Howell Raines deserves a prize for stupid partisan pontificating on energy issues:
Crude Reporting- Howell Raines
July 2008
If journalists aren't asking the right questions about prices at the pump, then who is?
The cover of a recent BusinessWeek about the runup in oil and gasoline prices framed the question of what’s causing it nicely: “Speculation or Manipulation?” But the story was maddeningly evenhanded.
[ What a thing to complain about! Damned objective business journalists! ]
By dodging its own question, the magazine raised another.
When it comes to the cost of gasoline, who should we believe? Here are some nominees and their viewpoints:
1. The oil companies: It’s supply and demand at its most basic, just like your professor outlined in your freshman economics course.
2. The petro-toadies in Congress: All we have to do is open up the Arctic National Wildlife Refuge and the waters off Florida and California.
3. The Department of Energy: OPEC has to pump more, and we’ve got to allow more refineries by rolling back environmental restrictions.
4. King Abdullah: OPEC pumps plenty of crude but “despicable” oil-futures speculators in the West are driving up the prices due to their “selfishness.”
5. Senator John McCain: Exxon Mobil has done such a good job of demonstrating the magic of the marketplace that it deserves another $1.2 billion in tax breaks.
[ When has John McCain said this? Well, he hasn't but he's running against The One, so Raines isn't going to miss an opportunity to lie about him. ]
6. Senator Barack Obama: Impose a windfall-profits tax to remind American oil executives that price gouging can backfire politically.
[ Government investigators have probed charges of price gouging numerous times over the years and each time found the charges unfounded. But its a myth liberals can't give up. Along with the myth that the cure for everything is more taxes. ]
7. About 90 percent of the print and TV reporters in America: See No. 1. It really is that ol’ devil supply and demand.
[ Liberal journalists "know" that supply and demand are just conservative myths. ]
8. The White House: Never mind. Nobody’s home.
For my money, a sounder answer as to whom to believe is Don Barlett and Jim Steele, the investigative reporting team that has won two Pulitzers and two National Magazine Awards for exposing government theft and corporate greed.
[ One liberal press dinosaur praising two other liberal press dinosaurs. Figures. ]
Their 2003 series for Time magazine on oil economics remains required reading for anyone who wants a better understanding of how gas at $4 to $5 a gallon represents a carefully arranged screwing of consumers.
[ No, it doesn't. I just bothered to read through that 2003 article.
time.com
It was entitled " Why U.S. Is Running Out of Gas". And the eminent natural gas shortage that Alan Greenspan was warning about at the time was the theme. The article continued nothing on oil or gas economics. It did explore the governments fruitless efforts to develop various national energy policies over past decades but to repeat, contained nothing on oil economics per se. It pointedly did not include the quote below: ]
“The bottom line for the oil people is, How much can I make while spending the least I can get by with on refineries, synthetic fuels, and for exploration and drilling on the vast, unused acreage in existing oil leases?” Barlett says.
[ That's right. That quote is NOT in the cited article. I copied it into Word and did a search to verify that. ]
He notes that Canada has become the United States’ No. 1 oil supplier by funding joint government-¬industry exploration of the tar-sand fields of Alberta. “The most chilling statistic is Exxon Mobil’s. It spent twice as much last year to buy back stock as it did on exploration.” As for shallow journalism that helps Big Oil, Steele makes the point that the newsrooms that were once staffed by the redistributionist children of the New Deal and the A.F.L.-C.I.O. are now populated with the children of Reaganomics: “Younger reporters come out of a mind-set that the market rules, taxes are evil, and government ought to let these people in the oil industry go about their business.”
[ Those quotes aren't in the 2003 article either. Bartlett and Steele may well have said such things in a phone call or email to Raines recently, but they certainly DID NOT write those words in 2003.
The point is Raines makes is disturbing. He thinks the press isn't doing enough to sell socialism to the people like in the good old days. Journalists jobs are to promote redistributionist policies in his opinion. This verifies exactly what consevatives have been saying about liberal papers like the NY Times, where Raines was the editor for two years before resigning in disgrace after the Jayson Blair fake quotation scandal. ]
As journalism has passed from a hungry to an elite profession, there’s no shock value in the fact that Exxon Mobil paid only $5 billion in U.S. income taxes last year while it paid $25 billion to foreign governments.
