Blame It on Bush, The Liberals Do
By Joe Egan
Well! “Dogone it”, where do I start? I know, I’ll start with Dave’s editorial in the last issue.

To start, let’s look at the prices then and now. In 1950 - ’51 I was paying in the neighborhood of 27 cents per gallon and working for minimum wage of 60 cents per hour. One hour’s work bought me slightly over 2 gallons. Using the same ratio and a minimum wage of $8.07 (in Washington), that would make gasoline be priced at about $3.63 per gallon. No way does that mean I am willing to accept these high prices. Why? Because a third party has entered the picture to rip off the consumer. It is not the oil companies, it is the filthy rich speculators in the commodities markets.

I have discussed this before when you may not have been sufficiently interested to pay attention. Producers of commodities generally sell the “future production” of their commodities in the commodities market to the highest bidder. Farmers will offer their wheat, corn, soybeans, etc. Ranchers offer their beef, chickens pigs, etc. Miners offer their production of gold, silver, copper, etc.? Oil producers put their production up for bid a month or more before production.? The problem is, most of the upfront buyers never see the product and would not have a use for it or a place to store it. They own the futures only long enough to sell it to other speculators and eventually to a user. All the profits made come out of the consumer’s pocket. In my opinion, laws should be passed to require the speculator to not be able to resell the future production until it is ready for immediate delivery. This would eliminate all the additional speculators and inflated prices.?Oil refiners do not refine only the oil they produce from their own wells but must purchase oil on the “spot market” as they need it because they have limited storage, making a windfall profit for speculators.

Of the 2 million barrels per day Exxon Mobil refined in 2007 here in the United States, 90 percent was purchased from others.

Because foreign companies and governments control the overwhelming majority of the world’s oil, most of the price you pay at the pump is the cost paid by the American oil company to acquire crude oil from someone else.

In 2007, the average price in the United States of a gallon of regular unleaded gasoline was around $2.80. Approximately 58 percent of that price ($1.62) reflects the amount paid for crude oil. Shipping, processing costs, distributor and dealer profits and taxes come out of the other 42% ($1.18).

Having mentioned oil companies, I would like to know what all those so called high profits we keep hearing about in the media represent in percentage of profit. That is, what is their profit, divided by their operating cost (cost of labor, materials, maintenance, transportation, etc). I have never heard the media use the term “percentage of profit”.On average, the oil company profit is 4%.

Exxon Mobil is the largest U.S. oil and gas company, but accounts for only 2 percent of global energy production, only 3 percent of global oil production, only 6 percent of global refining capacity, and only 1 percent of global petroleum reserves. With respect to petroleum reserves, Exxon ranks 14th.

To simply maintain current operations and make needed capital investments, Exxon Mobil spends nearly $1 billion each day.

Most business people would not accept a profit of less than 20%. What percentage do lawyers work on? Furniture stores aim for 100%, jewelers 200-300 percent. The point is, tell the media to shove their bias reporting where the “sun don’t shine”.

Capped Wells
Dave mentions “cheap” foreign oil causing capping of wells. Partially correct. Back in the 40’s & 50’s, the world’s oil companies controlled the oil in Saudi Arabia and thus the price and as other producing countries raised prices, at the encouragement of the oil companies, the oil companies were only too happy to follow. When leaders in Saudi Arabia got smart and nationalized their oil, the prices were not nearly as controlled by the oil companies and their influence over Saudi Arabia dwindled. When the first oil shortage occurred and prices for crude oil started climbing, Congress passed a law saying prices were frozen on “old oil” (from wells in this country). “Old oil” meant oil from domestic wells could not be raised to the market price. The result was oil companies capped as many wells as they could, claiming low production wells were non-profitable. The oil companies then drilled new wells nearby and the oil from those “new” wells could be sold at market price.

In my opinion, the people who hold contracts with oil companies for the oil under their land that is not being pumped should take class action to force the oil companies to pump the oil and pay royalties, especially if other wells are producing nearby.

New Technology
Regarding low production wells, a very low cost method of increasing production is now in use. Lateral drilling from an old well in all directions increases oil production greatly. It is a simple process. A plug is lowered into the well to deflect a drill thru the side of the casing; a “mole” is directed through the hole and out to about 3,000 feet. The process is repeated in several directions. The collected oil then flows back to the original well increasing production from a capped well. I think of this as a replacement for the “fracturing” at the bottom of a well with the explosion of a “torpedo” (nitroglycerin in a canister) which shattered the layers of rock and allowed oil to flow through the newly created cracks in the rock to the well.

Trade balance
Dave is correct about buying American. I would like to see all oil purchases be from land within the continental United States or at least the Western hemisphere. If we help the countries to the south raise their economy maybe people would stay home where they would rather be and earn a living. Strong economies stabilize government. People do not get restless when they have a roof overhead, full bellies and dreams of advancement.

