Tuesday, June 05, 2012

Shale Play in Siberia 80X Bigger than Bakken

OilPrice.com -- "The Bakken shale play is one of the biggest in the U.S., but is absolutely dwarfed by a shale play in Russia. The Bazhenov is located in Western Siberia, and according to Oswals Clint, Sanford Bernstein’s lead international oil analyst, it “covers 2.3 million square kilometers or 570 million acres, which is the size of Texas and the Gulf of Mexico combined;” an area 80 times bigger than the Bakken.

News of the Bazhenov may be new to many of us, but geologists have actually been studying it for at least 20 years, however it is only in the last few years that the technology and expertise necessary to drill the oil has been developed.

ExxonMobil and Statoil have agreed to start joint venture operations in the region with the Russian, state-owned Rosneft in an attempt to secure access to the Bazhenov. Exxon made a recent statement which confirmed the agreement “to jointly develop tight oil production technologies in Western Siberia.”

Visualization of Real GDP by State in 2011

The custom, interactive graphic above comes courtesy of the folks at Tableau Software, using the "Real GDP by State" data released today by the BEA and featured earlier today on CD

The contributors to real GDP in 2011 are ranked in the top part of the graphic, showing that "durable goods manufacturing" was the largest positive contributor to real output growth in 2011 at 0.5% (more empirical support that manufacturing has been leading the economic recovery), and real estate was the largest negative contributor at -0.2%.  The color-coded map shows real GDP growth by state, from No. 1 North Dakota in dark grey at 7.6% growth in 2011 to No. 50 Wyoming at -1.5% growth, in dark pink.  
If you click on a sector above, like durable-goods manufacturing, the map changes to show state rankings for that sector's contribution to state output growth, with Oregon ranked No. 1 at 3.94% (towards 4.7% state growth), followed by Michigan at 1.2% (towards 2.3% overall growth), etc.  Click on mining, and you'll see West Virginia ranked No. 1, at 3.9% growth towards 4.5% overall state growth, followed by North Dakota's mining growth of 2.81% towards 7.6% overall growth, etc.  

Thanks to Tableau Software for contributing a great interactive graphic to Carpe Diem! 

More on the Midwest Manufacturing Renaissance

From Chmura Economics, an analysis of the Midwest manufacturing boom, with lots of good micro-level data, here's the opening:

"Last year may well mark the beginning of a welcome, several-year expansion in the manufacturing sector. This manufacturing expansion has driven a good portion of the improving jobs picture across the Midwest over the past year. In 2011, manufacturers in the Midwest added over 113,000 jobs. In the same year, more than 63 separate manufacturing industries expanded employment, of which more than 30 added 1,000 or more jobs. Food-oriented manufacturers in the Midwest fared better than national counterparts, expanding employment over the past five years despite the Great Recession. A premier site selection group, Biggins Lacy Shapiro & Company, and Moody’s Analytics have found that the Midwest has improved cost competitiveness compared to the rest of the U.S., according to a recent Wall Street Journal article. Overall, Midwest manufacturers seemed to be turning a corner and positioned for further expansion."

Why We Should Keep Tax "Loopholes" for Oil

Deborah Byers of Ernst & Young explains in Forbes why we should keep the current tax provisions for oil and gas companies, here's an excerpt:

"For the most part, energy companies are treated just like any other industry when it comes to taxes.  Much of what politicians call giveaways are simply timing issues related to when particular items can be expensed – governed by provisions in the tax code established decades ago to strengthen U.S. energy production.  These provisions are not tax credits, which allow for a dollar-for-dollar reduction in tax liability.

Changing the current tax code might make lawmakers happy, but it won’t achieve its hoped-for objectives and, in fact, will do the opposite:
  • Integrated majors like ExxonMobil won’t be affected meaningfully
  • Cash-strapped independents will be hit hard
  • Domestic production will be depressed
  • Job growth related to the shale boom will stall
  • Tax revenue will fall
The technology advancements that are driving the shale boom, coupled with the existing tax code, have put the U.S. in a position not seen in years – one where domestic production is high and new reserves are creating economic opportunities across the country.  If we want to increase security of supply, keep retail energy prices low and create high-paying jobs, our energy policy should encourage future drilling by allowing proven tax provisions to remain in place."

Gains for Various Transportation Indexes

1. The monthly Ceridian-UCLA Pulse of Commerce Index, based on real-time fuel consumption data for over the road trucking, rose 0.8% in May following a 0.1% increase in April and a 0.3% increase in March.  Here's today's report (note that it says the May report will be the last one issued?). 

