Oil Prices and Global Exports

[The Reaper]

Originally Posted by dr. mabuse

Wouldn't hurt if we ignored the tree huggers and built 3 sweet crude refineries and 2 sour crudes ASAP...

I agree, and as long as I was compensated appropriately (and guaranteed product) you can build it on my property.

High time we all cowboyed up and did our part for the future.

TR

[Monsoon65]

Originally Posted by The Reaper

I agree, and as long as I was compensated appropriately (and guaranteed product) you can build it on my property.

My dad said the same thing around a nuke plant. As long as they run an extension cord from the plant to the house!

[nmap]

Originally Posted by dr. mabuse

Wouldn't hurt if we ignored the tree huggers and built 3 sweet crude refineries and 2 sour crudes ASAP...

It's interesting that they haven't isn't it? Clearly there is an ongoing demand for gasoline; why haven't the oil companies built several?

Perhaps tree huggers prevent building refineries in the U.S.; but notice that we imported something like 148,000,000 barrels of gasoline in 2007 - and that 23,000,000 of those came from the U.S. Virgin Islands. ( LINK ). Clearly, gasoline can be moved around the world. It doesn't have to be refined here. So perhaps the question becomes "Why hasn't anyone built more refinery capacity anywhere?"

It doesn't appear that the oil companies are attempting to gouge anyone on prices. Take a look at the attached chart - notice that the solid line in the main chart is the price of gasoline (wholesale), and the dotted line is crude oil (west Texas intermediate crude). The two track pretty closely. The price of gasoline got ahead of crude last year, but there isn't any evidence I can see that shows excessive markups. The lower portion of the chart represents how many gallons of gasoline a barrel of oil would buy. Right now, a barrel of oil buys (relatively speaking) a lot of gasoline.

My suspicion - peak oil is a real issue, the oil companies know it, and they're not about to put their money into building surplus capacity. If that suspicion is valid, the implications get interesting. Perhaps even exciting. But probably not pleasant.

[frostfire]

Originally Posted by Peregrino

Rhetorical question - "Why isn't the US Govt heavilly invested in fusion research?"

not a physicist here, but I do recall that this is against the 2nd law of thermodynamics. The entropy of the universe always increases. Practically, it goes along the line of it takes less energy to break a matter to its constituents than the other way around.

Originally Posted by Peregrino

Do the math - we're trying to increase efficiencies of conversions, not create more. Ethanol, biodiesel, petroleum, etc. are all net losses. The more steps in the conversion, the greater the loss.

This is very true. When the whole hype on car running on hydrogen fuel was all over MSM, all the chemE called BS on that one. The H2 still came as a product of electrolysis, which uses electric power from fossil fuel and so on.

I'm still all for nuclear power. I'll have it in my backyard, no problem. 'Course I'm always moving

[nmap]

You bring up Iraq and oil reserves...I was looking at a piece that discussed the numbers. The highest was 300 billion barrels, which would exceed what Saudi Arabia had. LINK

The problem is, global use is up to 83 million barrels per day - or 30 billion barrels per year. So if we take as a given the most optimistic assessment, and also suppose it can all be recovered, then we get (at best) 10 years before we're in trouble again. ( LINK ) Ten years sounds like a lot, but it isn't much time to come up with new technology and get it implemented across the country. As Peregrino mentions, we've been toying with fusion for half a century, and we still haven't solved the problem. Projected increases in use, as available at the link above, render the problem even worse. If there are fresh reserves, we had best use the time it buys us wisely.

That makes it essential we get to work finding some new solutions, whatever those might be. And therein lies the trouble if the price of oil goes down. Complacency is comfortable; the status quo is easy to accept, and generally doesn't create controversy. If oil went back to where it was last year, and gasoline did the same, everyone would be happy - and all incentive for solutions would wither away. It seems we need the pressure of circumstances to motivate us.

[nmap]

Originally Posted by frostfire

not a physicist here, but I do recall that this is against the 2nd law of thermodynamics. The entropy of the universe always increases. Practically, it goes along the line of it takes less energy to break a matter to its constituents than the other way around.

In this case, a small amount of mass is converted to energy. The 2nd law is not violated, since disorder still increases.

