OPEC President Edmund Daukoru said on Sunday that “all the group’s members will fully implement their production cuts, while market conditions may force the Organization of the Petroleum Exporting Countries to cut output further next month.”¹. A reduction in OPEN output would realistically push prices up (lower supply, higher price) unless there is either a cut in demand (unlikely) or an equal rise in supply from other resources.

With the recent drop in Natural Gas prices, some drillers and miners in the Texas shale region are cutting output. “Chesapeake says it will shut in 6 percent of its production, or EnCana Oil & Gas of Canada says it will drop four of its Barnett Shale rigs.”², says an article at the DFW Star-Telegram. As NYMEX prices went up, experimental wells and other new energy sources in the US increased. Now as Natural Gas and Oil prices fall, more companies are considering pulling back in some regions, which is changing news from just a week ago.

In E85 news, Tennessee approved a $4 million budgetary increase to boost production of E85 fuels and other alternative fuels.³From a free market perspective, State-initiatives are usually more cronyism and paternalism than an actual response to demand.

Discuss this article at the oil report forum.

By A.B. Dada
—

Look like things are heating up in Texas as more U.S. companies work for oil extraction rights within the continental states. Morgan Creek Energy Corp has initiated the process of permitting a twin well for drilling on a key lease in central Texas, according to an article at OilOnline. Upon execution, this well would be the first to be drilled on the Company’s newly acquired leases in the region, which it has targeted as part of the Ouachita (Wash-A-Taw) gas trend. The company has another well dating back to pre-1923 on the same property, which drilled over 200 feet of natural gas. The new well will drill down to 3,600 feet where Morgan Creek Energy believes there are significant gas resources. Natural gas prices have more than doubled, leading more companies to try to discover more supply in the Texas region.

Also in Texas in the Midland region, we see more shale research going on. Robert Cluff of spoke at the Barnett Shale Symposium and talked about the opportunity to discover 800 trillion cubic feet of gas supply. Cluff said That’s enough gas to support thousands of wells to the crowd of 200 at the symposium.

Again in Texas, Knight Energy completed wells in Stephens County, also part of the Barnett Shale region.

Finishing off the Texas oil news is a report from Saxon Oil covering its October operations. Saxon is using a new completion technique called Radial Jet Drilling, which creates a larger drainage area for the flow of oil and gas. Saxon has leased 2000 acres in the Hudson Hills region in Central Texas.

Discuss this article at the oil report forum.

by Mike Bryson
—
The oil industry and market has been destroyed by State regulations, control, war-mongering and subsidies. The more the State has become involved in energy regulation, the higher prices have gone and the lower supplies have dropped. Often times we see those in the State or aligned with the State seeing a crisis looming ahead, but we also have seen the State try to stop a crisis with price caps, which has caused a bigger crisis. The gas crisis during the reign of Nixon was shown to be false, just as every crisis will likely be in the future. The free market of prices tagged to real supply and demand is all we need to overcome a crisis; when real supplies dwindle and real demand goes up, other energy sources will be found. It happened with Kerosene and Coal turning into Gasoline and Nuclear energy; if it wasn’t for the State limiting the supply of Gasoline and Nuclear generation, we’d have much lower prices and much higher supplies of both.

It seems like everyone in Macomb county, MI want more government regulations and subsidies in order to try to prevent a crisis.¹ This is in a state that has been destroyed by government control of nearly all their markets including the labor market. Instead of pointing the finger of blame at the previous regulations and subsidies, the sheeple of that region just want more nannyism and care rather than opening their markets to true competition. While wages might drop, jobs will grow and the new lower prices means lower wages won’t be a problem for those that now have jobs. Don’t wean people off of government care; end government care and let people find out that everyone can produce something for someone else.

New York is possibly leading the boom in corn-based ethanol as the governor announces a fourth ethanol production facility.² While this nearly US$100 million facility will be built with mostly private funds from farmers, agribusiness and individual investors, it will open to receiving millions in state aid and tax credits. Again the State is there to give preferential treatment to the select few at the cost of millions of consumers and taxpayers. We also have to see that the heavy sugar regulations in the U.S. have removed one of the best alcohol-fuel products from the market: sugar-based fuel which is more efficient and cheaper to produce than corn-based ethanol.

