Category Archives: Oil

The “Free Parking” Analaogy in International Relations

In business strategy, it is common to subsidize a money losing business that in order to make a primary business profitable. This is called “free parking.”

For instance, McDonalds is one of the largest parking lot operations in the world. The scale of their investment in an international network of places to park your car is staggering, involving professional and operational employees and contractors all of the world.

But McDonalds is not in the parking business. They are in the hamburger business. But absent providing “free parking,” McDonalds would find the cost of customer acquisition painfully high and the economics of scale from its operations too small.

russia_mcdonalds
Of Interest to Parking Lot Operators

Likewise, the United States runs one of the largest carbon-economy rollback operations in the world. The scale of US investment in preventing the success of the carbon economies (from “King Cotton” in the late 19th century to “King Oil” in the late 20th century to King Natural Gas today) is staggering. This anti-carbon-intervention — from a massive climate science masquerade to military actions in the American South and the Middle East.

In most of the world most of the time, carbon-based economies are naturally despotic and authoritarian. These “hydraulic empires” exist because of the government monopoly over the infrastructure needed to extract wealth from the earth. This form of social organization can be internally stable but maintain considerable freedom of movement in international relations because rules do not need worry about complicated economic links that limit non-carbon economies. That is, they are warlike.

ukraine_pipelines_map
Of Interest to Carbon Extraction Operators

(Whether refers to carbon-economy rollback by that name, or says something about sustainable political-economic growth, or “shrinking the gap” or whatever, the meaning and the concept is the same: minimizing the political and military importance of carbon extraction throughout the world.)

Rolling back the carbon-based economy is to the US what free parking is to McDonlads. For McDonalds, free parking is the side business and selling hamburgers is the main business. For the US, carbon-economy rollback is the side business and selling security is the main business. McDonalds could not afford the customer acquisition cost, and could not enjoy the economies of scale, without subsidizing free parking for its customers and potential customers. Likewise, the US could not afford the country-acquisition cost of its military alliances nor enjoy economies of scale, without subsidizing carbon-economy rollback for its customers and potential customers.

My friend Dr. Samuel Liles thinks that free parking is a distraction, whether for McDonalds in a shopping mall or the US in the world political system. He’s wrong on both points.

McDonalds cannot provide hamburgers (in exchange for cash) without providing parking, for free.

The US cannot provide security (in exchange for power) without rolling back the carbon-based economy, for free.

Elizabeth Burleson on Hydraulic Fracturing, Natural Gas

Professor Elizabeth Burleson has been incredibly kind to my family and myself over the past few years. There are very few people who have influenced my life more. As such I was delighted to see her interview on Bloomberg TV on the subject of natural gas ‘fracking

The video runs 16 minutes, and shows her discussin the interview with Spencer Mazyck. What’s interesting is that both Elizabeth and Spencer have legal background, and as such this is different from the technical or strategic focus of most of those who are interested in natural gas hydraulic fracturing.

Obama, Science, and the BP Spill

While Obama has done nothing to prevent the greatest oil disaster in world history…

… his record on broader science projects is, fortunately, more fixed

The good:

Now to end ridiculous patents, fund open-access research, free Europe from Russia, and gain the innovation edge

… and clean up the BP spill, of course.

Must be a disinformation op by the Cold War Lobby

Rusisa’s hardly a “Cold War” threat — indeed, people who talk in this way tend to come across as hysterical. Rather, it’s a counttry about as powerful as Portugal which attempts to use the wealth it digs up from the ground to alter the foreign policy of our friends in the core of the Old Core, New Core, and Gap

While plummeting oil and natural gas prices are doing a job at containing Russia, we should not be lulled by the low prices into relying more on these hydrocarbons. Rather, the United States, Europe, India, China, and Japan should work together at developing alternative energy sources, and take away Russia’s ability to cause trouble.

The Net-Zero Gas Tax

I have been pushing it for years, and I am glad a bipartisan consensus is now emerging around it: we need a net-zero gas tax.

Charles Krauthammer writes:

What to do? Something radically new. A net-zero gas tax. Not a freestanding gas tax but a swap that couples the tax with an equal payroll tax reduction. A two-part solution that yields the government no net increase in revenue and, more importantly–that is
why this proposal is different from others–immediately renders the average gasoline consumer financially whole.

