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Bob Williams
Bob Williams, director of research for PennWell Publishing's Oil & Gas Journal Research Center
Bob Williams is a Contributing Editor for PennEnergy. Previsouly, he worked as Director of Research for PennEnergy's Oil & Gas Journal Online Research Center and PennEnergy Online Research Center. He worked for 4 years for the US Department of Energy writing about energy R&D, including the power sector. Prior to that, he spent 24 years on the Oil & Gas Journal staff, and has authored and managed many ancillary publications and editorial products for PennWell over the years. For a detailed bio…


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Death of the Oil Industry, Part Two
January 27th, 2009

Last week’s blog discussed the rush of rhetoric to bury the oil industry from a demand perspective. This week we look at this purported premature burial from an equally strong supply perspective.

Bottom line, if you think the world’s major exporters of oil will sit idly by while the “green” wave washes over them, think again. For years OPEC, led by Saudi Arabia, has had to endure being cast in the role of villain for supplying the very commodity its customers have been voraciously consuming for decades. A key reason that global oil demand growth had been outstripping world oil supply growth has been the woeful performance of non-OPEC oil producers. From 1990 to 2004, global demand for oil increased by 16 million barrels per day, while non-OPEC oil supply rose by only 6 million barrels per day. That lack of non-OPEC contribution to increasing the world’s oil supply had as much, if not more, to do with global spare oil production capacity shrinking to a sliver in recent years. And the prospect of that skinny cushion in a volatile world was the main impetus in speculators driving the futures price of oil to stratospheric heights last year. OPEC’s efforts—really Saudi Arabia’s—to restrain production in support of oil prices in recent years was misguided only in its inability to foresee, as we all did, the extent of the collapse in the global economy and consequent plunge in oil demand.

Had non-OPEC oil producers been able to bolster their own output in the past 15 years, oil prices never would have topped $100/barrel.

About 40% of non-OPEC oil output today comes from countries whose production is in secular decline, according to a new analysis by Raymond James & Associates. RJA contends that non-OPEC oil production likely will reach a permanent peak within the next 3-5 years. The major cuts in E&P capital spending being announced every day will only worsen that scenario.

So will non-OPEC oil supply decline be a non-issue as OPEC stands by and wistfully watches its market shrivel and disappear in the wake of a biofuels boom and new fuel efficiency standards?

Think back to the oil boom of the late 1970s and early 1980s. The order-of-magnitude increases in oil prices at the time certainly inspired the development of alternate fuels and the push for better fuel mileage. Those developments contributed somewhat to decreased demand for oil, which at the time had peaked in 1979. But OPEC mainly lost market share to non-OPEC producers that took advantage of higher prices to develop new reserves and production in high-cost areas such as Alaska’s North Slope, the North Sea, and Canada’s oil sands—not to mention Mexico and the Soviet Union. From 1980 to 1986, non-OPEC producers added 10 million barrels per day of production capacity. OPEC’s share of world oil production dropped from more than 50% in 1974 to 30% in the early 1980s; OPEC—mainly Saudi Arabia—had cut its output by a third in support of prices. At the same time, looming on the horizon was the threat of more market share loss to a surge of new alternative supply from synthetic fuels.

It fell to Saudi Arabia to right the ship. The kingdom had been acting as swing supplier to help support oil prices, only to see its own fellow OPEC members cheat on their quotas and cause the Saudis to lose the most market share of all. Through a netback pricing scheme, Saudi Arabia quickly ramped up its production to recapture lost market share, resulting in a price collapse that endured for 3 years. But the resulting lower price spurred increases in consumption and halted production growth in most of the rest of the world.

Today, OPEC is showing some solidarity in throttling back production. In early January, the data show that OPEC has already sliced 1.5 million barrels per day from its output, a commendable effort relative to their target of a 2.2 million barrel per day cut for the month.

Calibrating oil supply to match expected demand is a tricky business, especially in today’s economy. OPEC certainly has a vested interest in pushing prices back up to minimally acceptable levels for the long run. How successful it will be in the short term depends on how bad the demand collapse will be this year. But there is little doubt that the group will ultimately succeed, because the very survival of these countries depends upon it. And before some scofflaws chuckle at the thought of OPEC disintegrating and sheikhs being impoverished, just think for a moment of jihadists in the Persian Gulf taking control of more than half of the world’s oil reserves from these weakened governments.

So the question becomes: At what level will OPEC keep production to support oil prices in the long run? The answer is simple: A level that ensures the highest prices possible without encouraging more competition for OPEC or major conservation measures.  (OK, maybe not so simple—the devil is in the details.)

Some analysts put OPEC’s target price level at $75 per barrel to support their collective budgets. Even without guessing how bad the demand decline could get this year, that seems a bit out of reach, barring some major supply cutoff. It will be largely up to Saudi Arabia to make the kind of cuts needed to support that price level, and that could leave the kingdom’s surplus capacity—and therefore lost market share—at an uncomfortable level, especially if it remains there for a long time.  Perhaps a more comfortable price level would be $50-60 per barrel. That could choke off some of the costlier non-OPEC supply initiatives and keep fuel costs low enough to spur demand again significantly. (A corollary benefit would be to rein in Iran’s and Venezuela’s shenanigans—something to comfort Saudi Arabia and its key customer, the US.)

But what if a massive effort ensues to develop alternative transportation fuels? That seems doubtful. A huge turnover of the global vehicle fleet to electricity or hydrogen is a generation away. Only biofuels have the potential to make an immediate large-scale dent in petroleum-based transportation fuels’ markets. Yet the best estimates are that biofuels will account for less than 3% of the market by 2030, up from less than 2% today.

Sure, it’s conceivable that a combination of heavy taxes on petroleum-based transportation fuels and tax credits for biofueled cars could make an even bigger dent in oil’s market share in the years to come. And then it might occur to the Saudis to revisit 1986. Just as the prospect of $150-200/barrel oil invigorated prospects for renewable energy and biofuels in particular, the threat of $25/barrel ($10/barrel?) oil will have the opposite effect. And all the Kyoto agreements and green energy initiatives by the new Congress and new administration won’t change that. That’s especially the case when new economic powerhouses such as China and India, exempt from Kyoto’s strictures, continue to flout the treaty’s ultimate intent in order to sustain their recently booming economies after the current downturn has run its course.

Does anyone really believe that the American public would stand for a policy that pours billions of taxpayer dollars into an uneconomic commodity while also keeping fuel costs high, forcing them into vehicles they don’t really want, and enabling the country’s main new economic rival to become even more competitive—especially in these perilous economic times?

So don’t dust off those funeral togs just yet. The oil industry will be alive and kicking for decades to come.

