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Ten Simple Truths about Oil
Guest Column | By Alan Caruba | May 1, 2008
Having
written about the energy industry and issues now for a long time, I
hope I can be forgiven for being enraged by the comments by Sen.
Charles Schumer (D-NY) in response to President Bush’s press conference
Tuesday morning. There is simply no way to describe them other than
false.
The
Democrat Party has long made “Big Oil” their favorite punching bag,
confident that the public has no idea what influences the price and
supply of oil. Saying anything favorable to Big Oil is immediately
deemed evidence that one is in their pay and whatever facts are offered
are therefore invalid.
There
are, however, some simple truths about Big Oil that cannot and should
not be ignored. To do so leaves everyone at the mercy of energy
policies that have created the situation in which the United States finds itself today.
Fact
#1. The combined ownership of oil reserves by the independent,
investor-owned oil companies such as ExxonMobil, Conoco-Phillips, BP,
Chevron and others is barely 4% of the total known oil reserves in the
world. By itself, ExxonMobil’s share is 1.08%.
Fact
#2. Oil is a global commodity sold on mercantile exchanges for whatever
price it can command. Speculation in oil prices is the primary reason
they have been driven to utterly insane costs per barrel. It has
nothing to do with actual supply and demand.
Fact #3. No nation on Earth is or can be “energy independent.” The geopolitics of oil is complex, but as nations such as China and India
have seen their economies grow, their need for oil grows with it and
thus they compete with long established industrialized nations for
existing oil supplies. This competition has an impact on prices.
Fact #4. The OPEC nations, those in the Middle East and including Venezuela, control 77% of the world’s known oil reserves. Like Russia and Mexico,
where the oil industry is controlled by the state, it is generally
poorly managed. Several Big Oil companies that were induced to
undertake exploration and development in Russia and Venezuela actually had their assets nationalized or stolen at prices well below their investment and value.
Fact
#5. Energy is the master resource. All nations with any hope of growing
their economies require it, mostly in the form of electricity, but also
for oil’s role in transportation. The failure to have a national
long-range energy policy that is based in reality can severely impact
energy prices.
Fact #6. The United States
has, for years, pursued an energy policy based on environmental myths
such as “biofuels” in which corn is turned into ethanol to reduce the
import of oil, but it costs as much to produce ethanol as to refine oil
and it provides less mileage per gallon, thus negating any reason for
this additive. Likewise, suggesting that wind or solar energy can
generate anything more than its current 1% of the nation’s electricity
needs ignores their unreliability and the fact they are heavily
subsidized, a form of hidden consumer tax.
Fact
#7. It costs billions to explore, discover, extract and transport oil.
It takes lots of lead-time as well. The United States Congress has, for
decades, refused to permit the extraction of vast oil reserves in ANWR
despite the fact it would have little or no impact on the Alaskan
wildlife reserve. In addition, Congress has declared 85% percent of the
nation’s coastal, offshore areas off-limits to any exploration for oil
or natural gas.
Fact
#8. The U.S. Environmental Protection Agency, under the mandate of
Congress, requires Big Oil to refine oil into some 17 different
formulations in the name of clean air. With three grades of gasoline,
that means that refiners must produce some 45 different blends. The
quality of air in America is excellent, but the cost of gasoline at the pump continues to rise as the result of these mandates.
Fact #9. America
imports two-thirds of the oil it uses. All of its transportation runs
on oil. The population continues to grow. Failure to encourage the
construction of a single new refinery since the 1970s puts a further
strain on the ability of Big Oil to provide the nation’s oil and diesel
fuel needs.
Fact
#10. Democrats continue to demand that Big Oil’s profits be confiscated
in some fashion and some of the inducements offered to explore for more
oil be ended. Because the costs of exploration, extraction, refining,
and transporting of oil represents billions, the actual profit margin
of a company like ExxonMobil is about 10%, well below what industries
such as pharmaceuticals and banking enjoy.
For
these and many other reasons, Americans are being impoverished at the
gas pump because Congress has dithered and failed in one of its most
important responsibilities.
FamilySecurityMatters.org Contributing Editor Alan Caruba writes a weekly column, “Warning Signs”, posted on the Internet site of The National Anxiety Center. His book, “Right Answers: Separating Fact from Fantasy”, is published by Merrill Press.