[ Since they make the vast majority of their profits overseas that shouldn't be surprising or shocking. ]
Even with Exxon Mobil making $76,000 a minute, the last thing that occurs to many assignment editors and reporters is to investigate whether a windfall-profits tax would drive Exxon Mobil, BP, and other oil companies to invest in the alternative-energy strategies they boast about in their television commercials.
[ Why should that occur to them? Don't we have a free economy with companies free to invest or not in what they think is best? Why shouldn't reporters recognize that government command economies have a long history of failure? Does Raines think the governments wise enough to tell companies what they should invest in and should they tax all their money away if they don't follow the government's command investment decisions? And wouldn't leftists like Raines who hates the oil companies anyway, view their "control" of alternative energy as a scandalous problem if they were the major investors in it. ]
Then there’s the problem of letting general-assignment reporters, rather than energy specialists, cover gasoline prices mainly as a story of consumer suffering. About 40 percent of U.S. oil is produced domestically, and Washington has declined to regulate auto fuel as an essential commodity. That’s where the vertical integration of a giant like Exxon Mobil creates market leverage. It owns oil fields, processing plants, and retail outlets, creating some monopoly-like advantages in controlling supply and fixing prices in the U.S. market.
[ How does vertigal integration create any monopoly price-fixing control? It doesn't. ]
Then there is the remarkable job that the oil companies have done in persuading network-TV anchors and correspondents to depict them as they want to be seen: powerless victims of a supply-and-demand cycle that is as immutable as gravity and as random as lightning.
[ And what if that is the truth? There's no evidence that any oil companies can control the price. There is in fact contrary real world evidence they don't, though. Take for example, the fact that the price of oil has crashed several times of the over the past couple decades. Wouldn't the oil companies have prevented this if they had monopoly price-fixing control and weren't subject to supply and demand as Raines asserts? ]
Congress, responding to demands for tougher laws on oil speculation, would prefer to blame environmental regulations. Much of the context-free reporting about what the executives say, in Congress and on television, is marked by breathtaking gullibility.
Speaking of television, no one of any age can doubt that the industry’s star performer in the public relations battle over gasoline prices is Rex Tillerson, chairman and C.E.O. of Exxon Mobil. His appearances on the Today show have become five-minute promos for price escalation, with Matt Lauer cast as the surrogate for a nation of consumers who don’t fully understand their role—helpless and sacrificial—while the company maximizes shareholder value, “our reason for being.”
This is a “demand-driven price runup, no question about it,” Tillerson drawls, fingers intertwined and as fidget-free as Chance the Gardener. Lauer gamely zeroes in on Exxon Mobil’s dirty secret—that it spends only 5.3 percent of revenue on exploration at a time of record revenue. “If you’re making $400 billion a year, should consumers expect you to pay or spend even more on exploration?” Lauer asks.
The unflappable Tillerson describes this modest expenditure as “very, very robust.” He adds, with apparent conviction, “We would do more if we could gain access to more areas.” In other words, give us ANWR, then we can talk price at the pump.
[ And he has a good point. Precisely where would Raines like Tillerson's company to spend more money on exploration? For some reason, Raines doesn't prove Tillerson wrong by telling us where his company could be investing more money. All he can say is not in ANWR. Also, he surely knows, not offshore 85% of the US, not in Mexico, not in Venezuela, not in Saudi Arabia, not in Kuwait, not in Iraq, not in Iran, not in Russia - fact is about 90% of the world's reserves are off limits for companies like Tillerson's and are monopolized by national oil companies like Saudi Aramco and Gazprom. ]
In fact, no unbiased expert claims that exploiting the fields in the Alaskan wilderness would cause more than a bump in world supply or prices in the U.S.? By the way, Tillerson observes, the industry needs more refineries too.
[ Actually there are no experts that can tell what the addition of any unknown supply amount will do to prices. ]
Lauer, charmingly outpointed at every turn, finally blurts, “Mr. Tillerson, you’re always nice with your time.”
“My pleasure, Matt,” the oil king rumbles, not a hair out of place on his salt-and-pepper corporate coif.
