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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President Obama’s opposition to the Keystone XL Pipeline puts more Oil on Trains like the one in Lac-Mégantic

Posted by PITHOCRATES - September 29th, 2013

Week in Review

Oil fuels the modern economy.  We use it everywhere.  And can’t live without it.  Even those people who hate it sipping their coffee while they surf the Internet and engage in social media in their favorite coffee shop.  None of which they could do if it were not for oil.  The coffee they drink crossed the ocean on a ship burning diesel refined from oil.  The smartphone they use contains plastic.  Made from oil.  And these smartphones crossed the ocean on a ship burning diesel before they could use them.  The cars in the drive-thru at the coffee shops are burning gasoline refined from oil.  The freight trains and trucks burn diesel that deliver the goods these coffee shops sell.

Oil makes everything better in our lives.  Without oil life expectancy would plummet.  As hospitals wouldn’t have any life-saving equipment made from plastic.  Ambulances couldn’t speed patients to the hospital.  And there would be no backup generators during a power outage.  As there would be no backup power available at our wastewater treatment plants.  Or at our freshwater pumping stations.  We would return to the 19th century.  Using steam and water power in our factories.  Horses in our cities.  Doing our business in an outhouse.  And drawing our water from a well.  Except for the rich, of course.  Who would be able to enjoy these luxuries.  Luxuries that most of us take for granted today.

Oil is so important in our lives that we should be doing everything within our power to make it as inexpensive and plentiful as possible.  Like building the Keystone XL pipeline.  So we can transport oil safely in large quantities.  Reducing the cost of transportation.  Thus lowering the price at the pump.  Which would also prevent things like this from happening (see What’s in rail tankers and why can’t we know? posted 9/27/2013 on CBC News).

Nearly three months after the  Lac-Mégantic disaster, rail safety remains at the top of the national agenda with a meeting of federal and provincial transport ministers this week focusing on the question of what is in tanker cars and why provinces and municipalities can’t get that information.​

After the conclusion of the meeting in Winnipeg, Manitoba’s transportation minister said the legacy of the Lac-Mégantic disaster in July must be safer rail system across Canada.

Steve Ashton said there is an urgent need to look comprehensively at rail safety at a time when more oil is being shipped by rail and the Lac Mégantic disaster is fresh in the public mind.

This is what happens when the environmentalists get their way.  And President Obama secures their support.  And their money.  President Obama opposes the Keystone XL pipeline.  And other pipelines where he can.  Because his liberal base hates oil.  Even though the lives they enjoy would not be possible without oil.  So their opposition to oil and pipelines forces oil onto trains.  That travel through our cities.  Sometimes derail.  And explode.  Killing 47 in Lac-Mégantic.  And destroying a part of that city.

With continued opposition to the Keystone XL pipeline more oil will travel by train.  More trains will derail.  And explode.  But the Democrats will secure the support of their liberal base.  And the environmentalists can claim a victory in the war against oil.  While they enjoy their coffee and smartphones in their favorite coffee shop.  That only oil makes possible.

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Obama’s Rejection of the Keystone XL Pipeline raises Food Prices and makes the World a more Polluted Place

Posted by PITHOCRATES - April 13th, 2013

Week in Review

President Obama yielded to the environmentalists in his liberal base on the Keystone XL pipeline.  Who opposed it on environmental grounds.  Ironic as the environment will be at greater risk if the president doesn’t let them build the pipeline.  And to make matters worse the price of gasoline will go up also.  Making one of the worst economic recoveries in U.S. history worse.  By leaving less money in consumers’ pockets.  While at the same time raising the price of everything that uses refined oil to get to market (see Killing Keystone Seen as Risking More Oil Spills by Rail by Rebecca Penty & Jim Efstathiou Jr. posted 4/9/2013 on Bloomberg).

A rejection of the Keystone XL pipeline by President Barack Obama would push more of Canada’s $73 billion oil exports onto trains, which register almost three times more spills than pipelines…

Shipping more supplies by rail would lead to higher costs for oil producers because train shipments are more expensive than pipelines…

Without Keystone, designed to carry 830,000 barrels a day of oil, shipments of Canadian crude by rail would rise an additional 42 percent by 2017, according to RBC Capital Markets.

“One of the unintended consequences of delaying Keystone XL is that more oil has been getting to markets in Canada and the United States using rail, truck and water-borne tankers,” Shawn Howard, a spokesman for TransCanada, said in an e-mail. “None of those methods of transportation are as safe as moving it by pipelines,” he said.

