Oil at $140 is Still a Modern Miracle

Over the weekend, I was reading an article about T. Boone Pickens' energy plan, a thinly disguised strategy to grab government subsidies for his wind investments.  And I started to think how amazing it is that electricity from wind has to be subsidized to compete with electricity from fossil fuels.  Here's what I mean:

  • To get electricity from wind, one goes to a windy area, and puts up a big pole.  I presume that there are costs either in the land acquisition or in royalty payments to the land holder.  Either way, one then puts a generator on top of the pole, puts a big propeller on the generator, add some electrical widgets to get the right voltage and such, and hook it into the grid. 
     
  • To get electricity from petroleum is a bit more complex.  First, it's not immediately obvious where the oil is.  It's hidden under the ground, and sometimes under a lot of ocean as well.  It takes a lot of technology and investment just to find likely spots where it might exist.  One must then negotiate expensive deals with often insanely unpredictable foreign governments for the right to produce the oil, and deal day to day with annoyances up to and including rebel attacks on one's facilities and outright nationalization once the investments have been made.  Then one must drill, often miles into the ground.  Offshore, huge, staggeringly expensive platforms must be erected -- many of which today can be taller than the worlds largest skyscrapers.  Further, these oil fields, once found, do not pump forever, and wells must be constantly worked over and in some cases have additional recovery modes (such as water flood) added. 

    The oil, once separated from gas and water, is piped and/or shipped hundreds or even thousands of miles to a refinery.  Refineries are enormously complex facilities, each representing billions of dollars of investment.  The oil must be heated up to nearly 1000 degrees and separated into its fractions  (e.g. propane, kerosene, etc.).  Each fraction is then desulpherized, and is often further processed (including cracking and reforming to make better gasoline).  These finished products are in turn shipped hundreds or thousands of miles by pipeline, barge, and truck to various customers and retail outlets.

    To make electricity from the oil, one then needs to build a large power plant, again an investment of hundreds of millions of dollars.  The oil is burned in huge furnaces that boil water, with the steam driving huge turbines that produce electricity.  This electricity must then go through some electrical widgets to get to the right voltage, and then is sent into the grid.

Incredibly, despite all this effort and technology and investment required to generate electricity from fossil fuels, wind generators still need subsidies to compete economically with them.  In a very real sense, the fact that fossil fuels can come to us even at today's prices is a modern day business and technological miracle.

Of course, in the press, the wind guys begging at the government trough are heroes, and the oil companies are villains. 

  • I agree completely. Indeed, this post almost exactly tracks a monologue that I unload when I want to derail a cocktail party here in Princeton.

  • A fine article, entertaining and to the point. Didn't know that Propane came from crude, though. Propane is certainly found in natural gas as a heavy hydrocarbon gas (HC) along with Ethane, Butane, and several other -anes. They can interfere with most applications involving the combustion of natural gas due to their unfortunate tendency to become liquid under pressure at low temperatures. Gas turbines, for example, have a tendency to melt their back ends should a slug of HC's enter their combustion chambers even for a few seconds.

  • Agreed. Oil is simply a miraculous substance. It amazes me that one gallon of clear liquid can be used to transport 4000 pounds 10-20 miles. And quickly, too. And for $4.

  • dearieme

    It's not a miracle, it's a simple matter of energy density. Wind power is very dilute, so will always require vast capital expenditure.

  • diz

    Hmmm, well I've been around both wind and oil & gas development and I'm not sure one has anything on the other in terms of complexity.

    A modern utility-scale wind tower is an engineering marvel. Blade diameter the length of a football field with computer controlled actuators inside the blades that cause them to pitch optimally depending on the wind speed and direction.

    Also, I would add that we don't really use oil for electricity in this country anymore, so the more appropriate comparison would be to natural gas. When it comes to gas, the competitiveness of wind is very much a function of gas price. At current prices (~$12 per MMbtu) wind is probably cheaper than gas on a simple $/kwh basis, before one takes into account the intermittency and load peaking issues.

  • Dan

    Oil may not be a miracle just from a scientific perspective, but it is a miraculous substance for reasons stated above - the ability of just a small amount to propel a 4,000-pound vehicle 20 miles down the road. To me, that's still mind-boggling, and it underscores how precious this resource really is. I drive a Prius, and last weekend my wife, our two kids and I took a 200-mile roundtrip drive to Michigan. Even at over $4 a gallon, the cost for gas was less than $20, or around 10 cents a mile, as we get 50 MPG. (OK, I'm bragging a bit- sorry).

    To all those who complain about $4 a gallon gas, I'd say suck it up. It's still a bargain when you think of what the substance can do for you. I still don't see how people who spend $200 a month on eating out act like they're going bankrupt because gas is costing them $200 a month. We're lucky it's still so cheap.

  • Yoshidad

    As usual, the "conservative" viewpoint tars renewables with the subsidy brush but entirely ignores the existing orders-of-magnitude-larger subsidies for oil and gas. "Straining at a gnat, swallowing a camel" couldn't apply more.

    In 1989, before Gulf War I, the World Resource Institute (wri.org) estimated that U.S. subsidies for petroleum amounted to $300 billion annually. This includes such things as the depletion allowance -- a special write-off for oil producers -- the cost of defending overseas oilfields (70% of U.S. consumption is imports, and this $50 billion security component of the $300 billion subsidy has obviously skyrocketed)... and so on. This $300 billion figure did not include the cost of pollution, BTW.

    There's also no mention of any influence a viable renewables program would have on the U.S.' bargaining position when it comes to purchasing that overseas-sourced crude from whatever Middle Eastern potentate controls it. Hard to figure the cost of being a needy consumer, but every heroin pusher knows he can rely on pushing that button.

    Finally, climate change deniers aside, there's no interest in conservation, or the long term. If, for example, the U.S. were to raise the auto fuel efficiency standards even a couple of mpgs, the energy would arrive sooner than drilling in ANWR, and, unlike ANWR, it would not run out, leaving the U.S. at the mercy of whatever overseas oil supplier would step in to fill the vacuum.

    So *this* is what passes for "conservative" thought?...

    Really and truly, are the oil companies paying y'all? Is there a prize, a toaster for parroting this silly-ness?

    I'm just askin'...

  • RFYoung

    The explanation for the difference you observed is the value of "energy density" The BTU's per pound of crude exceeds the BTU's per pound of moving wind by orders of magnitude.

    Even though there is an incredible number of pounds of moving air it does not make up for the inefficiencies of low energy density.

  • Dan

    Yoshidad makes a good point about the hidden costs of that gallon of gas, which I neglected to mention in my prior posting. It's definitely an issue.

  • diz

    As usual, the "conservative" viewpoint tars renewables with the subsidy brush but entirely ignores the existing orders-of-magnitude-larger subsidies for oil and gas. "Straining at a gnat, swallowing a camel" couldn't apply more.

    I can pretty much guarantee that anyone who trots this claim out hasn't the slightest bit of practical knowledge of the energy business.

    I have worked on wind projects and on oil and gas projects. You produce power from wind, the government sends you a check for every kwh you produce.

    There is nothing like this on the oil & gas side.

    I can't believe people still bring up percentage depletion, which was effectively eliminated in the 1970's.

  • loki on the run

    Yoshidad is so cute with his "I'm just askin'" tag line ...

    I estimate that Al Gore has bilked the US people to the tune of $100M.

    There! My estimate is just as good as that other estimate.

    I estimate that polar bear numbers are on the increase and that they are moving south and pushing into brown bear territory.

    I estimate that Polar Sea Ice extents are unlikely to go below those of 2005 and might even be close to those of 2003.

