Tag Archives: oil

Historical Image Versus Reality

When you hear any mention of John D. Rockefeller you now doubt conjure up an image in your mind of one of our earliest “oilmen” who built a vast oil empire.  Well, that is partially true but only in the most generic sense.  Our modern definition of an “oilman” is someone or a company that explores for and produces crude oil.  That is the way it has been for more than a century now.    That is the typical persona of the Texas oilman; someone going around and drilling holes in the ground looking for crude oil.  That however is not the way that Rockefeller got his start.

The first oil fields you may recall were discovered in Pennsylvania in 1859 in the western portions of the state.  It was an area like others around the country where oil literally would seep up to ground level and had been used for a very long time for medical uses and some small amount for lighting but there had not been any organized drilling and searching for wells that would produce the crude on a sustained and substantial basis.   We have to remember that prior to this time a reliable and affordable source of lighting was a real and vital need.  For centuries and indeed eons Man had been using a variety of sources and means for lighting at night.  In our modern world with light at the flip of a switch we forget how dark and drab things get in a home or cave for that matter when the sun goes down.  Various oils had been used since before Biblical times but they were expensive and short burning and sooty and smelly.  Also folks had used candles for centuries made from various materials.  Animal fats had been used for centuries. But the y were smelly and very labor intensive to make and inconsistent in quality.   During the early 19th century whale oil came into vogue in a major way for lighting.   It burned better and with less soot and odor.  But it was expensive.  I mean remember Moby Dick and how hard it was to get those whales for the oil which had to be extracted on board ship.  Then it had to be transported from the port cities which further increased its cost.  You remember the stories about A. Lincoln reading by the firelight.  That was true for most people of that era.  The old expression about being “worth the candle” reflected a true economic reality of the cost of lighting.

In 1859 Rockefeller was a successful merchant in Cleveland.  That was a major transshipment port for goods from the Midwest going to the Eastern seaboard.  When the oil wells were first discovered Rockefeller went there to explore the business opportunities.  After looking things over he concluded the best business investment was to be in the business of refining the crude oil.  Rockefeller was in the refinery business, he was not an oilman the way we think of them.  The crude was shipped originally in barrels then by train to Cleveland where it was refined.  What Rockefeller made and what made his fortune was kerosene, not crude oil.  Many others quickly got into the same business of refining but he was determined to produce a good and consistent quality of kerosene because the quality in those days did vary a lot with some producing too much smoke and soot.  Thus the name for his new company–Standard Oil.  He wanted it to be a standard quality and delivered in reliable quantities and at affordable prices which required heavy volumes.

He built his empire over the next few decades by expanding into the early pipelines to transport the crude to the refineries and getting favorable deals with the railroads for shipping his kerosene.  His company is the one that first starting building those large oil tank cars you still see today on trains.  That way they eliminated most of the barrels for shipping the crude and the barrels were used only to ship the kerosene.  He was criticized for his sweetheart deals with the railroads by his competitors and even the crude oil suppliers.  His actions were not illegal in that era before the Sherman Anti-Trust Act.   He made a quality product and the public loved it.  It was reliable and cheap compared to other sources of lighting.  He of course ended up with competition in spite of all his efforts to eliminate it.  Just as Microsoft was the King Kong of the tech world for so long, there is always someone else who comes along with another idea and does it as well as you.  The next major oil find in the world was in Russia near Baku.  Rockefeller was already shipping millions of gallons a year to Europe of his kerosene because they liked as much as we did.  They started eating into his market.  Then of course along came a fellow named Edison who in the 1880’s fired up the first electric generation plant in New York city and also started producing the light bulb.  Both ideas and technologies grew and spread but for many for decades the old kerosene lamp was still the most affordable or practical source of light.  Even the use of natural gas began to be used for lighting in the cities in the later decades of the 19th century.  Things never stand still in the business world.  But Rockefeller expanded his empire to searching for crude oil  and then into railroads and other profitable ventures.   But his fortune was built upon the foundation of something as simple as providing light at night.   His product was indeed much cheaper, produced better light and was more dependable than the other sources of the day.  The average American benefited greatly from his innovations and business acumen even as some of them cursed him for his aggressive business activity.  Interesting to observe that he was a Baptist, a teetotaler and a very generous person with charities.  There were no scandals in his personal life and he lived rather modestly when compared to his enormous wealth.

On a personal note, I recall as a child in the 40’s we had a close family friend who lived in the country on a lake in a cabin with no running water or electricity.  At night we used kerosene lanterns for light and an outhouse.  He used rain barrels for his water needs.

“The best philanthropy is a search for cause, an attempt to cure evils at their source.”  J. D. Rockefeller.   www. olcranky.wordpress.com

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Environment And Energy Needs

The urgent need for a reliable and ample supply of energy resources continues to be a major issue on the current political agenda nationwide. Indeed it should be. The standards of living of the various nations around the world can be directly related to the availability of energy and its cost. The more energy available at an affordable cost the higher the standard of living. That has been true for generations. The need for energy and its use are complicated by the environmentatl arguements and the geopolitical concerns about importing foreign oil.

The current administration recently announced the opening up of additional drilling areas off the East coast, the Gulf of Mexico and limited portions of Alaska. But that exercise in political gamemanship does not address the issue realistically or in a practical manner. It is well and good but rings hollow in face of our needs and reality. While announcing the new areas for exploration we continue to promote a policy of increased use of ethanol which any thinking person by now realizes is not cost efficient, favors only a special interest group and is not as good for the environment because it takes more energy to produce and a gallon of ethanol is about 15% less efficient than a gallon of gasoline.

