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  • Natural Gas: Best Energy Investment of the Decade [View article]

    Although the safety of fracking is being debated, it does not use millions of gallons of chemicals and the frack water is not pumped into streams (unless someone wants to be in big trouble). The primary fracking materials are water and sand; sometimes ceramic propants are used, and sometimes a relatively small amount of chemicals are mixed in.

    So far, a lot of fracking has been done under Fort Worth, Texas, with no apparent ill effects to the groundwater.

    It might be that there are some problems with fracking that need to be addressed, but from what I can tell the alarmist response that it is poisoning our drinking water is unjustified.

    Oct 13, 2010. 11:08 AM | 28 Likes Like |Link to Comment
  • Mexico's Astonishing Oil Production Decline [View article]

    I'm not sure that Mexico can be compared to the US. It might be more on the Russian model. As best as I can tell Mexico has not been thoroughly explored, not that many wells have been drilled and Pemex lacks the capital to do so.

    In addition, the worst possible thing to happen to a Mexican farmer is for oil to be found under his land. If that happens in Texas the farmer will get the original option payment on his land, plus royalty checks for as long as the oil is produced. Lots of Texas farmers have become rich that way.

    If you are just south of the Rio Grande and they discover oil on your property, (and Pemex decides to drill a well), they come in, put the pad where your crops are, pump the brackish water into your creek, spill oil, and generally treat you badly. You get no royalties (the oil after all, belongs to the Mexican people, not you) and are lucky to get any compensation payments. And, of course, as is often the case when something belongs to "the people" the profits are actually raked off as graft by politically connected elites.

    My assumption is that kind of treatment is not conducive to reporting oil seeps and the like to the authorities. So I think it is possible that under some hypothetical future honest and competent Mexican government, production might increase again.

    I wouldn't take that bet--but the possibiity might be there.
    Jun 29, 2010. 11:59 AM | 23 Likes Like |Link to Comment
  • Should $10 a Barrel Be the Real Price of Oil? [View article]
    It is very hard to understand the economic analysis behind this article. Putting aside debates about whether we are at or near peak oil globally, how on earth does one come to a conclusion that oil "should" cost $10 per barrel when the lease operating costs and the shipping costs of a lot of those barrels are well north of $10?

    The simple truth is that if the price of oil sank to $10 per bbl, new drilling would stop immediately. We know that because new drilling came to an almost complete halt in 2008 when the price sank to $35 per bbl. In addition, every well with a marginal cost of over $10 per bbl would also be shut in. My guess is that would be most domestic US production (which currently is about 7.5 million bbl of liquids per day).

    Now that is my off-the-cuff estimate of US marginal costs, and if someone has real figures I'd be glad to see them. But regardless of whether that is right, a $10 dollar oil price would create a lingering supply problem that would in turn almost certainly create a subsequent oil price spike.

    I think a case could be made for $40 oil, and the arguments about that would be interesting. But as far as I can tell, there is no basis to assume that oil would cost $10 per bbl except for speculation or manipulation. It is simply an unrealistic number.
    Sep 8, 2010. 10:45 PM | 17 Likes Like |Link to Comment
  • U.S. Energy Policy Is Responsible for Unrest in Egypt [View article]
    Come on, Michael. Just because people disagree with you doesn't mean that they are "dumb-downed." With respect, you really should withdraw that comment.
    Jan 30, 2011. 08:44 PM | 15 Likes Like |Link to Comment
  • Oil Shale, Shale Oil, And 6 Ways to Play the Difference [View article]
    Mr Gue:

    A very nice primer.
    Nov 7, 2010. 08:03 AM | 15 Likes Like |Link to Comment
  • Lessons Learned From the BP Disaster [View article]
    Mr. Banks:

    It is becoming increasingly clear that the business in the Gulf was significantly more than bad luck. The BP executives who were making the decisions appear to have been either improperly trained or lacked an understanding of the possible consequences of their actions. They knew that they were dealing with a very high pressures from natural gas, but repeatedly made calls that suggest that they either didn't appreciate how dangerous the situation was, or were unduly motivated by shorter term economic considerations.

    From what I can see, luck had nothing to do with it. Given the actions of BP's managers this accident was inevitable; if not at Macondo then somewhere else. In this kind of drilling one has to do things the right way. Sloppiness and shortcuts are going to lead to problems--and, like here, to good people getting killed needlessly.

