Sunday, April 15, 2012

Supply Matters

From my article in today's Washington Examiner, "Gas prices are complex, but not mysterious": 

Simply put, oil supplies matter. Larger supplies of secure oil -- oil that won't be withheld from the market for political reasons -- can result in lower retail gas prices at the pump.
 
The importance of secure oil cannot be overstated. It's quite likely that oil and gasoline prices would decline over the long term if more oil were produced domestically and Canadian oil were allowed to flow freely through the rejected Keystone XL pipeline. In fact, just imagine how different the U.S. economy and the energy situation would be today if, 30 years ago, our elected officials had allowed drilling in the oil-rich areas of Alaska, along the West Coast, the East Coast and in the eastern Gulf of Mexico. Instead, they chose to block access to those supplies, keeping us dependent on foreign oil from politically unstable countries.

Our economy runs on oil, and DOE forecasts suggest that oil will be the "fuel of the future" and continue to play an important role in our energy mix for decades to come. It's time to embrace the facts about oil and discard the "fuel of the past" mentality. There is nothing that provides as much energy bang for the buck as oil. Basic economics tell us that if we had more of it, our bucks would go a lot further.

138 Comments:

At 4/15/2012 9:58 AM, Blogger Larry G said...

Has there ever been a domestic price reduction associated with the theoretical "opening" of the rest of the US oil reserves to production?

It would seem that every new domestic source would only go towards world supplies and that as long as we export domestic oil, we'd still have to import it also - at world prices - not the price plus profit of it being extracted and sold domestically.

How can we talk about oil being a strategic domestic commodity and then sell our domestic supplies on the world market on the theory that it will reduce by some minuscule amount the world price?

 
At 4/15/2012 9:58 AM, Blogger Larry G said...

This comment has been removed by the author.

 
At 4/15/2012 10:33 AM, Blogger PeakTrader said...

If government would've allowed more drilling, more resources would've shifted or flowed into oil production to facilitate technological progress (oil firms would still minimize cost and maximize profit).

******

Former GE CEO Jack Welch Blasts Obama’s Leadership
13 Apr 2012

"President Obama’s “divide-and-conquer” approach isn’t what great leaders do, Jack Welch said.

The renowned former General Electric CEO chided the president for blaming others for economic woes.

“It was the insurance executives in health care. It was the bankers in the collapse. It was the oil companies as oil prices go up. It was Congress if things didn’t go the way he wanted. And recently it’s been the Supreme Court,” he said.

In 1981, Welch became GE’s youngest CEO, and increased its market value by $387 billion, making it the world’s most valuable company." (left GE in 2000).

 
At 4/15/2012 10:40 AM, Blogger Rufus II said...

One theory might be that we shouldn't use it all at once. Stretch the supplies out a bit, and save some for the next generation, as it were.

 
At 4/15/2012 10:49 AM, Blogger PeakTrader said...

Rufus II, there's no need to "save" oil, because of technological advances in oil production (to extend supply) and new energy sources.

 
At 4/15/2012 11:09 AM, Blogger ender1138 said...

Larry G, I assume you don't view Bush's lifting of the drilling moratorium inn July 2008 and the subsequent price drop as an example of supply leading to a price drop. If that assumption is right, can you offer a rationale for that? That would seem to be a pretty good example of the theory in action in the real world.

 
At 4/15/2012 11:19 AM, Blogger Larry G said...

@ender1138 - no I do not consider that to be a good example unless it can be correlated with other similar increases or decreases.

But the fact that the oil is often exported and at world prices makes it tougher for me to believe that it actually has any kind of dramatic impact on domestic prices.

But my question was - is there a correlation that shows how much we produce with a specified dollar impact on world prices?

I do not think there is but if someone knows of one then let's take a gander.

But if there is no real correlation, then how can we make the assertion that there is - and then not actually show the correlation?

It's also a bit hard to believe that of the entire rest of the world - the two places with the most proven reserves of oil are the middle east and us and those two areas supplies have the biggest impacts on world prices.

and of course, we still don't have that correlation that if we increase our exports by X barrels that it has a Y dollar/cents effect of the price of a barrel of oil - even though we make that a direct criticism of our current govt policies. Where's that BEEF?

I think many folks apparently love living in Economic LA LA LAND.. it's assuages their faux libertarian soul.

:-)

 
At 4/15/2012 11:24 AM, Blogger Buddy R Pacifico said...

Professor Perry has written a very rational commentary. I do wonder why refining capacity on the East Coast of the U.S. is being greatly reduced. This will probably put an additional upward bias on gasoline prices.

East Coast refining is dwindling and the North-South route of Keystone will put more oil in the South. Where is the outcry from the most populous areas of the U.S. on gasoline production constraints on supply?

 
At 4/15/2012 11:34 AM, Blogger Rufus II said...

Two things:

1) Demand is Down

2) Those East Coast refineries are, mostly, set up to refine "light-sweet" crude. That product is being replaced, more and more, by the "Heavy" grades of oil.

 
At 4/15/2012 11:36 AM, Blogger Rufus II said...

Larry, we only export a teaspoonful of "Oil," and that "back to Canada."

We are, however, refining a lot of "Imported" Heavy oil down at Houston, and Port Arthur, and exporting the "Products" (gasoline/diesel, etc.)

 
At 4/15/2012 11:47 AM, Blogger Larry G said...

re: what we export. oil vs refined fuels.

so we have additional gasoline refined here in the US ..that if sold in the US would result in lower gasoline prices and instead it is exported?

true?

 
At 4/15/2012 11:56 AM, Blogger PeakTrader said...

Larry, if the U.S. was producing several million more bbl/d of crude oil, you don't believe world oil prices would be significantly lower, ceteris paribus? (And more stable, and lower, as Dr Perry wrote.)

I stated before:

Without excessive restrictions just in Alaska and the Gulf of Mexico, the U.S. could've added 1 million bbl/d or more instead of the 120 thousand bbl/d.

******

EIA Expects Higher U.S. Crude Production
Mar 7, 2012

"U.S. crude oil production increased by an estimated 120 thousand bbl/d to 5.60 million bbl/d in 2011.

A 390-thousand bbl/d increase in lower-48 onshore production in 2011 was partly offset by a 40-thousand bbl/d decline in Alaska and a 230-thousand bbl/d decline in output in the Federal Gulf of Mexico/GOM.

The rise in production is driven by increased oil-directed drilling activity, particularly in onshore shale formations."

 
At 4/15/2012 12:02 PM, Blogger Larry G said...

" Larry, if the U.S. was producing several million more bbl/d of crude oil, you don't believe world oil prices would be significantly lower, ceteris paribus?"

I believe it. I'd like to know if the effect of it is .1 cent, 1, 10,100 per gallon AND if we DOUBLE production if the effect would be twice as much.

Prof. Perry and others make the assertion but they never put numbers on it.

why?

how good is the argument without numbers?

I find the argument... not significant ..when no numbers are with it.

If someone told you that if we DOUBLED our production by opening up ALL Federal lands and all offshore drilling ... that we'd lower the price of gasoline by one penny - would you think it worth it?

what's the value of increasing production - to us?

 
At 4/15/2012 12:09 PM, Blogger Rufus II said...

Larry, the "Crack Spread" on imported oil is very low right now. If they tried to sell the gasoline/diesel produced from that imported oil any more cheaply they would lose money, and have to exit the business.

World Demand is Growing, Supply of Crude + Condensate (oil) is flat, and the exporting nations are using more of their own product.

And, there are no "New Technologies" on the horizon. The much-ballyhooed "horizontal-fracturing" was done routinely in Texas 25 yrs. ago.

 
At 4/15/2012 12:09 PM, Blogger PeakTrader said...

Larry, I think, there's data that show a small decrease (or just the potential of a small decrease) in world oil supply raises world oil prices dramatically.

 
At 4/15/2012 12:13 PM, Blogger Larry G said...

what's the "crack spread" on domestically-produced oil?

I know that sand/shale oil is more expensive than conventional extracted oil but isn't the argument that if we opened up more Fed lands and offshore than we'd see lower fuel prices domestically?

We hear the assertion, over and over but I've never seen numbers and again. I'd ask ..if the 'savings' was one penny on the gallon.. would there still be the big push to open up domestic resources?

I think not.

 
At 4/15/2012 12:17 PM, Blogger Benjamin said...

CA has two-thirds of the shale oil i the USA.

Look for boom baby boom.

 
At 4/15/2012 12:18 PM, Blogger Rufus II said...

The "Crack Spread" is enormous (about $34.00 bbl, I believe) on Bakken oil because it is bottle-necked, and land-locked. However, this won't last forever.

 
At 4/15/2012 12:41 PM, Blogger Larry G said...

so Bakken oil actually costs about $70 per 42 gallons of refined gasoline? (not counting transportation and refinery costs)?

 
At 4/15/2012 12:46 PM, Blogger Walt G. said...

Larry G.

If we just threaten to open new areas up to drilling, the other countries might increase production to keep the price down and make it unprofitable thereby maintaining or lowering the current price of crude oil. With factors such as political rhetoric overpowering rational supply-and-demand theories, I don't see how what you wish to be quantified can be quantified.

I think Professor Perry's article raises an excellent question about our future: are we going to maximize our current energy sources that are proven and quite abundant OR go with new energy sources that are still speculative and unproven?

 
At 4/15/2012 12:49 PM, Blogger Larry G said...

" OR go with new energy sources that are still speculative and unproven? "

is that the very same situation with the advocacy to expand drilling?

it's speculative and unproven?

no?

 
At 4/15/2012 1:27 PM, Blogger Walt G. said...

Oil isn't unproven. The discovery of addtional sources of natural gas set back the entire alternative energy movement. Community colleges are canceling or scaling back their alternative energy programs over new projections of jobs in the industry. You might want to sell you windmill and solar panel stocks if you have any.

 
At 4/15/2012 1:37 PM, Blogger Jon Murphy said...

Larry,

Generally speaking, if supply increases and demand stays the same, prices will fall. The amount of price decline depends on a number of variables. It is impossible (despite what some like to do) to put a number on that simply because things change so quickly and frequently. If you assume away the variables, then you can come up with a number, but that number's about as useful as a winter jacket in Phoenix.

So, to answer your question: theory and logic tells us prices will drop. By how much is anyone's guess.

 
At 4/15/2012 2:06 PM, Blogger Benjamin said...

If drilling is the answer, why mandated GOP moonshine? I mean ethanol.

The most socialist, pinko program in America, and sacrosanct in the GOP.

Maybe the GOP will change their chant to, "Drill and Subsidize and mandate, baby, drill and subsidize and mandate!"

 
At 4/15/2012 2:19 PM, Blogger Rufus II said...

Probably, Benji, because "drilling" in just the "short-term" answer (and, maybe not even short-term.)

The fact is, despite heroic drilling efforts, world-wide, the FLOW of C+C hasn't increased since 2005.

 
At 4/15/2012 3:03 PM, Blogger juandos said...

"But the fact that the oil is often exported and at world prices makes it tougher for me to believe that it actually has any kind of dramatic impact on domestic prices"...