Guest columns do not necessarily reflect the views of Accuracy in Media or its staff.
31 Comments | Post a Comment
Dear Alan: Jonathan Swift said in “Thoughts on Various Subjects” 1667-1745, “When a true genius appears in this world, you may know him by this sign, that the dunces are all in confederacy against him”. I think this currently applies to Pres. Bush and the oil companies with the hounds hot on their heels. Nearly all media act like a pack of starving wolves. {{My question is, can you direct me to a source which could tell me what the TV companies profit as compared to the oil companies?)) I can document this, but from memory in 1977 “The obscene Profits era” Groc chains were netting 1-2 % of investmant, Oil companies were netting about 3-5%, TV companies were netting 19%. This is from TV Guide at that time. Thank you very much if you can guide me to the comparison of TV and oil co. profits today. Carl Helmle
@Mr. Bennett--I don’t think facts #2, 6 and 10 require comprehensive backup data. And among the ten “facts” cited in this article, they seem to be the most important.
@Blogger1947:
You claim that fact #6 doesn’t require any backup data. I would refute that, especially this portion of fact #6:
“Likewise, suggesting that wind or solar energy can generate anything more than its current 1% of the nation’s electricity needs ignores their unreliability...”
In fact, solar power (notably photovoltaic cells) are incredibly reliable. NASA has been using photovoltaic cells to power their satellites and the International Space Station for years now. PV Cells have no moving parts and require little maintenance:
“In general, PV systems that are well designed and properly installed require minimal maintenance and have long service lifetimes.”
Source: http://www.fsec.ucf.edu/en/consumer/solar_electricity/basics/pros_cons.htm
If Alan is speaking of the unreliability of weather (clouds), then it is important to keep in mind that most solar energy configurations use some form of storage to keep extra electricity for when you really need it. Additionally, wind power is a perfect compliment to solar, as cloudy days are usually much more windy than sunny ones.
Alternative energy sources are highly subsidized, this is true. However, think for a moment what would happen to our country if we were suddenly cut off from our foreign oil supplies (due to war or any other conflict). Our entire shipping and transportation infrastructure would be thrown into disarray!
This is why it is important to increase our energy independence, not only does it benefit the environment, but it comes down to national security. We can’t continue to rely on the rest of the world to supply our nation with energy.
Here are some gems from the White House website:
“Last year, more than 20 percent of new electrical generating capacity added in the U.S. came from wind – up from just three percent a few years ago – and the U.S. installed more wind power capacity than any other country in the world.”
“Between 2000 and 2007, the United States’ solar energy capacity doubled – and last year, U.S. solar installations grew by more than 32 percent.”
Source: http://www.whitehouse.gov/infocus/energy/
For additional renewable energy information I encourage you to read the “Solar Grand Plan.” I found it quite fascinating:
Mr. Wadddington,
Having worked as a reliability engineer in the defense and aerospace industry, I can tell you that the reliability achieved with NASA equipment comes at great cost--triple and quadruple redundancy--and the fact that there are no end users of that equipment who are not highly trained and qualified. Specifically, the people aboard space stations make personal sacrifices in the way of load management that it would be foolish to expect consumers to do.
Example: We are currently seeing gasoline prices in excess of $3.50 per gallon, yet I see no perceptible change in people’s driving habits or techniques. Now that I am semi-retired, I have the pleasure of taking my morning coffee on the front porch. Day after day, I see the same drivers blowing past my house, foot firmly on the throttle even though they are driving down grade and could coast.
The biggest government mistake, where energy policy is concerned, was to have put so much effort behind the US and Interstate highway systems, 60 years ago. This benefited the auto companies, and led to the collapse of countless short-line rail companies. There will always be an “energy crisis” in the USA as long as we are adding 11 million additional cars to the highways each year, and as long as people’s daily driving mileage continues to increase.
@Blogger1947,
No argument there my friend, excellent point about the cost of increased reliability. We are certainly in a chicken/egg scenario. The cost of increased reliability/efficiency will certainly go down as more PV cells (or other technologies such as hydrogen fuel cells) are manufactured, but until this happens the cost does remain prohibitively high to change the actions of the typical consumer. I think gas prices will need to hit double digits before consumers really start to make changes.
