Slick oil move by Obama

Slick oil move by Obama
By Julian Delasantellis

At 98 years old, Fenway Park in Boston is the oldest baseball stadium in America, and attending a game from this storied venue is one of the true pleasures of the sport.

Part of the iconography must be the experience of the so-called "Citgo" sign, an 18 by 18 meter 1960s' pop-art inspired light display featuring the trademark red triangle logo of the old Cities Service Petroleum Co on a roof outside the park, but visible inside it. Indeed, its visibility from most of the greater Boston area makes it one of the most recognizable features on the city skyline.

But recently, adult politics have invaded the playground. Between 1986 and 1990, Citgo was taken over by Venezuela's state-owned oil company, Petroleos de Venezuela. The 1999 assumption to






the Venezuelan presidency power by socialist Hugo Chavez, the man many Americans have nominated as the nation's foremost boogeyman, inevitably made Citgo's connection with the all-American pastime problematical. In 2006, after Chavez publicly compared a speech to the UN General Assembly by president George W Bush with an appearance by the devil, Boston city councilor Jerry McDermott called for the Citgo sign to be dismantled.

"Given the hatred of the United States displayed by dictator Hugo Chavez, it would be more fitting to see an American flag when you drive through Kenmore Square," McDermott said. "I think people would soon forget the Citgo sign."

This type of thinking betrays a fundamental misunderstanding of how the world oil markets in general, and Venezuela's one million barrels a day of exports to the US, really work. They are not like one million individual Venezuelan soldiers, or a million, dreamy-eyed, cigar-chomping Che Guevaras, set to storm the Boston beaches, slay the capitalists there and bed their daughters.

Nor should the United States' 50 million barrels of oil daily production be seen as so many farm-fed Nebraska boys marching forth to conquer the world on behalf of the Stars and Stripes. To an extent never before seen in history, the world has created in the modern oil market a multinational world power not beholden to any individual nation state or people, and the sooner that US citizens realize this the better they will understand the new challenges facing them.

Boxing great Muhammad Ali used to take pride in his ability to "float like a butterfly, sting like a bee". This is what President Barack Obama did last week. After successfully tacking left to get his health plan passed, he tacked hard right, and in doing so violated an explicit campaign pledge from 2008, by allowing some oil exploration and drilling in about 69 million hectares in previously protected areas of the North American Outer Continental Shelf. Whether anybody actually got stung - besides the president himself - in all this will be an important question in the months to come.

It was in 1973 that Americans were forced to come to terms with one of the more unfortunate aspects, for consumers anyway, of the world commodity markets - the fact that, in most cases, the producers of the commodities get to set their selling price. This was made quite evident when Arab oil-producing countries, members of the Organization of the Petroleum Exporting Countries (OPEC) imposed an embargo at the time of the 1973 Yom Kippur war in the Middle East.

In the 48 years hence, the US has seen oil become a contributing causus belli in at least two of its wars, and a good number of its economic downturns as well. Still, like most serious problems in a nation with an irretrievably fractured public polity, little or nothing was or is being done about it. The United States, with imports now at just around 50% of its crude oil needs, preferred the policy equivalent of attending another Chuck Norris movie about terrorism rather than actually doing something about the basic socioeconomic problems framing the dilemma.

It's almost as if America suffers from a bizarre variant of Tourette's syndrome; it hears the word "communism" every time the word "conservation" is spoken. If it's not going go use less - say, through using lighter sports-utility vehicles or smaller-engined cars - it has to find more, but not in those nasty foreign countries where people carry bombs in their smelly feet or have a thing for explosive underwear. Technology rules again, and the word is made oil - all that needs to be done is to wave the magic wand, chant the magical spell, "drill baby, dill", and, suddenly, the nation's shores froth with boiling tides of the black stuff.

Like most everything else currently existent in American society, this fantasy dates back to the fractious 1960s. That was when the accumulated prosperity of the post-war era coincided with a number of high-profile accidents, notably the 1969 Santa Barbara, California, oil spill and the 1989 wreck of the Exxon Valdez oil tanker. These incidents led to strict bans on new oil company operations, particularly exploring and drilling for new oil on public lands and offshore.

As time passed, the perspective turned. The continued skewering of economic growth and economic riches towards upper-income levels meant that, for the middle classes, political issues were becoming more an issue of their own survival than that of the offshore ecosystem.

As the economy began to stumble under the weight of the credit crisis in 2006 and 2007, US Republicans realized that they had a critical problem on their hands - who to blame it on. From 2002 on, they had been in control of both the presidency and both houses of congress; they feared that, if the public came to look for scalps as payback for their ever-darkening predicament, they'd sure know who to look for.

