Wednesday, May 28, 2008
Optimizing petroleium
One of the more promising new energy sources being researched and even now coming into production is Oilage or growing algae and using it to produce a high-grade crude oil. PetroSun is now producing in Texas and though researchers don’t think they can produce enough to replace crude oil, the resulting product can be blended with low grade crude to where it can be processed without retooling refineries and extend our supply exponentially
The recent rush to ethanol has proved the error of moving too rapidly to embrace a supposed alternative without exploring all its consequences, intended and unintended. The demand corn ethanol has put on this food crop, taking 20-25% of last years production, has fueled the rise in all grain prices raising fears of food shortages and bread lines around the world. This in a year of record crop yields. What will happen during a low yield year.
Now the multi-million dollar commitment investors and industry has made to this failed plan has politicians wringing their hands and instead of doing the right thing, backtracking this policy, they blunder ahead.
A better source of biomass would be switchgrass, but that wasn’t immediately available and would have required a season to plant and grow the source. That small delay would have staved off the drain on the food supply and the rampant run up in grain prices. But in the rush to deal with this problem in a short-term political way, another long-term problem has resulted.
And don’t forget the powerful agricultural lobby. Their strangle hold on Congress continues to funnel tax dollars in the form of crop subsidies, loans and more to these large corporate farm operations.
We must, in addition to finding new economical, reliable energy sources, continue to discover new ways to conserve energy in socially and economically friendly ways. One of the big problems with the environmental lobby is the constant call for actions that will harm the economy of industrialized nations and in the process bring hardship to the citizens of those nations.
Truly at its core, the underlying philosophy of environmentalism is to return industrialized nations to agrarian societies like the third world. Technology, industry and development must go to make way for the forests, the snail darter and spotted owl, and the grassy plains. To their way of thinking there is blight on the face of the earth and Humanity is its name.
Next post, new and old technologies visited.
If you haven't done so, visit American Solutions and sign the petition to let Congress know you want action on allowing exploration and production of our domestic resources. It's a national security as well as an econonmic issue.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: business, crude oil, fuel prices, oil, politics, technology
Tuesday, May 20, 2008
Crude, profits and big government
At the end of my last post I said I’d give my personal take on the solutions to the energy crisis. But as I thought about it, I realized most people swallow the line put forth by the media and the left as to the cause of the rising price of crude oil and subsequently the price of gas at the pump.
They (the media and the left) would have you believe that “big oil” and its billion dollar profits along with inept policy on the part of the Bush administration is the reason you are paying nearly $4.00 per gallon for gas.
I’m gonna have to disagree with them, and I’ll tell you why in this post.
The price of crude oil is not determined by the oil companies. While they may affect it to some degree, the price of crude is subject to the same laws of supply and demand that govern the rest of the US and free world economy.
The prices seen on a daily basis that has the media whipping up a froth of alarm is actually the bidding in the oil futures market. Those prices quoted are for crude oil to be delivered the next month. It’s actually a little more complicated than that, but for our purposes that’ll work.
There’s also a spot market that is even more volatile for crude available for immediate delivery. What determines the pricing in these markets is not “big oil” or even market demand. What drives it is what the traders think demand will be compared to what they think availability will be at that time.
Geo-politics plays a huge role in this. The current major unknown (traders hate unknowns) is the condition of the Nigerian oil fields. In recent years these production facilities have been under constant siege by militants, action that may result in the closing down of Nigeria’s 2.16 million-barrels-per-day production. That’s about 7.2% of OPEC’s production and nearly 3% of total world output.
Normally that wouldn’t seem to be a problem, but with producing nations shipping near capacity, demand from developing countries increasing and some analysts predicting a peak in production in a few years with ongoing declines thereafter, the current pressure on prices doesn’t look to be temporary. Many analysts predict an upward march to near $200 per barrel of crude within 2 years or sooner. At the current rate, it may well be sooner.
China, India, Russia and other rapidly developing nations are competing with the US for the finite supply, exploring and drilling in areas either geographically inaccessible to us or off limits due to the environmental lobby. China, Cuba and Mexico are planning to drill in the Gulf of Mexico while China bids on pipeline services in Alaska.
Bit by bit our resources are sold off or abandoned to foreign competitors while we complain and do little else.
But what about “big oil” and their “billion dollar profits?” Aren’t they making a killing off the consumer? As it turns out the answer to that is…No! The table below compares the 2005 profits of several major companies including oil and you can easily see that while amounts are large, “big oil” exacts a margin much lower than other large US companies in other sectors.
Oil company profits: A perspective Earnings, Revenues, Profits (Billions) for selected companies, recent quarter, 2005 Source: Bloomberg News, reported in AAPG Explorer Dec. 2005 | |||
Company | Net Profit | Revenue | Profit Margin |
Citigroup (banking) | $7.1 | $21.5 | 33% |
Microsoft | $3.1 | $9.7 | 32% |
Coca-Cola | $1.3 | $6.0 | 21% |
Procter & Gamble | $2.0 | $14.8 | 14% |
General Electric | $4.7 | $41.6 | 11% |
ExxonMobil | $9.9 | $92.6 | 11% |
ConocoPhillips | $3.8 | $48.7 | 8% |
IBM | $1.5 | $21.5 | 7% |
Chevron | $3.6 | $51.1 | 7% |
Wal-Mart | $2.8 | $76.8 | 4% |
Oil industry average profit margin is about 8.2%; (3rd Q. '05) for all US industry, the average is about 6.8%. Profits in the oil industry were easily outpaced by those of the Pharmaceuticals, Banks, Household Products, Software, Telecommunications, Semiconductors, Consumer Services, and Food, Beverage and Tobacco sectors. | |||
Should you think that is an anomaly, early figures for the first quarter of 2008 have Exxon, Conoco and Chevron earning .0857% on their total revenues of $235.5 billion dollars. That’s a net profit of $20.2 billion. But don’t worry; at the same time they paid $47.86 billion in taxes.
Let’s put that in perspective. You have a, say, widget you sell for $100. It costs you $71.08 to design, produce and sell that widget. After you collect your $100 from the sale you cheerfully give $20.32 to the government to spend any way they please and they let you keep $8.58 to do with what you wish.
In the case of “big oil” that $8.58 goes to the share holders who risked their money to invest in their future via the stock market while the government, which risked nothing took away nearly 2 and a half times what the investors received. And now Hillary Clinton, Barack Obama, Nancy Pelosi, Harry Reid and other Democrats want even more. (Psst..companies don't really pay taxes guys, it get's passed on to the consumer via cost of goods. Always has, always will. It's under the table taxation of the public.)
If the oil companies were to cut their profits to zero the most that would be saved at the pump would be .91.5¢/gallon. But in reality only .46% of a barrel of oil goes into gasoline so you might in reality see only a .424¢/gallon reduction. But how long do you think that would last? No company is in the business to break even. And no investor will willingly put his hard earned money into an investment when he knows his return is zero.
So the company goes out of business or is sold to an off shore investor, either way people are out of work and either the new owner or other international oil companies pick up the business and they earn the profits. And the government, they lose their cash cow.
"We are all in the same boat on a stormy sea and
we owe each other a terrible loyalty." - G. K. Chesterson
Labels: business, fuel prices, oil, politics, profits, taxes