So the fact the oil/refinded products are international commodities and is no reason for domestic energy companies to sell at a better price to some other country than the US larry g?

I'm just trying to figure out where you're coming from on this...

You have access to the same info that both peak and buddy have laid out here and you're still confused about the different pricing pressures?

 
At 4/15/2012 3:28 PM, Blogger Methinks said...

Jon Murphy,

It's not quite that vague. In practice, the oil market does this exact calculation every day. The calculation changes as all news is priced in continuously, so it becomes harder to parse out the effect of added supply.

Watch the news of a discovery, along with its expected production, and look at the price dive before other news must be factored in and you'll get a pretty good idea of where the market thinks the new price should be.

 
At 4/15/2012 3:33 PM, Blogger Jon Murphy said...

Methinks,

I understand completely. The market takes into account all those factors and develops a new price. I am just contending that knowing what that new price is ahead of time is impossible because no one person has all the knowledge as those millions of buyers.

 
At 4/15/2012 3:44 PM, Blogger Larry G said...

the political argument IS that gas prices in the US would be much lower if we increased our drilling and approved Keystone.

since the argument is made on the price of gasoline why is "vague" good enough for that estimate while using it as a powerful political argument to open up more drilling?

We may not be able to put an exact price on it but I believe we can put a reasonable range on it like a tenth of a cent or one penny or ten cents or a dollar, etc but I've NEVER seen in ANY of these arguments about opening up drilling... what it would actually do for prices and I strongly suspect that the reason is that the effect on price at the pumps in the US is negligible otherwise it would be blasted all over the media ..... with all the right wing sites claiming that Obama is "costing" us so many cents a gallon.

So I think the argument is basically bogus until they start providing real numbers to support what their premise essentially is - that more drilling results in lower priced fuel for Americans.

 
At 4/15/2012 3:45 PM, Blogger Walt G. said...

Jon Murphy,

Isn't that uncertainty where the speculators come into play?

 
At 4/15/2012 3:57 PM, Blogger Jon Murphy said...

Fair enough, Larry.

I estimate that, if oil drilling were completely expanded in the US and pipelines were subsequently expanded to handle the additional crude, gas prices over the long run would fall twenty to thirty cents per gallon lower than they would be otherwise (Disclaimer: I am not an energy economist, so take my calculations for what their worth).

 
At 4/15/2012 4:03 PM, Blogger Walt G. said...

Larry G

I think the nearest real number you are looking for is the future market price of crude oil that has all the current public information factored into it. To transfer that one factor, even though it is a big factor, to the numerous factors that determine retail gasoline prices would just be a wild-ass-guess estimate.

 
At 4/15/2012 4:20 PM, Blogger Larry G said...

well.. the premise seems to be that lower prices would be the result of more aggressive drilling... but it seems to be an assertion without any real numbers so in that regard it seems to be a bogus assertion.

But even folks like Professor Perry repeat that premise in the written articles.

I just thought if we're going to make the case that more drilling would benefit Americans - that a good number would make that argument all the more powerful and in the process, undercut those that say more drilling won't help.

It seems to be that more than a few of the current political issues fall along these lines with one side making unsubstantiated claims and the other side disputing those claims.

We have had for the last few months a ton of people and publications that say that our high oil prices are the result of our restrictive drilling policies but to my knowledge, not a single one has actually put an actual number or even a ball-park range on it.

It just seems to me that such narratives are basically just political blather without much in the way of real information .....

A really powerful argument would be one that said something like: "our current policies add 50 cents a gallon to the cost of our gasoline".

The narratives IMPLY that but I've yet to see any actual numbers.

Has anyone else seen actual numbers?

 
At 4/15/2012 4:23 PM, Blogger Walt G. said...

Jon Murphy,

So, at 1 cent-per-gallon = $1 billion in retail gasoline prices that's $20 to $30 billion annually in a $13 trillion economy?

 
At 4/15/2012 4:25 PM, Blogger Walt G. said...

Larry G.

You want someone just to lie to you?

 
At 4/15/2012 4:33 PM, Blogger juandos said...

well.. the premise seems to be that lower prices would be the result of more aggressive drilling... but it seems to be an assertion without any real numbers so in that regard it seems to be a bogus assertion"...

Are you purposefully missing the other half of that picture larry g?

You can have all the crude in the world but if you can't refine it into usable products that can be sold for a reasonable rate of return for the people who do this sort of work then what good is the crude?

Look at all the hurtles the energy companies have to deal with to get their final end products to market...

All those hurtles cost you, me and everyone else more of our private wealth everytime we go to a gas station, buy a pair of flip-flops, purchase perscribed drugs, and go to the grocery story to buy a myriad of goods who price partially depend on the cost of turning crude into usable products...

Why do politics play such a large part in this process?

How do you want to mitigate some of these costly problems larry g?

 
At 4/15/2012 4:56 PM, Blogger Larry G said...

re: "lying" . well, when someone implies that there is a cost but never supplies a number.. that's essentially making a claim that is not backed up.

re: How do you want to mitigate some of these costly problems

it's TRUE that every time we buy something that has part of it's core costs embedded in energy/fuel but we really don't solve these problems by telling people that we can drive these costs down by increased drilling.. if it's not true.

 
At 4/15/2012 5:07 PM, Blogger Jon Murphy said...

So, at 1 cent-per-gallon = $1 billion in retail gasoline prices that's $20 to $30 billion annually in a $13 trillion economy?

Don't forget we're talking globally.

 
At 4/15/2012 5:27 PM, Blogger Walt G. said...

Globally? People in the U.S. do not care what gasoline costs in another country. If they did, we could make a case to just let it go up.

 
At 4/15/2012 6:01 PM, Blogger PeakTrader said...

The elasticity of oil supply is almost fixed (or inelastic), because of Peak Oil.

So, a small increase in demand causes oil prices to rise sharply.

Demand for oil normally increases (e.g. from population growth) and there's no significant substitute for oil.

 
At 4/15/2012 6:05 PM, Blogger PeakTrader said...

Demand exceeding supply is why oil rose from $10 a barrel in the late 1990s to over $100 a barrel today.

 
At 4/15/2012 6:18 PM, Blogger Methinks said...

The elasticity of oil supply is almost fixed (or inelastic), because of Peak Oil.

When did myth become a supply constraint?

 
At 4/15/2012 6:36 PM, Blogger PeakTrader said...

Methinks, if the U.S. economy had a normal recovery, oil would've risen towards $200 a barrel, and constrained the recovery.

 
At 4/15/2012 7:21 PM, Blogger Jon Murphy said...

Walt,

I should also mention I am talking about prices over the long term. This isn't to day a $0.20 drop in one year, but rather over the course of many years.

 
At 4/15/2012 7:57 PM, Blogger Methinks said...

Peak,

If I ate uncontrollably, I'd be 400 pounds.

OK, your turn again for another non-sequitur.

 
At 4/15/2012 8:12 PM, Blogger Methinks said...

Demand for oil normally increases (e.g. from population growth) and there's no significant substitute for oil.

Bull. It's all a question of price.

 
At 4/15/2012 8:18 PM, Blogger juandos said...

"but we really don't solve these problems by telling people that we can drive these costs down by increased drilling.. if it's not true"...

So it is true that you larry g are intentionally missing half the picture on purpose...

Is this suppose to be some sort of defense of the Kenyan Kommie Klown you supported in '09 or do you have some sort of twisted tree hugger, neo-commie group think thing going on?

 
At 4/15/2012 9:36 PM, Blogger Paul said...

"well.. the premise seems to be that lower prices would be the result of more aggressive drilling... but it seems to be an assertion without any real numbers so in that regard it seems to be a bogus assertion."

Bogus? I guess the whole supply/demand thing is just not your bag, Larry.

"it's TRUE that every time we buy something that has part of it's core costs embedded in energy/fuel but we really don't solve these problems by telling people that we can drive these costs down by increased drilling.. if it's not true."

A) Even if it wasn't true, why not do it any way because of the easy, good paying, free jobs and wealth it creates? THis is especially important during this era of Obama economic squalor.

B)It's not a situation of " if the effect of it is .1 cent, 1, 10,100 per gallon AND if we DOUBLE production if the effect would be twice as much" because the current oil market is in a "scarcity pricing" period. We have the ability, if not for Democrat obstruction, to bring oil prices down by simply creating enough global spare capacity. I always quote Geoff at Energy Outlook regarding this point:"What really counts is the last few million barrels per day that are traded, whether inventories are rising or falling, and how large global spare capacity is and who owns it. The last three times that oil prices collapsed, in the mid-1980s, late-1990s, and 2008, it happened as a result of net changes in these parameters amounting to less than about 3 million bbl/day."

Further, the act of rescinding Obama's drilling bans alone would help with price. Again, Geoff: "a new, more expansive approach to exploiting domestic resources would affect the back end of the futures price curve, and that could start to nudge down nearer-term prices, as well. Even if I'm wrong about that, it's still the case that at current prices every additional 1,000 bbl/day we produce here would reduce our trade deficit and the drag on our economy by about $40 million--and there are a lot more thousands of barrels per day we could be producing."

I don't know how much price difference it would make, but why wouldn't we the hell wouldn't we do it for the reasons I mentioned above.

 
At 4/16/2012 2:10 AM, Blogger PeakTrader said...

Methinks, you can ride a bicycle, as a substitute for oil, which can also offset an overeating problem, particularly if you ride long distances.

 
At 4/16/2012 9:17 AM, Blogger Pulverized Concepts said...

Larry G, straighten out your dunce cap, get back on your stool and look into the corner until lunch time. Try thinking about supply and demand while the rest of the students move on to more complicated issues.

 
At 4/16/2012 9:26 AM, Blogger Larry G said...

@Pulverized Concepts

supply and demand is a bogus concept when applied to fuel prices in the US linked to drilling in the US.

we drill in the US and sell it worldwide for the highest price.

If worldwide demand goes up and US demand goes down - we likely will still pay more no matter how much more drilling we do - because the increased "supply" is not domestic but worldwide.

If there was any real truth to the concept of increased drilling in the US - we'd have a price reduction estimate put on it.

Instead, we do not... we just play supply/demand illiteracy games for the gullible to believe.

theoretical supply/demand concepts do not often accurately describe real world conditions but there is no shortage of fools that believe otherwise.

 
At 4/16/2012 9:38 AM, Blogger Pulverized Concepts said...

Larry G., we (US farmers) sell corn, soy beans, rice, beef, pork and other crops on the world market, too. Why aren't you complaining about the price of a taco, when, if we somehow restricted exports of wheat, tortillas would be much cheaper? Go to the library, check out "The Wealth of Nations", and join the rest of us in the 21st century.

 
At 4/16/2012 9:55 AM, Blogger Paul said...

Larry,


It's painfully obvious to everyone here all you're doing is working backwards from "Obama's energy policy is magnificent." I already pointed out "..the last three times that oil prices collapsed, in the mid-1980s, late-1990s, and 2008, it happened as a result of net changes in these parameters amounting to less than about 3 million bbl/day."

