Thursday, April 27, 2006
Even Jon Steward Nods......
Jon Stewart appeared to be genuniely apologetic to a Wall Street Journal analyst last night, rather unecessarily I felt, for not understanding why oil companiesare making so much profit with oil at $70/barrell.
The real answer is that, pretty much, many oil companies with access to substantial land based oil resources are probably producing oil for about $10 or $15 a barrel or so, I would guess. When I worked in the oil industry about 5 or 6 years ago, when oilwas trading at about $10-20/barrel and oil executives were gloomily reporting thatthe world of "$10 oil is here to stay", we aimed to get the cost of producing a barrelof oil down to between $7 and $12 per barrel.
Of course from field to field, country to country, tax regime to tax regime, whetheryou are producing on land or at sea, there are plenty of other varaible costs that take chunks of profit out of the barrel - for example many regimes will take a massive chunk of oil as it's produced at the well head. E.g.Saudi Arabia takes most of the oil produced there in taxes, whereas if you can produce hydrocarbons off the cost of Ireland, the government takes almost no tax from that to make it ecomonically viable. But these additional costs were ones that were already being dealt with before oil pricestrebled!
Regarding Bush's address to the US Renewables Fuels Association, and this whole bru-ha-haabout how shockingly high gasoline prices are, not only are the measures Bush announced to combat high gas prices nonsense, it's mostly his fault they are so high!
First, suggesting that the use of ethanol can put some slack back in the oil/gasoline markets. About 10% of all US corn went to make ethanol in 2004/2005 according to the USDA(http://www.usda.gov/oce/commodity/wasde/latest.pdf). Ethanol makes up a very small
percentage of US fuel supplies, and the Federal govenment provides subsidies of up to 50c per gallon to produce ethanol (http://www.distill.com/berg/). There's also a protection tarriff on imported ethanol of about 60c per gallon. Lifting that tarrif would be a good way to get cheap ethanol into the country and create some slack, but then all those enormous agri-companies that produce the corn that produces the (subsidised) ethnaol would miss out wouldn't they? Oooh, which special interest will I serve today - oil, agri-business or petrochemical?
In addition, many studies have shown that it costs more energy to create a gallon of ethanol than can be extracted from it (see http://www.ethanol-gec.org/corn_eth.htm and references therein). Admittedly there are some studies, most recently one published in "Science", so reputable, that show the opposite, but the point is it seems controversial at least.
Another measure Bush announced, suspending deliveries into the US Strategic Petroleum reserves, is also nonsensical. This has no impact because such tiny amounts are involved in adding to the now almost full Strategic Reserves (700 million barrels as at August 2005 relative to it's maximum capacity of 727 million barrels, see http://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve).
To put it in perspective, the US consumed 20.03 million barrels of oil PER DAY in 2003 (http://www.cia.gov/cia/publications/factbook/geos/us.html) and imported 10 million barrels of oil in the week ending 21 April 06 (http://tonto.eia.doe.gov/dnav/pet/pet_move_wkly_dc_NUS-Z00_mbblpd_w.htm).
Bush blames increased demand for oil from China and India for pushing oil prices higher. Very unfair on India, which consumes about one thirtieth of the oil per capita that the US does (at 2003 figures, see http://www.cia.gov/cia/publications/factbook/geos/in.htmland http://www.cia.gov/cia/publications/factbook/geos/us.html).
Of course probably the main reason that oil prices are being sustained at their current high, (apart from refining capacity limitations), which Bush conspicuously ignored, and dare not speak it's name in the mainstream media, is the geopolitical uncertainty that his Administration has created i.e. uncertainty about interruptions to oil supply from countries like, oh I dunno, Iran and Iraq and possibly even Venezuela.
And as for Iraq, the oil ministry recently produced a report detailing the catastrophic neglect of Iraq's oil infrastructure, mainly due to one war and invasion, years of US and UK imposed sanctions, and, most recently, one illegal invasion (http://news.bbc.co.uk/1/hi/business/4944814.stm).
