The Cato Institute’s Jerry Taylor speaks much good sense, in today’s New York Post, about energy prices.
Suggestions for Lowering Energy Prices
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I don't apologize for being a cynic, but I read the article and while I agree with Mr. Taylor's ideas, I won't hold my breath.
And, I am sorry, but a 70 Billion windfall in opening the strategic petroleum reserve is just chump change in Washington D.C. The mindset of those bastards in Congress guarantees that 70 billion would be spent in a heartbeat on something that you and I would most likely never see any benefit from. Hostory is just so over whelmingly in support of my cynicsim.
Congress put the Polar Bear on the endangered species list, so you can forget about ideas #1, #2, and #3. Anything that can be said to contribute to global warming in their twisted little minds is also a thing that creates danger for the Polar Bear. Congress, the bastards, can now step back and disclaim any responsibility for the actions that will be taken by the Executive branch in enforcing the new law, the EPA specifically, and the interpretations and action blocking decisions made by the Supreme Court.
There are only three things that will change that, mass extinction of Polar Bears, mass extinction of Congress, or genuine popular revolution.
My idea about how to handle the future is for each person to buy a big vat of vaseline and glob quantities of it on your anus daily upon waking from sleep, keep yourself well greased because you're gonna get screwed for sure.
Hostory (history) is just so over whelmingly in support of my cynicsim.
My bad.
I didn't see anything about an oil windfall profits tax on his list. The newspaper must be broken, or something.
We went through the issue of pricing electricity in real time on this blog, and concluded, over a month ago, that for about $10 per household we could deliver real time pricing on the spot with a plug in measuring device into the wall socket.
Why don;t we do it?
You either destroy demand, and/or increase supply via price. Either let the markets do it, which means timetable has many unknowns, or intervene via government (and hope they get it right).
What about the lack of oil refineries in the US? There hasn't been one built in almost 30 years. And in that time some have been closed. I have read the operating refineries are at full capacity but there is no interest in building any due to the heavy regulation of the industry. I would expect that there is at least some upward pressure on price due to this?
The problem with real time pricing is implementation, and that includes the regulatory structures that are in place in various states. Take the California smart thermostat thing that elicited an uproar from our hosts here. Realistically in the current electric regulatory realm, that is the only way that Californians outside small self-selected niches are going to ever see real time pricing, but because someone interpreted that the utilities could shut off your thermostat in a power emergency, it was a no go.
I'm just saying that electric regulation is so screwed up to begin with and the Enron fraud set deregulation back a century. We have got to be opportunistic about getting market signals into the equation even if it means accepting screwy things along with them.
Rob: "What about the lack of oil refineries in the US? There hasn't been one built in almost 30 years. And in that time some have been closed."
I agree the regulatory environment has made it difficult to build new refineries in the U.S. However, U.S. petroleum refiners have increased capacity over those 30 years. Acording to the U.S. Energy Information Administration, U.S. refiners processed about 12.5 million barrels of gasoline daily in 1983. Today they are processing 15.0 million barrels of crude per day.
U.S. weekly crude input to refineries
Most of the nation's large refineries have been expanded. At the same time, refiners have been able to reduce scheduled downtime at each refinery. For the most part, refiners have kept ahead of the demand for refined products.
The closed refineries that energy critics focus on so much were, for the most part, smaller refineries, some of which were built to serve small petroleum reservoirs. These refineries were just not as efficient as the larger ones, and as they aged, it made sense to shut them down.
The major risk to our refinery capacity is its concentrated geographic location. Damage from hurricanes Katrina and Rita demonstrated the seriousness of that risk.
Here's some of the North American refinery capacity announced in recent years:
Motiva's Port Arthur, TX, refinery to add 325,000 bbls/day capacity
Marathon Oil's Louisiana refinery to expand by 180,000 bbls/day
Valero to expand North American refinery capacity by 400,000 bbls per day
Taylor says: “…those who argue that gas and diesel prices don't' reflect important "external" environmental and national-security costs are simply wrong – at best, those added costs are trivial on a per-gallon basis.”
I come up with $0.67/gal of oil and diesel for military assuming ½ the cost of the war in Iraq and 10% of the rest of the military budget is used for oil security. If added on, that would represent a mere 17% increase over the current cost per gallon… that seems a bit more than “trivial”. Still, let’s look at what he proposes.
Emptying the SPR would have a significant effect on the world market as it was drained, assuming it was at a quick rate… but then, when the few months of glory is over, you're back where you started.
Shale: shale oil accounts for less than 0.2% of the world's oil production… despite decades and billions of dollars invested. We will know better in a few years when Shell’s Colorado project comes online, but shale’s potential at this point is questionable without a cheap source of energy to heat the shale.
