Washington Post: Start Drilling

[twa]

Bottom line, there is no good reason why drilling in new areas should not be part of an ongoing search for a solution to dependence on foreign oil.

None.

Especially since you could fund that search for alt sources with proceeds from new exploration w/o a tax hike,instead we will give it to OPEC countries to use as they will...all the while whining about Big Oil.

[Thiebear]

So its agreed:

Investigate Big Oil

Investigate new oil locations

Continue new refineries

Continue hybrid/hydrogen/biodiesel

Lets knock 62% of our dependence off the top,

Tell Opec, thanks for playing, have fun with China.

[Midnight Judges]

Drilling off the coast of FLA would make the entire state one drunken tanker incident away from a ruined economy for a generation.

[JMS]

Roosevelt did it with Standard Oil

Yep Teddy Roosevelt did it with banking, oil, steal, and railroads. We need it done again 100 years later. Oil, insurance, pharmasuticals, Operationg system software, Wall Street, and Banking(credit cards/home morgages). All need to be either broken up, restructured or re-regulated.

[JMS]

Actually, first you have to prove their is a monopoly. Just because JMS says so doesn't make it so.

No you don't have to proove their is a monopoly. What you have to prove is that the companies left in the market nich after massive consolidation act as a monopoly and collude on price. Any first grader with a notebook can prove that by sitting in front of two gass stations and monitor how and when they raise prices.

Big oil will tell you that they raise prices in unisen because their prices at the pump reflects the global price of crude. But that's bunk. Their prices at the pump only reflect the global prices of crude when crude is going up. When Crude is going down, prices at the pump remain constant for weeks. Big oil will tell you it's because the oil cheaper oil reflected by the spot price on the market has not yet worked it's way through their system. Thus they used expensive oil to make the gas they are currently pumping.

They win either way. Since the local operator in this country no longer sets the prices of the gas he sells rather big oil does at the national level, they can get away with this.

There are legal obligations to proving monopoly before you can break them up, and I think you are going to have a hard time doing that with 4 companies (and yes there are 4), unless you can actually demonstrate collusion.

Well I guess I could start just by looking at the profits these guys have banked over the last six years. from 2001-2003 Profits for big oil doubled. In 2004 profits continued to go up. In 2005 Exxon Mobil made more profit than any business ever, 36 billion dollars. In 2006, 2007, they broke their 2005 record. They did this not by selling more product. They did this by selling less product and simple raising prices.

But your point is a good one... The laws need to be rewritten. Fact is the last time our country was run by trusts and monopolies in the 1880's - early 1900. This was the last time meaningful anti trust laws were written. Sherman Antitrust Act ( 1880 ) is still in effect today.

It's impossible for a 130 year old law to effectively regulate today's market.

[Thiebear]

No you don't have to proove their is a monopoly. What you have to prove is that the companies left in the market nich after massive consolidation act as a monopoly and collude on price.

Actually, first you have to prove their is a monopoly. Just because JMS says so doesn't make it so.

There are legal obligations to proving monopoly before you can break them up, and I think you are going to have a hard time doing that with 4 companies (and yes there are 4), unless you can actually demonstrate collusion.

I think he said the same thing...

[JMS]

So its agreed:

Not entirely agreed.

Investigate Big Oil

If you really think their is any question that an industry can double their profits while selling less product(2001-2003), and then increase their profits further in each of the next 4 years all the while selling less product reflects a compeditive market..

Ok I'll give you this one, I would say investigate the best way to introduce competition in the energy segment however. Competition between refineries. Competition between transport ( crude and gassoline) companies. Competiton at the pump for the consumer.

Competition and the free market is not the solution to all of our citizens needs. In health care for example it simple doesn't work. But retail goods is one place where the free market has no peer in providing superior price point and rewarding innovation.

Investigate new oil locations

There is no lack of oil capacity in the world today. Saudi arabia has actually decreased production 10% over the last two years, and they currently are sitting on 20% excess capacity as are other OPEC countries.

OPEC is a trust. A cartel which controls the global price of oil. No new source which we could bring on the market will have any significant effect on the price which they set.

Continue new refineries

The United States has not built a new refinery in more than 30 years. Big oild builds their refineries offshore because it gives them more freedom on price and production matters, and because their is no disadvantage in doing so.

