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Oil Shale Economics

Rabbi Kaufman — Wed, 23 Feb 2011 18:43:26 +0000

Thomas Friedman wrote today about the need for the United States to reduce our need for foreign oil, proposing a phased $1 tax on gasoline to help wean us from it. This would certainly reduce consumption, but it would not really reduce our dependence upon foreign oil (only reducing the amount we consume) and would result in significant job losses. There is potentially a better solution.

A few years ago, I saw a study that said that with oil at $100 there is vastly more oil available than there is at $50. The lower price point makes it impossible for companies to consider investing billions of dollars to reach shale oil. However at $100, it could make economic sense. Once the investment is made, the available oil supply would be much larger than it currently is. Of further note is the fact that North America has by far the largest reserve of this type of oil in the world. As a general rule, as the price increases, so does the amount of oil available.

I don’t know if the price point is $100 or not at this point, but I do know that the US would be able to be self sufficient should the price go much above that, having reserves so vast as to support not only our own economy for generations, but others as well.

This is evidently one reason why OPEC has worked to keep the price of oil below the critical level. If oil is at $40 or $50, it is onlyÂ cost effective to drill where there are large pools of oil. As I understand it, we’re nearing the tipping point when it will become worthwhile toÂ go after the shale oil. At that point, weÂ could end our dependence upon foreign oil entirely without Â providing incentives for change (taxation) in our own economy.

The real fear on the left, and this is why taxation is proposed, is that there will be no new incentive, other than increased cost, toÂ use alterative sources of energy and that fossil fuel usage might even increase. Taxation would alter the value of the commodity, potentially keepingÂ its value below the critical tipping point by reducing demand. InÂ other words, taxation will force us to continue to depend upon foreign oil while also forcing us to reduce our consumption.

The markets left alone will result in higher oil prices that will make explorationÂ andÂ usage of the vast reserves of oil in North AmericaÂ more worthwhile, resulting in a dramatically reduced, if not eliminated, reliance upon foreign oil, while also reducing consumption simply because of the increased price. Basically, the markets will alter behavior as much as taxation could do while benefiting the United States far more.

There are clear environmental impacts of shale oil exploration and legislation will no doubt need to be implemented to address it, likely raising the costs somewhat. In the long run, finding effective and inexpensive alternative forms of energy is by far the best alternative.

For a simple explanation of oil shale economics, see this basic explanation from Wikipedia.

Yachting, Golf, and the Oil Crisis

Rabbi Kaufman — Mon, 21 Jun 2010 16:00:46 +0000

There is quite some furor over the fact that the CEO of BP, formerly BRITISH Petroleum and now simply BP, just as KFC, once actually had something to do with Kentucky and FRIED Chicken, went yachting and Pres. Obama played golf. I believe that this is highly dangerous, much less misguided. In any job in which you can work 24 hours a day, seven days a week, it is VITAL to take time off. If you do not take time off, you can burn out and will definitely become less and less effective over time. That people are furious over the fact that they are taking such breaks is a sign of public ignorance and that the media seems to be amplifying this sentiment is making it much more difficult for two vitally important people to function properly. We can discuss whether or not the President plays golf TOO MUCH, TOO OFTEN, but to act as if NEVER should be the appropriate amount is detrimental to the health of our President and all future Presidents going forward.

Now, let’s get to to the CEO of BP. He SHOULD take a break. Do we really expect him to work for 60 days straight, 24 hours a day, without any breaks? How about an additional 30 days? 60 days? 120 days? Some have said, “He should take his yacht and go skim oil in the Gulf.” Well friends, THAT is part of the problem. US LAW, specifically the Jones Act, functionally PROHIBITS foreign vessels from helping out in the efforts to contain the leak in the Gulf. BP has sought to bring in foreign flagged vessels to help and some congressmen, senators, and governors have sought to have the Jones Act waived for this specific event, but the government has REFUSED. Sen. Kay Bailey-Hutchinson Â wrote that:

The Jones Act is currently preventing resources, however, from being used in the massive cleanup in the Gulf of Mexico. This legislation that has been on the books since 1920 is hindering foreign vessels from assisting Gulf communities, as they work to prevent oil from reaching their shores. Currently, foreign vessels need to obtain a Jones Act waiver from the federal government in order to help with the cleanup efforts. For many of the vessels wishing to respond, this request needs to be reviewed by three separate agencies: The coast guard, the maritime administration and customs and border protection. That is three layers of bureaucracy when time is of the essence. During this crisis, we need to cut through the red tape we must get all available assets on the scene as quickly as possible. I think everyone agrees â€“ and other countries have offered their services; they’ve offered to help. There are European countries that also drill in the oceans and waters on their shores, and they’ve offered to send ships to help to try to absorb the oil and skim it off. There are volunteers waiting with the right equipment, and they’re willing to come to our aid.

Some argue that it is NOT the case that the Jones Act is harming the clean up effort, particularly those whose jobs are protected by it. Another excellent argument as to how and why it should be done may be foundÂ here.

It seems to me that it is unconscionable for the administration to take the position that it seems to be taking. The Jones Act must be waived immediately, the necessary resources must be brought to bear as soon as possible from any port under any flag. Clearly current efforts are FAILING to prevent oil from washing ashore and therefore one must strongly question the contention that the Jones act is NOT hindering efforts especially in the face of arguments to the contrary by leaders of all of the states directly involved and by those in the oil industry. Might we want to utilize vessels designed to clean up oil spills that hail from other nations? I think that the obvious answer is “Yes” and that those opposed to waiving the Jones Act in this instance need to explain why the answer is “No.”

Just my two cents.

-David

A ray of light in the economic slump

Meryl Yourish — Fri, 03 Oct 2008 19:29:21 +0000

Oil continues its fall. It’s under $94 a barrel right now, and holding steady. Gas is down to $3.19 in the Richmond area, and sinking. (Gasbuddy.com is a good place to find the cheapest gas prices in your area. It’s where your local news stations get their prices.)

Best of all, oil is under $100. When it’s below $100, Iran can’t sustain its current antagonism, according to some.

What this all could mean is that if oil prices fall to $70 per barrel or below, Ahmadinejad may find it difficult to maintain the same level of belligerence against the West. Things could get much worse for him if Obama is elected. His pledge to invest $150 billion in renewable energy could very well burst more bubbles around oil prices, thus pulling them to more unbearable lows for right-wingers in Iran â€” so low that the words â€œsuspension of uranium enrichmentâ€ may turn from blasphemy into a realistic option.

I hope he’s right. But even if he’s wrong, Iran loses $2.4 million dollars per day for every dollar oil sinks. So think of the tens of millions of dollars that are not flowing into the pockets of the Iranian mullahs, and have at least a small smile over that.