Sunday, July 20, 2008

The Pelosi Hoax Versus The Real Hoax

Nancy Pelosi declared the proposals to drill for oil a "big hoax". Afterward, knowing it had majority support, she refused to allow the house to vote on the measure. The common complaint of democrats is that it may take 20 years to produce some of the oil from the Outer Continental Shelf (OCS). That was a big part of the argument about ANWR 10 years ago. Oil and gas are seeping into the ocean only a short distance from existing oil infrastructure in Santa Barbara CA. This oil could be brought on line within a year to 18 months. There was an oil spill in Santa Barbara in 1969. The amount of oil seeping out each year is greater than the amount of the oil spill but the "environmentalist" would rather waste the oil and pollute the California coast than let an oil company process it. Every four years, this oil "leak" is greater than the Exxon Valdez oil tanker spill. Too bad that Pelosi cannot be sued for contributing to this massive pollution.

The magnitude of our energy needs is under appreciated. Annual US energy consumption is measured by the quadrillion BTUs. Percentages can be used to bring the numbers down to understandable levels. The government numbers from 2006 are as follows: coal 21%, natural gas 22.5%, petroleum 40.2%, nuclear 8.2%, biomass 3.2% (includes ethanol and all wood sources of 2.1%), geothermal .34%, hydro 2.8%, wind .258% and solar .07%.

Can you see the hoax in these numbers? Congress has spent billions of dollars of taxpayer money on wind and solar projects to get .328% of our energy. The left would have you believe that wind, solar and ethanol will save the day but despite a $.51 subsidy per gallon, ethanol produces considerably less than 1.1% (other biomass such as manure accounts for a significant portion of the 1.1%) of our energy. The total sums spent to subsidize these sources are huge relative to the amounts produced.

The Investment Tax Credit for wind power construction has been 35%! This is not a tax deduction but a gift. US taxpayers should own 35% of the wind power plants but we get zero return on our investment. The power produced is sold at the same rates as other power but there is an additional bonus paid. This is the Production Tax Credit. This credit is equal to 1.9 cents per kilowatt, for power that sells for around 6.5 cents per kilowatt.


The end of the subsidy road is in sight. With wind energy producing such a tiny portion of US power needs, the total Production Tax Credit cost was 2.6 Billion Dollars last year. However, due to the rebate of $350 per $1,000 invested on construction, the amount of wind power went up by more than 25% the past two years in a row. We simply cannot afford to pay investors 1.9 cents per kilowatt if wind becomes a larger percentage of our production. The Production Tax Credits have expired but democrats are trying to renew them. The problem is that they have no source for funding. The reinstatement of Production Tax Credits, at a time of growing production as a result of Investment Tax Credits, could lead to a massive hole in the budget.

Of course, politicians from both sides must promote an all source solution. The only way to get congress to reduce restrictions on drilling and nuclear is to include payoffs to numerous other parties. Tax credits will probably be passed but they will be reduced. T. Boone Pickens is as about as republican as one can be but he is certainly willing to feed at the democratic sponsored tax credit trough.


Speculators are getting all of the blame for high oil prices and none of the credit for the good stuff they have accomplished. Mexico is willing to invest heavily in future production because of the assurance of return. This return has been guaranteed by speculators willing to buy 10-year forward contracts at high prices. The speculators have allowed Mexico to lay off its financial risks. High prices in future markets now, help lower prices in the future.


Alan Greenspan sold a lot of books by including left leaning truthful statements such as the Iraq war is about oil. Of course, war is an economic beast. Anyone who says the Iraq war is not about oil is a liar. Anyone who says it is not about much more than oil is also a liar. When on nation owns something of value, it is human nature for someone else to want it. The people of the US have enjoyed living in a country that spans a whole continent. We are isolated from border disputes because our borders with Mexico and Canada are stable and our other borders go to the edge of oceans. Other nations, such as the Soviet Union has seen its borders drawn and redrawn. The war between Iraq and Iran in 1980 to 1988 and the take over of Kuwait were all about changing borders.