A smart US energy policy would recognize that certainty and do everything possible to support domestic oil producers by helping to keep the playing field level, not making it tougher.


Death of the Oil Industry, Part One
January 20th, 2009

With apologies to Mark Twain, rumors of the death of the oil industry are greatly exaggerated.

Well, some would opine, the US has seen the light, and its new leadership will take us away from the demon Big Oil and down the path of righteousness into the Energy Promised Land. Oil will go the way of the dodo, and in no time at all we all will drive Shriner clown cars fueled by algae-derived ethanol or Energizer Bunny batteries on steroids.

But I have read from the automakers’ marketing Book of Apocalypse about their Four Horsemen of yore—their names be Pinto, Gremlin, Pacer, and Vega—and shudder to see them supplanted by the Volt, Fit, Smart, and Vue (sounds like a line of energy drinks, doesn’t it?).

In the first half of 2008, when the Wizards of Wall Street were proclaiming the inevitability of $200/barrel oil, US purchases of SUVs and trucks plummeted. The public demanded tiny hybrid cars with huge MPGs. Fears of melting ice caps, crazed jihadists seizing oil states, and “peak oil” sparked a hue and cry across the land to forever end our “addiction” to oil.

(Can we please start a 12-step recovery program to wean ourselves of that stupid addiction analogy? Because it comports with reality, how about “lifeblood of the economy” instead? You take away an addict’s drugs, and he gets better. You take oil out of the equation too abruptly, and civilization grinds to a halt. Right after that, ditch the Apollo and Manhattan project analogies too. But I digress.)

Now we have the new messiah of economic stimulus to multiply the loaves and fishes—excuse me,  retool Detroit to multiply the Volts and Fits (now it’s sounding like electroshock therapy) and feed the masses with several million new planet-friendly, alternative energy-related jobs.

A funny thing happened on the way to this Eco-Friendly Auto Nirvana:  Oil and gasoline prices collapsed in the second half. Sales of SUVs and trucks outpaced those of cars in December, the first time that happened since February 2008, according to Edmunds.com.

Meanwhile, December sales of the Prius, which accounts for half the hybrids sold in the US, were expected to slump again after falling 48% in November from the year before.

Sales of hybrids and ultra-fuel-efficient small cars zoomed in the first half of last year because many Americans believed that gasoline would cost $5 per gallon or more for the foreseeable future (OK, I’ll admit a few Hollywood celebrities and some green acolytes also bought them to “save Mother Earth”).  Joe the Plumber and his friends would rather have the quad cab and the soccer mom her minivan, but whaddya gonna do when the monthly gasoline outlay has tripled? Even the added cost of the hybrid seemed to make sense then.

Six months later, gasoline is a buck-and-a-half, the big rigs are the ones moving out of car lots again instead of small cars, and suddenly that extra seven grand for the 40-MPG Planet Savior hybrid doesn’t seem to make so much sense.

That’s a 180-degree turnaround in six months, folks.

I agree with those who say oil and gasoline prices will rebound. When? You tell me when the economic recovery is in full swing again, and add 6-12 months to that date (Assuming geopolitics don’t intervene in the interim, which is not a safe assumption).

But when will oil and gasoline prices reach—and stay at—July 2008 levels again? The last recession-induced oil price collapse came in 1998-99.  Gasoline stayed below $3/gallon for most the of 2000s, not breaking that threshold on an extended basis until 2006.

Of course, in the interest of sustaining incentives to buy less gasoline, the new administration and Congress could push for a carbon tax on gasoline to bring it back up to $4/gallon. Hmmm…our idealistic, noble Congress, wanting to save the planet, approves a new tax to double the cost of gasoline, in the middle of the worst recession since—pick your hyperbole—say, biblical times. That sound you hear is the scuttling of congresspersons to the sideboards when the light switched on.

Today the Big Three automakers, begging for alms, are getting strong-armed by Washington to adopt a new mantra if they want a spot at the trough: Build a 40-MPG minicar fleet, and they will come…

Maybe not so much. Remember California’s ZEV mandate?  In 1990, the California Air Resources Board created new regulations that mandated that 2% of the seven biggest automakers’ sales in the state be emission-free starting in 1998, rising to 10% in 2003. Remember the scramble that ensued by automakers to build hundreds of thousands of zero-emission vehicles in California? Remember the explosion of demand for ZEVs among auto buyers there? If you do, you’re delusional. Never happened. After a number of grudging scale-backs in its hubristic goals, CARB last year settled on a new iteration of its mandate: 7,500 electric and hydrogen vehicles and 60,000 plug-in hybrids must be built in the state between 2012 and 2014—and no specifics beyond that timeframe. No one is happy about that mandate, either, with hydrogen and electric vehicle and hybrid interests squabbling about favoritism, environmentalists squawking that it isn’t enough to save the planet, and automakers meekly pointing out that the technology just isn’t there yet. Pretty grim outlook for a measly 67,500 vehicles. And to put it in perspective, California accounts for 12% of the nation’s 250 million vehicles. Further perspective: the average lifespan of a vehicle is an order of magnitude greater today than it was in the 1970s. And it takes about 14 years for the vehicle fleet to turn over. Do the math.

So, to recap: Gasoline is cheap again. Detroit is on its knees and needs to sell more vehicles quickly. The picture isn’t so rosy for Honda, Toyota, et al., either.  How long will take automakers to retool and build a million new ultralow-mileage vehicles? Two million? And what will those numbers mean in a 250 million-vehicle market? How much of that reduction in consumption caused by greater market share of low-mileage vehicles be offset by the added consumption by a growing population?

Americans love SUVs and big trucks, especially when gasoline is cheap. How many Americans will toss that love aside when the payback on their extra $7,000-10,000 stretches out beyond the life of the vehicle for a gas-sipping microsubcompact that forces them to go to Wal-Mart twice a week instead of once because of space limits? In these grim economic times?

And an afterthought: Think of how many Americans will buy SUVs and trucks when the economy recovers and gasoline is still below $3/gallon. Now think of the booming growth of the middle class in the new economic powerhouse of China. Expectations are that China will double the size of its vehicle fleet several times over the coming decade. Now multiply that number times four. And we’re not even talking about India yet.

Don’t tell me we absolutely need to do it for the planet, for energy independence, for a raft of green jobs. Needing and doing are very much different things. Sure, let’s build a bunch of funny-looking little cars that sip gas or run on switchgrass or plug into a socket. The beloved VW Beetle took America by storm in the 1970s, and US oil consumption in 1980 was about where it was in 1970. So don’t expect our oil appetites to disappear in a few years, or a decade. Think in terms of generations.