In a debate between a few candidates for the Governor of Minnesota, the incumbent said he wants to go after oil companies’ contracts that prevent more gas stations from installing E85 ethanol pumps.³ Many oil companies have contracts that prevent gas stations from selling fuel that the company itself does not market. While it may sound like a good idea to go after these contracts, it could have huge effects on the viability of the major gas brands itself. What politicians should be going after is laws that prevent gas stations from selling what they want (unless a contract prevents them). In many markets throughout the U.S., State and local laws limit what business owners can do.

Another vehicle is announced that will support E85 / Flex Fuel fuel, this time it is the 2006 Chevrolet Avalache SUV.⁴ The Avalache has a 5.3 liter V8 engine pushing over 300 horsepower.

While we see huge gas prices partially blamed on no new refineries opened in decades, that isn’t the case with the heavily-subsidized E85 ethanol blends. In Ohio another ethanol production plant is popping up, with hopes that the additional supply (and competition of refineries in various states) pushing the price of ethanol down further.⁵ If subsidization could be removed, even more companies would enter the market; competition is what drives prices down, subisization keeps competition from entering a market.

We see how subsidization and regulation of ethanol leads to less competitors and huge profits (which happen mostly in a regulated market of State-made monopolization) in ADM’s recent report that their ethanol market has jumped nearly 600%.⁶ ADM is one of the heaviest subsidy-lobbying groups and one that has a strangehold on many corn markets.

Wal*Mart might be one of the biggest pushes for more ethanol availability as it announced it wants to provide the fuel at its gas stations.⁷ Currently only 800 out of 160,000 gas stations provide E85, with Wal*mart able to add another 50% to the small number. The more, the merrier, but it seems that local and state regulations against gas competition within the same station might be one of the factors keeping the alternative fuel down. The added cost of subsidization in reducing competition is also a problem.

A small group of young 20-somethings took a roadtrip across the U.S. using only E85.⁸ They were able to find the most E85 in the corn-belt where prices ranged from US$2 to US$2.40 per gallon. The hardest part of the trip was in the Rockies where they had to rely on 22 gallons of ethanol stored in red tanks (not a safe procedure). The 10-day journey started in D.C. and ended in Santa Monica, CA.

A hilarious article that reiterates why the State is the great evil in energy distribution is in the Green-Bay Press-Gazette: Gov. Doyle announced that the state of Wisconsin’s minimum mark-up law doesn’t cover ethanol, which can sell for up to US$1 less than gasoline since stations are allowed to compete freely.⁹ Minimum mark-up law? What does that mean, in a market with heavy regulations and zoning restrictions? It means higher prices, of course.

Discuss this article at the oil report forum.

—
Mike Bryson is the news editor of the Global Unanimocracy Network. He lives in the Portland, OR region where he works as an IT business developer and point of sale consultant. E-mail Mike with news links or comments on this report.

Portland, OR
—
The a short article from last Thursday, TheState covered an interview with oil lobby economist John Felmy.¹ The quick interview shows that Felmy lays the blame on higher oil prices in decreased supply from U.S., Nigeria, Venezuela and Iraq oil wells, as well as the fact that no refineries have opened in the US in ten years due to bureaucracy. He doesn’t cover the fact that the dollar may have lost half its value in that ten year time frame; fiat inflation caused by the Federal Reserve’s doubling of the amount of dollars in circulation over the decade.

In New York, Governor George Pataki signed into law yesterday a bill to make it easier for New York gas stations to sell E85 and ethanol-blend alternative fuels.² New York has some harsh overregulation that prevents gas stations from selling fuels that their brand doesn’t market. This reduces the supply of fuels that a particular gas station can purchase. New York is not the only state with such harsh restrictions on what a company can provide to the consumers. The New York Association of Service Stations and Repair Shops executive director said with only 200,000 alternative fuel vehicles on the road, there’s little market for E85. Are we seeing preferential treatment for a few companies that do offer the E85 blend?

