Posted by: bkivey | 1 June 2011

Smoke and Mirrors

With the price of a gallon of gasoline hovering around the $4.00/gallon mark, a state of affairs that brought howls of protests from the usual suspects a few years ago but which now elicits hardly a remark, politicians of a certain bent have jumped onto the rickety old bandwagon of ‘energy independence’. This is a cycle I’ve witnessed since the oil shocks of the early 1970’s, and has probably gone on much longer. Indeed, the general form is the same for any political crisis, a crisis being defined as any situation in which the incumbent politicians feels like their jobs are in jeopardy.

The crisis cycle usually runs thus:

  • Intellectuals theorize about how much better life would be if only the commoners would learn to do without some commodity the intelligentsia find abhorrent.
  • Politicians, wishing to appear the smartest people in the room, legislate against the production of the commodity.
  • There is a shortage of said commodity.
  • The ignorant masses loudly protest when their standard of living is reduced.
  • Politicians, wishing to appear that they’re ‘doing something’, propose plans and programs untroubled by economic realities. 
  •  New regulatory and fiscal burdens are placed on those who actually can ‘do something’, increasing the difficulty of expanding the economy so the increased price of the commodity can be absorbed.
  • Politicians are re-elected.

In an op-ed piece in the local paper of record, Sen. Jeff Merkley presents his plan to “reduce our reliance on oil”. A ‘plan’ that “doesn’t take magical advances in technology”, but does take some magical thinking to believe that Sen. Merkley has any idea what he’s talking about.

The junior senator from Oregon begins by laying the current rise in fuel prices at the doorstep of the ‘Arab Spring’. The trope here is that unrest in the Middle East has led to high gasoline prices at home, because everyone knows that we get all our oil from the sands of Araby. Ummm, maybe not. A quick bit of research finds that in 2010 we actually imported more oil from non-OPEC countries than from the evil oil-drenched consortium. In fact, the top five sources for U.S. imported oil were:

  • Canada
  • Mexico
  • Saudi Arabia
  • Nigeria
  • Venezuela

We imported nearly twice as much oil from The Great White North as we did from our friends the Saudis. I reckon Mr. Obama should start concerning himself about Canuck sensibilities. Well, they’re close by if we have to invade.

He mentions that “a manmade disaster like the BP oil spill in the Gulf, would likely cause another surge in prices.” Well, we can check that, too. The Deepwater Horizon rig blew up in April 2010. The average price of a gallon of unleaded was $2.85. There was a brief spike to $2.95 in May, then the price fell to $2.75 in June and remained more-or-less steady until the current rise began in September. The well was capped in July, and sealed in September.

Mr. Merkley takes the obligatory swipe at “speculators looking to make a quick buck as oil prices rise and fall.” For someone who has never, not once, worked in the private sector, to demonize people who make a legal living borders on the obscene. Where in the hell does Mr. Merkley think his lifetime income has come from? And why does he think people might speculate that oil prices will rise? People usually expect the price of a commodity to rise if demand greatly increases or supply is greatly reduced. Could it be that the moratorium on offshore drilling had anything to do with the increase in oil prices?

This brings up one of the central themes of Mr. Merkley’s piece, and a textbook example of the unchallenged assumption passed off as truth: “Make no mistake, however, we can’t drill our way to lower gas prices.”

To which I say: “Why not?”

 I have heard this trope repeated ad nauseum, but I’ve never heard an explanation as to why this is so. Is it not possible that if the markets saw an effort by the U.S. to exploit domestic reserves, they’d respond by lowering the price of oil futures? It appears that the leader of the Democratic Party thinks so. In March President Obama offered Petrobras, the Brazilian state-owned petroleum company, $2 billion in loans to develop a large offshore oil field. He went so far as to say: “And when you’re ready to start selling, we want to be one of your best customers”.

So, we can’t exploit our own resources to increase supply, but we can loan billions of dollars to others so they can exploit their resources, then sell that commodity to us? I suppose there is some mysterious property about Brazilian waters or technology that eliminates any possibility of the sort of ecological disasters the greenies are so worried about with U.S. drilling. It’s nice to see that the president’s serious about creating well-paying jobs. Too bad they’re not American jobs.