In 1980, when achieving energy independence for America was the “moral equivalent of war,” President Jimmy Carter launched the Synfuels Corp., hailed as a Manhattan Project (there we go again) tabbed at $100 billion ($400 billion if done today). Its first goal was yield 500,000 barrels per day of synthetic fuels by 1987. Some thought 1 million b/d was possible in another decade. That would have been about 3-5% of US oil demand.

Meantime, US oil producers, despite the windfall profits tax but buoyed by strong oil prices, jumped America’s oil output by about 500,000 barrels per day around the same time—in 4 years.

Remember how the SFC roared to life and yielded that extra half-million barrels per day to the nation’s oil supply?

Now there goes that delusional thinking again.


The new DC boom: Lobbying
January 14th, 2009

Times are tough all over. Job losses. Business bankruptcies. Mortgage foreclosures. Gloom abounds.

Well, not quite everywhere. There is an oasis of economic good cheer in the US:  A place that has been largely immune to the wrenching economic dislocation that the rest of the US is enduring. A city that not only is showing relatively robust economic health compared with other US locales but may already be in the first throes of a genuine boom.
Guess yet where this Shangri-La of the American economy is located?
Try Washington, DC. And it’s just getting started.

In a fascinating Associated Press (January 12, 2009) article by Brian Westley, information both empirical and anecdotal shows that the nation’s capital is benefiting from growth in businesses and jobs linked to a “mad rush” to influence where money from President-elect Barack Obama’s massive economic stimulus package (at last count, $800-850 billion and counting) should go.

According to the AP article, one analyst predicts job growth for the DC area in 2009 of 20,000 jobs after gaining 31,000 jobs for the 12-month period ended in November 2008.
Washington is tied for the lowest unemployment rate in metropolitan areas of more than 1 million with Oklahoma City. (Any bets on that tie being broken soon as the oil and gas industry continues its swoon?)

Looks like there will be booming business for anyone connecting with lobbying, consulting, economic analysis, hospitality (gotta keep those politicos entertained) and related business support services.

At same time, Obama has backpedaled a bit on his campaign promises, saying that some of them can’t be fulfilled soon because fixing the economy takes priority over everything else.  Yet he has also reaffirmed his commitment to alternative energy as part of the economic recovery plan, claiming that alternative energy development will provide 5 million new jobs. Also, in a Jan. 9 speech, Obama said that he intends to see the production of alternative energy in the US double over the next 3 years.

That sounds impressive until you consider that nonhydro renewable energy sources such as solar and wind power each have logged double-digit annual growth for more than a decade now and collectively have achieved a whopping 5% market share in the US. So we’re looking at annual increases of, say, 25-30%, in solar and wind energy production rocketing to about 33%. Think we can boos their market share to, say, 5.5% by 2011?

Just like “organic” and “natural” when it comes to food, “alternative” can have a broad range of meaning, akin to the old saw “Beauty is in the eye of the beholder.” There is similar ambiguity in the term “unconventional” gas. What is an “alternative” if not the  “unconventional?”

Until the collapse in natural gas prices starting last summer, the hottest E&P play in North America was unconventional gas, in particular shale gas. Some shale plays have potential for tens of trillions of cubic feet of recoverable gas each. But these are generally higher-cost plays, and most of the continuing collapse in the US rig count is attributable to the operators in these frenzied plays laying down rigs when US gas prices plummeted to about $6/MMBTU—even as low as $3/MMBTU in parts of the Midcontinent.

Tight sands gas, coalbed methane, and ultradeep gas are also contributors to what EIA expects will be 50% of the nation’s gas supply in 2030. Apart from current price issues, there are lands access and environmental barrier to unconventional gas development.

These unconventional gas plays probably would not exist without decades of research funded by the US Department of Energy and the Gas Technology Institute aimed at unlocking these massive resources. DOE oil and gas R&D funding—primarily aimed at helping US small independents—has been shrinking steadily for years to its current pittance.

More importantly, industry’s campaign to unlock this massive unconventional gas resource benefited from federal tax credits in the 1980s and 1990s. Studies have shown that these tax credits and R&D funds for unconventional gas have been paid a return many times over: Unconventional gas now supplies more than 44% of the nation’s gas.


Some wished-for New Year’s resolutions
January 6th, 2009

Many of us have embarked upon that annual ritual of false piety and self-delusion known as making New Year’s resolutions. Yeah, sure, we pledge to lose weight, exercise more, eat healthier, save more money, reduce stress, be nicer, yada, yada.

While others wallow in sanctimony to better their lives, I prefer to wield it as a weapon to enlighten and entertain. Forthwith are my slightly apocryphal resolutions made on behalf of certain notables regarding the energy industry in 2009:

1. I will avoid making rash predictions about oil prices.

“Oil prices are increasingly likely to hit between $150 and $200 a barrel over the next 6 to 24 months.”
Goldman Sachs, May 6, 2008

The Wall Street titan of investment banking is now a traditional bank holding company and knocking at Warren Buffet’s door for a cash infusion.

2. I will be circumspect in promoting magic-bullet solutions for America’s energy problems.

“Building new wind generation facilities and better utilizing our natural gas resources can replace more than one-third of our foreign oil imports in 10 years.”

www.pickensplan.com

After issuing his challenge to Americans to dot the country’s heartland with wind turbines at a cost of $1.2 trillion, substitute gas-fired electricity with that wind power, and divert the domestic gas hitherto burned in those power plants to natural gas-fueled vehicles as a means to end the US “addiction” to foreign oil, T. Boone Pickens’ energy hedge fund lost $1 billion, about a third of which was his own money. Pickens then predicted oil prices would end the year at around $125 per barrel (see Resolution No. 1). And his own flagship project, a $10 billion wind farm in Texas, is on hold because natural gas prices have halved.

3. I will think long and hard when hedging my bets with my money.

“We believe we must invest the necessary capital to more fully capture the upside of our new opportunities. We remain focused on per-share value creation and we believe our shareholders will benefit from our increased investments in these new discoveries and projects and in our most important existing plays.”

Aubrey McClendon, Mar. 24, 2008

The Chesapeake CEO subsequently sold almost all of his own stock in the company to cope with a personal margin call; the stock had been valued at $2.2 billion when he bought the shares on margin. Chesapeake also slashed its drilling budget (focused mainly on shale gas plays) by $10 billion in 2009-10. And McClendon was the driving force behind CNG Now, an initiative that complemented the Pickens plan on vehicular natural gas (see Resolution No. 2).