ANWR: The EIA estimates ANWR at its peak would produce about 876,000 bbl/day = 4% of US consumption or about 1% of world output today. This is far less than the 3 million bbl/day that Taylor hopes for.
The reason that the EPA lowered the limit of permissible sulfur in diesel is so that the new clean diesel catalysts will work. High-sulfur diesel can cut their life to less than a year. So, simply allowing more sulfur in diesel would raise consumer prices for people who are replacing their diesel vehicle's catalysts regularly. Those with older diesels would benefit… but the amount of benefit is questionable… decreasing the cost of sweet crude slightly and increasing the cost of sour crude slightly… maybe $5-10/bbl overall decrease?
All these together would mean very little for the long-term price of crude… a small decrease… some might even call it “trivial.”
I was puzzled by this sentence:
"The only thing government should do on this front is ensure that prices are "right" – that is, that they reflect total costs."
Is this really something govt should do? And can anyone actually accomplish this? Would trying to implement this goal create new costs?
My point above was that there are no silver bullets or quick fixes with the oil situation. I think the best thing "the government" could do is to acknowledge that and then stay out of the way. Opening ANWR and the coasts would be nice, no "windfall profits" taxes, no speed limit changes, no CAFE requirements for cars… just stay out of the way.
While removing impediments on the supply side is nice, I'm wary of the article because it is simply another example of "Reality is inconvenient – the government should do something!"
In the past 6 months, SUV sales are way down, fuel-efficient car sales have increased dramatically. The high cost of fuel is having a much more dramatic effect on gasoline consumption than any government mandate… all without the help of any hot air from Washington.
Consumers willing to commit themselves to pay an attractive long term price for oil would stimulate much investment and get oil…but no everyone is looking for that oil of 10 dollars per barrel of less that ten years ago. The big question here is, why is the right price on something as basic as oil the spot price? Should not the right price be that of a 20 years take-up contract?
Most of these suggestions seem like short-term fixes except the shale oil question. I don't see how you would convince a conservative Exxon to make capex decisions on a $90+/bbl oil price. From what I understand the most aggressive capex decisions assume $50/bbl. Keep in mind that these prices have to hold for the 20+ year life of the project.
More generally, the underlying assumption of the article is that there is something wrong with prevailing energy prices. It's not clear to me that energy prices are a problem that need to be addressed. The fact is that the U.S. is a relatively energy inefficient economy as measure by energy consumption per $ GDP. Most of Europe has a similar quality of life while consuming significantly less energy per $ GDP. Not coincidentally, energy prices are much higher (gas is closer to $8 per gallon) and have been so for much longer.
I agree that the price signal should be as clear and real time as possible but even with the current distortions, high prices are having the needed effect — behavior changes leading to greater energy efficiency.
BTW, since most families work these days, who actually runs clothes driers during the day? I did a load of laundry last night around 9 p.m.
Jeff,
You said:
"More generally, the underlying assumption of the article is that there is something wrong with prevailing energy prices. It's not clear to me that energy prices are a problem that need to be addressed. The fact is that the U.S. is a relatively energy inefficient economy as measure by energy consumption per $ GDP. Most of Europe has a similar quality of life while consuming significantly less energy per $ GDP. Not coincidentally, energy prices are much higher (gas is closer to $8 per gallon) and have been so for much longer.
I agree that the price signal should be as clear and real time as possible but even with the current distortions, high prices are having the needed effect — behavior changes leading to greater energy efficiency."
Posted by: Jeff | Jun 3, 2008 10:41:19 AM
Let's agree that the underlying assumption is that there is something wrong with prevailing energy prices.
I am in agreement with that underlying assumption for the following reason. There is obvious manipulation of the supply side of the equation through the restrictions placed by our Congreassholes that prohibit us from accessing our own known domestic sources. That it is done by Congreassholes is no less a market manipulation, resulting in higher prices, than if it was done through the collusion of a market cartel.
The prevailing price does not represent a true picture of what the free market may be capable of delivering, if the market was indeed free at all levels.
That the USA is energy inefficient is a thing I agree with you on, but to compare the USA to Europe and claim that we have similar quality of life makes me wonder how you came to that conclusion. I would say that quality of life is open to interpretation and mostly at a personal level.
I have lived in Europe for many years and traveled frequently since and my observation is that no place on earth has the quality of life found in the USA and Canada in most categories one would care to measure.
Europe is mostly urban with some residual rural, but with very little suburban as we in the USA know it. The European urban dwellers make up the majority of their populations. Wall to wall, no yard space, narrow roads, multistory dwellings, no concenient place to keep an auto much less on the home site, transporation mostly dictated by public means and times. That type of life style will naturally consume less energy on the average.To me those negatives reduce the quality of life.