If all oil was from within the U.S., it would certainly help our balance of payments.

Be Careful What the Environmentalist and Farm Lobbies Ask For
When Brazil adapted ethanol for auto fuel in the early 90’s, they did so using sugar cane to produce the ethanol. The world has a surplus of sugar so no adverse effects resulted. In this country, the farmers and farm product marketers saw a “fat hog” to harvest and lobbied their senators and representatives to push for corn to be used for ethanol and restrictions on the import of ethanol. Among others, Archer Daniels Midland, ADM

Corporation (Super Market to the World) stepped in and bought-up the futures of thousands of acres of corn, helped push for 50 cents per gallon subsidy (from tax payer’s pockets) for ethanol used in gasoline.

The result… Farmers have moved at least 20% of wheat land and a high percentage of soybean production to corn production for ethanol, impacting the world food supply. It is going to take three to five years for the full impact of the action of 535 members of Congress to run its course. The course I speak of is this; with farmers putting their corn production into alcohol, the price for corn used by the ranchers for beef, hogs, chickens, sheep etc., is climbing, making meat more expensive to the consumer. With the consumer having to pay more for fuel, meat and all products shipped to market, they will cut back on meat consumption and the ranchers will begin selling off most of their animals and possibly putting the rest on open range resulting in less meat production and even higher prices.?

News Flash: While I am writing this article, the “Corn Belt” is having the worst floods, as I hear, in 100 years. Farmers are saying their crops, which were already stunted from cool weather, are wiped out. End News Flash.

When those same 535 members of Congress are finally enlightened by the voters and remove the 50 cent subsidy and the mandate to use ethanol in gasoline, where will the corn growers sell their surplus corn? It will take time for the ranchers to rebuild their herds and flocks to use the now surplus corn. Corn prices will fall, hurting the farmers, unless congress uses farm price supports (funded by taxpaying consumers) to protect the farmers. With all the other problems coming our way, I think 3 to 5 years is a reasonable estimate for recovery of this congressional stupidity.

Dave Suggests Tapping into the Strategic Reserves
Bad idea, those reserves are to keep our military operational if all outside sources of oil were cutoff in times of hostility, however, we could stop all oil shipping from Alaska to the Far East. Currently, only about 15% of our oil imports are from the mid-East and about 50% from Canadian tar sands. Most of the rest is from operating wells inside the US, Mexico and South America.?

From the number of calls I get from companies wanting me to invest in new wells for oil and gas, I would guess the major problem is now, or soon will be, the lack of refinery capacity.?

The environmentalists and others have prevented new refinery construction for over 30 years. In my opinion, the government needs to audit the financial resources of all environmental groups. I believe money from foreign oil producing countries and those who would like to see the U.S. brought down is finding its way into the budgets of at least some environmental groups to help them hamstring our energy production. With more refineries, we could stop importing refined gasoline and diesel. Think about the amount of money leaving this country for the purchase of crude oil and refined products. Hit those 535 congressmen in the head and get their attention to take action.

There is a Glimmer of Hope
This information provided by Keith Sketchley of Victoria B.C.

In a hotly contested and underreported election in the faraway locale of Elk Point, South Dakota the voters decided by a margin of 58% to 42% to approve a plan by Hyperion LLC to build the nation’s first refinery in over 30 years!

Americans are not as stupid as the Middle East sheiks think they are. It just took $4 gasoline to get them off the dime. This refinery will help America stop importing gasoline. Most Americans don’t know that we now import 15% of our finished fuel, largely due to lack of refinery capacity. Every state should have enough refinery capacity to refine the crude oil produced in that state.

The Following Information is Extracted from the Congressional Inquisition of the Oil Companies
“In the United States, access to our own oil and gas resources has been limited for the last 30 years, prohibiting companies from exploring and developing resources for the benefit of the American people.

According to the Department of the Interior, 62 percent of all on-shore federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific and eastern Gulf of Mexico. China and Cuba plan to drill 60 miles off our shore.

The Argonne National Laboratory did a report in 2004 that identified 40 specific federal policy areas that halt, limit, delay or restrict natural gas projects.

When many of these policies were implemented, oil was selling in the single digits, not the triple digits we see now. The cumulative effect of these policies has been to discourage U.S. investment and send U.S. companies outside the United States to produce new supplies.

As a result, U.S. production has declined so much that nearly 60 percent of daily consumption comes from foreign sources.

The problem of access can be solved in this country by the same government that has prohibited it. Congress could have chosen to lift some or all of the current restrictions on exportation and production of oil and gas. Congress could provide national policy to reverse the persistent decline of domestically secure natural resource development.”? End Quote.

What have the 535 men and women in Congress done to help the problem?

Let’s drill in the ANWAR reserves:

Republicans, 91% yes, Democrats, 86% no; Process coal into liquid (oil); Republicans, 97% yes, Democrats, 78% no; Shale

Oil development; Republicans, 90% yes, Democrats, 86% no.

