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September then (2008) September now (2011)

September 26th, 2011

By Robert Singer

The year is 2011 and to anyone not in denial, the industrialized nations have entered the greatest calamity the world has ever known:

  • 35 Million Americans on Food Stamps: 12 Percent of U.S. Population on Food Stamps, the highest since records kept in 1969, and that’s before the Obama administration announced a planned three-year budget freeze on government discretionary spending. (My Budget 360)
  • 18 Million empty houses in the United States and 39 million Americans who are no longer working or looking for work, and that’s before Federal Reserve finishes rewriting the rules of American “capitalism” as US Housing, the Automobile Industry and the American Dream are dismantled. (The 31-Year-Old in Charge of Dismantling G.M., David E. Sanger)

“There are now well over 150 million Americans who feel stress over these things on a consistent basis. Over 60 percent of Americans now live paycheck to paycheck.” (The Economic Elite vs. People of the USA, David DeGraw)

So then, why are Exxon, Rosneft and Shell pouring out billions into potentially huge, risky prospects above the Arctic Circle? Arctic Riches Lure Explorers

An economy in a state of rigor mortis doesn’t need oil to lubricate an engine that blew up on October 29, 2008, and our way of life won’t come back if the oil industry creates a handful of jobs or we reduce our dependence on foreign oil.

Exxon Mobil Corp.'s blockbuster $2.2 billion deal to drill for oil in the frigid waters north of Russia with OAO Rosneft makes no cents.

Drill, Drill, Drill hasn’t made economic sense for at least the last 20 years!

Matt Simmons, an investment banker, considered to be a mover and shaker in the oil industry [before he “apparently” drowned in his bathtub] thought he, “spent his career in the wrong kind of barrels.”

“It will take 16 trillion dollars to replace the production we now have on line and add to it by 2030. Oil or another form of energy is an indispensable requisite for life as we know it. But over the past 20 years, oil has been a terrible investment. A 15% return on investment (ROI) is what one expects to get from a building. Oil’s ROI has largely been less than 15%. Scotch returns 50% ROI, wine returns 15%.

Why has oil given such a lousy return?

Because spot energy pricing, where oil is bought and sold like a commodity has destroyed long term value for the oil industry. Spot markets make all contracts short term, so no one is looking out for the future."

[From a presentation by Matt Simmons at the 2004 Offshore Technology Conference [1]]

“The not-so-invisible hand of JP Morgan Chase is guilty of the ongoing intentional, not accidental, great crime of manipulating the spot markets, lower, not higher as you would expect. So you could, prior to 2008, ‘save money and live better’ while at the same time pollute the environment.” (Silver, But No Silver Lining)

Why has Oil been a “terrible investment”?
Inexplicably, the industry picks the most expensive places on the earth to drill for oil.

Chevron spent $2.7 billion over 10 years on just the first phase of a deep-water oil project in the Gulf. Other sub-salt discoveries involve drilling more than 30,000 feet, some of the most expensive wells ever drilled.

On January 7, 2010, the Wall Street Journal published, “Cramped on Land, Big Oil Bets at Sea”

“Big Oil never wanted to be here, in 4,300 feet of water far out in the Gulf of Mexico, drilling through nearly five miles of rock. It is an expensive way to look for oil.”

September 2011, Exxon Mobil announced their latest $2.2 billion blockbuster deal to drill for oil in one of the most dangerous places in the world.

“Another sign that of the energy industry's white-hot interest in exploring above the Arctic Circle despite the challenges. The company hopes to drill their first exploratory well by 2015 and, if everything goes well, could begin production in the region by early next decade. The extreme weather and ice floes during colder months could wreak havoc on oil-industry platforms. Cleaning up an oil spill would be a huge effort. The seas there don't support the microbes that can break down oil droplets.” Russell Gold russell.gold@wsj.com

You really don’t need to know a lot about geology or oil to figure out something is wrong here: people living in homeless shelters don’t need cheap oil to go shopping and if they did, “why not go back to the old days and drill oil wells onshore?” Buy Oil Stocks… No Matter What, by Chris Mayer

Or if oil companies insist on drilling offshore, why not use up the 70 million “offshore acres leases” remaining from the total of 90 million?

