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Arctic Leaf

4 Non Blondes, The King and I and alternative fuels

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4-non-blondes-650-430“Twenty-five years [lots more years for me] and my life is still
Trying to get up that great big hill of hope
For a destination”

Combine the lyrics from 4 Non Blondes with the personal frustration suggested by the “it’s a puzzlement” comment from the King of Siam in “The King and I,” expressed when he was perplexed by a changing world, and you will understand why many are confused by three relatively recent actions that limit or impede the growth of alternative fuels.

Most advocates of consumer choice at the pump and the end of Big Oil’s near-monopoly concerning transportation fuel praised the president’s State of the Union address a couple of years ago. He proposed that the nation wean itself off of oil. Wow, some fuel choice advocates were thrilled, almost orgiastic. Just think, in a couple of years customers might search for fuel stations selling a range of lower-cost alternative fuels, instead of only gasoline. Environmentalists welcomed the president’s comments. Less pollution and fewer GHG emissions! Most economists were pleased. They saw more jobs and further GNP growth. Servicemen were happy. They would be asked to fight fewer wars for oil.

In this context, there was hope that the cheaper cost of oil, and its derivative, gasoline — both of which are now rising in cost — juxtaposed with the regulations resulting from the BP Deepwater Horizon oil spill, Shell’s failure to use its original drilling permit to drill successfully and the availability of less expensive competitive fuels, would end the prospect of drilling in the pristine Arctic Circle off of Alaska’s coast. It would be just too costly. Good news! We can dream, can’t we!?

Similarly, some of my colleagues and friends who support fuel choice and a better shake for consumers than gasoline (concerning costs and GHG emissions), were hoping that improved technology, lower prices, and inventions like Elon Musk’s just-announced solar storage unit, could soon generate an increased ability for solar energy to power many coal-fired utilities, homes and even vehicles. In the aggregate, the U.S. would produce significantly fewer emissions and pollutants. What a welcome, possible, short-term happening! Musk for president!

The increased popularity of battery electric vehicles (BEVs) from Tesla (among those who can afford them) and the emergence of cheaper battery-powered vehicles from Detroit have also lent hope to those who are fuel agnostic or favor a long-term, robust renewable fuel market and more consumer choices at the pump. While electric cars offer a vision of the future, their broad acceptance by the public depends on design and technology improvements to both end the fear of running out of battery power while on the road, and provide more internal space — both at costs most Americans can afford. Both problems seem to be on the way to resolution, based on the pronouncements from Tesla and Detroit. We can only hope!

But despite the optimism gene internal to most Americans, the great “big hill of hope” has recently become even bigger to climb. While alternative fuel advocates remain relatively quiet and often unable to speak with one effective voice, federal and state policies and regulations have been changed to limit the ability of alternative fuels to secure significant market penetration. Despite large subsidies to the oil industry, neither the administration nor Congress has been willing to seriously try to weaken the ability of Big Oil to restrict alternative fuel sales at local gas stations. Indeed, several attempts to enact open fuels legislation have failed to even get out of Congressional committees.

Although the country seems awash in oil, just this week, the president gave conditional approval to Shell to drill in the Chukchi Sea off of Alaska, despite the company’s mismanagement of earlier attempts to do the same, and despite the objections of many environmental groups and Alaskan natives. Both industry and critics of the permits note that drilling will be risky, given very high waves, icy seas, strong winds, bitter cold weather and the need to protect the routes of migration and feeding areas for marine mammals. As The New York Times indicated this week, the permit is a “major victory for the petroleum industry and a devastating blow to environmentalists,” and for consumers, I would add. Estimates of the oil in the Chukchi Sea range all over the place. However, if oil companies are able to overcome high drilling costs and secure a significant flow of oil, even for a relatively short time, they will increase their ability to limit sales of alternative fuels among their franchises and through differential pricing, the sales of alternative fuels by independent retailers.

It doesn’t get any better. Just as opportunities to secure and store solar power — power that could be used to power homes, autos and utilities — seem almost ready for prime time, many of America’s utility companies — another great supporter of competition (excuse the cynicism) — have begun to seek legislative relief to impede solar’s growth. Their argument deserves discussion. If solar power grows, it could well be at the expense of improvements in the grid. But the use of their political power with state legislatures to seek ad-hoc remedies, different in each state, is not in the public interest. Legislative efforts to lower the price solar users secure from utilities when they put excess power on the grid may or may not be good policy or practice. Shouldn’t we know before such policies are enacted by states? Similarly, putting up regulatory impediments impeding the sale of solar units, including storage units, would likely really hurt what is now a risky start-up industry. The net result of poorly conceived state-by-state initiatives to protect the utility industry would be to limit the capacity of solar energy to substitute for coal in powering utilities and to reduce options to produce cleaner electric cars with almost zero GHG emissions. Similarly, restricting the storage of solar energy would end up slowing down the development of another alternative fuel — one based on solar-derived power.

