Following the Tragedy at Lac-Mégantic shipping Crude Oil by Train in Canada will be more Costly

Posted by PITHOCRATES - April 27th, 2014

Week in Review

On July 6, 2013, a 4,701 ft-long train weighing 10,287 tons carrying crude oil stopped for the night at Nantes, Quebec.  She stopped on the mainline as the siding was occupied.  The crew of one parked the train, set the manual handbrakes on all 5 locomotives and 10 of the 72 freight cars and shut down 4 of the 5 locomotives.  Leaving one on to supply air pressure for the air brakes.  Then caught a taxi and headed for a motel.

The running locomotive had a broken piston.  Causing the engine to puff out black smoke and sparks as it sat there idling.  Later that night someone called 911 and reported that there was a fire on that locomotive.  The fire department arrived and per their protocol shut down the running locomotive before putting out the fire.  Otherwise the running locomotive would only continue to feed the fire by pumping more fuel into it.  After they put out the fire they called the railroad who sent some personnel out to make sure the train was okay.  After they did they left, too.  But ever since the fire department had shut down that locomotive air pressure had been dropping in the train line.  Eventually this loss of air pressure released the air brakes.  Leaving only the manual handbrakes to hold the train.  Which they couldn’t.  The train started to coast downhill.  Picking up speed.  Reaching about 60 mph as it hit a slow curve with a speed limit of 10 mph in Lac-Mégantic and jumped the track.  Derailing 63 of the 72 tank cars.  Subsequent tank car punctures, oil spills and explosions killed some 47 people and destroyed over 30 buildings.

This is the danger of shipping crude oil in rail cars.  There’s a lot of potential and kinetic energy to control.  Especially at these weights.  For that puts a lot of mass in motion that can become impossible to stop.  Of course, adding safety features to prevent things like this from happening, such as making these tank cars puncture-proof, can add a lot of non-revenue weight.  Which takes more fuel to move.  And that costs more money.  Which will raise the cost of delivering this crude oil to refineries.  And increase the cost of the refined products they make from it.  Unless the railroads find other ways to cut costs.  Say by shortening delivery times by traveling faster.  Allowing them an extra revenue-producing delivery or two per year to make up for the additional costs.  But thanks to the tragedy at Lac-Mégantic, though, not only will they be adding additional non-revenue weight they will be slowing their trains down, too (see Rail safety improvements announced by Lisa Raitt in wake of Lac-Mégantic posted 4/23/2014 on CBC News).

Changes to improve rail safety were announced Wednesday by federal Transport Minister Lisa Raitt in response to recommendations made by the Transportation Safety Board in the aftermath of the tragedy in Lac-Mégantic, Que.

The federal government wants a three-year phase-out or retrofit of older tank cars that are used to transport crude oil or ethanol by rail, but will not implement a key TSB recommendation that rail companies conduct route planning when transporting dangerous goods…

There are 65,000 of the more robust Dot-111 cars in North America that must be phased out or retrofitted within three years if used in Canada, Raitt said, adding, “Officials have advised us three years is doable.”  She said she couldn’t calculate the cost of the retrofits, but told reporters, “industry will be footing the bill…”

The transport minister also announced that mandatory emergency response plans will be required for all crude oil shipments in Canada…

Raitt also said railway companies will be required to reduce the speed of trains carrying dangerous goods. The speed limit will be 80 kilometres an hour [about 49 mph] for key trains, she said. She added that risk assessments will be conducted in certain areas of the country about further speed restrictions, a request that came from the Canadian Federation of Municipalities…

Brian Stevens head of UNIFOR, which represents thousands of unionized rail car inspectors at CN, CP and other Canadian rail companies, called today’s announcement a disappointment.

“This announcement really falls short, and lets Canadians down,” he told CBC News.

“These DOT-11 cars, they should be banned from carrying crude oil immediately. They can still be used to carry vegetable oil, or diesel fuel, but for carrying this dangerous crude there should be an immediate moratorium and that should have been easy enough for the minister to do and she failed to do that.

“There’s a lot of other tank cars in the system that can carry crude,” Stevens explained. “There doesn’t need to be this reliance on these antiquated cars that are prone to puncture.”

Industry will not be footing the bill.  That industry’s customers will be footing the bill.  As all businesses pass on their costs to their customers.  As it is the only way a business can stay in business.  Because they need to make money to pay all of their employees as well as all of their bills.  So if their costs increase they will have to raise their prices to ensure they can pay all of their employees and all of their bills.

What will the cost of this retrofit be?  To make these 65,000 tank cars puncture-proof?  Well, adding weight to these cars will take labor and material.  That additional weight may require modifications to the springs, brakes and bearings.  Perhaps even requiring another axel or two per car.  Let’s assume that it will take a crew of 6 three days to complete this retrofit per tank car (disassemble, reinforce and reassemble as well as completing other modifications required because of the additional weight).  Assuming a union labor cost (including taxes and benefits) of $125/hour and non-labor costs equaling labor costs would bring the retrofit for these 65,000 tanks cars to approximately $2.34 billion.  Which they will, of course, pass on to their customers.  Who will pass it on all the way to the gas station where we fill up our cars.  They will also pass down the additional fuel costs to pull all that additional nonrevenue weight.

Making these trains safer will be costly.  Of course, it begs this burning question: Why not just build pipelines?  Like the Keystone XL pipeline?  Which can deliver more crude oil faster and safer than any train can deliver it.  And with a smaller environmental impact.  As pipelines don’t crash or puncture.  So why not be safer and build the Keystone XL pipeline in lieu of using a more dangerous mode of transportation that results in tragedies like that at Lac-Mégantic?  Why?  Because of politics.  To shore up the Democrat base President Obama would rather risk Lac-Mégantic tragedies.  Instead of doing what’s best for the American economy.  And the American people.  Namely, building the Keystone XL pipeline.