It is wonderful to talk about wind and solar as the future of power and energy. There is nothing wrong with developing as much as the market will bear and certainly a good idea to continue research and development of those potential resources. But the fact is they are only 1% of our energy production and will not be able to offer a significant contribution to our energy needs for at least a generation if not longer. They may or may not be the answer to our power needs for our grandchildren but they won’t do anything for the present generation except cost exhorbitant sums in the form of subsidies to favored industries. If those were practical and available means of energy plenty of private money would pour into those areas and subsidies would not be necessary.

We have a source available now in natural gas. It can be used as the fuel for electricity power generating plants and as a direct fuel source for vehicles. There doesn’t have to be years of research of tinkering to figure our how to make it work. We can do that and in very short order. If it starting supplying only 20% of the electricity and only 15% of the vehicles used it for fuel we would be savings billions per year and it would create untold thousands of jobs and definitely increase our security since we would not have to import one mcf of gas. The impact on our balance of trade deficit would be enormous and strengthen the US dollar along the way.

Natural gas is much cleaner than oil as it burns and the environmentalist should love it. It would be a much more practical and effective means of reducing emissions if that is an important goal and could be achieved in a matter of years, not decades. For some reason there are those who have raised questions regarding environmental concerns about leaks of gas as dangerous and alleged pollution of underground water supplies. The technology for drilling for gas has been with us for a century and is an area where dramatic improvement has been made in the last 20 years regarding drilling techniques and recovery of usable gas. That is why we have such an abundance, we can now utilize gas that was impossible to recover only 20 years ago.

Yes, gas can cause explosions and will. But let’s put that into some perspective. I can recall only one episode in my lifetime where workers or others died of gas poisoning in the field due to a leak. That was in West Texas about 20 years ago. Many more people die of monoxide gas poisoning every year than will ever die of gas exposure. How many people die every year from electrocution? Power lines come down due to storms and just for an accident and people get killed. How many homes or buildings are burned every year because of an electrical wiring fault? Yes, bad things will happen no matter what we do. I sure wouldn’t want to be near one of those windmills when a blade came lose. Man can’t devise a completely fail safe method to produce power. That is a fact. Natural gas is no more dangerous than any other means of supplying our energy needs and those needs will only grow. Or at least I hope they continue to grow lest we begin a retreat in our standard of living. Remember that the US uses more energy per capita than any nation of earth, but also recall that our cost of energy per capita is the lowest in the world, we are very efficient already with our energy use and hope we will get even better.

Let’s hope the powers that be will embrace out expanded use of natural gas immediately and we can use it for a generation or two for our needs. I am optimistic that some day we really will develop a new method to produce power. We just need to get there with a decent standard of living.

How much longer can we count on China to finance our governmental policies? As long as it is profitable to them is the answer. When they start to fear inflation then watch them pull back on buying our Treasuries. They don’t want to be paid later with 70 cents of the dollar. http://www.olcranky.wordpress.com

 
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Can Do It, Will Do It–Weapons and Economic Conflict

In the military there is the old principle about assuming for planning purposes that if there is something your enemy can do you best plan on them doing it.   If you rummaged around the bowels of the Pentagon you would find someplace where there were dozens are probably hundreds of books that were the War Plans worked up by Operations officers on staff there.  For years the military has always tried to anticipate where the next conflict might be and with whom.   They draw up detailed plans about how to respond to lots of different scenarios.  You assume that country X attacks country Y and that we have to defend Y.   They draw up the plans about which units will be deployed to the battle, how they will get there, what the logistical needs will be, the type of gear and equipment that will be required by the troops, which weapons will be the most useful and lots and lots of other details.  Often they test drive these plans with war games where different sides take to the “field” on the game board and the referree decides who handled the battle best.  When going through this exercise the planners do use the assumption that if the enemy can do something then you better plan for them doing it.  If there is a bridge that they can take because they have more troops in the area, you better assume when your forces arrive later they will have to fight for the bridge and that it will be destroyed if you defeat them on your side of the river.    So you will need an engineer battlion near by for a Baily Bridge or pontoon bridge to replace it.

That same principle and planning should apply today with regard to our dealings with Iran and N. Korea.  They clearly have nuclear capability and they have made direct threats to use them.  The really dangerous part is that they have missiles for the delivery system.  If they attack, either one, we had best plan on losses to the Navy.  The gatling gun defenses on those ships have never been tried in true combat situations and Murphey’s Law will come into play sure as the world.  You are reminded of the effectiveness of those Exocet missiles against the British Navy during the Falkland’s war.   If our political leaders will stay out of the way I trust the military to devise the best defense and response to any attack by these two.  The smart thing is to take out those weapons systems before they are operational.  Then they will not do what they cannot do.  

