(09/16/2008 02:28 PM)
Let's Talk About the Failing Oil Industry, and Palin's Economic
Interests.
The most important comment one could make is that this is not
1952, and the technological conditions are completely
different. In 1952, oil, and automobiles, and airlines were
all in the technological ascendant. Now they are in the
technological descendant, pounded and pulverized by the growth of
electronics and computers. I have gone into this in a recent
comment (*). The oil industry is a dying industry, grabbing
at every straw to prolong its existence a few more months or
years.
Oil at a hundred dollar a barrel is not sustainable over the long
term, because, all else failing, you can make synfuel from
coal for considerably less, using the same kinds of techniques
that the Germans and the South Africans used. In a place like
Wyoming or Montana, there are functioning coal mines, railroads,
refineries, oil and gas pipelines, in short, a whole range of
infrastructure which does not exist in most parts of the
Continental Shelf and the adjoining coastlines, except for the
Gulf of Mexico. All that is needed to produce synfuel in Wyoming
is to build what is, in effect, a new kind of refinery, based on a
raw material of which there is a virtually unlimited
supply. If you are willing to make the investment in
infrastructure to use electricity for transportation, that is even
more attractive than synfuel. The price of oil is only
being maintained by political panic. I do not think the
disputed offshore leases will ever be drilled. The oil
industry is already reluctant to undertake capital expenditure on
those oilfields, plants, etc. which it already has. It would
rather pay out dividends to the shareholders instead.
There are certain hard facts which go into investment decisions.
One of these is that wildly disproportionate quantities of
gasoline are used by a minority of commuters and business
travelers who go extremely long distances, taking up a lot
of their own time in the process. Such commuters and business
travelers tend to have highly cerebral occupations;
and they have the greatest ability and incentive
to switch to some other system. This includes the
possibility of telecommuting, of course, but there are other
options. For example, WiFi-enabled laptop computers have
transformed the significance of the commuter train. The train is
often more attractive than the automobile, because it is possible
to get a lot of work done on the train, without having
to pay attention to the driving. People take the train, even
if it is slower than an automobile, because the value of
their time is the paramount consideration. Office hours are
adjusted to reflect the work people do on the trains or at
home. Add to these changes the comparatively minor
factor of the hybrid car. The hybrid car is likely to be
adopted first by the long-distance drivers, so a mere five
or ten million hybrid cars in use is a serious matter for
the oil industry. The oil industry has to reckon that
its market might fall by a factor of two
or three, as the abnormally heavy gasoline users switch over,
essentially without warning. Under the circumstances, the oil
companies are not going to be disposed to reinvest any more money
than they are forced to.
At the same time that the rise of the extreme long-distance
commuter has been taking place, the texture of daily life
has been becoming more suburban, and consequently, more
local. To illustrate with a humble occupation, in the year 1952,
before the rise of the shopping malls, an aspiring
department store salesgirl had to go all the way downtown to
find a good sales job, at Macy's or Bloomingdale's, or the local
equivalent. The jobs in the neighborhood business districts were
likely to be inferior in character (Woolworth's, Kresge's,
etc). Now, of course, the aspiring salesgirl can get a
job at the local mall, a couple of miles away. Even if we assume
that the salesgirl's occupation has been upgraded to something
like a retail stockbroker, that, too, is a business done at
the local bank branch. Commuting at that level
might only account for a gallon or two of gasoline a week. It is
also within easy range for an electric car, even without
postulating a lot of infrastructure-building. Over
the years, the oil companies have been boxing themselves
into a more and more specialized niche, making themselves
more and more vulnerable to sudden decapitation.
I might add that Sarah Palin is an anachronism precisely
because she is from Alaska, and her politics are based around the
distribution of the oil dividend, and her husband is an oilfield
worker. She is a de-facto oil industry lobbyist, essentially on
the grounds that what is good for the oil industry is good for
Alaska. Suppose that you value oil as if it were coal, on
the basis of heat value. On that basis, oil is
only worth about six or seven dollars a barrel, Alaskan oil might
be too expensive to produce, and there would probably be no
dividend. Western coal commands a landowner royalty of about
sixty-five cents a ton, equivalent to fifteen cents per barrel of
oil. A ton of coal ultimately becomes about two hundred dollars
worth of electricity at retail prices. For practical purposes,
coal has no economic scarcity value. Including things like
locally paid wages, stimulation of local business, taxes, the
whole lot, in short, the states where the coal is mined generally
do not see as much as five percent of what the consumer
ultimately pays. The Navajo Nation has lots of coal, and the
Navajo are sooo poor... On the basis of coal, Alaska's oil
revenues might be worth something like a hundred dollars per
capita per year, chump change, in short.
