This is quite timely coming on the heels of my previous essay. I talked about the press picking up and running with the comments of Oil Watchdog’s Judy Dugan as if she were actually a credible source of information. Here’s a perfect example:
Consumers boil over oil profits
For years, oil companies have been cast as villains. That perception didn’t change Friday when the two largest U.S. oil companies reported record profits — again.
Let me first say that I certainly understand why consumers are upset. I remember when I was younger and commuting a long distance, every increase in gas prices really hurt. If oil companies were reporting record profits at the same time I was paying record amounts for gasoline, I would have been angry as well.
Last year, Exxon Mobil reaped more money than any U.S. corporation has ever made, while consumers were sliding into a recession, said Judy Dugan, research director for the Foundation for Taxpayer and Consumer Rights in Santa Monica. At the same time, oil companies have lobbied against any control of the market that has pushed crude oil to $90 and up, she said.
“Their product is so important to our economy that energy costs alone are driving inflation and raising consumer debt,” Dugan said.
I am really curious as to how Dugan thinks the market can be controlled. When OPEC controls 40% of it, and the ExxonMobil’s of the world control less than 10%, it is really hard to grasp how Dugan thinks the oil companies are controlling this market. What does she think governments should do? But, it has become obvious to me that you don’t have to grasp the issues in order to be a self-proclaimed watchdog.
Dennis Clancy of Thousand Oaks has been unhappy with oil companies. “I’ve always had a problem with gas prices over $3,” he said while filling up at a Shell station in Camarillo. “It shouldn’t cost over $50 to fill up a midsize car.”
He wants to see more proof about how the oil companies’ profits are utilized, as well as less dependency on foreign oil.
Do you really want to see less dependency on foreign oil? Then embrace higher prices, which will get Americans to drive less and buy more fuel efficient cars. Downsize that midsize car. Don’t put yourself in the position where you demand a lot of gasoline, and then get made at the oil companies when the price goes up. Take matters into your own hands and reduce your own dependence, if you expect the country as a whole to reduce dependence.
Oil companies blame energy markets for high crude prices, but they profit immensely from these markets and oppose controlling them, Dugan said.
“The government has to get some control over these unregulated electronic energy trading markets,” she said.
Oil companies are spending billions of dollars buying back their own stock instead of investing in renewable energy or their own refineries, which, Dugan says, is the very definition of greed without regard for corporate responsibility.
More hysterics and fabrications from Dugan. Are oil companies buying back stock? Sure, I would be as well if I felt my stock was undervalued. But that doesn’t mean they aren’t investing back into their business. Oil companies have spent far more money expanding refineries and upgrading to meet ever tighter environmental regulations (like ultra-low sulfur product specs). Dugan’s comments are the very definition of reporting without regard for journalistic integrity.
“I’m still almost speechless at the amount of profit they made,” Dugan said. “Americans should be furious.”
We can all wish. Fortunately, there was some sanity injected near the end of the article:
The oil companies have always been “the bad guy,” but perhaps they don’t deserve the label, said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. “People don’t understand the world has changed for oil companies,” he said.
It’s becoming more expensive and difficult to find oil fields, and oil companies are trying to explore in nations where real danger or politics are involved, Kyser said. Consumers feel the pain at the pump and don’t think about the kind of infrastructure that oil companies have to build to access the oil, or the political risks.
“In a way, they’re becoming a declining industry,” Kyser said, adding that seems contrary to the companies’ financial growth. But, he said, he believes that their position as the world’s major players has changed. “It’s a whole different ball game. They don’t have the clout they used to have,” Kyser said. “They can’t go into a country and sign contracts and expect stability anymore.”
While oil companies have been accused of price gouging, Kyser said, he believes they’re simply trying to protect themselves for tough times ahead. “Everyone acts like it’s blue skies for them, but if you look over the history of the industry, they’ve had some very lean times,” he said.
This is more or less the way I see it as well. The risks have gone up dramatically for oil companies, as those operating in Venezuela found out last year. If oil prices were to unexpectedly crash, I suspect the climate would become friendlier as governments wouldn’t want to assume the risks for projects.
