Where Our Future Lies.

The Future of the US automobile industry is to be seen in the Tahoe Hybrid. This Hybrid drastically increases the fuel efficiency of heavy SUVS that are capable of pulling Trailers, Campers, Horse Trailers, boats and the like into the foreseeable future. Unless and until this nation can no longer afford to recreate then a very large and sizeable portion of our economy is in dire straits with the ever rising cost of fuel. While everyone has talked about driving to work, no one seems to be focusing on the fact that there is a very large segement of our nations economy that is also taking a drastic hit and is being forced to rethink and retool as well as lay people off. The recreation industry.

June 20, 2008 · Winnebago, the RV company, says its third quarter profits fell 73 percent as high gas prices and a soft economy hurt motor homes sales industry wide. Winnebago earned $3 million in the latest quarter — down $8 million from the same quarter last year. Madeleine Brand talks with Nancy Marshall-Genzer.

“Last month it looked like the 15-ft plus powerboat market would be down 5-10 percent on the year and, after looking at the September adjustment, it looks like the final outcome will be closer to 10 percent than 5 percent,” said Jesse Wells, director of Sales & Marketing at Info-Lin

Oil prices are affecting more in this economy then just commutes to work and unless we are willing as a nation to address this with reduces in consumption along with drilling and the faster movement towards alternatives then we are in for a long, long term recession in which the economy refuses to deal with the inevitable future.

That future is a future in which oil demand is going to soon outpace oil production and as such there is nothing that will prevent the prices of oil from going thru the roof. The only way for this nation to ease that transition is for the automakers to embark upon a crash effort of getting more hybrids to market. More electric cars to market and for this nation to put more and more wind turbines into the production grid in order to make up for the power needed to fuel electric cars.

The foot dragging by the industry makes me want to refuse any effort what so ever to bail them out. They have made their beds and the fact that they are showing no sign of being willing to accept the signs of the times shows me that the leadership is clueless as to the way the this country ultimately wants to go.

Lower demand by autos for gasoline while having the product such as hybrid Tahoes to pull boats and trailers will ensure the viability of every market as declining oil consumption by the US will ensure static prices of gasoline for the future.

Until the big three take the lead then their entire business model which relied upon “BIGGER IS BETTER” is doomed to go the way of the dinosaur. The onus is on them. Unless they do not show a willingness to adapt then I for one am totally opposed to any efforts to help them out. Im willing to turn my attention to Honda, Toyota and the likes who do show foresight and wisdom in the ultimate direction that transportation must travel in the years to come.

Facing Our Fears.

Crude for August delivery closed down $4.14, or 3%, at $134.60 a barrel on the New York Mercantile Exchange, the lowest since June 25. Crude has lost $10.58 over the last two sessions, the biggest two-day price drop since January, 1991. It’s now 8.6% lower than the $147.27 record high hit last Thursday. Earlier in the session, futures slumped $6.74 to an intraday low of $132, the lowest for a front-month contract since June 12.

The unexpected gains in last week’s U.S. inventories “could indicate that the idea of real global demand destruction is finally beginning to take hold in the marketplace,” said Robert Arber, an analyst at financial information provider Stockhouse.com.

EIA’s latest report showed fuel demand is falling. Over the last four weeks, U.S. motor gasoline demand has averaged 9.3 million barrels per day, down by 2.1% from the same period last year, the EIA said.

“With each passing day, we are reading about more car companies cutting back on production, airlines slashing flights, and consumers driving less,” said Edward Meir, an analyst at MF Global.

The fact that the US has engaged in much talk about what to do regarding these huge oil prices. The fact that the world might be slipping into a recession which would include a consumption reduction of between 3-6 percent indicates that most of this run up has been exactly as I ascribed.

FEAR.

Now the fear will and could work in reverse. The fear of being stuck with overpriced oil and thus the need to shed these instruments to avoid large losses of capitol. It is precisely this scenario that might unfold that begs for a floating cap on the oil futures market to prevent losses that would be considered exorbitant. By Capping these loses we would not see a free fall of oil prices as we are about to see in the coming weeks.