    The subsidies required for renewables are pathetic. Only solar is close to break-even and even it requires massive investment that will distort other things, but as long as Yoshidad is happy mouthing his talking points, all is fine.

  • linearthinker

    Two brief points (actually three or more):

    The discussion overlooks the cost for backup power when the renewables, i.e., solar and wind, need to be supplemented, as at night or on calm days.

    Second point: With very little practice one can spot a Yoshidad comment within seconds. Simply scroll past it and avoid some heartburn, unless you crave a daily dose of socialist cant.

    The obstacles overcome and the complex challenges met to deliver my $4.60/gal gasoline are amazing. I too have no sympathy for the folks whose gas bill is still less than their dining out or entertainment budget, but I have great concern for the independent truckers paying way over $5/gal for diesel.

    I dread the day when/if plug-in electric vehicles become a significant part of the fleet. Watch the price soar and rolling blackouts plague the land when the sun sets and the evening breezes fade to whispers as all the commuters plug into the grid.

    [Batteries are another cost not discussed, but I suppose that's just outside the scope of the argument here.]

  • I think you're definitely comparing apples and oranges here. You're talking about the marginal cost of gas and fossil-fuel based electricity, compared to the cost of building the infrastructure to harness wind powered electricity. If you want to talk apples-to-apples, you have to compare the cost of the fossil fuels against the cost of wind.

    If you want to compare oranges-to-oranges, how much did it cost to build those refineries, oil pumps, and pipelines? How much subsidy did the electric generators get for building their power plants? How much did governments invest in building those things. How many regulatory hurdles were jumped in order to get those old power plants built?

    Your's is not a fair comparison. It's been 10 years now, and the Cape Wind project is still dead in the water. I'd like to see how long it would take to build a brand new fossil-fuel plant in New England (and not an expansion of an existing plant.) If you don't think that would require some subsidizing from the government, I'd be shocked. Go ahead and ask these guys:

    http://www.nepga.org/

  • diz

    I'd like to see how long it would take to build a brand new fossil-fuel plant in New England (and not an expansion of an existing plant.) If you don't think that would require some subsidizing from the government, I'd be shocked. Go ahead and ask these guys:

    The US has added about 200 GW of gas fired plants in the last ten years.

    http://www.eia.doe.gov/emeu/aer/txt/stb0811c.xls

    New England has seen its share of growth (about 8 GW according to the NPCC), so I would guess it got its share of gas plants built.

  • Jim Collins

    X-mas,
    Let me ask how much of the cost in building that new powerplant is going to be the legal costs of jumping through the myriad of hoops that the "environmentalist" organizations will throw in the way?

  • Jim,

    Plenty. Look at what's holding up Cape Wind, beside the Kennedy's worries about their view. Cape Wind is being hammered by environmental regulation. This, of course, costs lots of money to handle. That investment may not be recouped without some subsidies. All this crap is for a wind project, which just boggles my mind.

    Diz,

    I see one landfill gas and one paper-mill waste plant proposed in New England from Sept 2007 to August 2008. If I had the time, I could dig through the department of energy web site to find out about any brand new fossil-fuel plants built in New England in the past 10 years. I emphasize "brand new" as opposed to expanded-existing, which should be much less of a hassle. My bitching is that Coyote is pointing at the subsidies towards the building a brand new power plant (windmills) and comparing against the marginal costs of an existing power plant. Two different things altogether.

    http://www.eia.doe.gov/cneaf/electricity/page/capacity/proposedunits.xls

    That site is pretty nifty though, http://www.eia.doe.gov/

  • Jim Collins

    X-mas,
    That's because we are not dealing with environmenalists, we're dealing with Luddites. Do a little research into your environmental groups. You will find the old KGB right in the middle of things. It isn't as much about protecting the environment as it is about the strangulation of our technology. If it was truly about the environment you would find nuclear powerplants to be plentiful. The old strategy was to force us to use foreign oil and to degrade our capability to provide for our own energy needs. Why do you think the old USSR built so many submarines? It wasn't to contain our Navy as much as it was to hold us hostage with our need for foreign oil. If there is an interest I can tell you a neat little story about the US Navy and Greenpeace in the early 80's.

  • diz

    xmas -

    I could probably dig up more data, but the point is not so much about New England. Within the NPCC (the grid of which New England is a part) quite a bit of natural gas fired generation has been added. Gas plants aren't expanded like refineries. To get new capacity, you pretty much have to set a whole new turbine and generator set. This could be done within the grounds of an existing plant if it had space, but it is still essentially an entirely new plant.

    In any case, I'm not sure it is relevant to the general point. But there was an enormous amount of gas generation built over the last 10 years across the entire country. 200 GW is a serious amount of new power plants.

    I have done the apples-to-apples comparison you describe many times over the years. (Those of us who work in the industry and spend billions of dollars of capital are not as stupid as all the energy-policy-experts-come-lately would seem to believe.) We know how to run a basic ocst of energy analysis for new constructuion of wind versus gas.

    When I used to run these 8 or 10 years ago, a combined cycle gas turbine (CCGT) was the most cost efficient way to generate eletric energy that was available by a good amount. Costs were in the 2 cents per kwh range, with excellent operational flexibility to boot.

    Wind costs as of a few years ago were closer to 5 cents per kwh, but at some point if you keep adding wind to a grid these costs go way up due intermittency and load shaping issues.

    With gas prices being significantly higher than they were back then (and wind component prices also increasing somewhat), I suspect the breakeven between utility scale wind at a good wind site and a CCGT is somewhere around $6 or $7 per mmbtu gas. (Perhaps someone else here has run this more recently than I have?)

    So, today with gas at $12 I'd guess wind is pretty competitive without a subsidy. Certainly, wind tower manufacturers are sold out for the near future.

    I alluded to this in my first post.

  • Roy Lofquist

    Is there any sight more ludicrous than a person complaining about $4/gallon gasoline while drinking $5/gallon bottled water?

  • Gringo

    Diz: So, today with gas at $12 I'd guess wind is pretty competitive without a subsidy. Certainly, wind tower manufacturers are sold out for the near future.

    My electric bill charges me ~ 6 cents/ KWH “fuel charge” for wind energy. The price was locked in years ago, and will expire in several years. Newer wind projects are more expensive.
    Here is a AWEA 2007
    presentation on the relative cost of wind energy.
    This AWEA presentation from 2004 notes that the cost of wind energy has gone down from 40 cents/ kwh in 1979, due to improved design.

    That being said, I am ALSO in favor of more nuclear plants and conversion of coal into liquid fuel.

  • Diz,

    I'm curious as to how the cost of wind power is calculated there. Is that the total cost for building the windmill tower and all of the supporting infrastructure spread out across the expected power-generation for the windmill in its lifetime?

    I appreciate the fact that wind-power will be intermittent and there is an associated cost that goes along with that. I'm just getting torqued at this comparison of costs for electricity produced by a finite (but very large) natural resource against that produced by near-infinite natural resources. There's nothing wrong with investing in costly, cutting edge technology. Wind and solar power are almost there, and there are technical solutions to the problems of intermittent power that will take money to solve.

    Like it or not, the government has been an investor in our energy infrastructure. I've got the Hoover Dam as an example on my side of the argument. Renewables are the way to go. Sure, natural gas has the infrastructure in place to make power generation cheap. But, tomorrow, Russia can't turn off its wind pipeline to Europe, throwing the whole wind market into a frenzy.

  • diz

    Quote = Gringo
    My electric bill charges me ~ 6 cents/ KWH “fuel charge” for wind energy. The price was locked in years ago, and will expire in several years. Newer wind projects are more expensive.