Drill, Drill, Drill didn’t make environmental sense in 1973 or 2008
In 1973, America’s solution to the Arab oil embargo and long gas lines wasn’t mass transit, high mileage cars or alternative energy…it was the 800-mile Trans-Alaska Pipeline through some of the most pristine country in Alaska.

Fast forward to September 2008, when the American people, against all logic, (according to the EIA) agreed to drill for oil in the ANWR and give up their last Arctic wilderness because they couldn’t stand paying $4.55 for a gallon of gas.

The U.S. Energy Information Administration (EIA), an independent statistical agency within the Department of Energy, estimated that new oil from ANWR would have only a negligible impact on the world price of oil.

The EIA projection for oil production in the ANWR would amount to 0.4 to 1.2 percent of total world oil consumption in 2030, assuming the U.S. congress approved legislation to drill, back in 2008. [Appendix A]

Gasoline prices then and now
Last week (September 5, 2001) gas prices edged higher and are approaching levels we haven’t seen since September 2008. During the past week, prices were $1.01 higher than the same day one year ago.

A recurring controversy here in the United States revolves around the question, “should we mine the Arctic National Wildlife Refuge in Alaska?”

The debate crops up every time oil prices [and gasoline] spike and to my mind seems more appealing every time it’s broached. The region is indisputably beautiful, a pristine wilderness populated by endangered species of wildlife living peacefully in unspoiled natural splendor.” Oil Drilling in the Arctic

Could the spike in oil and gasoline prices be related to the irrational need to drill in the pristine and untouched places on the Earth? Click here to read how they were related in September 2008.

Robert Singer writes about Secrets, Sentient Creatures and The Federal Reserve at The Peoples Voice and The Market Oracle (rds2301@gmail.com)

Some Offshore Drilling Humor

Drilling offshore & in the ANWR, are there benefits?
Why did President Bush and his buddies want to drill, drill, drill (in 2008)? Hot Flat Friedman wonders, “what planet are they on?” Vote for the best explanation or post your own in comments.

President Bush was concerned about American families,
The President cites tough times for families in urging lawmakers to allow a vote on the bill to open ocean drilling: "American drivers are counting on Congress to lift the ban and so are American workers." Bush said that high gas prices are cutting into consumers' food and housing budgets. "The time for action is now, this is a difficult period for millions of American families," July 30, 2008 [Gasoline $4.32, Oil $122.46]

Psychological effect on speculators
Even though the drilling would not produce results, “It Would Help America Now!”

Oil prices are high now because of the speculators. From a psychological point of view, if news came out that we were going to open up offshore drilling or even ANWR, prices would start to drop because the speculators would have to start selling off their position knowing that prices wouldn’t be able to go much higher. I think we would start to see a decrease within weeks of an announcement.

Psychological effect on Bush’s buddies
So, the thinking goes if we relax federal prohibitions against drilling offshore and in the ANWR, knowledge of this fact will cause Bush’s Oil buddies to change their pumping decisions today. Though the additional barrels from ANWR wouldn't physically hit the market for years, it will lead to immediate relief at the pump. Beyond that, the ideal solution would be to completely privatize federal lands.

SWW
The members of a club were getting bored and thought it would be interesting to see how high the price of gasoline would have to go to get Americans to give up their last Arctic wilderness: a 1.5 million-acre habitat for seabirds, caribou, and polar bears. The winning ticket had $4.79 a gallon. In 1973 (the Oil Embargo) the same members of the club had a bet to see if long gas lines would get the public to agree to the Alaskan Pipeline. Within weeks of the Arab oil embargo, President Nixon signed into law the Trans-Alaska Pipeline Authorization Act, which authorized the completion of 800 miles of pipeline through the frozen passes of the Brooks Range, and through some of the most pristine country in North.