We can bring enough oil online to increase global spare capacity, which will create a disproportionate downward pressure on price, and create lots of jobs to pay the taxes for Obama's green jobs fiasco.

Oh, but it doesn't fit you and your hero Obama's narrative that drilling for more oil won't do a thing.

 
At 4/16/2012 9:59 AM, Blogger Larry G said...

@Pulverized Concepts

no complaining here. just pointing out that the ways that supply/demand are promoted on oil is totally bogus - on purpose.

re: " We can bring enough oil online to increase global spare capacity, which will create a disproportionate downward pressure on price"

okay, put a number on it. If you can make the assertion, back it up.

there is no "Obama" here.. only an observation about how bogus the supply/demand narrative is and that's a reflection on those who use that narrative, not Obama whom I have not said a word about.

 
At 4/16/2012 10:12 AM, Blogger Larry G said...

we're making a political argument about increased drilling in the US AS IF it would save people substantial money at the pumps - but actual numbers are never supplied, not even a range of numbers on the flimsy pretense that it is 'too difficult" to compute

So actual numbers are not given because the net effect is minuscule.

Juandos and others make the argument on basic supply/demand economics and jobs/economy that I AGREE with but that's not the issue here - it's how the supply/demand concept itself is being promoted in bogus ways for political purposes.

we are actually fostering economic illiteracy....by promoting something that is clearly bogus.


the truth about drilling in the US and prices in the US is that when we increase drilling and then sell it overseas instead of domestically only - there is no significant increased domestic supply - just a very small increased world supply that likely is in the noise (pennies)range. If it would more than that - you can bet the folks making that argument would be trumpeting it!

The proof of this is obvious. We drive less than we used to and we drive more fuel efficient cars and yet fuel prices keep going up because world prices of oil keep going up because of increased demand from other countries.

Every drop of oil that we extract domestically gets sold at the world price and if the world price goes up in response to increased world demand, domestic fuel prices also goes up even if we use less.

Those who blather on about supply and demand.. "basics" seem themselves oblivious to the obvious realities because their real focus is political/anti-Obama rather than economic literacy.

 
At 4/16/2012 10:27 AM, Blogger Paul said...

"okay, put a number on it. If you can make the assertion, back it up."

No, I doubt anyone could give you a precise #. Why can't you explain how I'm wrong? And I love how the guy who disputes supply and demand is demanding other people back up their assertions.

"..not Obama whom I have not said a word about."

He and the Democrats are always lurking in your arguments whether you mention them or not.

And hey Larry, what about the jobs? Not everyone can live on government checks.

 
At 4/16/2012 10:35 AM, Blogger Pulverized Concepts said...

Larry G., demanding accurate numbers for future economic events is pretty unreasonable considering that accurate numbers for events that have already occurred are rare. Another problem for central planning. You're saying that it's futile to bring more petroleum to market from US sources because it won't make US gasoline meaningfully cheaper. Even if that were true, so what? And can't that kind of bad logic be extended to other products as well? Why allow anyone to mine gold (or iron, or copper) when the price of those commodities won't be lowered by the addition of fairly insignificant amounts to the world market? The petroleum is an asset and has value, but only after it has been produced. Contrary to statist thinking, the subterranean oil doesn't necessarily belong to the government and it isn't necessarily the right of the state to determine if, or if not, it can be exploited.

 
At 4/16/2012 10:42 AM, Blogger Larry G said...

putting a number on it tells us how significant (or not) that supply/demand in the US is.

not putting a number on it means it's likely not a significant impact on prices.

my view is that if you are going to make the claim that it will benefit prices - then make your case.

otherwise, we know that you're really making a political argument not an economic one.

re: jobs - jobs are good. I think the job argument is solid but put a number on it. If we need 300,000 more jobs.. how many come from more drilling?

re: govt checks. TOUCHE! what if that govt check comes from the war on terrorism?

:-)

 
At 4/16/2012 10:52 AM, Blogger juandos said...

"supply and demand is a bogus concept when applied to fuel prices in the US linked to drilling in the US"...

lol!

You really don't have any shame do you larry g?

You lie, you spin, and you make pseudo benny like statements all the while ignoring what answers have already been tossed your way, answers that you could verify if you wanted to do some homework...

This is just to funny...

Geez! If you spent half the time and energy doing some homework that you spend making like a dunce it would all work itself out for you...

Then you could come up with the numbers...

 
At 4/16/2012 11:19 AM, Blogger Paul said...

"not putting a number on it means it's likely not a significant impact on prices."

Or it means there are too many variables nobody really knows how to weigh. We have a real world example to illustrate. Bush rescinded the offshore oil drilling ban July 14, 2008. Price of oil started dropping on exactly that day, and kept dropping from then on until Obama took office. I doubt anyone could tell you how much the price drop was due to Bush's action and how much due to other variables like the economic downturn.

"I think the job argument is solid but put a number on it. If we need 300,000 more jobs.. how many come from more drilling?"

How could anyone tell you that without having the exact info on how much oil is under the ground, and how hard it will be to extract? Ex: Obama reversed Bush's exec order and put 85% of the OCS off-limits to even survey,so we don't really know how much oil is out there. However, we do know the API says 90,000 jobs and billions of dollars were lost due to Obama's illegal drilling moratorium and then his slow walking of permits later on.

Drilling permit $ and the jobs are easy, low hanging fruit that don't cost the taxpayer a cent. Now compare to Obama's stimulus where best case cost the taxpayers $200 k per job. Hey, there's a # for you, Larry. Even Tim Geithner doesn't dispute it.

 
At 4/16/2012 11:19 AM, Blogger Paul said...

This comment has been removed by the author.

 
At 4/16/2012 11:29 AM, Blogger Larry G said...

" Or it means there are too many variables nobody really knows how to weigh"

so why would you make the claim in the first place then?

 
At 4/16/2012 11:57 AM, Blogger Paul said...

"so why would you make the claim in the first place then?"

Why would I say increased drilling will lead to lower prices? If you really have to ask, I'm not about to jump through your stupid hoops yet again.

 
At 4/16/2012 12:08 PM, Blogger Larry G said...

" Why would I say increased drilling will lead to lower prices?"

blog thread title as well as numerous other blog threads making similar claims along with pro-drilling groups?

 
At 4/16/2012 12:26 PM, Blogger Paul said...

Yes. And? You haven't explained in any way how it's a wrong assumption. You just parrot your hero Obama who pushes $326k per job "green jobs" as the answer to all the free oil patch jobs he kicked away.

There's another specific # for you to chew on, Larry.

 
At 4/17/2012 1:10 AM, Blogger Ron H. said...

"But my question was - is there a correlation that shows how much we produce with a specified dollar impact on world prices?"

No.

 
At 4/17/2012 1:16 AM, Blogger Ron H. said...

"It would seem that every new domestic source would only go towards world supplies and that as long as we export domestic oil, we'd still have to import it also - at world prices - not the price plus profit of it being extracted and sold domestically."

Oil is a global commodity. Its price depends on it's quality, and the cost of transportation. All oil sells at world prices.

Why would anyone sell domestically produced oil cheaper to a US buyer than they would to anyone else?

 
At 4/17/2012 1:18 AM, Blogger Ron H. said...

so we have additional gasoline refined here in the US ..that if sold in the US would result in lower gasoline prices and instead it is exported?

true?
"

No.

Gasoline is sold to the highest bidder.

 
At 4/17/2012 1:22 AM, Blogger Ron H. said...

"If someone told you that if we DOUBLED our production by opening up ALL Federal lands and all offshore drilling ... that we'd lower the price of gasoline by one penny - would you think it worth it?"

"We" cannot double our production of oil.

"what's the value of increasing production - to us?"

Who is "us"?

 
At 4/17/2012 1:25 AM, Blogger Ron H. said...

"so Bakken oil actually costs about $70 per 42 gallons of refined gasoline? (not counting transportation and refinery costs)?"

No.

 
At 4/17/2012 1:46 AM, Blogger Ron H. said...

"But if there is no real correlation, then how can we make the assertion that there is - and then not actually show the correlation?"

A correlation is not a direct and exact relationship that can be measured and quantified as if the two sets of data are connected by physical gears.

We know that a greater supply of something causes lower prices, but the exact amount cannot be determined with precision, especially in the case of oil production to gasoline prices, as there are many other variables involved, and all value is subjective.

I hope that helps.

No one can know exactly what effect a particular increase in oil production will have on the price of gasoline at the pump, so you aren't going to see exact amounts presented.

 
At 4/17/2012 1:58 AM, Blogger Ron H. said...

"the political argument IS that gas prices in the US would be much lower if we increased our drilling and approved Keystone.

since the argument is made on the price of gasoline why is "vague" good enough for that estimate while using it as a powerful political argument to open up more drilling?
"

Yes, those are political argument. You should stop listening to political arguments, as they aren't generally based on any kind of reality.

Methinks is right. See how the market reacts to a particular piece of news for an estimate of what the price change will be before any other news is available.
1
Keep in mind that these market estimates are performed continually.

 
At 4/17/2012 2:05 AM, Blogger Ron H. said...

Walt: "Isn't that uncertainty where the speculators come into play?"

The uncertainty is continuous, and the speculators are continually in play.

Everyone that buys or sells oil or gas, or anything else, for that matter, is speculating.

 
At 4/17/2012 2:13 AM, Blogger Ron H. said...

Walt: "Globally? People in the U.S. do not care what gasoline costs in another country. If they did, we could make a case to just let it go up."

Actually People in the US care a great deal what gasoline costs in other countries, as those that supply us with gasoline are bidding against the suppliers of all those other people.

 
At 4/17/2012 2:21 AM, Blogger Ron H. said...

"theoretical supply/demand concepts do not often accurately describe real world conditions but there is no shortage of fools that believe otherwise."

I knew it would happen eventually, and today is that day! Larry G. falsifies the long held view that supply and demand are immutable economic laws.

And to think I lived to see it!

 
At 4/17/2012 3:44 AM, Blogger Larry G said...

" "theoretical supply/demand concepts do not often accurately describe real world conditions but there is no shortage of fools that believe otherwise."

I knew it would happen eventually, and today is that day! Larry G. falsifies the long held view that supply and demand are immutable economic laws.

And to think I lived to see it! "

Oh contraire! "immutable"?

ha ha ha... try bogus economics foisted on the gullible for political purposes!

What I pointed out was the sheer falsity of the drill baby drill argument that is being used time and time again to justify more domestic production of oil - on the economically illiterate and totally bogus premise that in doing so it will result is lower gasoline prices.

The economically literate know that domestic supply/demand is not a closed system even as the argument is being made politically as if it is.

To expose this fraud - I ask for some simple rough estimates showing a resonable correlation between domestic drilling and lowering of domestic fuel prices and low and behold, we are told it's "too difficult" to compute a number because of the fact that's it's world prices involved and all that rot.

Mind you, it does not keep those same folks from continuing to make the claim that increasing domestic supply will lower domestic prices claim (sans numbers of course).