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FT138: “High gas prices mean high food prices.” —Old Pithy

Posted by PITHOCRATES - October 5th, 2012

Fundamental Truth

We use Diesel Fuel in our Ships, Trains and Trucks to move Food from the Farm to the Grocery Store

People don’t like high gas prices.  When the price at the pump goes up more of our paycheck goes into the gas tank.  Or, more precisely, in everyone’s gas tanks.  For even if you don’t drive a car when gas prices go up you’re putting more of your paycheck into the gas tanks of others.  Thanks to oil being the lifeblood of our economy.  And unless you’re completely self-sufficient (growing your own food, making your own clothes, etc.) everything you buy consumed some petroleum oil somewhere before reaching you.

Gas prices go up for a variety of reasons.  The purely economic reason is the market forces of supply and demand.  When gas prices rise it’s because demand for gasoline is greater than the supply of gasoline.  Which means our refineries aren’t producing enough gasoline to meet demand.  And the purely economic reason for that is that they are not refining enough crude oil.  Meaning the low supply of gasoline is due to the low supply of crude oil.  Which brings us to how high gasoline prices consume more of our paychecks even if we don’t drive.  The reason being that we just don’t make gasoline out of crude oil.  We also make diesel fuel.

Diesel fuel is a remarkable refined product.  It just has so much energy in it.  And we can compress an air-fuel mixture of it to a very small volume.  Put the two together and you get a long and powerful power stroke.  Making the diesel engine the engine of choice for our heavy moving.  We use it in the ships that cross the ocean.  In the trains that cross our continents.  And in the trucks that bring everything to where we can buy them.  To the grocery stores.  The department stores.  To the restaurants.  Everything in the economy that we don’t make for ourselves travels on diesel fuel.  Which is why when gas prices go up diesel fuel prices go up.  Because of the low supply of oil going to our refineries to refine these products.

Oil is at a Disadvantage when it comes to Inflation because you just can’t Hide the Affects of Inflation in the Price of Oil

And there are other things that raise the price of gasoline.  That aren’t purely economical.  But more political.  Such as restrictions on domestic oil drilling.  Which reduces domestic supplies of crude oil.  Political opposition to new pipelines.  Which reduces Canadian supplies of crude oil.  Special ‘summer’ blends of gasoline to reduce emissions that tax a refinery’s production capacity.  As well as our pipeline distribution network.  Higher gasoline taxes.  To pay for roads and bridges.  And to battle emissions.  The ethanol mandate to use corn for fuel instead of food.  Again, to battle emissions.  All of which makes it more difficult to bring more crude oil to our refineries.  And more difficult for our refineries to make gasoline.  Which all go to adding costs into the system.  Raising the price at the pump.  Consuming more of our paychecks.  No matter who is buying it.

Then there is another factor increasing the price at the pump.  Inflation.  When the government tries to stimulate economic activity by lowering interest rates they do that by expanding the money supply.  So money is cheaper to borrow because there is so much more of it to borrow.  Hence the lower interest rates.  However, expanding the money supply also causes inflation.  And devalues the dollar.  As more dollars are now chasing the same amount of goods and services in the economy.  So it takes more of them to buy the same things they once did.  One of the harder hit commodities is oil.  Because we price oil on the world market in U.S. dollars.  So when you devalue the dollar it takes more of them to buy the same amount of oil they once bought.

Oil is at a particular disadvantage when it comes to inflation.  Because you just can’t hide the affects of inflation in the price of oil.  Or the gas we make from it.  Unlike you can with laundry detergent, potato chips, cereal, candy bars, toilet paper, etc.  Where the manufacturer can reduce the packaging or portion size.  Allowing them not to raise prices to reflect the full impact inflation.  They still increase the unit price to reflect the rise in the general price level.  But by selling smaller quantities and portions their prices still look affordable.  This is a privilege the oil industry just doesn’t have.  They price crude oil by a fixed quantity (barrel).  And sell gasoline by a fixed quantity (gallon).  So they have no choice but to reflect the full impact of inflation in these prices.  Which is why there is more anger about high gas prices than almost any other commodity.

Perhaps we can lay the Greatest Blame for the Current Economic Malaise on the Government’s Inflationary Monetary Policies

Current gas prices are hitting record highs.  And this during the worse economic recovery following the worst recession since the Great Depression.  Gas prices and the unemployment rate are typically inversely related to each other.  When there is high unemployment people are buying less gasoline.  This excess gasoline supply results in lower gas prices.  When there is low unemployment people are buying more gasoline.  This excess demand for gasoline results in higher gas prices.  These are the normal affects of supply and demand.  So the current high gas prices have little to do to with normal economic forces.  Which leaves government policies to explain why gas prices are so high.

Environmental concerns have greatly increased regulatory policy.  Increasing regulatory compliance costs.  Which has greatly discouraged the building of new refineries.  And making it very difficult to build new pipelines.  Which tax current pipeline and refinery capacities.  A problem mitigated only with their restriction on domestic oil production.  The current administration has pretty much shut down oil exploration and production on all federal lands.  Reducing crude oil supplies to refineries.  These environmental policies would send gas prices soaring if the economy was booming.  But the economy is not booming.  In fact the U-6 unemployment rate (which counts everyone who can’t find a full time job) held steady at 14.7% in September.  So an overheated economy is not the reason we have high gas prices.  But the high gas prices may be part of the reason we have such high unemployment.

