Book Review: Oil on the Brain

Oil on the Brain: Petroleum's Long, Strange Trip to Your Tank by Lisa Margonelli

Oil on the Brain by Lisa Margonelli was recommended by Paul Sankey at the 2009 Energy Information Administration Conference as a book that provided great insight into the oil industry. I have had it on my list of books to read, and recently picked it up to read during my travels. I have been traveling a lot lately, and I like to read while I travel, so I knocked it out over the past couple of trips I have taken.

The premise of the book is that a person who doesn’t know much about the oil industry sets out to find out what it is really like on the inside. It reminded me in some ways of Crude World by Peter Maass (which I reviewed here). The biggest difference is that Margonelli was approaching the subject from a pretty basic starting point, and Maass had written quite a bit about the industry when he tackled Crude World.

I guess I never cease to be amazed by what people think the oil industry is like, and what it is really like. People seem to think that the oil industry is a bunch of guys in a smoke-filled room who conspire to set prices. To be honest, that’s probably the way I viewed the industry when I was growing up. And still, my first reaction to my cable bill going up is “Those greedy cable companies are ripping me off.” The big difference with the cable companies, though, is that their profits aren’t thrust in everyone’s faces at the end of every quarter. Every time oil prices do spike up and oil companies show nice profits, people do feel like they have been taken advantage of. But I digress a bit.

For this book, Margonelli embedded herself within various sectors of the oil industry. She spent time throughout the supply chain, hanging out at a gas station in California where she found that the owners made more money on candy and soda than they did on gasoline. She spent a day with a tanker truck driver and his dispatcher, and spent time in a refinery and on an oil rig. She even got inside the Strategic Petroleum Reserve, which is typically off limits to visitors. She traveled abroad to Chad, Venezuela, Nigeria, and even Iran to understand the world of oil and what is has meant to these regions.

Here were what I thought were some of Margonelli’s more interesting observations. She spoke a lot about the indirect costs of using oil. In talking about oil spills, she mentioned that her view of an oil spill had always been dominated by the Exxon Valdez. She had never connected these spills to her own fuel usage, but learned that drivers and boaters spill more oil every year than did the Exxon Valdez. The number she cited was 19 million gallons of oil products spilled each year in our waterways by boaters and auto drivers.

She wrote about the notion that oil companies are in a conspiracy to set prices. A jobber she spoke with – someone who has to buy fuel from the oil companies – said “There are eleven studies which show there isn’t a conspiracy. Chevron, Shell, Exxon – they hate each other. It’s like war daily. For them to collude is insanity, but people believe what they want to believe.”

On that topic, she noted an episode of hypocrisy displayed by Nancy Pelosi. One day in 2006 Pelosi told a group of school children that we hadn’t done enough to reduce our dependence on gasoline, and so demand was high and that’s why the price was high. Then she got in front of the cameras and she cited the conspiracy of big oil and the Republicans working for their interests. But as Margonelli noted, “the myth of conspiracy overwhelms reason, particularly when pump prices and oil company profits are high.” I think the lesson there is “If the talking point is working, keep pushing it.”

She met an old-time wildcatter named Michel Halbouty (now deceased) who complained that the country has not had a coherent energy policy in 30 years. He advocated more promotion of domestic energy exploration, and fears a slow slide into deindustrialization. He noted that the main problem is that “People. Don’t. Care.” As long as they can pull in and fill up, they just don’t care about energy policy.

In China, she met with someone within the government who was involved with energy policy. He noted that it would be a disaster for China to move toward an American way of life, but he says that cars are clearly there to stay in China. On GDP, Margonelli wrote that China requires 4 or 5 times as much energy as Japan per point of GDP. Finally, the minister commented that China needs “a bigger space to survive under U.S. hegemony.” On that point, she also spoke with a European analyst who said that U.S. hegemony is a part of China’s strategy; that if they can get the U.S. to bear the expense of maintaining the energy status quo, they will have the time and resources to retool their economy.

In the epilogue, Margonelli comments that there is no such thing as cheap gas; that there are hidden costs throughout the supply chain. But the population has come to expect cheap gas as a “grand bargain” with the government and the oil companies. When the price goes high, they look to the government to punish the oil companies so prices will come back down.