Republican Governor candidate Dick DeVos is offering a campaign promise to cut farm property taxes and develop Michigan into an alternative fuel center.³ DeVos said that he believes the governor’s role must be to provide leadership that promotes an environment of sensible regulation, low taxes, a favorable business climate and a skilled work force for producers, processors and marketers of Michigan’s agricultural products. Considering that previous Michigan politicians are mostly to blame for the state’s destruction through excessive taxation, regulation and bureaucracy, don’t put much faith in DeVos’ promises. Michigan has a very unique opportunity to attract hundreds of businesses if they removed all barriers to competition; their high number of available laborers would bring many corporations back if not for the state’s outrageous preferential treatment. Current Democratic Gov. Jennifer Granholm just signed into law bills that lower the state tax on each gallon of ethanol-blended fuel to 12 cents, down from the 19 cents figured into a gallon of regular gas, and that lower the tax on biodiesel fuel from 15 cents per gallon to 12 cents. Another new law offers grants to gas station owners who want to sell E85 and biodiesel fuel. Here we see some good things (lowered taxes) and some terrible things (state grants) that will likely not just wipe each other out but make things worse for new businesses who will have to pay for the grants through higher prices to the consumers.

Twelve new FlexFuel vehicles have been announced for 2007 by DaimlerChrysler, Ford, General Motors, Mercedes Benz and Nissan.⁴ FlexFuel capability allows the car to accept regular gasoline, E85 or usually a combination of the two. The FlexFuel vehicle makes the most sense as it doesn’t force owners to use ethanol, but it might increase the demand for local stations to carry the alternative fuel.

Discuss this report at the oil report forum.
—
Mike Bryson is the news editor of the Global Unanimocracy Network. He lives in the Portland, OR region where he works as an IT business developer and point of sale consultant. E-mail Mike with news links or comments on this report.

Is ethanol a viable alternative fuel, though? Not really, saying Bill Walker at the LRC.² Walker says the ethanol leads to deforestation, unsafe pesticide use, excessive energy wasted in ethanol production and of course additional government sponsorships that cost the taxpayers in hidden ways.

The State of Maryland believes that consumers will see price decreases due to ethanol and E85, but they refuse to let consumers use the newest ethanol gas station in Baltimore.³ Only state vehicles and those registered by nonprofits can use the station, said Dave Humphrey, director of external affairs for the Maryland Department of General Services. Since the State will be the primary user of the new station, who ends up paying for the additional costs to provide the service? Installation of the tank and the pump work was partially funded by a $330,000 U.S. Department of Energy grant and two grants totaling $50,000 from the Maryland Grain Producers Utilization Board, which is a Maryland farmer-backed group aimed at promoting grain usage. The Federal government, as well as a lobbying group that wants more corn-based fuels to be sold.

Another ethanol/E85 plant is being built in the Midwest at a cost of over US$100 million, this one in the Quad-Cities region.⁴ It is the first plant in the Iowa Quad-Cities region, but it joins 24 other plants in neighboring areas. The industry hopes to annually create 2.7 billion barrels of E85/ethanol fuel in coming years, and Iowa is currently producing 20% of the nation’s ethanol fuel.

Nissan is quietly entering the Flex Fuel market as it prepares to launch a Nissan Armada SUV that can use either E85 or gasoline.⁵ The FFV will be sold in regions that currently have E85 stations and a market for E85-capable vehicles. This is a bit of a shock as most Asian car manufacturers are focusing on hybrids rather than ethanol-based vehicles. Toyota and Honda are famous for their hybrid line.⁶

The National Taxpayers Union says that consumers and taxpayers will not see any benefits from the Federal and State subsidies going to ethanol and alternative fuel production.⁷ Despite federal and state subsidies, a guaranteed market that is protected from international competitors, and millions of dollars from private investors, it is abundantly clear that ethanol is not and may never be a truly competitive energy alternative, said study author and NTU Policy Analyst Jeff Dircksen. The additional annual cost of purchasing a blend of 85 percent ethanol and 15 percent gasoline (E85) would be $968.72 in New York (driving a Chrysler Sebring), and $1,570.40 with a Dodge Durango. Even Midwestern consumers inside the “Ethanol Belt” would pay $413.71 in additional fuel costs driving the Durango.

Discuss this article at the oil report forum.

One foreign car maker that is getting into the game is Volvo, says Azom.com in an article titled Volvo Creates Car that Can Run on Five Different Fuels.² Volvo’s new vehicle can run on hythane, biomethane, natural gas, bioethanol E85 and gasoline, making it one of the most adaptive vehicles ever introduced. It also is targetted as a high performance alternative-fuel vehicle.