That’s why Venezuela invited oil companies in to start with: Prices were low, the risks were high, and the projects were expensive. So, oil companies were invited in, and contracts were signed. Then, as soon as prices shot up, Venezuela cancelled contracts and seized control. This is the world oil companies must operate in now; it’s very high risk. The Judy Dugan’s of the world would like to see oil companies take the risks, but not be rewarded when markets bid up the price of oil.
Hey Rapier,
How much do you know of these people’s business model? Does the MSM pay them for their half-baked analyses? Who pays their salaries?
This looks like an easy way to supplement one’s income, should the need ever arise…
Those huge profits mean nothing more than the oil companies sell an awful lot of the stuff.
The profit margin on each gallon they sell is actually quite low — on the order of 9 – 12 cents per gallon.
Sell billions of gallons, and even at a profit of only 12 cents a gallon, the money adds up.
What’s their position on CAFE, Feebates, Guzzler Taxes?
I’d guess that they want their cake and to keep it too(*), low prices and to burn lots of gas.
* – apparently the original form
Oh, Judy is on the right side of CAFE and MPG over at Huffington Post
Not a bad piece actually.
Do you really want to see less dependency on foreign oil? Then embrace higher prices …
Higher prices are certainly one way to balance supply & demand — the default approach, so to speak.
Another way would be to expand supply. Lots of undeveloped oil off Santa Monica where Ms. Dugan hangs out. Her complaints about oil prices would be more credible if she was simultaneously pushing for increased access to domestic US exploration acreage.
She would be even more credible if she was proposing that, along with higher prices and more US drilling, there should be a big expansion of nuclear power and multiple competitive R&D projects to develop new energy technologies which could compete without subsidies.
But it is so much easier for her to do the old-fashioned, brain-dead, left-wing whining about Not-So-Big-Anymore Oil.
FTCR also ignores the Exxon tax burden.
See http://seekingalpha.com/article/63131-exxon-s-2007-tax-bill-30-billion?source=side_bar_editors_picks
I’m not inclined to “drill everywhere” until we have viable alternatives. Until then I think we should actually designate our long-term reserves.
It’s an interesting question, isn’t it? How many decades to we need to worry about?
Happy to see RR quote my old friend and source, Jack Kyser.
I agree with both the assessment of RR and Kyser, in regards to fresh fields of oil. The Oil Gods love thugs.
Still, check out crude prices. Looks like the party is over. Sinking again. Demand is no growing, and will not grow at more than $60 a barrel or so. It takes a few years, then alternative fuels and conservation begin taking their toll on demand. We are there.
This is great news. We are buying extra decades before crude oil becomes too expensive to be commercially viable.
Now, if we can just convert Thug Oil States into modern democracies. Unlike energy “shortages,” that is a problem without solutions, I am afraid.
Still, check out crude prices. Looks like the party is over. Sinking again. Demand is no growing, and will not grow at more than $60 a barrel or so. It takes a few years, then alternative fuels and conservation begin taking their toll on demand. We are there.
Seems that all the financial types agree: the low prices you are seeing is due to recession fears. If they are right, oil prices would pick up when the US economy turns around, whenever that may be. My bet: wait for pres. McCain/Obama/Clinton.
It also means that high oil prices is a good sign, a sign of a strong global economy. You are just going to have to learn to live with the thugs enjoying it, while it lasts. For Hugo Chavez that may not be that long, what with oil output dropping.
Optimist:
I think the experts are wrong on oil demand dropping, due only to a recession. Check out BP states for oi demand 2004-2006. Even with a very robust world economy, increases in demand were shrinking throughout this period. We were opn course for a flat 2007 year (in terms of oil demand) even with good ecoomic grwoth.
In 2008, with a recession in the US, we probably will see outright declines in oil demand.
This is great news. We are buying extra decades before crude oil becomes too expensive to be commercially viable.
OK — but what are we doing with those “extra decades” we are buying?
If all we do is eco-fads, like installing wind turbines (subsidized engines for pumping money from ordinary people into the pockets of the well-connected rich), we are not going to be in much better condition at the end of those decades.
Remember that those same BP statistics show coal use is growing dramatically, and total fossil fuel demand continues to increase.
Now, if we can just convert Thug Oil States into modern democracies. Unlike energy “shortages,” that is a problem without solutions, I am afraid.
Step one is to stop buying their oil.
“OK — but what are we doing with those “extra decades” we are buying?”
Hopefully folks will admit fairly quickly that efficiency and conservation are the only short term answers.