Local control and jobs in Alaska
Governor Palin stressed the need (in 2008) to enact an energy policy that includes oil and gas production from domestic sources, since failure to enact a sound energy policy is having real-life consequences. Alaskan residents pay higher prices for their gas than residents in other states do, and everything is far away. The state is as big as a third of the continental US, which means Alaskans have to drive further to get their gas than most people do in other states. Finally, because of the rugged terrain up there, everybody has big cars. If ANWR were opened for business, Alaskans might see a decrease in oil and gas prices or, at the very least, receive reimbursements because of the stipends.The people in Alaska overwhelmingly want it. “In my opinion, if they want to look at an oil well outside their back door, that’s their decision, not mine. I find that part of this argument persuasive.”

Reduce our dependence on foreign oil
The oil companies and the U.S. Energy Information Administration (EIA), an independent statistical agency within the Department of Energy, estimate that new oil from ANWR could lower the world price of oil by a minimum of .44 cents and as much as a whopping $1.44 per barrel but, that won’t take effect for 20 years. The EIA projection for oil production in the ANWR is 0.4 to 1.2 percent of total world oil consumption in 2030 and that amount would reduce our foreign oil dependence.

Oil companies are greedy and hoarding
Oil companies only have 70 million “offshore acres leases” remaining from a total 90 million; they are concerned they will run out of places to drill for oil in 3030 (yes, I meant 3030). Some Democrats also charge that oil companies are deliberately not drilling on the land to limit supply and drive up oil prices.

Oil companies prefer to drill in cold climates. Huh?

I don’t have an answer but neither does Hot Flat Friedman
Thomas Friedman author of Hot Flat and Crowded doesn’t know about any wager because when interviewed on NPR about drilling in the North Slope to promote the burning of coal, oil and gas exclaimed loudly:
drill, drill - what am I missing here
drill, drill - what planet are they on?
It's crazy, the Ohio senator actually voted against it (tax credits)

Pollution
Maybe President Bush wasn’t joking when, after rejecting the global climate change targets of the July 2008 G8 summit, he said, "Goodbye, from the world's biggest polluter." Maybe he covets and wants to retain that title?

"Give Us the ANWAR and Keep Shopping"-They Found They Can't Have Both [Essay released in 2008]

[1] Matt Simmons at the 2004 Offshore Technology Conference

Appendix A
The oil companies and the U.S. Energy Information Administration (EIA), an independent statistical agency within the Department of Energy, estimate that new oil from ANWR could lower the world price of oil by a minimum of .44 cents and as much as a whopping $1.44 per barrel but, that won’t take effect for 20 years. The EIA projection for oil production in the ANWR is 0.4 to 1.2 percent of total world oil consumption in 2030 and that amount would reduce our foreign oil dependence.

Chronology of the price of Gasoline and Oil
April 29, 2008 [Gasoline $3.89, Oil $113.86][1]
President George W. Bush in his speech in the Rose garden

“Americans are concerned about energy prices, and I can understand why. The past 18 months, gas prices have gone up by $1.40 per gallon. I've repeatedly submitted proposals to help address these problems. Yet time after time, Congress chose to block them. They repeatedly blocked environmentally safe exploration in Alaska National Wildlife Reserve ANWR.”. Later the president says, “If you mention ANWR it means you don't care about the environment. Well, I'm hoping now people, when they say "ANWR," means you don't care about the gasoline prices that people are paying”.

June 12-14 [Gasoline $4.43, Oil $132.11]
Zogy takes a poll about drilling offshore and the ANWR

June 26 [Gasoline $4.59, Oil $136.82]
Zogby poll Released. Three in four likely voters – 74 percent – support offshore drilling for oil in U.S. coastal waters and more than half (59 percent) also favor drilling for oil in the Alaska National Wildlife Refuge

July 3 [Gasoline $4.55, Oil $143.95]
Makes for a depressing July 4th

July 14 [Gasoline $4.49, Oil $142.43]
Bush lifted a presidential moratorium on drilling for oil and natural gas on the Outer Continental Shelf

July 16, 2008 [Gasoline $4.52, Oil $133.11]
The Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks.