Trains are one of the most efficient ways to transport heavy freight.  Bulk freight carriers on the Great Lakes can ship heavy freight cheaper but they don’t travel as fast as trains.  And they can only travel on water.  A train can travel almost anywhere.  Over, under and around bodies of water.  Something a ship just can’t do with land.  But the benefit of train transport comes with a cost.  Rail infrastructure is very costly.  And you have to have it wherever a train travels.  Unlike a ship.  Still, rail is the best way to transport bulk freight.  Except that kind of bulk freight that we can push through a pipeline.

To think of the immense advantage of moving things by pipeline consider the hot water in your house when having a bath.  Without the pipeline system in your house you would have to heat water outside over a fire.  Then carry it in small containers and pour it into your bathtub.  Container after container you would have to fill with cold water.  Carry it to where you converted it into hot water.  Then carry the hot water by foot where you could stumble or fall, spilling your converted cold water.  Leaving you a mess to clean up.  And the need to burn more fuel to convert more cold water into hot water.

Now imagine having a bath by simply opening the hot water tap at your bathtub and letting it fill your tub.  It’s a whole lot easier.  Less chance to spill water.  And you burn less fuel.  So which would you rather do?  Clearly moving anything by pipeline is the best way to move anything.  You reduce the chance of spills because the only moving part is the oil in the pipeline.  And there are no loading and unloading costs to factor into the price of gasoline.  As the refineries basically have a hot water tap to turn on when they want to refine oil.  It just doesn’t get simpler than that.

Keystone XL pipeline doesn’t put the people or the environment first.  Just those people who oppose businesses and capitalism.  Who don’t care that people have to spend more to put gasoline into their cars.  Or have to spend more at the grocery store thanks to higher fuel costs passed along in higher food prices.  For if it were up to them people wouldn’t even have cars.  Or enjoy eating anything that came from an animal.  That’s the world the environmentalists have in mind for the American people.  Where the people sacrifice.  So the animals can enjoy a pristine environment.  Where they can happily eat each other.  And crap all over the place.  The way Mother Nature meant it to be.  Before God created man.  Who the environmentalist hate.  And blame for making a mess of everything.

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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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FT110: “You can’t blame our dependence on foreign oil for high gas prices AND say that producing more domestic oil won’t lower gas prices.” -Old Pithy

Posted by PITHOCRATES - March 23rd, 2012

Fundamental Truth

The Combination of Low Demand and High Supply caused Oil Prices to Fall over 70% by 1986

The Organization of the Petroleum Exporting Countries (OPEC) is a cartel.  Made up currently of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.  Their purpose is to set oil quotas for their oil-producing members.  To limit the amount of oil they bring to market.  To reduce supply.  And increase oil prices.  At least that’s the idea.  It’s been hard to keep the individual OPEC members from cheating, though.  And a lot do.  Often selling more than their quota.  Because when oil prices are high selling a few percentages above their quota can be very profitable.  Unless everyone else does so as well.  Which they usually do.  For their choice is either not to cheat and not share in any of those ‘excess’ profits (beyond their agreed to quota).  Or cheat, too.  Thereby increasing supply.  And lowering oil prices.  Not something any oil producer wants to do.  But it’s the only way to share in any of those ‘excess’ profits.

But that’s not the only problem OPEC has.  There are a lot of oil producers who aren’t members of OPEC.  Who can bring oil to market in any quantity they choose.  Especially when they see the high price OPEC is charging.  OPEC’s high price allows non-OPEC suppliers to sell a lot of oil at a slightly lower price and reap huge profits.  Which puts pressure on the OPEC target price.  Forcing them to lower their target price.  For if they don’t lower their price they will lose oil sales to those non-OPEC producers.  Which is exactly what happened in the late Seventies.  While OPEC was cutting back on production (to raise prices) the non-OPEC nations were increasing production.  And taking over market share with their lower prices.  Causing OPEC to reverse policy and increase production during the mid-Eighties.  Giving us the 1980s oil glut.

Of course, this rise in non-OPEC production was a direct result of the 1973 Oil Crisis.  Many of the OPEC members are Muslim nations.  Who don’t like the state of Israel.  In response to the West’s support of Israel in the Yom Kippur War (1973) OPEC announced an oil embargo on those nations who helped Israel.  Giving us the 1973 oil crisis.  Where this sudden reduction in supply caused the price of oil to soar.  Making the oil business a very profitable business.  Causing those non-OPEC producers to enter the market.  Then the Iranian Revolution (1979) disrupted Iranian crude production.  Keeping Iranian oil off the market.  This reduction in demand caused oil prices to rise.  Then Jimmy Carter broke off diplomatic relations with the Iranian state.  And boycotted their oil when it returned to the market.  Further encouraging the non-OPEC producers to bring more oil to market.  Meanwhile U.S. demand fell because of those high prices.  And our switch to smaller, 4-cyclinder, front wheel drive cars.  Saying goodbye to our beloved muscle cars of the Sixties and Seventies.  And the V-8 engine.  The combination of low demand and high supply caused oil prices to fall over 70% by 1986.  Giving us the oil glut of the 1980s.  When gasoline was cheap.  Enticing the V-8 engine back into the market.

