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Ten Truths About Oil
American Conservative Union ^ | May 28, 2008 | Alan Caruba

Posted on 06/01/2008 11:12:38 AM PDT by K-oneTexas

Ten Truths About Oil by Alan Caruba Issue 108 - May 28, 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 recent press conference. 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 seventeen 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.

Alan Caruba writes a weekly column posted on the Internet site of The National Anxiety Center, www.anxietycenter.com. He blogs at http://factsnotfantasy.blogspot.com.


TOPICS: News/Current Events
KEYWORDS: energy; energyprices; oil
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To: ridesthemiles

It is ... and it’s not the oil companies doing. It is the wonderful EPA and the State equivalents. After all, its government saving us from ourselves. Right!


21 posted on 06/01/2008 12:22:50 PM PDT by K-oneTexas (I'm not a judge and there ain't enough of me to be a jury. (Zell Miller, A National Party No More))
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To: K-oneTexas
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.

I wish someone would elaborate on this: How much oil is there in ANWR and those coastal areas currently barred from production? If it's 10 billion barrels, say, consider that we burn that much oil in less than 2 years. It would certainly help, but it wouldn't really have a significant effect on our energy situation. But—if it were 100 billion barrels, this would make a huge difference. (Of course, we should develop it either way, the environmental arguments against it are bogus.)

22 posted on 06/01/2008 12:30:49 PM PDT by megatherium
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To: Doe Eyes

Another part of the path to energy Independence is conservation of energy usage .....”

Kalifornia Assemble passed AB 2678 last Wednesday: 44 to 33.
This new law, if it makes it past the Kalifornia Senate and Schwarznegger, will demand:

Sellers of all developed property- residential and commercial— MUST get a state-run AUDIT OF ENERGY USAGE disguised as the “POINT OF SALE AUDIT” before they can sell their property. Then, based on what the “audit” produces, the owner MUST—MANDATED—MUST— retrofit the property to the “audit”. Since all this “energy standards” are a quickly moving target, I predict that the real estate business will grind to a complete halt in Kalifornia.
You cannot “move up” to a newer or larger house until you sell what you have. This bill will STOP sales of real estate in Kalifornia.
Banks, etc, will no longer be able to lend on home purchases, and construction will stop. Probates on properties owned by a deceased relative will not get closed.
If you own a house that is legitimately worth $200,000 and some little twit working for the State of Kalifornia gives you a list of MANDATED changes that must be done, then the “contractor” has you at a disadvantage and can charge anything he pleases for this “retrofit”. HOw long will it take for this long list of retrofits? Who has all the supplies on hand for all these new mandates? Does anyone think that the window companies have millions of windows in inventory waiting for this legislation? I don’t. If you are expected to spend $50,000 for this retrofit—who is going to pay you what is now $250,000 for this house? Appraisers are going to be in a quandry. Lenders are going to balk.
Then- here’s the big surprise==== In Kalifornia, the price of your property taxes are based on the purchase price of your home.
Is this legislation a thinly disguised method to drive up the property taxes in a state that is definately bankrupt????
I can fax anyone a copy of this legislation.
Better tell your banking friends, real estate agent friends. They are about to be dinosaurs. Mortgages are some of the biggest part of the USA economy.


23 posted on 06/01/2008 12:32:04 PM PDT by ridesthemiles
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To: mysterio
If we don’t start producing our own energy here, our nation is in trouble. Energy independence an important plank of any successful WOT.

I agree absolutely. Whether or not certain environmental problems are a serious threat to our country, our vulnerability to hostile energy-producing countries is a much greater threat. It's intolerable that our President must hold hands (literally) with Saudi royals.

24 posted on 06/01/2008 12:35:45 PM PDT by megatherium
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To: K-oneTexas

Good article. However, it is not a matter of facts so much as how people feel about oil. For the facts are icky crowd, hating oil companies and going to the mall is much more fun than facts. Schumer knows this.


25 posted on 06/01/2008 12:53:34 PM PDT by Random Access
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To: ridesthemiles
My Energy Manifesto:

* Cease all ethanol production. It takes away from food production and the unintended consequence is higher food costs. Corn production shifted from feed-corn to subsidized corn for ethanol. Just say "no" to ethanol! Even Jimmy Carter says that diverting farm production from food to fuel is dumb – even HE gets it.

