Energy
Human Rights Impact of Oil Pollution: US Gulf Coast
Sep 28, 2010 11:14
Excellent discussion of the impact of oil pollution on the Gulf Coast by the Business & Human Rights Resource Centre.
http://www.business-humanrights.org/Documents/Oilpollution/USGulfCoast
http://www.business-humanrights.org/Documents/Oilpollution/USGulfCoast
Comments
Why Oil Companies Haven't Been Constructing Refineries
Dec 24, 2009 09:52
A little more than two years ago I took to task Dr. William F. Shughart II, F.A.P. Barnard Distinguished Professor of Economics at Ole Miss, who wrote a guest editorial in the Clarion-Ledger entitled "New taxes would cut oil production, harm small stockholders.” Shughart blamed the windfall profits tax enacted by the Carter administration for the collapse of the oil industry in the 1980s, and environmental regulations for the lack of refining capacity in the U.S. I showed that the historical facts overwhelmingly rebutted Dr. Shughart and there is no reason to repeat what I wrote in that article. Suffice it to say that at the time he wrote his guest editorial, the price per barrel of oil was well over $100.00 and rising quickly. It would peak at over $140/bbl and natural gas would go to $12/mcf around the same time.
It was obvious at the time that neither an increase in demand nor a constriction in supply was responsible for the run-up in energy prices. Indeed, reserves were expanding at the same time that prices were making their breathtaking climb. As a general economic rule, prices do not rise when inventories are rising.
As Sherlock Holmes once said, “It is an old maxim of mine that when you have excluded the impossible, whatever remains, however improbable, must be the truth.”
What remains in this case is speculation.
At the time, there was a lot of money seeking large returns—returns far in excess of what investors were then making in the stock market. If enough speculators invest in hydrocarbons the price of hydrocarbons will rise. If the price rises to unsustainable levels, we call that a bubble. Bubbles, unfortunately, end, sooner or later, and like most bubbles created by easy money, the oil bubble, once it reached its peak, declined even faster than it ascended, as investors dumped energy futures and the derivatives based upon them, all of which had become radioactive.
But back to Dr. Shugart: his article in the Clarion-Ledger stated that we haven’t built a new refinery since 1976, in part because of “not-in-my-backyard” attitudes and costly environment regulations. As a result, according to Dr. Shugart, US oil refining capacity was nearly 4,000,000 barrels a day below current consumer demand, a shortfall that must be met by importing petroleum products. My answer to Dr. Shugart at the time was that oil companies had plenty of money to build oil refineries that were environmentally sustainable, and the real reason for not building refineries was that they did not anticipate being able to make a profit by selling their output.
Today’s article in the New York Times, Chilly Climate for Oil Refiners, confirms what I wrote over two years ago and confounds Dr. Shugart and his neoconservative economic arguments. The article begins:
In retrospect, it appears that an ongoing windfall profits tax with a trigger based upon the rise in the cost of living would have been an efficient and fair method of preventing oil and gas bubbles by heavily taxing price increases enabled by easy money and directly caused by rampant speculation. During the bubble, the windfall profits reaped by speculators and oil companies had no relation to the workings of supply and demand and represented no less than theft from the energy-consuming public. A windfall profits tax would have clawed back the spoils for the benefit of the victims.
There is a public interest, however, in preventing energy from becoming too cheap. Ideally, energy prices should reflect the total cost not only of extraction and the return to investors for the risk undertaken in exploration, but also the externalities imposed upon the environment and society in general by the extraction, transportation, refining, and usage of hydrocarbons, including the likely changes in world climate brought about by the greenhouse gases generated.
For 100 years, the energy industry has fluctuated between over-supply and under-supply, boom-or-bust, and these cycles are not directly related to the reserves in the ground but to the fluctuations in demand caused by economic booms, busts, and the consequent over- or under-investment in production. An oil well has an optimum production level, depending upon the producing formation and the technology used in getting the oil to flow out of the rock in which it is trapped into the bore hole. Producing too quickly from the well can cause the well to flood with water from the formations directly underneath the producing formation. Producing too slowly can necessitate additional workovers, thus adding to the cost of producing the oil. If demand slackens, suddenly there are millions of barrels of oil being pumped through the distribution system into reserves that are small in comparison to the total amount of oil produced worldwide. Once the reserves fill up, the oil has no place to go, thus the resulting dilemma of oil tankers forced to sit at anchor in the oceans, waiting to offload their contents.
The US government, through its strategic reserves, has at times been able to moderate prices by releasing oil onto the market when prices were high and by buying up oil for the reserve when prices fell. Unfortunately, this has not worked very well during the oil industry-dominated Bush administration for reasons that are patently obvious. It is in everyone’s interest, however, beyond the narrow interests of a few oil tycoons, that the price of oil and gas remain relatively stable. Investing in productive capital, which entails considerable risk in itself, cannot be made without a minimum of confidence that the cost of doing business will remain predictable. Energy is one of those costs.