LINK

[GratefulCitizen]

Originally Posted by Broadsword2004

Unfortunately, we don't have enough uranium to rely solely on nuclear power right now either I don't think, and even if we do, we don't have enough domestically, we have to import it.

As the price of uranium increases, stuff that was previously just "dirt" becomes ore.
(uranium is quite common)

The impact of fuel cost on power generation is not as great with uranium, when compared to coal or gas.

http://world-nuclear.org/info/inf02.html
(scroll down to "impact of fuel costs" graph)

[dr. mabuse]

Nmap, there's no "perhaps" to it. Just a little background. My stepfamily has been in the oil business for over 60 years now and they have a long track record of giving me accurate info. They are on the inside. I also have old friends that are on the fuel additive and refinery side of the business.

The reason "they" haven't built them is due to "green" legislation. If we pulled the trigger today on building one, it could be the better part of 25 years before it would be online thanks to current laws. I was told less than a year ago that if we had 5 refineries online(3 sweet, 2 sour), that alone would drop the cost ~ $2-$2.10 for premium (in Texas).

ALso, the "green" nonsense of having "boutique" custom gasoline blends (like in California) drives the price up. And you already know the folly of alcohol in gasoline.

Lastly, on average, when it is all said and done, the evil big oil companies are running a margin of about 8.5 cents on the dollar. We just use a hell of a lot of gas. Yes, we need to look at supply, yet let's not forget the processing end of things.

Why do you think the media quotes gross profits and never quotes profit margins???

For you tree huggers out there, our electricity is all wind power, and we have a carbon footprint of about 7.2.

I'm with TR. Build one in my backyard.

[dr. mabuse]

Nmap, there's no "perhaps" to it. Just a little background. My stepfamily has been in the oil business for over 60 years now and they have a long track record of giving me accurate info. They are on the inside. I also have old friends that are on the fuel additive and refinery side of the business. The truth doesn't sell as many newspapers or boost your rate card for advertising dollars.

The reason "they" haven't built them is due to "green" legislation. If we pulled the trigger today on building one, it could be the better part of 25 years before it would be online thanks to current laws. I was told less than a year ago that if we had 5 refineries online(3 sweet, 2 sour), that alone would drop the cost ~ $2-$2.10 for premium (in Texas).

ALso, the "green" nonsense of having "boutique" custom gasoline blends (like in California) drives the price up. And you already know the folly of alcohol in gasoline.

Lastly, on average, when it is all said and done, the evil big oil companies are running a margin of about 8.5 cents on the dollar. We just use a hell of a lot of gas.

Why do you think the media quotes gross profits and never quotes profit margins???

I'm with TR. Build one in my backyard.

P.S. If you want to get a feel for what the real margins are, this is the site for CA gasoline. Notice about 65 cents/gallon are taxes.....

[nmap]

Originally Posted by dr. mabuse

Nmap, there's no "perhaps" to it. Just a little background. My stepfamily has been in the oil business for over 60 years now and they have a long track record of giving me accurate info. They are on the inside. I also have old friends that are on the fuel additive and refinery side of the business.

Thank you for your input! I'll look forward to reading more of your thoughts in future.

[nmap]

Originally Posted by dr. mabuse

I was told less than a year ago that if we had 5 refineries online(3 sweet, 2 sour), that alone would drop the cost ~ $2-$2.10 for premium (in Texas).

I've got a question...since gasoline can be imported, why couldn't a refinery be built in Mexico, or Haiti, or any of a number of other places that are likely to be less than fastidious when it comes to environmental regulations?

Surely the costs of moving a tanker load of fuel can't be that much, since it is already being done...

[dr. mabuse]

The link is http://www.energy.ca.gov/gasoline/margins/index.html.


As far as doing it outside the country, I don't know. I'll be in east texas visiting relatives this weekend and maybe I can get an answer if the "oil relatives" are in town.

[bailaviborita]

I would say invest. I am. Natural Resource mutual funds in no-load fund families that have a bunch of 4-5 star morning star rated funds (Vanguard?)

I don't see natural resources- whatever they are- going out of style anytime soon. The way China and India are growing only means that all energy sources will make money and will keep on being in high demand. Remember, most energy companies aren't just doing oil- they are spread out and also doing R&D.