Perhaps we can lay the greatest blame for the current economic malaise on the government’s inflationary monetary policies.  Inflation increases prices.  Especially those things sold in fixed quantities priced in dollars.  Like oil.  And gasoline.  The price inflation in refined oil products is like a virus that spreads throughout the economy.  Because everyone uses energy.  Especially the food industry.  From the farmers driving their tractor to work their fields.  To the trucks that take grain to rail terminals.  To the trains that transport this grain to food processing plants.  To the trucks that deliver these food products to our grocery stores.  From the moment farmers first turn over their soil in spring to the truck backing into to a grocery store’s loading dock to consumers bringing home groceries in their car to put food on the table fuel is consumed everywhere.  Which is why when gasoline prices go up food prices go up.  Because we refine gasoline from the same crude oil we refine diesel fuel from.  Oil.  Creating a direct link between our energy policy and the price of food.

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Crude Oil, Separators, Pipelines, Cathode Protection System, Pump Stations, Tank Farms, Refineries, Distribution Centers and Gas Stations

Posted by PITHOCRATES - September 26th, 2012

Technology 101

Pipelines Crisscross the Country carrying Raw Crude Oil to Refineries and Refined Petroleum Products Out

Do you know what the most fascinating thing about the gasoline you burn in your car?  Only a few weeks earlier it was raw crude oil in the pores of rock deep underground.  The oil business is a remarkably efficient business.  Remarkable machines, pipelines and refineries have made getting gasoline into our cars a fast and speedy process.  But it hasn’t come cheap.  Those machines, pipelines and refineries are incredibly expensive.  Which is a power incentive to move and process that crude oil quickly.  From oil underground to gasoline in you gas tank.

And that process begins at the wellhead.  Because what comes out of that well is not pure crude oil.  What comes up the well is a frothy mixture of oil, gas and salt water.  They have separators located at or near the wellheads to separate this mixture into its components.  Getting the gas out of the oil is easier than getting the water out.  This often requires additional processing.  They can ‘dry’ the oil by cooking the water out.  Heating the oil (by burning some of the previously separated gas) in a container sends the oil to the top where it floats on the water.  The water pulled out of the well and separated from the oil is not clean enough to pour into a river or stream.  So they pump it back from whence it came.  Into another well.  Where it can help force more oil up to the surface.

They pipe the oil mixture from the wells in an oil field to these separators.  Pipelines from the separators carry the processed oil (and natural gas) to pipeline terminals.  Where they feed into a main pipeline that carries the oil to a refinery.  (Natural gas does not need refining and simply enters the pipeline system that distributes natural gas to end users).  Pipelines crisscross the country carrying raw crude oil to refineries.  And refined petroleum products out.  Sending jet fuel to airports.  Diesel fuel to railroad fueling yards.  And gasoline and diesel to the distribution centers that feed our local gas stations.

The Trans-Alaska Pipeline holds about 9 Million Barrels of Oil inside the Pipeline at any Given Time

There is a lot of political opposition to pipelines.  They say they are an environmental disaster waiting to happen.  In truth there have been few pipeline disasters.  For two reasons.  It takes an enormous investment to get oil out of the ground.  So any leaks in a pipeline would greatly reduce the return on their investment.  Secondly, oil is flammable.  Any pipeline leak could light the fuse to a powerful explosion.  Which would reduce their return on investment far more than just a leak.  So they make these pipelines out of high-strength steel with welded joints.  They even x-ray the welds to detect any defects.  Because any lost oil is lost profit.  Which means any accident that hurts the environment will hurt them in the pocketbook.  So they will protect the environment because that is the best way to protect their investment.

Steel corrodes.  Especially when in contact with the earth.  In fact, the chemical interaction of the elements in the soil with the steel in the pipeline acts like a battery.  Creating small electric currents that can accelerate the corrosion process.  So they cover these steel pipelines in layers of tar-like material and an insulation wrapping.  In addition to this they install a cathode protection system.  Where another more corrosive material is placed in contact with the pipeline so it corrodes instead of the pipeline.  Or they install an active system where they bury anodes underground along the pipeline and attach a DC power source.  They connect the positive terminal of the power source to the anode system.  And the negative terminal to the pipeline (the cathode).  This current can prevent the galvanic action that can accelerate the corrosive process.

Oil is thick and viscous.  It doesn’t flow easily.  So they need big (diameter) pipelines.  And lots of pumps to push this oil to a refinery.  Even under high pressures this oil moves leisurely along at about 3-5 miles per hour.  But it doesn’t have to move fast.  Not once we fill these pipelines with oil.  Because new oil pumped into the pipeline at one end pushes out oil at the other end.  And when it does it pushes out a lot of oil.  In fact, our pipelines hold far more oil than all our storage tanks at all our refineries.  The pipeline that crosses Alaska (the Trans-Alaska Pipeline) is about 4 feet in diameter and 800 miles long.  If you do the math that comes to about 9 million barrels of oil inside the pipeline at any given time.  By comparison a modern large oil tanker can carry up to 2 million barrels of oil.

We burn Gasoline in our Cars that mere Weeks Earlier was still Underground in the Porous Matrix of Rock Formations

There are pump stations about every 60-100 miles along a pipeline.  These pumps suck a lot of energy to pump that viscous fluid.  But it is still more cost efficient than shipping that oil by truck or rail.  These pumps usually have a roof over them.  But no walls.  To prevent any buildup of explosive vapors from accumulating.  Which is one of the drawbacks of dealing with petroleum oil and its products.  Especially the stuff we eventually pump into our gas tanks.