In the oil shale in the Rockies, there exists 1 to 2 trillion barrels of oil. The Senate just voted no to development.

Drill the outer continental shelf; Republicans, 81% yes, Democrats, 83% no.

85% of the continental shelf is off-limits. 86 billion barrels of crude and 420 trillion cu. ft of natural gas are available.

Authorize refinery construction; Republicans, 97% yes, Democrats, 96% no.

For your information, the house of representatives is made up of 233 democrats and 202 republicans. The senate is split, 49 democrats to 49 republicans. And the Democrats tell us it’s all Bush’s fault.

Drilling has been severely restricted by political pressures that have nothing to do with keeping energy in reserve, but everything to do with anti-human beliefs.

High gasoline prices come in substantial part from restrictions on building refineries, restrictions on building pipelines, and compartmentalization of the market (due regional environmental requirements).

As for electric cars (not Hybrid cars), where is the energy to come from?

Burning coal is a no-no, (Clinton locked-up the countries cleanest burning coal in Utah when he was in office) the environmentalist prevent new steam plants.

Using natural gas to run gas fired electric turbines is contributing to shortages and driving up home heating costs.

Building more hydro-electric dams is blocked by animal rights activists, environmentalist and tree huggers.

Building nuclear power plants is politically incorrect. Opposition is fading but the business case needs scrutiny - they are very expensive.

Electric cars simply shift where the pollution is generated ?unless hydro-electric or nuclear sources can be built, and shifting won’t satisfy the activists who think human production of CO2 gas can change the climate.

Experts agree that there’s between 800 billion to almost 2 trillion barrels of oil that could be recovered in Utah, Wyoming and Colorado. They’re not considered part of America’s $22 billion of proven reserves in the U.S.

That oil could be recovered at somewhere between $30 and $40 a barrel?? Those costs are probably a bit dated now, based upon inflation.

We just had a hearing last week where Democrats stopped the ability to develop shale in at least Colorado.

The Democrats know that they are largely responsible for the current high price of gasoline, and they want the price to rise even further. Consequently, they have no intention of permitting the development of domestic oil and gas reserves that would both increase this country’s energy independence and give consumers a break from constantly increasing energy costs.

Every once in a while, Congressional hearings turn out to be informative. Did you hear this juicy tidbit at the Congressional Hearings?

REP. MAXINE WATERS, D-CALIF.: What guarantees are you going to give this liberal about how that will reduce the cost of gasoline at the pump if we let you drill where you say you want to drill?

JOHN HOFMEISTER, SHELL OIL PRESIDENT: I can guarantee to the American people because of the inaction of the United States Congress ever increasing prices unless the demand comes down, and the $5 will look like a very low price in the years to come if we are prohibited from finding new reserves, new opportunities to increase supplies.

WATERS: And guess what this liberal will be all about? This liberal will be about socializing—would be about, basically, taking over (nationalizing) and the government running all of your companies. (Does she want to be CEO?)

In Summary
I think Republicans, conservatives, and people who believe that the oil companies are not gouging need to take this one head-on and say why is the Congress stopping us from finding more oil? It won’t solve everything overnight, but it would help to increase supply.

There is a lot of oil out there in deep sea waters, in Alaska, in oil shale, which environmental regulations are making harder to get. And I think this is a debate that conservatives and free markets can’t shy away from. They need to take it on.

What is needed here is an understanding that the oil companies are not really to blame. Clearly, there is a world market out there that has really run amok that will prevent any short-term solutions from bringing down the price of gasoline.

What are the biggest oil companies in the world? None of them is American. They are government owned, mostly Middle Eastern. They control the price of oil much more than these American companies.

Nuff said for now. Call me at 206.241.7278

EDITOR’s NOTE: In testimony before congress, hedge fund manager Michael Masters told the House that gasoline and oil prices would be cut in half if Congress regulated energy speculation.

The House Energy and Commerce Committee is considering legislation that would, among other things: impose higher margin requirements (currently the investor puts up only 7%. Hedge funds and retirement funds pay the rest). Set position limits, require more disclosure… maybe even ban pension funds and investment banks from owning commodities all together. ?Congress pulled in four of their favorite energy analysts to testify. ?Masters provided the headlines:

Should the Congressional Committee enact proposed legislation, ?Masters testified that gas would sink to $2 a gallon, while oil would fall to $65 -- within 30 days!

NEWS FLASH! The following “Open Letter to All Airline Customers” signed by the CEO of Air Trans, Alaska Airlines, American Airlines, Continental Airlines, Delta, Hawaiian Airlines, Jet Blue Airways, Midwest Airlines, Northwest Airlines, Southwest, United and U.S. Airways, was received at the CruZin’ Magazine offices on July 10, 2008. We believe it deserves your attention and support::

“Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.

Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.”