Saturday, April 22, 2006

Earth Day: A Plan that Works. No, REALLY.

OK, in honor of Earth Day I'll comment on the (many copies of the) email I've now received entitled "Gas War - Lower Prices...This Will Work!"

It's a lengthy explanation of how to stick it to the oil companies and get them to lower their prices. Often it's preceded by the assurance that this was originally sent by a retired Coca Cola executive who got it from a retired Halliburton engineer. Here's the gist of the thing:
Here's the idea: For the rest of this year, DON'T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL. If they are not selling any gas, they will be inclined to reduce their prices.
If this scheme actually came from the retired executives as claimed, then these companies are well rid of the doddering has-beens that blocked the promotion of fresh talent. The plan won't work, for sound economic reasons I'll explain below. Just so you don't die from suspense, it's primarily because the plan assumes that the economy of the United States is a closed system. And it's not.

Is oil really too expensive?

But before we go there, I'll tell you that the price of oil is not nearly as high as it's made out to be. Yes, I feel pain in the wallet, too, but in adjusted dollars we'd have to exceed $80 per barrel to match the real prices that we experienced in the late seventies during Jimmy Carter's presidency. Gas here is about the price I had to pay for it in England 20 years ago. Here's what it costs in Europe now:
To save wear and tear on the buttons on your calculator, I'll do it for you. At the time of this writing, in the UK gasoline costs about $6.51 per gallon.

It cost me $50 yesterday to fill my tank. That same tank in London would have cost me over $113.

The price of oil has been artificially low in the United States for years, and sad as it is to say, we made the prices go up. The problem's not with the supply, and the high prices aren't from being gouged by some mean ol' "Big Oil" companies. We've got as much annual supply as ever. But only that much. We haven't increased our refining capacity in decades. The last refinery in the US was built in 1976 in Garyville, Louisiana. One was proposed for Portsmouth, Virginia, but the project was canceled in 1984 after nine years of haggling, wrangling, red tape, court battles and resistance from local residents and environmentalists. Like many public infrastructure projects (landfills and sewage treatment plants), everybody knows we need it, but nobody wants it in their own back yard.

Sure, it's not all the doing of environmentalists. The oil companies simply haven't had much incentive to build refineries. Each one costs roughly $4 billion to build, and you can't make that sort of investment lightly. Up to now there's been a real risk that the building of new refineries would result in over-capacity. At capacity, the return on the investment is only about 5%. There's no economic incentive for the industry to make that investment, since they can get a comparable rate of return without the headaches, court battles, construction and risks by simply buying US treasury bonds. We complain that the Big Oil companies haven't built the refineries, but we haven't made it worth their while. These are businesses, not slaves, and we've done everything in our power to impede them. Our Congress could have passed legislative incentives, but they haven't.

So why's the price going up?

So we haven't built refineries, and what we have is running at capacity, and Hurricane Katrina showed us the effect of even a small interruption in production. The point is, dumping millions of more gallons of crude on us still wouldn't lower the price. We're at capacity.

So what's caused the increase in price? Simple! We're using more oil! Not just us in the US, but worldwide! Remember I said this isn't a closed economy?

While we haven't been building refineries, and we haven't been exploiting new oil reservoirs, what we have been doing is working our asses off to industrialize the third world nations, and now we're outsourcing major industry (along with nearly everything else) to them. So the oil that would have been running our factories is now running theirs. We've doubled the demand. Ain't much math here to do... Demand goes up, Supply's the same. Prices go up. Economics 101.
( And while we're at it,

This simplistic "gas war" idea assumes we can reduce demand enough to affect the price. Wrong answer. Since Exxon and Mobil will have no lack of customers in China and India, etc., reducing demand here means that the supply will shift to other customers there. Do that long enough for service levels to be established there and you've permanently raised the prices here (you've made the local supply that much smaller). So the "gas war" not only doesn't do what it's intended... it does the exact opposite.


There are only two choices here: either make more gasoline or permanently use less.

We can make more fuel in another five years or so if we start building refineries now. But it's neither a short-term nor a permanent solution and the cost of the refineries will have to be paid off. Peak oil production is expected in only a few years. IOW, it won't do much about the price of gas this summer, and won't do much for the long-term price of gas.

Why bother with a long-term route to a temporary solution? Instead, fix the frackin' problem! I personally don't think we could hold back the rest of the world, or even that we should try to -- they've got as much right to iPods, MTV, and air conditioning as we have -- but if we want to keep praising ourselves for our superiority, we've got to move on.

We've got nuclear power technology, and it's NOT the same technology as Chernobyl and Three Mile Island. Those problems were fixed decades ago. Nevertheless, we're too frackin' cowardly to use it, even though it's clean, cheap, safe, and that stuff coming out of the cooling tower is nothing but steam. People get spinal shivers because nuclear fuel is "radiating". Well what the hell do they think it was doing before it was dug out of the cold, hard ground? Do people even know how hard that stuff is to blow up? We've had nuclear bombs since the 1950s and not once, ever, has one blown up by accident. And that's the stuff that's designed to blow up! OTOH, we see gas and oil and coal fires regularly. For power plants, I say switch to nuclear and hydrodynamics now and when the oil runs out watch the cost of goods coming from China soar. (though I'd honestly hope they transition to alternate fuels as well).

