G.U.N. Oil Report

Environmentalists always try to find ways to disrupt any energy production possible, it seems, using any means possible. This time they’re trying to disrupt shale oil production in NW Colorado over the possible death of a species: a plant called the DeBeque milkvetch.¹ Rather than throw their money (and time) into moving the species to another locale, they’ll waste their days picketing, lobbying and harassing to get their way. If your property has a very unique specie of animal or plantlife on it, it means you have a rare resource. If the demand by environmentalists is high for this species, why not sell it to them at a nice profit? Let them raise the money, buy what they want, and provide for it with their own money. I sure don’t want to spend my tax dollars supporting any particular species of animal or planet if others are willing to cough up their own cash to do so. I’m not anti-environment, I’m pro-property rights.

The Daily Advertiser regurgitates the same news in a very short article today.² Some interesting information from them was included though: Gasoline and diesel are just two components of crude oil and make up approximately 30 percent of a barrel of oil. Other percentages are as follows: jet fuel 4 percent, butane, propane, ethane 1.7 percent, heavy fuel oil 1.7 percent, other 7.6 percent for a total of 44 percent. The remainder, heavy tower bottoms 46 percent, is converted to lube oil, asphalt and petroleum coke. We always consider crude oil useful for cars and trucks, but we rarely think of the other uses that crude is better at providing for than anything else. Even though the other 70% may not occupy a huge portion of the market, many of these smaller markets are much more profitable for the retailers in this country. We can’t write off crude entirely until we’re aware of new ways to create those useful byproducts.

Garfield County, Colorado is worrying about another boom and bust cycle from the new shale oil drive.³ This county has experienced more booms and busts than almost any other U.S. microeconomy over the decades usually due to skyrocketing import crude prices versus US dollars. Here is where we see the Federal Reserve’s crime: creating new money, pushing prices higher due to a weak dollar, and thousands of residents trying to profit from the mess the Fed creates. What they forget is that OPEC can just as quickly lower prices to snuff out the profit opportunities that they believed existed. It is very important for the U.S. and state governments to reregulate energy production as much as possible, including refinery, to level the opportunities as the free market would provide.

Aurora Oil & Gas announced the retirement of one of their members on the Board of Directors.⁴ Aurora Oil & Gas primarily works in the crude and shale markets of Michigan and Indiana, markets that are rarely discussed by the media.

LovelandFYI tells Congress to go slow on shale oil production in Colorado.⁵ They’re concerned about the boom and bust spoken of earlier in this article. Yet we’re now seeing the renewed drive being backed not just by small time speculators but also by huge oil conglomerates: companies who can deal with the risk for the long term. One of the biggest problems with Colorado is not the risk of making a profit but instead the risk of dealing with local and state governments who always want a bigger piece of the pie when profits are found. When the population grows to try to grab a piece of the profit, the governments grow faster and take a bigger chunk out of the residents and businesses. If the governments would leave the industry alone, I doubt we’d see the usual booms and busts. And when they don’t leave them alone (they never do), we’ll have to watch very closely to see how much government cries for more tax dollars when the market collapses for them.

ITPBusiness asks “Is peak oil pure fiction?”⁶ I don’t believe in Peak Oil theory myself — the price of crude oil is not significantly higher once you take into account all the destruction of value the dollar has faced with the Federal Reserve’s mad inflationary policy of the past 2 decades. We’ll know when there is a peak oil problem when gasoline costs exceed 10% of our household income. Until then, I am still paying less than 3% of my gross income for driving, and driving occupies more than 8% of my workday. I’m happy to pay 3% for the 8% I get to bill, gas is still a profit for me. If you’re not billing for your drive time, you’re in the wrong business. People have been crying about peak oil for well over 130 years.⁷ Since 1874 there have been repeated and regular analysis that the oil in the world would be used up within 4 to 15 years. None have been true, and I been none will ever be true. Our knowledge of the true source of oil is still thin: the analysts don’t even know where it comes from or how it is made. If oil is as plentiful and recurring as dirt and water, we’ll never hear it from the mainstream media nor the pro-oil industry analysts.

The Star Telegram has a great article titled “Small Barnett Shale Producers Cash Out.”⁸ Nearly US$50 billion has traded hands in the region with bigger companies buying up the smaller speculators and excavators. For me this is a sign of big things to come — when the big guys come into a market, you’re sure to see new efficiencies and profits to be found (as long as the big guys don’t try to get grants and subsidies for their work). This is a huge market that has been relatively ignored — US$50 billion over 2 years isn’t small beans. Some of the winners in the transactions were even ex-athletes.⁹

One big concern for shale oil producers is the lack of a necessary resource used in the extraction of shale: water.¹⁰ The answer by most analysts seems to be that the oil producers should work with local and regional water suppliers to get the water they need. There’s the government again, one more piece of red tape in an industry long dead from all the other red tape that killed it off the first few times around. It wouldn’t be a surprise to me if the easy hand in the pie by those in power would be control over the water resources rather than a direct tax or regulation. When we see profits, we see politicians.

Late Addition:
It seems like I missed the news that a bunch of ethanol producers are heading for an IPO.¹¹ Three of the largest ethanol producers are expected to have an IPO this year, with some as early as July. Projections are showing a possible doubling in IPO investments. I’m not a huge fan of ethanol based on the corn subsidies and regulations, but any step in a more local energy production is likely a positive one. Ethanol is made by distilling corn. For those who don’t know, distillation is illegal in the U.S.: you need a license by the Federal government to distill alcohol. Preferential treatment, anyone?

Discuss this article at the oil report forum.