And it was, no doubt, a pleasure for him to slip out of Rockefeller Center, built with Standard Oil dollars accrued in an earlier era of rapacious pricing, without addressing the oil-company claims that are most easily disproved by that old-fashioned journalistic method called reporting. The plain truth is that the record profits cited by Lauer—$10.9 billion in the first quarter of this year for Exxon Mobil—reflect an industrywide decision to flow revenue directly to the bottom line rather than to capital expenditure.
[ Sorry, capital expenditures don't appear on the income statement and don't reduce net income (aka "the bottom line"). Apparently a knowledge of basic accounting rules is not needed to "report" in Raines's journalistic world. ]
To buy Tillerson’s story, you’d have to believe that profit is an accident, when it is, irrefutably, the result of a company strategy tailored to this unique moment of opportunity.
[ No one thinks that profits are an accident. People generally think his the profits his companies have booked recently are a result of investment decisions made over past decades. ]
Oil executives generally believe in an updated version of the peak-oil theory, introduced in 1956 by geologist M. King Hubbert. It posits that because of oil-field depletion and the expense of production, American-oil-industry output will reach a maximum level and then start to decline. An updated version of Hubbert’s bell curve—which factors in the number of wells being drilled and refinery capacity—sets the year that the peak will be reached at 2020. If you’re getting a prime price for a product that will be harder to acquire in a few years and less valuable due to competition from other fuels, the smart play, obviously, is to divert every penny into profit while the Black Gold Casino is still open.
[ The peak oil theory doesn't claim oil is going to be less valuable in the future. .Those who understand supply and demand realize that if production declines in the future as the theory predicts that will tend to push future prices up, not down. But Raines isn't strong on that capitalist myth called supply and demand.
To confuse the press and public, you set up several straw men to take the blame for the supply shortage that you’ve seen coming for a half-century: refinery capacity, environmental legislation, and the imaginary supply potential in undrilled portions of the continental shelf and ANWR.
[ Now Raines admits there is a supply shortage, but denies that environmental legislation and leasing bans could have anything to do with it. ]
But let’s look at the Cheneyesque fantasy that drilling in ANWR is a major national-security priority that would make us less dependent on foreign oil. The fact is, the Trans-Alaska pipeline that is supposed to bring us that new ANWR oil probably couldn’t handle it right now because lack of maintenance has left it in bad shape. (Business Journalism 101: You can reinvest revenue in infrastructure or pull the money out as profit.)
[ Actually, since Prudhoe Bay production is in decline, the Trans-Alaska pipeline could handle more volume that it is handling now. It has in the past. Does Raines really believe the oil companies are asking for the right to spend a lot of money drilling in ANWR without a way to get the oil to market? ]
Plus, there’s not enough Alaskan oil to affect price.
[ He doesn't know this. He hasn't been willing to even acknowledge that supply and demand affects price in the first place. Now he's arguing supply can affect price, but he knows how much is in ANWR but its not enough. ]
It would be gone in a few months if we could pump it at maximum capacity.
[ We can't pump any oil field dry in months. ]
From a national-security standpoint, the smart thing would be to leave it in the ground for use in case of some future civilization-threatening cataclysm.
[ It would be smart to leave it there till Prudhoe Bay and the pipeline are shut down? Then we'd have to build an entire new pipeline to ANWR in the event of that civilization-threatening cataclysm.
Besides the "let's leave it in the ground" argument for future generations conflicts with his earlier claim that oil will be worth less, and possibly worthless, within a few decades.
And if the "leave it in the ground" argument were valid, wouldn't it make sense to leave oil in the ground that will be easily recoverable in the future - like say onshore in the lower 48, say in North Dakota instead of the North Slope of Alaska? If he wants to ban drilling for the sake of future generations, he should seek to ban drilling in some place like the Bakken oil field. ]
Oil-friendly members of Congress like to blame environmental regulation for the lack of refinery capacity. But the oil companies themselves choked supply by closing more than half of their 300 U.S. refineries in the past 25 years.
[ The refineries that have closed are the inefficient and small tea-kettle types. The major oil companies have actually expanded their refinery capacity somewhat over the last 25 years by expanding existing refineries. Here's US refinery capacity over the years:
tonto.eia.doe.gov ]
(Business Journalism 201: You can reinvest in manufacturing capacity or ride the demand curve to higher profits.) Studies by Cambridge Energy Research Associates, a respected, oil-friendly consulting firm, indicate that even if all environmental regulations were removed from refinery construction, few would probably be built right away because of a 75 percent rise in construction costs since 2000, largely driven by the increased fuel cost of transporting building materials.