* Immediately create only ONE "blend" of gasoline and cease regional "boutique" blends which are stupid, costly, and meaningless. Even if this is the "cleanest" blend, just make it ONE and be done with it. Trucking custom blends around the country is wasteful.

* Lift the restrictions in order to drill for oil in Alaska, Gulf of Mexico, and other sites in the CONUS as a matter of national security.

* Encourage the petro industry to construct state-of-the-art refineries and/or retrofit current and dormant ones and crank up production for our newly-accessed oil in the CONUS.

* Make all “carbon credit” scams unlawful. Discrediting Algore should have been a slam-dunk a long time ago. Stop electing Reps who buy into the Global Warming Hoax.

* Construct SEVERAL, regional Pebble-Bed Modular Reactors (or other similar modern designs) that are not considered "breeders", are rechargeable, and cleaner than any current nuclear generator design. Breeders are OK, but PBMR's are better. NO SOMETHING NUCLEAR to resolve energy problems.

* Use the residual heat from the reactors above to process motor fuel from coal and/or shale. Even though Clinton "stole" some of the best coal reserves, we still have a lot to use.

* Become independent enough to make the cartels (i.e. OPEC) inconsequential.

* Convince local taxing bodies to lift or cap the sales tax on gasoline so that as gas prices go up, the local tax collectors don’t see a windfall revenue jump at the expense of the consumer. The Federal government could compel the states (and locals) to cap the fuel taxes.

26 posted on 06/01/2008 12:56:00 PM PDT by SERKIT ("Blazing Saddles" explains it all.....)
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To: RobbyS

Peak Oil is meaningful ONLY when economic factors are included in the calculation. Higher prices for crude make smaller, more remote, and more difficult to extract resource pools economically viable, and thus add to - or even multiply - the resource available for extraction.

In addition, higher prices also bring about both conservation and substitution effects, which are beginning to appear in the marketplace on a small scale already. We could reduce our oil consumption by about 5% if we electrified our long-haul rails and transferred that energy consumption from diesel fuel to the electric grid. (Note that all locomotives already use electric motors to turn their wheels.)


27 posted on 06/01/2008 12:56:28 PM PDT by MainFrame65 (The US Senate: World's greatest PREVARICATIVE body!)
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To: MainFrame65

You are right. When big discoveries are made, such as the East Texas Field in 1930, and the Mideastern fields by DeGolay et al. it bends the whole economy in another direction. My dad made the East Texas field and it wa a wild situation. Oil went down to $0.10 a barrel at one time, as they were drilling wells at an uncontrollable rate. It was on of the last major fields where the majors were not, at first, a major player, because their geologists had said that no oil could be found in such a place and most of the leases were in the hands of independent operators. Anyway, this field changed the energy AND transportation industries, something visiblly shown by the role it played in the Normandy invasion, and the Big Inch that brought fuel all the way to New Jersey. Within fifteen years, especially after the Midwestern fields came in, Oil displaced coal as a the preferred heating material, and Eisenhower’s interstate system allowed the trucking industry. to displace the railroads. We seem to be at the end of that THAT era.


28 posted on 06/01/2008 1:11:21 PM PDT by RobbyS (Ecce homo)
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To: K-oneTexas

for reference


29 posted on 06/01/2008 1:11:41 PM PDT by EverOnward
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To: MainFrame65

Something to think about as a concept is the resource cost of a resource. That is, how much of the resource is needed to produce an amount of the resource. This removes the dollar cost from the formula. For example, 50 years ago it took one railroad car of coal to produce 100 rail cars of coal. Now it takes one rail car of coal to produce 50 rail cars of coal. This is happening with oil although I don’t have numbers to go with it. When a resource costs one unit of the resource to produce one unit of the resource, then it ceases to be a resource.


30 posted on 06/01/2008 1:14:35 PM PDT by RightWhale (We see the polygons)
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To: RightWhale

Speaking of the resource cost of ethanol, perhaps we need a law that prohibits the use of any fuel except 100% ethanol in the production of ethanol.


31 posted on 06/01/2008 1:20:55 PM PDT by MainFrame65 (The US Senate: World's greatest PREVARICATIVE body!)
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To: MainFrame65

Ethanol would have a resource cost, and it seems would not count as a resource if we looked at it that way.