4. I will think even longer and harder when hedging my bets with company money.

Tom Kivisto, SemGroup LP

According to statements in the Chapter 11 bankruptcy of SemGroup LP, co-founder and former Pres. Tom Kivisto used money loaned to him by SemGroup to make personal trades on oil futures markets. SemGroup bet oil prices would drop when they more than doubled in the first half of 2008 (see Resolution No. 1). The margin calls amounted to more than $2 billion, including $290 million from Kivisto. He was subsequently sacked. The company is still struggling to reorganize and may have a buyer but remains under federal investigation.

5. I will walk the talk, i.e., not be a flaming hypocrite.

“…Billions of dollars of new investment are flowing into the development of concentrated solar thermal, photovoltaics, windmills, geothermal plants, and a variety of ingenious new ways to improve our efficiency and conserve presently wasted energy.”

Former US Vice-President and resident National Scold Al Gore, July 17-18, 2008

According to the Tennessee Center for Policy Research, since the release of his Oscar-winning documentary, An Inconvenient Truth, energy consumption at Al Gore’s Tennessee mansion increased from an average of 16,200 kW-hr per month in 2005 to 18,400 kW-hr per month in 2006. That’s 20 times as much electricity consumed in a month as the average American household uses in a year. And not a windmill in sight. At the same time, Gore’s mansion burned more than $1,000 of natural gas per month.

6. I will not put all my eggs in one basket. Nor eliminate on your leg and tell you it’s raining.

“Today I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years. This goal is achievable, affordable, and transformative.”

Former US Vice-President and resident National Scold Al Gore, July 17-18, 2008

Even ClimateProgress.org says a more realistic, but still ambitious, goal would be 50% renewable electricity sources by 2020. The US Energy Information Administration, however, projects that renewable power will have a US market share of 12-13% in 2030. Today renewables account for 9-8% of US power, and two-thirds of that is conventional hydropower—not solar or wind. Also see Resolution No. 2.

7. I will not, repeat, NOT regurgitate that lame, beating-a-dead-horse-after-it’s-already-glue metaphor of a “Manhattan Project” or “Apollo Project” to describe solutions to America’s energy challenges.

“Ten years is about the maximum time that we as a nation can hold a steady aim and hit our target. When President John F. Kennedy challenged our nation to land a man on the moon and bring him back safely in 10 years, many people doubted we could accomplish that goal. But 8 years and 2 months later, Neil Armstrong and Buzz Aldrin walked on the surface of the moon.”

Former US Vice-President and resident National Scold Al Gore, July 17-18, 2008

Here’s an excerpt from the New York Times’ Andy Revkin blog, in which he annotates (http://dotearth.blogs.nytimes.com/2008/07/17/the-annotated-gore-climate-speech/)
Gore’s July 17, 2008, speech in Washington, DC, that called for an Apollo Program-style government initiative to convert all US power to renewables within a decade:

“Many scientists and engineers have looked to the Apollo program as a metaphor, but stressed that the energy transformation is a far greater challenge. Here’s what one solar expert told me when I interviewed him for a climate story in AARP Magazine: ‘We already have electricity coming out of everybody’s wall socket,’ says Nathan S. Lewis, 51, a chemistry professor who codirects the Powering the Planet project at Caltech. ‘This is not a new function we’re seeking. It’s a substitution. It’s not like NASA sending a man to the moon. It’s like finding a new way to send a man to the moon when Southwest Airlines is already flying there every hour handing out peanuts.’”

8. On a personal note, I will try not to pick on Al Gore so much in 2009.

Oops.


Obama energy policy, Part Two: What’s up with Chu, tree-hugger?
December 22nd, 2008

Last week’s blog focused on President-elect Barack Obama’s choices for his energy and environment team, save for the most symbolically important selection on US energy policy: secretary of energy. It’s an intriguing choice politically and symbolically but a bit of a puzzle regarding policy direction, although clearly supportive of alternative energy as a climate-change solution.

The choice of Nobel Prize winner Steven Chu to serve as US energy secretary is a direct poke in the eye to a Bush administration that has been accused of ignoring or perverting science by not jumping on the Kyoto bandwagon, among other purported perfidies.

Chu now heads the Lawrence Berkeley National Laboratory, where his pet project, Helios, is a joint initiative of the national lab and the University of California-Berkeley to “store solar energy in the form of renewable transportation fuel. Several approaches under investigation include the generation of biofuels from biomass, the generation of biofuels by algae, and the direct conversion of water and carbon dioxide to fuels by the use of solar energy.”

In 2007, Chu co-chaired a study panel that produced a paper for the InterAcademy Council titled “Lighting the Way: Toward a Sustainable Energy Future.” The report outlined “best practices for a global transition to a clean, affordable, and sustainable energy supply in both developing and developed countries” and advocated development of technologies “that can transform the landscape of energy supply and demand around the globe.”

Basically, Chu’s energy agenda will be focused on promoting biofuels in transportation, among other means, to curb greenhouse gas emissions. According to recent reported comments, he considers coal to be his “worst nightmare” and has little faith in the development of clean coal technologies as a climate change solution. He’s also not especially keen on nuclear power, fretting about nuclear waste disposal and proliferation issues, according to some reports.

Or is that an accurate picture of the man’s views? In the aforementioned paper, Chu wrote that “great urgency must be given to developing and commercializing technologies that would allow for the continued use of coal—the world’s most abundant fossil-fuel resource—in a manner that does not pose intolerable environmental risks.”

Also, Chu, in a 2005 interview, responded to the question “Should fission-based nuclear power plants be made a bigger part of the energy-producing portfolio?” by saying, “Absolutely.”

So where does this keen, scientifically grounded, Nobelized intellect really stand? Despite all the chatter today about Obama’s pointed selection of a pure scientist to take the lead on energy policy, let’s not forget a key point: He runs a national lab for a massive government agency—a lab that competes with other 146 national labs (a sometimes vicious competition) for Congressional dollars that in their combined FY 2009 funding requests totaled almost $27 billion. As indisputably brilliant a scientist as Chu is, today, he’s nevertheless still a bureaucrat.

Surviving the agency budget battles of Washington, DC, requires expedience, accommodation, and, yes, sometimes talking out of both sides of your mouth at once.

So the Mr. Wizard coverboy for Obama energy policy may not be as much of a fire-breathing opponent of conventional energy as some would perceive him to be. Are there glimmers of hope that economic and energy realities may slip into energy policy in the next 4 years? Stay tuned.

Still, Chu is a coverboy of sorts. You want symbolism in a political appointment? In April 2007, the cover of Vanity Fair magazine featured Chu and six other Nobel Prize-winning scientists draped around a huge buckeye tree on the Cal-Berkeley campus. The scientists were posing that way to demonstrate their concern about global warming and energy sustainability.