Nobody else can build a refinery in the United States because today big oil controls the vast majority of the pumps.. ( 80% ) so no new independent refinery could compete and distribute their product.

The only way you can get new refineries in this country is to put restrictions on the import of gas, which would cause shortages; or do it as part of an over all restructuring of the industry.

Continue hybrid/hydrogen/biodiesel

Biodiesel is a joke. It costs more energy to create the biodiesel than it's worth, and using up food reserves in order to create fuel alternatives is causeing global famine.

hybrid's are also a joke, we just need to increase MPG. Hybrid automobiles don't provide better gas mileage than many standard automobiles. And hybrids have a pesky problem with battery replacement which can cost as much as 1/3rd of the car.

The Hybrid Toyota Prius for example has 45 mpg in 2008.

http://www.leighb.com/priusmpg.htm

The Ford Fiesta in 1979 got 45mpg combined and 60mpg highway. No hybrid technology.

http://uk.cars.yahoo.com/car-reviews/car-and-driving/ford-fiesta-range-1003291.html

The Volkswagon deisel Pola gets 72mpg today , no hybrid.

http://www.mobilemag.com/content/100/354/C8884/

The reason why folks buy hybrids today is because they get to drive in HOV lanes. It's all hype.

Lets knock 62% of our dependence off the top,

Tell Opec, thanks for playing, have fun with China.

I wouldn't do this reflexively. What we need is a real comprehensive energy policy. Rather than just continued reliance, being held captive by big oil and Opec.

We need to have a serious look at the costs of alternative fuels( not from food stuffs), alternative electricity ( nuclear, solar, oil shale, clean coal ). Their is an upper limit where oil just isn't economically sustainable. We will never realize that limit as long as we have a trust running the energy segment free from competition.

At the very least the government should research and determine at what amounts of money do other energy production techniques become viable.

The government should also establish competition in the market between some of these alternative energy producers and big oil, even if it means subsidies to get the competition up and running. Big oil should not be allowed to use their monopoly to crush competition, nor should it be allowed to control the new compeditors.

Conservation is also a great strategy. America enjoyed cheap oil from the Middle east from the late 1970's through 2000 because during the oil embargo's of the 1970's americans cut our oil imports in half. It took a decade for OPEC to recover. Conservation is a good stick to use here too.

[PeterMP]

Not entirely agreed.

If you really think their is any question that an industry can double their profits while selling less product, and then increase their profits further in each of the next 4 years refects a compeditive market.

JMS, there are two ways in which the market cannot be competitive:

1. Is the oil companies are colluding. That would be illegal

2. Is that oil demand far out exceeds supply that it is essentially inelastic so that (reasonable/allowable) decreases in demand don't cause reductions in price. To my knowledge, there is no law against selling an inellastic commodity.

If 2 is true, then they could easily do what you've described and breaking up the oil companies won't actually do you any good.

[twa]

Drilling off the coast of FLA would make the entire state one drunken tanker incident away from a ruined economy for a generation.

Tankers go thru the area already,not too mention China and Russia are drilling 50 miles from Key West,FL.

Do you think Russia or China are going to be environmentally conscious?

For shallow water they use pipelines anyway.

[JMS]

JMS, there are two ways in which the market cannot be competitive:

That is way over simplified. Pete big oil controls the entire life cycle of oil from the ground, to the consumer tank. They can creat spot shortages by manipulating the process in any number of ways. It's not illegal for example for big oil to decide arbitraily California will use 90% less gasoline this summer and have their refineries simple refine less gasoline for them.

1. Is the oil companies are colluding. That would be illegal

No it wouldn't be, not if the underlying cost of producing the gasoline is interdependent. At least that's the story the oil companies use when federal regulators observe they move in unison on price.

The fact is we have legally found companies in this country to be monopolies, even acting in a preditory manor and the federal governemnt has done nothing about it. Big oil has nothing to fear from government regulation under Bush/Cheney/McCain. Laizez Faire philosophy.

2. Is that oil demand far out exceeds supply that it is essentially inelastic so that (reasonable/allowable) decreases in demand don't cause reductions in price. To my knowledge, there is no law against selling an inellastic commodity.

Excellent point. Now what if the reason demand exceeds supply is because big oil controls supply? In 2001-2007 there was no shortage of crude. The shortage was in nich gasoline products. California for example requires additives, which Virgnia may not. So Shortages in California can drive costs up there while not in Virgina.