The same principle applies to the cyber attacks that have been launched against us.  So far those incursions into our systems have been weak and not concentrated or very sophisticated.   But you know darn well that somewhere there are hackers who are very sophisticated and and have access to the latest equipment and software and for money would be only to glad to destroy our economic infrastructure.   Our power grids  and water supplies could be subject to very severe harm that would cost us untold billions to repair not to mention the harm it would have on the population doing without power or water for a few weeks.   An attack on the Stock Exchange or the New York Federal Reserve is also a very scary thought.  What if for a period of several weeks no one could prove they owned stocks or the assets in their IRA’s or 401K’s?  If you couldn’t access your money then our economy would be ground to a halt.   If such an attack is made you better assume that you will not be able to use your credit card.  None of them will work or those that do will not be trusted by the merchants because the upstream system is so clogged.  Also imagine a world without PC’s or cell phones or Iphones for a couple of weeks.  I don’t know what preparations we are making to defend against these attacks but I sure hope someone much smarter than me is working on it very hard.   Whether I like it or not our world is dependent on the use of those computers for all our vital economic activities and indeed for the basics of life like water and power.   Those Islamist terrorists would love nothing better than to bring the West to its knees with such an attack.   Osama would do it in a heart beat.  Plan for it.

If Russia can cause us trouble with oil prices they will.  I don’t think they will militarily attack in the foreseeable future but they sure aren’t our pals.  I heard yesterday that the Russian were all on board with the reduction of carbon emissions and climate control efforts.  I literally almost fell out of my car when I heard that one.  The Russians don’t have an alturistic bone in their body.  The only difference between them and the French is that they don’t speak French.  They look out for themselves and no one else.  That has been their history for centuries now.   Do you believe the Russians give a tinker’s toot about the envoirnment?  Have you seen what they have done to the Aral Sea, the Caspian, and their other major waterways.  Oil is their best money source at the present time.  They want the world to need lots of oil and they want to sell it at the highest price they can get.   I don’t care what annoucement they make they will in fact not lift a finger to reduce the consumption of oil.  It is not in their best interests and only the insanely naive would believe they would sacrifice anything for polar bears or the poor Bangledeshis from rising sea waters.   I think some of that attitude goes back to their Communist heritage.  That ideology doesn’t acknowledge any Higher Power or higher purpose for man other than what it before them right now.  Food on the table and a roof over their heads and they are good to go.   What do I know.  But I will bet anyone that even though they might sign this or that envoirnmental accord that in fact they will not do anything to reduce emissions.  They love that money pouring in.  They will likewise do nothing to keep the price of oil low.  Higher prices equals  higher profits for them.  They don’t want to kill the golden goose but they sure will push it to its limits.

We are the Can Do people and we need to apply that gumption to the several tasks at hand we face these days.  We face some hard choices but so did our ancestors.  Nice words don’t make enemies into friends; nor rivals into partners in an particular enterprise.   www.olcranky.wordpress.com

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Common Ground or Conflict?

A pundit was pontificating last night that the new guy in the White House is doing the right thing by reaching out to the Muslim world to try and reach common ground with them.  Apparently, he is set to praise the Muslim contributions to science and medicine and their cultural heritage.  The announced belief is that if we make an effort we will clear up “misapprehensions” about the US and will find this common ground to build a lasting peace with Muslims.   Supposedly there are only a handful of Muslims who are terrorists and threaten our nation and if we dialogue and project an aura of appreciation with the majority of them all will be well.  The guy in the White House is convinced that this is an achievable goal. 

I am all for common ground.  Having spent a career as a lawyer I am accustomed to the dynamics of disputes and their resolution.  Settling cases is usually a much better outcome than the vageries of litigation.  My job was often to find that common ground to settle contentious issues.  But sometimes there was no common ground.  We went to trial for a winner take all effort.   Naturally, the trial did not always produce a clear cut winner who took it all.  Trials  are normally messier than that and the outcomes only partially reward the righteous and the penalty to the wrong doer is not the justice the prevaling party had hoped would occur.   Still there was no common ground and the courtroom battle was the end result.  Sometimes you have to recognize that common ground does not exist between the contending parties no matter how hard they try and even when they are acting in good faith to seek that middle area of agreement that both parties can accept.

I wonder if the US really has any common ground that can be reached with the Muslim world.   Many of them probably do like us and many of them are not out for violence or jihad; however, there are significant numbers that do wish us ill, and all those from the West.   We have no way of separating the bad apples from the rest.  The bad guys have melded themselves into various societies from the Middle East to the US and all points in between.  An example is the home grown Muslim terrorists in Britain and in Spain and even here on our shores.  The Netherlands have had assassinations and so have the Germans at the hands of Muslim terrorists.  Does anyone trust Pakistan or the Afghan peoples?  I don’t know about you but I have that eerie feeling of walking down a dangerous alley and not knowing when someone would attack.  You might walk right through without any problem, but on the other hand, knowing they are out there makes your hair stand on end.  Our cultures are very different.  We may be prudish or more like Paris Hilton but in the West we do cherish our freedoms and rights.   You have to only look at the way the Muslim world treats its women to see the stark differences in outlook.  I know a few places here and there allow a bit of freedom for ladies and some even allow them to attend school.  But do you truly believe the majority of them will ever view women as equals in society?  It runs counter to the very premise of being Muslim for them to acknowledge that.  Hey, they get 4 virgins in heaven if they are martyrs and they are in fact allowed multiple wives here on the earth.    Theocracy is the foundation of their cultural and political beliefs and that will never change unless they abandon their religious beliefs.  That is certainly not going to happen any time soon.  I realize there are exceptions to this view within the Muslim world  but the exceptions are tiny compared to the majority and thus of no consequence when discussing a hoped for mutual understanding.