While this might be good for the average citizen. Remember that the people for the most part buying these instruments for actual delievery is the airlines, major corporations, refineries, etc. whose need is to actually have oil to work their business model. These people do not take kindly to loses and in fact will most likely move these loses on to the customers.

Nothing is gained by allowing the market to free fall. A nice slow and safe glide back to reality would be in everyones best interests.

“Total” Acceptance. France gets it on Terrorism.

PARIS — Total, the French oil giant, has decided to back away from planned investments in Iran because of political uncertainty, a company official said Thursday.

Total’s withdrawal from the country, including a planned huge gas project in the South Pars gas field, makes it the last major Western oil company to give up on Iran amid pressure from Washington to stop doing business with Tehran.

In other news.

PARIS: Christophe de Margerie, the chief executive of Total, the French oil company, faced a night in police custody Wednesday after being questioned for the second time in six months over suspected kickbacks in Middle East energy deals.

The investigation, which covers Total’s role in developing the South Pars field, one of the world’s largest natural gas fields, also includes the chief financial officer, Robert Castaigne, and Philippe Boisseau, head of gas and power, the company and the police said.

Every since Nicolas Sarkozy has become the president of France our relations to the French have improved drastically and they have actually began to see the need to fight terrorism and help the world instead of becoming a hinderance to the worlds terrorism problems.

Many have accused George W. Bush of being clueless. Perhaps he is but when the French start seeing that supporting terrorist states such as Iran is a bad move then perhaps Bush and his supposed Neocons have it right after all.

I have renamed Freedom Fries back to French Fries in my house. Hat Tip to the French

Oil Futures. What you should know.

Futures contracts are financial instruments and carry with them legally binding obligations. Buyer and seller have the obligation to take or make delivery of an underlying instrument at a specified settlement date in the future.

In the case of crude oil, the main futures exchanges are the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) where West Texas Intermediate (WTI) and North Sea Brent crude oil are traded respectively.

These exchanges trade what is referred to as ‘light- sweet’ crude oil and a single contract, or ‘lot’, calls for the purchase or sale of 1,000 barrels of oil. Traders can buy and sell oil for delivery several months or years ahead.

Fear is the number one element driving the industry today.

The fear that something will happen that will drastically drive up the prices or that will interrupt supply. Either one of these scenarios alone will cause a very hasty run up in the prices of oil. The FUTURE CONTRACT means just that. People, or more likely corporations are GUARANTEED THE RIGHT to purchase oil in the future for a known price. This eases their FEAR and allows them to continue planning in order to keep their business model solid and reliable. Knowing that they have a guaranteed price of oil in the future allows for them to make monetary commitments based upon the KNOWN FUTURE COST OF OIL.

Thus the number one thing driving the oil run up today is fear.

But why???? Why are they afraid?

Current production of oil has remained stagnant and the major oil producing countries in the world are doing very little to encourage the market that they are going to be able to keep up with production as the demand continues to escalate. India and China have begun massive industrialization programs in the last 10 years and their efforts are finally beginning to use up the worlds excess oil capacity. That is why just a few short years ago oil was trading for 23 dollars per barrel and it is now close to 150 dollars per barrel.

In the past as the world moved toward recession the demand would dry up and oil would fall. Recession normally allows for a reduction in production of 3-6 percent. However even with the world moving toward recession the demand is not drying up because of the ever expanding needs by countries such as India, China and the emerging nations of Eastern Europe. Reduction of the worlds demand by 3-6 percent is easily absorbed by increased demand of India, China and the emerging countries of Eastern Europe.

As demand rises and soon begins to exceed production and the fear that something will interrupt the supply of oil it is very obvious to the rational thinker that the old ways of controlling the price of oil are GONE FOR GOOD. No longer does Supply and demand work in this market.