Ultimately, fossil fuel will become extremely expensive and we will be forced to not only switch to renewable sources of energy but become far more sparing in our consumption. A national energy policy that succeeds in making the transition smooth should be the aim of energy policy. We already have the science and technology to make the switch. All that remains is that hydrocarbons become too expensive to continue to use them we way we are now.
It was obvious at the time that neither an increase in demand nor a constriction in supply was responsible for the run-up in energy prices. Indeed, reserves were expanding at the same time that prices were making their breathtaking climb. As a general economic rule, prices do not rise when inventories are rising.
As Sherlock Holmes once said, “It is an old maxim of mine that when you have excluded the impossible, whatever remains, however improbable, must be the truth.”
What remains in this case is speculation.
At the time, there was a lot of money seeking large returns—returns far in excess of what investors were then making in the stock market. If enough speculators invest in hydrocarbons the price of hydrocarbons will rise. If the price rises to unsustainable levels, we call that a bubble. Bubbles, unfortunately, end, sooner or later, and like most bubbles created by easy money, the oil bubble, once it reached its peak, declined even faster than it ascended, as investors dumped energy futures and the derivatives based upon them, all of which had become radioactive.
But back to Dr. Shugart: his article in the Clarion-Ledger stated that we haven’t built a new refinery since 1976, in part because of “not-in-my-backyard” attitudes and costly environment regulations. As a result, according to Dr. Shugart, US oil refining capacity was nearly 4,000,000 barrels a day below current consumer demand, a shortfall that must be met by importing petroleum products. My answer to Dr. Shugart at the time was that oil companies had plenty of money to build oil refineries that were environmentally sustainable, and the real reason for not building refineries was that they did not anticipate being able to make a profit by selling their output.
Today’s article in the New York Times, Chilly Climate for Oil Refiners, confirms what I wrote over two years ago and confounds Dr. Shugart and his neoconservative economic arguments. The article begins:
Only a few years ago, a cry went up that the United States needed more oil refineries. The perceived shortage was so acute that George W. Bush, president at the time, even offered disused military bases as sites for building them.
Not only did that never come to pass, but the reverse is now happening. The business of oil refining is mired in a deep crisis, with five refineries being shut down this year, including plants in Delaware, New Jersey, California and New Mexico.
Gasoline demand, which many analysts had long expected to keep rising for decades, is down sharply in the recession. And refiners are increasingly convinced that even after the economy recovers, demand will not grow much in coming years because of the rise of alternative fuel supplies and the advent of tougher efficiency standards for automobiles.
In retrospect, it appears that an ongoing windfall profits tax with a trigger based upon the rise in the cost of living would have been an efficient and fair method of preventing oil and gas bubbles by heavily taxing price increases enabled by easy money and directly caused by rampant speculation. During the bubble, the windfall profits reaped by speculators and oil companies had no relation to the workings of supply and demand and represented no less than theft from the energy-consuming public. A windfall profits tax would have clawed back the spoils for the benefit of the victims.
There is a public interest, however, in preventing energy from becoming too cheap. Ideally, energy prices should reflect the total cost not only of extraction and the return to investors for the risk undertaken in exploration, but also the externalities imposed upon the environment and society in general by the extraction, transportation, refining, and usage of hydrocarbons, including the likely changes in world climate brought about by the greenhouse gases generated.
For 100 years, the energy industry has fluctuated between over-supply and under-supply, boom-or-bust, and these cycles are not directly related to the reserves in the ground but to the fluctuations in demand caused by economic booms, busts, and the consequent over- or under-investment in production. An oil well has an optimum production level, depending upon the producing formation and the technology used in getting the oil to flow out of the rock in which it is trapped into the bore hole. Producing too quickly from the well can cause the well to flood with water from the formations directly underneath the producing formation. Producing too slowly can necessitate additional workovers, thus adding to the cost of producing the oil. If demand slackens, suddenly there are millions of barrels of oil being pumped through the distribution system into reserves that are small in comparison to the total amount of oil produced worldwide. Once the reserves fill up, the oil has no place to go, thus the resulting dilemma of oil tankers forced to sit at anchor in the oceans, waiting to offload their contents.
The US government, through its strategic reserves, has at times been able to moderate prices by releasing oil onto the market when prices were high and by buying up oil for the reserve when prices fell. Unfortunately, this has not worked very well during the oil industry-dominated Bush administration for reasons that are patently obvious. It is in everyone’s interest, however, beyond the narrow interests of a few oil tycoons, that the price of oil and gas remain relatively stable. Investing in productive capital, which entails considerable risk in itself, cannot be made without a minimum of confidence that the cost of doing business will remain predictable. Energy is one of those costs.
Ultimately, fossil fuel will become extremely expensive and we will be forced to not only switch to renewable sources of energy but become far more sparing in our consumption. A national energy policy that succeeds in making the transition smooth should be the aim of energy policy. We already have the science and technology to make the switch. All that remains is that hydrocarbons become too expensive to continue to use them we way we are now.