The Iraq war is about much more than oil but it is not an attempt to change the borders of any nation. It is also about nuclear power. The cost of electricity production by nuclear power is falling rapidly during a time of higher coal, oil and corn prices. Russia, the US, Europe, Japan, Australia and many other nations have agreed to a new plan which will make nuclear power available to many nations. There is a scramble in progress to join this coalition. The nuclear agreements are important because all nations need a low cost source of power. The great news is that access to this energy is being used as a tool to win the big prize. The war in Iraq is all about PEACE! The people of all nations should be free of terrorist.

The USA, in cooperation with the UN Security Council and many other nations, to encourage peace. As noted before, General Petraeus is the "Doctor General" who is using all resources available. Bush and the UN are hammering away at Iran's nuclear ambitions while Petraeus is recruiting Sunnies and Shittes one and all to the cause. Sunnies have just rejoined the Iraq government after winning appointments to several positions. Money talks. Al Sadr has been given the opportunity to convert his militia to a political party, but he is a marginalized player. The Pakistani government has been signing peace deals with tribal Taliban leaders. The deals require the Taliban to refuse to harbor those who would attack Afghanistan from Pakistan. Many of these deals have been broken but games of "tit for tat" continue to teach the "bad guys" that there is a price to be paid for deceipt.


Iran has refused to suspend production of uranium but Amadenijhad claims progress was made in recent talks. Various leaders from our side have let Amadenijhad know that more sanctions are coming unless progress continues and the UN has given Amadenijhad 2 weeks to respond to our proposal. This whole process seems to be slower than molasses but this is a multi-trillion dollar deal. I was once involved in a negotiation between NC Baptist Hospital and the Bowman Gray School of Medicine that had been off and on for years. I spent the summer of 1977 helping complete the final deal. There were many considerations involved but the total amount of cash that ultimately changed hands was only $9,500 per year for three years. The thing that allowed the negations to be completed that summer was the recognition by both parties would benefit from making a deal. This is the situation in Iran, all sides will win!

SOFA is Close

In November of 2007, Maliki and Bush agreed to complete a Strategic Operations Force Agreement by the end of July 2008. Here again, both parties want US troops to remain in Iraq until peace is assured. The devil is in the details. The USA has just agreed to set goals that if achieved will result in the automatic withdrawal of forces. This is a tricky route to take as it gives some incentives to not make progress. With democrats pushing for set withdrawal dates, Bush has once again had to fight the war and fight democrats but Bush has been determined to succeed and he will. He will not leave office without setting up the continued presence needed to secure the new Iraqi democracy. It is interesting to note that progress was made in the negotiations with Iraq when Bush hinted that he would emphasis Afghanistan success in the months ahead. If the US were to pull out of Iraq and emphasize Afghanistan, the insurgents would return to Iraq. What is needed is to fully secure Iraq while continuing to give Pakistan time to gain its footing.


The French Nuclear Energy firm, AREVA, continues to increase its access to nuclear fuel and it has won more contracts to build reactors in several countries. Any company, including Shaw Industries, that is involved in the production or construction of nuclear power plants should be a consideration for your investment dollars.

Bush has the timing of the deal with Iran just right. There is growing pressure on congress to eliminate restrictions on drilling and on nuclear power just before a deal will be completed. As it becomes more and more clear that democrats must go along with drill, drill, drill, or face the wrath of voters, Obama, Pelosi and others will begin to waffle. Again, both sides will be forced to accept compromise. Probably this week, the congress will pass a compromise housing bill. The bill will give Hank Paulson what he wants in regard to Fannie and Freddie and it will give the congress its housing slush funds. Here again, the timing is good. The housing market is already in the process of turning, there will be plenty of news reports that it has turned soon after the housing bill has passed. The time to buy real estate and in particular resort real estate is now!

The real hoax is in regard to the limit to the energy we have on earth. Doomers won the huge wind farm, solar and ethanol subsidies by convincing the majority that we are running out of fuel. The truth is that we have hundreds of years worth of fossil fuels yet to use and we have 10,000 years worth of nuclear power to use. Besides, the earth is a carbon sink. It is constantly storing carbon in trees, in soil and in the ocean. Those who believe in doom see no future. The future is bright. Our real energy comes from the sun and there are no signs that it will cease to give anytime soon.