Check out how many previous posts in CD relate to this concept of drilling more domestically to lower domestic prices - a seemingly nominal supply/demand concept - even as the economically literate know that the premise itself is false.

the same supposed economically literate even use it to justify pipelines that will be used to not supply cheaper domestic fuel but instead to sell for world market prices.

the pipeline is a simply device to make domestically-produced oil more valuable once it can be exported.

we already see that domestically-produced oil that cannot 'escape' to be sold on world markets ...IS CHEAPER and it's the pipeline that makes it more expensive (and more valuable to the investors).

So why is the domestic oil cheaper without the pipeline capacity?

can you explain that little supply/demand conundrum.

Oh.. and how come you CAN put a price on it as long as it is not put in a pipeline and exported?

questions. questions.

 
At 4/17/2012 9:31 AM, Blogger Pulverized Concepts said...

Larry G. says, "the pipeline is a simply device to make domestically-produced oil more valuable once it can be exported."

Does that mean that if we cut up all the present pipelines and shipped oil on rail tank cars or, better yet, in 5 gal buckets, that oil would be less valuable, ie. cheaper?

 
At 4/17/2012 9:48 AM, Blogger Larry G said...

re: " Does that mean that if we cut up all the present pipelines and shipped oil on rail tank cars or, better yet, in 5 gal buckets, that oil would be less valuable, ie. cheaper? "

well... what it means is that oil would become more like other "stranded" resources and judging by what is happening in places like North Dakota where they don't have enough pipeline capacity - it's more profitable to refine it and sell it locally and regionally than try to transport it at higher costs and lower profits.

drill baby drill is the pro oil investors excellent and effective propaganda to convince gullible US consumers that the more we drill domestically, the cheaper gas will be by using a bogus supply/demand argument that pretends that domestically-drilled oil increases the supply domestically when in reality it just makes investors richer.

Don't get me wrong. Nothing at all wrong with people getting rich.

It's the bogus supply/demand premise that rankles me.

 
At 4/17/2012 10:32 AM, Blogger Paul said...

Larry,

"It's the bogus supply/demand premise that rankles me."

That same premise you have not refuted anywhere in this thread while rambling on about "economic illiterates." You seem to think your trump card argument is that nobody has supplied you with a definite price point. Hey Larry, the world doesn't always work according to the specifications of central planners like your hero Obama. That doesn't mean the entire argument is invalidated, and you've been given tons of supporting evidence to explain why. But you refuse to accept because you're just working backwards from supporting Obama's energy policy and whatever other dumbass plans he tries to implement.

If drilling wont make a difference then tell me this, Larry: Why has Obama launched a 3 yr war on fossil fuels? He and his flunkies have repeatedly stated they wants to drive up the price of oil and electricity in order to make their green jobs and technologies more competitive. Their actions sure seem to indicate they believe that clamping down on drilling permits, illegal drilling moratoriums,pipeline cancellations, and declaring 85% of the OCS off-limits would make a difference in price. If not, then what's the point of killing off all those jobs and wealth in the fossil energy industry?

If, as you say, drilling won't help, then what's the harm? Why not call us on our bluff and at least create some free jobs?

 
At 4/17/2012 10:45 AM, Blogger Methinks said...

Paul,

Law of supply and demand? You crazy old dog, you! I bet you fell for that old law of gravity thing too. Ha ha!

Larry's too smart to be fooled by that stuff.

 
At 4/17/2012 10:49 AM, Blogger Larry G said...

" If, as you say, drilling won't help, then what's the harm? Why not call us on our bluff and at least create some free jobs? "

I did not say it would not help. I said that it's promoted as a basic supply/demand premise that is wrong and that because they folks who promote it know it's wrong - they don't even provide ANY price effects.

The basic argument being used is not economic but political.

It would make no difference who was President - the economics would be the same but the politics might change.

What North Dakota proves is that if there is no easy way to export oil, then it gets sold domestically - for less than world oil prices - precisely because at that point domestic drilling is keyed to domestic demand.

What the pipelines do - is allow the oil to be exported/sold for a much higher price.

But as I said - the politics of this are such that the pro-export people have actually convinced the average American Rube that the pipeline benefits them rather than harms them.

No additional pipelines WOULD RESULT in lower gasoline prices because the oil has to go somewhere and if it cannot be exported, it increases the domestic supplies - ergo lowers prices - which is exactly what we see right now in the regions where increased oil drilling is taking place in the US.

The investors quite naturally would like to be able to sell as much as they can for a much higher price on the world market but in order to do that - they need a pipeline.

This has absolutely nothing to do with Obama and everything to do with investors trying to maximize their profits and they do it by convincing economic illiterates that pipelines will lower domestic gas prices.

HEY, I give these guys credit!

The American consumer eats their propaganda up; they've conducted one hell of an effective campaign to bamfoozle the gullible of which there are apparently herds of ....

pipelines are NOT American consumers friends when it comes to domestic drilling for oil...yet not only do they believe it...they believe that more drilling will help even more to lower prices when, in fact, it means more oil will be exported, or at least have the price increased to the level of what the oil is worth on world accessible markets.

I'm not arguing that we should get rid of pipelines or even restricting the sale of domestic oil - only that the folks who claim economic literacy ... tell the truth about it economically.

and that's not happening here in CD.

 
At 4/17/2012 11:26 AM, Blogger Methinks said...

But as I said - the politics of this are such that the pro-export people have actually convinced the average American Rube that the pipeline benefits them rather than harms them.

Thank goodness Larry's not one of those rubes who is fooled into thinking that keeping demand artificially high by keeping prices artificially low (fantastically leaping to the assumption this can be achieved) will ever lead to anything harmful.

You people have a long way to go before you understand Larry's World.

 
At 4/17/2012 11:39 AM, Blogger Larry G said...

".... keeping demand artificially high by keeping prices artificially low (fantastically leaping to the assumption this can be achieved) will ever lead to anything harmful."

No less than Professor Perry pointed out that locally-produced gasoline is CHEAPER when it cannot be transported away by pipeline.

The question is - is that really a "bad" thing?

I guess if you are an investor in drilling for oil it is but if you are a consumer of gasoline, it's not.

I suggest you ask the folks who benefit from the lower prices of that North Dakota oil if the lower prices are "bad".

or if those same folks would support policies that would make their gas more expensive even if it "helped" investors.

We're playing a silly game here where the folks who say they support "free" markets refuse to admit that "free" markets do NOT necessarily benefit consumers.

As I said, I give full credit to the folks who have successfully "sold" the idea that new pipelines will result in lower gas prices to consumers even as most here in CD know that's not the case.

And again, I'm not advocating policies to restrict investment or making profits - I'm only saying that the average consumer of gasoline in American has been sold a bill of goods by making a totally bogus supply/demand case and that if they really knew/understood what pipelines did to prices... they may well not be so supportive of pipelines that essentially boost the price of gasoline.

 
At 4/17/2012 11:43 AM, Blogger Pulverized Concepts said...

Gee, Larry G., if the authorities were able to restrict the sale of Bakken formation oil to McKenzie County, ND then maybe it would be almost FREE, at least there, right? Isn't that akin to the theory of Hugo Chavez in Venezuela and other anti-free market types. Per wikipedia: "Fuel subsidies are common in oil-rich countries. Venezuela, which has vast oil reserves, maintains a price of Bs.F 0.097 per litre (around US$0.02), and has done so since 1998.[11] Other countries with subsidized fuel include Saudi Arabia, [[Iran],]Egypt, Burma, Malaysia, Kuwait, Trinidad and Tobago, Brunei and Bolivia. On February 2010, the Iranian government implemented an energy price reform by which the energy subsidies were to removed in five years. the most important price hike was in gasoline, as price went up from 100 rials ($0.10 US) to 400 rials ($0.40 US) with a ration of 100 liters per month for private passenger cars (later reduced to 60 liters per month). On December 26, 2010, the Bolivian government issued a decree removing subsidies which had fixed /petrol/gasoline and diesel prices for the past seven years. Arguing that illegal export (contraband) to neighboring countries was harming the economy, Bolivia eliminated the subsidies and raised gas prices as much as 83%. After widespread strikes, the Bolivian government canceled all planned price hikes."

Energy policy in Latin America is similar to health care policy in the US. Just what we need.

 
At 4/17/2012 11:59 AM, Blogger Larry G said...

Geeze, NO ONE has advocated anti-free trade policies here.

I've only pointed out that the supply/demand premise being presented as a claim that benefits consumers is bogus because it really does not benefit consumers - it raises the price of what they pay.

that's the purpose and duty of any business - to sell their products for as much as they can get for them.

but to promote those things as a benefit to consumers takes chutzpah but with American consumers, they will readily believe the fiction apparently.

"drill baby drill" does not help US consumers much at all. It basically helps investors (who in all fairness DO provide jobs).

I object to the totally bogus premise that drilling more will lower prices when drilling more won't have much effect and not an effect than the promoters themselves wish to put a price on.

As I said several posts back, if pipeline promoters said that it would lower the price of gasoline by 20 cents - they'd get creamed so instead they make a vague argument about the "logic" behind supply and demand but the supply/demand premise they are using is corrupt/bogus because it pretends that supply/demand is a domestic only proposition when in reality it's a world proposition and drilling more in the US for oil to be sold at world - demand prices won't substantially help US consumers at all.

 
At 4/17/2012 12:28 PM, Blogger Paul said...

Notice how Larry is now just talking about pipelines rather than drilling. Perhaps he realized how stupid is his argument? Now he thinks he's latched onto a winner in the supply gut in the midwest and somehow vindicating his hero Obama.

But is that true?

According to Investors.com(oh no, investors!) "..Canadian Prime Minister Stephen Harper warned Obama the U.S. will have to pay market prices for its Canadian oil after Obama's de facto veto of the Keystone XL pipeline. Canada is preparing to sell its oil to China.

Until now, NAFTA had shielded the U.S. from having to pay global prices for Canadian oil. That's about to change."

Yes, the oil we were getting from up north has been discounted. Now that Obama pissed off the Canadians, they are going to find some new customers in Asia. Harper stated: “Look, the very fact that a ‘no’ could even be said underscores to our country that we must diversify our energy export markets”
....

“We cannot be, as a country, in a situation where our one and, in many cases, only energy partner could say no to our energy products. We just cannot be in that position."

Excellent work by Larry's hero Obama.

 
At 4/17/2012 12:41 PM, Blogger Paul said...

"I guess if you are an investor in drilling for oil it is but if you are a consumer of gasoline, it's not."

What if you're a victim of Obama's economic policies and don't have a job? I bet some of those victims would love a chance to go work in places like Williston, ND and pay some FICA into your government checks, Larry.

Also, that artificial supply gut in the Midwest could very well keep producers from exploiting the wells to max capacity, and expanding production. There are reactions to every action/inaction, Larry.

As to your claim that Keystone oil would just bypass the US market, nonsense. According to Masterresource.org:" Of the 1.2 billion barrels of finished petroleum products refined in the Gulf Coast region (PADD III) from January through October 2011, approximately half was sold in domestic markets. New supplies of Canadian oil will undoubtedly increase exports, but much of it will be used to offset declining PADD III imports of Mexican and Venezuelan crude. DOE analyst Carmen Difiglio observes."