Improved Fuel Economy AND Increased Oil Supplies can Reduce the Price at the Pump

So, yes, Virginia.  The amount of oil entering the market matters.  The more of it there is the cheaper it will be.  As history has shown.  When less oil entered the market prices rose.  When more oil entered the market prices fell.  And anything that can affect the supply of oil making it to market will affect the price of oil.  (And everything downstream of oil.  Jet fuel.  Diesel.  And gasoline.)  Wars.  Regional instability.  And governmental regulation. 

So what are things that will bring more oil to market?  Well there’s the obvious.  You drill for more oil.  This is so obvious but a lot of people refuse to accept this economic principle.  As supply increases prices fall.  The 1980s oil glut proved this.  Even John Maynard Keynes has graphs showing this in his Keynesian economics.  The economics of choice for governments everywhere.   Yet there are Keynesian politicians who avert their eyes to this economic principle.  So there’s that.  More drilling.  You can also make the permitting process easier to drill for oil.  You can open up federal lands currently closed to drilling.  And once you find oil you bring it to market.  As quickly as you can.  And few things are quicker than pipelines.  From the oil fields.  To the oil refineries.  (And then jet fuel, diesel and gasoline pipelines from the refineries to dispensing centers).  So before oil fields are ready to produce you start building pipelines from those fields to the refineries.  Or you build new refineries.

Improving fuel economy did help reduce our demand for imported oil in the Eighties.  As well as lowered the price for that imported oil.  But it wasn’t fuel economy alone.  The non-OPEC nations were increasing production from the mid-Seventies through the mid-Eighties.  Without that oil flooding the market oil prices wouldn’t have fallen 70%.  And they won’t fall again if we ONLY try to reduce our demand for foreign oil.  For reducing demand is marginal at best in reducing oil prices. 

Only if we Drill and Build Pipelines can we Reduce the Price at the Pump

For there are no electric airplanes.  The cost to electrify all railroad tracks is too prohibitive to consider.  The capital costs to build that electrical infrastructure.  The maintenance costs to maintain it.  And the electricity costs from the increased demand for electrical power while supply remains the same.  Or falls.  Because excessive regulation inhibits the building of new power plants.  And speeds up the shutdown of older plants.  Especially coal-fired because they pollute too much.  And hydro power.  Because of the environmental impact of dams.  Severely straining our electric grids.  And moving into electric cars will stress our electric grids even further.  Leading to brown outs.  And rolling blackouts.   Or worse.  Causing wires to overheat and sag, coming into contact with trees.  Shorting out.  Causing cascading blackouts as power plants disconnect from the grid to prevent damage from the resulting current surges.  Like they did in the Northeast Blackout of 2003.

You can’t replace oil with electricity.  In some cases there is just no electric equivalent.  Such as the airplane.  Or the cost of moving from oil to electricity is just prohibitive.  Such as updating the nation’s electrical infrastructure to meet an exploding demand.  Which leaves oil.  We need it.  And will keep using it.  Because there is no better alternative.  Yet.  So we need to produce it.  And do everything we can to help bring that oil to market.  Not fight against it.  And it all starts with drilling. 

We must drill.  Bring that oil up from under the ground.  Put it into a pipeline.  And pump it to a refinery.  If we do this enough we will be less dependent on foreign oil.  And have more control over the price at the pump.

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The Keystone Pipeline is a Problem for Obama because Trade Unions and Environmentalists are on Opposite Sides of the Debate

Posted by PITHOCRATES - December 10th, 2011

Week in Review

President Obama opposes the Keystone pipeline.  Which is kind of funny as it would create a lot of jobs.  And reduce the price of oil and gasoline.  Giving consumers more money in their pockets.  Thus stimulating economic activity.  Funny things to oppose.  But he does.  But he may be changing his mind (see Obama might back off Keystone pipeline veto threat: Congressman by AFP posted 12/9/2011 on The Vancouver Sun).

U.S. President Barack Obama might back off his threat to veto legislation approving the controversial Keystone XL pipeline to carry oil from Canada to the Gulf, a Democratic lawmaker said Friday.