I know we praise cultural diversity in the US.  But that is meaningless.  Each culture has its own mores and tenets.  You could say the UN has a diverse culture but I would contend that it has no culture at all.  Look to the Balkans where they have been trying literally for centuries to find that common ground.  Only a decade ago it was a killing field there because the cultures never  meshed into a new singular culture.   I think we are better off acknowledging that we have no common ground with the Muslim world and seek to reach agreements that are purely pragmatic and self-serving for both parties.  Nations, and in this case cultures,  have no friends but only interests.  That idea has been proffered by lots of folks much smarter than me over the years and they are right.  Just as we had no common ground with the Soviets we have none with the Muslims.  We did manage to not destroy each other for over 50 years.  There were those Soviet apologists and admirers who made the same argument for decades that we should seek common ground with them.  We never could.  We could reach agreements to not destroy each other and that was about it.  We can use our trading power  and carefully utilized military power to require the Muslim states to reign in their terrorist or suffer severe reprisals.  It is a false hope and pipe dream to believe we will ever “understand” each other or sing Kumbaya around the campfire with these people.  

We are better off dealing with reality than deceptive attempts at some modern new age brotherhood of man.  I don’t wish the Muslim world harm or ill but I damn sure do want to be left in peace.  They can do their thing and let us do ours.   I like democracy and they don’t.  I completely reject the notion of a religious figure directing the affairs of our world but they find it totally accpetable.  To heck with common ground let’s just have some common sense in our relationships with them.  Our respective world views are not compatible so let’s keep our worlds separate but at peace. 

Bernacke stated today that we can’t sustain the levels of deficit spending.  Pardon me but like the teen would say–“Duh”.  What is weird is that the market even reacted to the announcement.  Such an uproar over the obvious.

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Pricking the Peak Oil Theory

Last week I heard another media report about how we have reached our “peak oil” production for the world.  That is the theory that maintains that we have found all the oil that is going to be found and that we have reached our peak of production of oil and that from now on production of oil and gas will go into a steady and inevitable decline.    Per that theory we will not achieve greater production than we have now and the supply of oil and gas will decline on a steady or precipitous rate.   I would agree as a matter of scientific fact that there is a finite amount of oil and gas and that there is only so much that can be extracted from old Mother Earth.  Just as there are only  a limited number of diamonds or gold that exist and can be extracted, so the supply of oil and gas will be limited.  But this latest prediction does make me remember past predictions of a peak oil terminus.

Predictions of running out of extractable oil are not new.   Some of those predictions go back to the ’20’s when some believed we had found all the oil that there was in Texas, Oklahoma and Pennsylvania and that we would soon run out.  Well, the Depression came along and soon oil and gas was very cheap and plentiful and guess what, the methods for extracting oil improved and so did the science for locating the oil.   Then we had the panic of the ’70’s when there were many predictions of running out of oil.  Many predicted that there were very few oil fields left to be discovered and that even with them there would be an inevitable decline in production.   They did not see the North Sea Production or Brazil, or Prudoe.   These predictions came along at a time when concern over oil supplies was even more pronounced than it is today.  It wasn’t only one such prediction, it was a pretty constant drum beat of repetition.  We faced two Arab embargoes on the supply of oil in less than 10 years and consumers were dealing with long, long lines merely to obtain a tank of gas.    Don’t take my word for it, look it up in the news articles and magazine articles of that time.   This attitude of having no more production increase lasted into the early ’80’s.   There were dire predictions that oil would hit $100 per barrel in the early ’80’s but that did not happen, in fact just the opposite occurred; we found more oil and the production went up substantially and the price came down.   Science prevailed and entreprenuership lead the way.   We learned how to find more oil and how to extract more of it from each well.   About 25 years ago we used around 7 million barrels of oil daily and now it is about 18 million or so.  In the early days they would produce mostly the oil that would flow naturally from the underground pressure and then abandon the well.  It wasn’t long of course before they learned to economically pump additionally oil from each well.    Then they added fracturing  techniques and horizontal drilling to reach even more production areas that had been unobtainable before.

I am not a petroleum engineer or a geologist but I have lived a while and learned to take sweeping predictions with a grain of salt.   Like the ones of the ’50’s that predicted by the ’90’s we would all be driving cars that could also fly.   I haven’t seen too many flying cars in my neighborhood lately.    I have no idea how much oil is under the surface of old Mother Earth and I would agree that there is surely a finite amount of it.   I would suspect that there is still more to be discovered and extracted with the improvements that will come in petroleum engineering.   Things don’t remain static.   We don’t use the technology we used 40 years ago and we won’t be using the same technology 20 years from now.   I would believe that there is sufficient oil and gas to last us until we develop a new method of powering our electrical needs and transportation needs.  We will come up with new ways to do that without question.  Just as 100 years ago the means of power was purely coal so we will have new methods down the road.  It might even be working with coal in dramatically new methods, I don’t know, but I do know it will happen.    I doubt we have reached “peak oil” yet.   I think it is just as likely that we won’t so much reach a peak oil plateau that will make us change our habits as it is that brand new technology will make that proposition irrelevant.    Do your own research and do your own thinking.   I would advise that you not let others do it for you on such an important issue.   Especially when many of those advocating a peak oil scenario do so for an ideological reason and to promote a particlar agenda.

What happened to Joe Biden?  Remember him, he ran and was elected as Vice President.    His specialty was foreign affairs.  With Hilary as Sec. of State you can rest assured he won’t have a role there.   He won’t have a say in the health care and insurance debate with Tom Daishle heading up that department.   He doesn’t have a “slot” anymore and will end up being our funeral attender in chief like so many other Vice Presidents.