    Yes, the rising cost of steel and strained capacity for wind tower components has caused wind power costs to begin increasing in recent years (after many years of decline due to technological improvements). However, I should think if a customer pays 6 cents per kwh and the government chips in another 2 cents per kwh, a well-sited wind project ought to still look pretty good economically.

    quote = Xmas

    I appreciate the fact that wind-power will be intermittent and there is an associated cost that goes along with that. I'm just getting torqued at this comparison of costs for electricity produced by a finite (but very large) natural resource against that produced by near-infinite natural resources. There's nothing wrong with investing in costly, cutting edge technology. Wind and solar power are almost there, and there are technical solutions to the problems of intermittent power that will take money to solve.

    First, calculating the average cost of energy for a given project is not a very complicated matter. If I were going to do it for a wind project, I'd take all of the capital cost of getting the wind tower built as an upfront cost which I'd amortize (using some assumed required return on capital) into my estimated units of production over the estimated useful life of the project. So, when I say that "wind averages 5 cents per kwh" what I am essentially saying is that based if I pay $2 million for a 2MW wind tower, and site in a class 4 wind area that gives me an X% capacity factor, with typical operating and maintenace costs I need a 5 cents per kwh price to earn back my 8% cost of capital. (Or whatever I assumed.)

    If the wind is somewhere in the middle of North Dakota and I need a 500 mile transmission line, the numbers can change significantly.

    But note that I am typically assuming that there is no limitation on the capacity factor due to market availability. I have assumed that when the wind is blowing, the tower will be selling KWh into the grid. In reality electric load varies significanly throughout the day. In ERCOT during the summer, peak load is about 65,000 MW while trough load is about 35,000 MW within a single day. A big challenge in electric grid operation is to meet these peaks. Obviously, to the extent you add more and more wind you export more and more of the problem onto plants that can trip on and off when needed. At first, you can assume that the wind will run 100% of the time and the other plants will idle. So for every gig of wind power you add that you assume will run, you lower the utilization of a gas plant. So, you still need gas plants, but they won't run nearly as much. If you need new capacity, the power price will now need to be high enough to justify building a 50% loaded gas plant (or whatever.) The intermittency and load shaping limitations of the wind power drives up the all-in cost of power on the grid. Then eventually, it becomes unrealistic to assume that the new wind will run 100% of the time because new wind will back out old wind. Imagine an extreme case where you built 65 GW of wind in ERCOT. Even if the wind were blowing, when load is 35 GW most of that power is not going to be on-line.

    Now, there are technologies to "store" electicity (such as using the power to pump water uphill or compress air at night and releasing it during the day) but they tend to be very, very expensive. Anyway, the point is, if you were going to try and replicate current grid functionality with an all wind/pumped storage system the cost would be far, far higher than the 5-6 cents per KWh you will see quoted for the cost of wind power.

  • Bush's advisors are a smart crew. There he is mouthing off about "drilling now" all over the place. I was proud to be an engineer on the Endicott Island project (off-shore Prudhoe Bay). The project took about 4 years from inception to pumping and cost $87b, IIRC. All that for an initial rate of 115,000 bpd - limited by the capacity of the famous Alaskan Pipeline. Today, the USA is guzzling about 16,000,000 bpd from all sources just to put that figure into perspective. The point here is - too little, too late. McCain's term will be almost over before we even see a dribble resulting from Bush's remarks, or anyone else's for that matter.

    I see a short-term future of oil futures being numerically equal to gold prices, causing intense growth of any enterprise that results in combustible fluids and gases that will somehow propel my 1992 GMC pickup ie the millions of non-FFV's that are still running and will STILL be running for years to come. Also anything (snake oil?) that gets you more gas mileage. Small businesses will spring up by the thousands doing anything necessary because there are dollars to be made and this is AMERICA, damn it! Then Big Energy will get it all back together in mebbe 5 years and all those nouveaux riches will get gobbled up.

    People say that ethanol has less BTU/lb than gasoline which is hard to beat at approx 18,400. But less often mentioned is ethanol's higher octane value (or would that be cetane?). Higher octane > allows higher compression ratio > gives higher efficiency. FFV's do not take advantage of this fact. Which explains why my next vehicle will almost certainly be a 2006 Jeep Liberty running on Bio-diesel.

    It's good to old these days!

    Ted (retired).

  • Yoshidad

    Diz begins by posting a Yoshidad quote: "As usual, the "conservative" viewpoint tars renewables with the subsidy brush but entirely ignores the existing orders-of-magnitude-larger subsidies for oil and gas. "Straining at a gnat, swallowing a camel" couldn't apply more."

    ...then Diz continues: "I can pretty much guarantee that anyone who trots this claim out hasn't the slightest bit of practical knowledge of the energy business."

    Yoshidad responds: I'm the third generation of a family raised in the U.S. oil business. We're selling some wells now (no kidding, working interests, overriding royalties, and not-yet-drilled leases). Interested in buying? What else can you pretty much guarantee?

    Diz continues: "I have worked on wind projects and on oil and gas projects. You produce power from wind, the government sends you a check for every kwh you produce. There is nothing like this on the oil & gas side. I can't believe people still bring up percentage depletion, which was effectively eliminated in the 1970's."

    Yoshidad responds: Here's from the IRS website about current tax law (http://www.irs.gov/publications/p535/ch09.html): "Independent Producers and Royalty Owners: If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity."

    Yoshidad continues: There are some restrictions I didn't quote, but the oil wells (actually interests in oil wells) we're selling get a depletion allowance. And no, the government doesn't send you a check; it allows you to reduce your taxable income from these wells by 15%. That's a subsidy no matter how you slice it. The World Resources Institute estimate of petroleum subsidies uses the actual government figure provided (in 1989), not some pulled-out-of-my-butt estimate.

    "Loki on the run" believes that facetious butt-sourced estimates are as good as the World Resource Institute's estimate of oil subsidies, but does not dispute any specifics, like the depletion allowance, included in WRI's figures.

    OK, so what? If you just want to point fingers and call names, Loki, I'm sure there are some young children in your neighborhood willing to play that game. I just say it's sad.

    Notice, my young "conservative" brethren, just how Diz and his colleagues' certainty and "guarantees" here are just blowing smoke.

    I confess that I'm puzzled by this. What do y'all get for this? Is there some kind of prize awarded by Exxon? A toaster? What exactly is the payoff for this pretended knowledge? Or do you get a special blessing from the idols you worship? The goddess of Laissez-Faire is cruel, I warn you. With her, you're never more than a mugging or a bad illness away from sleeping in a refrigerator box. Individual initiative still counts for something, but taking that bet exclusively in the interest of some supposed ideological purity without diversifying is awfully dangerous...Is that really what you want for yourselves and your families?

    Meanwhile, the discussion about the energy content of renewables v. oil is one worth having, but making renewables count the cost of backup power is a red herring since that power would have been consumed anyway. Power consumers can either have 100% conventional "backup" as an energy source, or some reduced percentage of conventional energy in sources that include renewables. Conventional power sources also rely on intermittent "peaker" generation too, so this is not something alien to that business.

    About renewables, to me, the real technological miracle is that something like wind or solar, producing energy from a single day's sunlight, can even be within shouting distance of the energy content of oil, which stores the ancient sunlight of millenia. The real question isn't "Why is solar so expensive?" it's "Why is oil so cheap?"...at least IMHO.

    One way to compare energy sources is the "Energy Return on Energy Invested" (EROEI). And EROEI is *much* higher for oil, without any dispute -- which means more drilling will be more immediately profitable, despite the drawbacks of any climate change effects, or the way the oil runs out in the long term.