Mr. Waddington,
The numbers you produced are in relation to percentage of electricity added. What is the actual amount of energy generated by solar and wind power in relation to the total energy used in the United States? Alan is probably closer to the truth than your wishful thinking.
http://www.awea.org/newsroom/releases/Wind_Power_Capacity_012307.html
Wind provides enough power for 2.9 million of Americans=1%.
@Laptoper - are you offering to shiver in the dark next winter?
@Waddington - I remain unconvinced that solar PV is scalable to large scale operations like feeding the public power grid. Too much energy lost in converting DC to AC.
But whatever happened to hydroelectric power?
We had a good start on an infrastructure there, and have seen no meaningful expansion in decades.
S
@Blogger1947:
I’m sorry, I didn’t mean to suggest that PV was the solution to our energy problems. Honestly I think the only solution is the use of many different energy sources. Oil has such a high energy density it will be hard to top, but I don’t think anyone will try and argue that oil will last forever.
Hydroelectric, solar, wind, hydrogen, natural gas, these are the solutions to the energy crisis (at least for the foreseeable future).
Oh, and we wouldn’t have to convert DC to AC if we had a large scale DC power grid in operation. But I don’t see that happening anytime soon without a major investment by the federal government.
@Waddington, Blogger1947
Hydroelectric power is NOT a long-term solution, unfortunately. I read an article that claimed that most, if not, all usable rivers have been dammed, so there is no room for expansion. Sedimentation is reducing the storage capacity of these dams and must be addressed to keep the turbines running properly. At some point, these dams will be holding huge mud puddle.
Jimmy - So are YOU willing to shiver in the dark next winter? Nobody ever wants to answer that simple question.
Waddington - The cost of building a DC distribution network would be prohibitive. Unfortunately, Edison and others fought that battle more than 100 years ago, with the result we have today.
I don’t believe that the entire engergy problem can successfully be attacke simultaneously on ever front. What we need is a clear-minded discussion of priorities and feasibilities, and a decision about which issue to attack in what order--private transportation and oil; home energy consumption, etcetera. And people on both sides of the argument must be willing to accept compromise. At this point I don’t see that willingness.
Oil will probably always be desirable as a chemical feedstock and for the near future, as a fuel. Science has determined that the energy contained in matter, released through nuclear reactions, is vastly greater than energy that can be obtained from chemical reactions, for a given mass. Our present difficulty is that the developed methods for generating nuclear energy are dangerous, expensive and empower the governments that control the nuclear plant to a source of nuclear weapons grade material.
Jonathan Swift, as quoted by Carl Hemle, was correct, and it has been seen many times, that those whose ideas are exactly right and needed are often not timely appreciated.
AIM promotes healthy skepticism of the dominant media, and I’ve been a faithful reader for many years. We would do well to consider that the media is not simply biased in matters of politics, but science as well. Consider, for one well known example, the matter of H. Pylori:
http://www.sciencedaily.com/releases/2007/10/071026095025.htm
which is the organism that causes most stomach ulcers, and is now believed to lead to cancer. Facts are often known in science for many years before appropriate action is taken.
I contend that such is the case with the discovery attributed to Drs. Fleischmann and Pons, so-called cold fusion. Results have been confirmed by many world-class laboratories and research is being pursued in many countries, including the US. http://www.lenr.org collects downloadable .pdf peer-reviewed and other articles. The stigma attached to it keeps the media coverage at an almost undetectable level, yet the evidence is completely overwhelming that nuclear reactions do occur in conditions that were considered impossible (and still are by most scientists). I have witnessed it myself.
This is not an off-the-shelf technology, ready for immediate replacement of oil, although there have been big advances since the 1989 announcement. But, neither was conventional nuclear energy, nor photo-voltaic or fuel cells. Cold fusion does not produce dangerous radioactivity or dangerous waste products. Its biggest problem is neglect by Big Science, as power densities on the order of conventional nuclear plants have been repeatedly demonstrated.
Just because something is wonderful and needed does not mean it will not generate opposition from those with a lot to lose.
I second the idea that we are not going to find another ‘one source fits all’ scenario, like oil.
It is going to take a lot of different things.
It’s going to take solar panels on houses in the SW, and wind power wherever it is usable.
It is going to take electricity taking the place of gas for public transportation - again.
It is going to take more energy efficient vehicles, appliances and homes.
We are a wasteful society - not only in material things but in energy. We need to stop that.