But as Frank Luntz, an American political consultant and Fox News Channel commentator, focus grouped and push-polled for dear life, they discovered something remarkable. Average Americans, of all political stripes and persuasions, reacted very positively to an entreaty that the country had a virtually unending supply of "their" oil just waiting to be lovingly spooned over the country's extravagant consumption. All the nation had to do was to repeal oil restrictions, open the offshore fields for exploration - and so also the country's citizens could foreswear any necessity to continue shoehorning themselves into the neighboring space left by the hulk of a construction worker on the local minibus or carpool.

The Republicans' recent political platforms demonstrate just how quickly they were able to retask their big guns. In 2004, the section of the Republican Party Platform devoted to energy was solely devoted to opposition to the Kyoto global warming accords.
Republicans are committed to meeting the challenge of long-term global climate change by relying on markets and new technologies to improve energy efficiency. These efforts will help reduce emissions over time while allowing the economy to grow. Our president and our party strongly oppose the Kyoto Protocol and similar mandatory carbon emissions controls that harm economic growth and destroy American jobs.
But by the summer of 2008, with retail gasoline prices above US$4 per gallon in most of the country, the guns were firing away and zeroed in on the new target:
All Americans are acutely aware of the energy crisis our nation faces. Energy costs are spiraling upward, food prices continue to rise, and as a result, our entire economy suffers. This winter, families will spend for heat what they could have saved for college, and small businesses will spend for fuel what could have covered employee health insurance.

Our current dependence on foreign fossil fuels threatens both our national security and our economy and could also force drastic changes in the way we live. The ongoing transfer of Americans' wealth to OPEC - roughly $700 billion a year - helps underwrite terrorists' operations and creates little incentive for repressive regimes to accept democracy, whether in the Middle East or Latin America.

It didn't have to be this way, and it must not stay this way. Our nation must have a robust energy supply because energy drives prosperity and increases opportunity for every American. We reject the idea that America cannot overcome its energy challenges - or that high gasoline prices are okay, as long as they are phased in gradually. We reject half-measures and believe "No, we can't" is not a viable energy policy. Together we can build a future around domestic energy sources that are diverse, reliable, and cleaner. We can strengthen our national security, create a pathway to growing prosperity, and preserve our environment. The American people will rise to this challenge. We must aggressively increase our nation's energy supply, in an environmentally responsible way, and do so through a comprehensive strategy that meets both short and long term needs.

No amount of wishing or hoping can suspend the laws of supply and demand. Leading economists agree that any actions that will increase future energy supplies will lead to lower energy prices today. Increasing our production of American-made energy and reducing our excessive reliance on foreign oil will: bring down the high cost of gasoline and diesel fuel, create more jobs for American workers, enhance our national security.

In the long run, American production should move to zero-emission sources, and our nation's fossil fuel resources are the bridge to that emissions-free future. ... If we are to have the resources we need to achieve energy independence, we simply must draw more American oil from American soil. We support accelerated exploration, drilling and development in America, from new oilfields off the nation's coasts to onshore fields such as those in Montana, North Dakota, and Alaska. The Green River Basin in Colorado, Utah, and Wyoming offers recoverable shale oil that is ready for development, and most of it is on federal lands. ... Any legislation to increase domestic exploration, drilling and production must minimize any protracted legal challenges that could unreasonably delay or even preclude actual production. We oppose any efforts that would permanently block access to the coastal plain of the Arctic National Wildlife Refuge.


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Slick oil move by Obama
By Julian Delasantellis

Since so much of the US environmental movement had been reliable Democratic votes for so long, this was, at its most basic level, a continuation of the Republicans' post-Vietnam "punch-a-hippie" strategy, seen so often previously working successfully in matters of national security, crime and urban affairs, drug use, homosexuality and others. As usual, the issue was whether the tactic was as promising a long-term public policy strategy as it was a short-term political tactic.

Two issues are at the base of this dispute - is the oil there, and just who is it there for?

According to a February 2009 study by the American Energy






Alliance, an oil industry funded organization, it sure is down there.
The OCS [outer continental shelf] contains significant energy resources - approximately 86 billion barrels of recoverable oil and 420 trillion cubic feet of recoverable natural gas, according to government reports. However, federal researchers noted that these estimates are conservative.
Well, maybe they are, and maybe they're not - that's the thing about hidden reserves - that they are, indeed, hidden. No electric needle on the dashboard will ever flash "empty", and there's no oil tank dipstick that will ever be brought up dry.

