’t believe it is mutually exclusive- I think we can both protect the environment and balance resource use such as drilling for oil in ways that are environmentally responsible.

Business and consumer confidence are in my view the preeminent factors influencing economic strength going forward.  Whatever we do in regard to high oil prices must be framed in the context of assisting consumers and companies with improving their economic fortunes. 

If we have learned nothing over the last century it should be that a rising tide does indeed lift most, if not all, boats.  But at present, as the tide continues to recede this year we are seeing many boats in the name of job cuts, bankruptcies and foreclosures, left on the beach of the dwindling U.S. economy.

While Congress, economists and other experts are trying to figure out “who’s on first” we just need to roll up our sleeves and get busy becoming energy independent. 

Abbott and Costello were funny decades ago, and will still be funny many years from now. High oil prices are not very funny to most Americans and neither is watching the great oil debate in the media. But just maybe we’re finally recognizing that we need to do something different, and that’s a start.

For the record I agree strongly with Thomas Madden: America’s Days Aren’t Numbered. On this 4th of July we have much to be thankful for, and much to look forward to.

How long are the elected leaders within the U.S. going to let OPEC, oil companies and investors determine the price of oil and the price of gas that consumers across the country pay to put in their cars?  Oh, well maybe that’s the way the free market works. 

But when the price of oil doubles over the last year, there’s something wrong with the free markets.  Maybe they’re not so free after all, and between the oil producing nations, the giant oil companies and enormous investment and commodity trading practices, consumers are paying a premium that just doesn’t seem fair.

So now the politicians continue to blame the oil companies for these problems, wringing their hands over what to do.  Of course there’s enough blame to go around for everyone it seems, even those of us driving gas-guzzling vehicles that cost a fortune to fill at the pump. 

But the Congress itself is also to blame, even though they recently passed the symbolic NOPEC law targeting the OPEC nations for potentially monopolizing oil.  Some journalists have astutely observed that Congress is really doing the same thing that they have accused OPEC of doing:

“This [law] is designed to make OPEC™s activities illegal. But here™s the problem: All that talk about œlimiting the production of oil could apply to Congress just as much it does to OPEC. Thomas Pyle, president of the Institute for Energy Research, comments:

“The Congress itself is guilty of committing the crimes outlined in this legislation. In fact, it is a repeat offender. The only difference between the Congress and OPEC in this regard is that OPEC is willing to produce oil for its citizens and its economies. The U.S. Congress, unfortunately, is not.”

“Pyle is referring to Congress™s refusal to lease more public lands for oil and natural-gas exploration. His group receives substantial funding from the oil industry, but he makes a point that even an environmentalist can appreciate. Congressional Democrats, together with a few moderate Republicans, have killed repeated attempts to open America™s Arctic National Wildlife Refuge (ANWR) for oil exploration, and Congress has barred states from deciding whether to allow drilling on the Outer Continental Shelf in the Atlantic and Pacific Oceans and the eastern Gulf of Mexico. All these actions were taken, in part, to limit carbon emissions. But if NOPEC somehow managed to reduce oil prices (which it will not), it would do so by pressuring OPEC to increase oil production. And any OPEC increase large enough to lower prices would cause far more carbon emissions than any potential increase in American production.”

But what about the oil companies?  If the oil companies are guilty of something, it’s their ignorance and hubris at failing to understand how oil prices are affecting the American economy and consumers.  Instead of defending their profits, which of course is the goal of any business, oil companies should be working with government to solve both the demand questions and the speculative investment concerns. 

So is the price of oil running up purely because of fundamentals with demand and the price of the U.S. dollar?   From a long term view there’s little doubt that the fundamentals and global demand have determined the prices we pay.  But the debate regarding the influence of investment speculation is valid, especially in recent years.

Some have cited that it’s not like other commodities such as corn or wheat.  No one is “growing” more oil, although they could be doing more exploration to find it.  In the face of increasing demand however, and managed (aka OPEC) production, prices are generally going to head up.  Paul Krugman looks at it as a consumption versus supply storage issue, and hence prices influenced by those dynamics.  Is it that simple? 