If oil demand was the issue, one would not expect oil companies profits to go up. Big oil has to purchase that oil after all. If crude prices go up as they are today, one would not expect Exxon to double profits. Profits go up when price go up independent of cost.

If 2 is true, then they could easily do what you've described and breaking up the oil companies won't actually do you any good.

The last meaningful anti trust legislation passed in this country was the Sherman act of 1880's. It is not "easy" to get a consencus on how that 19th century legislation can be used effectively to defend a 21st century economy.

[JMS]

Tankers go thru the area already,not too mention China and Russia are drilling 50 miles from Key West,FL.

Do you think Russia or China are going to be environmentally conscious?

For shallow water they use pipelines anyway.

Also many of the new refineries big oil has brought on line in the last 30 years are in the Carribean as well as central America. Which ships finished gasoline in Florida waters to American markets.

Example. The largest oil refinery in the United States is owned by Exxon/Mobil in Baytown, TX, and process 557,000 barrels per day. In St Croix the Hovensa refinery produces 495,000 barrels per day, and all of it's refined oil goes to the United States Market. In addition to St Croix, Aruba, Neitherlands Antillies, Dominican Republic, Trinadad Tobago, and Jamaca all have refineries all built in the last 30 years by American companies.

As for dangers to Florida. Currently as of 2006, those dangers from drilling are from Cuba which has with the help of Hugo Chavez in Venezualla jumpstarted their own oil industry using nationalized Exxon refineries from the late 1950's modernized with Hugo's help.

http://www.usatoday.com/money/world/2007-02-22-cuba-usat_x.htm

[#98QBKiller]

So its agreed:

Investigate Big Oil

Investigate new oil locations

Continue new refineries

Continue hybrid/hydrogen/biodiesel

Lets knock 62% of our dependence off the top,

Tell Opec, thanks for playing, have fun with China.

Yes, that sums it up in a nutshell.

[zoony]

i don't see why you can't blame the government... since oil was discovered people were saying it was too valuable to use as fuel...

truth of the matter is this wouldn't have been a problem if people had electric cars. hell california had the infrastructure in place for electric cars... too bad, the automotive companies wouldn't renew the leases on any of the cars.

ah well, i guess this really boils down to when reagan decided that oil was the future of our country and took down those silly solar panels carter put up on the white house. its always refreshing too watch that speech on oil is good as they took down those "eye sores"

Solar technology was abandoned because it was extremely inefficient. It's recently made a comeback because of some new more efficient cell designs, but it was a terrible sell to the American public back in the day.

As for electricity, most of it is generated by coal, so I'm not sure that buys us anything. Folks don't seem to like the idea of nuclear reactors in their back yards.

[#98QBKiller]

Solar technology was abandoned because it was extremely inefficient. It's recently made a comeback because of some new more efficient cell designs, but it was a terrible sell to the American public back in the day.

As for electricity, most of it is generated by coal, so I'm not sure that buys us anything. Folks don't seem to like the idea of nuclear reactors in their back yards.

This is a good thread and I've read every single post in it so far, so I'm not trying to hijack...but what are you doing in Belgium?

[JMS]

If oil is inelastic does it matter how much competition you have. Isn't the definition of an inelastic commodity that demand is flat vs. price?

I think the definition of an inelastic commodity is not that prices go up when inventory goes down. I think an inelastic commodity is defined as when prices go up there is a significant percentage of the market which has no choice but to pay the increase rather than reducing their use of the product.

Inelastic commodieties are determined by

1. There is not subste for it.
   
2. Quality is not a variable.. ( when prices go up a cheaper or lower quality product can't drive prices back down.)
   
3. There is a need for the product which is independnet of price, Oil/Gas for example is the life blood of the economy; and even when the cost goes from 1.25$ per gallon in 2000, to a projected $7.00 a gallon in 2009 there is a large perentage of the market which will pay the $7.00 because their is no alternative.
   

If that's the case, then what does it matter if there is 1 company or 100?

Inelastic commodities are not the explaination of what is occuring in the marketplace. From 2001-2007 crude oil prices were not the driving factor in rising costs at the pump. A lack of refinered product was. Gasoline is also an inelastic commodity, but that doesn't mean the supply can't be manipulated by the folks who control the refineries.