Over the past few years, the question of just how much oil lies there under the feet of the human race has powered a powerful international debate, on the Internet and in just about every college geology and economics department on the planet. One side, generally called the "peak oil" believers, says that most of the world's oil that has ever been available to be found has already been found, and the rest is being drawn down quickly. From these people's blog at www.theoildrum.com, they argue for rapid investment by the industrial world in non-carbon, renewable, "green" energy technologies.

The other side counters that you can't know the supply of oil without knowing its demand; as with most traded commodities, the supply of oil is heavily dependent on the price it is being sold for.

From the beginning of the petroleum age in the US state of Pennsylvania in the late 1800s up until today, critics have always been warning about a prospective near-term exhaustion of the oil supply.

They would have been right, too - had the price been a static, fixed measurement rather than one that was dynamic and highly flexible. For the last half of the 18th century, oil hovered at around $2 per barrel, then spiked up with the wide acceptance of the automobile. At $2, a barrel of oil would have been gone long ago, but oil at $200 per barrel, where it was headed before the 2008 crash and where it still might be headed now after a few years' delay, makes the oil shale rich provinces of Western Canada, Alberta and Saskatchewan more prosperous than the Arabian peninsula.

The "drill baby drill" crowd in the USA doesn't seem to realize this. The folk who undoubtedly do recognize this are working at the world's oil companies.

So what happens when the government "opens up" new offshore areas for development? As a result of the president's new announcement, the Materials Management Service (MMS) of the US Department of the Interior will in a few months section off the new areas to be explored into individual oil exploration and drilling leases, to be bid on by the major oil production and exploration companies.

Then, supposedly, the magic begins; according to former Republican Party vice presidential candidate and Alaska governor Sarah Palin on her Facebook page, "It's no surprise that an overwhelming majority of Americans support offshore drilling: it will provide millions of good jobs and billions in revenue, and it will make us more secure by reducing our dependence on foreign oil."
All over the American West tens of thousands of former government oil properties, now leased to oil companies but, instead of producing gushers, are now idly lying barren, frequently capped, unused and fallow. A 2004 study of land-based oil leases found that three quarters were being unused.

What possible reason could companies who say they're in the business of bringing oil to the market have for not doing so? One thing that an unused lease allows an oil company to do is to claim it as a future asset on their balance sheet, potentially able to be borrowed against if necessary or desired.

But it is the other major reason for unused oil leases that goes to the heart of how Americans basically misunderstand just what oil companies are.

It's not as if the country doesn't know that it has an energy problem, what with fill-up costs that rival small families' weekly food bills and with shopping malls and vacation resorts closing as people can't afford to drive to them. And, perhaps most painfully, with young American men and women falling by the thousands in foreign wars considered to be at least partially due to the nation's need to gain guaranteed access over secure petroleum supplies, obviously there's a major problem.

But what about this great new solution? "We" have oil off our coasts; let's just ask and task "our" American oil companies, like Chevron, Exxon/Mobile, or Shell, to go find it and get it; after all, they want to be patriotic just like everybody else, just like in their ads, right?

The fact is that these are all international-based companies in the service of advancing the interests of their owners, international-based coteries of shareholders - not guys working on their pickup trucks at one or two rusting filling stations deep in the Appalachian backwoods.

The oil companies could bring it out of the ground for those guys, but then, as all their economists tell them, the oil won't then be there for sale, at significant multiples of today's prices, to what they all feel will be the two- or three-car households one or two decades hence in India, China, and the rest of today's rapidly developing, once less-industrialized, world.

No, it's better to whine about environmental regulations (or punch a few hippies), spread some, or more likely a lot, of campaign cash around, but keep those new wells tightly capped. No matter how many contributions the local oil company-owned gas station makes for upkeep of the city's Little League field, or how many public-service announcements are put on TV showing oil company workers hugging ducks, these are the real truths behind the folly of the fantasies of jingoistic anthropomorphism of oil barrels.

Candidate Obama recognized this problem when he called for oil leases to be awarded on a "use them or lose them" basis; but, in another example of his policies being vanquished in office by the powerful interests he opposed while campaigning, nothing has been heard of "use them or lose them" since, including with the most recent initiative.

Meanwhile, on the New York commodity exchanges where oil is traded, oil for future delivery, in this case for delivery in December 2018, is priced at more than $9 over the current contract, a fairly uncommon commodity future market situation called a contango; presumably, the market feels that the oil companies will be more likely to let the oil go then, in the future, at that higher price, than today.

And if Sarah Palin does feel it necessary to have a Facebook page, shouldn't the rules of truth in advertising demand that she place the oil companies as her Number 1 friend on her Facebook Friends Wall?

Julian Delasantellis is a management consultant, private investor and educator in international business in the US state of Washington. He can be reached at juliandelasantellis@yahoo.com.



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