We can sit around and talk about why this won’t work or that won’t work, until we are forced to do something - and that won’t be pretty or comfortable.
I am one that thinks we won’t have real government help on this until the last drop of oil or the last ounce of coal has been wrung from the earth. Then, and only then, will we get serious, on a governmental level.
As to the idea that ‘the people aboard space stations make personal sacrifices in the way of load management that it would be foolish to expect consumers to do’ - I don’t really see it that way. Sacrifices are going to be made in the future. We can choose to make changes in our energy sources, our personal lives and it won’t be quite as painful - or we can choose to sit around and talk about why solar won’t work, wind won’t work, etc., etc., until the situation arrives where we have no choices. That can be quite painful.
@trixie - Here’s an example how people don’t make personal sacrifices. I just gassed up at a price of $3.599/gallon--best I could find. It’s safe to say that prices are running upwards of $3.50/gallon, and have been for some time. But I don’t see any evidence of people slowing down on the superslabs, combining errands, or even respecting the 25 mph speed limit on my front street, where I clock the average driver at 45-60 mph, usually accelerating heavily. The auto industry’s numbers show the average annual miles driven is twice what it was a decade ago.
I think the marketplace is going to change people’s behavior, but I don’t expect that behavior to suddenly become rational, or for grasping, me-first types of people to suddenly develop a sense of altruism. Americans will resort to all manner of skullduggery when honest behavior will deprive them of the pleasures that they believe are their God-given rights.
Absolutely!!!
That’s my point.
There are some people who are choosing to watch their gas comsumption, but not nearly enough. Right now, they are choosing to sacrifice other things, like insurance, house payments, cutting back on groceries, etc. Not smart, but that’s a fact. Of course, there is also that very destructive credit card to be used as well.
The fact is, we will make some tough and painful sacrifices in the future. We can do it now and lessen the pain, or we can have it forced upon us.
There are many reasons we are driving more miles in this country. Certainly some is pure waste and lack of planning. Some, however, is due to increase in population. There is also the reality that more and more families have 2 breadwinners - and many people are working two jobs.
I don’t know if transportation of goods, are included in that figure, but if it is, then that certainly is part of the answer.
I realize that people should be smart and realistic, but many people in this country live in the moment and think ‘the government will take care of it’. The fact is,the government will. I’m pretty sure they aren’t going to like the government’s solution.
But for everyone to sit around and say, ‘well solar won’t do it all’, or ‘wind power only does so much’, etc., is putting off the inevitable.
It is going to take a little bit of each of those - and more to fix the problem. I don’t think drilling in Alaska will ease the price of gasoline here in the US. There’s a big world out there that is becoming increasingly oil hungry (or thirsty), and we will be competing with them. Also, it is naive of us to think if oil is drilled in the US - it will be US companies doing it and the oil will only be used in the US.
Hey… i don’t use oil… powered by the sun. I don’t drive - i work from home. I try not to use plastics… and grow my own food. Of course, there is a great temptation to use oil and petroleum based products - even this computer condemns me. But to give in is to be normal… whilst i’m a heretic and radical… just sipping coffee.
Oil is an addiction.
But here are two things most don’t talk about:
Oil makes the military very mobile. If you don’t have it and control it your enemy will.
2nd: In places such as in mountainous south america and east asia, there were places that were considered financial black holes for governments until oil was introduced. If you get everyone hooked, you can tax even the street vendor. Lovely.
God save the queen and oil!!! Without oil we would be Neanderthals and die frozen in our backwards lives.
There was a famous football coach in Texas that once said, “I you’re getting raped, might as well enjoy it!”
@yur - aside from sanctimoniously letting us know about the high moral plateau that you occupy, what’s your point?
You say that oil is an addiction, and then cite two perfectly valid reasons to drill, refine and use oil.
There’s no doubt that oil has created a lot of progress in the world. It has also caused problems, such as pollution.
As for the military - certainly it fuels the military - however, we surely can all agree that we are in a very expensive war, at least partly, to control the oil in Iraq. So, is it ‘oil at an price’?
So we are going to be in debt, to China, no less for many years to come - all to get control of the oil in Iraq. We are paying for the control of this oil as well as paying through the nose for the gas we are using.
Can anyone else see a problem with this?