(There are many valid niches for solar, wind, geothermal, etc. … but they are “wedges” not a wholesale solution.)
If all we do is eco-fads, like installing wind turbines (subsidized engines for pumping money from ordinary people into the pockets of the well-connected rich)
This is way too broad a generalization. Wind (or at least ground-based wind) won’t be the complete answer, but I have a good friend who lives in Hull, Massachusetts, where the two locally-owned and operated turbines have been such a riproaring success that they’re actively planning for four more: http://www.hullwind.org/
I think there is a great future in solar, wind and geothermal. Nukes too. I don’t understand kinua’s comments. Add some, kinua?
By the way, GM announced today a huge switch to ethanol cars. They are partnered up with a company that says $1 ethanol is on the way.
Time will tell.
GM loves to announce things …
GM loves to announce things …
Ain’t that the truth. I’m already tired of hearing how great the Chevy Volt is going to be – while the unrealistic shipping date keeps slipping into the future. BTW, what happen to the previous big announcement? The company has delivered a carefully worded pledge: GM will develop a hydrogen-fuel-cell vehicle that could compete on cost with traditional vehicles-if it were to be built in high volumes-by 2010. 2010? LOL! Should have worded the statement more carefully, I guess.
They are partnered up with a company that says $1 ethanol is on the way. Time will tell.
Not to rain on your parade, Benny, but cellulose->syngas-(fermentation & distillation)->ethanol is not going to do it under $1/gal. The Range Fuels approach might work, but not this combination of most inefficient processes.
I very much agree with your drift here, but I would add this cautionary note:
Though I certainly agreee that the majors simply do not have control of oil prices, there is one thing that, acting together, they CAN control (or at least influence): public perceptions. We all know that the majors understand Peak Oil at least as well as we do, but they’re not admitting it. If through denial and a concerted effort (through themselves and their paid CERA consultants) they are intentionally promoting a perception of lower future oil prices, the question arises as to whether that is an attempt to allow them to invest heavily in their own stock while the price is (relatively) low, and kept low temporarily by their own characterization of the future.
At some point, their in-ground assets will surely be recognized as being worth a lot more than they are today. I don’t blame them for investing in their own assets while they are cheap. But I DO blame them if they are knowingly promoting a false valuation of those assets by promoting the unrealistic expectation of low oil prices.
Maybe I misunderstand the oil business (in which case I’m sure I’ll be summarily corrected), but they way I see it the oil majors meaning the private western oil companies (aka Big Oil) are not so much in the boat Tommy describes: they own relatively little of the remaining oil (unlike the big national oil companies, aka Thug Oil, for want of a better term).
As I see it, Big Oil would jump at a workable, affordable alternative to oil: it would allow them to keep their customers supplied, while freeing them from the obligation of paying for OPEC’s palaces.
Of course, there are limits. Big Oil probably won’t be backing electic cars anytime soon. But any alternative feedstock that can be converted into a liquid fuel at a scale that would make a dent, would get Big Oil’s attention and dollars.
The other factor holding back investment would be the whole future projection business: at $100/bbl coal gasification has to look good, from a purely business point of view. But I think Big Oil is not yet convinced the market will sustain oil at $100/bbl. Having gotten burnt in the 90s, Big Oil is a pretty careful investor.
In the end though, I’m pretty sure that any feasible sustainable fuel will ultimately be supplied by Big Oil: they have the resources to produce, develop and distribute it. An outsider is simply going to take too long to develop a deep understanding of the liquid fuels business.
By contrast, Japanese refiners are doing poorly.
http://www.bloomberg.com/apps/news?pid=20601101&sid=ah7Mh0E42Huk&refer=japan
On one extreme you’ve got people who can’t accept the arbitrary nature of “price” and on the other extreme you’ve got people who would skip all the behavioral economics on “fairness.”
Irate consumers could wise up and adjust their lives to use less oil. Villainous companies could be less cavalier about the fairness issue.
… maybe they’ll meet in the middle with a balanced view of human markets.
(Not all customers are irate, and not all companies are villainous, but certainly we can find examples of each.)
Benny “PD” Cole wrote:
I think there is a great future in solar, wind and geothermal. Nukes too. I don’t understand kinua’s comments. Add some, kinua?
