Saturday, July 12, 2008

Oil Prices Will Fall in Two Seconds!

Politicians, airline executives and most everyone else are blaming speculators for raising the price of oil. The irony is that speculators generally reduce the price. The logic is simple enough, if a speculator believes that the price of gasoline will be $10 next year, he will bid up the price this year. The higher the price this year, the lower the amount consumed and the less likely that the price will actually hit $10 next year.

Politicians have learned to repeat a half truth until it becomes the whole "truth". The current democratic truth is that "even if we start drilling tomorrow it will be 10 years before oil prices go down". The "real truth" is that it will take less than two seconds for new drilling to have an effect on the market. A lot of oil is being stored today as a hedge against even higher prices. Once it is clear that new supplies will grow faster than new demand, a lot of oil is going to come out of storage. The pressure continues to mount on congress to pass an energy bill. Non safe incumbents are going to push hard for a bill. We can only hope that a relatively clean bill can be passed. We do not need mandates to force flex cars or hybrids upon us.

Timing is Everything -- Where Have All the Insurgents Gone?

George H. W. Bush won the Gulf War six months too early. He won his war but lost his election to Clinton. George W. Bush has timed his success to perfection, with hardly two seconds to spare. Insurgents have been chased from Iraq in time for Iraqi elections, Iraqi oil contracts and US troop withdrawals before the US elections. The insurgents who escaped from Iraq and into the high mountains of Pakistan are now under attack there. US air assets have been re-deployed. The Pakistani people cannot get a good nights sleep because of the constant drone of the drones. US predators and other UAV's are in the air above the people all the time. Raids on Afghanistan are punished, often in Pakistan. The people of the villages are having second thoughts about providing sanctuary for insurgents because Hell Fire Missiles rain down at the any time of day or night. Terrorist are on the run and finding fewer places to hide.

Wood Stoves and Desalination

Guess what? If the price of oil goes to extremes, the number of wood stoves in use goes to extremes. The dramatic growth in "dirty wood burning" makes true environmentalist, such as myself, extremely unhappy. Why in the world are we encouraging the burning of wood? I love a good campfire as much as the next fellow but the routine use of "dirty wood fuel" in homes and businesses makes no sense. It is amazing that drilling in ANWR is being blocked for environmental reasons while the amount of dirty chemically ladened fumes flowing up from wood stoves is going up, up and away.

At the other end of the spectrum, the high price of oil is spurring the development of nuclear power. A deal was just finalized between France and Libya and another was just signed between the UK and Jordan. Yesterday, a left leaning journalist made fun of the US meekly allowing Jordan to go nuclear while sanctioning Iran for doing the same thing. The journalist is sadly mistaken. Jordan signed on to a new 123 Civil Use of Nuclear Power Agreement. Jordan has agreed to a long list of things that Iran will not; yet. It is easy to understand the logic by which Libya, rich with oil and gas reserves, would want low cost nuclear power. It is easy to understand the logic by which Jordan, rich with oil shale, would want low cost nuclear power. What is difficult to understand is why a nation like the USA has so many people apposed to oil, gas, shale and nuclear energy. Our country has apparently been sold on extremely expensive and generally unproven or unavailable alternatives. We want and expect very cheap and very clean energy.

It is like the question of too much water and not enough water. The alarmist are trying to have it both ways. They say the temperature of the earth is rising (even though the average temperature has gone down for 10 years) and that the higher temperatures are causing the oceans to rise (despite the fact that when floating ice melts the water level does not rise). At the same time, these false rising temperatures are the blame for droughts. The global warming crowd has been forced to re-invent their message so that it is about climate change, this way it does not matter if temperatures have fallen for 10 years, it is all our fault. Among other things, these alarmist ignore the progress being made in the desalination of sea water. There are 7,500 desalination plants in operation. The largest one, in Saudi Arabia, produces 1.2 million barrels of fresh water per day, on par with its highest producing oil wells. The fresh water costs have fallen from around $10 per barrel in the 1960's to around 46 cents per barrel today. A few weeks ago, scientist used nano-technology to build a new membrane that should dramatically reduce these costs again.

One of the good things about desalinating water is that it can be done at off peak hours. As such, nuclear power, which is inadvertently being pushed by those who fight drilling in ANWR, is an excellent source of energy for desalination processes. It would take an enormous amount of desalinated sea water to change the ocean level even an inch but it is more likely that we will begin to dip water from the ocean than to add to it. Perspective is needed, the dirty air produce by the burning of coal and wood should be major concerns; the barren slopes of Alaska will not be greatly damaged by drilling for oil.

Flare Gas

A mandate worth pursuing is one to prohibit flare gas at oil wells. It is estimated that the Fisher Tropsch process could be used to add 4 million barrels of oil per day to the worlds supply while eliminating the burning of that amount in wasteful flares. There are so many causes the environmentalist should get behind. We openly burn the equivalent of 4 million gallons per day while arguing over drilling holes in a barren stretch of Alaska! The problem is that the environmental movement has been subverted into a political hammer. Politicians who vote against drilling in Alaska make no mention of the amount of wood being burned. Do opponents of ANWAR really care about the environment or about being re-elected.

Kindle -- The iPod of Books

I am almost ready to buy a Kindle. I will wait until the distribution tails have grown long and for competition to surface. So far, there are 90,000 books available. Another 130,000 will be available soon. The Kindle gets great reviews; easy to read, long battery life (with WiFi features off), and large storage capacity. With the price per book at around $10, the device represents a great investment for those who read a lot of new stuff. It is my hope to see older and less popular works available on the cheap. The device would be especially good for reference works such as the Bible. Having a word search function available is an especially good feature for reference works. I have been at the beach for two weeks and have gotten a newspaper only one day. At home, I still read the local paper daily, old habits die hard. The dramatic reduction of paper newspapers and books over the next several years will be just one more way to reduce our demand for commodities and energy.

While trees are the most important savings, we should not forget the salt. A prime industrial use of salt is in the making of paper. My how the price of commodities does go down over time! In the old, old days, camel caravans went to China and back to bring salt to the rest of the known world. Salt was a very expensive commodity. Salt was frequently traded for the famous big cedar trees of Lebanon. A highly regarded man was said to be worth his salt. Words such as salad were derived from salt. Before salt was available, who wanted to eat tasteless leaves? Today, we are producing more salt and more trees than we need. We produce so much salt that we only use .001% of our salt in food. We throw truck loads of salt on roads to melt ice. In the years ahead, we will desalinate billions of barrels of sea water while cutting huge amounts used in paper production. Oil, steel and copper are all like salt. They are commodities for which we continue to find cheap alternatives. Fifty years ago, who would have imagined that plastic pipes would be substituted for copper pipes? Fifty years from now, who will bother to drill for oil!

We will never ever run out of oil! The price of oil will fall within two seconds of some catalyst, such as a drilling bill in the USA or a deal with Iran. Iran is witnessing Islamic countries such as Jordan, Libya, Turkey, Egypt and Saudi Arabia go nuclear. Iran wants badly to go nuclear but time is running out. The congress is set to recess by August 8 and it has yet to pass a housing or an energy bill. After promising to hold the spending line, congress just shot massive holes in the budget with its Medicare bill. The approval rating of congress is down to 9%. The public is eager for a positive response. The housing bill has jumped through most of the hoops required. Some in congress say an energy bill can be completed this week, don't hold your breath. Both Iran and the Congress have more than two seconds but not a lot of time to make some deals.