Here is how it works. The simultaneous enactment of two measures: A $1 increase in the federal gasoline tax–together with an immediate $14 a week reduction of the FICA tax. Indeed, that reduction in payroll tax should go into effect the preceding week, so that the upside of the swap (the cash from the payroll tax rebate) is in hand even before the downside (the tax) kicks in.

The math is simple. The average American buys roughly 14 gallons of gasoline a week. The $1 gas tax takes $14 out of his pocket. The reduction in payroll tax puts it right back. The average driver comes out even, and the government makes nothing on the transaction. (There are, of course, more drivers than workers–203 million vs. 163 million. The 10 million unemployed would receive the extra $14 in their unemployment insurance checks. And the elderly who drive–there are 30 million licensed drivers over 65–would receive it with their Social Security payments.)

My proposal, by contrast, was a $3.00/gal gas tax, equiavelnt to a rebate of $42 every period. The specific mechanics of the net-zero gas, whether rebated through the payroll tax or as monthly checks, do not matter much. What matters is that it helps our friends and hurts our enemies:

We underestimate our power. Of course, the slump in China and other rapidly growing economies has contributed to the current extreme price collapse. But China consumes only 9 percent of the world’s oil. The United States consumes 24 percent. On the other hand, Saudi Arabia produces 13 percent of the world’s oil. We don’t generally see ourselves as the Saudi Arabia of oil consumers, but we are. The Saudis have the most effect on the world price because they are the swing producer. We are, in effect, the swing consumer. And since oil peaked earlier this year, we are consuming less. October was yet another month of record year-on-year decline of gasoline consumption in the United States. And that’s just the immediate effect, before the long-term impact of changes in our automobile fleet can take hold. And that long-term change will only occur if we keep the domestic price high.

Let’s hope Barack Obama introduces this geogreen net-zero gas tax, along with a geogreen economic stimulus!

Russia scrambles for cash; Let’s kick her while she’s down

Yet again, Russia has shut off natural gas deliveries to Ukraine. The natural suspicion is to believe that Russia is attempting to destabilizing the Ukrainian government, following Moscow’s invasion of Georgia. However, another alternative is more likely: Russia is scrambling for cash. Russia has already shaken down her former friend, Belarus, and now news that Gazprom (already in debt) has barely begun to feel the pain from falling energy prices:

Gazprom shuts off gas links to Ukraine – International Herald Tribune
Russia, meanwhile, is reeling from the fall from more than $100 in the price of crude oil since a peak last summer. Gazprom is deeply in debt even as the market is moving against Russia in a serious way.

While still high today, natural gas prices will inevitably fall and further wallop the Russian economy that is reeling from the sharp drop in the country’s other pivotal export, crude oil.

Natural gas is pegged to the price of oil, but with a six month delay. Gazprom is still receiving payments linked to last summer’s historic spike in oil prices, but they will decline sharply after the second half of 2009.

If this is true, Russia’s crushing collapse back to earth has barely begun. We may even see a second debt-default by Russia.

While Putin ousted Russia’s “Deng Xiaoping” and aborted efforts at reform, the basic problem that Russia has is that it’s too large to fit comfortably with the rest of the Central Asia states but too backwards and weak to meaningful project power on its own. Different regions of Russia should be encouraged to fall into the orbits of different economic powers, with Outer Manchuria and beyond naturally orbiting China, while the country’s western expanse is naturally a slightly bigger version of Poland.

manchuria

Further, alternatives to the Russia’s wealth (oil and natural gas) should be developed. Domestically, this means pushing forward on congestion charges, biodiesel, fuel cells, and other technologies. In Europe, China, and Japan, it means encouraging our allies to reduce their consumption of oil and natural gas in ways that work best for them.

2008 was a wake-up call: we saw what happens when Russia thinks she is strong. It’s time to guarantee that will not happen again.

No More Saudi Arabia of Oil Consumption?

America is the United States of oil consumption. Just as oil revenues my legitimate governments in much of the gap of the global economy end up supporting terrorism, oil expenditures by the United States has the effect of powering the Taliban, fueling Putin’s armies, and financing Chavez’s destabilizing schemes in Venezuela.

One way to create a better future is a gas tax.