Even today a lack of crude oil production is not the reason oil prices are rising. Saudi arabia has actually cut oil production over the last two years and is sitting on 20% excess capacity.

I guess if you have more companies there are greater odds that one will be benevolent and say that they don't need to be making that much money and out of good will they will charge less, but that has nothing to do with supply and demand and will probably be balanced by companies that figure they can (and they will be able to do) really gouge people and hike up the prices.

The way a free market works is nothing to do with benevolence. It has to do with excess capacity and competition for survival as compeditors try to rid themselves of their excess capacity. Rewarding innovation and who can bring the product to market cheapest; rather than who can more effectively manipulate the marketplace.

I'll agree oil is inelastic, but that actually hurts the arguement for monopolies.

It's actually unrealated to the argument for monopolies.

The question then becomes, why did companies selling an inelastic commodity decide to actually use that inelasticity to their advantage and hike up their prices (unless you believe oil just became inelastic, which I don't)?

oil has always been inelastic.

The reason oil companies decided to hike up their prices is simple. Cause it would lead to record profits.

The question is what became of the competition which would have punished a company a decade ago for hiking up prices independent of production costs.

I'll tell you what happenned to them. They were consolidated. Exxon didn't open up 12 gas stations in Reston where I live. four within two miles of my home. Most of those gas stations used to bellong to compeditors, now they all belong and are controlled by Exon/Mobile.

[zoony]

This is a good thread and I've read every single post in it so far, so I'm not trying to hijack...but what are you doing in Belgium?

eh, just wanted to go there. I'll probably hit Quatar tomorrow. Maybe Hungary. We'll see.

[Sarge]

eh, just wanted to go there. I'll probably hit Quatar tomorrow. Maybe Hungary. We'll see.

Highly recommend Hungary

[PeterMP]

I think the definition of an inelastic commodity is not that prices go up when inventory goes down. I think an inelastic commodity is defined as when prices go up there is a significant percentage of the market which has no choice but to pay the increase rather than reducing their use of the product.

Inelastic commodieties are determined by

1. There is not subste for it.
   
2. Quality is not a variable.. ( when prices go up a cheaper or lower quality product can't drive prices back down.)
   
3. There is a need for the product which is independnet of price, Oil/Gas for example is the life blood of the economy; and even when the cost goes from 1.25$ per gallon in 2000, to a projected $7.00 a gallon in 2009 there is a large perentage of the market which will pay the $7.00 because their is no alternative.
   

Inelastic commodities are not an explaination of what is occuring in the marketplace. From 2001-2007 crude oil prices were not the driving factor in rising costs at the pump. A lax of refinery capacity was.

Even today a lack of crude oil production is not the reason oil prices are rising. Saudi arabia has actually cut oil production over the last two years and is sitting on 20% excess capacity.

The way a free market works is nothing to do with benevolence. It has to do with excess capacity and competition for survival. Rewarding innovation and who can bring the product to market cheapes; rather than who can more effectively manipulate the marketplace.

It's actually unrealated to the argument for monopolies.

oil has always been inelastic.

The reason oil companies decided to hike up their prices is simple. Cause it would lead to record profits.

The question is what became of the competition which would have punished a company a decade ago for hiking up prices independent of production costs.

I'll tell you what happenned to them. They were consolidated.

1. Oil hasn't always been inelastic. Prior to the automobile oil was not inelastic.

2. Assuming you actually believe this:

"1. There is a need for the product which is independnet of price, Oil/Gas for example is the life blood of the economy; and even when the cost goes from 1.25$ per gallon in 2000, to a projected $7.00 a gallon in 2009 there is a large perentage of the market which will pay the $7.00 because their is no alternative."

If there is a need for a product independent of price, you does competition drive it down?

If the need for my product is independent of price, then no matter what I charge and no matter what my "competition" charges, then the need is still independent of price and no matter what I charge vs. my competition, I will still sell all of my product.

[Corcaigh]

eh, just wanted to go there. I'll probably hit Quatar tomorrow. Maybe Hungary. We'll see.

The art and culture attracted him.

Belgium's most famous statue and a national symbol:

[JMS]

eh, just wanted to go there. I'll probably hit Quatar tomorrow. Maybe Hungary. We'll see.

You aren't in Belgium, your in Holland getting your smoke on and your rocks off.