Underlying issue is the mind-numbing scale of global commercial power demand (around 15 TeraWatts), and the humanitarian & technolgical imperatives which mean that the scale has to get even bigger.
(Yes, Odograph, better efficiency is good. But billions of human beings in the Third World are not going to conserve their way to a decent standard of living. Energy is a supply-side issue).
Peter Tertzakian wrote an unfortunately crummy book with a wonderful title — “A Thousand Barrels A Second”. That is about the rate at which the world is using oil right now, and oil constitutes barely 2/5 of total global energy supplies.
If you think of those big trucks delivering gasoline to service stations — the world is using about 5 of those truckloads every second. The scale of our energy needs is almost too large to comprehend, and yet it must grow even larger.
That is where wind, solar, geothermal pie-in-the-sky breaks down — their currently-practical scale is just too small to be relevant. And if we ever get to the point of having the technology to use them on a meaningful scale, their environmental impacts will be substantial, probably unacceptable.
To add insult to injury, so-called renewables are driven today by direct & hidden subsidies. All our politicians are doing is stealing from Peter to pay Paul so Paul can make big profits doing something irrelevant.
Of course Mike C can point to a community in Mass. which is doing so well from the money taken from Peter that the Pauls want to build more wind turbines. But what happens when the subsidies (direct & indirect) become unsustainable?
When we recognize the scale of global energy needs, the state of technology, and the multi-decade timescale required for implementation, there really is only one sensible path forward — big expansion of nuclear fission in the near term, along with broad support for research on a wide range of future energy supply options which have the long-term potential to scale up and be competitive without subsidy.
Interesting thing happened in Anchorage Alaska’s Loussac Library today. “Oil companies bid a record $2.66 billion today for oil and gas leases in the Chukchi Sea off Northwest Alaska.”
http://www.adn.com/189/story/306844.html
This despite “Conservation and Alaska Native groups sued the federal government Thursday, seeking to stop a petroleum lease sale off Northwest Alaska.” and “U.S. Sen. John Kerry, D-Mass., on Tuesday introduced legislation to prohibit oil and gas exploration in the Beaufort and Chukchi seas until the full effect on polar bear populations is understood.” 5 days previously.
http://www.adn.com/money/story/300936.html
And drilling offshore of the West end of the Arctic National Wildlife Refuge, was kabashed by decisions of the US 9th Circuit Court this summer. Shell wanted to do underwater seismic testing in the Chukchi this last summer as well as drilling in the Beaufort, but prohibited from doing so.
http://dwb.adn.com/money/industries/oil/story/9152013p-9068396c.html
http://dwb.adn.com/money/industries/oil/story/9234608p-9150246c.html
The Chukchi Sea is the area of the Artic Ocean immediately north of the Bearing Sea, and part of the area that dramatically went missing ice this summer and only refroze the week before Christmas.
“(Yes, Odograph, better efficiency is good. But billions of human beings in the Third World are not going to conserve their way to a decent standard of living. Energy is a supply-side issue).”
They aren’t likely to buy their way into the oil consumers club, either.
The status quo is that the rich, and we are the prime example, bid up oil to power our affluent lifestyle.
(I’m not actually asking anyone to be less affluent, but rather to do it more efficiently. And I hope those efficiencies will spin off and provide an affordable path for the developing world.)
BTW, I liked Tertzakian’s book. The first half painted a pretty good picture of global production, and past efforts at national realignment.
The closing chapter, with its science fiction future was kind of weak, but I can forgive that.
Of course Mike C can point to a community in Mass. which is doing so well from the money taken from Peter that the Pauls want to build more wind turbines.
Kin, I completely agree with your point about the staggering magnitude of global energy demand, and the massive disconnect between said demand and the current capacity of a lot of the proposed schemes to replace fossil fuels. And, to that point, not every town has the wind resource that a coastal community does.
But you are wrong about the economics in the example I cited. No “Peter”s were robbed. “Paul” (aka Hull Municipal Power & Light) bought a turbine (paying the $770,000 cost out of cash on hand). “Paul” discovered it made good economic sense (returned over $150,000 the first year of operation), so “Paul” bought another. That one worked even better. Now “Paul” wants to buy four more, which they expect (based on their experience with the first two) will provide enough kWh to cover the town’s entire electricity use.