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Adages for Politicians to heed

Some of the old bromides have real use even in our sophisticated world.   After all they became popular and endured over the ages because there was some deep seated truth to the comment, otherwise they would have wilted on the vine of time.  Let’s look at a few of those sayings that have endured and apply them to our politics and politicians of this election cycle.

Measure twice, cut once–an old saying from the carpenters of the world.  It has great application for anyone, anytime.   The idea is straightforward–think and plan your actions.  The carpenter knows that you need to make sure your mearsurements are correct before you take to the saw.  If you miss the right measurement and the board is too short then you have a useless piece of wood.    Therefore make sure of your goal and end result before you embark on any enterprise.    Think it through, then once again.   That extra measure will sure prevent aggravation later on.   It is a good lesson for life and politics.

Neither a borrower or lender be–our good friend Ben Franklin made that popular but he took it from Proverbs.  Still sound advice that as endured for millennia.  It applies very aptly to our current economic situation and the proclivity of our government for a couple of decades now.  Both Democrat and Republican parties have allowed us to be borrowers on a gigantic scale.  We have run deficients for years.  Even under Clinton that everyone thinks had a balanced budget, the facts are we were not funding the Social Security and Medicare burdens to come.  We used the money from those collections to run the day to day operations of the Government.  Check it out.  That is a fact.  When the Government took money from the Social Security fund it simply gave the fund an IOU!  That is like you promising to pay yourself a million dollars.    Our foreign aid money is merely lending in disguise with no prospects of ever being repaid.   That doesn’t even begin to cover our obligations with the IMF and other world lending agencies.  Some argue that credit is the oil for the economic engine of the US and the world, but I take the position that it is the monkey wrench in the works.  Credit should always be kept to the absolute minimum.   We have become addicted to it.  Just look at the credit card debt of our people today.  That is not healthy for the individuals or our society.

Reinforce success–from our military friends.  It is good advice for all of us.  When we find that groove and are humming, we should go at it hard.   A current political topic that you can relate this to is the issue of drilling for more oil in the States, offshore and in Alaska.   The Republicans have hit a nerve with the man in the street on it and should hammer it every day in every appearance.   The ordinary Joe doesn’t give a hoot about Polar bears when gas is $4.00 and the people have the common sense to realize that those hundreds of billions sent each year to Arab nations could be spent right here at home and produce thousands of good paying jobs for Americans without tax payer money eing spent and that energy independence is a vital concern to the health of our nation.  Those monies spent with American companies will be spent by American companies and their employees and shareholders  in America.  Where does the money go that we hand over to the Arabs?  Not necessarily here.  You make up your own mind about it, but the point here is that it is a “success” and we’ll see if the Republicans reinforce it as the doctrine dictates.  Even T. Boone Pickens has stated repeatedly to drill, drill, drill.  Driling after all is the only way to get natural gas which by the way is a fossil fuel.  Thought we would give that little geology lesson to Ms. Pelosi.

A penny saved is a penny earned–a truism if ever there was one.  Politicians in particular should follow this advice from the ages.   They all seem to forget that there are two sides to ever balance sheet.   That when income diminshes or costs rise too much,  you can cut expenses.  You don’t HAVE to increase revenues (taxes) necessarily or borrow money.  (See above about borrowing).   How many Government agencies are in fact worthless?   Take OSHA for an example.  Do you really think we need thousands of Federal employees to insure safe work envoirnments?  Trust me there are plenty of John Edwards out there that love suing companies that cause harm due to unsafe or negligent work places or practices.  Those plaintiff’s lawyers are chomping at the bit.  Industry has plenty of incentive to protect its employees already and the employees  have remedies available.  Does OSHA truly add anything except a more swollen Federal payroll?   You could make your own list of useless Government spending and it would be right.  How many farmers need a County Agent anymore from the Department of Agriculture?  Other than some record keeping and research what does that department do that helps you with your daily life.

Don’t let the tail wag the dog–this is very applicable to the special interests groups where so often the small bloc exerts such great influence on our laws and policies.    Our tax code is bulging with little goodies for all stripes of interests groups as are our other laws.  They overwhelm.   This evil of a small group dominating policy and political outcomes cuts across party lines.  Unions, business groups and yes, those NGO’s are constantly seeking special tax breaks, grants or favors from the government.   The charities are as bad as any of them.  The farmers with their subsidies and the industries with their requests for trade barriers and unions with their demands to increase their membership all feed at the trough and the result is that some minority with political clout wags all the rest of us.   We can’t eliminate lobbying because it is fair for anyone to speak their mind and make their wishes known, but we can hold the politicians accountable for every favor  they hand out to those “tails” that we all end up paying for.   We, the people are the dog and those unions, etc. should get no more  special treatment than the average working bloke.

How about that Hadron  accelerator in Europe?  It is huge, 17 miles in circumference.  It is close to completion now and the experiments will be starting soon.  These are the ventures we should continue to pursue.  One breakthrough and our disagreements over energy policy could become passe in a generation.  Just as the stem cell debate is fading due to scientific advancement that is making it irrelevant, a breakthrough on the fusion front could transform  our energy supplies.  Fusion remember doesn’t have the waste problem of the fission process we have been using for decades.  Fusion could produce electricity in prodigess  amounts.  Let’s all wish them luck with the research.