A tree-hugger. Literally. And on the cover of a magazine named Vanity Fair.

In John Bunyan’s Pilgrim’s Progress, Vanity Fair was a year-round fair in the village of Vanity that was created by the demons Beelzebub, Apollyon, and Legion, to sell all sorts of vanities, e.g., “houses, lands, trades, places, honours, preferments, titles, countries, kingdoms, lusts, pleasures, and delights of all sorts….”

In our world, that village sits on the banks of the Potomac.


Obama energy policy, Part One: Czarinas and ranchers and (Smokey) bears, oh my
December 16th, 2008

If there were any doubts about where the Obama administration wants to push US energy policy, those doubts were erased by the President-elect’s key choices for his energy and environment team this week. Or were they?

Of course, the very fact that Barack Obama has created a team that intertwines environmental policy with energy policy pretty much says it all: Climate change will be the tail that wags the energy dog under Obama.

I’ll save discussion of the President-elect’s choice for energy secretary for next week’s blog. This week the focus is on the other members of the energy and environment team.

There is a feeling of Clintonesque deja vu with respect to the choice of Carol Browner to serve as the new administration’s “Energy and Environment Czar.”

(Uh, wouldn’t that more correctly be “czarina?” And shouldn’t we be more circumspect in anointing politicians with a title redolent of autocracy while the Russians seem to be reverting to that practice now? But I digress.)

Browner was the longest-serving head of the Environmental Protection Agency, under the majority of both Clinton terms. The highlight—or lowlight, as some of us see it—of her EPA tenure was her push to eliminate the gasoline oxygenate additive MTBE (methyl tertiary butyl ether) from the nation’s fuel supply and to ensure that the US has approximately 1 gazillion boutique fuel formulas for reformulated gasoline (RFG). Most amusing moment: When the RFG mandate led to gasoline price spikes (wow, to more than $2 per gallon!) in the Milwaukee-Chicago region in 2000, Browner led a fact-finding mission to Midwestern states—some of which were suing EPA to get a waiver on the RFG mandate—and concluded that the federal investigation had thus far turned up “no reasonable answer” for the rising prices.

For you film buffs, that was her Captain Renault moment: “I’m shocked! Shocked to find gambling going on here,” said the Vichy chief as he pockets his winnings during a Nazi raid of the casino in Casablanca.

Count on Browner to push for regulating greenhouse gas (GHG) emissions from vehicles.

Browner’s former special assistant at EPA, Nancy Sutley, is being tabbed to head the White House Council on Environmental Quality. A deputy mayor for energy and environment for Los Angeles, she has advocated regulation of GHGs at the local level as a response to California’s recent outbreaks of forest fires. Still wondering here, though, how having all of us drive Segways will outlaw lightning strikes and idiot campers. Can’t wait for the PSAs of Smokey the Bear chiding us for not using mass transit enough.

Not much is known outside of New Jersey about Obama’s choice for EPA administrator, Lisa Jackson, other than the mixed reviews she got for running that state’s Department of Environmental Protection. But Jackson is on record as advocating for mandatory reductions in GHGs, a stance EPA has been struggling with since the US Supreme Court in 2007 said the agency could indeed regulate GHG emissions. Looks like that struggle is over. On the other hand, some environmental pressure groups have taken her to task for not being tough enough on industry regarding Superfund sites.

Obama’s choice of Sen. Ken Salazar (D-Colo.) to head the Department of the Interior is also a mixed bag. Salazar, a longtime farmer and rancher, has taken potshots at Interior for its moves to open Colorado’s Roan Plateau to gas drilling and to lease oil shale lands. That would seem to further cement the new administration’s stance as being opposed to domestic resource development.

On the other hand, however, the Independent Petroleum Association of Mountain States praised the Salazar pick. Interestingly, IPAMS contends that Salazar “will play a pivotal role in meeting the administration’s goals of reducing greenhouse gas emissions and increasing energy security.”

IPAMS added, “Natural gas production in the Intermountain West will become even more important as President-elect Barack Obama seeks to carry out his campaign promises of making our nation less dependent on foreign sources of energy and reducing greenhouse gas emissions. Ninety-seven percent of the natural gas consumed in the US is produced in North America (27% of it in the West), and since it emits just over half the CO2 of coal, we will need even more natural gas in order to reduce our carbon footprint in coming years.”

IPAMS reasons that Salazar is “someone who understands that there is a direct connection between federal lands and access to affordable, domestic, clean natural gas.”

No, IPAMS hasn’t lost it (although I imagine some Sierra Clubbers spewed their lattes when they read IPAMS’ reference to natural gas development creating “green” jobs). Despite what some mainstream media outlets have reported, Salazar isn’t totally opposed to Roan Plateau gas drilling; he favors development but in a much more restrictive manner than the Bush administration sought.

On the other hand, just a month ago IPAMS expressed concern about the approach to Roan Plateau gas drilling that Salazar favors. The fact that this group—with a track record of being fiercely pro-development—is taking such an accommodating stance on someone with whom it has butted heads in the very recent past and is talking up natural gas as a green, climate-change solution speaks volumes about how the industry now perceives Obama. That is to say, giving the President-elect the benefit of the doubt as a reasonable centrist open to all views on energy policy, at least until he reveals himself to be a disciple of the Church of Gore.

On the plus side for the Salazar pick is that it has outraged environmental pressure groups. A coalition of 141 such groups recently launched an e-mail and letter-writing campaign in support of Rep. Raul M. Grijalva (D-Ariz.) getting the Interior slot; they are enraged that the job is going instead to Salazar, someone who has perhaps sipped, but not drunk deeply, their Kool-Aid.

Anyone who irks that many environmental extremists can’t be all bad.


The buck drops here: No room at the trough for Big Oil
December 9th, 2008

The buck drops here.
A hundred billion here, a trillion there. Pretty soon we’re talking real money.
The mad scramble to cash in on the Oprah-like giveaway in DC these days has one pondering what the next inflection point will be in the national debate over how to fix the economy.

The latest with their hands out for handouts:
–Detroit’s Big Three automaker CEOs parked their private jets, apparently to carpool in a Kia to DC and offer up their tin cups to Congress for $34 billion, and perhaps just a crust of bread, sir. Of course, they will receive just enough to tide them over another quarter or so, provided they commit to developing fleets of bumper cars powered by hamsters on Red Bull.

–John Thain, CEO of Merrill Lynch, who insists on getting his $10 million bonus because, gee, he worked really, really hard to steer the iconic Wall Street company to only a $11.67 billion loss and into the arms of bailout beneficiary Bank of America (BOA) in 2008. Rumor has it that had Merrill Lynch actually made a profit last year, Thain would have been elevated to living-god status and fed the hearts of a hundred stockbrokers.

