Thomko Petro Chemical Blog

Thanks to all who sent e-mail from our last post about soaring oil prices. From analysts, politicians and just about everybody weighing in, there are many opinions about the cause and ways to solve our dependency on oil. Here's my personal thoughts on some of the major causes of why oil has risen to all time highs
 . . . CT

For the past 20-25 years, this country has obviously neglected to find other sources of energy and fuel, and instead opted to stay dependent on foreign oil. Now we come to a time when as Thomas Friedman's book title "The World Is Flat" hits us squarely in the face.

This is a global economy - and the rest of the world wants what we have. We are no longer the driving force on the oil & gasoline prices worldwide. Even if we cut back on gasoline consumption - drivers in the rest of the world (China, India, etc) will continue to consume more gasoline. So the answer lies not just in finding more oil, the big pill to swallow is a real alternative energy policy.

While we have been living the "American Dream", much of the rest of the global world is catching up. They want the cars, homes and a lot of the technology we have become accustomed to. There are just not enough resources to supply the demand. Actually from my point of view they are falling into the same trap we now find ourselves - but that's another story . . .  

The facts are crude oil production has remained rather flat - while the need for oil continues to rise - especially from developing countries. The American dollar is at an all time low, and let me state once again that oil is priced worldwide in dollars.

Terrorist activity around the world can send oil souring at any time as we have seen in Nigeria, and threats remain throughout the Middle East. 

Oil speculators also have to be figured into the equation of the rising oil prices. Many institutions playing the market for their investors own far too many oil contracts - and when they announce oil price expectations - prices continue to rise. It's easy to control the price when you own most of the contracts!

And the war in Iraq has dramatically cut their pre-war production of approximately 4 million barrels per day to less than 2 million barrels per day. So in reality this war has also added to the reduction of the global oil supply - and I won't even go into what the threat of war with Iran will do to the world oil market prices.

But there's more bad news . . . Russia, the world's second largest oil exporter is having production problems. Russia's lack of investment in their infrastructure and many aging oil fields has led to their first production decline in 10 years.   

At the end of the day, it's all of us who pull up to the gas pump each week who are the losers. Obviously the elected politicians for the past two decades have not had the country or our best interests at heart. So, it's up to us to make changes in our lives, and try to ride out this economic chaos.

I certainly don't have all the answers, but I do know that we are facing a very bad economic time in this country. It's going to take sacrifice, and hopefully this time we will come out this with a new outlook on alternative energy - but it's not going to happen overnight. 

That's my take . . .

Consumer Energy Alliance Efforts

The Air Transport Association of America (ATA), the industry trade organization for the major U.S. airlines, is echoing the call of the Consumer Energy Alliance to secure a balanced and comprehensive U.S. energy policy that increases U.S. energy independence and results in a more stable energy supply and predictable costs.

The ATA points out that nearly 30 cities across the country have completely lost scheduled air service in the past year, with more service cuts and job losses inevitable as airlines attempt to cope with soaring fuel prices.

Eight U.S. airlines have shut down operations since the end of 2007 and another has filed for bankruptcy protection. More than 9,000 U.S. airline employees have lost their jobs so far this year, with additional cuts being announced as the year continues.

The ATA is proposing that the government make barrels available from the Strategic Petroleum Reserve and the Northeast Home Heating Oil Reserve in the event of supply disruptions or price spikes; invest proceeds in energy infrastructure.

It calls for curtailing commodity index speculation and close regulatory loopholes in trading of commodity futures (e.g., crude oil, heating oil); create equal playing field across exchanges and increase transparency of activity It also calls for pressuring U.S. refiners to increase utilization, which has fallen to abnormally low levels.

ATA supports streamlining National Environmental Policy Act (NEPA), permitting requirements to allow expedited siting of new and improved refining capacity to meet surging demand for middle distillates (e.g., diesel, heating oil, jet fuel).

ATA also supports facilitating environmentally responsible crude oil exploration, refinery production, nuclear energy investment, wind power or other sources of energy through changes in tax policy, regulation or fiscal incentives and increasing R&D for alternative aviation fuels and for carbon capture and sequestration technologies.