I’m not a fan of Ethanol-based E85 due to all the farming regulations, subsidies and anti-competitive cronyism that exists in that industry. The Globe and Mail has a great article today titled Steering clear of the ethanol bandwagon that talks about the downsides of the alternative fuel market.³ As Professor Jim Lemon says in the article, Some sources are better than others — sugar cane is better as Brazil has proven; corn is not good. He also throws up his fists against the subsidies: In the United States, the federal government grants 51 cents (U.S.) per gallon to producers. I am a firm believer that the number one problem with gasoline and energy in general is too many subsidies and not enough of a competitive atmosphere due to overregulating of the industry, with too many preferential programs in place. We want freedom, not governance.

The politics of E85 always come into play ahead of the market efficiency, as we see in a campaign for a Michigan politician. U.S. Rep. Mike Rogers, the Republican incumbent in Brighton, MI, wants to promote ethanol production in order to bring Michigan more income.⁵ Lugar recently introduced the American Fuels Act with Democrat Obama from Illinois — an act that is supposed to promote locally produced and refined gas and gas alternatives. As many like me know, the U.S.’ largest fuel problem is the oversubsidization of a select few energy companies — subsidies that cost taxpayers billions and also keep competition from entering the market on the same level. Would you compete in a market if your competitors were receiving barrels of free taxdollars every day?

The debate on which fuel is better continues as NBC15 compares gasoline to ethanol.⁶ NBC15 is running an ongoing series titled “E10 on Trial” and ran a variety of tests to see if ethanol can hold up to gasoline. Their research surprised them by showing E10 ethanol to be more efficient in this test, with this particular vehicle. One thing to consider, though, is how much the subsidies cost and how far you have to drive to fill your tank.

Discuss this article at the Oil Report forum.

From the neoliberal view of the Aspen Times we see a switch to the neoconservative view of FrontPageMag in an article titled How Oil Lubricates our Enemies.² Here’s the normal right wing line of absurdities: Americans are freer and richer than any time in its history (the opposite is true), the stock market is at near record highs (not with inflation factored in), the unemployment rate is low (not if you use the old calculations), home ownership is at near record levels (not if you consider equity percentages), and oil prices are high only because of increased demand (having nothing to do with decreased supply due to Bush’ warmongering everywhere). Why don’t we see more free market analyses? Because people love war and they love battles between the right and the left. Both sides are lying, yet people would rather read lies than consider what the truths are — that government is the reason why oil is so expensive, and there is nothing government can do to make things better, except deregulate prices, licensing, and barriers to entry.

The LA Times does no better in understanding how strong property rights are the solution to another energy problem in their article titled Fort Worth’s New Noisy Neighbors: Gas Derricks.³ In the article we see that homeowners are unhappy that oil drillers are making noise in extracting oil from the ground in their neighborhoods. Over the decades we’ve seen preferential treatment see-saw between home owners and oil land developers, with both sides complaining about the other. Instead of worrying about creating more regulations and restrictions for either party, how about setting up strong property rights standards and better definitions of the most basic forms of pollutions? If an oil driller has an explosion, the home owner who is harmed should be compensated. That’s a basic property right. If the oil driller is there first and someone else moves into the neighborhood, they should accept the noise pollution that was there ahead of them. If the opposite is true, the oil driller should contract with the neighbors and set a legal limit to how much noise they’ll make. Nothing prevents both sides from coming to an acceptable agreement, but both sides would rather wrangle it out in the political forum rather than contract out both their desires and work out an amicable agreement. Property rights mean nothing, today, if you have the power of the local politician in your pocket.

Even worse, sometimes there is no private property in the oil game: some companies are frustrated by the paperwork mess required to drill on PUBLIC lands!⁴ Instead of selling the lands to private developers (for whatever reason they would want to use their now-private property) our governments are happier to license (their friends) in order to gain the tax power and regulatory power (over their non-friends). This is typical cronyism, and you usually only hear complaints from the restricted side and congratulations from the preferred side.

Goodbye Exxon, hello Energen. The new energy love on the stock market pages is a company that seems to be playing games with the numbers to make the investors happy.⁵ At the article’s end is the winning quote: While the corporation’s public utility, Alabama Gas Corp., continues to make a consistent - and consistently strong - contribution to the parent company’s financial performance… Ha! The public utility is what is making the numbers strong now, but the analysts are looking to their R&D wing for future profits. I’ve heard that before.