I don’t mean to imply that when it comes to cutting through industry and congressional malarkey, Barlett and Steele are the only game in town. The Chicago Tribune, the Wall Street Journal, Texas Monthly, and other publications have all done credible oil series during the past few years. The problem is that headlines on today’s pump prices trump the revelations of yesterday’s in-depth reporting. The digital-news era is good at letting us know what happens now. But it’s lousy at reminding us of what’s happening again. Take the richly symbolic case of ANWR. Oil executives know that they haven’t explored 80 percent of their existing leases in the continental U.S., according to Barlett.
[ Raines is trotting out all the Pelosi 9-percenter memes.
Oil companies certainly do evaluate all the leases they have put money down to acquire. Offshore leases are simply blocks containing 5,760 acres. It simply isn't true that every block offshore of 5,760 acres is going to have recoverable reserves on it. Many may not be drilled though. Even those that are drilled may not ever produce. This bogus argument that offshore leases are being acquired but not evaluated is either a deliberate falsehood spread to fool the unaware. See the McMoran article below. ]
But they also know that if they can crack the wildlife refuge, Congress will lack the political will to keep them away from the other government land and the ocean floor they covet. In that sense, ANWR fits a historical leitmotif. For more than a century, oil companies have been gaming the federal oil-leasing system to receive bargain prices on the raw materials under public ownership.
[ Where's the evidence of bargain prices? Leases are competitively bid and acquired by paying a lease bonus payment up front plus annual rentals. If any production takes place, either 1/8 (onshore) or 1/6 royalties (offshore) will be paid. ]
Oil companies have always depended on the transfer of unpumped oil from public to private ownership. In the Teapot Dome scandal of the early 1920s, oilmen bribed officials at the Interior Department to gain ownership of an oil field owned by the U.S. Navy. With ANWR and the offshore leases, everything will look aboveboard if Congress and consumers can be whipped into a demand-driven frenzy. Oil companies will blame the Arabs and environmentalists for a supply shortage they’ve maintained as a matter of policy since the days when the Texas Railroad Commission set quotas on how much oil could be pumped out of the ground.
Decade after decade, the oil companies claim that they would pump more if only they were allowed to. Barlett calls it playing the short-supply card. “Every freaking reporter out there falls for it,” he says. “And if I’m the P.R. guy for an oil company, I’m going to play that sucker for all it’s worth.”
Supply and demand? Sure, but as John Lee, a business journalist at the Wall Street Journal and the New York Times for many years, reminds me, supply and demand in oil are not just “two pie charts—where it comes from, where it goes, measured maybe five years ago.” There are more complex reasons for pain at the pump. “American gasoline prices have always reflected the latest spot price, namely what you have to pay to buy bulk gasoline on the open market. This is last-in pricing, rather than pricing based on inventory costs.”
Now, let’s say you’re an oil company selling bulk gasoline, and suppose your inventory contains some gasoline made from $140-a-barrel oil and some that was purchased for $75 a barrel. That leaves a lot of room for price manipulation. But please, whatever you do, don’t think for a minute that’s what Tillerson and Exxon Mobil are up to. Just like you and me, they are powerless slaves in the fields of supply and demand. Now tote that barge, lift that barrel.
portfolio.com
Message 24774948
A Famed Dry Hole Gets a Second Shot
By Russell Gold
21 July, 2008
The Wall Street Journal
McMoran tries "deeper drilling" for natural gas in what is already the world's deepest dry hole.
Remember the 9-percenter claim that oil companies aren't exploring on their offshore acreage. Blackbeard is one of those offshore leases that's still non-producing that Pelosi talks about. Read this and see if you can still believe that.
McMoRan Exploration Co. is leading a renewed effort to find natural gas in a site known as one of the world's deepest dry holes.
Exxon Mobil Corp. walked away from the legendary Blackbeard prospect in the Gulf of Mexico in 2006 after drilling to more than 30,000 feet without a payoff. But high energy prices have emboldened the industry, stirring wildcatter passions and prompting companies to look anew at previously abandoned projects.
Earlier this year, McMoRan Co-Chairman James R. "Jim Bob" Moffett decided the site was worth another shot. Most of the hard work -- drilling to 30,000 feet -- had already been done by Exxon, Mr. Moffett told investors. McMoRan just needed to get down another couple of thousand feet to find out what was there.