    The big question is whether you're willing to sacrifice some of conventional energy's short term profits for some longer term viability. And there's a legitimate debate about this, not just schoolyard name calling.

    Back to EROEI: When the U.S. drilled and found it's big "elephant" field in East Texas (for which my Grandfather built refineries and pipelines), it invested about one unit of energy for 100 recovered. Even the deep gulf drilling now probably produces something like six or seven times the energy invested to retrieve the oil -- still a pretty good EROEI, and more than renewables or nuclear, for example.

    For your edification, here's a handy table of EROEI estimates from the ever-reliable internet:

    EROEI: (return:invested)

    Biodiesel- 3:1
    Coal- 1:1 to 10:1
    Ethanol- 1.2:1
    Natural Gas- 1:1 to 10:1
    Hydropower- 10:1 (limited because most good sites are already in use)
    Hydrogen- 0.5:1
    Nuclear- 4:1*
    Oil- 1:1 to 100:1
    Oil Sands- 2:1 [Like Alberta, Canada. A big polluter.]
    Solar Photovoltaic - 1:1 to 10:1
    Wind - 3:1 to 20:1

    (from )

    The details of these calculations matter a lot, too, but are not often revealed. For example, I can't tell whether the 4:1 ratio for nuclear power includes subsidies. The biggest nuclear subsidy: The Price-Anderson Nuclear Industries Indemnity Act, limiting the liability of the private nuclear industry in case of an accident. No other insurer came forward, and no nuke plants would be built without such insurance. See . Never mind that the nuclear folks haven't figured out how to dispose of waste that's hot for 10,000 years in packaging that only lasts a few hundred years. Not even the vaunted Frenchies (90% nuclear electricity) have figured that out.

    In any case, peak Uranium is projected to be 2050, unless we build lots of nuclear plants. Then it's 2015. Then what do we do?

    Switch grass (cellulosic ethanol) and algae are still experimental energy sources, not viable for commercial production (yet).

    Conservation, on the other hand, is almost always a positive EROEI, and is often *very* profitable, if not to Exxon, because it consumes only the energy to set it up, and is effective as long as the asset's lifetime. A well-insulated house can conserve for 50+ years and can repay the cost to insulate in only a few years. Pedestrian-friendly mixed-use neighborhoods (New Urbanism) are a form of community conservation that can last literally centuries, and can cut vehicle miles traveled nearly in half -- or more with transit. Of course the U.S. builds (and heavily subsidizes) sprawl, the exact opposite.

    And we have many opportunities to conserve now. Adding a couple of mpgs to our vehicle fleet mileage standards (CAFE) would deliver more oil sooner than drilling in ANWR with one caveat: Unlike ANWR, it wouldn't run out. The U.S. spends roughly twice the energy of the other first-world countries (Japan, Europe) per dollar of GDP. We could be leading instead of lagging in conservation, and profit from that too.

    Too sensible a suggestion?

    Really, what's going on with Bush's insistence on drilling on the continental shelf is that the oil companies are making a last desperate attempt to continue their virtual monopoly as energy providers. Even if they own renewable sources, they want those short-term profits from petroleum's high EROEI, and damn the torpedos, the climate instability, and our continued dependence on imports that such drilling will do very little, if anything, to interrupt (or so says the API, the oil lobby).

    Oh yes, and Bush gets to blame congress for something... Always a plus.

    ---

    What strikes me as most peculiar about this little dialogue is how passionately wedded are "conservatives" to their B.S. Diz really has no way of knowing whether I'm lying about my knowledge of the oil business, but I'm not, and he is -- or he's at least bullshitting you about how comprehensively he knows what he's saying. Yet you call what I provide "socialist cant" ...

    Oh no, my young trogdolytes, it's socialist *can*...!

    Sorry, I just couldn't resist the groaner. Actually, it's *anti*-socialist. I'm actually disputing the value of the socialism or government meddling in markets embodied in petroleum subsidies which are far larger than anything renewables get (gnats v. camels).

    And there's plenty more socialism I don't like, particularly the U.S. habit of socializing losses and privatizing profits -- like Price-Anderson. The nuclear industry profits from that one, and the public can *only* lose. That paradigm is everywhere, too, thanks to "conservative" public policy (it's *not* conserving anything).

    This paradigm is also why Bear Stearns got bailed out, but lots of ordinary people lost their homes to foreclosure. It's the "conservative" version of responsibility -- "free market" for you, government subsidy for me.

    So the "conservative" battle cry is this: "Let's blame the negros who got foreclosed on, not Bear Stearns who might have had something to do with the underwriting that approved those loans!" -- a post in this blog said something like that. It's pathetic propaganda, really, designed to divide people with common concerns and keep them from lobbying to promote coherent public policy that serves the public rather than private interests. Not anything new, really. Henry Ford published racist tracts, and J.P. Morgan said that Hitler had the right idea about the Jews.

    Back to energy: The bottom line here is that we can continue to ensure petroleum producers' profits (and my family will continue to collect 'em...Thanks!), or we can start building the alternative infrastructure that would make the public, not private oil companies, the beneficiary of society's energy needs. The idea that there's no socialism, or subsidy for existing petroleum producers is beyond laughable, though. No kidding.

    Oh yes, and I won't dispute that the Democrats are clueless in blaming "speculators." The elephant in the room is peak oil. Nobody wants to bring that one out from under the antimacassar. Denial is not just a river in Egypt, ya know.

    Another constant thread in many of the posts on this blog (although not in this particular set of exchanges) is the yearning for the good old "free market" days, when men were men, sheep were nervous, and oil was cheap. News flash, my young "conservative" friends: Oil has never been traded in a free market. Ever. Read Daniel Yergin's "The Prize" -- a history of the business written by one of its acolytes. From John D. Rockefeller to OPEC, monopolies and oligopolies have been the rule, virtually from the first day petroleum began insinuating itself into our culture.

    Actually removing the petroleum subsidies would be progress I'd accept, so I'm on board even with a free-er market than exists now. Is that "socialist cant" too? Or maybe one of those environmentalists in the woodpile got to me!

    The bitching and moaning about bad, bad bureaucracies (oooh! and those badder environmental restrictions!)is particularly hilarious when you consider the private bureaucracies in the oil business. Believe me, I've known plenty of people working for such bureaucracies... Texaco was (pre-merger) particularly hide bound, and just as ridiculous as anything in Dilbert or government today.

    So if y'all take this as calling you "crazy," you may be right, but then I'm the bull-goose-loony craziest for continuing to answer you. Perhaps we can form a support group...8^)

    Anyway, I'm not buying the b.s. Alternatives exist. Why, we can even share things, and enjoy each other's company even if we disagree... Just a thought.

  • Yoshidad

    Sorry, if you enclose a URL in brackets (greater than / less than), usually it keeps it together -- e.g. in Outlook. Not so in this blog.

    EROEI soure: http://www.energybulletin.net/14745.htm

    Price-Anderson source: http://en.wikipedia.org/wiki/Price-Anderson_Nuclear_Industries_Indemnity_Act

  • diz

    Yoshidad -

    Independents who are too small to matter can still get percentage depletion. This is an irrelvancy with respect to serious debate about energy policy.

    No one is investing capital thinking "I sure hope I drill a shitty well so I can stay small enough to qualify for percentage depletion".

  • Yoshidad

    Diz, let's not debate whether the amount of depletion allowance significant or not. That's a matter of opinion, not fact. Either way, it's only part of the WRI figure of a $300 billion annual subsidy for petroleum, and even if it's tens of billions it's more than nothing -- and far more than renewables are receiving in subsidies. WRI's figure includes post-1975 depletion, BTW, so it includes currently allowed amounts.