For more information, visit www.airlines.org

SELMA, Ind. — An Indiana man is capitalizing on high crude oil prices with his own oil well - in his back yard!

It comes from the Trenton oil field that fuelled growth in east-central Indiana more than a century ago. It costs about $100,000 to drill an oil well, but that at today's prices, it's worth it.

Losh expects to drill four more wells on his property in the town of Selma, northeast of Indianapolis. He says the oil is stored in a tank and transported to Ohio for sale. The well also produces natural gas to heat his home and several others.

This all began when he began drilling on his ten acre property for natural gas to heat his home and found it. "Let's see if we can drill for oil. If there's gas here, there's got to be oil here," Losh said. "So, we drilled 300 feet deeper to see if we hit oil."

A camera (pics at links below) shows where Losh and his fellow investors found oil, almost 1,300 feet below the surface. While he won't say how many barrels his well pumps each day, the $100,000 start-up cost will pay for itself in one year. The oil is pumped twice a day for 30 minutes into a tank, then it's sold.

Losh says his group of investors will drill four more wells nearby, confident that one of the nation's biggest oil fields in the late 1800's still has plenty of black gold. While he concedes that he's making money, he says there's another incentive for drilling at home.

"It's mainly that we don't have to depend on foreign oil. There's oil here, let's see if we can get it again," he said. "It's time to get our homegrown oil back to Indiana."

Related Stories, and Pics -

http://www.wthr.com/Global/story.asp?S=8348967

http://www.foxnews.com/story/0,2933,356606,00.html

http://www.tampabays10.com/news/watercooler/article.aspx?storyid=80715

http://canadianpress.google.com/article/ALeqM5gnCnM9N-WslQIEIrRXPoh1DdFc8g
 

While Alaska has lots of oil money, residents of many remote villages are living with a cruel irony - they cannot afford to heat their homes because their fuel bills are 2 - 3 times the national average.

U.S. nationwide home heating fuel averages $3.30 a gallon, but averages $4.30 a gallon in Alaska - and in the remote villages the cost is $9 a gallon. Gasoline is now averaging just over $3 a gallon nationally, but averages $4.54 in Alaska, and jumps to $7 a gallon in the remote areas!

The cost of shipping oil to the remote areas of Alaska by plane or barge is steep - despite the state's vast oil wealth. Most of the oil must be shipped as crude to the West Coast to be refined, and then sent back to Alaska.

The state's lawmakers are looking at offering hundreds of dollars in rebates to help remote villages offset their home heating bills - but they only have a short time to address this issue before the legislative session ends - and Hugo Chavez steps in to embarrass them once again.  

It seems in the past Chavez has been far quicker to come to the aid of Alaska's remote village residents. Last year Venezuelan oil company Citgo donated $5 million of free heating oil to poor communities in Alaska.

Arctic Village is one such community where fuel has to be flown in because this remote community is hundreds of miles off the normal roadways, and this village cannot be reached by barge. The residents in these areas depend on fuel to travel by snowmobile, ATV or boat to hunt and fish.

Alaska's state revenue will benefit a surplus of $3 -$4 million this year because of high oil prices, along with a recent hike in oil taxes. But lawmakers are looking at a steady 6% drop in production at the North Slope oil fields.

So it's a choice between giving some of that money as rebates to the poor, or keeping some of the surplus which will help tide the state over until the North Slope project is finished - but that's at least 10 years away.

Tell that to Ed Littlefield, a Vietnam veteran who suffers from diabetes, lives on disability, and looks for wood to chop so he can heat his home. He's gone without fuel for days. He says, " Everybody hates Hugo Chavez, but we thank him for the fuel that lasted about 3-4 months last year".

Republican Bill Thomas represents nearly 50 small communities in the state's southeast panhandle, he suggests a $500 payout to state residents, at a cost of about $360 million that would be paid from the profits of the state's oil wealth savings account - a $38 billion Alaska Permanent Fund.

