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The Brightest Stars in the Commodities Boom, Part I
Four Reasons for Silver to Be 2008's Best Performing Precious Metal
Pair Trade Visa and Capital One
Investing Into the End of the Hydrocarbon Age
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and- which is best at this point, ANR ACI or MACDF?
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An Energy Policy That Makes Sense, Revisited
SEN. MENENDEZ HELPS DEFEAT PROPOSAL THAT COULD LEAD TO DRILLING OFF THE JERSEY SHORE & PLAN FOR GAS PRICE RELIEF
Member of Energy Committee says drilling would threaten NJ environment, economy without any short-term effect on gas prices
WASHINGTON - Today, U.S. Senator Robert Menendez (D-NJ), a member of the Senate Energy and Natural Resources Committee, helped defeat a proposal in the Senate that could have led to drilling for oil up and down the U.S.'s East and West coasts, including areas near the Jersey Shore. He also helped pass a Democratic proposal to bring more immediate gas price relief by suspending the filling the Strategic Petroleum Reserve until the price of oil per barrel dips below $75.
Drilling amendment
"An oil spill that washes up on the Jersey Shore would be an environmental and economic disaster for our state," said Senator Menendez. ""The idea that opening up the coast to oil drilling would do anything to gas prices is ridiculous. It would take well over ten years to put the infrastructure in place and the risk of jeopardizing our $50 billion coastal economy far outweighs the minimal amount of oil we could expect in 2020 or later. With gas prices sky high and with the planet in peril, the answer is not to drill ourselves into a deeper hole. The answer is to become more energy efficient, develop alternative sources of energy and keep our planet intact."
The amendment to the Flood Insurance bill would have allowed petitions for leasing activities in the Atlantic and Pacific regions of the Outer Continental Shelf in order to tap recoverable oil in those areas. Exploration would occur off the shore of a state if that state's Governor petitions to have the moratorium on exploration lifted. Thus, even if New Jersey would not allow drilling, other nearby states might, which could affect the Jersey Shore. In the past, Virginia's Governor and legislature have expressed the desire to open up their waters to drilling. Virginia's waters include areas less than 100 miles from the Jersey Shore.
Oil reserve amendment
"We have no magic wand to wave and immediately make gas prices reasonable, but this plan at least brings some short-term relief. The practice of putting $125 per barrel oil in the ground is absurd and should be suspended. About 70,000 barrels of oil per day are put under ground in the Strategic Petroleum Reserve. The Reserve is about 97 percent full, and oil is now at about $125 per barrel.
In fact, the only provision in the Minority Leader's amendment that would do anything to lower gas prices is lifted directly from the Democratic Plan to lower gas prices. This is the provision to temporarily suspend filling the Strategic Petroleum Reserve.
In 2005, Republicans authored energy provisions that gave Exxon-Mobil and other Oil Giants lavish subsidies that totaled over $14 billion, and these companies are reaping the rewards with record profits announced every quarter. Exxon-Mobil recently announced $11 billion in profits over a three month period. To put that in context, this means Exxon-Mobil's yearly profit this year might well be almost twice the annual budget of the Department of Energy.
M. President, some claim that the way to lower gas prices is to end a bipartisan twenty-six year moratoria to open up the Outer Continental Shelf to oil exploration and just drill, drill, drill. But the Energy Information Administration (EIA) projects that even if we opened up the entire Outer Continental Shelf to drilling- Off the East Coast, Off the West Coast, and opened up the entire Eastern Gulf of Mexico, nothing would happen to gas prices. Why?
First because production would not begin before the year 2017. The infrastructure to drill for oil is not just a large oil platform, but a network of hundreds of miles of pipelines to transport oil from the platform, onto land and then on to refineries. This kind of infrastructure simply does not exist on the East Coast and in only limited exceptions on the West Coast.
The second reason why opening up all our shores to oil drilling will not lower gas prices is because by the time full production actually ramped up, in 2030, drilling off all of our coasts full tilt would only result in a whopping 3% increase in domestic production.
And even in 2030 as our continent is rung all the way around by oil platforms all of this new supply will be eaten up by a 7% increase in domestic demand. The Energy Information Administration (EIA) predicts that --- and I quote --- "any impact on average wellhead prices is expected to be insignificant."
So even opening up all of our coasts to drilling, will have no impact on gas prices at all. As you can see by this chart, the federal government has been issuing more and more leasing permits for drilling, but at the same time the price of gasoline has continued to rise.
In fact, over 80 percent of the resources in the outer continental shelf are already open for exploration! Since 2001, the Bush administration has issued over 100 new leases. Many of these leases are in the eastern Gulf where the oil industry already has much of the infrastructure necessary to go into production. But only 12 of these new wells have been drilled. The industry is only developing a small fraction of the area already open for drilling. Why isn't Exxon-Mobil pumping some of its profits into developing these areas? If companies are not interested in developing the large fields already open in the Gulf of Mexico, why is it so critical to open up environmentally sensitive areas to more drilling?