    Meanwhile, perhaps a more direct answer comes from http://www.cleantechblog.com/2005/10/energys-dirty-little-secret.html, the fruit of a Google search for "U.S. government subsidies for renewable energy":

    "Another way of considering the subsidy issue is to examine Federal R&D spending on energy..... [B]etween 1948 and 1998, the U.S. government spent $74 billion on nuclear programs, $31 billion on fossil programs, and $15 billion on renewables. In other words, R&D funding on more mature energy forms outweighed R&D spending on immature renewables technologies by a factor of 7 to 1. By another measure indicating the tilt against renewable energy -- federal tax breaks between 1998-2003 -- fossil energy received $10.2 billion, nuclear $1.5 billion, and renewables $0.4 billion. [Conventional outweighs renewables 29:1]

    "This last estimate was provided by Alexandra Teitz (Minority Counsel, Committee on Government Reform, U.S. House of Representatives) ... in her presentation to the monthly ABA Renewable Energy teleconference, provocatively titled: "Renewable Energy in the Energy Policy Act: Business As Usual = Failure". (here's the link to that report: http://www.abanet.org/environ/committees/renewableenergy/teleconarchives/101905/TeitzPPT.pdf)

    ...

    So even if you dispute the relevance of depletion, or the $300 billion estimate by WRI, the explicit subsidies to renewables are 1/29th of what conventional energy sources get.

    Then, of course there are little "favors" like the recent lease in the Gulf of Mexico to Chevron and others of the "Jack" field -- just recently completed successfully, and supposedly the gateway to 10 billion bbls of oil. But there's a flaw in the lease, but the Bush Administration hasn't acted to fix it. Chevron and its partners get all that oil without paying *any* royalties. Tell me where that happens *ever* in the oil business, please...

    So do renewables get some kind of special favor from the government, while the poor starving purveyors of conventional energy are taxed to death? (Oh the humanity!)

    Diz, ol' buddy if you believe that, I just want to play poker with you because you'll believe *anything*...

  • TJIT

    Yoshidad,

    1. The fact that folks like you want to fix a bad policy (subsidies) by demanding more subsidies is a clue that your policy ideas in this area are not to be taken seriously.

    2. You would be well advised to suspect that the dollar amount of subsidies for oil production have been inflated for political purpose. For example I have seen some studies count the costs for the highway patrol services as a "subsidy" for the oil industry

    3. Military spending is another example of this. The military was sized during the cold war to fight at least two major fronts at a time. When the Soviet Union dissolved the military was downsized even though the Middle East still supplied the majority of the world oil

    4. Given the nature of world trade today the military is vital for defending trade in all its forms, not just oil. Any disruption of trade to and from Asia would be a disaster and the Taiwan Strait is just as critical to the US as the Strait of Hormuz are.

    5. If the alleged petroleum subsidies you complain about went away petroleum production would roll on unabated. Petroleum is the safest, most efficient, most environmentally friendly form of transport fuel available. It will continue to be produced even in the absence of any of the alleged subsidies you mentioned.

    6. Remove the subsidies for alternative energy and those markets would collapse. The only ethanol produced would be for drinking and that would be a good and proper use of our grain stocks.

    This would be the best thing for the future of alternative fuels. The current subsidy scheme props up failed products that would not exist if it were not for the subsidy. In the process it kills all necessity for innovation and development of new alternative fuel technologies.

    The exact opposite policy result of what folks like you should want.

  • TJIT

    Yoshidad,

    The alternative energy subsidies you support have caused vast amount of environmental damage in the short time they have existed.

    A cruel bit of irony is the fact that the "green fuels" you like are far more environmentally destructive then the petroleum products they were supposed to replace.

    A fact you would do very well to reflect on before you support continuing or expanding the subsidy policies that have driven the environmental destruction alternative energy policies have caused.

  • TJIT

    Yoshidad,

    The more a person learns the more it becomes clear that petroleum is the environmentally friendly alternative to biofuels.

    What About the Land?

    The hype over biofuels in the U.S. and Europe has had wide-ranging effects perhaps not envisioned by the environmental advocates who promote their use. Throughout tropical countries like Indonesia, Malaysia, Brazil, and Colombia, rainforests and grasslands are being cleared for soybean and oil-palm plantations to make biodiesel, a product that is then marketed halfway across the world as a "green" fuel.

  • TJIT

    Windpower is another example of the lunacy of the current subsidy policy for alternative energy.

    Wind turbine installation is mandated / subsidized while transmission infrastructure is utterly ignored. This in spite of the fact that improved transmission infrastructure might help reduce the need for additional electrical generation capacity.

    This also in spite of the fact that the single biggest obstacle to windpower development is lack of transmission capacity.

  • TJIT

    The link below is to an article on the use of gas turbines as a backstop for windpower variability and how increasing amounts of windpower on the grid may cause greater carbon emissions then anticipated.

    I would be interested in hearing what the technically inclined folks think of this line of thought.

    In a just-released article for the journal Energy Policy, titled will British weather provide reliable electricity?, consulting engineer Jim Oswald and his co-authors model the output to be expected from a large, 25+ gigawatt UK windfarm collection

    He says that most people, in allowing for gas backup to wind farms, assume that the current situation of gas-turbine usage applies. Not so, he says. Gas turbines used to compensate for wind will need to be cheap (as they won't be on and earning money as often as today's) and resilient (to cope with being throttled up and down so much). Even though the hardware will be cheap and tough, it will break often under such treatment; meaning increased maintenance costs and a need for even more backup plants to cover busted backup plants.

    Thus, the scheme overall will be more expensive than the current gas sector. And since people won't want to thrash expensive, efficient combined-cycle kit like this, less fuel-efficient gear will be used - emitting more carbon than people now assume.

  • Yoshidad

    Dear TJIT,

    You make some good points. But I'm not suggesting more subsidies for anyone. I'd be happy if we reduced them all, especially the really big ones "conservatives" ignore to conventional energy technologies.

    Then there would be even more price incentive to explore alternatives. Unlikely, BTW, but that's what I'd like.

    This might also entail some debate since some subsidies, as you correctly point out, are dual-purpose (the military protects pipelines and oilfields as well as trade routes).

    So would the roads not paid for with gas taxes count as subsidies for petroleum use? If they don't have (usable) sidewalks, or bike paths I'd say yes. Let's stop that subsidy right now, then, and build only multi-modal roads that permit walking and biking as well as driving -- pretty rare now, IMHO. The sprawl standard prevails.

    How about auto accident injuries? (No right to health? It's a privilege?) How about pollution damage? Or the insecurity produced by utter dependence on imported drugs...er, I mean oil?

    Every junkie has really good reasons, you know. I mean *excellent* and reasonable excuses. It doesn't make him less addicted, though.

    Like most "conservatives" you point out -- again correctly -- that many government subsidy programs are misguided (subsidizing ethanol is the least of this... Carter's coal gasification attempts were enough to make anyone grind his teeth).

    Nevertheless, we wouldn't have silicon chips, 30-year mortgages, nuclear anything, interstate highways, or the internet were it not for government programs.

    So... Should the government cease all research and subsidies? And is it reasonable to expect them all to be winners?

    Unlikely, and, if the above is true, or even half true, don't some of these programs pay off? And is it worth funding some clueless ones if we hit the jackpot on others? After all, it's OK with you if we subsidize the security for petroleum imports and international trade, right?

    Personally, I think that the "conservatives" in power for the last 30 years or so have funded some awful failures just to demonstrate how bad government can be. Brownie did a "heckuva" job in New Orleans, but couldn't compete with Herbert Hoover who dealt with a similar storm in 1927 far more successfully. The only difference: Hoover had a lower casualty rate and managed the evacuation with horses and buggies!