For mobility we need to buy more clean cars, but until they're on the market, we can at least burn more corn juice (ethanol). You cut it down the corn crop and guess what? It grows back! You can make plastics out of it. You can make fabric out of it. And it goes great with BBQ pork ribs.

As for me, I already don't buy gas from Exxon or Mobil. I'm still not buying from them as a result of all the other times this stunt has been pulled over the decades the same plan has been periodically circulating. Surely I'm not the only person in the USofA that actually stuck with the program? If nobody else can follow my stellar example then this won't be any more effective this time 'round.

Using hydrogen as a fuel not such a bad idea, either. It can be pulled from the atmosphere or made from water. And it's perfectly pollution-free: burning it yields water as a waste product. You can even bottle the exhaust and drink it. And hell, you can use fresh, clean, nuclear energy to make the fuel. But we're not making affordable hydrogen-burners... yet.

Until then, I do buy 10% Ethanol gas... it's about a dime cheaper at the local Enmark than at the other stations in my town, and hell, it's a 10% reduction in gas for the same # of road miles (close enough). If my car would take 100% then I'd burn pure corn squeezin's. Hell, my step-grandpappy drank the shit and it kept him going until he was 92 years old. That's damned good mileage!

Also, we can encourage companies to encourage teleworking as much as possible. I work mostly at home, and it saves hundreds of dollars a month compared to my previous commute.

A plan that works

So here's the plan that works. In order of immediacy of return on the investment:

  1. Cut back on the use of gasoline across the board. Don't target one or two companies, that's futile. Just start using less. Plan your trips, and travel less. Do it now.
  2. Improve your mileage. Turn off the A/C, do what you can. (For that matter, turn off the A/C in your house.)
  3. Buy ethanol, as much as your car can take. When it's time to buy a new car, buy a FlexFuel vehicle:
  4. Encourage telecommuting. Not everyone can do it, but support those that do.
  5. Tell your Senators and Representatives that you want clean power, and that includes nuclear power plants, and that you don't care if they put it in your backyard. Every watt that's pulled from nuclear and hydroelectric power means that much oil that's saved for other purposes.
  6. Tell your congressmen to provide incentives for new refineries and to to support new drilling in known reserves. Yeah, it's not a lot of help right now, but the long term is important. This is to maintain the economy as we transistion to other primary sources of energy.

That's pretty much my contribution.


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  2. You'll get no argument from me. But then I know you :)

    It never ceases to amaze me that some folks appear to think that you can always devise a temporary fix for a majorly serious problem such as this and then shortly afterwards go back to the way things were and do business as usual. And anyone who contradicts that mindset is a goddamn commie pinko arab green unAmerican Sonova Beach.

    In this instance the auto manufacturers must bear some portion of the blame. When pressed, they built economic vehicles that sipped rather than guzzled gas, but over time (a very short time) the word "compact" began to be a dirty word because car ads are all about power and growling and heavy rock music and men being men and women not being far behind, and you can't really do justice to that with a compact that does 40 miles to the gallon and accelerates at the reciprocal of E=MC Squared (or slower).

    These days "SUV" is the bees knees (bee's knee?). Or the hybrid version of it (can you really have lo-fat lard? And be healthy?). And I can see the advantage of being up high and having a clearer view of the road ahead. I just can't see that designing, marketing and selling (and especially buying) loads and loads of gas guzzling rubber burning freeway clogging traffic snarling SUVs (unless you live in off-road country, when you have an excuse) is ever going to lead to a reduction in overall gas consumption, no matter how much rock music you play. And I like rock music. But I like being able to afford to live even better...

    A former colleague of mine and I used to rideshare in her hybrid compact. A nippy little beast, she floored it frequently and we usually hit 85 in the car pool lane going the 40+ miles to work - and back. And she still got 50 miles to the gallon.

    The next year the model came out, the mpg had *dropped* (yes, *dropped*) because I guess the maker had discovered they'd violated the number one rule of marketing: never make anything that is really that good, and if you do, cut it out.

    I won't name the maker. OK, I will. Bloody Honda. The Civic Hybrid was a really good piece of engineering and did a sterling job of making good use of the gas without sacrificing acceleration too much. It probably saved most gas by just simply cutting the engine when the vehicle was stationary for more than a few seconds (very useful in Californian traffic :)) but that doesn't matter - it was a step in the right direction.

    Now the hybrid concept is being applied to SUVs as if that's going to really solve the problem, instead of taking the performance of the little Civic Hybrid and extending it and applying it to lots of other compact cars and encouraging their use (by taxing vehicles based on fuel efficiency - the better the mpg, the lower the tax).

    And I would dearly love to be able to work from home - sorry, telecommute. The technology's there, my enthusiasm's there, the opportunity's there, but so far the employers are so fighting shy of the idea that I'm surprised it isn't a WWF category.

    Maybe if central government (or even decentral government) was to offer an incentive to employers (which would almost have to be financial) to encourage teleworking - or maybe a disincentive (such as taxing a company based on how many employees DON'T work from home) we might see some change (and a lot less stress, pollution, road rage, and pre-owned parts littering the freeways).

    Oh, but then the oil companies wouldn't sell anywhere near as much of their products, so maybe there's a reason no-one's going in that direction after all... :)

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