Archive for August, 2009

Oil: The Long Goodbye

Friday, August 28th, 2009

http://www.foreignpolicy.com/node/47222

Looks to be a good read in the latest issue of Foreign Policy.  Perhaps I will discuss some of the articles when I get a round tuit.  Or you may post comments here.

HEK

American Oil & Gas Historical Society

Monday, August 24th, 2009

On our recent rock oil excursion (see previous post), Bruce Wells, executive director of the American Oil & Gas Historical Society (http://aoghs.org) served as keynote speaker at the dinner and also showed old documentaries on the bus to keep us entertained as we were driven to and from our destination.  AOGHS is a resource I would highly recommend for those interested in the history of commercial hydrocarbons.  Bruce has contacts with the numerous state and local oil and gas museums in the United States (there are more than you think there are), and also promotes energy education.

HEK

Photos from the Rock Oil Trip

Monday, August 24th, 2009

On August 21, 2009, the National Capitol Area Chapter of the National Association of Energy Economists (http://www.ncac-usaee.org) took an overnight bus trip to the first commercial oil production region in the US in Northwestern PA.  The occasion was to celebrate the 150th anniversary of Col. Drake’s well, drilled near Titusville, PA (also, see the announcement at   http://www.aoghs.org/Pages/Pubs/default.asp).  Below are photos from this trip taken by yours truly.

HEK

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Col. Drake’s tomb, Woodlawn Cemetery Titusville, PA.

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Standing in front of the shed containing the engine that runs the pumps for McClintock #1 and #2.  McClintock #1 is the oldest producing well in the US, dating from August, 1861.

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Fire in the hole!

In order to crack the rock that holds the oil and increase the flow, nitroglycerin torpedoes were dropped down the well shaft.  Sometimes this worked, sometimes it shut in the well.  And sometimes the nitro handlers blew themselves up.  Such was the sad case of Adam Cupler Jr., the owner of the Cupler Torpedo Company whose wagon exploded while he was delivering nitroglycerin  (http://www.portal.state.pa.us/portal/server.pt/community/history/4569/the_shooting_stars_of_drake_well/539930).   The truck in the photo was owned by a successor firm.   Similar methods are used to fragment the rock today, but the explosives are a bit more stable than nitroglycerin.

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This is all that is left of Pithole, PA, a town that rapidly expanded to 15,000 people then just as rapidly shrunk down to zero, as wildcatters sunk their wells too close together and extracted oil as fast as they could.  A good example of how the “law of capture” can be detrimental to everyone’s benefit.  This oil is produced by a water drive (i.e., water pressure forces the oil upward).  Sinking so many wells within a few feet of each other destroyed the water pressure in a year or so.  Everyone moved on, and what lumber did not burn was harvested for rebuilding elsewhere.

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Restored National Transit Building in Oil City, PA.  National Transit was a Standard Oil Company pipeline.  Ralph Nader bought this building, restored it, used it for a few staffers for a fairly short period of time and turned it over to a community non-profit organization.

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Part of a historical mural in the National Transit building.  In the upper right corner is John D. Rockefeller.

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Reconstructed Drake’s Well pump.  The well is no longer producing, but the pump recirculates oil from McClintock #1.

“Renewable Electric Power-Too Much of a Good Thing: Looking at ERCOT”

Monday, August 10th, 2009

This article by Mark Lively, published in  the US Association for Energy Economics August issue of Dialogue (http://www.livelyutility.com/documents/USAEE-ERCOT%20Aug%2009.pdf), is a bit technical for me, but you might find it beneficial.  It addresses some pricing issues that may become prevalent as utilities add generation from wind, solar and other renewable sources. I tend to believe that even if you get the pricing correct at the wholesale level, it still becomes distorted when every kilowatt to the final commercial and residential customers is priced the same as every other one, with “rolled-in” pricing that doesn’t reflect the actual cost of generation at a particular time.   This is not an argument for inefficient wholesale pricing though, and the problem may eventually be fixed as we smarten up the grid.

HEK

A Crude Reality About Energy Independence?

Wednesday, August 5th, 2009

Click here to visit Powell's Books!

In “A Crude Reality About Energy Independence (http://www.washingtonpost.com/wp-dyn/content/article/2009/07/31/AR2009073102609.html),” Kathleen Parker argues that the American Clean Energy and Security Act, the latest energy bill before Congress, should instead be titled the “American Clean Energy and Less Security Act.”  I will gladly stipulate that most legislation suffers from lack of truth in labeling.  This legislation creates winners and losers, as does most.  We all know that elections matter.

However, I would argue against equating energy security with energy independence, which Ms. Parker does, bringing up the Middle Eastern terrorist bogeyman and those “crazy” Saudis with the lowest cost, most accessible crude in the world.  She says, “Put another way: The more we cap our carbon, the happier the Saudis are. That’s because most Middle Eastern crude is more easily accessible and requires less processing than what we and our friendlier neighbors can produce.”

I am not aware that the Saudis, who sold us less than 10% of our imported crude in May (http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm), are unfriendly.  I doubt they are all that happy with us attempting to cap our carbon either, since energy taxes, even those as inefficient as cap and trade, lower the demand for crude oil.  Decreased demand eventually translates into lower prices and lower profits for the Saudi meanies.  Ms. Parker claims that the proposed bill does not touch liquid transportation fuels, which, as we all know, primarily consist of imported crude oil.

I purposely avoid reading legislative sausage while it is being ground in Congress unless somebody pays me to read it.  Not only do many proposals do not survive the final bill, but it eats up time to read 1000’s of pages.  So probably she is correct that there is no specific tax on imported oil. However, from what I have read elsewhere, I believe there are many provisions in the bill designed to raise the price of oil, as well as an attempt to move America towards newer technology, such as battery powered autos that could be charged off-peak.

Also, as Professor Tom Schelling remarked last month at an AEI conference, perhaps cap and trade will work as similar rationing proposals worked in Europe after WWII, creating a system so onerous and unfair that the public was soon happy to have a high fuel tax.  Maybe we will eventually get to a carbon tax this way, and increase direct taxes on all energy, including gasoline.

It has been almost 200 years since David Ricardo showed us how trade makes everyone better off.  I am not a defender of the gospel of free trade.  I believe there are times when it does not create mutual advantages, a subject best left for another day.  But in general, exchange of goods does make most people and countries economically richer.  There are good reasons for exploiting our own resources in a reasonably environmentally sound way.  However, for security purposes, we have the Strategic Petroleum Reserve, which currently holds 724 million barrels of crude in inventory (http://www.spr.doe.gov/dir/dir.html).  There is also a 2 million barrel supply of home heating oil in the Northeast Home Heating Oil Reserve.  And of course, in a national emergency we would impose temporary rationing on the general public.  Not to mention that the military is spending some big money on alternative sources of energy, but that is another story.

Besides, if we want to talk about security, where is our manufacturing capability?  Who produces the steel for tanks and spins the yarn for clothing for uniforms in America?  I guess the difference is that importing from the foreigners producing these items does not involve men in desert headgear.

HEK