    Meanwhile, is it realistic to expect renewables technology trying to deliver a single day's sunlight in usable form to compete head-to-head with the extremely mature, and already advantaged petroleum technology that's tapping millenia of ancient sunlight stored in the earth? Would you expect your infant to defeat a heavyweight boxer too?

    "Conservatives" look to me like folks who are perfectly reasonable ("That infant technology will *never* defeat the heavyweight oil industry!") and at the same time utterly clueless. Junkie logic.

    Isn't there some advantage to having infrastructure alternatives to the petroleum economy, especially since we're importing 70% of our consumption now? Couldn't we have some leverage in bargaining for overseas supplies if we actually didn't *have* to have the oil? (Is the premium paid for oil because we don't have any alternative a subsidy too? I'd say "obviously.")

    And what happens if we hit peak oil? I mean worldwide. The U.S. hit its peak production in 1971. I know many people believe it will return to that peak if only the darned enviros get out of the way, but that's simply not true. Not even the API (the oil lobby) tries to sell that one.

    Anyway, North Sea oil, Mexico, and others have also peaked. What do we do when the cheap stuff starts to run out?

    Sure, we can rely on the market, and it will very reliably kill lots of people (see dieoff.org to truly be terrified). I mean *billions* of people.

    But hey, that's the market. Say the "conservatives": "No pain, no gain. No moral hazard, no moral guidance. Tough it out, you big socialist babies!"

    But even the hardest core "conservatives" have a tenuous allegiance to free markets at best. What will happen is that "conservatives" in power will cave, just as they won't allow Bear Stearns to fail now. It'll be socialism for the favored oil barons, and the weeping and gnashing of teeth for the billions starving outside their gated communities. You can call it a hazard, but it's hardly moral.

    So you're correct, and completely reasonable as far as you go. Just as my alcoholic in-laws have really good reasons to drink.

    The technology of renewables cannot be as elegant or productive as conventional energy sources. That's a slam dunk. No argument from here. Ethanol would have gone nowhere if corn states didn't have two senators, we both know that. I don't want *any* ethanol subsidies. But should solar and wind installations be permitted on national park land? (Good question: What are the environmental implications? Or should we just leap and then look?)

    The big question is whether you're willing to put all your eggs in that one basket of petroleum dependency.

    And whether you believe government has no role whatsoever in either subsidies or research.

    The Manhattan project produced something awfully destructive that ended a war. Is it possible that even the awfulness that is government could gather our collective energies to produce something constructive?

    Anyway, the subsidies for oil continue to outpace renewables, and the really profitable path -- conservation -- is virtually not discussed. That beats the pants off the "renewables" and oil both.

    Finally: Do we really have a right to expect our current lifestyle to continue? If people don't have a right to health, can anyone reasonably claim such a right to lifestyle?

    Or are those stone tablets you're holding engraved by lightning that say "yes, you can expect oil forever, world without end, amen..." ...8^)

  • Yoshidad,
    I don't have time to answer all the silliness you put out... but a few...

    Subsidies for basic research are probably the least dangerous, and I support those for alternative energy. But once subsidies are funding industries instead of science, they become the tool of a newly created special interest group. There have been alternative energy subsidies since the '70s, and they have had virtually no beneficial effect. Energy is just too big for a direct subsidy to do much good, compared to the overwhelming power of the market. McCain's battery prize, on the other hand, is not that bad an idea. Prizes tend to be more efficient than subsidies, and no money is paid out until the disred goal is attained.

    As for conservation, it is not costless. That cost comes out of the economy, reducing economic activity and ultimately hurting those who pay for any economic downturn - the poorest of the poor - who die when we feel a little pinch in our standard of living.

    As for right to health, etc. Although the left likes to ignore it, there is a government mandated privilege (not a right) to get health care in the US, whether you can pay for it or not. What is not provided is health insurance. You conflate the two.

    We don't have a right to expect our current lifestyle to continue. We should have a desire to expect it to get better. I don't want you or anyone else preaching to me about how I should cut back my lifestyle. Usually, those who moralize the most on those lines themselves have huge energy footprints (Al Gore anywone)?

    Peak oil will happen if it hasn't happened already. Some government action may be useful, because contrary to pure free market ideology, the markets tend to inadequately discount the far future (probably because humans have that tendency naturally). But any time you invoke the government, you are turning a lion loose amongst the lambs. The possibility of a negative outcome is high.

  • Solar Lad

    Yoshidad:

    A) While I'm honored that you responded at length to my post in the Oil Prices and State-Run Corporate Incompetence thread, I note well that you DIDN'T ACTUALLY ADDRESS MY POINT, which I take to mean that you can't provide any rational reason why we shouldn't save $ 7 trillion by drilling in ANWR and offshore.

    B) Comparing yourself to Galileo is très gauche as well as delusional.

  • diz

    So do renewables get some kind of special favor from the government, while the poor starving purveyors of conventional energy are taxed to death? (Oh the humanity!)

    Diz, ol' buddy if you believe that, I just want to play poker with you because you'll believe *anything*...

    I started out this thread by mentioning that I have participated in both wind projects and oil & gas projects. I have built the financial models, and I know how whether the government is going to tax or subsidize you. Let's call this "practical experience".

    You, on the other hand, attempt to rebut my actual experience with things you have gathered up on the internet from ideologically motivated sources.

    The EIA estimates the government gives $227 million of subsidies to oil & gas, or $0.25 per MWh produced. Having looked at this before, most of these are timing issues on writeoffs as opposed to direct subsidies. The government gives Accelerated Depreciation to pretty much everyone so I find it a bit disingenuous to count this as a special subsidy to oil & gas. Does it make sense to capitalize a dry hole and write it off over 5 years or expense it immediately? The government says 70% immediately and 30% over 5 years. Then EIA calls the 70% immediate part a subsidy. In any case, when evaluating an oil & gas exploration and development program, one will generally assume the 70% year 1 write-off for IDCs so I don't dispute that it exists. It's just a question of whether they use the proper baseline, and whether it is material.

    Now, for wind power the EIA estimates there is a subsidy of $724 million per year, or $23.37 per MWh produced. Since the Production Tax Credit is about 2 cents per KWh, clearly most of this is flat out direct subsidy, not debatable timing issues with respect to the write-off of legitimate costs incurred. And I sure as heck guarantee you that people will model in the production tax credit when evaluating a wind project. It is a huge majority of the profit in the typical wind deal.

    So, the government's own analysis, which suggest wind gets roughly 100 times the subsidy that oil & gas gets seem about right.

    http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf

  • Yoshidad

    First, Solar Lad, I very patiently explained that conservation alternatives to ANWR would deliver more energy sooner and with more lasting effect and less lasting damage than ANWR. *We* the people all get to profit from that, as opposed to the leaseholders of ANWR.

    Now I suppose that we can assassinate half the population, and like the Nazis, retrieve their gold fillings and render their fat for profit too. Maybe we'd even get *eight* trillion dollars (My Precious!), who knows? But is money the sole reason to do such a thing ... or drill ANWR?

    As for comparing myself to Galileo... No no, mon cher, I was comparing you and your type of thinking to the folks who put him under arrest. Of course now that I know you have some French vocabulary I'll have to reconsider...8^)

    John Moore makes some good points -- the distinction between funding research and funding industries is an interesting one. Apparently there's a place for the government in the former, but not in the latter.

    Anyway, if Mr. Moore's point were actually true, then we could repeal Price-Anderson and start decommissioning all the nuclear plants in the country right away. Notice, BTW, that Price-Anderson is a liability that will not appear on the government's books anywhere.