But fellow lawmakers do not want to touch the earnings fearing Alaskans would perceive it as a raid on the fund that pays them an annual dividend - $1,654 for nearly every man, woman and child last year.

Other lawmakers caution against putting money into assistance programs that will just have to be cut in the leaner years, along with giving the perception of Alaska as a free loader state with "cash giveaways" - especially after the infamous "bridge to nowhere" federal earmark.

So while the lawmakers quarrel about what to do, residents may still have to depend on Venezuela this year to help them heat their homes and provide fuel for transportation.

Source: AP

Oil prices jumped to more than $1 per barrel on Wednesday, after the U.S. government reported an unexpected drop in crude inventories.

Crude oil stockpiles plunged by 4.8 million barrels last week to 324.2 million barrels, according to the U.S. Energy Information Administration.

Crude inventories are still above average for this time of year, but the decline surprised analysts, who had been expecting a rise of 2 million barrels, according to a Dow Jones Newswires survey.

Heavy fog caused delays at the Houston Ship Channel, which limited overall imports to an average of 8.9 million barrels daily last week - down from 650,000 barrels daily from the prior week. When the fog clears tankers can move back into the channel, and imports and inventories will rebound.

Now the oil industry focus is on the U.S. peak driving season which begins in May as motorists take to the highway. 

With gas prices rising, AAA said that travelers are using the Internet to map out the best routes to destinations. 

AAA said use of both AAAMaps.com and the AAA.com TripTik travel planner rose more than 20% in May compared with May 2005. 

Travelers are seeking more than just the most efficient point-to-point routes. Based on increased traffic to AAA’s Fuel Finder Web site, drivers are also using the Internet to save gas. AAA said visits to Fuel Finder have jumped 168% during the past year.

Usage of the Fuel Cost Calculator, a tool designed to help drivers estimate the amount and cost of gasoline needed to complete a trip based on the make and model of their car, rose from 43,250 visits in January 2006 to 748,829 visits in May.

http://www.fuelcostcalculator.com/

I was pretty excited about posting the last article, but then we have to get back to what's really happening - CT

Consumers wouldn't suffer undue hardships in the event Iran disrupts Persian Gulf oil supplies because the Bush administration has a plan "if push were to come to shove," Energy Secretary Samuel Bodman said Tuesday.

Bodman told reporters that in such a scenario, the government would tap its emergency oil reserve. He said he doesn't anticipate an oil supply disruption and said he was speaking hypothetically.

As to any sharp reduction of Iran oil or a disruption in the supply line, Bodman said, "We certainly can handle it for a while. ... There is the Strategic Petroleum Reserve and we have other approaches."

Other approaches? What might that be? - CT

Iran's supreme leader, Ayatollah Ali Khamenei, said last weekend that if his country is punished because of its nuclear program, Tehran is prepared to disrupt the world's oil supply, including production cuts.

Khamenei said the United States and its allies would be unable to secure oil shipments passing out of the Persian Gulf through the strategic Strait of Hormuz to the Indian Ocean.

Khamenei's remarks propelled oil prices to $73 a barrel on Monday. Iran is the world's fourth-largest oil exporter and the second-largest producer in the Organization of Petroleum Exporting Countries.

Bodman, meeting with reporters after a speech at an electricity forum, suggested that there seems to be plenty of oil available.

He said Saudi Oil Minister Ali al-Naimi told him that Saudi Arabia recently cut back production by 100,000 barrel a day "because he isn't finding customers."

Well, there's the answer. There's plenty of oil, and NO customers  - CT

Bodman said he is convinced oil producers want "to keep the market well supplied. It's in their interest as well as the interest of consumers."

Oil industry analysts also have said the market remains well-supplied and that there are signs global demand growth is weakening.

"What I've been hearing from traders is that there is oil available in the market that is not being bought," said Ann-Louise Huttle, head oil analyst for Wood Mackenzie.

However, she said, concerns about possible disruptions to the flow of oil around the world is keeping prices high and volatile.