2. From today's Cass Information Systems report, based on its Cass Freight Index, a monthly measure of North American freight volumes and expenditures:

"North American freight shipments and expenditures in May both posted increases for the fourth consecutive month, with spending growth outpacing the rise in shipment volume. Total dollars spent on freight rose 2.2 percent over April. The number of freight movements was up 1.8 percent in May. Cumulatively for the year, freight dollars are up 7.8 percent year over year, while number shipments volume is 8.5 percent higher than in 2011."

3. The Federal Highway Administration reported recently that monthly vehicle-miles of travel in March increased by 0.9% compared to a year earlier, marking the fourth consecutive monthly increase in vehicle-miles on a year-over-year basis.  Traffic volume increased in previous months by 1.8% in February, 1.6% in January and 1.3% in December.  What makes those gains in traffic volume noteworthy is that they were happening at a time when gas prices were rising, from $3.23 per gallon in mid-December to almost $4.00 by the end of March.

Good Spelling Still Matters, Doesn't It?

From USA Today last week around the time of the National Spelling Bee:

"Louisa Moats, author of several textbooks about language, said good spelling, in a word, means credibility."If a paper or an application or a report or even an e-mail contains spelling errors, people who read it judge it harshly," she said. Research even shows that people with misspellings on job applications and résumés are less likely to get interviews. 

Moats and others say many public schools now give the subject short shrift in instruction. "That's the shocking thing," she said. "You can walk into many classrooms these days and there is no spelling program, there is no spelling book." Even if there is a spelling program, she said, it's "an afterthought, and it's usually just a list of words that kids are told to go and learn — there's very little instruction in how it all works, how it makes sense."

J. Richard Gentry, an educational consultant and author of the 2004 book The Science of Spelling, said the USA's reading problem is partly a spelling problem.

"Across the country we have all these fourth-graders who are failing reading tests, and we've seen this pattern for about 15 years," he said. "Guess what we stopped doing about 15 years ago? We pulled all the spelling books off the shelves and stopped teaching spelling — or at least we put it on the back burner."

Gentry said many schools still teach spelling, but that it "varies to a ridiculous degree." In many communities, he said, spelling has all but disappeared simply because it isn't tested annually on state reading exams."


More on the Its vs. It's Confusion

It hasn't even been a month since I last posted about this.....

1. Corn subsidies have lowered the price of corn and it's sweetener, extract-high fructose corn syrup....

2. You are likely to spend more on your house and it's financing……

3. Company X has maintained it's standards despite the challenges though.

4. The cost to carry insurance for employees has to find it's way into the CPI….

5. …. contrary to notions that manufacturing is running with it's tail high.

6. You know that Policy X and it's huge impacts….

7. …over 50% of it's weighting comes....

May "Employment Trends Index" at 45-Month High

The Conference Board's Employment Trends Index (a composite index of eight individual labor-market indicators) increased in May by 0.29% to 108.34, up from April's revised reading of 108.3 (see chart above).  On a monthly basis, the Employment Trends Index (ETI) has increased in 11 out of the last 12 months.  On an annual basis, the May ETI was 7.6% above its year-ago level, following a 7% year-over-year improvement in April.

“While growth in employment has slowed significantly in recent months, the Employment Trends Index does not signal further slowing in the coming months,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board. “Employers have been very cautious in hiring in the past two months, but at the moment, economic activity in the U.S. is just strong enough to require a modestly growing workforce.”

"May’s increase in the ETI was driven by positive contributions from five of the eight components. The improving indicators – beginning with the largest positive contributor – were Percentage of Firms with Positions Not Able to Fill Right Now, Initial Claims for Unemployment Insurance, Number of Employees Hired by the Temporary-Help Industry, Job Openings and Industrial Production."

MP: The ETI in May was at the highest level in 45 months going back to August 2008, and the 12-month gain of 7.6% last month was the highest annual increase in 14 months.  The gradual, but steady increases in the ETI reflect slow, but ongoing improvements in the U.S. labor market. 

Cartoon of the Day: Obesity Czar's Newest Idea

Apple iPads for Airline Entertainment to Save Fuel

Following up on this CD post, here's another example of how high oil prices and innovation are driving companies to find substitutes for oil and gasoline, from Bloomberg:

"Singapore-based Scoot Airlines is ripping out aircraft entertainment systems weighing more than two tons to save fuel, and instead offering Apple iPads to passengers, loaded with movies, music, games and television shows. It eventually intends to have users access content via a wireless system onboard planes.

Offering iPads helped the carrier cut 7% off the weight of planes and cope with fuel prices that have jumped about 36% in two years. The budget carrier will  offer the iPads free to passengers in its business-class seat and  will charge economy passengers $17 per trip to rent the tablets." 