    Again, the subsidy for conventional energy sources remains orders of magnitude larger than renewables. And is an ongoing subsidy ineffective in helping an infant industry perfect its technology? After all, conventional sources have had subsidies like this for nearly 100 years in some cases. Don't renewables get *any* consideration?

    Notice, BTW, that a genuinely conservative investment strategy would diversify -- even accept short-term losses. The hypocrisy of ignoring the orders-of-magnitude-larger subsidies for conventional energy sources, or even the encouragement for maximized consumption as opposed to conservation, is all you can rely on to be so "reasonable" as to demand immediate results from conservation or renewables.

    This is also consistent with the "conservative" free traders' stance that there should be zero tariffs and free trade everywhere so the mighty market could improve everyone's lives.
    The truth is that the very countries with constituencies clamoring for such laissez-faire strategies had enormous tariff barriers to protect their infant industries. Same thought pattern. (Recommended reading here: Ha Joon Chang's "Bad Samaritans" -- a real eye opener. Or Google Naomi Klein's "Baghdad, Year Zero" for a shocker that makes a similar point. It's available on the net.)

    Mr. Moore says "Energy is just too big for a direct subsidy to do much good, compared to the overwhelming power of the market." There's some truth to this, but if this were entirely true, then Germany's subsidy for solar would not be producing a society about to meet its 20% renewables goal....early. Even so, I'll agree that high prices are the best cure.

    How do you feel about Thomas Friedman's suggestion that we tax gasoline heavily (and offset the tax with a reduction in FICA) just to ensure the population knows the price will remain high permanently?

    The facts do not uphold Moore's contention that conservation leads to reduced economic activity. The Japanese and Europeans have first-world economies and consume roughly the half the energy per dollar of GDP as the U.S.

    Moore concludes with something I mostly agree with that's worth seeing again: "Some government action may be useful, because contrary to pure free market ideology, the markets tend to inadequately discount the far future (probably because humans have that tendency naturally). But any time you invoke the government, you are turning a lion loose amongst the lambs. The possibility of a negative outcome is high."

    Amen, Brother Moore! Your point about markets hits the nail on the head. So apparently there's some role for collective intelligence in anticipating the far future.

    Your point about government is true, except when it's not. I suggest you look into the possibility of intelligent government action, as in Curitiba and Parana in Brasil (Bill McKibbons' "Hope, Human and Wild" or Paul Hawkens "Natural Capitalism" are two sources), or Gaviotas in Columbia. Collective action doesn't just produce toxic waste, it can actually produce elegant solutions to the problems we face.

    And for some things collective action is really all we've got. The Manhattan Project would never have been possible without the government.

    Just because public policy is and has been stupid doesn't mean it can't get better. I pray it does because frankly, as much as I'd like to believe changing all my lightbulbs will make the critical difference, I'm afraid public policy and collective action is really what it's going to take to get out of the parlous state we're in now.

    Thanks, BTW, for the relatively civil tone of the posts.

  • Luis Dias

    It's amazing this discussion.

    There are actual people living in this actual world who still believe that oil is not subsidized, and that renewables are the ones heavily subsidized!

    Please, drop the kool-aid you are drinking. You are in serious need of critical thinking here.

    I mean, anybody remember the war on IRAQ?

    And please, before anybody flame me for being a retarded leftist (which I am not, btw), consider the fact that even Greenspan (hardly a leftist) admitted that the war on iraq was about making the oil market in the middle east safe, that Saddam was a threat for he could disrupt 40% of the world's oil export market. Greenspan seemed quite calm at it, and if anything, dumbfounded at the notion that this was treated as a taboo.

    I too am dumbfounded at it, though I understand that this will never be really admitted in public.

    Now if an entire war based on a resource is not exactly a subsidy, well pardon me for my lack of precision of words! Or do you really believe that if there wasn't oil, the USA was still going to attack Saddam?

    Please, of course it wouldn't!

    And last time I checked, the war on iraq was already costing trillions of dollars so there goes the EIA's estimates of 200 million down the bucket.

    The thing is, with a renewable ubiquitous type of energy one wouldn't have to pay for such wars nor "resource defenses". Those costs are completely alien to the wind and solar industry, unless you can find me a rare "unsubstitutable" resource that only exists in an enemy nation.

  • diz

    There are actual people living in this actual world who still believe that oil is not subsidized, and that renewables are the ones heavily subsidized!

    Well, perhaps you have not been following along but in most of my posts I have been comparing wind and natural gas fired generation.

    Our natural gas industry is primarily domestic and imports from Canada.

    So, while I think you are very much wrong that we need to fight wars in the middle east to buy oil, it's essentially irrelevant in a debate about electric power.

  • John Dewey

    Luis Dias: "There are actual people living in this actual world who still believe that oil is not subsidized"

    diz: "Our natural gas industry is primarily domestic and imports from Canada."

    Our petroleum industry is primarily domestic and imports from Canada, Mexico, and Venezuela. Very little comes from the Middle East.

    Certainly the price we pay for oil is dependent on global production. But if the U.S. military were not in the Middle East, the oil would still be flowing onto world markets. Saudi Arabia has enough money to protect it's oil fields. But why should they pay for protection if the U.S. is willing to pay? And why should the chief consumers of Middle East oil, Europe, feel compelled to protect their lifeblood?

    We didn't need to overthrow Saddam Hussein to ensure the flow of Iraqi oil. He wanted to sell more of it, but the U.S. and the U.N. prevented him from doing so.

    As I see it, the U.S. military presence in the Middle East is not a subsidy for oil. It is a means of ensuring U.S. political power. The purposes are very different.

  • diz

    John Dewey -

    I agree with your entire post.

    The only thing I wish to reiterate is that the price we pay for natural gas has not much whatsoever to the goings on in the middle east. Gas is a regional commodity. While oil is correctly viewed as global market.

  • Yoshidad

    John Dewey makes a couple of interesting points.

    While he's correct in saying most of the actual imported petroleum -- imports are 70% of the petroleum burned in the U.S. -- comes primarily from Canada, Mexico and Venezuela, this fact is not that significant in determining the price. Oil is fungible, so worldwide supply and demand, not supplier proximity, determines price. The steep increase in oil prices in the mid-1970's occurred because of shortfalls in U.S. domestic production, Arab and Nigerian oil, not anything that occurred in our most frequent importers. And we were importing only about 30% of domestic demand then.

    Mr. Dewey adds that we didn't need to overthrow Saddam to get his oil. He's right. Saddam was threatening to sell more oil than his OPEC quotas -- which would have made oil cheaper. So the invasion of Iraq was an "un-subsidy" -- something that made oil more expensive. In "Armed Madhouse," journalist Greg Palast suggests that the real motivation to invade Iraq was not to get the oil, it was to keep it in the ground. So, as Dewey says, control, not subsidy was the motivation.

    But why the interest in control for Iraq, and not, for example, in Rwanda? Oil is the answer -- it's what's worth controlling. While several U.S. government programs keep oil cheaper -- everything from tax policy to our willingness to tailor most infrastructure to autos -- ultimately, control trumps subsidy.

    I should add, incidentally, that my oil business contacts tell me that none of the oil companies wanted the Iraqi invasion, even though it increased their profits. It was way too risky, by their sensible, and really conservative lights. Fortunately Blackwater and Halliburton weren't deterred by such sissies.

    So the historical record is confusing and ambiguous, kind of like reality... We subsidize oil (and other) consumption to encourage a demand-based economic system, but do some things, like invade Iraq, to un-subsidize the very same thing and boost its price by orders of magnitude. Could the latter be some way for clever corporations to take advantage of a society whose infrastructure is heavily committed to high energy demand? Hmmmm.... I wonder...