    I thought BP had fixed the defects in its safety culture, but it appears that it still has a long way to go.
    Jun 21, 2010. 11:00 AM | 15 Likes Like |Link to Comment
  • America's Commodity Crisis, 2010 Edition [View article]
    Mr. Davis:

    One scarcely knows where to start, so I will start small." "Literal" means actual, which is not what you mean when you say, "small farmers because they are literally raped by speculators." The word for which you are looking is "figuratively."

    You also might want to start working on the structure of your arguments. Major premise, minor premise, conclusion is generally a better way to argue than hyperbolic assertion, even more hyperbolic assertion, vitriolic denunciation.
    Mar 7, 2010. 07:46 PM | 14 Likes Like |Link to Comment
  • Collective Wisdom Watch: 'This Isn't A Bear Market - It's How Things Will Be From Now On' [View article]
    Mr. Schaefer:

    I agree that the current environment in no worse than the late 1970's, and I also think that the next several weeks could be rough.

    I think, though, that it might take several years for things to get fundamentally better. Right now we have an administration that truly believes that what we need is to spend $447 billion to "create" 1.9 million jobs. Even assuming it worked (which it won't), that would be approximately $235,000 per job.

    I doubt that anyone in the administration has done that simple math, but plainly even if it worked on its own terms, the new jobs bill would vaporize wealth.

    As long as Washington believes in such nonsense (and lets face it, the Republicans from 2000-2006 also tended to believe in such nonsense, although somewhat cheaper versions of it) it will be tough to turn the economy around.

    What we really need is for Washington to just shut up for 6 months. If they did that, the economy would start to get better on its own. But people don't go to Washington to shut up, they go there to exercise power and they aren't about to remove themselves from the equation.

    Until the Washington factor is at least mitigated somewhat, I think the economy (and hence probably the market) is in for a hard time. When we finally understand your points on how the government helped cause this recession, and in trying to fix things is only prolonging it, the economy will come roaring back once again.

    Sep 22, 2011. 09:56 AM | 13 Likes Like |Link to Comment
  • Bakken crude is highly volatile, but railroads also deserve blame for accidents [View news story]
    Gosh. Who would have dreamed that 40 degree API oil would have lots of gas and condensates in it and that heavier oils would have less?

    If we had a sane government, it would get on with the business of allowing pipelines to be built and getting volatile petroleum products off the rails. But we are told the Keystone pipeline is unthinkable because it would carry petroleum, which when burnt gives off CO2, which is bad. However, putting the same petroleum in rail tank cars is good, even though most of it will be refined as fuel and burnt and give off the same CO2, while the trains also burn diesel, which gives off more CO2.

    As far as I can figure out, to the geniuses running our government, the CO2 given off by petroleum-based fuels is bad if the petroleum is transported by pipeline, but less bad if it is transported by rail. Or something.
    May 16, 2014. 12:54 PM | 12 Likes Like |Link to Comment
  • Notes on the BP Macondo Disaster [View article]

    Are you saying that BP and Transocean allowed this to happen by deliberately ignoring their safety protocols? If so, are you aware of any facts supporting that? (My assumption is that you don't but if you do it would be very useful if you could tell us what they are).

    Obviously something went very wrong--but given the Gulf's good safety record over the years, it seems to me that the first question (along with containing the spill) is to figure out why this happened. Blaming before the facts come in is not only unfair, it also isn't helpful when the focus should be on figuring out what happened so everyone (and not just BP and RIG) can make sure it doesn't happen again.
    Apr 26, 2010. 11:58 AM | 12 Likes Like |Link to Comment
  • Who Got Stimulus Dollars? What Jobs Were Created? [View article]

    Perhaps--but aren't their two sides to that equation? The government originally said that it was spending just shy of $900 billion to save or create 3.5 million jobs. That worked out to around $250,000 per job. They now say that it saved or created 1.5 million jobs. Accepting that figure as accurate (and there are many reasons to challenge it), it comes to an astonishing $600,000 per job.

    Isn't it necessarily true that spending $250,000 (much less the current $600,000) to save or create jobs worth far less than that amount is necessarily wealth destructive?

    Of course, those 1.5 million people (if they exist) are happy with the result, but assuming a 4% normalized interest rate, the carrying costs on the increased debt come to $36 billion a year--or around $120 a piece for every man, woman and child in the country, or close to $500 per year for a family of four. Those borrowing costs lasts essentially forever, and the net present value of just the interest component comes to around $10,000 per family of four. That's a very large burden for saving or creating 1.5 million jobs.