–The powerful Service Employees International Union has decided that, because of the $700 billion bailout of the US financial system, it wants to organize bank workers, according to CNN. The news outlet quotes a union official as saying that companies that receive taxpayer dollars have a “special responsibility to ensure that their workers have a voice on the job…[and] should have a seat at the table.” Or was that a seat at the trough?

– About 200 workers from the United Electrical, Radio and Machine Workers of America that were laid off at a Chicago window factory undertook a “peaceful occupation” of the factory, essentially demanding a “bailout” of their missing jobs after BOA—recipient of $25 billion in federal bailout money—cut off credit to the window factory. (Personally, I’m waiting for Powerball to bail out my retirement.)

Now the mantra among many political pundits and among the mainstream news media—themselves staring into an economic abyss, as evinced by the impending bankruptcy of the Tribune Corp.—seems to be that old-school capitalism is going the way of the dodo and government intervention into markets to rescue industry sectors, job creation, and “redistribution of wealth” will be in vogue.

Please don’t be alarmed. There is ample precedent for this sort of thing: bailouts of the airline industry in 2001, the savings and loan industry in 1989, the energy-loan-related bank failures in 1984, Chrysler in 1980 (talk about déjà vu), New York City in 1975, Lockheed in 1971, and Penn Central Railroad in 1970, among others.

Then there are subsidies, direct and indirect, of every stripe. The US farm program, for example, shells out about $10-30 billion per year in cash payments mainly to producers of wheat, corn, soybeans, rice, and cotton. Subsidized crop insurance, marketing support, and other indirect support adds another $5 billion annually. A good chunk of that cash goes to landowners who don’t farm but use the land for suburban housing development, among other “agricultural” endeavors. About three-fourths of the total goes to the biggest 10% of producers that are growing even bigger by using that fat cash cushion to take over smaller farms. So basically taxpayers are subsidizing the takeover of the small American farm by giant agribusinesses such as Archer Daniels Midland to the point where Willie Nelson must annually step out of his pot haze to inflict Farm Aid on us.

What will be the next industry supplicant for Uncle Sam’s alms? There are many folks in the oil and natural gas industry who are getting pretty nervous over their own future. Although some of us believed that near-$150/bbl oil was unsustainable, the speed and depth of the plunge of more than 70% in oil prices and more than 50% in natural gas prices in 6 months has stunned industry observers. Budgets are getting whacked, production is getting shut in, and the rumor mill is churning out speculation over the threats of layoffs and bankruptcies. There is a lot of nervous anticipation over the inevitable OPEC production cuts this month, as well as over winter forecasts.

What if OPEC and Mother Nature aren’t able to rescue the industry from another all-out collapse? Can the oil and gas industry count on a government safety net too?

Remember the aftermath of the 1986 oil price collapse, when the US government came to the rescue of one of its most strategically critical industries? When Congress and the President authorized the expenditures of hundreds of billions of dollars to rescue floundering oil companies and thereby prevent the layoffs of hundreds of thousands of workers in oil and related industries; stave off megamergers to keep iconic companies such as ARCO, Amoco, Gulf, etc., from disappearing; and use subsidies to prop up oil production that otherwise would plunge by half in 20 years?

No? Don’t remember that historic bailout? Oh wait, that was in an alternate universe.

In our world, some pundits—along with a few congressweasels—are tossing around the notion of forcing the oil industry to use its 2008 profits to bail out the auto industry. The “logic”—for lack of a better term—here is that somehow Big Oil has kept Detroit in its thrall for years, helping to suppress the development of alternative fuel technologies and vehicles that would reduce gasoline consumption and in turn crimp oil markets. Thus Big Oil owes Big Auto big time, or so this line of thought goes.

This “solution” for Detroit comes as the oil industry itself may be looking at the scariest part of its rollercoaster. I guess Big Gov needs to act pretty fast, because those massive Big Oil profits aren’t going to look so massive in 2009.

Gosh, you’d think a buck-and-a-half for regular unleaded would win the industry a few friends—if not a place at the trough.


Obama: Bad news for the eco-lobby?
November 30th, 2008

Will Barack Obama be the worst thing ever to happen to the environmental lobby?
Students of the political dynamic between environmental pressure groups and Washington, DC, know that their fortunes have fared best with conservative, Republican regimes in DC.

The best thing ever to happen to the environmental lobby was President Ronald Reagan’s appointment of James G. Watt as Secretary of the Interior. Watt, a blunt, caustic man given to biblical exhortations in defense of his efforts to rein in what he saw as excessive environmental regulation blocking resource development, immediately drew fire from environmental pressure groups. A major campaign by the environmental lobby to “Dump Watt” netted millions of signatures on petitions to Reagan to dismiss the firebrand Interior secretary—not to mention tens of millions of dollars in donations.

During the administrations of Reagan and George H.W. Bush, environmental pressure groups enjoyed record growth in terms of revenues and memberships, peaking in 1991.
Then Bill Clinton was elected president, and within a few years, the environmental lobby was in disarray, with revenues and memberships declining, staff being cut, programs pared down, etc.

President George W. Bush was a gift to these groups. By appointing a Watt protégé, Gale Norton, as Interior secretary, and his own (and Vice-President Dick Cheney’s) association with the oil industry, Bush II gave the ecolobbyists their best fundraising tool in years.
For example, from 2000 through 2006, the Sierra Club’s membership rocketed to more than 800,000 from 650,000. The organization netted $94 million in 2004 alone amid efforts to defeat Bush in his reelection bid.

But Obama could change all that. The centerpiece of his environmental policies is inextricably tied up with energy and the economy. Essentially he wants to retool the American economy by creating millions of “green jobs” in alternative energy and energy efficiency programs intended to phase out fossil fuels and thereby reduce carbon emissions and dependence on foreign oil. Or so the mantra goes.

What will the green groups do now that they have no one in DC to demonize, no Watt-like lightning rods to set up to attract donations? Without a strawman to spread panic among the enlightened elite of Malibu and the Hamptons trust-fund babies, where will the money come from?

Oh, well, there’s always…luxury travel. The World Wildlife Fund now offers said enlightened elite a luxury world excursion by private jet. The group’s brochure promises a “remarkable 25-day journey by luxury private jet…to some of the most astonishing places on the planet to see top wildlife…” The price tag? Just a hair under $65,000 per person.

The best thing about all this swanky travel to help preserve the world’s wild places? You won’t have to mingle so much with the hoi polloi, if WWF has its way. These exotic travel locales include places such as Fiji and the Galapagos Islands, where WWF has called for limits on local tourism, claiming such efforts by impoverished locals trying to make a buck causes greater environmental damage than larger tourist operations—such as the WWF’s, according to Steven Milloy, publisher of JunkScience.com and an adjunct scholar at the Competitive Enterprise Institute.