 
At 4/17/2012 1:07 PM, Blogger Methinks said...

I guess if you are an investor in drilling for oil it is but if you are a consumer of gasoline, it's not.

Past experience has taught me that helping you think beyond step one is fruitless, thus I am disinclined to expound on the symbiotic relationship between supply and demand. Particularly since you are pretty much the only commenter on this blog with a biological resistance to understanding economics usually absorbed by 18 year olds by page 2 of their first econ text.

Of course, you are correct. Those "pipeline promoters" are evil, wily rascals looking to bleed you dry. You don't know how. You just know it's true.

But we can rest assured that like logic and the basic laws of economics, pipelines will be banished from the secure fortress that is Larry World.

 
At 4/17/2012 1:26 PM, Blogger Larry G said...

More drilling does not reduce domestic prices either if it is pegged to world demand and can be exported to the highest bidder.

nothing evil about drilling or pipelines but the supply demand premise is bogus to the bone for sure!

 
At 4/17/2012 1:45 PM, Blogger Methinks said...

Bogus. Totally bogus, Larry.

Just like the laws of thermodynamics.

It's a conspiracy,actually.

I feel better knowing that we have people like you to alert us to the bogusness (bogasity?).

 
At 4/17/2012 1:48 PM, Blogger Paul said...

"More drilling does not reduce domestic prices either if it is pegged to world demand and can be exported to the highest bidder."

I've already explained how this is bunk depending on how much oil is produced. You have nothing to counter with, so you just discard the entire argument, and now you're simply zeroed in on the wonderful benefits of keeping Midwest oil production bottled up artificially.


Hey Larry, your hero Obama is out there today demonizing all those "speculators" who drive up the price of oil according to him. Almost daily, he calls for higher taxes on oil companies but never explains how that will do anything but make gas more expensive.

You find any of that scumbag politics disconcerting? Or, do you only feel compelled to fight a heroic one man battle against the forces of oil production?

 
At 4/17/2012 1:49 PM, Blogger Paul said...

This comment has been removed by the author.

 
At 4/17/2012 4:31 PM, Blogger juandos said...

methinks says: "Past experience has taught me that helping you think beyond step one is fruitless, thus I am disinclined to expound on the symbiotic relationship between supply and demand. Particularly since you are pretty much the only commenter on this blog with a biological resistance to understanding economics usually absorbed by 18 year olds by page 2 of their first econ text"...

Whaaaacccckkkkkkk!!!!...

Are you awake now larry g?

 
At 4/17/2012 4:35 PM, Blogger juandos said...

"I knew it would happen eventually, and today is that day! Larry G. falsifies the long held view that supply and demand are immutable economic laws.

And to think I lived to see it!
"...

Oh damn!

ron h, you're rolling hot! Real hot!

Now that was funny!

 
At 4/17/2012 4:47 PM, Blogger Its GSATT said...

larry g, yes, you made your point. But unfortunately its a very worthless point. Yes, if there was no way to transport the crude out of the area it was drilled, there would be so much damn supply that they would be giving it away. But no imbicile would drill that much if he couldn't sell it anywhere else besides his little area. The fact is people are able to sell their products on other continents, and that is where the money is at, and that is what drives people to dig a damn hole in the ground. THIS IS THE HAND THAT IS DEALT, THIS IS REALITY. would you sit in your back yard diggin a whole in the ground for some black mess "just because" hell no, you'd rather be flying that badass float plane.

Here's reality

WE are a global market. We have been since for "expletive"-ever. Its why this land was discovered, rescources. They sailed a damn wooden boat towards nothing, an endless ocean to find gold, slaves, hookers..... whatever. Since we are on a global scale, we have to drill on a global scale to make that market drop its price. That happens to be a lot of damn drilling. DEAL WITH IT.

There are lots of politics and FEELINGS about polar bears that affect this policy making. We in America choose to pay a higher price because we are rich enough that we are not starving for money. So what does a human do who has all of their basic needs met? They get bored.... and they bitch about their neighbors , they bitch about people wearing animals, they bitch about the evil rich oil companies, they bitch about politics.

SOOOOOOOOO a select few "show those mean people" and cry cry cry until they keep someone from putting a hole in the earth. Then they drive around all smug in their prius with an OBAMA 08 sticker sun faded to the bumper. YA, they showed those ouil companies whose boss

 
At 4/17/2012 6:37 PM, Blogger Unknown said...

"What I pointed out was the sheer falsity of the drill baby drill argument that is being used time and time again to justify more domestic production of oil - on the economically illiterate and totally bogus premise that in doing so it will result is lower gasoline prices."

No, all you've done is move the goalposts. The basic logic is sound but you dismiss the logic unless specific numbers can be attached to it. Nevermind that your demand of specific numbers is unreasonable due to all the variables in play.

It seems your focus is to delegitimize an argument without offering any of your own. Mere statistics are not an economic argument. Scientism is not science.

 
At 4/18/2012 5:10 PM, Blogger Ron H. said...

"The economically literate know that domestic supply/demand is not a closed system even as the argument is being made politically as if it is."

But you aren't a member of that group.

"the same supposed economically literate even use it to justify pipelines that will be used to not supply cheaper domestic fuel but instead to sell for world market prices."

Which should be lower as supply increases, unless demand increases even faster, right?

Oops! I forgot. supply and demand don't apply to oil and gasoline.

"Oh contraire! immutable"?"

That's "au contrair", and yes, Larry, the laws of supply and demand are immutable, even though it might not seem so to someone with limited comprehension like yourself.

"we already see that domestically-produced oil that cannot 'escape' to be sold on world markets ...IS CHEAPER and it's the pipeline that makes it more expensive (and more valuable to the investors).

So why is the domestic oil cheaper without the pipeline capacity?

can you explain that little supply/demand conundrum.
"

That is not a conundrum to anyone who has a basic understanding of economics. The value of everything, including oil, is based on where it is.

Oil is worth less at a wellhead in North Dakota than it is in a storage facility in Port Arthur Texas. The difference is the cost of getting the oil to a tanker in the Gulf of Mexico, where it can then travel anywhere in the world.

It is worth more at your nearest refinery than it is in North Dakota for the same reason. Gasoline at that refinery is worth less to you than gasoline at your local station.

A bird in the hand...

"Oh.. and how come you CAN put a price on it as long as it is not put in a pipeline and exported?"

You will have to run that last bit through your "make sense" translater before I can attempt a responce.

"questions. questions."

yeah, Larry, you've really got people here stumped, all right, but not for the reasons you might think.

 
At 4/18/2012 6:33 PM, Blogger Ron H. said...

"I've only pointed out that the supply/demand premise being presented as a claim that benefits consumers is bogus because it really does not benefit consumers - it raises the price of what they pay."

Here's a thought: Maybe increasing supply will come closer to meeting increasing demand so that prices won't rise as fast or as much as they would otherwise, without that increase in supply.

What do you think, Larry?

We are talking world supply and world demand here, not just US S&D.

 
At 4/18/2012 6:45 PM, Blogger Ron H. said...

"well... what it means is that oil would become more like other "stranded" resources and judging by what is happening in places like North Dakota where they don't have enough pipeline capacity - it's more profitable to refine it and sell it locally and regionally than try to transport it at higher costs and lower profits."

You might want to think about that for a moment. How much gasoline do you think the people in the region can use?

Once they have filled every container they own, including their swimming pools, they may find the *marginal utility* of gasoline to be pretty low, and they might be unwilling to pay much, if anything, for it.

What do you think?

Marginal utility is another fascinating economic concept - dare I say law - that you may want to familiarize yourself with.

 
At 4/18/2012 6:53 PM, Blogger Larry G said...

" Here's a thought: Maybe increasing supply will come closer to meeting increasing demand so that prices won't rise as fast or as much as they would otherwise, without that increase in supply"

it's not much of a thought guy because the premise is false to start with and virtually no supporting data of any kind is provided to support that premise.

supply/demand only works is BOTH the supply and the demand is contained within the same system.

drilling domestically to then be supplied globally are two different critters.

the correct premise would be to show how increased drilling in the US would affect the world price of oil and in turn how that would affect domestic prices of refined products.

you could have a chart that showed domestic barrels of oil produced on the X axis and the price per barrel on the Y axis.

We actually DO have some data to show what happens if we actually do map out domestic supply and demand for the oil that is in excess of what can be pipelined for export.

In those cases, local gasoline prices DO drop as reported by Professor Perry in prior threads.

but as soon as additional pipeline (or rail) capacity is added, that oil will no longer be stranded and will be exportable at world prices in response to world demand.

now surely you see this I would hope,

 
At 4/18/2012 6:54 PM, Blogger Larry G said...

re: "marginal utility".

are you talking about that concept on a worldwide basis or a domestic basis where the oil cannot be transported for export?

be concise if you can.

 
At 4/18/2012 7:10 PM, Blogger Paul said...

"it's not much of a thought guy because the premise is false to start with and virtually no supporting data of any kind is provided to support that premise."

What was that about economically literate?

"supply/demand only works is BOTH the supply and the demand is contained within the same system."

Who is saying otherwise?

"...but as soon as additional pipeline (or rail) capacity is added, that oil will no longer be stranded and will be exportable at world prices in response to world demand."

Yes, refiners may export value added petroleum products, a good thing. Or they may sell it domestically, like much of the oil they already refine, a good thing.

How is either option worse than option C, where Canada sells the formerly discounted oil directly to the Chinese instead?

 
At 4/18/2012 7:18 PM, Blogger Larry G said...

" Who is saying otherwise?"

you,re kidding right?

do you read this blog?

re: selling to the Chinese

that's what they are doing with the Keystone pipeline and the Chinese set the price if we decide to sell it domestically.

if the product was "stranded" like it is right now - the price would go down as the supply went up - domestically.

but using your own "what about the Chinese" question - if you sell Canadian oil to meet Chinese demand - does that REDUCE the prices we pay or increase them?

I say it increases them because the Chinese will pay more for the oil that if it were stranded domestically. Once it is exported, the price of it is established not to local/region demand but world demand.

This is something that anyone in the business of extracting oil would rightly want but my point is that the pipeline is being sold (in part) as a way to help US gas prices and I think that has not been proven much less even weakly supported with numbers.

The opposite is likely closer to the truth. When you export the oil to meet world demand, the world sets the price - not North Dakota - which is higher than if the oil was stranded in North Dakota.

Consider how natural gas "works".

It sells at much higher prices in other nation markets but exporting it is expensive so nat gas is stranded and as a result look at what has happened to the price - domestically - regardless of the price in Japan, China, etc.

 
At 4/18/2012 8:05 PM, Blogger Ron H. said...

"it's not much of a thought guy because the premise is false to start with and virtually no supporting data of any kind is provided to support that premise."

Well, I've done my best to convince you otherwise, but you're right, Larry, supply and demand aren't really related.

"supply/demand only works is BOTH the supply and the demand is contained within the same system."