    I know that it is possible to argue that any extra money going into the system helped to keep the economy going and perhaps there is some merit to that claim. I would think, though, a permanent cut in the corporate income tax and a one-time cut in the social security tax would have cost less and both stimulated the economy from a fiscal perspective and led to more long term job creation, if that was the intent.

    It will take years for economists to work out whether the stimulus met its goals, but given its extraordinary costs I have got to believe that it probably did more harm than good.

    Oct 15, 2010. 12:14 PM | 11 Likes Like |Link to Comment
  • Oil Shale: The Next Wave of Domestic Production in the United States [View article]

    Nice primer on oil shales. Keep in mind that not all oil shales yield kerogen. As you state, the Bakken has light oil, as does the Niobrara shale in Colorado and portions of the Eagle Ford and Barnett shales in Texas. Occidental is also supposedly extracting oil from shale in California. Oil shales that have oil rather than kerogen are profitable at much lower oil prices.

    Another point is that oil shales can be extremely profitable. For example a horizontal well in the Bakken cost around $7.5 million, and with an average estimated ultimate recovery from that well of 600,000 bbls, the IRR's are in the 60% range at current oil prices. That is an estimate, of course, and a lot depends on whether the wells live up to their long term predictions, but it is really hard to find such IRR's in the rest of the world.

    Finally, the total amount of oil in the Bakken is several hundred billion bbls. So on an apples to apples basis it is close in size to the Green River. The 800 billion bbl number for it is for the total resource, not the technically recoverable amount. Other oil shales probably also have very large total resource numbers. We can't get a lot of oil from them yet--but who knows about the future?

    Oct 13, 2010. 07:06 PM | 10 Likes Like |Link to Comment
  • The EU Bailout: Too Much, Too Late [View article]
    "This is lending by the insolvent, for the insolvent, and to the insolvent."

    Dave, in one sentence you have neatly encapsulated exactly what is going on.

    Now, does anyone think that Greece will actually keep the promises that it has been forced to make to get the bailout?
    May 10, 2010. 03:40 PM | 10 Likes Like |Link to Comment
  • What Are Today's 'Extraordinary, Popular Delusions?' [View article]
    Mr. Renard:

    I take it that you believe that the science behind man-made global warming is so settled that it cannot even be debated?

    If that is the case, perhaps you could explain for me how we know for a fact that a significant portion of the fluctuation of temperatures over the centuries has not been caused by differences in solar radiation? After all, we know that there weren't SUV's around during the medieval warming period, so something must have caused that.
    If not CO2, what? And why do we know that it isn't the cause of warming now?

    Second, we do know that urban areas are warmer, and that rapid urbanization (and in some areas human caused desertification) leads to significantly warmer temperatures in those areas. Again, if the science is so settled that it cannot be debated, could you explain to me why temperature increases from those types of human activities cannot have a material effect on what you believe to be an overall temperature increase?

    Apr 3, 2010. 09:13 AM | 10 Likes Like |Link to Comment
  • 6 Cheap Oil Opportunities [View article]

    Don't kid yourself. Once they pass the "doc fix" in a month or so--which they have to do--most of the cost of the healthcare bill won't be paid for.

    It's going to take a long time to figure it all out, but assume they officially add 30 million. Maybe 10 million of those are young people being added against their will to subsidize the program a bit. The other 20 million will cost a minimum of $5,000 per year. In addition, as in Hawaii and Massachusetts some will drop their existing insurance and pick up Fed-care or whatever it ends up being called. So add in another 20 million as a guess at 5,000 per year each. Whatever way you calculate it, it is hard not to arrive at an additional bill of $200 billion per year, less the taxes, which maybe will come to $75 billion a year. Maybe, though taxing capital gains is always uncertain because people can defer those gains.

    Of course, much of this will not be rolled out for a number of years, while the taxes will start right away, which is one way they got the numbers to "balance."

    By the way, the tax on capital gains, etc. is not in the Senate bill, but is supposedly in the Reconciliation bill, which they need to pass next. No one has seen that bill, and the chance of it passing is unknown. So you might not be facing those taxes. Or they might grow. No way of telling now.

    In any case, until Congress enacts a VAT--which is what they are thinking about for the future--they are paying for a lot of this on the credit card.
    Mar 22, 2010. 08:56 AM | 10 Likes Like |Link to Comment