At pipeline terminals, refineries and tanker ports there is a backup of oil waiting to enter a pipeline.  Or to be refined.  So we have to store it.  In tank farms.  Where tidy rows of squat round tanks with floating roofs (to prevent any buildup of explosive vapors) hold enormous amounts of oil until the next stage in the oil processing system is ready for it.  But not for long.  These tank farms at our refineries hold maybe 2 weeks worth of oil.  Not much.  But enough.  You see, oil doesn’t sit still for long.  For it takes about two weeks for oil on average to travel from the wells through the pipelines to the tank farms at our refineries.  So as the refineries draw down this oil in the storage tanks new oil arrives to replace it.  In a continuous, wondrous process.  That ends at the gas station.

Refined petroleum products leave the refineries pretty much the way they arrived.  In a pipeline.  The refined products are thinner and less viscous.  So the outbound pipelines are smaller in diameter.  After refining they pump gasoline into another tank farm.  These tanks feed another pipeline network.  These pipelines eventually terminate at distribution centers.  It is here where tanker trucks fill up to replenish the underground tanks at our local gas stations.  The gas entering these distribution centers is the same.  The different gas stations will add their own additives at this point to differentiate their gas from their competitors.  Then we pump it into our car.  And then enjoy the American experience of travelling the open road.  Burning gasoline that mere weeks earlier was still underground in the porous matrix of rock formations.

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The Socialist Utopia of Oil-Rich Venezuela is Rationing Gasoline

Posted by PITHOCRATES - July 22nd, 2012

Week in Review

Venezuela is a lot like Iran in a way.  They have lots of crude oil.  But little refining capacity.  Which is a problem because nothing really runs on raw crude oil.  It’s what we refine from it that we use in our cars, trucks, buses and power plants.  Causing a bit of a problem in Venezuela.  Because in their socialist utopia they virtually give their gas away.  Which was one thing when they refined it.  But another when they have to buy it (see Chavez’s gasoline rationing plan causes uproar by FABIOLA SANCHEZ, Associated Press, posted 7/20/2012 on Yahoo! News).

As home to the world’s cheapest gasoline, Venezuela has long had to contend with the hemorrhaging of supplies as smugglers haul gas across the border to cash in where the fuel costs far more.

In neighboring Colombia, drivers pay 40 times as much as Venezuelans to tank up — $1.25 a liter ($4.73 a gallon), compared to 3 U.S. cents a liter (11 cents a gallon).

So much gasoline is being taken out of Venezuela illegally that President Hugo Chavez’s socialist government imposed rationing on motorists in one state bordering Colombia last year, and now it’s touched off a furor in a second border state by announcing it will ration gasoline there, too…

Venezuela is a major oil exporter but its refining capacity is limited, so the government buys gasoline from the United States, losing money by then selling it at home for almost nothing. Those imports have been steadily rising since 2009…

Ramon Espinasa, a Georgetown University economist, blames “operational problems” at some Venezuelan refineries as well as rising demand from power plants built in the past two years that burn gasoline and diesel fuel.

“They’re not producing specialized (petroleum) products and must import finished products,” Espinasa said…

“It’s not rationing,” [Hugo Chavez] said. “It’s a means of control, to give everyone gasoline, because the gasoline here is practically free, so the idea is to give everyone what they need.”

One of the problems of socialism is that there is no incentive to risk capital.  Because if you invest and build a refinery the state will just take it away.  So that leaves the state to build their refineries.  And based on their refinery capacity shortfall that’s something the state just doesn’t know how to do.  Or else they would have done it.  And not have gasoline rationing.

Another problem with socialism is the whole ‘from those according to ability to those according to need’ nonsense.  Something that requires some people to work hard so others can have more.  Never a great inducement to get people to work hard.  So they don’t.  In socialism those who show the most need get the most.  And if they show no ability they don’t have to work hard to learn and acquire skills that will advance the economy.  So what can happen is that a chemical engineer with a college degree but no children may earn the wages of a janitor while a janitor with no college degree but with lots of kids can get the wages of a chemical engineer.  From those according to ability.  To those according to need.  You know what this gets you in the long run?  Gasoline rationing.

So socialism requires everyone to sacrifice for the greater good.  And based on the very large black market for gasoline that isn’t happening.  Which is why socialism fails as an economic system.  For people always look after their own interests.  Not the greater good.  Even in the socialist utopia of Venezuela.

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Rising Supply and Falling Demand (i.e., Recessions) can lower Oil Prices

Posted by PITHOCRATES - May 13th, 2012

Week in Review

There is less bad news for gas prices.  Rising crude oil supply and falling demand will provide a little price relief at the pump.  ‘Little’ being the operative word here (see Oil price tumbles as global supplies flourish by Garry White, and Emma Rowley posted 5/13/2012 on The Telegraph).

Opec supply has risen to about 31.62m barrels per day (bpd), as the Libyan oil industry started to recover. Saudi Arabia has also been ramping up production by than 56,500 bpd to 9.9m. Oil inventories in the US have also been rising. Supply is no longer such a large concern.

As well as worries about contagion from another eurozone crisis, data from China have also been weak, implying that demand could fall.

Chinese industrial production is the weakest it has been in three years. Industrial production rose by 9.3pc in April, the lowest level since May 2009, while retail sales surprised the market by slowing to a 14.1pc rise. This is the lowest level in 14 months…

“Crude oil prices have remained weak after last week’s sharp falls, largely due to concerns over the US economy and the escalating problems in Europe,” Mr Jessop said.