I guess it depends on how you look at it.  If consumer demand decreases, we would like to think prices at the pump would fall because inventories would rise.  But what if the oil companies also do not demand enough oil purchases from producing entities?  In other words, rather than store excess oil,when the oil companies see reduced demand they simply don’t buy more oil from OPEC and inventories actually fall.  When inventories fall, supply is reduced and prices are going to head up.   So are the oil companies to blame? 

Maybe the oil companies don’t manage demand per se, but they do influence inventory and refinery production immensely.  Are they making money at the expense of the American consumer?  Sure looks like it.  But so are the investment banks and hedge funds. 

Are we in a speculative bubble with oil prices too?  Probably.  But unfortunately, the long term view indicates the fundamentals of supply and demand will be the primary driver governing oil prices.  Without more oil, and greater oil and gas refinining inventories, we will continue to pay higher prices.

So what else could government be doing?  The politicians could provide incentives for building new refineries, and open up regions for drilling both in Alaska and off the coasts of the nation.  One of the oil company executives made a pretty good statement when replying to one of the politicians in congress:

“This is the only country in the world that denies its citizens access to known reserves of oil and gas.”

Think increasing drilling won’t help?  Actually it would help incredibly, but takes time.  For the past decade too many people- mostly politicians- have argued against it, rather than doing something about it.

“If the nation set a goal of increasing domestic production by 2 (million) to 3 million barrels a day by opening up new sources of exploration and production, we could demonstrate to the world that we are in control of our own destiny,” Shell Oil Co. President John Hofmeister told a Senate panel.

It would probably be a lot more than that.  From the National Review article above,

“The amount of oil we could produce is not negligible. Take ANWR, just one of several untouched sites that contain known oil supplies. Based on figures from the Energy Information Administration, ANWR alone could produce enough oil (in 2004, the EIA estimated 900,000 barrels per day by 2025) to make 6.4 billion gallons of gasoline annually. Because producing and refining five barrels of oil requires energy equivalent to one barrel, this translates to a net energy gain of four-fifths that amount, or 5.1 billion gallons of gasoline annually. That is enough gasoline for 13 days of American consumption at the current rate. Moreover, Uncle Sam would make somewhere between $150 billion and $300 billion on ANWR leases over the estimated life of the oil deposit.”

That’s actually a lot of oil production, and would offset and compete with the prices for imported oil. What about off-shore drilling? We could expand or build new refineries if we really wanted to. I wonder if we’ll reach that point… more importantly, we need to develop an energy plan for the next 50-100 years for the nation.

If our elected leaders would simply throw politics aside for a moment (!), maybe we could get off the Blame Train and have that Energy Summit and start working on a way forward for the nation. 

One of these days we’re going to find ourselves not needing quite as much oil with highly efficient vehicles running around the roads.  I believe technology and the stark economic realities will foster the transition to new types of alternative fuels and the demand for oil will drop over time.  Maybe there will be some cataclysmic event or technological marvel that revolutionizes transportation.  Can you imagine what would happen if we discovered something that effectively negated the need for oil-derived fuels for public transportation across the nation?   Energy independence! What a great concept.

Whatever the future holds, the OPEC nations won’t always be showered with U.S. dollars as we buy endless barrels of oil.   Indeed, OPEC really should get smart and start pumping more oil. 

For more on The Oil Conundrum see:

• The Oil Conundrum Part III: Who’s On First?

It’s amazing how high fuel prices have gone this year.  In short, like many Americans, I’ve simply had enough of paying so much for gas.  Honestly, it’s such a total waste of money don’t you think? The quality of the ride we’re getting at $3.50 a gallon for driving doesn’t feel any better than it did at $2.25 a gallon.  For the increased price of fuel there is no additional satisfaction or more importantly, no contribution to a greater good gained from paying more to do the same thing with a gallon of gas.  It’s actually worse, and a waste of money.  And that’s the rub for most of us.