Yes, once again you are correct. Drilling on earth doesn't help those poor Martian drivers at all. I envisioned Earth as a single global system, but that's narrow thinking.

"drilling domestically to then be supplied globally are two different critters."

Yes, absolutely. No global market exists.

"the correct premise would be to show how increased drilling in the US would affect the world price of oil and in turn how that would affect domestic prices of refined products."

Well, we can GUESS that might happen , but without proof and hard numbers, it's just silly to consider it.

"you could have a chart that showed domestic barrels of oil produced on the X axis and the price per barrel on the Y axis."

I could, although I usually prefer price on the X axis. Just a personal quirk.

"We actually DO have some data to show what happens if we actually do map out domestic supply and demand for the oil that is in excess of what can be pipelined for export."

WE do? If that's true, please share it.

"In those cases, local gasoline prices DO drop as reported by Professor Perry in prior threads.

but as soon as additional pipeline (or rail) capacity is added, that oil will no longer be stranded and will be exportable at world prices in response to world demand.
"

Then the answer is clear: We should be destroying pipelines and blocking shipments in every way we can, so those domestic oil creeps will have to sell their oil to domestic refiners dirt cheap. You, my man, are a genius!


"now surely you see this I would hope,"

Yes, It's clear now.

 
At 4/18/2012 8:10 PM, Blogger Larry G said...

" Well, I've done my best to convince you otherwise, but you're right, Larry, supply and demand aren't really related."

more blather is all you can offer?

tsk tsk.

the CLASSIC ACADEMIC so-called "law" of supply and demand differs dramatically from real world examples.

is that not in your world of understanding?

is your world see no evil, hear no evil, speak no evil if it violates your classical understanding of theories?

geeze guy.... I'm sorry...

 
At 4/18/2012 9:08 PM, Blogger Ron H. said...

"are you talking about that concept on a worldwide basis or a domestic basis where the oil cannot be transported for export?

be concise if you can.
"

OK:

Definition of 'Marginal Utility'

"The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility. Negative marginal utility is when the consumption of an additional item decreases the total utility."

"For example, if you were really thirsty you'd get a certain amount of satisfaction from a glass of water. This satisfaction would probably decrease with the second glass, and then decrease even more with the third glass. The additional amount of satisfaction that comes with each additional glass of water is marginal utility."

This *decrease* in the utility of each additional unit consumed is known as:

'The Law Of Diminishing Marginal Utility'

"A law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product."

Notice that this is stated as a general rule, and is not specific to oil, or domestic, or global. It is a general observation of human nature, and how we value things, therefore how much we are willing to pay for them.

In the example I gave you about an over-abundance of gasoline in North Dakota, people would be unlikely to pay much, if anything at all, for one more gallon when thay have as much on hand as they can possibly store. An additional gallon of gasoline would have extremely low marginal utility for such people.

 
At 4/18/2012 9:37 PM, Blogger Ron H. said...

"it sells at much higher prices in other nation markets but exporting it is expensive so nat gas is stranded and as a result look at what has happened to the price - domestically - regardless of the price in Japan, China, etc."

So you would like to forbid all international sales of oil or gasoline, so that prices in the US would be lower, and people who depend on oil imports in other parts of the world can just eff themselves. Nice guy.

Keep in mind that the US CANNOT produce all of its own oil, and must import part of what's used.

What do you think: oil in but no oil out?

 
At 4/18/2012 9:42 PM, Blogger Ron H. said...

"if the product was "stranded" like it is right now - the price would go down as the supply went up - domestically."

What do you imagine happens to exploration and development when the price drops? Do you think producers just keep on drilling and pumping for all they're worth no matter whether it's profitable or not?

 
At 4/18/2012 9:46 PM, Blogger Ron H. said...

"the CLASSIC ACADEMIC so-called "law" of supply and demand differs dramatically from real world examples."

Let's see some. What you got?

 
At 4/18/2012 10:01 PM, Blogger Larry G said...

" So you would like to forbid all international sales of oil or gasoline, so that prices in the US would be lower, and people who depend on oil imports in other parts of the world can just eff themselves. Nice guy.

Keep in mind that the US CANNOT produce all of its own oil, and must import part of what's used.

What do you think: oil in but no oil out? "

WHERE do you GET your conclusions from.

I have said over and over that I advocate no restrictions of any kind.

re: we must import...

yup...as we export....

and/or once we CAN export, it automatically increases the price to be in line with world prices rather than stranded regional prices.

the pipelines MAKE THE OIL MORE VALUABLE - i.e. more costly than it would be if it were stranded.

re: would they drill it if they could not export it?

what you mean is would they sell it for less profit than if they could peg it at a higher price.

the answer is if they can make a profit... they may well take that profit.. AND try to increase it.

any oil they choose not to pump ...will EVENTUALLY be pumped when/if demand for it increases.

re: real examples of real world

WTF... what do you think I've been talking about?

you want more?

try ethanol

try sugar

want more?

try Enron electricity

try technology that is illegal to export.

are you really this dense or do you just want to refuse to admit the truth?

classic economic theories - are...theories....

In a perfect world, they would work perfectly.

it's not a perfect world.

pipelines make domestic oil more expensive than it would be if there was not a pipeline.

you've got a real world example of that in North Dakota where fuel prices are LOWER but that situation will change as soon as they can pipe that oil for export at which point the price will rise to what the world price is.

 
At 4/19/2012 9:09 AM, Blogger Paul said...

" if you sell Canadian oil to meet Chinese demand - does that REDUCE the prices we pay or increase them?"

Increases them because we were getting that oil at a discount via NAFTA. Stephen Harper took the Keystone rejection as a slap in the face, and now the Chinese will be getting much of that "stranded" oil. The Chinese will also be getting much of the future oil that hasn't been produced yet because of the lack of pipeline. So, American energy workers lose out as do American motorists.

What was your point again?


"that's what they are doing with the Keystone pipeline and the Chinese set the price if we decide to sell it domestically."

Some of the oil we were getting at a discount via NAFTA will probably go to the Chinese after its refined, some will be sold domestically like much of the oil refined at the gulf coast. That would seem to me to be a better deal than pissed off Canadians bypassing the US entirely.

But you and Obama have got your stories, Larry, and you're sticking to them, so keep ignoring this point just as you ignore every other example and explanation that has been provided to you in this thread.

 
At 4/19/2012 9:19 AM, Blogger Paul said...

For the hell of it, I just compared N Dakota gas price to my state of Arizona's. The avg diff is all of 6 cents. Yeah, that 6 cents really makes a huge difference, Larry. Yay, "stranded oil!"

You're right, let's not build the pipeline. Screw all those jobs and cheap Canadian oil it would have brought.

http://www.northdakotagasprices.com/

http://www.arizonagasprices.com/

 
At 4/19/2012 11:35 AM, Blogger Larry G said...

nothing what-so-ever to do with Obama and EVERYTHING to do with stranded extracted resources and resources that can be exported and how the difference between the two affects the price it fetches.

I note that the Canadians could build a SHORTER pipeline to their west cost...about the same length as the Alaska Pipeline whereas the one through the US is much longer.

Now the costs have to be higher also.

So why would they pick the more expensive path?

I was not really talking about the Canadian Oil as much as the North Dakota oil anyhow.

Professor Perry has clearly documented the effect on price that results from a limit on pipeline capacity.

It reduces the price of the oil and the investors have 3 choices.

1. build additional pipeline capacity

2. sell stranded oil locally/regionally for less

3. leave it in the ground.

nothing at all to do with Obama.

 
At 4/19/2012 12:27 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 4/19/2012 12:49 PM, Blogger Ron H. said...

"WHERE do you GET your conclusions from."

I draw conclusions about your positions from what you write. It's the only source I have. Although you haven't said so directly, I assume you think lower gasoline prices in the US are a good thing.

Here's a few examples:

"that's what they are doing with the Keystone pipeline and the Chinese set the price if we decide to sell it domestically."

"if the product was "stranded" like it is right now - the price would go down as the supply went up - domestically."

"I say it increases them because the Chinese will pay more for the oil that if it were stranded domestically. Once it is exported, the price of it is established not to local/region demand but world demand."

"This is something that anyone in the business of extracting oil would rightly want but my point is that the pipeline is being sold (in part) as a way to help US gas prices and I think that has not been proven much less even weakly supported with numbers."

"The opposite is likely closer to the truth. When you export the oil to meet world demand, the world sets the price - not North Dakota - which is higher than if the oil was stranded in North Dakota."

"Consider how natural gas "works"."

"It sells at much higher prices in other nation markets but exporting it is expensive so nat gas is stranded and as a result look at what has happened to the price - domestically - regardless of the price in Japan, China, etc."

If restrictions cause lower US prices, they must be good, no?

 
At 4/19/2012 1:25 PM, Blogger Larry G said...

" If restrictions cause lower US prices, they must be good, no? "

No...although there are things that we can strategic enough that we do restrict export.

No.. what I object to is the narrative that the pipelines will LOWER the price of gasoline when the opposite will happen.

As soon as the stranded oil is able to be exported - the price of it resets to what the world price is even if it is sold here.

without the pipeline, the stranded price is demonstrably lower.

supply and demand ARE IN PLAY but the circumstances are not what is being portrayed.

stranded products have different boundaries than unrestricted products.

marginal utility..

how low do you think stranded gasoline would go before demand would not change?

there ARE domestic pipelines and there is a good chance that if the price of the stranded product went low enough that the lower priced product would supplant the higher -priced imported supply.

If the Keystone pipeline was permanently turned down, the Canadians would have the same dilemma that North Dakota has until they completed their own pipeline.

The Canadian fuel is more expensive to start with though and may not be economically viable unless the world price of oil stays high.

I'm all for the free market in most every respect but I believe the drill baby drill argument is bogus and does a disservice to economic literacy.

The American people should recognize that domestic oil becomes more expensive, not less, if it can be exported and pegged to world prices rather than local/region stranded prices but they don't, in no small part because of the excellent propaganda/disinformation coming from the API and others.

 
At 4/19/2012 2:30 PM, Blogger Paul said...

"nothing what-so-ever to do with Obama"

It has everything to do with Obama considering he cancelled the pipeline.

"...and EVERYTHING to do with stranded extracted resources.."

This drum you keep beating, I already pointed out the difference in gas price between N Dakota and where I live in the West, is pocket change. And once again, we were getting Canadian oil at a discount under NAFTA. No longer.

I would also note you began this thread discussing "the theoretical "opening" of the rest of the US oil reserves to production" that your hero Obama shut down when he took office. Enormous swaths of US territory, including almost all of our OCS, have been taken off the table under this idiot President you helped elect. We can't even really intelligently discuss the "theoretical opening" of the rest of US territory because much of that territory hasn't had any seismic studies done for decades. We could have the equivalent of multiple Tupi fields sitting off the coast of Va, and we won't be able to touch it.

It has everything to do with Obama. If it didn't, you wouldn't be defending your dumb "drilling wont help" talking points to the last ditch.


"So why would they pick the more expensive path?"

How do you know it's more expensive? THere could be tax, topology, refining capability, or other business reasons why the Canadians want to send their oil to us.

