Editore"s Note
Tilting at Windmills

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February 1, 2006
By: Christina Larson

SAUDI ARABIA OR VENEZUELA? .... Even if alternative-energy production is greatly expanded, and even if prices for, say, ethanol fuels become truly competitive, would that necessarily mean a reduction in oil imports from the Middle East? If Venezuelan or Mexican or Canadian oil remains more expensive to extract than Saudi Arabian oil, we would simply import less from those countries.

As Department of Energy analyst Anthony Radich told Reuters Tom Doggett, because the Middle East generally produces oil more cheaply than other regions barring some (government) policy that explicitly discourages oil imports, even if we do find cheaper ways to produce cellulose ethanol, the imports from the Middle East are among the last to go. Christina Larson 9:05 PM Permalink | Trackbacks | Comments (46)

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We're supporting these corporations now by allowing them to pay no taxes, what more do they want?

Posted by: cld on February 1, 2006 at 9:13 PM | PERMALINK

How much energy does a burning Republican give off? Maybe I could fuel my car with those.

But the smell, dear God, the smell...

Posted by: craigie on February 1, 2006 at 9:15 PM | PERMALINK

They. Just. Lie.

Administration backs off Bush's vow to reduce Mideast oil imports
By Kevin G. Hall,
Knight Ridder Newspapers

WASHINGTON - One day after President Bush vowed to reduce America's dependence on Middle East oil by cutting imports from there 75 percent by 2025, his energy secretary and national economic adviser said Wednesday that the president didn't mean it literally.

Posted by: Rad Racer on February 1, 2006 at 9:24 PM | PERMALINK

Bush and Rove know that, Ms. Larson. But they have figured out that they can pick up points by saying things that sound good at the moment. Trip to Mars? Rebuilding New Orleans? Become indpendent of Middle East oil? Surely no Democrat is ever going to call them on any of this on TV. So why not say it.

Posted by: JS on February 1, 2006 at 9:28 PM | PERMALINK


It's not about cutting off Middle East oil, it's about defunding its owners.

Sure, the lowest Canadian oil can go is the cost of production and transportation, say $20 a barrel. If demand is reduced enough, then the Canadians will be left with unused capacity.

But at that point, if the Saudis want to sell at all, they're going to have to sell at less, say $18 a barrel.

That means a lot less money goes to spreading militant Islam.

Posted by: theo on February 1, 2006 at 9:41 PM | PERMALINK

JFTR, solar power doesn't compete with petroleum; petroleum-based fuels power vehicles - cars, jet planes, and so forth. Very little oil is used for electricity generation, which is what alternative fuels such as solar and wind power are used for.

Posted by: RT on February 1, 2006 at 9:47 PM | PERMALINK

Let's review what we learned the last week. Kuwait's reserves are 50% of what we thought they were last week. The Saudi's aren't talking but the House of Saud's reserves are not what they once were. There are rumors that they are pumping water or gas into the wells to increase production. A sure sign of depletion. Exxon Mobil made giant profits, but couldn't increase production. Katrina and Rita to one side, Exxon Mobil with all the incentive and cash in the world produced less oil in 2005 than in 2004. Demand is up all over the world.

Solar panels anyone?

Posted by: Ron Byers on February 1, 2006 at 9:48 PM | PERMALINK

There will be no independence from Persian Gulf oil except in the very, very, long run, and the cheerful chatter of last night just mirrors the nonsense spewed by countless politicians and pundits of the last thirty years who are either too ignorant to grasp basic physics and economics, or count on their audience to be. The oil of the Persian Gulf will be extracted because billions of people around the globe will demand of their governments that such extraction be facilitated, and the U.S. will inevitably entwined in that extraction, if for no other reason because the U.S. is the most powerful economic and military power.

The only open question is whether, in the process of facilitating the extraction, the people who live atop the oil in the Persian Gulf are killed, enslaved by proxy (as has been the model for the last eight decades), or they manage to become self governing, and thus trade freely and profitably with the rest of the world's billions who demand the mineral resources that they live atop.