So what am I doing about it?  Personally we’ve already drastically reduced our vehicle use, and are investigating more fuel efficient cars for the future.  But that really doesn’t change much in the face of rising prices, except maintaining the status quo.  And I just don’t think the status quo is good enough anymore. I was looking back over the past 12 months and was surprised that we were paying almost a dollar less per gallon for several months last year.  Then in late summer, prices began a slow climb, spiking after the new year and reaching an average of $3.50 a gallon this week.

So now, with a humble voice from the wilderness, I’m calling for an Energy Summit for Congress, the Administration and leading oil company experts to sit down and begin devising a strategy to take the nation out of the grip of oil dependence.  Not a new theme, but has any legislator or administration official proposed anything constructive in the face of oil price inflation?  Sure oil company executives have been called on the carpet to testify before Congress, but to what end?  Grandstanding by politicians to make us think they’re doing something? Do we realistically think companies that are in business to make a profit should start to not work to make a profit?  Is that going to benefit our economy and those who need the fuel these companies produce?  Does anyone really think that making oil companies the scapegoats will solve America’s oil dependence problems?   More importantly, has the SEC or any governing body investigated the impact of energy sector speculation or the influence that the rise of sovereign wealth funds have had on market dynamics?

As much as I believe that the the U.S. is being driven towards a greater economic crisis due to energy impacts, my frustration is really a personal issue. Which is due to the simple fact that the engine of the U.S. economy is ultimately distilled into the basic economic units of individuals and families as consumers.   We are the spending sparks of economic activity that drives this great machine, and our ability to do so is being damaged with each passing day. 

A few weeks ago I took a short poll asking if high gas prices have affected people’s driving habits.  After a fairly small response, more people indicated that gas prices only affected them “a little”, while the others said “a lot.”  But gas prices really had only been higher for a couple of months.  I’m willing to bet more people would indicate “a lot” today, and over the next few months as fuel prices remain higher.  Have you changed your driving habits?

It’s not just fuel prices though- it’s also the economic costs passed on to consumers because of fuel prices, and higher commodity prices that are causing turmoil across the nation.   So I’m the first to admit that fuel prices and grocery prices affect our family’s choices every single day.  And I feel fortunate, because technically we can afford to drive our cars, commute to work and do what is necessary each day.  So consumers are starting to feel pinched?  I think that’s an understatement.

With higher prices something else is given up to accomplish the same tasks.  We don’t go out and eat or visit new places as often as we used to.  And we won’t be traveling as much this year as last year.  We even cancelled a longer vacation we had already planned for the summer because of fuel costs.  We take fewer trips to the store, and the discretionary funds we normally spent on nice-to-have items or entertainment in the past are being used for basic needs such as food and putting gas in the tank to get to work.

But there are many other families who can barely afford to get to work or put food on the table each day.  I’ve read of some who may not have the money to pay for gas for a trip to the doctor or hospital. Many Americans live in rural areas and must travel extensively to get to work and fulfill basic needs.  High fuel prices hurt those who must travel greater distances especially hard.  This nation is larger than most nations in the world- and driving long distances is something we are accustomed to.  We are not accustomed to enormous prices for gas to be able to get to the doctor or the grocery store.

So is the government doing enough?   Is Congress and the President’s administration taking these issues seriously enough?Perhaps what really bothers me is that maybe they’ve collectively looked at it and simply shrugged, without really putting a plan together to do something about it.  The U.S. says oil prices are too high, but no one seems to have any idea what to do about it.  Instead, we push for biofuel production and increase demand for oil.  Yet biofuel production soaks up oil supplies and is being blamed for increasing hunger across third world nations as it drives up commodity prices, challenging the ability of support organizations and governments to get food supplies to people in need.

So what is going to solve the oil conundrum?   Do we not have the technology and ability to find more oil and ramp up production?  Or do we lack the collective will as a nation to do what’s necessary, simply remaining dependent on other nations for our oil needs and paying whatever the market demands?  Tapping the Strategic Reserve isn’t going to solve anything over the long term either.  I simply think we can do more as a nation to support the American family’s needs at home, that would also serve to strengthen the U.S. economy for the long term.