We're paying through the nose for gasoline, and then we're told there's plenty of oil because of a lack of customers. Now that's news - plenty of oil in the world and no customers. And then Bodman says the administration has a plan, (if push comes to shove) along with some alternatives. Really? I'd appreciate some of your thoughts! - CT

Source: H. JOSEF HEBERT -Associated Press Writer

Driven by skyrocketing energy prices, consumers fell into arrears on all kinds of debt in the second quarter, with credit card delinquencies hitting a record of 4.81 percent of accounts in the second quarter. 

The American Bankers Association, citing the run-up in gas prices to record levels in the past month, said third-quarter results likely will be even worse than the second quarter\'s, which hit the highest level since the ABA began tracking the number in 1973. 

The last two quarters have not been pretty, said James Chessen, the ABA\'s chief economist.  Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations.

In addition to gasoline prices, rising interest rates are beginning to take their toll on consumers, pushing payments up on the estimated 60 percent of credit cards that carry variable rates as well as on other debt payments that are pegged to the prime rate.

Delinquencies also rose for most of the eight kinds of consumer loans the ABA monitors, including home-equity loans, on which missed payments rose to 2.75 percent of accounts in the second quarter, up from 2.61 percent in the previous quarter.

 By Pamela Gaynor, Pittsburgh Post-Gazette

http://www.seacoastonline.com/news/10022005/biz_nati/66015.htm

Peak Oil is also called Hubbert's Peak, named for the Shell geologist Dr. Marion King Hubbert. In 1956, Hubbert accurately predicted that US domestic oil production would peak in 1970. He also predicted global production would peak in 1995, which it would have had the politically created oil shocks of the 1970s not delayed the peak for about 10-15 years.

Oil will not just run out because all oil production follows a bell curve. This is true whether we're talking about an individual field, a country, or on the planet as a whole. Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up.

In practical and considerably oversimplified terms, this means that if 2000 was the year of global Peak Oil, worldwide oil production in the year 2020 will be the same as it was in 1980. However, the world's population in 2020 will be both much larger (approximately twice) and much more industrialized (oil-dependent) than it was in 1980. Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin. As a result, the price will skyrocket, oil-dependant economies will crumble, and resource wars will explode.

The issue is not one of running out so much as it is not having enough to keep our economy running. In this regard, the ramifications of Peak Oil for our civilization are similar to the ramifications of dehydration for the human body. The human body is 70 percent water. The body of a 200-pound man thus holds 140 pounds of water. Because water is so crucial to everything the human body does, the man doesn't need to lose all 140 pounds of water weight before collapsing due to dehydration. A loss of as little as 10-15 pounds of water may be enough to kill him. In a similar sense, an oil-based economy such as ours doesn't need to deplete its entire reserve of oil before it begins to collapse. A shortfall between demand and supply as little as 10-15 percent is enough to wholly shatter an oil-dependent economy and reduce its citizenry to poverty.

The coming oil shocks won't be so short-lived. They represent the onset of a new, permanent condition. Once the decline gets under way, production will drop (conservatively) by 3% per year, every year. That estimate comes from numerous sources, not the least of which is Vice President Dick Cheney himself. In a 1999 speech he gave while still CEO of Halliburton, Cheney stated:

By some estimates, there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional 50 million barrels a day.

Cheney's assessment is supported by the estimates of numerous non-political, retired, and now disinterested scientists, many of whom believe global oil production will peak and go into terminal decline within the next five years.

Some geologists expect 2005 to be the last year of the cheap-oil bonanza, while estimates coming out of the oil industry indicate a seemingly unbridgeable supply-demand gap opening up after 2007, which will lead to major fuel shortages and increasingly severe blackouts beginning around 2008-2012.

http://www.lifeaftertheoilcrash.net/

RELATED LINKS AND RESOURCES ABOUT THE FUTURE OF OIL:

http://www.hubbertpeak.com/

http://www.peakoil.net/

http://www.oilcrash.com/

http://dieoff.org/page140.htm

<a href="http://technorati.com/tag/peak+oil" rel="tag">peak oil</a>