Well, imaging that.  You can lower the price of crude oil by increasing supply.  And crashing your economy.  For that’s another big part of the fall in prices.  Lower demand.  Because the economies in China, Europe and the United States ain’t looking so good.  So President Obama may get his wish come the 2012 election this November.  Lower gas prices.  And if the economy keeps tanking he’ll have even better prices at the pump.  Of course that will probably come with an up-tick in the unemployment rate.   But he can massage that away by just not counting the people who’ve given up looking for full-time work and those working part-time because they can’t find full-time work.  The U-3 unemployment rate.  Which looks a whole lot better than the U-6 rate that counts all those other people.  And has been stuck in double digits throughout his presidency.

Of course he could do something else to bring down those gas prices.  He could drill more.  Increase supply more.  Then build refineries and pipelines to move that oil around.  Creating jobs AND lowering the price of gasoline.  A win-win if ever there was one.  And it would move both the U-3 and the U-6 unemployment rates down towards full employment.  But he won’t do that.  Because the Left hates oil.  So we’ll have to hear how great the economic recovery is.  When it isn’t.  At least until November.

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Drilling More will Lower Oil Prices and Lower the Price at the Pump but it won’t Win Votes on the Left

Posted by PITHOCRATES - May 6th, 2012

Week in Review

Global warming alarmists and environmentalists have a friend in President Obama.  They represent a large swathe of the voting electorate.  Including some very high profile names in the entertainment industry.  Whose expertise in energy policy is nonexistent but persuasive nonetheless.  Because of an unwritten law in society.  If you sound and look good you are a de facto expert on the subject.  Which comes in very handy in making bad policy popular.  As demonstrated by the high price at the pump (see The 3 biggest benefits of producing more oil by Shawn Tully posted 5/3/2012 on Fortune CNNMoney).

President Obama argues that a campaign to substantially raise domestic crude oil production would provide miniscule benefits in lower prices and enhanced growth…

In fact, tapping the potential gusher within reach would enrich our future in three ways. First, despite the President’s declarations to the contrary, the extra output could be large enough to lower world prices by several dollars a barrel, chiefly through exploiting the enormous promise of shale oil. Second, adding to capacity would provide a sort of catastrophic insurance policy by cushioning shocks in supply that are especially damaging in the kind of tight, vulnerable market we’re experiencing today. And third, raising production means lowering our oil imports, and hence greatly improving our balance of trade. By pure GDP math, shrinking “net imports” would lift America’s growth trajectory…

Tight capacity means that almost all wells are pumping full tilt. To bring on more oil, producers that could react quickly may choose not to. A country like Saudi Arabia would need to spend lots of money uncapping old wells, and upgrading old fields, investments it’s now unwilling to make, in part from fears these high prices are temporary.

That leaves oil-hungry consumers to bid for the fixed number of barrels entering the market each day. In effect, someone commuting by car in London outbids a Chicago driver for scarce gasoline, and the Chicago driver saves by taking the train. That bidding is now driving the price far above the cost for the producer drilling the world’s most expensive oil, creating what’s called in economics a “scarcity premium.” And it’s why Exxon Mobil (XOM) and other oil giants are generating such huge profits.

How did the market reach this bind? From 2003 to 2008, demand for oil rose sharply, driven primarily by rapid industrialization in China and India. “The oil rich nations matched the rise in demand by producing more until around 2006,” says Lutz Kilian, professor of economics at the University of Michigan. “Then, production went flat, and even when demand started increasing again after the recovery began, production didn’t keep up…”

Well, there you have it.  Oil is expensive because demand is greater than supply.  So to reduce the cost of oil all we have to do is bring up supply to match or exceed demand.  And down goes the price of gasoline.  Elementary, really.  So why aren’t we doing this already? 

Because of the global warming alarmists and environmentalists who simply hate fossil fuels.  And the current president is appealing to these demographics for campaign funding.  And votes.  Neither of which he will win if he stops attacking Big Oil.  So he continues to attack Big Oil.  Buying campaign funding and votes.  All paid for by everyday Americans at the pump.  Who are cutting back everywhere in their lives to afford the high cost of gasoline the president is using as vehicle to reelection.

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Carbon, Carbon Cycle, Crude Oil, Petroleum, Hydrocarbons, Oil Refinery, Cracking, Sweet Crude, Sour Crude, Gasoline and Diesel Engines

Posted by PITHOCRATES - April 25th, 2012

Technology 101

Crude Oil is made from Long Chains of Carbon Atoms Bonded Together with a lot of Hydrogen Atoms Attached Along the Way

Carbon.  It’s everywhere.  And in everything.  Like all matter it cannot be created.  Or destroyed.  It just changes.  As it creates the circle of life.  The carbon cycle.  Plants and trees absorb carbon out of the atmosphere.  And converts it into biomass.  Into wood.  And into animal food.  Where the digestive system converts it into carbon-based living flesh and blood.  That exhales carbon.  Plants absorb carbon and release oxygen.  Plants can’t grow without carbon.  And we can’t breathe without plants growing.  Carbon is constantly changing.  But never created.  Or destroyed.  From diamonds to pencils.  From sugar to carbonated soda.  From plastics to human beings.  It’s everywhere.  And everything.  Why, it’s life itself.

Carbon is a time traveler.  Carbon that once traveled through the atmosphere disappeared millions of years ago.  Buried underneath the surface of the earth.  Under intense heat and pressure.  Plankton and algae and other biomasses decayed until there was almost nothing left but carbon atoms.  Long chains of carbon atoms.  Forming great, restless pools of black goo beneath the surface.   Waiting for the modern world to arrive.  Waiting for the internal combustion engine.  The jet engine.  And plastics.  When they could be reborn.  And see the light of day again.