    And could continuing to thwart development of alternatives to heavy conventional energy dependency possibly be part of this same agenda?....

  • John Dewey

    Yoshidad: "While he's correct in saying most of the actual imported petroleum -- imports are 70% of the petroleum burned in the U.S. -- comes primarily from Canada, Mexico and Venezuela, this fact is not that significant in determining the price."

    Just so we're clear: my point about the source of our imports wasn't about the price of oil in the U.S. It was about who should be protecting the Middle East oil fields from terrorism. Clearly Europe and the Middle East should be paying to protect the oil fields which are so important to them. If the U.S. were ever threatened by a cutoff of crude, it could conquer Venezuela much more cheaply than what Iraq has cost us.

    Saudi Arabia's puny response to our president's request for more production is clear evidence: military control of that region did nothing to ensure lower oil prices. Spending in Iraq ia no subsidy for oil, as you agreed.

  • Yoshidad

    Ah, Mr. Dewey, I get your drift. The claims that some make -- including the WRI subsidy estimates I quoted previously -- that military expenditure to protect oilfields is a kind of subsidy -- such claims are not legitimate. Or so I believe you're saying (I'm sure you'll correct me if I'm wrong).

    How can I have it both ways? Military expenses to protect oilfields may be a subsidy, but they're ineffectual because military predominance can't persuade the Saudis to increase production, so these expenses aren't really a good subsidy because lower production means higher prices. And the Iraq war was all about oil, but it's not a subsidy because it prevented lower prices, the entire point of subsidies...

    Perhaps a little more 'splainin' is necessary to unravel all of this.

    For example, an un-subsidy like a gas or carbon tax would be as effective at raising the price at the pump as spending the money, blood and military might in Iraq. But what is the difference between this tax as an un-subsidy and the Iraqi invasion?

    The primary difference, IMHO, is who gets the money. If the U.S. invades Iraq, all of the military-industrial complex and its allies are funded to the tune of trillions of dollars (now *there* is a subsidy!), and it only costs a few thousand kids in casualties.

    On the other hand, if we taxed the gasoline to provide that increased price at the pump by exactly the same amount, then government would get the money and could use that money to build the alternative infrastructure for oil -- something that invading Iraq effectively de-funds. In fact, even if all the tax money coming from the gas pump were refunded by, for example, lowering FICA taxes, a gas tax in and of itself would still encourage the public to explore alternatives to our current high energy use.

    So invading Iraq is using public policy to ensure the continuance of oil's predominance as an energy source, even if it makes the oil more expensive because it de-funds these other possibilities.

    Meanwhile, I'm not sure equating military predominance with control of oilfields is necessarily a good connection. What if the Saudis don't have the oil to pump? We can threaten them or ally ourselves with them until we're blue in the face without any effect. There is evidence that the Saudi fields are peaking, so couldn't pump more (see http://www.theoildrum.com/node/2325, for one example.)

    And there are real threats to pipeline and oilfield security. Even the Alaska pipeline has been threatened -- and that's on U.S. soil! So I'd conclude that security expenses are necessary, and aren't charged at the pump, at least now.

    One example of the security problems: Oil-country-friendly former CIA man Jim Woolsey recently testified that there's too much security risk for drilling in ANWR because of the single pipeline that would transport all this oil. If a terrorist attacked it, the pipeline turns into the world's biggest chapstick. Is that a real risk. So far, historically, it's been bombed twice, shot 50 times, and a disgruntled engineer was caught attempting to sabotage it.

    This comes from a source recommended for further info about why nuclear isn't an option: Amory Lovins 7/16/08 on Democracy Now

    Strangely enough, Lovins declares that the market has already decided to support renewables. Private capital has rejected nuclear, even with 100%+ subsidies -- only central government bureaucrats consider it viable enough to fund.

  • Jim Collins

    Why am I getting the feeling that everybody is missing the point when it comes to oil? This is all plain and simple. We, in the US, have no control over our energy situation. That's it plain and simple. We are not drilling for our own oil, we don't have enough refineries to meet our needs and we have an enviro-political entity in place that is preventing us from taking control. These morons who our hyping "conservation" haven't a clue about how things work. In the past the US was the largest consumer of oil in the world. We used to be able to drive down oil prices by conservation,but not anymore. In the past the US was the main market and if we reduced our consumption, there wasn't any place else to sell oil. Now with the emerging markets of China and India this is no longer the case. The oil that we save by conservation, will just be sold to China or India. There is no need to lower prices BECAUSE THERE ARE OTHER MARKETS WHO WILL BUY THE OIL. All of this alternative energy stuff, wouldn't be a bad idea if THERE WAS ANY CHANCE OF IT COMING TO MARKET. I'm old enough to remember the "oil crisis" in the 70's. All I heard then was how we would be using ALTERNATIVE ENERGY SOURCES by the year 2000. Well 2000 has come and gone and we are still using oil. If somebody would invent a car that ran on water tomorrow, a car that was safe and easy to produce, a car who's only emission was water vapor, a car that was self-contained and didn't need anything else to operate, you can bet that there would be an environmental group protesting it because water vapor is a greenhouse gas.

  • John Dewey

    Jim Collins,

    I agree with most of what you just wrote. Here's a couple of points, though, you may want to consider:

    1. Based on what I've read, I believe U.S. oil refiners have done a good job of expanding refining capacity. It's unfortunate that most of our capacity is at risk due to tropical storms, but the infrastructure is already in place. Refinery outages due to those storms have so far been fairly brief. For the most part, lack of refinery capacity has not been the cause for gasoline price increases.

    2. IMO, methods for conserving energy and alternative energy sources will develop in an orderly fashion in response to gasoline and crude prices. That is, as long as governments do not interfere with the functioning of the market.

  • Jim Collins

    John,
    I'm not knocking the oil refiners over capacity. The problem is that we need all of the existing capacity to meet our needs. If a refinery has to go off line for maintance or damage, there is no reserve capacity to take up the slack.

    If the US starts to take advantage of our own oil, there is no extra refining capacity for the increase in production. I live in Western Pennsylvania, I know people who have their own oil wells. Some of them have tried to take advantage of the current situation, by increasing the output of their wells, only to run into a bottleneck because the local refiners can't handle the extra capacity.

  • Leonard Huff III

    Great Comments! on Subject!

    I have learned alot of frome ALL of the comments!

    "WE THE PEOPLE" (American Public!) need a quick education of the Evil Oil & Gas Business! No, The Policitians (Pelosi, Reid, ect. , et.al, ) really do!

    Gusess What? The elected People (Congress) of "US" just took a week, or two weeks recess becaues? , I guess they were tired?

    Go Figure!

    We people down here in South Texas have a little storm (Dolly) "ROAR" through and I am just now getting 6 hours of per night. ( 2 nights)

    THAT TIRED!

    Meanwhile the two rigs are up and running again! ( that what counts in the Evil Oil & Gas Business) , keep "TURNING TO THE RIGHT!)
    TWO 19,000' (FOOT RATED DRILLING RIGS ) INVOICES PER DAY ARE RUNNING $126,342.00 PER DAY FOR THE LAST THREE DAYS!

    THAT MY JOB!

    WATCH THE COSTS OF EACH RIG! AND HOPE NOTHING BAD HAPPENS!

    POOR , POOR, PITY CONGRESS WHO HAD TO A RECESS FOR ONE OR TWO WEEKS TO GET SOME REST!

    ASSHOLES!!!!!!!!!!!!!!!!!!!!!!!!!!!

    HAVE A NICE DAY!!!!!!!!!!!!!!!!!!!!!!