"I was not really talking about the Canadian Oil as much as the North Dakota oil anyhow."

YOu were talkng about the Keystone pipeline so I assumed you were talking about all the oil that would flow through it. Silly me for thinking you were factoring in the hundreds of thousands of barrels per day of oil your hero Obama doesn't want to allow US refiners to enrich and then sell domesticaly or export for profit.


"3. leave it in the ground.

nothing at all to do with Obama."

Actually 3 once again has evertying to do with Obama since that is his proven preference.

 
At 4/19/2012 2:38 PM, Blogger Paul said...

Pipeline: "The Canadian fuel is more expensive to start with though and may not be economically viable unless the world price of oil stays high."

And then this:"I'm all for the free market in most every respect but I believe the drill baby drill argument is bogus and does a disservice to economic literacy."

"Drill baby, drill" is more than just a pipeline, and you know it. You're just hacking it up here, Larry.

I've pointd out how the price of oil fell dramatically when Bush issued an executive order to allow drilling on the OCS. It kept falling until Obama launched his war on fossil fuels.

I've pointed out how small changes in global spare capacity has caused wide swings in the price of oil historically.

You have nothing to say to either point except to babble on about all those "economic illiterates" who believe in supply and demand.

 
At 4/19/2012 2:45 PM, Blogger Larry G said...

nothing to do with Obama - everything to do with pipelines - not the Keystone unless it will also move North Dakota oil.

have you got a link for the NAFTA angle?

re: the "path" - the Alaska pipe line is about as long as the Canadian line would be if it went to their west coast and BOTH of them cross mountain ranges.

it's quite a bit further to take the Keystone SOUTH through the US but the OBVIOUS question is WHY shouldn't North Dakota AND Canada REFINE the oil so that they transport the much smaller volume of the refined product?

The Alaska pipeline moves crude oil because it apparently cannot be refined where it is extracted.

There are existing refineries in Alberta and ND... why move crude if you can move refined?

How many other pipelines has Obama shut down?

none, right?

How much of the drilling for oil in North Dakota has Obama shut down/restricted ? None, right?

I still assert than when a pipeline is completed to the coast - that it increases the value of the oil and that's what this is all about and that once the pipeline is done - it actually will INCREASE the cost of gasoline to American consumers because then instead of being stranded in ND.. it will be available to the highest bidder at world prices.

 
At 4/19/2012 2:50 PM, Blogger Larry G said...

" "Drill baby, drill" is more than just a pipeline, and you know it"

nope.

drill baby drill where it is all sold domestically WOULD INDEED lower prices but we know that demand in the US is DOWN and that the oil is going to be exported to the highest bidder at world commodity prices which, in turn, will affect the price of oil in the US also.

drill baby drill is ALL ABOUT selling it at world prices not about lowering domestic prices.

but we are "selling" the drill baby drill logic on the premise that the more we drill, the lower the domestic price will be and we know that's simply not true.

demand is DOWN yet prices are going up BECAUSE of world demand.

this would be the case whether Obama or Bush or Romney was Prez.

Tell me what you think Bush or ROmney would do differently that WOULD actually lower domestic prices.

aren't you going to say "drill more"?

 
At 4/19/2012 3:40 PM, Blogger Ron H. said...

"the answer is if they can make a profit... they may well take that profit.. AND try to increase it."

Do you mean they will sell to the highest bidder?

What about the tons of money spent exploring and drilling before they know what price they will get when they actually have some oil for sale?


"any oil they choose not to pump ...will EVENTUALLY be pumped when/if demand for it increases."

Wait. How can higher demand lead to more supply, perhaps through a price signal? I thought those concepts only applied "in theory".

 
At 4/19/2012 4:11 PM, Blogger Ron H. said...

"I have said over and over that I advocate no restrictions of any kind."

You've done nothing of the sort. Examples please.

"re: we must import...

yup...as we export....
"

Well, almost right. Yes, US oil companies import and export oil to and from dozens of countries around the world.

However, US consumption is much greater than US production so it is absolutely necessary to import, but not absolutely necessary to export.

There is a common *political*, not economic, argument that "we must break our addiction to foreign oil", and betome "energy independent" but that's just politic-speak, and has no real meaning. It's not possible, no matter how much drilling is done in the US.

To advocate reliance on domestic sources of fuel is as silly as advocating reliance on domestic beer. We live in a global economy, and buy from the lowest priced producver, whereever they are.

"WTF... what do you think I've been talking about?

you want more?

try ethanol

try sugar

want more?

try Enron electricity

try technology that is illegal to export.
"

Ahh. I see your problem here, Larry, you are listing examples of supply and demand that are manipulated by government regulations.

You think that means that S&D don't work, but these are really good examples of what happens to price when supply is artificially distorted by government. We are all worse off in those cases.

Those examples show exactly how supply and demand work, and the role of price in that equation.

I was hoping you could point to some actual scholarly work refuting the law of supply and demand.

I know I've defined these terms for you in the past, so if your understanding is fuzzy now, you're on your own.

"you've got a real world example of that in North Dakota where fuel prices are LOWER but that situation will change as soon as they can pipe that oil for export at which point the price will rise to what the world price is."

Thats a perfect example of supply and demand in action. Reread my previous comments, where I explain it. The price of anything includes the cost of getting it to where you want it. If N. Dakota oil is difficult and expensive to get to a user across the ocean, it's price must be lower at the wellhead to compensate.

 
At 4/19/2012 4:38 PM, Blogger Larry G said...

" You've done nothing of the sort. Examples please."

well let me say once again. I am opposed to restrictions. I believe in the free market.

" Ahh. I see your problem here, Larry, you are listing examples of supply and demand that are manipulated by government regulations." yup.. but not restricted just to govts.

my point is that pure supply/demand is theory not practice most of the time.

" I was hoping you could point to some actual scholarly work refuting the law of supply and demand."

I'm not disputing supply/demand. I'm pointing out that it seldom exists in pure unadulterated form.

" I know I've defined these terms for you in the past, so if your understanding is fuzzy now, you're on your own."

yeah you have but you don't see the differences between theory and practice as well as you bloviate.

" "you've got a real world example of that in North Dakota where fuel prices are LOWER but that situation will change as soon as they can pipe that oil for export at which point the price will rise to what the world price is."

Thats a perfect example of supply and demand in action. Reread my previous comments, where I explain it. The price of anything includes the cost of getting it to where you want it. If N. Dakota oil is difficult and expensive to get to a user across the ocean, it's price must be lower at the wellhead to compensate."

indeed. what happens to the price when it can find it's way into a pipe and be exported? Does the price go up? Explain how supply/demand works in that scenario.

 
At 4/19/2012 6:19 PM, Blogger Ron H. said...

"it's quite a bit further to take the Keystone SOUTH through the US but the OBVIOUS question is WHY shouldn't North Dakota AND Canada REFINE the oil so that they transport the much smaller volume of the refined product?"

A 42 gal. barrell of oil produces 42 gallons of other things, Larry, the 19 gal. of gasoline is only one of those products. You still have total of 42 gal. of products to deliver to where they are needed. What advantage do you see to refining in North dakota where there is one refinery?

Here's the comparison. Be sure to check out the capacity differences also.

And before it even comes up, if you are going to suggest building more refineries somewhere, you might want to check for yourself how much time and money it takes, and more importantly, how EPA requirements make such an enterprise so difficult, that only recently have 2 new refineries been started in the US for the first time in over 35 years.

Another great example of the laws of supply and demand being distorted by government.

Nort Dakota 1:

Mandan Refinery (Tesoro), Mandan 60,000 bbl/d (9,500 m3/d)

All of Canada 26:

26 refineries. Find details yourself if you are interested.

Texas 28:

Baytown Refinery ExxonMobil),Baytown 560,640 bbl/d 89,135 m3/d)

Big Spring Refinery (Alon USA), Big Spring 61,000 bbl/d (9,700 m3/d)

Beaaumont Refinery (ExxonMobil), Beaumont 348,500 bbl/d (55,410 m3/d)

Borger Refinery ConocoPhillips/Cenovus), Borger 146,000 bbl/d (23,200 m3/d)

Corpus Christi Complex (Flint Hills Resources), Corpus Christi 288,000 bbl/d (45,800 m3/d)

Corpus Christi Refinery (Citgo), Corpus Christi 156,000 bbl/d (24,800 m3/d)

Corpus Christi West Refinery (Valero), Corpus Christi 142,000 bbl/d (22,600 m3/d)

Corpus Christi East Refinery (Valero), Corpus Christi 115,000 bbl/d (18,300 m3/d)

Deer Park Refinery (Shell Oil Company), Deer Park 333,700 bbl/d (53,050 m3/d)

El Paso Refinery (Western Refining), El Paso 120,000 bbl/d (19,000 m3/d)

Houston Refinery (Lyondell), Houston 270,200 bbl/d (42,960 m3/d)

Houston Refinery (Valero), Houston 83,000 bbl/d (13,200 m3/d)

Independent Refinery (Stratnor), Houston 100,000 bbl/d (16,000 m3/d)

McKee Refinery (Valero), Sunray 158,300 bbl/d (25,170 m3/d)

Nixon Refinery (Blue Dolphin) Nixon, Texas 15,000 bbl/d (2,400 m3/d)

Pasadena Refinery (Petrobras), Pasadena 100,000 bbl/d (16,000 m3/d)

Port Arthur Refinery (Total), Port Arthur 174,000 bbl/d (27,700 m3/d)

Port Arthur Refinery (Motiva Enterprises), Port Arthur 285,000 bbl/d (45,300 m3/d)
Port Arthur Refinery (Valero), Port Arthur 325,000 bbl/d (51,700 m3/d)

Penreco (Calumet Penreco LLC), Houston

San Antonio Refinery (NuStar Energy), San Antonio 10,300 bbl/d (1,640 m3/d)

South Hampton Refinery Arabian American Development, Silsbee, Texas 6,000 bbl/d (950 m3/d)

Sweeny Refinery (ConocoPhillips), Sweeny 229,000 bbl/d (36,400 m3/d)

Texas City Refinery (BP), Texas City 460,000 bbl/d (73,000 m3/d)

Texas City Refinery (Marathon Petroleum Company), Texas City 72,000 bbl/d (11,400 m3/d)

Texas City Refinery (Valero), Texas City 210,000 bbl/d (33,000 m3/d)

Three Rivers Refinery (Valero), Three Rivers 90,000 bbl/d (14,000 m3/d)

Tyler Refinery (Delek Refining Ltd.), Tyler 62,000 bbl/d (9,900 m3/d)


Can you see why a pipeline would be a much quicker and cheaper way to get the job done?

You could have figured this out for yourself if you had really been interested.

 
At 4/19/2012 6:24 PM, Blogger Ron H. said...

"No...although there are things that we can strategic enough that we do restrict export."

What does that mean?

Are you in favor of market restrictions, or not?

You can see from your previous examples that government interference always increases costs to someone.