One weakness in the book is that it really didn’t address the question of depletion. It seemed to take at face value that oil will continue to be available and business will continue as normal for decades. However, I note that Margonelli was at the ASPO Conference this year (along with Peter Maas; I am sorry I missed that) so she got a heavy dose of peak oil information. Some very interesting comments by her can be found at this story covering the conference.

As one might expect, Margonelli emerged from her experience with a radically different view of how the oil industry works. I have to agree with Paul Sankey’s assessment that it does provide great insight into the industry, from a very basic starting point and with a balanced view. As one reviewer pointed out, it could have been titled “The Petro-economy for Dummies”, which is to say it is a book that is easily understood by those with zero knowledge of the industry. This book would be on my short list of books to recommend to people who want to know what the industry is really like.

31 thoughts on “Book Review: Oil on the Brain”

  1. Roberto,

    "The enemy of my enemy is my friend"

    The fact that oil companies are in competition with each other is irrelevant.

    When push comes to shove the fossil fuel companies are united in their disgust and disdain of alternative energy.

    They hate alternatives to oil, coal and natural gas. It's a "self-preservation" thing.

    Rooms full of "cigar smoke" ?

    No need to waste money on good Cuban cigars and expensive smoking salons……… The fossil fuels people are already united.

    "The enemy of my enemy is my friend"

    Why did the PC revolution take off ? Simple, it was a wide open playing field.

    Why don't alternative energy sources take off ?

    Simple. The playing field was relatively even (with little competition from established interests) whereas the energy sector is crowded with long-time players with absurd amounts of money with which to fight any alternatives to the status quo.

    Just that simple.

    John

  2. Correction:

    "Simple. The playing field was relatively even (with little competition from established interests)"

    This should read "The PC playing field was relatively even (with little competition from established interests)"

    John

  3. Great book. I think of it every time I put a hatchet on my engine block. (read it and you'll know what I mean!)

    The image of the rusted shell pocked Iranian drilling platform was striking as well. As you say it's a very readable and accessible tome for those who know nothing of how the industry works. I didn't expect her to address depletion, she obviously had plenty of work to do describing the up and down streams. Was pleasantly surprised to see her on the ASPO roster, perhaps her next work will be on peak oil. The people in our community are a study in of themselves.

  4. The number she cited was 19 million gallons of oil products spilled each year in our waterways by boaters and auto drivers.

    Where are most of the spills from auto drivers, at gas stations from trying to top off tanks or what? The wording is odd, as if auto drivers were dumping oil products directly into our waterways.

  5. "When push comes to shove the fossil fuel companies are united in their disgust and disdain of alternative energy."

    Really? No one I know is disgusted with alternative energy. Are you just making this up, or do you have poll results that we haven't heard about?

    "The fossil fuels people are already united."

    In other words, there IS a conspiracy after all? Or there isn't?

    "Why don't alternative energy sources take off?"

    I was wondering why cures for cancer haven't taken off. Or why we don't have anti-gravity devices. Or who's blocking the cure for the common cold. I'm sure big oil is connected in some way, eh?

    "Simple…. the energy sector is crowded with long-time players with absurd amounts of money with which to fight any alternatives to the status quo."

    Wind and solar installations have been growing at double digit rates annually over the past several years.

    Ever seen a Prius in your neighborhood? Do you know of any car companies who are trying to get into the hybrid and electric car businesses?

    Oily Texas has the more wind power installations than any other state in the US. We can safely assume that at least a goodly amount of this installation base was initiated during the Bush years. How did THAT happen?

    Alternative energy investment consumed about 10% of US venture capital in 2006, and we can assume well over that now.

    Want to google a bit and see how many state, federal, and local alternative energy subsidies you can find in the US alone?

    Looks like Big Oil's fight has not been too successful.

    I imagine that a better alternative to fighting alternatives to the status quo would be to buy a promising competitor. Don't you? History has many examples of the status quo being upended by better mousetraps. I'd guess that oil industry CEO's know their history, and can project trends into the future.

    "Just that simple."

    Read the book. The only thing simple around here is a mind that explains away everything as a conspiracy.

  6. Armchair,

    Let me ask you this…….. Don't you think that the fossil fuel people would like to keep on doing "business as usual ?"