Finally, the continuing efforts by several states to change Tesla’s business model have and will reduce competition for fuels and the use of electricity as a fuel. Why? Several state legislatures, under political pressure from auto dealers, have banned its direct-sales approach. If Tesla wants to sell its electric-powered cars in Texas, for example, it must sell through an auto dealer. Remember, some Texans recently wanted to secede from the union in order to free the state from “federal dictatorship” and, ostensibly, extend personal freedom and its corollary market competition! (I thought of signing the petition that was floating around to let Texas go.) Passing laws to protect one kind of business from another is un-American…almost like sending the Texas National Guard to monitor the training of U.S. soldiers to be sure they are not digging tunnels under Walmart and engaging in other nefarious activities contrary to the interest of the good citizens of Texas. Davy Crockett would be offended. The bottom line is that Texas and other states with similar regulations are limiting fuel choice by placing a Berlin Wall around their boundaries and not letting Tesla and its electric vehicles in. Ah. Freedom!

So, supporters have some big hills to climb and sometimes it may be a puzzlement to the climbers. But, as the singer Billy Ocean once vocalized, “When the going gets tough, the tough get going.” Building a coalition among the willing supporters of alternative fuels should not be difficult. They share goals concerning the need for increased consumer choices and the value of open fuel markets. If they reach out to include, rather than define boundaries to exclude; if they acknowledge that absolute wisdom concerning strategies does not exist; if they are willing to work toward consensus and bring their respective constituencies along with them; and if they recognize that time is of the essence concerning achievement of key public interest and quality of American life objectives, following Robert Frost, they will travel the road less traveled, and will likely soon begin to see light at the end of their travails and travels.

 

Photo Credit: Getty Images

Arctic Leaf

Porgy and Bess, Marxian dialectic, oil and alternative fuels

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Porgy and Bess poster“We got plenty of oil and big oil’s got plenty for me” (sung to the tune of “I Got Plenty of Nutting” from Porgy and Bess). “I got me a car…got cheap(er) gas. I got no misery.”

This is the embedded promise for most Americans in the recent article by David Gross, “Oil is Cratering. American Oil Production Isn’t.” His optimism concerning at least the near future of oil — while a bit stretched at times, and economically and environmentally as well as socially somewhat misplaced — serves at least as a temporary antidote to individuals and firms with strong links to the oil industry and some in the media who have played chicken with oil (or is it oy little?). But in a Marxian sense (bad economist, but useful quotes), Gross does not provide a worthy synthesis of what is now happening in the oil market place. Indeed, his was a thesis in search of an antithesis rather than synthesis. Finding a synthesis now is like Diogenes searching for truth in light of almost daily changes in data, analyses and predictions concerning the decline in oil and gas prices by so-called experts.

Gross’s gist is that “Signs of the oil bust abound….The price of West Texas Intermediate crude has fallen in half in the past six months. The search for oil, which fueled a gold-rush mentality in North Dakota and Texas, is abating.” Rigs have closed down, employment is down and oil drilling areas face economic uncertainty, but, despite signs of malaise, “a funny thing has happened during the bust. Oil production in America has been rising…In November, the U.S. produced 9.02 million barrels of oil per day, up by 14.5 percent from November 2013… Production in January 2015 rose to 9.2 million barrels per day. And even with WTI crude settling at a forecasted price of about $55 per barrel for the year, production for all of 2015 should come in at 9.3 million barrels per day — up 7.8 percent from 8.63 million barrels per day in 2014…The U.S., which accounts for just 10 percent of global production, is expected to supply 670,000 new barrels — 82 percent of the globe’s total growth.”

Somewhat contrary to his facts about rigs closing down, Gross indicates that America’s oil largesse results from “American exceptionalism.” Shout out loud! Amen! American oil companies are able to produce larger amounts, even when oil numbers suggest a market glut, because they play by new rules. They are nimble, they are quick, they jump easily over the oil candlestick. They rely on new technology (e.g., fracking), innovation and experimentation. They don’t have to worry about environmental or social costs. The result? They bring down the cost of production and operations, renegotiate contracts and lay off workers. “The efforts at continuous improvement combined with evasive action mean a lot more profitable activity can take place at these prices than previously thought.” The industry appears like a virtual manufacturing and distribution version of Walmart. It, according to Gross, apparently can turn a positive cash flow even if the price per barrel stays around where it has been….from close to $50 to $70 a barrel. Holy Rockefeller, Palin and Obama! Drill, baby, drill! Just, according to the President, be circumspect about where and how.