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Trust the people with the oil facts, not the politicians

By popular demand I will augment the discussion about offshore drilling  and the the oil business generally so everyone can reach their own conclusion and not rely upon the spoon fed information of some of our more verbose politicians.  We need to examine a bit about exactly how the oil leasing  and production business operates in the real world as opposed to the implications offered on news shows and the steps of Congress during interviews with politicians who wouldn’t  know a toolpusher from a toothbrush.  A toolpusher by the way is usually the lead boss on a drilling rig operation.   There are many good “hornbooks” on the  oil business and I strongly recommend you read one.  You should be knowledgeable about this vital American industry and not rely on the opinions of others, including me.   Get some facts and make up your own mind.

Off shore drilling leases are obtained by the oil companies in competitive bidding with the US govt.  They pay for them.  The Gulf of Mexico is segmented into “blocks” and they are auctioned off to the highest bidder on a regular basis.  The oil companies are constantly updating their research on the areas and evaluating the data to determine the likelihood of produtive results.  It isn’t really that hard to find oil under the ground but it is damn difficult to find it in commercially produceable quantities that can be extracted at reasonable costs.   Many of the “dry holes” actually did have a “show” as they say in the industry but the prospects of getting enough to recover the costs of completing the well are too problematic to continue with development.   An oil well is drilled to a specified depth and then testing is done to determine if is  commercially viable.   This all cost money–lots of money.

At these auctions the oil companies bid against one another and it is quite a gamble.  They have all done their research but there is no sure thing in the business.  Even though science is used, I.e. geology, physics and engineering, the fact is that there is a lot of art still involved in finding the oil in quantities that you can extract at a cost to make a profit.   The companies bid regularly on these blocks for future development.  Most of themare not envisioned for immediate use until more research and evaluation is done.   As a side note you should be aware that these auctions are by the US govt. although there was serious litigation over who had jurisdiction of the Gulf waters a half century ago.  It was called the Tidelands case during the Eisenhower Administration.   It was between all the States that bordered the Gulf and the US.  Naturally the suit was over money.   The States wanted control and jurisdiction over the leases so they could get the tax and royalty revenue from them and likewise so did the US.  The Supreme Court ruled for the US and thus it controls the leases in the Gulf to this day.

An oil company has to pay several different ways and times to obtain and operate a lease.  Most production companies have what are called “landmen”.  It is their job to locate possible oil or gas production sites and then to negotiate with the landowner to acquire the mineral rights to the land.  This is usually done by a lease.   In almost all the States where there is any significant production at all it is not uncommon for the mineral rights to have been sold seperately from the suface rights.   I live in Texas and I haven’t looked at my deed in years but I wouldn’t be surprised to see that the mineral rights have been reserved to some earlier owner years ago.   You can have fee simple ownership of the surface rights to the land in one person and the mineral rights in another; it is quite common in many States.

The landman negotiates with the mineral righs owner which may or may not be the owner of the surface rights (the person occupying the land with a house, etc.) and if they reach an agreement then a lease to the mineral rights will be signed.  Normally the oil producer will have to pay a signing bonus.  It is a matter of negotiation and how “hot” both sides think the area is for future production.   Sometimes there is no bonus.   In a normal situation the lease will provide that drilling and development must commence by a certain date.  Again that is a matter of negotiation.   A typical deal would provide for a few years time but at the anniversary of the lease the oil producer will usually have to pay what is called a “delay rental”.  That is a payment due because the oil or gas producer has not started drilling yet and to keep the lease alive he has to pay additional sums to the mineral rights owner.  

The mineral rights owner also will get a royalty payment for each barrel of oil produced or MCF of gas produced.  (MCF, is a thousand cubic feet of gas).  A barrel is 44 gallons for those who snored through their high school classes.  Historically, the royalty has been 1/8 but it has been higher and lower depending again on how good or medicore the area is deemed to be for commercially  producible petroleum products.   An oil or gas well is developed in two stages.  First you drill to a specified depth–that is the modern way.    In the old days the leases usually didn’t designate a particular depth but many do today.   So the well is drilled to a specific depth with testing all along the way.  Then if the various tests look good and the odds appear favorable for substantial production you “complete” the well.  The completion costs are often about as much these days as the drilling costs. 
That is the stage where all the pipe is set and the fracturing or other treatment is utilized to enhance production.   Then if everything has worked out right and your guesstimates are good you get production.  Of course you have to install the infrastucture to deliver the oil or gas to the refinery or processing plant.   I haven’t even talked about the “red tape” part of the process but it is substantial in all the States and with the Feds.    You have to report everything essentially that occurs on the site and the well and get the appropriate permits to take each step along the way.    

Many wells can also cause real heartache to the oilman with a “flush” and fade.  That is a situation where the well after completion looks very good and might be producing a 100 barrels a day–great well.  But then after a few days or weeks it drops off to maybe 10 barrels a day or even less.  Then you are faced with the choice of more treatment, at a big cost, or abandoning the well as not commercially feasible.   Oilmen for decades have tried to figure out why that occurs sometimes.  Obviously, they have not solved the puzzle yet or they wouldn’t complete those wells.  It just happens, a hazard of the business.

I offer all this info only to rebut the implication that the oil and gas companies are taking advantage of the Government or the people.  They have paid for those leases and made gambles on whether production is even viable.  They continue to do so through the delay rentals.

Like our aircraft industry the  oil and gas industry is something we as Americans should take pride in and recognize as an essential ingredient to our national security.   

Driving home tonight remember an old song with your first love or chasing fireflies when you were six.