    They are quite good at what they do. …

    Ever hear of patent wars, Armchair ? Industrial espionage ? Greed ? Self interest ? Human Nature ?

    I figured what I had to say would stir up the oil "apologists".

    John

  7. Armchair,

    No conspiracy involved, just "Human Nature", inertia and a lack of vision.

    Like I said "there's no need for rooms full of "conspirators" puffing on cigars. The fossil fuel companies long ago decided that alternative energy was not in their best interest. No "conspiracy" required, just human nature.

    John

    John

  8. No comment on all the obvious observations that contradict you? I'm shocked! LOL

    Sure, oil companies would like their businesses to keep on going.* But that doesn't mean they are in control. The huge shipping industry would have loved to have seen the upstart air industry squashed, but it wasn't squashed. The mighty railroads somehow lost business to the air and auto industries.

    I guess by apologist you mean "anyone who doesn't believe in my conspiracy theory." OK, I am an apologist. 🙂

    John, really. Wouldn't you'd be happier over at peoplemagazine.com?

    * Except maybe for those that are invested in, or have developed, a world-beating alternative energy source.

  9. "The fossil fuel companies long ago decided that alternative energy was not in their best interest."

    It's not their core business is it? They're geologists, reservoir engineers, chemical engineers, etc. Not experts on silicon technology or photovoltaics or whatever. It doesn't mean there's any evil plot… they're just going about their business of supplying a demand. OK not a conspiracy but a lot of winking and nudging. Conspiracy by telepathy perhaps.

    I'd imagine that if the industry REALLY wanted to thwart the alternative energy industry, their most powerful weapon would be low oil prices. Not $147 like last year, or $76 like now, but $20 like the 1980's, 90's, an early 2000's.

  10. Armchair,

    If I owned the star of Wyoming and all its coal deposits, would I want coal to be replaced by something else ?

    Cut the comedy…..

    John

  11. Armchair,

    Someone recently said that "oil prices are not really subject to supply and demand, but are set by speculators on the NYMEX." or words to that eddect.

    Sorry, but I have to agree with that appraisal.

    Stocks seldom track their "intrinsic value" on the NYSE, but are a commodity subject to speculation just like tulip bulbs in Holland.

    John

  12. “19 million gallons”

    This is a calculated number. Spill is not the correct word either, drip or leak might be better. The amount of oil naturally leaks into the environment is huge compared to that dripping of the bottom of cars or two stroke outboard motors.

  13. No, but if you owned the state of Wyoming, it doesn't automatically follow that you can control coal's competitors. I fail to see how your point is evidence of anything. Opposing interests do not prove guilt.

    If you brought these little posts of yours to court in a lawsuit, you'd be kicked out and cited with contempt. What evidence do you have to support your claims? That a motive proves guilt?

    So I'll cut the comedy when you get serious too.

    And I'll start to think you're a serious person when you

    1) Comment on the widespread subsidies and accelerating development of alternatives, and why Big Oil allows them to happen; and

    2) Provide evidence of malicious intent on the part of the oil industry. So far you are just saying "they want to stay in business" as if that's evidence of crime. As if they're the only industry that would like to keep selling their products. And you can't deny that there is a legitimate demand for their products.

    Later.

  14. Armchair,

    I never said the oil companies were involved in "an Evil Plot" Those are words you put into my mouth,

    I simply said that the oil companies are loathe to abandon the technology that has made them money in the past, the thing that they are geared up for and are good at.

    In a certain sense, I can't really blame them.

    On the other hand, things are changing…

    Or are they ?

    We got rid of steam, didn't we ?

    Except for nuclear subs and and combined cycle electrical power plants. OOOps.

    John

  15. Armshair said,

    "
    2) Provide evidence of malicious intent on the part of the oil industry. So far you are just saying "they want to stay in business" as if that's evidence of crime. As if they're the only industry that would like to keep selling their products. And you can't deny that there is a legitimate demand for their products.

    ——————–

    Look my friend,

    I never said there was any "malicious intent"

    These are YOUR words not mine.

    You accuse me of saying this, when I DID NOT say this.

    I merely said that the oil companies are going to look after their own interests.

    This is understandable and perfectly normal.

    The idea that the oil companies and other fossils fuel providers are "thrilled to death" at the prospect of being "replaced" strikes me as ridiculous and seems to fly in the face of common sense.