Quatar or Hungary. Not really related are they? Do you have a free airline ticket or something? Doesn't Quatar require a Visa?

Quatar loves Americans.

[JMS]

1. Oil hasn't always been inelastic. Prior to the automobile oil was not inelastic.

You got me there. I should have said Oil/Gasoline did not become inelastic in 2001 when Bush took office and prices began to rise after 20 years of moderate increases.

If there is a need for a product independent of price, you (how) does competition drive it down?

Because need isn't what set's the price in the presence of competition. The price is set by the competition of multiple independent operators all competing against each other to provide the commodity at the lowest price. The market then rewards the lowest cost, most effcient compeditor with more market share and more profits.

The only way a company or industry can get away with dramatically increasing their prices if there is no competition to drive competition down. If the commodity is inelastic if just ensures the anti compeditive practice will be profitable because consumers will have no choice but to pay the inflated cost.

If the need for my product is independent of price, then no matter what I charge and no matter what my "competition" charges, then the need is still independent of price and no matter what I charge vs. my competition, I will still sell all of my product.

Again only if there is no excess capacity and thus no competition. If Exxon raises their prices and Starndard oil doesn't. People won't reward Exxon with business and rather will favor standard oil. Problem is of coarse since the mid 1990's the patrolium industry has had (*)2600 mergers. What's left doesn't compete, it dictates..

"A May 2004 report by the General Accounting Office found that over 2,600 mergers have occurred in the U.S. petroleum industry since the mid-1990s, with most of these occurring later in the period. The GAO reported that these mergers have led to a substantial increase in market concentration in the oil industry, a reduction in the availability of lower priced "generic" gasoline compared to "branded gasoline, and in refiners preferring to deal with large distributors and retailers, leading to further market concentration in those businesses.

http://www.house.gov/list/press/nj06_pallone/pr_jun16_oilprices.html

Here is the GAO report which says consolitdations have had a negative impact on the consumer costs in 2004. Nothing was done. This is before the record profit years of 2005, 2006, and 2007.

http://64.233.169.104/search?q=cache:6uh1jZY16JcJ:www.gao.gov/new.items/d04951t.pdf+%22General+Accounting+Office%22+%22May+2004%22+%22Effects+of+Mergers+and+Market+%22&hl=en&ct=clnk&cd=1&gl=us

literature also suggests that firms sometimes merge to enhance their ability to control prices

Anecdotal evidence suggests that mergers also have changed other factors affecting competition, such as firms’ ability to enter the market

Two major changes have occurred in U.S. gasoline marketing related to

mergers, according to industry officials. First, the availability of generic

gasoline, which is generally priced lower than branded gasoline, has

decreased substantially. Second, refiners now prefer to deal with large

distributors and retailers, which has motivated further consolidation in

distributor and retail markets

[zoony]

You aren't in Belgium, your in Holland getting your smoke on and your rocks off.

Quatar or Hungary. Not really related are they? Do you have a free airline ticket or something? Doesn't Quatar require a Visa?

Quatar loves Americans.

I finally decided on Latvia.

[zoony]

The art and culture attracted him.

Belgium's most famous statue and a national symbol:

I've actually seen that. I'm trying to remember the name of the city... Ghent iirc.

I did a semester in Antwerp. Belgium is one of my favorite countries (at least the flemish side)

[JMS]

I finally decided on Latvia.

Latvia is hell. I wouldn't go if I were you. It's a country populated by beutiful blonde chicks who all smoke like chimneys. It's just not right.

[twa]

The question is what became of the competition which would have punished a company a decade ago for hiking up prices independent of production costs.

I'll tell you what happenned to them. They were consolidated. Exxon didn't open up 12 gas stations in Reston where I live. four within two miles of my home. Most of those gas stations used to bellong to compeditors, now they all belong and are controlled by Exon/Mobile.

The competition died a horrible death during the oil bust and the years after because of staggering debt and was consolidated or bought out.

There was many a millionaire that lost his shirt while ya'll enjoyed 1.50 or less gas,now we have declining domestic sources and NOC's to deal with(that have attained large shares in what 'used' to be domestic oil companies) and they insist on a tidy profit...and since the NOC's control most oil reserves and the US will not expand they will get it.

Of course you may invest a few billion of your own and get in on the game.

In fact I happen to own a old gas station...Want to buy it?