Sarah Palin's economic interests approximate those of Hugo Chavez,
president of Venezuela. Indeed, I understand she is sometimes
called the Alaskan Hugo Chavez. She doesn't want to produce really
a lot of oil, because that would cause the price of oil to fall,
and cause the Alaskan standard of living to fall down to Navajo
levels. She wants the oil to be scarce and expensive, and she
wants the United States to be dependent on foreign countries,
because OPEC can do things which would constitute violation of the
American anti-trust laws if Americans did them. OPEC can
set the price which is paid for American oil.
So let's call Palin's bluff. Open up the continental shelf to
drilling, according to whatever terms can be obtained quickly, and
without much argument. The same for the Arctic National Wildlife
Refuge. This will force her to take more of a cultural
conservative stance, isolating herself from the great mass of the
American people.
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(*) My "Yes, It's The Oil-- But Not Quite the Way You Might
Think," in response to Judith Apter Klinghoffer, "Why Tom Friedman
Is Wrong on Russia and Wrong on Energy"
http://hnn.us/articles/53694.html
http://hnn.us/board.php?id=53694
(9/20/2008)
[A series of responses to critics]
To Raul A Garcia:
Plastics are a trifling fraction of oil consumption. They can in
any case be made from coal or natural gas. It is just that
plastics are visible, whereas fuel is not visible, being hidden in
the gas tank. What is on the way out is the use of oil as a fuel.
As for long-distance commuting, I should clarify. I am talking
about the kind of people who drive a hundred miles a day, fifty
miles to work, and fifty miles back again, who, in effect,
specialize in being long-distance commuters. It is reported that a
minority of the population which does that, twenty percent or so,
accounts for perhaps eighty percent of the automobile mileage. At
that level, there are surely alternatives, of one kind or another.
If you took only that portion of automobile travel which is on
freeways, and managed to convert it to electric power, that would
be enough to reduce gasoline consumption to a point where it would
no longer need to be made from imported oil.
To Robert Smith:
Large-scale use of coal for electricity generation is simply the
status quo. Further, the coal is burned in comparatively populated
areas, not in the remote areas where synfuel would be made. For
many transportation uses, such as automobiles, the performance of
a fuel, that is its energy content relative to weight or bulk, is
not critical. For such uses, methanol is good enough, and methanol
can be produced from coal by the comparatively nonpolluting
Hydrocarb Process, developed about twenty years ago at the
Brookhaven National Laboratory. The Hydrocarb Process essentially
pumps the input material up to a pressure of several hundred
atmospheres, breaks it down into carbon, hydrogen, and oxygen, and
puts it back together again into methanol, leaving out such
contaminants as sulfur and arsenic. It is supposed to deliver
methanol for about twenty cents a gallon, which is equivalent to
about forty cents a gallon for raw gasoline (ie. a dollar a gallon
or so at the gas station). Before the present crisis started,
these number were not especially compelling. But times have
changed.
You can reduce coal burning, if you are prepared to pay for it, by
using more nuclear power, more renewables, and more energy
conservation and increased efficiency. Come to that, you can use a
nuclear reactor to power a chemical plant, such as a refinery or a
synfuel plant. The traditional norm has been that such plants were
self-powered, using a portion of their input material for fuel,
and putting out a large proportion of low-value sub-quality
products. For example, an oil refinery only generates about fifty
percent gasoline, and before the invention of the catalytic
cracker, it was much less. This does not have to be the case. The
waste products can be reprocessed until they become gasoline.
Apart from process heat per se, there is an increasing interest in
microwave chemistry. The idea is that you have a chemical reactor
vessel which is designed to function as a kind of microwave oven.
It zaps the chemicals with microwaves tuned to the natural
frequencies of particular chemical bonds, and thus drives
particular reactions. A nuclear reactor can provide the requisite
electric power.
The point is that, in electricity generation, the game is between
coal, and nuclear, and renewables, each with its own merits. Oil
just isn't a player, because it has the disadvantages of all, and
the benefits of none. If you modernize transportation to the same
extent as electricity and electrical equipment, much the same
thing will happen to transportation's energy sources. By the time
you have built a really good road, you have done so many other
things that putting in electricity isn't really a big deal. To
take an extreme case, it is axiomatic that elevators are
electrically powered. So are subways, because of the underground
smoke problem. In a city, the only way to have a positively
uninterrupted railroad line is to put it either above ground level
or below ground level. The better sort of passenger trains are
electric, because they need to have a subway mode, or because they
go so fast that a powerful enough engine would be too big. All
trains which go a hundred and fifty miles an hour are electric.