Will this work everywhere? No. But is it working without subsidies here? Yes. Does it show that, in some cases, the current state of renewable technology can make economic sense? Sure looks that way to me.
Mike C wrote:
“Paul” (aka Hull Municipal Power & Light) bought a turbine (paying the $770,000 cost out of cash on hand). “Paul” discovered it made good economic sense (returned over $150,000 the first year of operation), so “Paul” bought another.
Mike, I am not familiar with the situation at Hull — but if you dig deep enough, I strongly suspect you will find a “Peter” somewhere.
Even in Hull, the wind does not blow all the time. Hull has to be connected to a larger grid, where someone (else) is paying for a rotating reserve power capacity to cover the situation when the wind drops at Hull.
It would not be surprising to find that the grid operator is compelled to pay a high price for excess power generated at Hull and fed into the grid, whether it is needed or not. Nor would it be surprising to find that Hull has benefitted from various tax incentives and grants from State & Federal gov’t.
If I am wrong about the above, I apologize to the good people of Hull. But I will be surprised if I am wrong. Subsidies, especially hidden subsidies, can be quite difficult to track down — but they are real all the same.
Subsidies, especially hidden subsidies, can be quite difficult to track down — but they are real all the same.
Fair enough. I confess I dug only as far as finding out that the initial purchase had been paid for by the local utility out of cash on hand, rather than floating a bond or getting a grant from the state. And certainly yes, those turbines (capacity factor running around 25% for the two, according to the live datafeeds on their website) benefit from being tied to the grid. So I take your point – I don’t know enough about the intricacies of the metering rates to know if there’s a hidden subsidy there.
I did hear a piece on NPR a few months back that interviewed a hardnosed conservative-type gentleman from Texas who said, in effect, that people like him in Texas who are going big into wind couldn’t care less about the “sustainability” or “green-ness” – that it’s all about the dollars, plain and simple. But there again, is there some hidden subsidy buried in there somewhere? Maybe. But I suspect when you get to that level of digging, you’d be hard pressed to find any sort of electrical generation that doesn’t benefit from some policy or tax credit, somewhere, somehow.
By contrast, Japanese refiners are doing poorly.
This story does not make a lot of sense.
Japanese refiners, including Nippon Oil Corp., are struggling to pass on rising costs to consumers after crude oil climbed 57 percent in 2007 and touched $100 a barrel last month.
What is going on here? Is the Japanese government pracrising price control? Why are they struggling to pass on rising costs to consumers?
And your point would be? The incompetence of Japanese refiners? The inability of Japanse consumers to pay for more expensive petroleum products? Please provide the inside info that Bloomberg were too lazy, I mean cheap, I mean busy to provide…
But I suspect when you get to that level of digging, you’d be hard pressed to find any sort of electrical generation that doesn’t benefit from some policy or tax credit, somewhere, somehow.
Mike, you obviously don’t get it. When the grid provides reserve capacity to compensate for a wind farm’s predictable and gradual variation in output it represents a massive subsidy. What about the grid providing hot, spinning reserves to compensate for a gigawatt coal plant’s sudden and unpredictable outage? That is NOT a subsidy.
1.9 cent/kWh tax credit for the first third of a wind turbine’s operating life? Massive subsidy. Free permit to transfer carbon and assorted pollutants from underground sequestration into the atmosphere? NOT a subsidy. Free permit to lop off Appalachain mountain tops and dump them into streams? NOT a subsidy. Free government nuclear R&D funding and radioactive fallout insurance? NOT subsidies.
It’s not hard to understand. You just have to get your terms straight.
When the grid provides reserve capacity to compensate for a wind farm’s predictable and gradual variation in output it represents a massive subsidy.
Good satire, doggie. But a little light on facts.
“wind [factory’s] predictable and gradual variation in output”
Do a Google search on Eon-Netz, the big German utility. They have a wind report showing the real-world huge, rapid & unpredictable nature of wind power variations. Because of that, the utility has found in they have to keep lots of conventional power on-line to maintain the reliability of supply to customers.
They estimate that, fully built out, they will get only about 4% of nameplate capacity as useful incremental power from wind turbines, because of the need to keep the conventional plants running.
So customers will pay for wind turbines and for conventional power. You don’t have to call it “subsidy”, but some poor bastard is going to be paying for all that duplication.