The Star-Telegram hits on the private property issue from a different and respectable angle in Drilling pumps dollars into old neighborhood⁶ Here we see Texas drilling companies paying leases to the private property owners that own minerals beneath their homes and businesses. While there are huge restrictions from government preventing and preferring different business agreements, we’re seeing that some businesses are more understanding of the need to protect the property rights of everyone if they are to be protected from the business. I’d love to see a breakdown of which companies want eminent domain takeovers (the preferred companies) and which are willing to pay leasing fees to the mineral owners (the non-preferred companies).

In another free market marvel, we see two different companies uniting together in cleaning the environment in the New York Times’ A Refinery Clears the Air to Grow Roses.⁷ I’ve always said that NO company wants to pollute if they can find a way to stop throwing away something that might be profitable. In this case, one company has a need for CO2 (to grow roses) and another company has too much CO2 they’re throwing away. Together they both profit without throwing away a valuable piece of property: CO2 emissions. Just wait until more companies find ways to utilize “pollutants” in a profitable and safe way: one man’s pollution is another man’s feed and fertilizer.

To wrap it up is a hilarious article regarding Premier Klein’s blasting of Al Gore.⁸ “The United States needs our oil. I don’t know what he proposes the world run on, maybe hot air?” Time to close up shop, Gore, when a Canadian trumps your moronic spouting of unfacts and myths.

Discuss this article at the Oil Report forum.

We are seeing new discoveries of oil all over the Ugandan area, with 4 new reports surfacing very recently.¹ The Albertine region is possibly rich in crude and shale oil varities, and has seen much more attention from international companies in the past few years.

EnergyBulletin has an article towards their own Peak Oil theorists (”peaksters”) on how they can better sell their story to the public.² For me, I just want to see real economic backing to prove if we’re running out. I’ve watched the Gold to Oil ratio for nearly 10 years, now, and I’m not seeing the fears that many are pointing to. Sure, oil is expensive, but the dollar has quickly become worthless in my lifetime, and I’m not sure that we’re looking at a supply problem. There is a high demand for oil and a low demand for dollars, of course the price of oil will go up.

A U.S. Congressional panel said yesterday that Canada can give OPEC a run for the money in the oil business.³ From the article: Production from Canada’s oil sands region will put the nation in the top five producers of crude oil in the next 10 years, according to a report from the Joint Economic Committee, which examines economic policies and their impact. Canada is currently the seventh-biggest global oil producer, the report said. We’re seeing Canada’s stock market, the TSX, boom with the growth of gold and oil’s value on the world market. As the dollar price of oil goes up, the opportunities to extract new oil varieties such as shale and tar sands increases. My concern is that the price of oil is not significantly higher versus income levels compared to decades past, so will these new oil varieties really be profitable? The dollar is worth less, and it should require many more to actually process these alternative oil structures. I’ll be surprised if this is the going to be the time that shale and tar sands become profitable. The experts are telling us that most are profitable at US$60 per barrel, but that price is considering the dollar’s value from 5 years ago. Since the fall of the dollar of almost 50% in that time versus other currencies and commodities, it is possible that tar sands and shale oil might only be profitable at US$120 per barrel!

The new U.S. emissions regulations are already costing oil producers money as they have to revamp refineries again to attain the new standards for lower-emissions fuel. Suncor just invested nearly half a billion dollars into revamping their refinery in the Alberta region in Canada.⁴

I’ve been reading RIA Novosti a lot lately, the Russian News and Information Agency. Today’s article is titled Prospects of the dollar as oil currency⁵ Russia has always had a huge amount of oil to process and sell, but decades of communism always made this oil unprofitable on the world market. Now that Russia is starting to provide more semi-free market options for businesses, their oil industry is ready to explode on the market, but the petrodollar connection is one that keeps many countries from being able to get into the market on their own terms. Russia already holds enough petrodollars and reserve dollars and may not want more, especially with the dollars fast decline in value due to Bernanke’s overprinting of supply, continuing Greenspan’s decades of madness. RIA Novosti’s article covers many of the thoughts I’ve been having in recent years, and I believe it is worth taking the time to read (and comment on).