Them's the choices, as hideous as the first two are, and as damnably difficult as the third is to achieve. There is no fourth way, anybody who discusses this morass without frankly acknowledging that those are the options, and that one will be chosen, either explicitly or implicitly, isn't worth listening to. That pretty much covers the vast majority of politicians we hear yammering on the matter.

Posted by: Will Allen on February 1, 2006 at 9:52 PM | PERMALINK

RT you are right, of course, very little oil is used to generate electricity, but if you have the right car, electricity could be used move you to work.

Posted by: Ron Byers on February 1, 2006 at 9:53 PM | PERMALINK

Flash forward a year ... "Hugo Chavez is building the most lethal weapons known to mankind. He must face disarmament or a coalition of the willing will liberate Venezuela from its democratic government."

Posted by: Diamond LeGrande on February 1, 2006 at 9:55 PM | PERMALINK

Kevin,

If you factor in the cost of maintaining a military presence in the Middle East, the cost of needing Middle Eastern oil is quite high for the United States. Being in a position to not need the oil from that region is a great thing, even though the reality is that we still want it, for the cost of production reasons that you mention.

That being said, if there isn't real funding to match the rhetorical heights Bush reached yesterday, not needing Middle Eastern oil will remain a pipedream for a long time.

Posted by: Dismayed Liberal on February 1, 2006 at 10:00 PM | PERMALINK

Um, did this blog post just inform me that people will tend to buy the cheaper of two identical products?

Christ. Just shoot me now.

Posted by: cdj on February 1, 2006 at 10:00 PM | PERMALINK

Here is a link to an article reuters article concerning kwaiti reserves.

http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nL20548125&imageid=&cap

Any bets the Saudis have been more forthcoming?

Bush might be telling the truth, not because he wants to but because he has to.

Posted by: Ron Byers on February 1, 2006 at 10:00 PM | PERMALINK

But his statement is totally meaningless from the get go. Oil is essentially fungible. The oil sloshes around the world -- think of it as one great tank -- and it matters not where you stick in your spigot. It's the TOTAL SUPPLY vs. DEMAND that determines price and availability.

Bush was just talking, and lying, just as he did on every other sub ject he touched.

I had a transcendental experience during the SOTU. I determined I wouldn't bother to listen, but as I walked by an open bar, there was that strange face blabbing away. His eyes aren't spaced right -- too close together maybe -- and he looks like he's straining to produce a thought.

Then it happened. The one other guy sitting at the bar yelled up at the TV, "Shut up, your lying sack of cement!" (He didn't actually say "cement") When I objected that he was speaking about the POTU, he snarled, "But he's a lying sack of potatoes!" (Well, I've changed his last word here.) And as I tried to think of a good reason he shouldn't use such profanity referring to the President of the United States, he said it again, "Shut up, you lying sack of cats!" (A different word than "cats" however).

I left after another few minutes, and later when I heard all the really dishonest things Bush said, I realized a drunken Buddha had revealed to me the very essence of our leader.

Posted by: geo on February 1, 2006 at 10:04 PM | PERMALINK

If Venezuelan or Mexican or Canadian oil remains more expensive than Saudi Arabian oil, I imagine competitive shoppers would simply forg
Christina Larson 9:05 PM Permalink | TrackBack (0) | Comments (14)

They'd be last to go unless prices went up from security risks or embargos. In which cases prices would rise until a certain point than the substitute would be heavily used.

Which is the point really.

Posted by: McA on February 1, 2006 at 10:13 PM | PERMALINK

Oil is fungible, a commodity. The United States can only reduce its dependency on oil, not "Middle Eastern" oil.

Posted by: Mike B. on February 1, 2006 at 10:18 PM | PERMALINK

Embargoes will be unenforceable, because too many actors will have too much economic incentive to cheat, and will take what measures they need to do so. We saw the same phenomena during the sanctions regime on Iraq, except this time the economic incentives will be far more powerful.

Posted by: Will Allen on February 1, 2006 at 10:18 PM | PERMALINK

If you factor in the cost of maintaining a military presence in the Middle East, the cost of needing Middle Eastern oil is quite high for the United States.