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Oil Facts, not fiction

I am getting really irritated by the comments of politicians about our energy situation and those who oppose trying to drill now for more oil.   Their arguments are disingenuous at best and outright spin lies at worst.   Just this weekend I heard more than one say that it would take 30 years to develop offshore fields.  They have also touted the more modern technologies and the envoirnmental concerns to the point of hysteria.   I did notice that an international group of physicists ( real scientist by the way)  have raised questions about the whole idea that global warming is caused by man made activity.   Perhaps we should pay them some heed.

I have written before that I am for all the methods for improving our energy needs, except ethanol.  I oppose that because it is a boondoggle and a political sop for special interests groups which I always oppose.   Let’s do it all, try it all and that includes drilling for more oil and saving our money and spending it at home.   Let free market competition loose to find our best solution.  It is true that we borrow from the Chinese now to buy mid east oil.   Any significant savings we can make there helps all Americans.   We will need the oil for the mid term.  We can’t get around that and we should have as much of it home grown as we can; it helps strenthen the dollar and our national security.   By way of example I would point out that I have a gas operated vehicle that is a few years old but paid for and I intend to drive it as long as I can, say 10 more years.  If Mr. Genius invented the perfect solar battery for cars tomorrow would I go out and buy a new car?  No.   There are millions of folks just like me and we shouldn’t be punished and forced to pay for something we don’t need yet.   Ten years from now I might well be in the market for something different if it is available.  But remember the market and Americans’ right to choose their means of transport and how they wish to spend their money or save it.  

Now with that said let’s  turn to drilling offshore and the arguments some are making against it.  It will not take 30 years.   This is not rocket engineering.  (There is no science of rockets).  We know how to drill oil wells; it fact we have done it better than anyone for decades.  One interesting point also to consider is  the seepage from the ocean floor for the envoirnmentalist out there.   Off Santa Barbara  there is a substantial natural seepage that flows into the offshores waters every day, every year.  I have heard it asserted that it amounts to another Valdez every year.  That would be eliminated by drilling and properly  pumping out the oil in the formations below the seas.   The seepage is substantial and real.   Check it  out for yourself.   It will  take a few years to get everything online but only a few and the price of oil will reflect that effort.   All markets are based on the future.  Prices for comodities are a result of the collective belief of what is going to be, not what has been.  Anytime you buy a stock you are projecting the future.   A real drilling program will have an effect on the price of oil and it certainly won’t make the price higher to have a greater supply.   The technology today for drilling is vastly different that what it was a generation ago.   Most people still picture in their minds those ugly drilling derricks dotting  the horizon but that is not the reality of today.   Drilliing today is cleaner and neater than every before.   We will not all die in 10 years from carbon.   Besides what if we have another methane eruption like the earth has had many times in its past or we are hit with a gamma ray burst from an exploding star or the magnetic field reverses on us again which it is more or less due to do?   The average Joe wants the gas at a lower price and it is definitely in his personal interest that the Dollar have greater worth against all foreign currencies.   It will work.   Green geeks don’t want to discuss the truth or the facts though, their are on a misguided mission and insist we all be baptised into their faith regardless of costs.

Lastly, I keep hearing the blather about how there are 68 million acres under lease already and the oil companies could simply drill on them.   They imply that they are sitting there just ready to be plucked and the public is being suckered.   Well, we will write more tomorrow about that in detail but for now please observe that yes there are lots  of acres under lease.   Oil complanies have to plan ahead for decades.  They have leased up lots of areas that just might, maybe have some oil production potential.   Those are the least productive of the “plays” available or they would be drilling them already.   Those extra leases are their inventory if you will.  They have leased up millions of acres of oil shale land in the Rockies even though the technology is not developed to tap that petroleum resource.  Maybe someday it will be and they can extract the petroleum and that would be good for us all.   But to assert the way the politicians do now that the companies are just sitting on their hands on top of all this oil product is assuming we are all idiots.  Oil companies have leases in Ohio, Pennslyvania and just about every state in the Union where seismology indicates there could be petroleum but those are not  viable options yet and may well never be.   I would  point out that those leases costs the companies money when they get them.   They have to pay a signing bounus and then delay rentals. We’ll explain those tomorrow because I imagine there are some very bright folks out there who simply  have never had any exposure to the oil and gas business and don’t understand how it works.   In case someone thinks I am in the oil business, think again.  I am not and never have been.  This is not about me but I what I believe is best for my country and the millions of decent folks who deserve oil at the most competitive price until we do have those solar panels that work.   That would be marvelous.   I am all for that when the day comes.

I have always wondered why we could not build better turbines to harness the energy of the moon as it is reflected in our tides.  Those billions of gallons of water move every day.  Motion and the electromagnet field is all you need to produce electricity.  Those turbines could create it.  Guess it is too expensive an engineering job.  But I like the idea.  There is lots of ocean and the tides will be here longer than we will.

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Energy Politics or energetically political

So many words have been spoken the last week or so by various politicians about our energy needs and problems that is boggles the mind.   We have some very fundamental differences about what is the best course of action to follow.  The problem is that the differences are influenced more by political considerations than they are by economics, geology and petroleum engineering.  I could be wrong, it wouldn’t be the first time, but it appears to me the “left” is more guilty of this than the center or right.  They have certain preconceived notions about how they want society to function and who should control that functioning and will not abide any ideas that might run counter to those notions even if the ideas might otherwise have merit.