As for what controls prices- I think there are different forces operating long-term vs. short-term and there are also time delays and multiple feedback loops associated with oil flows and price determinants that to make a decision based on fundamentals is almost impossible. I don't think the oil companies, OPEC, or speculators have a say any more than a group of well-intentioned would from boycotting CITGO. It is much too complex a system to boil it down to one group/ one cause. But, IMO, the overall, long-term trend is increased demand- far outstripping supply.

Too bad this country doesn't have a ballsy pol who makes a commitment to a "Manhattan-type" project for alternative energy.

[nmap]

Originally Posted by bailaviborita

I would say invest. I am. Natural Resource mutual funds in no-load fund families that have a bunch of 4-5 star morning star rated funds (Vanguard?)

I agree, Sir. The Vanguard Energy fund (VGENX) has done nicely over the years. I've also started dabbling in some of the commodity oriented ETFs - DBC, UNG and DBA being my favorites right now. The only thing wrong with them is the paperwork burden, since they are treated as limited partnerships instead of regular stocks.

Originally Posted by bailaviborita

As for what controls prices- I think there are different forces operating long-term vs. short-term and there are also time delays and multiple feedback loops associated with oil flows and price determinants that to make a decision based on fundamentals is almost impossible.

Entirely true. Matthew Simmons book develops the idea that we don't even have clear data from all the players, such as Saudi Arabia. The lack of clarity may be problematic at the policy level, since it becomes impossible to know if there is actually a problem.

Originally Posted by bailaviborita

Too bad this country doesn't have a ballsy pol who makes a commitment to a "Manhattan-type" project for alternative energy.

So true. I cannot help wondering if they would even need any particular courage. At current prices, we're sending about $400 billion to other countries each year. ( LINK ); surely some politician somewhere could use that to create a mandate for new solutions.

[nmap]

An interesting development on the southern border, perhaps?

The short version - Mexico's oil production is dropping rapidly. This will tend to reduce their earnings, which could be a problem for their government. It also impacts our oil imports, and the price thereof.

-----------------------------------
Calderón pleads for energy reform
By Adam Thomson in Mexico City
May 26, 2008 9:29:00 PM


Mexican President Felipe Calderón issued a desperate plea to Congress at the weekend to approve his energy reform proposals after figures showed that oil production had slumped to a nine-year low.

The rapidly declining production in one of the world's top 10 oil-producing nations comes amid a global supply crunch that has sent the price of international crude to records in recent weeks.

On Friday, Pemex, Mexico's state oil monopoly, reported that April average daily production had fallen to 2.77m a day compared with 2.85m the previous month and 3.18m barrels in April 2007.

According to Pemex, production at Cantarell – one of the world's largest oil complexes, which accounts for roughly half of Mexico's total daily output – has shrunk 24 per cent in the past 12 months alone.

The latest data highlight the increasing difficulties faced by Pemex, which has long suffered from insufficient funds for exploration, ageing existing fields, and Mexico's constitution, which prohibits it from entering joint-risk contracts with third parties.

"The rate of decline is much quicker than we had anticipated," Jordy Herrera, under-secretary for energy, told the FT this month.

The situation for Mexico, which relies on oil revenue to fund about 40 per cent of total government income, has been made worse by the fact that proven reserves have also been deteriorating so fast that the country could become a net oil importer within a few years.

A recent study published by the energy ministry and Pemex showed that the country's total proven reserves had plummeted from 20.1bn barrels equivalent in 2002 to just 14.7bn barrels last year.

On Saturday, Mr Calderón told an audience in the coastal resort of Acapulco: "My government has presented a proposal to make Pemex stronger, more transparent, with greater operational and technological capacity and, importantly, to stop falling production."

One of the main ideas is to give Pemex greater flexibility to associate with third parties and, at the same time, to give private companies working with Pemex financial incentives linked to performance.

Most analysts view the proposed changes as a tepid reform and woefully short of what Mexico needs to turn the situation around. But even this proposal has faced stiff opposition in Congress.

Ordinary sessions ended on April 30 without any sign of progress, and leftwing members of the opposition have since managed to force a so-called national debate. The debate, which began on May 13 and is scheduled to last for 71 days, includes legislators, experts and other members of Mexican society.

However, industry analysts fear the delay diminishes the chances of a reform being approved.


LINK