The real answer is that, pretty much, many oil companies with access to substantial land based oil resources are probably producing oil for about $10 or $15 a barrel or so, I would guess. When I worked in the oil industry about 5 or 6 years ago, when oilwas trading at about $10-20/barrel and oil executives were gloomily reporting thatthe world of "$10 oil is here to stay", we aimed to get the cost of producing a barrelof oil down to between $7 and $12 per barrel.
Of course from field to field, country to country, tax regime to tax regime, whetheryou are producing on land or at sea, there are plenty of other varaible costs that take chunks of profit out of the barrel - for example many regimes will take a massive chunk of oil as it's produced at the well head. E.g.Saudi Arabia takes most of the oil produced there in taxes, whereas if you can produce hydrocarbons off the cost of Ireland, the government takes almost no tax from that to make it ecomonically viable. But these additional costs were ones that were already being dealt with before oil pricestrebled!
Regarding Bush's address to the US Renewables Fuels Association, and this whole bru-ha-haabout how shockingly high gasoline prices are, not only are the measures Bush announced to combat high gas prices nonsense, it's mostly his fault they are so high!
First, suggesting that the use of ethanol can put some slack back in the oil/gasoline markets. About 10% of all US corn went to make ethanol in 2004/2005 according to the USDA(http://www.usda.gov/oce/commodity/wasde/latest.pdf). Ethanol makes up a very small
percentage of US fuel supplies, and the Federal govenment provides subsidies of up to 50c per gallon to produce ethanol (http://www.distill.com/berg/). There's also a protection tarriff on imported ethanol of about 60c per gallon. Lifting that tarrif would be a good way to get cheap ethanol into the country and create some slack, but then all those enormous agri-companies that produce the corn that produces the (subsidised) ethnaol would miss out wouldn't they? Oooh, which special interest will I serve today - oil, agri-business or petrochemical?
In addition, many studies have shown that it costs more energy to create a gallon of ethanol than can be extracted from it (see http://www.ethanol-gec.org/corn_eth.htm and references therein). Admittedly there are some studies, most recently one published in "Science", so reputable, that show the opposite, but the point is it seems controversial at least.
Another measure Bush announced, suspending deliveries into the US Strategic Petroleum reserves, is also nonsensical. This has no impact because such tiny amounts are involved in adding to the now almost full Strategic Reserves (700 million barrels as at August 2005 relative to it's maximum capacity of 727 million barrels, see http://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve).
To put it in perspective, the US consumed 20.03 million barrels of oil PER DAY in 2003 (http://www.cia.gov/cia/publications/factbook/geos/us.html) and imported 10 million barrels of oil in the week ending 21 April 06 (http://tonto.eia.doe.gov/dnav/pet/pet_move_wkly_dc_NUS-Z00_mbblpd_w.htm).
Bush blames increased demand for oil from China and India for pushing oil prices higher. Very unfair on India, which consumes about one thirtieth of the oil per capita that the US does (at 2003 figures, see http://www.cia.gov/cia/publications/factbook/geos/in.htmland http://www.cia.gov/cia/publications/factbook/geos/us.html).
Of course probably the main reason that oil prices are being sustained at their current high, (apart from refining capacity limitations), which Bush conspicuously ignored, and dare not speak it's name in the mainstream media, is the geopolitical uncertainty that his Administration has created i.e. uncertainty about interruptions to oil supply from countries like, oh I dunno, Iran and Iraq and possibly even Venezuela.
And as for Iraq, the oil ministry recently produced a report detailing the catastrophic neglect of Iraq's oil infrastructure, mainly due to one war and invasion, years of US and UK imposed sanctions, and, most recently, one illegal invasion (http://news.bbc.co.uk/1/hi/business/4944814.stm).
# posted by Flann O'Brien @ 6:44 PM 