My hope is that we’ll see Congress and the Administration get together an conduct an Energy Summit to put a plan in place that will  support the nation’s needs.  New energy, alternative energy, new research, and yes- more oil to fulfill the nation’s needs.  One day perhaps we’ll find the holy grail that relieves our dependence on oil.  But the U.S. economy is tied to oil for countless needs right now and we risk being economically crippled for too many years if we don’t start working together more aggressively.

We are better than this dependence, and we need a little more forward thinking by our elected leadership.  We’ve put off the energy debate for so many years it’s now come back to haunt us.  Whether we enter or are in a recession now is beside the point. Consumers are spending more on fuel and food, and less on everything else.  And I think it’s a threat to our nation’s economic viability over the long term. That’s simply got to change. 

For more on The Oil Conundrum see:

• The Oil Conundrum Part II: The Blame Train and
• The Oil Conundrum Part III: Who’s On First?

That’s the mantra this week as Congress is set to grill oil company executives about fuel prices and supply concerns.  Well it’s more like the political folks have a chance to give some of the heat they’ve been taking from their constituents, back to the oil companies.  I’m all for that- not just to give the oil execs an earful, but also to see our politicians trying to find some answers.

What argument can be made in defense of big oil when they are reaping enormous profits each year?  It’s a business to be sure, and they are in business to make money like any other business.  But when the oil companies profit seemingly at the expense of the national economy, and mom and pop in small towns across America, then you have to wonder where our priorities are.

The problem is that Congress in all its wisdom may decide to tax the he#l out of the oil companies, and while that money goes straight to Uncle Sam to help pay (or expand?) government programs, it’s not solving the issue of getting more oil, or becoming more oil independent.  Think it’s going to change anything for the average family?  I don’t think so- in fact, gas prices will probably get more expensive because the oil companies are paying extra taxes.

Realistically, U.S. consumers pay some of the lowest fuel prices in the world compared to many other net importers of oil.  But that doesn’t change the fact that we are paying more than we have ever paid here in the U.S., and it affects the household budget at home in many, many ways.  Not the least of which are higher grocery prices.  Overall it’s sad that we have put ourselves in this position- but it’s the truth.  When no refinery has been built in the past 30 years in the U.S., what does that say about our priorities?  When we can’t further develop off-shore or Alaskan oil fields because the politicians are too concerned about their re-election and don’t want to appear anti-environment, then we are left to import oil from every third-world nation that has it. 

We are truly slaves to the oil trade- and we will pay what the market will bear.  The oil companies are not the really bad guys, but they aren’t helping matters either.   They’re going to grit their teeth and smile that toothy smile to make their margins.  But some of those margins are squeezed as well.  For example, in order to find and get at some of the vast resources of deep oil, they need specialized deep sea rigs.   These are amazing feats of human engineering. Billionaire John Fredriksen is Norway’s richest man, worth at least $7 billion, and he leases these things.

“His units are in such demand he can charge major oil companies nearly $600,000 a day to use them. Similar rigs were earning about $70,000 a day just five years ago. With leasing rates like these, a vessel that cost half a billion dollars to build can pay for itself in as little as four years.”

So who pays for the use of such beasts?  We all do.   We are all faced with limited supply, and too much demand across the world.  The oil is there- we just haven’t planned ahead and there are too many pigs at the trough.     I say bring back the Oil Price Wars, and let the government cut out the middle-man.   Oh wait… there’s probably not enough supply to have an oil price war.We do need to lessen our dependence on foreign oil. 

We need to foster alternative technology, and yes- we need to develop and build nuclear power plants to help supply our energy needs so we aren’t using natural gas or coal to do so.  And we need to stop kicking the empty can and try to produce enough of our own oil to fulfill the needs in our own country. Or we can abandon all that when someone invents the next miracle engine, fuel or transportation device…   

Personally I think we should build out a vast network of maglev trains and small commuter vehicles.  Begin in the suburbs of the major metropolitan areas and let them grow.  This could be the rail and gold spike victory for the next century.  And somewhere during that timeframe, we might even be able to abandon the use of oil for fuel altogether.