Instead of blaming themselves for allowing the Fed to go print-crazy on new money, the US Senate now wants to investigate higher prices by seeking parties to blame in the energy trade industry.⁶ While I believe speculation does tend to raise prices, it also tends to lower prices as well. We have to look at the supply of resources versus the supply of money. As long as the supply of money keeps going up (Federal Reserve-created inflation, as we’ve seen for 100 years), prices will always tend to go up as the value of the dollar keeps going down. There is no energy market collusion here, just a lot of military intrusion, currency value destruction, and usual power-tyranny being manipulated by those who can. The Senate has no one to look at but themselves, the Congress, the Executive branch and the Judicial branch that allows it all to continue without heeding the Constitution.

Discuss this article at the Oil Report forum.

G.U.N. Summer Vacation Update

It could be that the pro-union anarchists are even more clueless, as it seen in a recent article at anarkismo.net: Right To Work No Thanks Canada is seeing a boom in the energy market, with new jobs being created every day. In pro-socialist Canada, though, jobs aren’t so easy to come by. With a huge supply of unworking adults, these new jobs being created are seeing a bigger supply of workers than there is a demand for them, which means wages will be low than if there were fewer workers. Anarkismo believes the answer is to stop unions from competiting with one another, and create one huge union for all workers everywhere. Maybe the fraudsters in the Peak Oil analysis market aren’t so bad after all.

Another problem with market analysts who deceive the average consumer is the situation we see where consumers invest incorrectly based on bad information. I’m a free market advocate, so I believe you reap what you sow — if you trust the “experts,” you deserve what you get. We’re now seeing far-left opinions on how to prevent an oil calamity, such as a carbon tax.² Instead of putting faith in the market (which has lowered the price of gas for 150 years), some people want to put faith in government (that has increased the cost of gas for 150 years). These new-lefters are not considering the price increase due to dollar devaluation (money supply inflation) or due to excessive regulation and licensing within the industry. The problem isn’t that we don’t have enough government — we have too much!

The Oil industry has been run by politicians and insiders aligned with politicians for decades. One such insider and politician is liar and fraudster Michael Meacher, who offers his “sagely” advice in the Telegraph: “Our only hope lies in forging a new energy world order”³ Here is a politician who used to control the Environmental Ministry in the UK for almost 6 years, and was an MP for years before that. First he had massive control over a small locale, then he had control over a country’s business climate. Now he wants international control. He’s another Peak Oil liar who just wants control — he cares little for his constituents or consumers as a whole.

Exxon believes they’ve found a new way to extract gas from the Earth — a new way that could increase world supplies by almost 2 years of US usage.⁴ Those against Exxon’s new technique include some of their competitors (of course), who say their technique isn’t new and doesn’t work. We’ll have to see if environmental overregulation and overlicensing might be part of any failure, if such happens to Exxon in this trial.

We’re unfortunately still seeing too much overregulation and overlicensing in the energy market. In Colorado we’re seeing preferential tax incentives being given to certain companies for building in distressed areas.⁵ While I am always anti-tax, I don’t believe you ever see the truth in a market when one market is given tax breaks and another still has to pay them. If getting rd of taxes helps some businesses, why not get rid of all taxes to help all businesses?

If Canadians aren’t happy with the pay from energy labor up north, they should consider moving down to Texas. “We’re still short rig hands,” says Morris Burns, executive vice president of the Permian Basin Petroleum Association. “That’s why the pay has risen; they’re paying $18, $19, $20 an hour to start — that’s the only way they can get people.”⁶ Texas is seeing a huge increase in re-opened oil wells as the price of international oil soars high enough to make local wells profitable again. I haven’t often believed that wars in the Middle East were solely about oil, but the result is enough to see that the local oil companies are excited by the high prices.

We’re also seeing technology increase the opportunities for oil companies to find more crude farther down than ever before. “In the Hamaca field, an area the size of Houston that produces oil for Chevron, ConocoPhillips and the Venezuelan state company, oil now slurps through an octopus-like system of horizontal wells that reach out as far as 8,000 feet. The drill bits are equipped with sensors that emit seismic signals measuring what it is passing through — whether rock, sandstone, fine shale, sand or clay.”⁷

Finally, one of the biggest news reports today being copied by every wire-based paper is the news that the Canadian province of Alberta has kicked off a two week lobbying blitz of Washington, D.C.⁸ The Albertan government and local businesses are likely looking for American investment (government, private and subsidized) into the Albertan tar sands market — a market that still has proven profitable up to this point in time.

Discuss this article at the Oil Report forum.

G.U.N. Summer Vacation Update

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.