A $65K (excuse me, $64,950—note the marketing psychology of dropping the price below the $65K threshold) luxury wildlife-gawking trip is an intriguing proposition coming from an organization that regularly berates American consumers for their profligate ways on carbon emissions. The WWF is helpful enough to provide a carbon footprint calculator on its website so you can figure out just how big that individual carbon footprint is.
Milloy used that calculator to estimate the WWF luxury jet trip’s CO2 emissions: 1,231 tons in 25 days just from the fuel consumption alone.
He writes, “The WWF laments on its web site that the average American produces 19.6 tons of CO2 annually, which is nearly five times the world average of 3.9 tons per person. But during the WWF’s posh excursion, travelers will produce 14 tons of CO2 per person. That’s 71% of the average [annual] American carbon footprint and 360% of the average [annual] global footprint in a mere three-and-one-half weeks.”

So why not just buy carbon offsets to compensate for all that carbon profligacy by supporters of wildlife? Milloy notes that the WWF’s luxury trip brochure didn’t mention that option. He estimates that offsetting the jet trip’s carbon emissions alone would cost about $44,000. However, the WWF’s less-costly wilderness excursions (about $3,000 to about $10,000) do offer the option of purchasing carbon offsets.

Milloy also cites a recent report from the congressional General Accountability Office that concluded the carbon offset market lacks credibility, and the lack of standardization left consumers exposed to waste, fraud and abuse.

I’ll defer to Milloy for the last word:
“I’ve been thinking that WWF’s bandit-like panda bear was an appropriate logo, given the group’s promotion of ‘rip-offsets.’ But now, I think that a new logo may be in order—perhaps a hippo-crite?”


The Waxman cometh
November 24th, 2008

An early holiday note to the US energy industry:
Be afraid.  Be very afraid.  The Waxman cometh.

Perhaps that should really be a belated Halloween note, for Rep. Henry A. Waxman’s seizure of the powerful House Energy and Commerce Committee chairmanship from Rep. John D. Dingell should strike terror into the hearts of the petroleum and power industries. Not to mention the auto industry or anyone still clinging to the quaint notion that energy costs won’t eventually spike under new regimes in Congress and the White House.

Dingell (D-Mich.) hasn’t exactly been the energy industry’s best friend, but over the years his stalwart defense of the auto industry has occasionally put him in the good graces of the oil industry, given the two industries’ interconnected fates.

That stance often brought Dingell into direct conflict with Waxman (D-Calif.), ranked No. 2 on the most powerful Congressional committee and an often abrasive and fiercely liberal advocate of onerous legislation promoting radical changes in transportation and fuel use. The two have often clashed on energy and environmental issues.

Most recently, Dingell and Waxman have had dueling bills on climate change that would have had dramatically different impacts on industry. Waxman has been trying to insert language into House energy bills imposing caps on greenhouse gas emissions for nearly two decades. Dingell typically has resisted his colleague’s inclinations to inflict greater pain on the auto and energy industries than would be healthy for Detroit.

Waxman’s favorite tool of garnering support from his main constituency—the wealthy elite of West Hollywood, Beverly Hills, and Malibu—has been to round up the latest group of those in business and industry that he deems scalawags for heavily televised hearings and submit them to Torquemadesque grilling with questions along the lines of “Have you stopped beating your wife, sir?”

Here’s a prediction: Once this excruciating economic downturn is behind us and resurgent demand and crimped supply cause energy prices to spike again, the most widely watched reality show on television will be Energy and Commerce Committee Chairman Waxman’s weekly roasting of oil and energy utility executives on C-SPAN.

Will a pragmatic President Obama or centrist Democrats in Congress hold the favorite pitbull of Hollywood’s political elite at bay?  Don’t count on it. The Obama transition team announced last week that Waxman’s chief of staff, Philip Schiliro, will be White House director of Congressional relations. Gee, I wonder who’ll top his speed dial list.

The same day that Dingell was ousted, the mayors of three California cities—San Francisco, Oakland, and San Jose—announced plans for a $1 billion electric car-charging network. Funny coincidence: All three are in House Speaker Nancy Pelosi’s district.

And now President-elect Obama says his earlier, $175 billion plan to stimulate the economy will cost more and span two years instead of the original one. The core of the plan is to create 2.5 million jobs, many of them in the field of alternative energy. Obama earlier spoke of creating 5 million such “green” jobs, but not necessarily as part of an economic stimulus package. Now those green jobs will factor into economic stimulus as well. Obama also has proposed a “windfall” profits tax on oil companies, along with auctioning off carbon credits under an emissions cap-and-trade program to fund his alternative energy ambitions. And Waxman is likely to be Obama’s point man in Congress to fashion such legislation.

Picture a televised Chairman Waxman breathing fire and raining brimstone on the heads of oil companies, utilities, and automakers stretched on the rack, inveighing against the greedy, bloated captains of industry not just for their intransigence in blocking energy and environmental progress but also the creation of jobs.

See where this is going? Now it won’t just be a case of the left demonizing fossil energy producers in name of hindering energy security and sustainability. The fossil energy industry will also be blamed for crippling economic recovery. Congratulations, you have a trifecta.

The locomotive is roaring down the tracks.  Don’t say you weren’t warned.


 

An early holiday note to the US energy industry:

Be afraid.  Be very afraid.  The Waxman cometh.

 

Perhaps that should really be a belated Halloween note, for Rep. Henry A. Waxman’s seizure of the powerful House Energy and Commerce Committee chairmanship from Rep. John D. Dingell should strike terror into the hearts of the petroleum and power industries. Not to mention the auto industry or anyone still clinging to the quaint notion that energy costs won’t eventually spike under new regimes in Congress and the White House.

 

Dingell (D-Mich.) hasn’t exactly been the energy industry’s best friend, but over the years his stalwart defense of the auto industry has occasionally put him in the good graces of the oil industry, given the two industries’ interconnected fates.

 

That stance often brought Dingell into direct conflict with Waxman (D-Calif.), ranked No. 2 on the most powerful Congressional committee and an often abrasive and fiercely liberal advocate of onerous legislation promoting radical changes in transportation and fuel use. The two have often clashed on energy and environmental issues.

 

Most recently, Dingell and Waxman have had dueling bills on climate change that would have had dramatically different impacts on industry. Waxman has been trying to insert language into House energy bills imposing caps on greenhouse gas emissions for nearly two decades. Dingell typically has resisted his colleague’s inclinations to inflict greater pain on the auto and energy industries than would be healthy for Detroit.