True, but socialized costs (that of a publicly funded military presence to protect private profit) aren't factored into the market's setting of the equilibrium price. United Fruit Company benefited from this sort of action as well.

(The Republican Party, a corporate welfare bum's best friend)

Posted by: snicker-snack on February 1, 2006 at 11:04 PM | PERMALINK

What's the price of a gallon of gas if you figure in the cost of the military used to procure it?

Posted by: Neo on February 1, 2006 at 11:08 PM | PERMALINK

We saw the same phenomena during the sanctions regime on Iraq...

A total embargo would be easier to enforce than the oil-for-food sanctions on Iraq, where they were able to export oil in bilateral contracts that allowed for kickbacks. The opportunities and incentive to cheat were widespread.

Though I've also heard the argument that an Iran embargo wouldn't affect the US, because we don't get our oil from there. Which is crazy, since as we all know oil is fungible, and taking oil out of the market will create a worldwide shortage and easily result in a worldwide price spike.

Posted by: tinfoil on February 1, 2006 at 11:12 PM | PERMALINK

What's the price of a gallon of gas if you figure in the cost of the military used to procure it?

The US consumes 9.6b gallons of gasoline per month, and we are spending $6b per month in Iraq. So, without considering all the other factors, add an extra $0.62 per gallon?


Posted by: tinfoil on February 1, 2006 at 11:22 PM | PERMALINK

If ethanol ever undercuts the price of Venezuela's oil I'll likely be shooting new world monkeys out of my ass.

Posted by: B on February 1, 2006 at 11:33 PM | PERMALINK

Yes, tinfoil, and the price spike means that actors will break the embargo, because breaking the embargo is less painful than suffering the price spike.

Posted by: Will Allen on February 1, 2006 at 11:40 PM | PERMALINK

What?! We'll sell our oil to the Chinese!

Meh, prices are global... so I imagine competitive suppliers will curtail production in high cost regions if their margins shrink (enough). Regardless, it's possible SA's share of US oil imports would increase. Same difference, I guess.

Posted by: Soviet Canuckastani on February 1, 2006 at 11:57 PM | PERMALINK

If we try to kill the price of oil with an injection of expensive ethanol, how can we stop OPEC from cutting back production to bankrupt our effort?

Posted by: yesh on February 2, 2006 at 12:06 AM | PERMALINK

Does this mean a new oil monopoly for the U.S. ?
I was musing of a plan to rethink the breakup of Standard oil. Think of the opportunity to reap record profit for the favoured few !
There has to be some way to achieve a similar result in practice, given the powers of the federal government.
Subsidies and tax breaks on new production are a start. Arctic drilling, here we come !

Posted by: opit on February 2, 2006 at 12:32 AM | PERMALINK

Although Bush didn't mention it, nor have commenters so far, there is a much more important reason to end our oil addiction than economics or real politic. Global warming isn't going to wait for us to figure out a painless way to halt our addiction to fossil fuels.

Posted by: nepeta on February 2, 2006 at 12:39 AM | PERMALINK

Aren't you afraid all this talk about Canadian oil and high revenues will spread militant Canadianism?

Posted by: murmeister on February 2, 2006 at 2:19 AM | PERMALINK

militant Canadianism

What's this? You gonna start shooting pucks at us from across the border?

We got goalie pads, man.

Posted by: Troo-Bludded Merkan on February 2, 2006 at 2:44 AM | PERMALINK

This hot air about using less middle east oil is all nonsense. Using less oil is a fantastic idea, but it's a global commodity (fungible in the sense money is). It really doesn't matter where we buy it from. If Iran were to stop shipping oil, the price everywhere would skyrocket, even if we didn't buy a drop of Iranian oil ourselves.

--Rick Taylor

Posted by: Rick Taylor on February 2, 2006 at 3:43 AM | PERMALINK

I think the USA will import less oil from the Middle East in 2025 for the simplest of reasons. The Middle East will not be able to pull as much oil out of the ground in 2025 as they did in 2005.

