Includes thoughts and comments about energy needs, resources, conservation and their relationship to politics at home and around the world.

Wednesday, June 11, 2008

Little by little, people are beginning to understand that high gasoline and diesel fuel prices are not caused by the oil companies, that there are many factors involved, including the following:

  • Commodities brokers and hedge fund managers

  • Oil and gas drilling restrictions

  • Environmental extremists opposition to new oil refineries

  • Environmental extremists opposition to new nuclear power plants

  • Commuter resistence to carpooling

  • Oil Supply/Demand imbalances

Brokers and Hedge Fund Managers

Very little oil is owned by the oil companies anymore. Foreign governments have nationalized what used to be owned by international oil companies. Those governments set the price of crude oil at the wellhead and/or f.o.b. at their export loading ports. Most often the oil aboard an independent crude carrier's tanker is available for brokers to buy and sell on the spot market. In today's market, the price on a given shipment from the Persian Gulf changes several times before it reaches its destination where it may be offloaded at as much as today's New York harbor spot price of $ 135/bbl. or more. Refiners of such oil are at the mercy of that system unless they have access to oil they own outright here at home or have purchased under contract from the foreign supplier at a pre-determind price. The refiner's economics begin with that price plus transportation and storage costs to which is added the cost of refining, product storage, product transporation and delivery expense. A nominal profit margin is added to which the refiner's customer, be it a retail service station dealer, reseller or jobber, adds his/her profit margin to reach the price paid by the end consumer.

Oil and Gas Drilling Restrictions

Our oil companies are not allowed to drill within 120 miles of the west coast of Florida in the Gulf of Mexico while China is exploring for oil off the northwestern coast of Cuba within 60 miles of the USA. Our companies are not allowed to drill on the Atlantic or Pacific continental shelf and in ANWR. The risk of a spill in the Gulf of Mexico is miniscule as proven during hurricane Katrina and many others before her. Automatic shutoff systems on the offshore rigs do their job, yet politicians like Senator Nelson (D-FL) continue to buy into the scare tactics of the environmental extremists. The same miniscule risk would apply to drilling off the Atlantic and Pacific coasts. Any footprint that would result from operations in ANWR would be small, and has been likened to the size of a business card on the floor of a basketball court, yet again politicians continue to buy into environmental extremist propaganda. There are literally billions of barrels of oil and oil equivalents in these areas noted above.

Opposition to New Refineries

The last refinery built in this country was more than 30 years ago. Environmental activists have opposed their construction ever since. To keep up with increasing demand for gasoline, diesel fuel and other petroleum products refiners have relied on modernizing and expanding existing facilities. It seems likely also that refiners have become reluctant to commiting the capital for new refineries because of rising construction costs. Fifty years ago, a 300,000 B/D refinery might have cost $ 300,000,000 excluding land costs. Such a refinery today would cost 10 times that amount.

Opposition to New Nuclear Power Plants

The anti-nuke folks seem to be as vociferous today as they have been ever since the the Three-Mile Island incident, an event that simply proved that the safety systems on our plants work. There is no reason why we shouldn't be building nuclear power plants instead of greenhouse gas producing, fossil fuel-powered plants. Nearly 70% of the electricity generated in France is from nuclear power and about half the power generated in Great Britain and Japan.

Commuter Resistance to Carpooling

Carpooling has been a part of the daily routine of workers in the New York Metropolitan area and other major American cities almost since the birth of the automobile. That was the case in 6 of the 7 cities I worked in during my own corporate career between 1951 and 1982. Here in Florida I-95 connects all of the cities between Jacksonville in the north to Miami in the south. Many workers living along that route commute 40 or more miles one-way and do so alone. If they were to join with just one other person, their gasoline bill would be cut in half and they would be doing their part to reduce greenhouse gas production. Their savings would be even greater were they to join with others to form an even larger pool.

Supply/Demand Imbalances

For years OPEC has tried to run a very thin line in the supply of crude oil to just barely meet demand. Then, along came sudden spurts of growth in demand in India and China which is now a torrent. The Saudis have indicated a willingness to increase production to ease the situation but it's impact on market price is questionable.


It's all too obvious that we must be able to drill for and produce more crude oil in this country and our neighboring waters including ANWR. That will eventually cause prices in the spot market to come down perhaps much sooner than the naysayers want us to believe. In turn, prices for fuel will come down as well.


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