Thursday, May 01, 2008

Ten Simple Truths About Oil By Alan Caruba

Ten Simple Truths About Oil
By Alan Caruba

Apr 30, 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 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.


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At 1:31 PM, Anonymous Anonymous said...

While it is a fact that no new refineries have been built in the U.S. since the 1970's, environmental restrictions are not the sole reason. Many small oil companies have been bought up and their refineries closed by the majors, since then, as the majors reduced U.S refining capacity for their own profit.

Now, though the nation may need new refing capacity, oil is a diminishing resource and it is economically undesirable for any company to make the enormous capital investment required to build a grass roots refinery that may only be viable for a relatively few years. Unless it can reasonably expect a 35 - 40 year life span for a new refinery, no company will build one.

At 2:50 PM, Blogger RussWilcox said...

Oil will be the major energy source for the forseeable future. It is not fear of running out that hinders (aside from environmental restrictions) investment in refineries, it is the incredible and stupid commitment to funding and subsidizing biofuels that is ongoing.

How can oil executives justify this investment to stockholders when the government is pouring billions into biofuels?

At 7:14 PM, Anonymous Anonymous said...

Californians refused to build a refinery on the west coast as did Oregon and Washington, consequently all of the Alaskan oil is shipped to those tree huggers are complaining about big oil and their profits..when the American people realize that oil refinereries and power plants and coal mines are just as necessary as sewage plants they will begin to realize that their intransigence has caused big oil to invest in refineries overseas and importing expensive oil from overseas..all of this taking needed jobs away from Americans and giving them to Nigeria, Saudi Arabia and even Iran and are making us hostage to these terroists..tell me when are some of these stupid Americans going to wake up??? We need to develop the many resources that we have Alaska the Gulf coast of southeastern US,,there are plenty of energy sources but to survive we have to get off of this high and mighty attitude and get down to business.

At 12:50 PM, Anonymous Anonymous said...

although most of the oil reserves are owned by the state they reside in, big oil are the ones with the technology and refining capability to utilize them. Also the net income of state oil companies like gazprom and aramco are at par with the incomes of exxon, shell, and bp.


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