The New Jersey Shore is a priceless treasure my home state will protect at any cost, but the Shore also generates tens of billions of dollars in revenues each year and supports almost half a million jobs. *It simply makes no sense to jeopardize a tourism and fishing economy worth tens of billions of dollars in exchange for a cumulative total of only a half year's supply of oil. * The people of New Jersey cannot afford the risk of millions of gallons of oil washing up on our beaches.
One important way to address oil prices that I hope we will be debating more fully in a couple of weeks is to better regulate oil markets. Many analysts that have testified before the relevant House and Senate committees agree that based on pure supply and demand the price of oil should be somewhere between $50-70 a barrel. So, why are we hitting $125? In part it's because of excessive speculation on futures markets. And unlike other markets, such as the commodities involving corn or soybean futures, oil is being traded around the globe with little or no oversight by the US government. If the Enron disaster teaches us anything it should be that markets cannot be allowed to operate without real oversight.
Another important measure to bring short term relief to the pain at the pump is the amendment that would suspend filling the Strategic Petroleum Reserve at least through December 2008. We should stop pouring all that oil into a hole in the ground until the price of crude oil recedes to $75 or less. This will truly help drive gas prices back down by increasing supply and offer some immediate relief to Americans.
And as former CIA Director James Woolsey is fond of saying, by buying oil in such huge quanitites and at such high prices we are helping fund both sides of the war on terror.
The first thing we need to do is drastically improve fuel economy. In 1976, our cars and trucks got 13 miles per gallon. Because of the Arab oil crisis, we passed laws to improve the fuel economy of our passenger vehicles. From 1976 to 1981, we saw a rapid increase in fuel economy. In 1981, our fleet had improved to 21 miles per gallon. But since 1981, without the political will to improve fuel economy standards and the rising popularity of SUVs, the average fuel economy of our passenger vehicle fleet actually declined to 20 miles per gallon in 2006.
What would have happened if we had kept slowly improving the fuel economy of our vehicles from 1981 to the present? If we had increased fuel economy a modest 2% per year during that time, our new fleet of vehicles would now average 34 miles per gallon. While this is certainly a huge improvement over where we sit today, it was definitely achievable since this figure is still well below standards set in Japan which are over 40 miles per gallon.
Astonishingly, if we had followed this course, our current demand for oil would be over one-third less than it is today, down over 2 billion barrels of oil per year. Cumulatively, we would have saved over 30 billion barrels of oil. 30 billion barrels of oil is more oil than the entire proven oil reserves remaining in the United States. This means that this sensible and achievable policy could have saved us more oil than we could ever hope to gain from domestic drilling!
We also need tax incentives to increase the production and use of super-efficient vehicles already out there - like hybrids.We need a massive investment in cars that can run on sustainable alternative fuels like electricity or cellulosic ethanol. This country also needs to invest in our mass transit infrastructure.
The Financial Light at the End of the Tunnel?
JPMorgan Expects Banking, Cards to Post Lower Profit (Update2)
By Elizabeth Hester
May 12 (Bloomberg) -- JPMorgan Chase & Co., the third- biggest U.S. bank, will post lower earnings from investment banking and credit cards this quarter as the U.S. recession gets under way, Chief Executive Officer Jamie Dimon said.
JPMorgan is seeing lower revenue growth in its credit-card business and will probably have to set aside more money to cover bad loans in that unit, as well as in retail and investment banking, Dimon said today at a conference in New York sponsored by UBS AG.
``The recession is just starting,'' Dimon said. ``I don't know if it will be mild or severe.'' The chances of it being ``pretty bad'' are about one in three, the 52-year-old CEO said.
JPMorgan has posted about $10 billion of writedowns and losses since the beginning of last year, compared with more than $40 billion at bigger rival Citigroup Inc. Dimon said the capital markets crisis sparked by last year's collapse of the subprime mortgage market is about 75 percent over.
In home lending, New York-based JPMorgan expects to lose $200 million to $250 million in the second quarter related to subprime mortgages. Losses in prime mortgages, those made to people with the highest credit rating, could increase to about $100 million for the quarter, the bank said.
Dimon also said the integration of Bear Stearns Cos. was ``proceeding well,'' though he urged analysts to wait a year before judging whether the deal was a success. Once the fifth- biggest U.S. securities firm, Bear Stearns was forced to agree to the takeover on March 16 after customers and lenders fled because of speculation that the company faced a cash shortage.
JPMorgan has found jobs for about 40 percent of Bear Stearns's more than 14,000 employees, Dimon said today. All employment decisions are expected by June 1.
JPMorgan, up 8.2 percent on the New York Stock Exchange this year, rose 67 cents to $47.24 at 4:18 p.m.
To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.
Last Updated: May 12, 2008 16:19 EDT
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