HT: John Sturges

The Dakota Model: Booming North Dakota Led the Country in 2011 with Real GDP Growth of 7.6%

The BEA reported today that U.S. real GDP by state grew 1.5% in 2011 after a 3.1% increase in 2010.  Not surprisingly, the "economic miracle state" of North Dakota led the country last year with a whopping growth rate in real GDP of 7.6%, more than five times the national average of 1.5%, and almost three percentage points higher than No. 2 Oregon's growth of 4.7%. On a per-capita basis, North Dakota also ranked No. 1 in the country with a 6.17% increase in its 2011 per-capita real GDP, compared to a 0.73% national average, and a 4.47% increase in No. 2 West Virginia.

 More than one-third of North Dakota's economic growth in 2011 came from its mining sector, which contributed 2.81% to the overall 7.6% growth rate last year.  Other states with booming energy sectors also experienced above-average growth in state GDP last year, including No. 3 West Virginia (4.5%), No. 4 Texas (3.3%) and No. 5 Alaska (2.5%).

In a previous release on state personal income, the BEA reported in March that North Dakota led the country in 2011 with the highest gain in state income for 2011 (8.1%), the largest increase in per-capita state income (6.7%), and the highest gain in personal income during the last quarter of 2011 (1.5%).

As I have reported previously, North Dakota's economic success goes beyond its well-publicized energy prosperity, which is being supplemented by other booming sectors including manufacturing, tourism, advanced manufacturing, information technology and agriculture. The state's pro-business climate should get some of the credit for the impressive output and job gains over the last several years, including leading the country in real GDP growth in 2011. Whatever North Dakota is doing, it's working, and the state should be a nationwide model for economic development and job growth - call it the "Dakota Model."

Related: The May 2012 cover story in the American Gas and Oil Reporter highlights how soaring oil production in North Dakota is spurring infrastructure growth: "Across North Dakota, demand is off the charts for everything from drilling rigs and pumping units to housing and office space, driven by a blistering pace of activity in the Bakken Shale play."

Monday, June 04, 2012

The Supply-Side Solution for a Real Recovery

"To achieve a real recovery, government policy should focus on individual incentives to work, produce and invest. Central here are tax rates and regulations, including especially clarity about future policies. In a successful policy package, the government would get its fiscal house in order and make meaningful long-term reforms to entitlement programs and the tax structure.

The Obama administration seems to think that individual incentives and serious fiscal reforms are of no great importance and policy should emphasize Keynesian-style demand stimulus (public works, prolonged benefits) along with bits of industrial policy (loans and grants to "green" energy companies). This approach has failed for three years."

~Harvard economist Robert Barro in today's WSJ

Julian Simon, Power of Market Prices, Why We'll Never Run Out of Oil, Why Peak Oil is Peak Idiocy

As resource economist Julian Simon taught us years ago, we never have, and never will, run out of scarce resources like oil because as a resource becomes more scarce, its price will rise, which will set in motion a series of actions that will counteract the scarcity.  For example, higher prices for oil will increase the incentives to: a) find more oil, b) conserve on the use of oil, and c) find more substitutes.  And that's exactly what's happened recently in response to higher oil prices - domestic crude oil production reached a 14-year high in March, and the share of rigs drilling for oil (vs. natural gas) set a new record high of 70% last week.  

And now an LA Times article today highlights how companies are making efforts to find substitutes for high-priced oil, here are some examples from the article:

1. Ford has eliminated 5 million pounds of petroleum annually by using soybean-based cushions in all of its North American vehicles. The company also got rid of an additional 300,000 pounds of oil-based resins a year by making door bolsters out of kenaf, a tropical plant in the cotton family.

2. BioSolar of Santa Clarita, Calif., dealt every day with the fact that solar modules are typically made with a glass front, an aluminum frame and a back sheet made out of a petroleum-based plastic or polymer.

"We saw where the price of petroleum was going," BioSolar CEO David Lee said. "We're not economists, but we knew that the price of oil was going to keep going up. The cost of photovoltaic cell manufacturing was going to skyrocket." BioSolar has changed its process to instead use castor beans.

3. Los Angeles businessman Neal Harris once relied on beads made from a petroleum-based polymer to hold fragrances for his company's products. Harris' company, Scent-Events, sells fragrances as a marketing tool to enhance movie premieres, concerts, parties and products. This year, he'll use ceramic beads 95 percent of the time. "It's saving us money, and we no longer have to keep track of oil prices," Harris said.

4. In March, McDonald's began a trial of double-walled paper hot-drink cups in 2,000 restaurants, in place of polystyrene containers, which start out as petroleum. 

5. Coca-Cola and PepsiCo are becoming bioplastics bottlers.

As Daniel Yergin, energy consultant and Pulitzer Prize author of a book on the history of the oil industry, told the LA Times, "Now there are accelerating efforts to squeeze oil out and find ways to substitute for it. That is the power of price."