Why could we not be the world leader for alternative fuel? How far could those trillions of dollars spent on the war, go toward developing and putting place alternative fuels?
If we were simply protecting our own country - as we should - why would we need to be so mobile?
Point #2 - If speculation was the sole cause of very high oil prices, it wouldn’t last for very long. We’d see excess supply, and a reduction in prices.
We’d also see stockpiling and panic buying, like in the 70’s.
It doesn’t explain the long-term rise in prices that we are seeing. We are in the midst of demand growth and increasing production costs.
Why would we have excess because of speculation?
All the oil producers need to do is curb the oil to fit the demand - hold back if it drops.
So far it seems there is plenty of expensive oil - no gas lines that I know.
Of course demand has something to do with it, in that they know they can sell what their oil at a good price - now or in the future. They are well aware, possibly responsibile in part, that the US is doing nothing toward energy conservation. That goes for the government and the people.
“The government” cannot do a heck of a lot about conservation. It has to be the individual efforts of the people.
But as I have said, the relentless growth in the number of cars on the road, and the ever-increasing number of miles the average person drives will neutralize any savings realized through conservation.
The US public has bought upwards of 15 million new cars each year since at least 1999. Of that number, only about 4 million are replacements for vehicles taken out of service (junked, wrecked, put up on concrete blocks). The average American is now driving 20,000 miles a year, double what that number was a decade ago. So the number of automobile-miles driven each year is increasing by 220 billion miles a year. Even if every new car achieved 50 mpg, that means that our consumption is increasing by more than 4 billion gallons a year.
What can be done about this? You can’t ration cars or tax them heavily, because that would hurt the automobile industry, which is the largest segment of our economy.
Do the statistics of number of miles driven include the truck driven miles to transport products due to our globilized economy?
The government could stop subsidizing oil companies
Stop subsidizing big corporations - even those who have moved offshore.
Enforce our laws and send illegals back to their homeland. This would be a big savings to the taxpayers and get millions of suv’s and big pickups off the road in this country.
The government could institute some energy savings within the government. Cut back on unnecessary driving, stop the limo services for the fat cats, purchase only energy efficient autos, etc.
Stop the ‘fact finding’ trips, at taxpayer’s expense - and the waste of fuel.
Stop this insane war that is costing our country greatly in so many ways - and using the world’s supply of oil.
There are many ways the government can save money and energy.
Rethink some of our suicidal trade agreements that necessitates constant criss-crossing of this country by trucks and trains - going to and from the ports.
They could then either use this money to develop alternative energy or they can cut our taxes - way back so we would have the money to use solar energy or wind energy - and be able to purchase some of the new energy efficient vehicles.
Cities of this country could use electric vehicles for meter readers, city inspectors, etc.
New ways of generating electricity could make it available and affordable to electricity to replace oil in some phases of transportation.
There is plenty the government can do, such as stop the insanity of ethanol.
Certainly the citizens of this country have a responsibility to conserve themselves - and they should. And despite all the ‘statistics’, many are.
@ladytexan - my numbers apply only to passenger vehicles. Light trucks are a part of those numbers, but I suspect it includes only those of one-ton capacity or less, which would exclude motor freight.
BTW, the numbers have not just been pulled out of the blue. I have the source information on file (somewhere). I followed the auto industry closely as a journalist for about three years, 1998 through 2002 more or less.
Where did these statistic originate?
I am not doubting you nor doubting that people of this country drive many unnecessary miles.
I’m convinced the people of this country could change many of the problems - but it would mean they will have to take charge of their lives and put out a little effort to put their money - or not put their money - where it will do the most good.
Without some negotiation by our government, I think it will take a huge reduction in consumption in this country for the oil companies to reduce the prices. The people will eventually have to make changes - just to survive.
The fact is, however, the government can play a big part in the energy situation.
I have listed some of the ways the government can do a lot.
Yes, we need to do a lot more - for self-preservation. Self-preservation doesn’t seem to be high on the list of people in this country these days, however.
May 2 at 9:06 am | #1 | Link
Ok.. Im open minded to listening to what Alan has to say. Where do his facts come from? Can he provide sources for the facts. I realize one can look at how many refineries are built but I look at Fact 1. Interesting to think that such a small percentage of the reserves are controlled, much less identified. Worth learning more if nothing else. I appreciate the point of view.