Representative Emanuel Cleaver told MSNBC television that Obama might bow to House Republicans who have attached the pipeline measure to legislation to extend a tax cut that benefits middle class voters as well as jobless aid…

Asked about the veto threat, Cleaver acknowledged that “at the end it may be that ‘here’s an opportunity to get a deal and get what I want and we go home…'”

Ah, yes, go home.  That’s why he may cave.  So they don’t have to miss any of their Christmas break.  For if there is one thing Washington people like is having a good time.  Which is hard to do working anywhere near a holiday.

Of course the crux of the issue is this.  President Obama’s first term is as bad as Jimmy Carter’s if not worse.  And his poll numbers show this.  He’s lost white voters.  Which is a lot of voters.  And contributors.  His team has acknowledged this in a New York Times editorial.  And they’re okay with that.  So he has to concentrate on his base.  Hard-core leftist liberals.  And there are two large groups in this base.  Trade unions.  And environmentalists.

With such bad poll numbers the money isn’t flowing like it was before 2008.  So he needs every dime from his base.  And that includes trade unions.  And environmentalists.  Who just happen to fall on opposite sides of the Keystone pipeline debate.  The unions want it for the jobs.  The environmentalists don’t.  Because they hate capitalism and want everyone to live in holes in the ground.

Obama didn’t want to settle this issue until after the 2012 election, though.  So he could collect money from groups on both sides of the debate.  Because for him politics trumps jobs.  The economy.  And the American people.

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GE vs. TransCanada – Is the President too much of an Environmentalist or just too Anti-American?

Posted by PITHOCRATES - November 20th, 2011

Week in Review

General Electric is everything the Occupy Wall Street protestors hate.  But they don’t protest them.  Or President Obama.  Who has a close personal relationship with GE (see Occupy GE posted 11/18/2011 on Investors.com).

At a recent town hall meeting, Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, reminded constituents of a story that broke earlier in the year — that General Electric paid no taxes on profit of $14 billion, $9 billion of which was earned overseas.

Ryan related how he had asked a GE tax officer the length of GE’s tax filing. The tax guy said it was filed electronically but if it had been printed out he reckoned about 57,000 pages. This speaks both to the complexity and unfairness of the tax code.

…businesses large and small are encumbered by regulations and a byzantine tax code designed not to raise money for the needed functions of government but to reward or punish the behavior of corporations and individuals as the government sees fit.

57,000 pages?  For what?  To maximize tax revenue?  Apparently not.  As GE paid zero taxes on $14 billion.  So this complicated mess of a tax code clearly doesn’t maximize tax revenue.  It actually minimizes tax revenue.  By giving the well-connected corporations (i.e., government cronies) a way to escape paying their ‘fair share’.

In the mean time, though, the Obama administration is trying to raise taxes on the rich.  To make them pay their ‘fair’ share.  And by rich they mean the middle class.  For they definitely don’t mean crony capitalists like GE.

General Electric, a “good” and “green” company that makes wind turbines instead of drilling for oil, is rewarded for successfully jumping through government hoops and gaming the system.

TransCanada, which wants to build a pipeline to bring oil from Alberta’s tar sands to American refineries, is deemed a “bad” company that wants to rape the earth and give us bad air and water. It, and the 20,000 jobs it would create for the 99% by building the Keystone XL pipeline, is told to cool its heels.

GE is a crony capitalist.  And close friend of the Obama administration.  They can ship jobs out of the country.  And not pay income taxes.  TransCanada, on the other hand, will create jobs in America.  As Americans will build their pipeline to pump their oil to American refineries.  Thus benefiting all Americans by lowering the price of gasoline.  But this company is no friend of the Obama administration.  So Obama won’t allow them to build their pipeline.  Create American jobs.  Or lower the price of gasoline.

TransCanada is better for America.  Yet GE is getting all of the breaks.  What’s wrong with this picture?  Is the president too much of an environmentalist?  Or just too anti-American?

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The Environmentalists are Demanding Obama Damage the Economy by Killing the Keystone XL Pipeline

Posted by PITHOCRATES - November 5th, 2011

Week in Review

If you’ve ever wondered if liberals (that 20% of the electorate hell-bent on running all of our lives) are bad for the country just follow this pipeline saga (see Green groups warn Obama he’ll pay price for approving pipeline by Ben Geman posted 11/4/2011 on The Hill).

Environmentalists warned bluntly Friday that President Obama’s reelection campaign will pay a heavy price if he approves a controversial oil sands pipeline…

[Tiernan Sittenfeld’s, a top official with the League of Conservation Voters (LCV),] comments come days after Sierra Club Executive Director Michael Brune said that approval would hurt the group’s ability to mobilize members on Obama’s behalf.