But the people calling oil fungible are missing the point of the Middle East. If America was just giving cash to people with oil, the cash and the oil would be the same wherever it came from. But politics isn't fungible, states aren't fungible, and soldiers aren't fungible, and it's the politics of states and armies (and cruise missiles and nuclear warheads) that the USA is using to ensure its cheap supply of the sweet nectar.

Get your oil from someplace else, and the price in cash may not change; but the price in blood and honor certainly will go down.

Posted by: derek on February 2, 2006 at 4:26 AM | PERMALINK

Aren't you afraid all this talk about Canadian oil and high revenues will spread militant Canadianism?

Posted by: murmeister on February 2, 2006 at 2:19 AM | PERMALINK

Maybe they should go nuclear.

Posted by: McA on February 2, 2006 at 4:28 AM | PERMALINK

Isn't the whole idea of using less Middle East oil centered around the concept that the Middle East will remain unstable all the time that they produce oil? That they will use the oil to fund terrorism? That despots will remain in control of the oil?

If so, then isn't Bush conceding that the US will not succeed in its efforts to spread democracy and fight terrorism in the Middle East?
Does this not undercut the purpose of our entire military and diplomatic mission there?

If being less dependent on Middle East oil was so damned important then why do we not now have mileage standards mandating 50 mpg by 2015? Why do we not have a Manhattan Project, or a Man to the Moon by 1969 project, to cut our consumption of all oil by 50% by 2015? Most of the freaking oil will be gone and gas will be $20.00 per gallon by 2025. The world economy will be in ruins, so I guess it would be easy to declare victory in reducing our dependence on Middle East oil by 75%. What a visionary this Bush man.

Posted by: lou on February 2, 2006 at 7:28 AM | PERMALINK

"True, but socialized costs (that of a publicly funded military presence to protect private profit) aren't factored into the market's setting of the equilibrium price."

You're right, but the government could do an activity based costing analysis of the cost of oil from different countries, assign a burden cost to a barrel of oil from each country for U.S, government expenses (such as military protection), and use that burden cost to set a tariff. My assumption is that the burden cost for Saudi or Kuwaiti oil would be MUCH higher than that for Mexican or Canadian oil. I learned this costing method at business school. Why can't our "MBA president" do something like this? (Aside from his incompetence and ideological blinders.)

Posted by: rwb on February 2, 2006 at 8:54 AM | PERMALINK

Conservatives opposed all attempts to wean the US from oil during the 70's, 80's, and 90's, just as they opposed nation-building, the spread of democracy, and non-isolationist foreign policy.

This decade will be no different, except that conservatives filled with the arrogance of ill-gained electoral success will continually lie about their plans to wean America from oil, merely paying lip service to all the things they've rejected in the past and all the while enriching the oil companies at the expense of the American consumer.

Nothing new here.

Move along.

Posted by: Advocate for God on February 2, 2006 at 9:40 AM | PERMALINK

When the oil is gone, what will the people in the middle east do for a living?

Posted by: Ron Byers on February 2, 2006 at 9:40 AM | PERMALINK

Actually, importers consider more than just price. They also consider risk. The more stable the exporting country, the more attractive the oil, all else being equal. Most oil is imported on long-term contracts, which prices often vary significantly from the price in the smaller "spot" market.

Posted by: GBH on February 2, 2006 at 9:52 AM | PERMALINK

Ron Byers: When the oil is gone, what will the people in the middle east do for a living?

The GOP tends to find places for those who've aided and abetted their political fortunes, whether directly or indirectly, but are on the outs with the general public because their actions in doing so were immoral, unethical, illegal, or outright depraved, so I expect there will be plenty of openings for the people of the middle east in the GOP, at least those who are terrorists.

The rest? Well, the GOP is not concerned about displaced workers, whether at home or abroad, so I expect they will suffer if GOP domination of American political offices continues, just like the American worker has suffered.

Posted by: Advocate for God on February 2, 2006 at 9:57 AM | PERMALINK

"When the oil is gone, what will the people in the middle east do for a living?" asked Ron Byers.

How about they build a lot of solar power plants and sell the electricity they generate? They could split water to make hydrogen and sell tankerloads of LH2 around the world. Lots of cheap land to build the plants, lots of sunlight, lots of access to seawater. Perfect.