To Lawrence Brooks Hughes:
When you talk about the "laws" of economics, you lose sight of the
fact that Adam Smith knew almost nothing about mass production
technique, which came after his time. The basic fact of life about
heavy industrial infrastructure, things like oil refineries, is
that there is a physics of size which means that certain types of
plants work best when they are really gigantic. These gigantic
plants cost a lot of money, of course, and they have to be paid
for up front, but they tend to last for a long time, say fifty
years or more, and their operating expenses are not very great,
relative to their size. That means that the marginal cost of
production from a giant plant is low, and if someone finds the
money to build a giant plant, he can generally undersell everyone
else. Practically speaking, the money for the giant plant
ultimately comes from a government, eg. the Manhattan Project and
subsequent nuclear power, the Interstate Highway System, the Air
Force and the airlines, etc. The worship of short-term economics,
when applied to such a highly capitalized industry, is in practice
an unconditional surrender to whoever has bought a plant up front,
and consequently has low marginal costs. In the case of oil as
presently constituted, it would be King Abdulah of Saudi Arabia.
Saudi production costs are only about a couple of dollars per
barrel because the plant is already paid for. This gives the
Saudis enormous room to cut prices, drive competitors out of
business, and afterwards raise prices again. The Saudis can
"roller-coaster" the price of oil, just like they did last time,
back in the 1970's, whipsawing it up and down.
The thing about the Outer Continental Shelf is that it is about a
mile deep, and, say, a hundred miles offshore. This is not
impossible, to be sure, but it does mean that even to look for
oil, one would have to spend money in a fairly substantial way.
Only a handful of the newest and most expensive drilling rigs are
designed to be capable of drilling while floating, in water too
deep to sit on the bottom of the sea. So drilling the Outer
Continental Shelf would involve a sizable shipbuilding program,
probably on the same general scale as the United States Navy. The
oil companies won't risk it. We are talking about something which
would have to be paid for by the government, along the same lines
as the Bridge to Nowhere. The money might be better spent on
synfuel plant.
The oil industry likes to have the United States dependent on the
Middle East. Economic theory says that when a commodity gets
cheap, people use more of it. However, the reality is that
commodities are used in conjunction with each other, and a cheap
commodity's consumption may be limited by the expensive
commodities it is used in conjunction with. For example, at
present prices, the gasoline consumption cost of driving might be
as much as thirteen dollars an hour ($4/gal, 20 mpg, 65 mph), but
the driver's time might be worth anything from twenty dollars an
hour up to fifty dollars an hour or more. If you cut the price of
gasoline back to a dollar a gallon, the total cost of driving, per
hour, might drop from the $30-$60 range to the $20-$50 range. In
short, driving would still be almost as expensive as before, and
people would be equally reluctant to drive further than necessary.
So, for the oil industry, reduced prices mean reduced revenue.
They like the situation the way it is, when oil prices are high,
but people have not adapted to high oil prices. It's like selling
drugs to a junkie. Of course, most people are not junkies by
temperament, and the situation cannot last very long.
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http://en.wikipedia.org/wiki/Synthetic_fuel
http://www.freepatentsonline.com/5427762.html
http://www.osti.gov/bridge/servlets/purl/5216298-oI6303/5216298.PDF
www.osti.gov/bridge/servlets/purl/5216298-oI6303/5216298.PDF+">http://64.233.169.104/search?q=cache:Ucjz7QTyEgAJ:
www.osti.gov/bridge/servlets/purl/5216298-oI6303/5216298.PDF+%2B%22hydrocarb+process%22&hl=en&ct=clnk&cd=12&gl=us
Oxygen-assisted burning: The separation of oxygen from air is
becoming efficient enough that it can be used in a power plant.
Burning fuel in pure oxygen enables the fuel to be burnt at a
higher temperature, without the formation of nitrogen oxide
pollutants, and this higher temperature, harnessed through a MHD
generator, enables the plant to operate at a greater efficiency,
and consequently, to provide enough additional power to drive the
oxygen separator.
http://www.fe.doe.gov/programs/powersystems/pollutioncontrols/overview_noxcontrols.html
http://arsmedica.com/cr/cr-3361.html
http://pdf.aiaa.org/preview/CDReadyMPLC03_578/PV2003_3482.pdf
And here is the ultimate in Clean Coal:
http://hardware.slashdot.org/hardware/08/09/19/1357209.shtml