The Sierra Club and LCV have the environmental movement’s largest political campaign operations.

Once again it’s not about jobs and the economy after all.  It’s about the money.  It’s always about the money.  And if Obama can get political contributions during record unemployment then he doesn’t need to create jobs.  He hasn’t yet.  So why start now?  (All that stimulus didn’t stimulate anything other than Obama’s political cronies’ appetite for more stimulus).  So the country can continue to wallow in recession.  As long as the money keeps rolling in.

Environmentalists also argue that rejection of the project would help Obama politically.

Help Obama politically.  While damaging the economy.

Building the thing will create real jobs.  And when they build it gasoline prices will go down.  Via the laws of supply and demand.  Which means consumer prices will go down.  Because the cost of everything has an energy cost component.  And people will pay less to gas up their cars.  Leaving them with more money for their households.

So the environmentalists are urging Obama to sacrifice all of that.  To improve politically.  I must have missed that part in the presidential oath of office.  Where it was all about the president.  And not the people.

The project puts Obama in a tough spot politically at a time when the economy and jobs are shaping up as the dominant issues in next year’s election…

Several unions are backing the project, including the International Brotherhood of Electrical Workers, the International Union of Operating Engineers, and the Laborers’ International Union, and the Building and Construction Trades Department of the AFL-CIO.

But labor is not united on the project. The Amalgamated Transit Union and the Transport Workers Union both oppose Keystone XL.

Tough spot indeed.  That’s a lot of union support for the pipeline.  Because these union people will be building that pipeline.  And they desperately want jobs in this rotten Obama economy.  The only unions against it are the ones who will lose jobs because of a pipeline.  The trucking industry.  And the railroad industry.  Who would prefer to restrict the supply of oil.  To raise the price at the pump for the masses.  So the few who transport it can keep their jobs.

“Burning the oil fields of Saudi Arabia, more than anything else, is what has raised the temperature of the planet a degree already. We didn’t know about climate change when … people found oil in Saudi Arabia, so it was natural to go burn it,” McKibben said.

“Now that we do, if we find a second Saudi Arabia and just do the same thing, then we are idiots,” he said.

Well, he’s right about one thing.  They are idiots.  For we don’t know what raised the temperature of the planet.  If the temperature is raising you just can’t point at one thing and say it’s responsible.  What about the sun?  And the solar minimum?  The sun is more likely changing global temperatures than man.  Just like it did during the ice ages.  When the planet really warmed and cool.  Before anyone ever burned a fossil fuel.

Obama is tied into the lunatic left because that’s all he has.  His economic policies have been an abject failure.  Both for the economy.  And for his rewarding of campaign donors with federal tax dollars, a.k.a. stimulus.  Because his crony capitalism will be all for naught if he loses reelection.

So, no, liberalism is not good for the country.  And right now it’s not all that good for a liberal president.

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The Environmentalists are Telling Obama to Just Say No to a Canadian Oil Pipeline

Posted by PITHOCRATES - November 5th, 2011

Week in Review

The Obama administration wants to make the U.S. independent of terrorist-sponsored Middle East oil.  Or so they say.  Because the U.S. is one pipeline away from making that happen.  Thanks to our energy-rich good friends to the north.  But the Obama administration is all but telling them to pound sand (see Canada toughens tone for TransCanada’s Keystone XL pipeline approval by Bruce Nichols, Reuters, posted 10/31/2011 on The Vancouver Sun).

In the face of rising environmental opposition to the planned pipeline, which would carry 700,000 barrels per day of supply from Canada’s oilsands projects to refineries on the U.S. Gulf Coast, the Obama administration has signalled that it may miss a year-end target for approval.

Oliver said a delay by the Obama administration would not be fatal to the project, and that Calgary-based TransCanada has multiple options — including customers in Asia…

Following Environmental Protection Agency complaints about its initial analysis, the State Department said it would undertake a supplemental review.

Unbelievable.  As if killing the oil business in the U.S. wasn’t bad enough.  Now the Obama administration appears determined to make gasoline as expensive as possible in the future.  To please the environmentalists.  At the expense of the American economy.  And the U.S. consumer.

It’s pretty sad when the Canadians are telling the Americans to lighten up on their environmental policies.  I mean, Canada has always been greener than America.  Yet here they are.  The energy producers.  And the Americans are hugging the trees.

The Chinese are in full support of the Obama policies.  Because those policies look like they’re going to hook up China with a lot of cheap oil.  Now that the Americans appear to be out of the oil market.  And determined to stay in the recession market.

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