    No. I suspect that the fossil fuel companies are not thrilled to death at the prospect of being replaced, but are more likely to be angry, defensive and combative toward alternatives that seem poised to take away their livelihood.

    John

  16. "are more likely to be angry, defensive and combative toward alternatives that seem poised to take away their livelihood."

    What is it that you think keeps them from getting into any business that they deem to be a threat?

    Look, the reason alternatives have trouble competing is simple. Nature did all of the processing of oil over millions of years. For alternative fuels, humans are trying to speed up that process and do it in one year. They have to add all of that temperature and pressure themselves, and that costs money.

  17. Why don't alternative energies take off?

    1. Solar – PV is dead without massive and ongoing subsidies – as in forever. No subsidies where I am and it would only take 30 to 40 years to break even – not considering interest. Distributed residential PV will probably never contribute enough to be considered of use.

    2. Geothermal – with a few exceptions it is a bit difficult to handle – going through a rough patch right now

    3. Wind – commercial wind the most promising of the lot. Residential wind is about 99% scam. Again, massive subsidies are required

    4. Wave – maybe sometime in the future when someone makes something simple and strong enough to stick into a nasty environment and survive

    5. Solar CSP – still too expensive without extreme government support

    Others as well – the technology is not to the point where it can stand on it's own two feet.

    Oil companies halting exploitation of these technologies? Not really as there is no need. The technologies are screwing themselves – no outsiders needed.

  18. I never understand people who regard other productive people with disdain. When I see a streetsweeper go by (run by CNG in Los Angeles) or see huge oil derricks, I always hold in high regard the actions of other productive people.
    The demonization of the oil industry is one of the weak points of liberals. (Demonizing government is also a bad idea).
    The "oil industry is bad" argument may extend back to the days of the Texas Railroad Commission, and the setting of oil prioces by cabal–back then.
    Now, OPEC sets prices, if they can. They obviously collude to cut production and skyrocket prices.
    I hope Lisa Margonelli does not drink the Peak Oil kool-aid. I think we are on the cusp of another 20-year global boom. The stuff coming out of Asia is just amazing.

  19. "You accuse me of saying this, when I DID NOT say this.

    I merely said that the oil companies are going to look after their own interests."

    No. This is not what you said. I don't buy this weak backpedaling comment of yours. Here's what you said:

    "…fossil fuel companies are united in their disgust and disdain of alternative energy."

    "They hate alternatives to oil, coal and natural gas."

    "The fossil fuels people are already united."

    "…the energy sector is crowded with long-time players with absurd amounts of money with which to fight any alternatives to the status quo."

    Not merely looking after their own businesses, but fighting, you said.

    Your use of the collective term "they", and your emotionally charged language, means you must assume some kind of collusive misbehavior, as if all 13,800 US oil companies have agreed to try and destroy the alternative energy industry. I don't see how else one can interpret your above words.

    If that's not the case, and they are merely acting as any other business in competing to fill a demand, then what exactly is your complaint? That you know better than their CEO's?

    Let me ask you three questions.

    1) Major oil companies have investments in alternative energies already. How much more do you think they should have? What's a good number in percentage terms?

    2) You have to choose between investing in Acme Oil and Drillem Oil stock for your son's college savings account. Acme is going heavy into alternative energy R&D, investing 20% of their capital per year. As a result, their oil production and cash flow will almost certainly start declining in the coming years. The projected returns on their R&D investment are speculative at this point. Drillem reinvests its capital in what it does best, exploring for and developing oil. Which stock do you buy? Bonus question: if both companies want to raise money in the bond market, which one do you think would have to pay more interest?

    3) You're an oil industry CEO. You have $1 billion to invest. Do you
    a) use it to try and hinder alternative technologies, or b) use it to invest in or buy promising alternative technologies or companies?

    Note that 3a only has a chance of working if most other companies do the same. If only one or two CEO's make this foolish choice, it won't have much impact. If I were a CEO, I sure wouldn't donate to such a cause. I'd have much better uses for my company's cash. Strategy 3a is a foolish and hopeless one, and if a better mousetrap comes along, it will inevitably fail. No matter how much money the oil industry throws away.