Hybrid Cars: Gas tax gaining momentum, or at least air
A gas tax is an idea that has been floated around this blog many times over the last few years. My gas tax – really an oil tax – was always a way to help fund credits for more fuel efficient vehicles. Likewise, the tax helps drive investment in non-oil fuels and technologies, while also changing consumer behavior.

Lately, the drumbeat behind a new gas tax has been increasing. MotorTrend, the LATimes, and the New York Times, for instance, have each covered the idea in the last few days.

There are other ways of weakening oil producers and the wars, terrorists, and schemes they fund. We can plusing-up the Strategic Petroleum Reserve by simultaneously buying oil and moving to a flex-fuel fleet. We can create tax-breaks for hybrid cars and looking at biojetfuel.

President Bush should be praised for the advances in alternate fuel technologies that took place on his watch. Let’s hope Barack Obama will be even better for breaking the power of oil!

Bush’s Alternate Energy Legacy

While more recently making strange deals with Congressional Democrats to bail out the UAW, one of George Bush’s most important legacies may be his dedication to alternative fuels and sources of energy:

Domestic Fuel » Archives » US Now Tops in Wind Energy
A record-setting year for American wind power keeps getting better as the United States has become the world’s top wind energy producer.

This story from Environment News Service cites an American Wind Energy Association year-end report that says steady growth has helped the Americans surpass their German counterparts

When Bush took office, hybrids like the Toyota Prius were a novelty, E85 and biodiesel hardly existed, and the U.S. was languishing far behind leaders in alternative energy. Now, that is no longer true.

The work that the U.S. has done under Bush has been impressive. Indeed, it may have played a role in popping the oil bubble, as technologies like ethanol made peak-oil irrelevant.

Besides the direct benefits that wind, E85, and biodiesel have for us, they also strengthen new productive economies like China and India, while weakening parasitical fossil-fuel exporters like Venezuela and Russia.

Presidents cannot do everything, but even if their role is to stand out of the way… President Bush still deserves thanks for how America’s alternative energy technologies advanced during his term.

Bush bails out unions: Will Obama invest in the future?

Sports Utility Vehicles are trucks. They are heavier than cars. They exist under a different fuel economy standard because it is senseless to inflict the same gallons-per-mile criteria on a vehicle designed to carry heavy loads or cross rivers as a car used for transportation.

Senselessly, SUVs do not require a truck drivers license, leading people to use them as luxury vehicles, and making violations of the rules of the road much more likely to end in death.

Even though our current President chose bailing out unions and electric vehicles, startups, solar power, and building electric vehicles that would revolutionize logistics in the army, we get the same GM+UAW team that has hurt us so much.

Hopefully President-Elect Obama will be brave enough to stand up to ignorant and misguided environmentalists, and continue to support both ethanol, biodiesel, and other alternatives to gasoline.

While oil continues to be low, Barack Obama has the benefits of weakened states like Russia and the challenge of keeping the innovation going.

Let’s hope he is up to the job.

Legacy Gasoline

Along the lines of my thoughts on legacy costs in our transportation infrastructure, comes National Review on the pathway-dependency of our gasoline use:

Re Re Oil Prices – Cliff May – The Corner on National Review Online
Of course, right now ethanol from South America carries a whopping tariff of 54 cents per gallon. By contrast, oil from Venezuela carries a tariff of 0 cents per gallon. I think it’s time to level the playing field (by getting rid of the tariff, not by adding new ones).

And yes, it’s true that we get most of our oil from Canada and Mexico but oil is a fungible commodity. Oil from the Gulf – on which our European allies depend -funds al-Qaeda, the Taliban, Hezbollah and similar terrorist groups.

Oil is dominant in the market not as a result of competition but because once upon a time America was the world’s leading oil producer. That helped us win World War II (the Germans and the Japanese were both desperate for gasoline –a major cause for their defeat and a cautionary tale). But those days are long gone.

Global peak oil production may come in 2020, but American peak oil demand may be last year.

Of course, from our end, peak oil does not really matter. But from countries the perspective of countries like Russia, Venezuela, and Ecuador, their economies can grow normally once the oil beneath their feat stops propping up their governments.

I hope President-Elect Obama uses his administration to unveil a geogreen stimulus that creates green-collar jobs that help reduce our oil consumption even further.