The crux of Sen. Merkley’s plan for domestic energy independence appears to be government subsidy of electric vehicles. I don’t suppose any of his advisors have pointed out that the entire electric vehicle infrastructure is heavily dependent on petrochemicals, as is any so-called ‘green’ solution to any problem. The world doesn’t run on rainbows and unicorns. Mr. Merkley has also proposed a new government bureaucracy “to provide focused attention to this issue”, because a $30 billion per annum federal Dept. of Energy, 50 state-level energy departments,  and the attention of a world of entrepreneurs just isn’t doing the job.

It’s a failing common to people with Big Ideas, and not confined to the political left, that the easily implemented and inexpensive alternatives are ignored if they don’t fit the individual preconceptions. Unfortunately, the rest of us have to watch our living standards decline while someone else plays out their fantasies.

Coming Home

I watched the landing of space shuttle Endeavor last night, although it was probably past the bedtime of folks on the East Coast. The broadcast started with the ground track representation, and when it passed over the Florida coast I was reminded of a time I was awakened by the double sonic boom of the spacecraft passing overhead. It’s louder than you migh think.

When the shuttle passed through about 40,000 feet the view switched to a camera looking through the pilots HUD. This was pretty neat, except it was night and all you could see was the HUD and a lot of black, but you could read the various displays, and get an idea of just how fast the craft falls. When the commander called the runway, all that was visible was a litttle point of light in the distance. After a period of time the approach lights appeared very quickly. They were suddenly Right There, with the shuttle lined up dead on the centerline. The view then switched to a runway IR camera. You could see that the underside, and especially the nose cap, were still very warm from re-entry. When the landing gear deployed the tires were dark and cold, but got bright very quickly after touchdown as they heated up.

I was most surprised by what looked like a fire coming out of the fuselage just forward of the vertical fin right after the ‘chute was deployed. NASA didn’t seem concerned about it. The announcer got around to mentioning that it was the APU exhaust, but I wasn’t too sure. The view was still in IR, and this wasn’t some thermal plume; this was flames spurting out of an opening on the hull, making a noise usually associated with a Roman candle. Well, it didn’t blow up.

She’s been a good ship. Welcome home.

The Season is Upon Us

Today is the first day of the 2011 Atlantic hurricane season, and right on schedule, there was  a storm off the NE coast of Florida this morning. It’s since moved across the peninsula, and expected to strengthen to tropical storm intensity in the next day or so, then fade away.

The joke in Florida is that it does, in fact, have a four-season climate: wet season, dry season, tourist season, and hurricane season. I never experience a direct hit from a hurricane, but did get brushed by tropical storm Keith in 1988 as it made landfall 30 miles away. Sustained winds at my location were 60 mph, which was pretty impressive. Hurricane Andrew in 1994 caused a lot of people, including myself, to rethink plans to ride out a hurricane. After that, there was only one plan: get the hell out of town.

During the season it’s even money that any random Florida house you go into will have The Weather Channel on. If there is a storm in the offing, the odds are nearly dead-certain. The current expert predictions are for around 16 named storms, with about 5 expected to be Cat. 3 or higher. Good luck, folks.

 

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Responses

  1. One of the main reasons we are seeing higher prices in gas is due to increased demand from China and India. I can’t believe the amount of Americans who drive gas guzzling cars. When you go to Europe you find that they pay over $7.00 a gallon for gas, but they’re all driving around in these tiny, efficient cars that get 50 miles per gallon mileage.

    At this point it is foolish not to invest in altenate energy.

  2. Hi Keith,

    You’re quite right about the influence the growing economies of India and China have on the price of oil. I talked about this in my post Peak Oil on 23 February 2011. I also noted that US consumption of oil has declined since 2005, along with consumption in every other Western society and Japan.

    It’s true that gas prices are much higher in Europe and Japan, it’s also true that everything else costs more. Many folks who take the position that higher gas prices would somehow be a good thing because it would reduce driving overlook the fact that everything has to be transported from somewhere, and the means of production and transportation aren’t magically insulated from the cost of fuel.

    I don’t draw a distinction between ‘alternate’ and ‘conventional’ energy. I do think that the most efficient and cost-effective energy sources for the application should be used.


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