Posted by: Robert Sneddon on February 2, 2006 at 10:00 AM | PERMALINK

Robert: How about they build a lot of solar power plants and sell the electricity they generate? They could split water to make hydrogen and sell tankerloads of LH2 around the world. Lots of cheap land to build the plants, lots of sunlight, lots of access to seawater. Perfect.

Until conservatives can devise a means to ensure that Big Energy gets a cut, look for the GOP to bomb any attempted construction of such facilities under the guise of protecting national security.

After all, hydrogen is a very effective explosive and if winnebagos can be considered WMDs, then so could hydrogen-generating plants.

Posted by: Advocate for God on February 2, 2006 at 10:34 AM | PERMALINK

I think Will Allen summed it up very well.

Posted by: Yancey Ward on February 2, 2006 at 11:06 AM | PERMALINK

As others have noted, the idea that the Saudis would sell their oil for less than the Canadians if they thought their markets were turning away from them is complete nonsense. There is one global price for oil that it is the same from every country. Now the cost of PRODUCTION is another thing entirely. It costs less to produce oil from the Middle East than elsewhere. As oil gets more expensive, it pays to invest in oil sources where the costs of production are higher, such as in the Canadian tar sands in Alberta or in deeper water in the Gulf of Mexico. Conversely, were oil to get cheaper, due to reduced demand, the effect would probably be to make us MORE dependent on the Middle East as it would no longer be profitable to produce oil in many alternate places. The Middle East will probably retain this cost advantage for the forseeable future. If the price of oil drops to $20, a whole host of production sites become unprofitable and they will be mothballed.

Thus the whole premise is ridiculous and misleading. The objective should be to DE-FUND the unstable regimes in the Middle East (and thus encourage them to reform) by reducing oil demand and getting the price down. The ONLY effective way to do that is to increase the gas tax. If there is no gas tax, as soon as the price of oil goes down, we'll go back to our gas-guzzling ways. In addition, if there is no global coordination, the chances of reducing demand enough to force down the price of oil will be minimal. India and China will soak up whatever demand the West cedes by conservation. Their economies are likely to overtake the US in oil consumption in the next few decades if present trends continue.

Posted by: BradtheDad on February 2, 2006 at 11:15 AM | PERMALINK

Hooray for a Gas Tax! (Or a carbon tax) How about a Gas Tax coupled with a federal rebate, to make it more palatable? Every car owner gets $200 rebate (or whatever) to offset the cost of the higher gas tax.

And/Or how about funding an auto insurance pool with proceeds from the gas tax? Then everyone gets lower auto insurance costs in return for higher gas taxes.

The key thing is to reduce the fixed costs of owning a car and increase the marginal cost of driving more miles (or burning more gas).

After all, we're addicted to oil. The president said it.

Posted by: Will on February 2, 2006 at 11:33 AM | PERMALINK

Will: After all, we're addicted to oil. The president said it.

And who would know more about addiction.

Posted by: Advocate for God on February 2, 2006 at 11:47 AM | PERMALINK

When the oil is gone, what will the people in the middle east do for a living?

The 25% unemployed will still be unemployed and the princes -- assuming the 75% who are princes invested well -- will still be sitting on cushions surrounded by 75 virgins peeling grapes.

Posted by: B on February 2, 2006 at 12:12 PM | PERMALINK
When the oil is gone, what will the people in the middle east do for a living?

At least before the 1990 invasion, and I think still to this day, Kuwait was more dependent on investments purchased with past oil revenues than current oil revenues (this was one of several major sources of tension contributing to the invasion, as the desire to keep the world economy humming along to fuel those investments was one of Kuwait's primary motives for pumping as much oil as it could get away with.)

While I think Kuwait was the farthest along in terms of freedom from immediate oil revenues of the gulf oil producers, I think trends in the same direction were fairly common among the "rich" gulf states, less so in the larger, poorer ones.

Posted by: cmdicely on February 2, 2006 at 2:10 PM | PERMALINK




 

 

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