Crude oil.  Petroleum.  Black gold.  Texas tea.  Hydrocarbons.  Long chains of carbon atoms bonded together with a lot of hydrogen atoms attached along the way.  In the ground they’re mostly long chains.  When we get them above ground we can break those chains into different lengths.  And create many different things.  C16H34 (hexadecane).  C9H20 (nonane).  C8H18 (octane).  C7H16 (heptane).  C5H12 (pentane).  C4H10 (butane).  C6H6 (benzene).  CH4 (methane).  Some of these you may be familiar with.  Some you may not.  Methane is a flammable gas.  Hydrocarbon chains from pentane to octane make gasoline.  Hydrocarbon chains from nonane to hexadecane make diesel fuel, kerosene and jet fuel.  Chains with more carbon atoms make lubricants.  Chains with even more carbon atoms make asphalt.  While chains with 4 carbon atoms or less make gases.  All these things made from the same black goo.  A true marvel of Mother Nature.  Or God.  Depending on your inclination.

Older Coastal Refineries make more Expensive Gasoline than the Newer Refineries due to the Availability of Sweet versus Sour Crude

Another great carbon-based product it bourbon.  Made from a corn sour mash.  We heat this and the alcohol in it boils off.  That is, we distill it.  We run this gas through a coiling coil and it condenses back into a liquid.  And after a few more steps we get delicious bourbon whiskey.  Distilleries give tours.  If you get a chance you should take one.  You won’t get to sample any of the distilled spirits (insurance reasons).  But you will get a feel for what an oil refinery is.

An oil refinery works on the same principles.  Boil and condense.  And cracking.  Cracking those long hydrocarbon chains apart into all those different chains.  Long and small.  Into liquids and gases.  Even solid lubricants and asphalt.  All made possible because of their different boiling points.  The gases having lower boiling points.  The solids having higher boiling points.  And the liquids having boiling points somewhere in between.

Refineries are complex processing plants.  Not only because of all those different hydrocarbon chains.  But because of the crude oil introduced to these plants.  For there is light sweet crude.  And heavier sour crude.  The difference being the additional stuff that we need to remove.  Such as sulfur.  An environmental problem.  So we have to remove as much of it as possible during the refining process to meet EPA standards.  The sweet crudes are lower in sulfur.  Making them the crude of choice.  But this has also been the most popular crude through the years.  So its resources are dwindling.  Making it more expensive.  As are all the products refined from it.  Especially gasoline.  The more sour crudes have higher sulfur content.  And require more refining steps to remove that sulfur.  Which means additional refinery equipment.  So the older refineries that were refining the light sweet crude can’t refine the heavier sour crudes.  Which is why the refineries along the coasts make more expensive gasoline than the newer ones in the interior refining the heavier sour crudes.  Due to the availability of sweet crude versus sour crude.

The Modern World is brought to us by a Complex Economy which is brought to us by Petroleum

One of the main uses of refined crude oil is fuel for internal combustion engines.  In particular, gasoline engines and diesel engines.  Which are very similar.  The difference being the mode of ignition.  And, of course, the fuel.  Gasoline engines compress an air-fuel mixture in the cylinder.  At the top of the compression stroke a spark plug ignites this highly compressed and heated mixture.  Sending the piston down.  If the combustion occurs too early it could place undo stresses on the piston connecting rods and the crank shaft.  By trying to send the piston down when it was coming up.  Causing a knocking sound.  Which is a bad sound to hear.  And if you hear it you should probably make sure you’re using the right gasoline.  If you are you need to have you car serviced.  Because continued knocking may break something.  And if it does your engine will work no more.  So this is where octane comes in the blending of gasoline.  It’s expensive.  But the more of it in gasoline the higher the compression you can have.  And the less knocking.  Which is its only purpose.  It doesn’t give you any more power.  The higher compression does.  Which the higher octane allows.  Using the higher octane gas in a standard compression engine won’t do anything but waste your hard earned money.

And speaking of higher compression engines, that brings us to diesel engines.  Which are similar to gasoline engines only they operate under a higher compression.  And don’t use spark plugs.  These engines compress air only.  Which allows the higher compression without pre-ignition.  At the top of their compression stroke a fuel injector squirts diesel fuel into the hot compressed air where it combusts on contact.  Diesel fuel has a higher energy content than gasoline.  Meaning for the same volume of fuel diesel can take you further than gasoline.  Which is why trucks, locomotives and ships use diesel.  But diesel tends to pollute more.  The smell and the soot kept diesel out of our cars for a long time.  As well as the difficulty of starting in cold climates.  Advanced computer controlled systems have helped, though, and we’re seeing more diesel used in cars now.

The modern world is brought to us by a complex economy.  Where goods and raw materials traverse the globe.  To feed our industries.  And to ship our finished goods.  Which we put on trucks, trains, ships and airplanes.  None of which would be possible without a portable, stable, energy-dense fuel.  That only refined petroleum can give us.  It’s better than animal power.  Water power.  Wind power.  Or steam power.  For there is nothing that we can use in our trucks, trains, ships and airplanes other than refined petroleum products today that wouldn’t be a step backwards in our modern world.  Nothing.  Making petroleum truly a marvel of Mother Nature.  Or God.  Depending on your inclination.