Not so fast, according to both Euan Mearns, writing for the Oil Drum, and A. Gary Shilling, writing for Bloomberg Oil, both on the same day as Gross.

Mearns’ and Shilling’s perspectives are darker, indeed, gloomy as to the short term future of the oil market. The titles of their pieces suggest the antithesis to Gross article: Oil Price Crash Update (Mearns) and Get Ready for $10 Oil (Shilling). “The collapse in U.S. shale oil drilling, that looks set to continue, must lead to U.S. oil production decline in the months ahead…It looks as though the U.S. shale oil industry is falling on its face. This will inevitably lead to a fall in U.S. production” Mearns evidently places much less value on the industry’s capacity to literally and strategically turn on the present oil market dime.

Shilling asks us to wait for his next article in Bloomberg for his synthesis of what’s likely to happen- sort of like the trailers in Fifty Shades of Grey, except his data is not enticing. His voice through words is just short of Paul Revere’s: price declines are coming! The economy is at risk! Men and women to the battlefields! “At about $50 a barrel, crude oil prices are down by more than half from their June 2014 peak at $107. They may fall more, perhaps even as low as $10 to $20.” Slow growth in the U.S., China and the euro zone, and negative growth in Japan, combined with conservation and an increase in vehicle gas mileage, places a limit on an increase in global demand. Simultaneously, output is climbing, thanks mostly to U.S. production and the Saudis’ refusal to lower production. Shilling’s scenario factors in the prediction from Daniel Yergin, a premier and expensive oil consultant, that the average cost of 80% of new U.S. shale oil production will be $50 to $69 a barrel. He notes, interestingly, that out of 2,222 oil fields surveyed worldwide, only 1.6% would have a negative cash flow at $40 per barrel. Further, and perhaps more significant, the “marginal cost of efficient U.S. shale oil producers is about $10 to $20 dollars a barrel in the Permian Basin in Texas and about the same for oil produced in the Persian Gulf. Like Gross, Shilling pays heed to American efficiency but suggests its part of a conundrum. “Sure, the drilling rig count is falling, but it’s the inefficient rigs that are being idled, not the [more efficient], horizontal rigs that are the backbone of the fracking industry.” Oil production will continue to go up, but at a slower rate. This fact, juxtaposed with continuing, relatively weak growth of global and U.S. demand, will continue to generate downward pressures on oil prices and gasoline.

Even a Marxist, who is a respected dialectician, would find it tough to make sense out of the current data, analyses and predictions. More important, if you wait just a bit, the numbers and analyses will change. Those whose intellectual courage fails them and who generally put their “expert” analyses out well after facts are created by the behavior of the stock market, oil companies, consumers and investors deserve short shrift. They are more recorders of events than honest analysts of possible futures — even though they get big bucks for often posturing and/or shouting on cable.
So what is the synthesis of the confused, if there is one? Oil could go down but it could also stabilize in price and start going up in fits and starts. Production is likely to continue growing but at a slower rate. Demand sufficient to move oil prices depends upon renewed and more vigorous GDP growth in Asia, the U.S. and Europe. Realize that very few analysts are willing to bet their paychecks on definitive economic predictions.

Saudi reserves will likely provide sufficient budget revenues to support its decision to avoid slowing down production and raising prices at least for a year or so (notice the “or so”). Market share has supplanted revenue as (at least today’s) Saudi and OPEC objectives. But how long Saudi beneficence lasts is anyone’s guess and, indeed, everyone is guessing. Deadbeat nations like Venezuela and Russia are in trouble. Their break-even point on costs of oil is high, given their reliance on oil revenues to balance domestic budgets and their use more often than not of aging technology and drilling equipment.

As the baffled King from “Anna and the King of Siam” said, concerning some very human policy-like issues, “It’s a puzzlement.” There are lots of theses and some antitheses, but no ready consensus synthesis. Many Talmudic what ifs? What is clear is that the dialectic is not really controlled or even very strongly influenced by the consumer. Put another way, the absence of alternative fuels at your friendly “gas” station grants participation in the dialectic primarily to monopolistic acting oil and their oil related industry and government colleagues. Try to get E85 or your battery charged at most gas stations. Answers to most of the “what ifs” around oil pricing and production, particularly for transportation, would be shaped more by you and I — consumers — if we could break the oil monopoly at the pump and select fuels of personal choice including an array of alternates now available. Liberty, equality and fraternity! Oh, those French.