This is why by drilling and showing the world that we are going to attempt to increase the production capacity of the worlds oil market is there any hope that the fears can be calmed and that the price of oil might come down. But drilling alone will not work to calm the fears that is in the market. The Democrats who for so long has been wedded to the tree hugger mentality and the GREEN DREAMS of the future are gambling that the OLD WAY of doing things to control the market forces will work again and that they can simply wish away reality. They have failed to grasp the concept that the world is changing drastically and that supply truly is no longer keeping up with demand.

Many have asked me how much fear is built into this market. My conclusion a few months ago was 50 dollars per bbl. Moving now. Taking bold action now and letting the wildcaters get after it will bring the prices down by easing the fears in the market.

FEAR IS WHAT IS DRIVING THIS MARKET.

Electric Cars.

12 kilowatt hours to charge an electric car. I supposed its possible to have one that uses less then 12 Kwh like this one that only uses 6 kwh. That amounts to about 2 pennies per mile or around 200 dollars per year in electricity costs per vehicle based upon 10,000 miles driven per year. The cost for a car that gets 25 miles per gallon translates into about 16 cents per mile or 8x times more expensive then recharging with electricity.

Batteries cost about 2000 dollars per pack and last about 3 to 4 years.

There are 250 million vehicles on the road today. So every 3 years we must replace 250 million battery packs. The energy to create these is enormous. However the costs of disposing of them will become a new industry. I can imagine that we will be charge around 250 to 500 dollars to properly recycle and dispose of these battery packs as well as 200-300 dollars for the car dealership to replace them.

So now the electric car is costing close to 1000 dollars per year in future battery replacement for the electric car as well as 2 cents per mile to recharge the batteries. In addition there will most certainly be rather hefty charges to dispose of and replace the battery packs every 3 or 4 years. Now if you were to work this out the cost of operating an electric car is on par with the cost of operating a gasoline powered car that gets 25 miles per gallon.

Okay fine. We are still ridding ourselves of that evil gasoline and its co2 and greenhouse gas emissions. Or are we???

1250 Kilowatt hours per year to recharge the electric car that only goes 50 miles per day…….thats the average mileage driven per year by Americans. Hence we get 1250 KWH times 250 million cars or we need

312,500,000,000 Kilowatt hours of electricity to charge all those new cars on the road each year. That translates to 312 GigawattHours of power production which is currently 10 times what we produce now and in addition that is ADDITIONAL to our current usage. So we would need 444 gigawathours of future electricity to generate the power used to fuel electric cars.

That is about 15x times our current capacity. Today the USA has 600 coal fired plants. To get to this new figure of electricity demand we would have to build about 1800 new coal fired plants which use way more water and produces the most Greenhouse gases of all energy creating methods. This of course is assuming that the tree huggers will not let us build any new Nuclear power plants which they are showing no inclination to do. Therefore the only clean source of Electricity is Wind, solar, tidal, hydro, thermal which is already in the works. However these are all limited by WIND………SUN……….WATER and such so by building 1800 new coal fired plants we will add to global warming and greenhouse gas emission and actually drastically increase our water USEAGE.

Right now in America we use 144 million gallons of water per day just to create Electricity. That is 40 percent of our current water usage. Adding 1800 Coal fired plants to charge all these cars would in essence use up all our water resources.

So are electric cars our answer? Not only NO but HELL NO.

I have an axiom I live by in this industry. NOTHING is FREE.

Ethanol. Crunching the Numbers.

One acre of corn can produce 300 gal.  of ethanol per growing season. So, in order to replace that 200 billion gal. of petroleum products, American farmers would need to dedicate 675 million acres, or 71 percent of the nation’s 938 million acres of farmland, to growing feedstock. Clearly, ethanol alone won’t kick our fossil fuel dependence–unless we want to replace our oil imports with food imports.

Read the rest of the report at Popular Mechanics as they try to grapple with what those of us in the energy industry have known all along.  Nothing is free.  Everything costs.