  20. John — All you have succeeded in doing here is convince the undecided that you are an uninformed conspiracy nut. My apologies for being so direct, but that's reality.

    The human race has already progressed through a number of energy sources — starting with slavery (easiest animal to harness is another human being); proceeding on to beasts of burden; wind power; wood; coal; oil; gas; nuclear.

    Each replaced (in part) earlier sources because it had qualities which made it cheaper (or better, or more practical, which amounts to the same thing).

    The problem with today's politically-correct "alternate" energies is that they are more expensive, less reliable, less convenient, worse. Fix those problems, and alternate energies will take over. But don't rely on unsustainable permanent subsidies.

    Goodness gracious, John, this is so obvious. Next thing you will be whining about unscientific nonsense like Alleged Anthropogenic Global Warming!

  21. Kinauchdrach said,

    "Goodness gracious, John, this is so obvious. Next thing you will be whining about unscientific nonsense like Alleged Anthropogenic Global Warming!"

    ———————–

    My friend, I never said one word about Global Warming.

    There you go putting words into my mouth again,

    I watched Al Gore's film (to be fair) but I also have watched "The Great Global Warming Swindle" four rimes and at one time had it downloaded into my computer.

    I always found the fact that a rise in CO2 invariably followed a rise in global temperature by thousands of years in the ice records to be a rather telling criticism of GW theory.

    Mr. Gore neglected to tell us that in his presentation. Robert doesn't want to get into a GW debate, so let's leave it at that.

    Just because I say that the oil companies have some dirty laundry does not make me a proponent of global warming theory.

    John

  22. Well John, there is hope for you yet. You have avoided the brain-dead unsupportable Alleged Anthropogenic Global Warming nonsense which so many of your anti-fossil fuel brethern seem to swallow whole. Great!

    Now put the same logical processes to work on those evil oil companies that are supposedly holding back antique windmills and water wheels.

    You do know, don't you, that western shareholder-owned oil companies are an endangered species? Collectively, the large shareholder-owned oil companies supply only about 20% of global oil production, and hold much less than that of global reserves.

    Oil companies are being run out of business by national oil companies — and they know it. If the shareholder-owned oil companies could see an alternative that did not depend on perpetual political subsidies, don't you think they would go for it with gusto?

  23. Armchair,

    And I'll start to think you're a serious person when you

    1) Comment on the widespread subsidies and accelerating development of alternatives, and why Big Oil allows them to happen.

    ———————————-

    "Big Oil" allows them to happen because they have nothing to do with providing liquid fuels for the transportation sector.

    Wind, solar, geothermal are all means to produce electricity, not liquid fuels for the internal combustion engine and the transportation sector.

    John

    That's why BP, Shell got into them in the first place, They were no direct competition to the liquid fuels infra-structure.

    A good way for the oil companies to paint a "green" image without really disrupting their core business.

    Since about 2006 the oil companies have been divesting themselves from their "electricity projects" which posed no real threat to the liquid fuels which they produce.

    I recently watched some video from the last OPEC conference where the oil companies were hammering away at the bio-fuels in hour long sessions.

    According to OPEC, bio-fuels will steal the bread out of the mouths of starving children throughout the world and cause untold ecological damage to the environment because crop-land will be dedicated to bio-fuel production.

    Right now, electricity and electric vehicles are not a direct competitor to gasoline and other liquid fuels and oil the oil companies can afford the luxury of "looking green" by dabbling in alternative electrical production without any damage to their core business, which is providing liquid fuels for the ICE.

    John

    but are means makority

  24. Where are most of the spills from auto drivers, at gas stations from trying to top off tanks or what?

    Clee,

    When you drive down the highway or Interstate, you can see the places where much of that oil has dripped off the bottom of car engines. When you approach a dark spot in the center of your lane, you will know you are about to hit a bump or dip. Each of those dips cause drops of oil to fall off the engine, crankcase, differential, etc.

    I don't know how they determined that to 19 million gallons per year. It would have to be an estimate, although there millions and millions of cars on the road in the U.S, hitting millions of dips and bumps on millions of miles of highway, causing millions and millions of drips.

    How many of those drips would it take to equal 19 million gallons?

  25. John,

    You claim that petroleum usage is 100% allocated to transporatation. That's wrong. Actually about 71% of petroleum consumption goes to transportation.