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High Gasoline Prices blamed on Wall Street instead of Where it Belongs – Environmentalism

Posted by PITHOCRATES - April 15th, 2012

Week in Review

Is Wall Street to blame for high gasoline prices?  Or are governmental environmental policies.  Most like to blame Wall Street.  Because they have no understanding of the oil business.  Even though it’s pretty straight forward.  And follows all the rules of supply and demand.  Where most of the current price pressures are coming on the supply side of the equation.  But Wall Street isn’t to blame for that.  We are.  For our collective attacks on the oil industry.  And our acquiescence of the environmental movement (see If the U.S. is now an oil exporter, why $4 gas? by Leah McGrath Goodman posted 4/11/2012 CNNMoney).

The U.S. is now selling more petroleum products than it is buying for the first time in more than six decades. Yet Americans are paying around $4 or more for a gallon of gas, even as demand slumps to historic lows. What gives..?

Americans have been told for years that if only we drilled more oil, we would see a drop in gasoline prices. (Speaking to voters last month, Newt Gingrich made the curious assurance that more oil drilling could drive down gasoline prices to $2.50 a gallon, prompting the White House to accuse him of “lying.”)

But more drilling is happening now, and prices are still going up. That’s because Wall Street has changed the formula for pricing gasoline.

Until this time last year, gas prices hinged on the price of U.S. crude oil, set daily in a small town in Cushing, Oklahoma – the largest oil-storage hub in the country. Today, gasoline prices instead track the price of a type of oil found in the North Sea called Brent crude. And Brent crude, it so happens, trades at a premium to U.S. oil by around $20 a barrel.

So, even as we drill for more oil in the U.S., the price benchmark has dodged the markdown bullet by taking cues from the more expensive oil. As always, we must compete with the rest of the world for petroleum – including our own…

To put it more literally, if a Wall Street trader or a major oil company can get a higher price for oil from an overseas buyer, rather than an American one, the overseas buyer wins. Just because an oil company drills inside U.S. borders doesn’t mean it has to sell to a U.S. buyer. There is patriotism and then there is profit motive. This is why Americans should carefully consider the sacrifice of wildlife preservation areas before designating them for oil drilling. The harsh reality is that we may never see a drop of oil that comes from some of our most precious lands.

It’s not Wall Street.  It’s the crude oil.  The refineries.  And the fact some refineries can only refine the Brent sweet crude oil.

The stuff we import, Brent sweet crude, is a higher quality crude.  It’s cleaner.  And easier to refine.  But it’s more expensive.  Which is a problem for the refineries on the east coast.  And on the Gulf Coast.  Because that’s the crude they can refine.  Because their crude costs are higher their refined gasoline costs are higher.  Therefore, these refineries lose money when selling at the prevailing market price.  So they export their gasoline where they can sell it at a higher price that covers their costs.  Or they shut down refineries.  Which they have done.  Shutting done some 5% of refinery capacity within the last 6 months.  Bringing total online capacity to about 60%.

The stuff we get from Canada, North Dakota and the Gulf of Mexico is West Texas Intermediate.  Which is a heavier, dirtier crude oil.  The refineries that can refine this oil are located in Oklahoma, Kansas and outside Chicago.  And because the gasoline they sell starts with a crude oil priced about $20 less a barrel than their east and Gulf Coast rivals they can sell at prevailing market prices and make a profit that recovers all of their costs.  Which is why these refineries are operating at about 95% of capacity.  Which explains why gasoline is cheaper in Midwest than on the coasts.  Well that, and California’s own emission standards that require an even more costly blend of gasoline than your typical summer blend (to reduce the polluting affects of gasoline at higher temperatures).

(You can read more about refining costs in a February Bloomberg article.  And more about gasoline blends in an Energy Policy Research Foundation article.)

So, no, it’s not Wall Street causing the high gas prices.  It’s environmental policy.  Which requires costly blends of gasoline to reduce emissions.  And makes any expansion of the refinery infrastructure cost prohibitive.  Environmental impact studies alone can take years to complete.  And cost hundreds of millions of dollars.  So the aging infrastructure strains at the seams.  Whereas if those policies weren’t so cost prohibitive we could build new refineries along the east and Gulf Coast to replace those underutilized and shuttered facilities.  And flood them with domestically produced West Texas Intermediate.  Which would make gas prices fall.  At least it would lower the east and Gulf Coast prices to that enjoyed in the Midwest.  But not in California.  Who will forever have the highest gasoline prices thanks to their emission standards

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BP agrees to $7.8 Billion Deal for the 2010 Deepwater Horizon Oil Rig Spill

Posted by PITHOCRATES - March 4th, 2012

Week in Review

It was the end of the world.  The apocalypse.  Brought on by Big Oil.  And our addiction to that silky rich and seductive crude oil.  A new Black Death.  Only blacker.  And stickier. 

We had finally done it to ourselves.  We ruined our pristine Gulf coast.  And the fragile ecosystem in the water.  And on the land.  But there is one small consolation.  BP is paying billions in a settlement.  Lucky for us that they were so profitable to be able to pay for both the regulatory and compliance costs of their industry.  And these big lawsuits.  So we win.  Until we pump gas, that is.  Where they will no doubt pass on the cost of this very large settlement (see ‘Deal reached’ over BP Deepwater Horizon oil spill posted 3/3/2012 on the BBC News US and Canada).

BP says it has reached a $7.8bn (£4.9bn) deal with the largest group of plaintiffs suing the company over the 2010 Deepwater Horizon oil rig spill.

It will benefit some 100,000 fishermen, local residents and clean-up workers whose livelihoods or health suffered…

The rig exploded in the Gulf of Mexico in April 2010, killing 11 workers and leaking four million barrels of oil.