I would hope that it is not your goal to see the USA forced into the same life sytles as the government squeezes us tighter and tighter towards moving from the suburbs back to the urban areas.
We Americans could indeed be much more energy efficient if we chose and in a lot of different ways.
Back when I was in the flooring business and later in the interior remodeling it was an everyday thing for me to walk into a home and find every light in the house on during the day, and a TV in every room blaring in competition to a couple of radios; and, all that with only one person in the home. I really do believe that that is very common in the USA, but I don't consider it as a plus to our quality of life.
Vidyohs — Trust me, I'm no Europhile. I've also lived in Japan and experienced the differences in quality of life there (the washing machines are awful and there are no clothes driers to speak of). However, the difference in energy efficiency is around 40%. Not sure if the average U.S. quality of life is 40% higher than average in Western Europe and Japan. Ultimately, it's subjective, but having grown up in a rural area and lived in cities most of my adult life (in U.S. and abroad), I think the quality of life of "real" America is greatly exaggerated.
Not sure that restrictions on oil and gas extraction are "artificial". These are political choices which all democracies make just as we "chose" throughout the 20th century to invest in infrastructure that titled the playing field toward the development of a domestic automobile industry. At the same time, the oil and gas industry also benefits from significant subsidies so it's not clear to me how production incentives balance out.
Ultimately, oil and gas are a finite resource and increased supply won't solve the problem in the long term.
Jeff: "we "chose" throughout the 20th century to invest in infrastructure that titled the playing field toward the development of a domestic automobile industry."
I can't know what you are meaning this statement, but the argument by others that oil companies and car manufacturers somehow drove our nation to use cars is just wrong. U.S. consumers have always chosen the freedom of personal transport over mass transit every time it was economically feasible. Passenger railroads supplanted horses and mules only for a brief period in history – until internal combustion engines were developed. Purchase and use of motorized vehicles drove the spending on highways, not the reverse. Demand by consumers for better roads and highways still drives such spending, as anyone who attends legislators' town hall meetings in most of the nation would know.
The "tilted playing field" argument is just one more instance where history is rewritten – rewritten to promote the interests of those who would take away individual freedom.
John — I'm a proponent of rational choice theory so I agree that consumers choose the automobile because its easier than public transit in most locations in the US. But there is nothing inherently advantageous to the automobile relative to public transit. People will choose public transit when it's the more convenient option. Keep in mind, most Americans don't face a genuine choice to begin with.
Lack of a genuine choice is challenge that has to be resolved if we want more mass transit. Difficult, but not impossible with leadership and long-term commitment. The way our country does public infrastructure spending is a joke and more akin to a banana republic. The federal gov't doesn't even have a capital budget. We book capital spending the same way we book current spending. So we get pork-driven road bills that result in bridges to nowhere as opposed to medium to long-term investment plans.
Don't get me wrong, I don't think this is an oil company driven conspiracy, but more of a QWERTY-type of outcome. The US was never destined to be an auto-centered culture, just as the VHS or Blu-Ray was never destined to be respective media standards.
Final comment — I also don't want to assume that it's all about transport. Housing and building construction are just as important and also need to be part of the solution.
Jeff: "But there is nothing inherently advantageous to the automobile relative to public transit."
I completely disagree. Private transport of any sort will always provide freedom and convenience. Private cars have no schedules. Cars go everywhere. Cars offer easy transport of goods. Cars allow privacy. Cars reduce the chance of contracting disease or getting mugged during one's commute.
Jeff: "Keep in mind, most Americans don't face a genuine choice to begin with."
They did have a choice for at least 50 years. Contrary to all the revisionist history crap the socialists of this nation spew regularly, the private automobile won fair and square.
The evidence is very clear about what consumers will choose today. Billion dollar rail transit projects are attracting only a tiny fraction of potential commuters. Of course, in the face of such criticism, rail proponents try to alter their arguemnts, claiming that their billion dollar toy trains were only designed to serve commuters who live within a half-mile of the tracks. What an outrageous lie!
Jeff: "The US was never destined to be an auto-centered culture"
I disagree again. Uncontrolled sprawl – which requires the freedom of private transport – was always the destiny for North America. The availability of land and the freedom from central authority were for millions of immigrants the biggest attractions of North America. So-called "smart growth" socialists would rewrite that history to suit their purpose, of course.
Steps to be taken in trade exchanges:
1.) 100% payment on total value should be settled for all contracts within 2 days from entering the contract.
2.) Delivery of purchased item should be taken.
3.) A buyer cannot sell for atleast 3 months
4.) A seller cannot buy for atleast 3 months
Like this by implementung few simple direct rules in trade exchanges we can reduce the price.
Else… sector by sector it will affect common man to profit very few individuals.