How Big Oil Works.

1. Big Oil is sitting on known reserves of about 15-30 billion Barrels depending upon who you listen too. Now lets just take for example XXX Oil company. They are sitting on reserves of 3.5 billion bbls of oil. They are pumping on the order of about 1 million bbls per day. Could they pump more? Absolutely they could. Given time to do some retooling. Will they? Most decidedly not.
2. Why? Their economic viability is at stake if they extract more then their business model permits. It takes 7-11 years to develop and bring into full production a working field that will pump 800,000 bbls of oil per day. Right now they are sitting on a find in the Gulf which has an estimated 3-15 billion bbls of oil. They are devloping this. Putting the structure in place so that as their current reserves run out they can begin pumping this crude and remain solvent and maintain a consistent income that will continue to reward investors. They are in the business of making money and that is their prime goal and directive.
3. They do this because their entire existence depends upon oil reserves and finding new oil. Each major oil company spends billions finding and developing oil for future generations. Their goal is to insure that they have x number of bbls of oil to pull out of the ground in 10 years just as they are able to do today. If their numbers add up to less then that then they adjust drilling to slow down the amount of oil they pull from their known reserves to stretch out the time in which they have to bring the next major find into full operation. If they find a field that will allow them to easily pull 1.5 million bbls of oil per day in 7 years and they have planned on 10 then they will increase production. ITS called business modeling and its HOW they operate.
4. Right now the USA has a talking point 17 billion BBLs of oil in reserve. Bunk. The discovery in North Dakota is estimated conservedly to having 450 billion barrels of recoverable oil that stretches all the way into Canada. That 2x the amount Saudia Arabia is known to have. This Find off the gulf of Mexico by Shell Oil is estimated to have 3-15 billion bbls with the official estimate as being on the order of 10 billion bbls.

The talking point from the left and the democratic party is that if we drill now we cannot get oil to market in less then 10 years. Wrong. That is the figure that the oil companies put out so that they can maintain their long term solvency. They are after all a business whose job is to guarantee they dont drill it all this year and are broke for 10 years while they try to find more.

In a speech at the Cambridge Energy Research Associates conference in Houston in February, Exxon Mobil’s chairman and chief executive, Lee R. Raymond, described the challenge the oil industry, and perhaps most acutely his company, faced: “When we consider, that as demand increases, our existing base production declines, we come squarely to the magnitude of the task before us. About half the oil and gas volume needed to meet demand 10 years from now is not in production today.

Recent Discoveries.

North Dakota. This find only takes into account the oil available in the continental United States but the formation runs deep into Canada. The extent of this find is amazing. Now for the “Rest of the Story”. A friend showed me some “Crude” from a new well in Montana last week, that stuff right of the ground is “Kin to Diesel”, it’s the lighest stuff I have ever seen. America is back in the oil business.

Anwar This one is well known. Estimated at 10 billion barrells of oil.

Angola Chevron hit a major find here.

Gulf Of Mexico Is hitting some snags.

Whats the truth on Oil Leasing?

CAVANEY: Well, we are developing. And there’s a big misunderstanding. If they understood the industry, they would appreciate the fact that we bid for those leases competitively in the open market. We pay the government to get them.

We have to pay annual lease fees on those particular leases. And at the end of the lease term — five years, six years, whatever it may be — if we haven’t done anything on those leases, they go back to the government to be bid again.

What’s going on is they — the first step in our industry is called exploration. In other words, the creator didn’t put oil and gas on every plot of land. So we have to go and explore.

We’re willing to put our capital at risk to find out whether or not there’s oil and gas there. And there’s been very few cases where there is oil and gas in amounts that are commercially usable. And those are the ones that you can develop.

The rest of them, why drill where you know there’s no oil or gas? And let those things go back to the government.

Government accepts payment for leases by oil that goes into the Strategic Petroleum Reserves.  They do accept cash but mostly they prefer that the oil companies pay for these leases in Oil that can be deposited in the SPR.