    Which means that 29% of US petroleum supply, or about 4.5 million barrels per day (about $345 million per day at $77 oil), are used in ways that compete with alternative energy.

    Natural gas supplies 24% of US energy consumption. It's a direct competitor of alternative energy sources. Almost none of it is used in transportation. The US oil and gas industry makes about $250 million per day revenues at $4 gas.

    So the industry has revenues of roughly $600 million per day that compete with alternative energies. That's around $200 billion revenue per year that, in your estimation, the greedheads apparently don't care to defend.

    It hasn't occurred to you that hybrids ARE taking sales away from oil companies. Let me be the first to tell you that higher mileage means reduced gasoline sales. It's true! And maybe you have noted the advances in hybrid sales and growing research into PHEV's etc?

    The crux of your argument, that oil companies "allow" renewable research and development to continue because it doesn't compete with its products, obviously has no merit at all.

    And your biofuel story… a lot of people outside the oil industry have commented on the problem of competition between biofuels and food.

    Why are you posting such nonsense on here? Everyone who reads a blog like this knows you have nothing credible to say. Enough.

  26. Hmm. Thanks. So it could be that most of the oil "spills" from automobile drivers are drips and leaks of lubricant oil, and not fuel. So going to something like E85 or methanol or methane might have no effect on that.

  27. So going to something like E85 or methanol or methane might have no effect on that.

    Good point. All ICE ~ whether fueled by ethanol, methanol, or biodiesel will still need lubrication.

    Though several years ago I started using synthetic oil in my Volkswagen diesel. It holds up better and lubricates better. I'm not really sure though what synthetic motor oil is made of.

  28. A quote from Greenpeace UK:

    "As you may have already seen, along with WWF, the RSPB, Friends of the Earth and enoughsenough.org, we've placed an advert in several of today's papers warning the government about the environmental risks of biofuels as an alternative to petrol and diesel."

    http://www.greenpeace.org.uk/blog/climate/biofuels-green-dream-or-climate-change-nightmare-20070509

    Additionally, Greenpeace notes,

    "Put very simply biofuel problems fall in to 3 areas:

    * Biofuels made from industrial food crops can produce more emissions due to large fossil fuel use in their production.
    * Biofuels from other crops such as palm oil are often grown on land which has been cleared of tropical rainforest, generating huge amounts of carbon emissions.
    * Increasing demand for biofuels means land used for food production is taken over driving up the price of basic foods."

    http://www.greenpeace.org/international/news/biofuels-not-so-green-150108

    Evidence, we must assume from your latest post, that Greenpeace and these other organizations are also "united in their disgust and disdain of alternative energy." Obviously, "they hate alternatives to oil, coal and natural gas too." Right, John?

    Now, I'm no expert in biofuels, and I'm not making a case against them. I merely point out that your line of reasoning seems a bit suspect.

  29. RR~

    I was reading Margonelli's book this weekend. One thing she said stuck me as profound: She said it too 89 metric tons of ancient algae and phytoplankton (pond scum as she calls it) to provide enough biomass to make one gallon of gasoline.

    Does that agree with what you know?

    If so, that is an amazing number. I wonder how many of the algae-to-biofuel people know the scale of any algae operation needed to replace the billions of gallons of gasoline we use each year – just in the U.S.

    How many millions of acres of algae ponds would it take to supply enough "pond scum" to make the fuel we use each year?

  30. Does that agree with what you know?

    Wendell, it is a pretty big number, and I have seen it calculated several different ways. The number she reports is on the high side, but the difference in that and today's attempts are that the fossil processes are highly inefficient. Also, modern methods are extracting oil only, whereas the fossil process used all of the biomass, lots of time, and heat and pressure from the earth to cook up the mixture. Inefficient, but with a lot of time to spare.

    Cheers, Robert

  31. …but the difference in that and today's attempts are that the fossil processes are highly inefficient.

    RR~

    Any idea of how many tons of algae it would take with the processes their talking of today to make a gallon of fuel?

    I realize they could probably do better than 89 tons to make one gallon, but it would seem unlikely they could be better by more than a factor of ten.

    That would still mean 8-9 tons of algae to make a gallon of fuel, and would still be a very large acreage of algae ponds producing pond scum.

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