BP says it expects the money to come from a $20bn (£12.6bn) compensation fund it had previously set aside.

“From the beginning, BP stepped up to meet our obligations to the communities in the Gulf Coast region, and we’ve worked hard to deliver on that commitment for nearly two years,” BP Chief Executive Bob Dudley said…

BP has so far paid out $7.5bn in clean-up costs and compensation.

US President Barack Obama called the spill “the worst environmental disaster the nation has ever faced”.

But was it the worst environmental disaster we ever faced?  If most evidence of that disaster can disappear in about a year’s time, perhaps.  But you’d think if it was the worst disaster of all time some of it would stick around a bit longer than that.  But it didn’t.  Which kind of lowers the bar for ‘worst of all time’ disasters, doesn’t it?  Here’s a follow-up published last April.  And it turns out that Deepwater Horizon was less worse than the Exxon Valdez disaster (see BP oil spill: Dramatic recovery of Gulf of Mexico one year on by Philip Sherwell posted 4/10/2011 on The Telegraph).

The Sunday Telegraph accompanied an assessment team scouring low-lying fingers of mud and marsh grasses along a 20 mile stretch of bayou where the river pours into the sea, the nearest point on land to the disaster site.

The phragamites reeds surveyed by the team leader Ivor van Heerden and scientists from the parish, state and federal governments took a direct hit last year.

But last week they found not even residual traces as the captain negotiated through the marshes on a flatbed airboat designed for swamps.

New shoots were bursting out of the reeds, wading birds were nesting, molluscs clung to the stems and the air was thick with greenflies.

And further along the Gulf coast, the white sand beaches of the panhandle that were soiled by tar balls last summer look back to their pristine best, packed in recent weeks by college students enjoying the raucous annual institution of spring break.
“The spill was a disaster, but it was not the catastrophe that many people were portraying,” said Mr van Heerden, a marine scientist who once headed the Louisiana coastal restoration programme for the state’s fragile eco-system of wetlands.

It was his intervention last July that first challenged the assumed wisdom in America that the spill was an apocalyptic environmental catastrophe.

“A lot of people, and that includes politicians and journalists, did not want to hear the message that it was really not that bad,” he said…

Swaths of the Gulf were closed to fishing and over the next six months, nearly 7,000 dead animals were collected from the area – mostly birds but also 700 sea turtles and 100 dolphins – although in many cases the cause of death has not been determined.

But volume can be a misleading measure of a spill’s impact. In 1989 the Exxon Valdez tanker lost just five per cent of the oil that escaped into Gulf last year, but damage to the Alaskan coastline, wildlife and environment was much more devastating.

“This was no Exxon Valdez, not even close,” said Ed Owens, a British marine geologist and oil spill veteran who developed the industry standard for clean-up and monitoring after he worked on the chaotic response to that disaster…

Although the longer-term damage inflicted on the wildlife, marshes and waters of the Gulf is still being assessed, the fishing grounds and oyster beds are open again.

But traditional fishing communities on the slivers of land that poke into the sea south of New Orleans are still reeling from the impact, economically and mentally.

At a roadside seafood stand that his mother opened 32 years ago, Sean Maise has discounted the juicy four-inch long jumbo shrimps in his iceboxes to $3.50 a pound in an effort to woo custom. “It’s bad, real bad,” he lamented…

“We have probably the most rigorous testing in the world here and there has not been a single case of contaminated seafood found since the spill,” he said. “Nobody’s got sick from eating Louisiana seafood, but still people are nervous.”

This doesn’t sound like the worst disaster of all time.  Unless you want to include the devastation of the oil industry, then, yes, it ranks pretty high on the ‘worse’ scale.  But if you’re talking about spring break beaches and delectable seafood, then no.  Even though the people are scared to eat it despite the testing proving that it’s perfectly safe to eat.  Within a year things got back to pretty much normal.  Which kind of makes a mockery of the label ‘worst environmental disaster the nation has ever faced.’  And the economic destruction of the Gulf oil industry.

The Deepwater Horizon oil rig explosion was s disaster.  It killed eleven oil workers.  And then destroyed the livelihood of all their coworkers.  And reduced the amount of US crude oil in the domestic pipeline.  Raising the price at the pump.  This is the disaster.  The beaches and water are fine.  Just ask the college students enjoying spring break on the beaches.  In the water.  And eating the seafood.

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Iran Flexes Military Might in Gulf to Warn Against any Action Against their Nuclear Program

Posted by PITHOCRATES - January 7th, 2012

Week in Review

Iran says they need nuclear power to make electricity.  They say this as they sit atop some of the largest crude oil reserves in the world (see Iran test-fires missiles in Gulf exercise by Ramin Mostafavi, Reuters, posted 1/2/2012 on Yahoo! News).

Iran said on Monday it had successfully test-fired what it described as two long-range missiles, flexing its military muscle in the face of mounting Western pressure over its nuclear program.

The announcement came at the climax of 10 days of naval exercises in the Gulf, during which Tehran has warned it could shut the Strait of Hormuz, through which 40 percent of world oil is shipped, if sanctions were imposed on its crude exports.

Analysts say Iran’s increasingly strident rhetoric, which has pushed oil prices higher, is aimed at sending a message to the West that it should think twice about the economic cost of putting further pressure on Tehran…

Tehran denies Western accusations that it is trying to build atomic bombs, saying it needs nuclear technology to generate electricity…

[Iran is the] the world’s fourth biggest producer [of crude oil].

Yeah, with being only the world’s fourth biggest producer of crude oil of course they need nuclear power to make electricity.  I mean, how much electricity can they make with all of that crude oil?

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