 
At 4/19/2012 6:40 PM, Blogger Larry G said...

re: refineries - can and are expanded at current sites when additional capacity is needed both in Canada and the US.

refineries are expensive but so are pipelines.

but again.. the pipeline is being promoted as something that will help US consumers and the truth is the opposite. The pipeline increases the price of a stranded commodity by virtue of the fact that once it can reach world markets, it sells at the world price whereas if stranded in Canada it will sell at a much lower price.

re: strategic restrictions

Did I say that I advocated restrictions?

no.

what I said is that there ARE restrictions for some products.

you call this government "interference".

I call..private industry using the govt to take people's land for a pipeline worse than "interference".

you want the govt to take people's rights when it suits you but then blame the govt when it takes actions to protect people as "interference".

that's pretty hypocritical, no?

what if there was no govt to take land for companies?

how would you get a pipeline then?

do you support the govt taking people's land against their will for a private company?

sounds like you do...

 
At 4/19/2012 11:46 PM, Blogger Ron H. said...

"supply and demand ARE IN PLAY but the circumstances are not what is being portrayed."

Whatever that means. Perhaps you could be a little more clear.

"stranded products have different boundaries than unrestricted products."

You'll have to clarify that one too.

"marginal utility..

how low do you think stranded gasoline would go before demand would not change?
"

How long what? Please rewrite this whole comment. You're not making sense.

 
At 4/20/2012 12:21 AM, Blogger Ron H. said...

"my point is that pure supply/demand is theory not practice most of the time."

Supply and demand are not the same as "free market". Is that what you're trying to discuss?

"indeed. what happens to the price when it can find it's way into a pipe and be exported? Does the price go up? Explain how supply/demand works in that scenario."

I've already explained it, Larry, the price of oil at the wellhead isn't the same as the price at the refinery. the cost of moving it from one place to another must be considered. A pipeline is the best and cheapest overall method of transporting oil.

The oil in North Dakota can't be moved cheaply to where it's needed, so the wellhead price is lower than oil ready to go on a tanker in the Gulf of Mexico, or to a refinery in Texas. Buyers pay for oil delivered to them, and don't care where it comes from. The least expensive oil ready to be transferred to its new owner sets the price for the market. No one can charge more, unless all the cheaper oil is sold first.

That means, Larry, that the price of oil in North Dakota will be lower than oil in Texas, because it costs a lot more to deliver it. That doesn't mean US refiners would get it cheaper delivered to them. The differences in price at different locations isn't important, because it must be carried somewhere else. The stranded oil in North Dakota MUST sell for a lower wellhead price or it wouldn't get sold at all.

 
At 4/20/2012 12:46 AM, Blogger Ron H. said...

"refineries are expensive but so are pipelines."

You aren't making sense. Can you cite something comparing the cost of a refinery as compared to the cost of a pipeline? And since they don't perform the same functions what possible meaning could you tease from any information you found?

The one refinery in ND can't expand enough to handle all the oil coming out of the ground there, and if it could, the 42 gallons of products made from each barrel of oil must STILL be piped or carried somewhere else.

You are making really silly arguments.

"re: refineries - can and are expanded at current sites when additional capacity is needed both in Canada and the US."

With most of the same EPA, restrictions required to build a new one. There are also physical limits to expanding existing refineries. That's not a good answer, Larry, you just made that one up.

You are now throwing out meaningless objections, just to keep objecting, to no useful purpose.

"How much of the drilling for oil in North Dakota has Obama shut down/restricted ? None, right?"

It's on private property, Larry. Do you know what difference that makes?

"still assert than when a pipeline is completed to the coast - that it increases the value of the oil and that's what this is all about and that once the pipeline is done - it actually will INCREASE the cost of gasoline to American consumers because then instead of being stranded in ND.. it will be available to the highest bidder at world prices."

Do you realize that oil that can't easily or cheaply get to market isn't worth as much as oil that is ready for delivery? the fact that ND oil is "stranded" and therefore the price is lower - at the wellhead - doesn't mean it is cheaper for US refiners to buy it either.

There is a lot of oil in the ground that's worth nothing to you, because you can't use it.

 
At 4/20/2012 12:52 AM, Blogger Ron H. said...

"well let me say once again. I am opposed to restrictions. I believe in the free market."

Then you have no problem with Canadian oil going elsewhere now that Obama has said that US oil companies aren't interested in it.

It belongs to the producers, and they can do whatever they want to with it.

 
At 4/20/2012 1:24 AM, Blogger Ron H. said...

"re: strategic restrictions

Did I say that I advocated restrictions?
"

You said - "No...although there are things that we can strategic enough that we do restrict export."

It makes little sense. What does it mean to you, the person who wrote it? You used the words "strategic" and "restrict" in the same sentence.

I asked you to explain what you meant, but you haven't done so.

"what I said is that there ARE restrictions for some products.

you call this government "interference".
"

Only because it is.

"I call..private industry using the govt to take people's land for a pipeline worse than "interference"."

I do too.

"you want the govt to take people's rights when it suits you but then blame the govt when it takes actions to protect people as "interference".

that's pretty hypocritical, no?
"

It would be if that's what I advocated, but it's not.

"what if there was no govt to take land for companies?

What a wonderful thought!

"how would you get a pipeline then?"

Pipeline proponents would have to buy what they needed at prices people found acceptable, or build somewhere else.

You may not be aware that James J. Hill built the Great Northern Railroad from St. Paul MN, to Seattle, WA entirely as a private venture, with no government help of any kind, and by buying property as needed without stealing any through eminent domain.

Unlike every one of the government chartered railroads, his railroad didn't face bankruptcy as soon as it was finished.

do you support the govt taking people's land against their will for a private company?
"

I don't support government taking anything from anybody for any reason. I'm surprised you don't understand that after all this time. Are you just pretending to read my comments?

 
At 4/20/2012 6:48 AM, Blogger Larry G said...

" The oil in North Dakota can't be moved cheaply to where it's needed, so the wellhead price is lower than oil ready to go on a tanker in the Gulf of Mexico, or to a refinery in Texas. Buyers pay for oil delivered to them, and don't care where it comes from. The least expensive oil ready to be transferred to its new owner sets the price for the market. No one can charge more, unless all the cheaper oil is sold first.

That means, Larry, that the price of oil in North Dakota will be lower than oil in Texas, because it costs a lot more to deliver it. That doesn't mean US refiners would get it cheaper delivered to them. The differences in price at different locations isn't important, because it must be carried somewhere."

compare and contrast that comment by swapping North Dakota with Canada, please then address the cost to domestic consumers verses foreign consumers.

Are you agreeing that the price of the oil changes if if can be exported to world prices? If it is more expensive to pipe it than to not then why not refine it closer to where it is extracted and sell the refined product closer to where is refined?

isn't money the reason why it is being pipelined? they can sell it for more overseas so the pipeline then becomes cost feasible?

Once the oil CAN be sold overseas then ever barrel is worth more than if it was stranded domestically.

right?



re: eminent domain - then if someone buys land via willing seller, willing buyer why do they need govt "help" on this pipeline?

thanks for the Great Northern link.

re: " Pipeline proponents would have to buy what they needed at prices people found acceptable, or build somewhere else."

would that make the cost of the pipeline higher?

re: "
"stranded products have different boundaries than unrestricted products."

You'll have to clarify that one too."

you have to define/recognize your market in terms of geography.

this is why companies "expand" their markets, right?

"marginal utility..

how low do you think stranded gasoline would go before demand would not change?"

How long what? Please rewrite this whole comment. You're not making sense."

how LOW? do you need glasses? :-)

let's do this - you "explain" to me how marginal utility works with oil in North Dakota (or Canada) that cannot be moved to other markets because of insufficient pipeline/transportation capacity.

I'd appreciate that - seriously.

 
At 4/20/2012 12:10 PM, Blogger Ron H. said...

"compare and contrast that comment by swapping North Dakota with Canada, please then address the cost to domestic consumers verses foreign consumers.

Are you agreeing that the price of the oil changes if if can be exported to world prices? If it is more expensive to pipe it than to not then why not refine it closer to where it is extracted and sell the refined product closer to where is refined?

isn't money the reason why it is being pipelined? they can sell it for more overseas so the pipeline then becomes cost feasible?

Once the oil CAN be sold overseas then ever barrel is worth more than if it was stranded domestically.

right?
"

All of that has already been covered. I don't know why you don't understand it, but it's not my problem.

 
At 4/20/2012 12:15 PM, Blogger Ron H. said...

"re: eminent domain - then if someone buys land via willing seller, willing buyer why do they need govt help" on this pipeline?"

Government, by stealing land through eminent domain can get land a lot cheaper.

As the pipeline would have crossed an international border, and several state borders, the Feds have Constitutional authority under the Commerce Clause. That doesn't mean they have to do anything in particular.

 
At 4/20/2012 12:21 PM, Blogger Ron H. said...

"would that make the cost of the pipeline higher?"

Most likely. Why pay market price when a thug can get it for you cheaper?

"re: "stranded products have different boundaries than unrestricted products."

You'll have to clarify that one too."

"you have to define/recognize your market in terms of geography."

You may be trying to restate my explanation about transportation costs, but I can't be sure.

 
At 4/20/2012 12:38 PM, Blogger Ron H. said...

"let's do this - you "explain" to me how marginal utility works with oil in North Dakota (or Canada) that cannot be moved to other markets because of insufficient pipeline/transportation capacity.

I'd appreciate that - seriously.
"

Okay. Reread my previous comment about marginal utility and diminishing marginal utility, and read the references.

Now, consider that there are relatively few people living near the oil that's coming out of the ground in ND.

If oil was refined near them, there's only a small benefit to lower prices in that area, as most of the production would STILL have to be sent somewhere else. People in that area will only buy a small amount, relative to production capacity, before they don't want any more at any price, so they won't buy more at still lower prices. The rest would STILL need to be shipped.

There isn't a world price and a domestic price, there is only the highest bidder, wherever they are. Transportation is part of that cost, and isn't much different once it's available at a major distribution point. The major problem is getting it to that point from ND.

 
At 4/20/2012 12:57 PM, Blogger Larry G said...

pipelines go from ND to other parts of the country.

your explanation is good but here's the key part: " People in that area will only buy a small amount, relative to production capacity,"

how do you expand that and when you do can the marginal utility dynamics change .. even go away and the expanded area market wants MORE than ND can supply.

if you then expand the market even further to Texas to export, doesn't the demand get even stronger and the price even higher?

 
At 4/20/2012 6:06 PM, Blogger Ron H. said...

"pipelines go from ND to other parts of the country."

Apparently not enough of them, or the oil in ND wouldn't be stranded, right? What do you think?


"your explanation is good but here's the key part: " People in that area will only buy a small amount, relative to production capacity,"

Correct.

"how do you expand that and when you do can the marginal utility dynamics change .. even go away and the expanded area market wants MORE than ND can supply."

I knew I shouldn't have introduced marginal utility to the discussion, it has only confused you.

"if you then expand the market even further to Texas to export, doesn't the demand get even stronger and the price even higher?"

As Sir Elton John once wrote:

"I can't light no more of your darkness."

 

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