July 30, 2008 [Gasoline $4.32, Oil $122.46]
NEW YORK (CNNMoney.com) -- President Bush called Wednesday for Congress to allow offshore oil drilling, citing an "urgent" need to reduce pressure on crude and gas prices.
President cites tough times for families in urging lawmakers to allow vote on bill to open ocean drilling. "American drivers are counting on Congress to lift the ban and so are American workers," "I've lifted the ban, I've done my part," Bush said. Bush said that high gas prices are cutting into consumers' food and housing budgets. "The time for action is now, this is a difficult period for millions of American families,"

July 30, 2008 [Gasoline $4.32, Oil $122.46]
NEW YORK (CNNMoney.com) -- As the nation struggles to meet its energy needs, a majority of Americans think offshore drilling for oil and natural gas is a good idea, according to according to a CNN/Opinion Research Corporation poll released Wednesday. The debate over offshore drilling has become an increasingly important political issue in the era of $4 a gallon gas. The bans prohibiting offshore drilling, which were put in place decades ago, are outdated and should be lifted, proponents say. But opponents argue that more drilling offshore could damage sensitive ecosystems.
Lifting the ban would send a "strong signal" to the oil futures market, which could help bring the price of crude down immediately, she said. (Is this possible, lifting a ban on drilling oil that would take 15 years to access could affect the price of oil in the next 7 days?)

August 1, 2008 [$4.36, Oil $124.16]
In some key battleground states, (like Florida) voters are shifting toward support of offshore drilling to reduce dependence on foreign oil and to ease those bug-eyed shocks at the pumps as the numbers keep moving upward,

August 5 [$4.21, Oil $116.50]
During his speech, Obama admitted he is no longer opposed to expanding offshore oil drilling if it is part of a broader energy plan. Sen. John McCain: “I call on Senator Obama to call on Congress to come back into town and come back to work. Democrat joining together: And a very vital part of that is nuclear power, and another vital part of that is offshore drilling. We have to drill here and drill now.”

August 7 [$4.23, Oil $116.94]
The Federal Reserve reported holding $2,401 billion, a 38.4% annual rate of growth.

August 12 [$4.16, Oil $108.98]
Democrats' stance against offshore drilling has shifted more.
Pelosi's radio remarks were the latest to hint that the energy debate in Congress is still evolving, and that Democrats are budging on the issue.

August 13 2008 [$4.22, Oil $111.33]
Retail sales fell in July, the weakest performance in five months, as shoppers shunned autos and other big ticket items. The Commerce Department reported Wednesday that retail sales dipped 0.1 percent last month when a variety of economic woes combined to blunt the impact of billions of dollars in government stimulus payments to U.S. households. "Cautious and uncertain consumers are watching their wallets and with the back-to-school shopping season under way, that does not bode well for retailers," said Joel Naroff, chief economist for Naroff Economic Advisors.

August 14, 2008 [$4.20, Oil $110.16]
House Speaker Nancy Pelosi signaling her willingness to consider opening up more coastal areas to oil and gas exploration. Just weeks ago Pelosi seemed resolved to block any votes to allow offshore drilling.

Conclusion
Once the last holdout Pelosi signaled her willingness to drill the markets responded. The U.S. Energy Information Administration says it would take about 20 years for increased offshore drilling to have an effect on world oil prices, and even then it would be a small one. To step up domestic drilling now when we wouldn't see the results until 2030 would be like investing in steamboats after the invention of the nuclear submarine. Therefore there is no other conclusion other than the Administration wants to drill in the most environmentally sensitive places on the planet.

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