32 posted on 06/01/2008 1:23:07 PM PDT by RightWhale (We see the polygons)
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To: RightWhale

That’s my point. Ethanol (at least from corn) makes NO sense at all as a substitute for petroleum.


33 posted on 06/01/2008 1:28:30 PM PDT by MainFrame65 (The US Senate: World's greatest PREVARICATIVE body!)
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To: whipitgood
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.

I believe the point he was trying to make, is that the price per barrel can and does rise without there being a true supply and demand component.  It would be absurd to claim that is always the case.

Right now the price has gone astronomical, but it hasn't been driven by a supply and demand moment.  It's been driven by speculators.

I believe he could have provided some verbage to make this clear, but he didn't.

I can understand why you would think there were conflicting statements.  I do think he would agree with you if challenged on the point.  He would probably explain it along the terms I have.  Maybe not.

34 posted on 06/01/2008 1:29:04 PM PDT by DoughtyOne (Ooo what's that terrible smell? Oh, I stepped in a big pile of 'lesser of two evils'. Careful...)
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To: ridesthemiles
Sellers of all developed property- residential and commercial— MUST get a state-run AUDIT OF ENERGY USAGE disguised as the “POINT OF SALE AUDIT”

They are implementing the same thing in Austin Texas.

Though I oppose this type of government mandate, I don't mind tax credits for energy conservation.

35 posted on 06/01/2008 1:36:44 PM PDT by Doe Eyes
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To: mysterio

Liberal DemoRAT Socialist Energy Plan:

1. You can’t drill for oil anywhere.
2. You can’t build a refinery anywhere.
3. You can’t build a nuclear power plant anywhere.
4. You can’t burn coal for electricity.
5. You can’t allow the oil companies to reinvest their profits into exploration.
6. But you can drive up the price of food by subsidizing an ethanol industry that takes land out of food production while using more energy than it creates.
7.You must continue to tax every gallon of gas that we put in our tanks.
8.You must threaten all energy users with additional ‘carbon taxes’.
9. And just in case some entrepreneur out there somewhere may have an idea for an alternative energy concept that just might work, you must raise the capital gains tax so that investors have less capital and less incentive to invest in his/her project. count your blessings.

With the coming change in administration and Liberals in Congress, it will be guaranteed that the price of gasoline hits $10 per gallon as our economy dumps and our way of life goes to Hades. All this and more thanks to anti-American, anti-military Liberal DemoRATS whose platform is “enjoy living in America the new third-world toilet created by Liberal socialists.”


36 posted on 06/01/2008 1:44:26 PM PDT by ExTexasRedhead
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To: megatherium
From reading, I believe, that even if we produced all our domestic oil (ANWR, Rockies, Atlantic Coast and Gulf Coast) that: 1) we might support our selves for some period of time. however 2) that it wouldn't translate into gas or diesel as the domestic refiners don't have enough refining capacity to support but what is produced/purchased now

And yes it is true the 'Oil Patch' is not a subject I have a lot of details in.
37 posted on 06/01/2008 1:56:50 PM PDT by K-oneTexas (I'm not a judge and there ain't enough of me to be a jury. (Zell Miller, A National Party No More))
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To: All

These supposed facts are opinion, not fact, especially #2.

The most critical thing for FReepers to understand about oil is that the RESERVES numbers quoted are not audited. Repeat, they are NOT AUDITED.

For years OPEC has awarded pumping quota among its constituent countries as a function of reserves quoted. This creates enormous incentive for countries to inflate their quoted reserves.

In fact, Iran has increased its quoted reserves by 50% since 2000, without any significant exploration budget at all.

Additionally Iran is producing (pumping) about 3.5 million barrels per day. This is less than current US production and is not expected to equal US production for many years to come in any projections, despite having exceeded current US production numbers back in the late 70’s. This should be further cause to suspect their having lied about reserves.


38 posted on 06/01/2008 2:04:32 PM PDT by Owen
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To: K-oneTexas

Fact #2 is, in fact, not a fact.


39 posted on 06/01/2008 2:05:09 PM PDT by USFRIENDINVICTORIA
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To: RightWhale
It won’t make a drop of difference. This is Peak Oil and has been since Nov 2007.

How can we be at peak when most of the US reserves aren't being utilized, and US refineries haven't been built in many decades?

40 posted on 06/01/2008 2:28:38 PM PDT by gitmo (From now on, ending a sentence with a preposition is something up with which I will not put.)
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