 

Waxman’s favorite tool of garnering support from his main constituency—the wealthy elite of West Hollywood, Beverly Hills, and Malibu—has been to round up the latest group of those in business and industry that he deems scalawags for heavily televised hearings and submit them to Torquemadesque grilling with questions along the lines of “Have you stopped beating your wife, sir?”

 

Here’s a prediction: Once this excruciating economic downturn is behind us and resurgent demand and crimped supply cause energy prices to spike again, the most widely watched reality show on television will be Energy and Commerce Committee Chairman Waxman’s weekly roasting of oil and energy utility executives on C-
SPAN.

 

Will a pragmatic President Obama or centrist Democrats in Congress hold the favorite pitbull of Hollywood’s political elite at bay?  Don’t count on it. The Obama transition team announced last week that Waxman’s chief of staff, Philip Schiliro, will be White House director of Congressional relations. Gee, I wonder who’ll top his speed dial list.

 

The same day that Dingell was ousted, the mayors of three California cities—San Francisco, Oakland, and San Jose—announced plans for a $1 billion electric car-charging network. Funny coincidence: All three are in House Speaker Nancy Pelosi’s district.

 

And now President-elect Obama says his earlier, $175 billion plan to stimulate the economy will cost more and span two years instead of the original one. The core of the plan is to create 2.5 million jobs, many of them in the field of alternative energy. Obama earlier spoke of creating 5 million such “green” jobs, but not necessarily as part of an economic stimulus package. Now those green jobs will factor into economic stimulus as well. Obama also has proposed a “windfall” profits tax on oil companies, along with auctioning off carbon credits under an emissions cap-and-trade program to fund his alternative energy ambitions. And Waxman is likely to be Obama’s point man in Congress to fashion such legislation.

 

Picture a televised Chairman Waxman breathing fire and raining brimstone on the heads of oil companies, utilities, and automakers stretched on the rack, inveighing against the greedy, bloated captains of industry not just for their intransigence in blocking energy and environmental progress but also the creation of jobs.

 

See where this is going? Now it won’t just be a case of the left demonizing fossil energy producers in name of hindering energy security and sustainability. The fossil energy industry will also be blamed for crippling economic recovery. Congratulations, you have a trifecta.

 

The locomotive is roaring down the tracks.  Don’t say you weren’t warned.< –>


How Obama would ‘help’ oil companies
November 17th, 2008

Just how much in the way of energy policy will President Barack Obama and Vice-President Joe Biden accomplish at the outset that will benefit the US oil and gas industry?
Or should that read: How little?

Perhaps surprisingly to some, I found a few items in the Obama-Biden energy policy position paper that, at first blush, are seemingly designed to benefit the oil and gas industry. Or are they? Don’t break out the champagne just yet.

In the Obama-Biden position paper, the then-candidates noted that while “the US cannot drill its way to energy security…US oil and gas production plays an important role in our domestic economy and remains critical to prevent global energy prices from climbing even higher.”

They then reiterate their opposition to opening up “currently protected areas” while citing several “key opportunities” to support increased US production of oil and gas. Among these are the Bakken shale in Montana and North Dakota, Barnett shale in Texas and Fayetteville shale in Arkansas, and National Petroleum Reserve-Alaska. An Obama policy objective would “set up a process for early identification of any infrastructure obstacles/shortages or possible federal permitting process delays to drilling” in these regions.

Whew! What a relief. Now we can dispense with all that fierce opposition to drilling in Texas. Especially the Barnett shale—you know, where opposition to drilling is so intense that the industry is readily getting permits to drill practically on the freakin’ tarmac at DFW. Puh-leeze.

Another one of those “key opportunities” is the previously reported “use it or lose it” approach to existing leases.
This bullet point subtly revives the hoary old chestnut that the Democrats used to combat the Republicans’ “Drill, baby, drill” mantra to end offshore drilling bans during the election campaign. Speaker of the House Nancy Pelosi invented the ridiculous canard that “Big Oil” was sitting on acreage that could somehow magically double oil production from US federal leases to 4.8 million barrels per day but for the fact that these evil plutocrats were suppressing domestic production to keep oil prices high.

According to the position paper, the Obama administration “will require oil companies to diligently develop these leases or turn them over so that another company can develop them.”

Quick show of hands, please, from all of you Big Oil types sitting on all of these hydrocarbon riches while oil was above $100 per barrel.  Oh, wait. Independent producers—which have on average about 20 employees—drill 90% of the nation’s wells and produce 68% of domestic oil and 82% of US natural gas. So I guess that, since it is Big Oil that’s sitting on all of this unproduced oil and gas, it must underlie a tiny fraction of the federal acreage in question. Just where is this Prudhoe Bay-sized accumulation? And where can I buy the stock of the megagiant company that is suppressing its development until oil bounces back to $200 per barrel?

No, instead Big Oil sits around shelling out billions of dollars each year to acquire and maintain leases just to hoard them while they blithely liquidate themselves by not replacing production—or so it goes in the Obama-Pelosi fairy tale. I’m still trying to figure out where the “key opportunity” is here.

And, finally, to encourage all of this drilling that could and should be occurring, Obama said he “will require oil companies to take a reasonable share of their recording-breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for a married couple. The relief would be delivered as quickly as possible to help families cope with the rising price of gasoline, food, and other necessities. The rebates would be fully paid for with 5 years of a windfall profits tax on record oil company profits.”

The jawboning window for a windfall profits tax is pretty short if oil prices don’t rebound sharply between now and 4th quarter earnings reports. That “windfall” won’t look so convincing then.

During the campaign, Obama also claimed that his opponent, John McCain, “will give more tax breaks to Big Oil,” cutting their taxes by nearly $4 billion.

As it turns out, that number relates to McCain’s proposal to cut the corporate tax rate—second highest in the developed world—to 25% from 35%. The Obama campaign, apparently borrowing Speaker Pelosi’s crackerjack energy policy analyst, figured out what the tax savings  would be under McCain’s plan to the five biggest US oil companies, based on taxes paid in 2007 to the federal government on income from US operations.

What Obama neglects to mention is that McCain’s proposal would have applied to all US corporations, and McCain’s intent was to stem the flight of businesses and jobs overseas. There was no proposed tax break targeting oil companies.

So the question of the day for President-elect Obama is: With the imposition of the 5-year windfall profits tax, the foregone corporate tax reduction, the oil and gas price collapses, and tighter, costlier credit in today’s economy—where will the cash come from for oil and gas companies to fund these “key opportunities” to boost domestic oil and gas production?

You thinking “bailout” too?


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