I observed a discussion between Biden and Graham over the weekend about this issue.  Biden gave all the knee jerk reactions opposing any new drilling efforts in coastal waters and Alaska.  We all are for clean air and water but some of us not to the point of threatening our national security and economic vitality.  I actually think Biden has some pretty sound ideas regarding international relations on occasion but he is wrong on this.  Senator Graham was challenged by the interviewer about his comments a couple of years ago opposing off shore drilling but now endorsing it.  I did admire that he owned up to it and said the cost of oil and gas had gotten so high he changed his mind.   I don’t have a clue where the left keeps getting their information that it will take 10 years to begin production for the new areas.  It will take a while but not that long.  Especially if the governmental entities involved would give a priority to the permitting processes.  Those processes are what have killed the nuclear energy industry and the reason why we haven’t built any new refineries for decades.  Any company trying to do so has to endure a blizzard of red tape and opposition.

Also I kept hearing that the oil companies have millions of acres under lease already that they are not utilizing.  Well, that it true.  But once again it shows the lack of knowledge about how the oil and gas industry operates.  Oil production companies have for  decades leased up land they thought might have a “play” as they say in the industry–an oil field with commercially  viable production.   Often the early indicators turn out to be wrong and the technology has improved greatly and much of the leased land is not really economically viable.  So that is an example of a correct statistic but one that lies.  It sounds good in a debate and makes a good sound bite but doesn’t make for intelligent discussion.

I wish each side would give some and reach a middle ground that would be best for us all.  Let’s drill like hell and at the same time we can put effort into development of alternative fuels and conservation. The left keeps saying we are running out of oil and if they are right then drilling out this last little bit won’t do any damage of consequence in the long haul but it will ameliorate costs and dependence on  foreign oil. After all that is one of their other arguments–that there isn’t enough oil there to really matter in the long run.  I am old enough to remember very distinctly the left’s position during the 50’s, 60’s and even into the 70’s that we should import foreign oil because it was cheaper and was good for the poor and middle class Americans.  They opposed any effort to increase our domestic production and promoted buying foreign oil.  You are reminded that until the 70’s there were allowances established on domestic production.   Yes, believe it or not, if you had an oil well in 1968 and it could produce 100 barrels a day you were only permitted to produce a percentage of that. In Texas it was controlled by the Railroad Commission and was set each month.  Often that percentage was only 30%. Yes, it conserved oil but it also dampened drilling activity.

As always, I ask for honest and intelligent debate and I think I have a right to expect intelligent results from Government.  I will confess I have been disappointed in that last hope on many an occasion.

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Oil Politics or Politically Oily

The recent hearings in the Senate with the oil executives really got my goat.  The flagrant posturing by the politicians was nauseating.  I am completely for an intelligent and informed discussion about our energy needs and the high prices of oil and what action, if any, could be taken to alleviate them.   I am not for listening to speeches by politicians that do nothing more than pander to the lesser ideals of man.  If some of them believe a socialized system of government is best for the country then have the gumption to say so and debate it openly.  Some clearly believe the government should control the oil and gas business, like in Mexico or Venezuela, set prices and allocate that vital resource for the greater good as they perceive it.

Yes, the oil companies are making lots of money right now.  Thank God for that.  It takes enormous resources to explore for oil and gas.  Please do some research for yourself if you disagree.  Remember, that even with all the modern technology that the majority of wells are dry holes.  It costs these days millions to drill each of them.  When they do find a commercially viable well, then there is the cost of connecting it up to the infrastructure.  It doesn’t come out of the ground ready to go straight to your gas tank.  It takes lots of piping and labor to get it to the refinery.   Refineries are very complicated systems.   The raw oil has to be treated, heated, separated and then further refined and delivered in a useable configuration.   If the government took every dime of the 40 billion profit Exxon had at its last report do your really believe the politicians would wisely use that money to reduce your cost of gas?   Do you think they would even use it for energy enhancement or for some other purpose to win votes?   I personally am very damn glad Exxon made a lot of money to keep looking for the resource we need and will need for the forseeable future.   If you think their profits are stupendous then invest in an individual oil well or in a oil exploration company.  You’ll get rich and won’t care if the price is $5 a barrel.  That is a serious statement back up your beliefs with your bucks.  Take a risk like they do everyday and hope your well is not a dry one.   We place ridiculous restrictions on drilling in the offshore regions and Alaska and then have the gall to complain about foreign oil and the prices.  We need to make up our mind what our priorities are.

Remember Exxon can’t control the demand and consumption of oil in China, India, Indonesia, Australia, Brazil and all the other emerging nations of the world.  As long as the population explosion continues we will have tremendous supply pressures; that is just a fact that no “windfall” profits tax will fix.   And prices will remain high.

I notice that since I wrote about slowing down as a method of conservation and to ease prices of gasoline a few weeks ago, that there has already been a couple of articles in the news about just that topic.  It would sure reduce demand and ease price pressures and we don’t even need new technology to implement it and the unintended consequences have already been tested when we did it before.

Do you really want the government with its “proven” record of efficiency to be in charge of oil exploration, refining, distribution and pricing?  Don’t forget the inevitable rationing  that would follow such a course of action.  Back to the beginning, let’s have an intelligent public conversation about how  to meet our energy needs, how important that is to our economy and the priorities we will be willing to live with.

Isn’t human nature wonderful to behold?  Poland in late 1938 as part of the appeasement negotiations with Hitler by the West, took the opportunity to take over its desired slice of Czechoslovakia.  It was an area called Teschen.  It was a plain and simple land grab in cahoots with the Nazis.  Of course, less than a year later Poland was invaded itself and didn’t get to enjoy its prize very long.   A little slice of history you most likely never heard about, but worth pondering as you reflect on the human condition of today.

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