Almost all of the big Gulf fields discovered over the past decade are in thousands of feet of deep water. But if Blackbeard hits a big pocket of gas, the strike could set off a new frenzy of drilling in the Gulf's shallow waters, and McMoRan -- which has the rights to drill on nearby acreage -- would be in a prime position to capitalize.
McMoRan's drill bits have been churning through ancient rock at the Blackbeard site since March. On Thursday, the New Orleans-based company reported it was below 32,550 feet, the deepest penetration of the earth ever recorded, according to drilling data from IHS Inc. And it's going deeper.
But oil companies don't drill to set records. They justify their investment by making a commercial find. Mr. Moffett said Thursday he believes Blackbeard could hold natural gas equivalent to anywhere from 300 million to two billion barrels of oil, which would make it one of the biggest finds in years.
But nothing is sure until the gas begins to flow. Exxon, one of the most technologically adept producers in the world, failed in its efforts at the site. Exxon declined to discuss its experiences with Blackbeard, but the company must have had a good reason for abandoning the well, says Alan Verret, executive director of the Offshore Operators Committee, an association of energy companies that operate in the Gulf.
"They don't buckle under pressure. They saw something that made them give up," he says, joking that McMoRan's Blackbeard gamble is "like opening a Chrysler dealership in downtown Tokyo."
Blackbeard's potentially huge clutch of untapped energy, located only 30 miles from the Louisiana coast in 70 feet of water, has tantalized energy companies from the start. But any gas is buried so deep that very few of them have had the experience to take up the challenge.
In early 2005, Exxon decided to try. In an effort that transfixed the industry -- including Mr. Moffett -- the company drilled for 20 months to a depth of 30,067 feet. Then, in August 2006, before the well reached its target depth, Exxon gave up the effort and plugged the well. At the time, Exxon executive Jeff Johnson explained to investors that extraordinarily high pressure and temperatures were causing the hole to collapse, raising fears of a dangerous blowout.
If industry reports, unconfirmed by Exxon, are correct, the company spent more than $200 million on the well, making it one of the most expensive dry holes ever drilled.
The industry is littered with expensive failures, but Blackbeard proved too tempting to let go, especially in today's record-price environment, where any reasonably promising prospect is worth a try. Indeed, there are more drilling rigs at work in the U.S. today than at any point since 1985, according to Baker Hughes Inc.
Mr. Moffett, the 69-year-old founder of McMoRan Exploration, is a geologist and inveterate risk taker. He discovered the giant Grasberg copper and gold mine in Indonesia, parlaying it into global mining giant Freeport-McMoRan Copper & Gold Inc. The oil-and-gas exploration company was spun off from the mining assets in 1994.
Last August, McMoRan paid $1.1 billion for a package of shallow Gulf of Mexico assets, including Blackbeard, from Newfield Exploration Co., Exxon's former partner on the well. Studying the geology, Mr. Moffett found it similar to successful wells drilled by other companies in the deeper parts of the Gulf.
He now says that if McMoRan decides to keep drilling to 35,000 feet, it will cost about $75 million.
Earlier this year, Mr. Moffett said on a call with Wall Street analysts that he would beef up the blowout equipment, which is supposed to control the well if the drill bit pierces a pressurized gas pool. If that happened, gas would shoot up, like air rushing out of a pricked balloon.
For the project, McMoRan teamed up with Energy XXI Ltd., which paid $5.5 million for a 20% stake in the well drilled by Exxon. Plains Exploration & Production Co. took a 35% interest for $9.7 million. And Italy's Eni SpA held a previously acquired stake.
Energy XXI Chairman and Chief Executive John D. Schiller Jr. sees Blackbeard as a relatively small investment with an enormous potential payout. But, he adds, "none of us are betting our company on this well. If it's dry tomorrow, we're still going to have a good year."
So far, Mr. Moffett said Thursday, the drilling "has been fairly routine." He noted that recently drillers experienced a "kick" -- a sign that the drill bit was encountering the kind of porous rock that typically contains gas.
But even Mr. Moffett struck a note of caution. "We're very optimistic," he said. "But remember: I'm a geologist, and I have to be optimistic to do this job." |