Related: Duke economist and blogger Mike Munger explains here why "peak oil" is "peak idiocy" and why "Of all the idiotic things that people believe, the whole "peak oil" thing has to be right up there."

Another Example of How Abundant Shale Gas is Helping Spark a U.S. Manufacturing Renaissance

Fuel Fix -- "Exxon Mobil Corp. is planning a multibillion-dollar petrochemical expansion at its Baytown, Texas complex to take advantage of the country’s increasing supplies of natural gas.

“The proposed investment reflects Exxon Mobil’s continued confidence in the natural gas-driven revitalization of the U.S. chemical industry,” the company said in a statement.
The project would include a new ethane unit, which would provide ethylene feedstock for two new polyethylene production lines at the company’s nearby Mont Belvieu plastics plant. Polyethylene is used in a wide variety of consumer and industrial products.

Exxon Mobil joins other petrochemicals producers that have announced natural gas-fueled expansion plans in recent months. For example, Dow Chemical is expanding in Freeport and Chevron Phillips is building a new chemical plant in Baytown.

In its statement, Exxon Mobil also said the expansion could lead to significantly increased exports. “We believe the North American natural gas resource is abundant and can support both domestic energy needs as well as exports to the global market.”

The company says the project would create about 10,000 construction jobs. About 350 permanent jobs would be added to a workforce of about 6,500 full-time and contractor jobs in the Baytown area."

MP: Another example of the shale-gas-driven renaissance of energy-intensive American manufacturing.  In a March Merrill-Lynch report titled "An Industrial Revolution," the authors
listed 68 new major industrial investment projects totaling more than $200 billion that have been announced or started just since 2011 in a wide variety of manufacturing industries like petrochemicals, chemicals, steel, refining, autos, heavy equipment, aerospace, plastics and ethylene. Add Exxon Mobil's latest announcement to the growing list of planned industrial expansions in the U.S. as a result of the shale revolution.   

At the Same Time NYC Obesity Czar Wages War on Sugar, He Plans to Scale Back the War on Drugs

NY Times reports that "Bloomberg Backs Plan to Limit Arrests for Marijuana."

He just can't make up his mind about the Nanny State, can he? 

And a great comment below from Moe "NYC will be like hell for Mary Jane users. Easier to partake, yes ,but no obesity-inducing snacks?? Cruel world."

April Jobless Rate Falls to 0.7% in the ND Oil Patch

The state of North Dakota reported last week that the jobless rate in both the city of Williston and in the surrounding Williams County fell to an eye-popping low of 0.7% in April (see chart above), the lowest jobless rate ever recorded in North Dakota history, and possibly the lowest jobless rate in history for any city or county in the entire United States. Also in April, there were ten North Dakota counties with jobless rates below 2%, and all of those ten counties are on the western edge of the Peace Garden state in the oil-rich Bakken region (see map below).  If there were ever any doubts about the potential that domestic energy production has to create shovel-ready jobs, the 0.7% jobless rate in the heart of the Bakken region in North Dakota seems like pretty convincing evidence that those doubts are without any foundation.
Click map to enlarge.

Markets in Everything: U.S. Food Trucks in Paris

NY Times -- "In France, there is still a widespread belief that the daily diet in the United States consists of grossly large servings of fast food. But in Paris, American food is suddenly being seen as more than just restauration rapide. Among young Parisians, there is currently no greater praise for cuisine than “très Brooklyn,” a term that signifies a particularly cool combination of informality, creativity and quality. 

All three of those traits come together in the American food trucks that have just opened here [in Paris], including Cantine California, which sells tacos stuffed with organic meat (still a rarity in France), and a hugely popular burger truck called Le Camion Qui Fume (The Smoking Truck), owned by Kristin Frederick, a California native who graduated from culinary school here."

HT: Fred Dent

Can Taxpayers Control the Entitlement State?

"A single election rarely determines a democracy's fate, but some matter more than others. Tuesday's recall election of Wisconsin Governor Scott Walker is one that matters a great deal because it will test whether taxpayers have any hope of controlling the entitlement state and its dominant special interests.

Students of democracy from Alexis de Tocqueville to Mancur Olson have pointed out that the greatest threat to self-government comes from the tendency of democracies to become barnacled with special interests that vote themselves more benefits than society can afford. This is the crisis of the modern entitlement state, which is unfolding from California to Illinois, Greece, Italy and even Washington. Wisconsin is a critical test of whether democracies can reform before the crisis becomes debilitating."

~Today's WSJ 

 Related: Intrade odds for Gov. Walker to win tomorrow are currently at 92.2%.

Chart of the Day: Education Matters

One interesting perspective on the sub-par "jobless recovery" is a comparison of changes in employment since January 2008 based on education level, see chart above, here's a summary:  

1. College-educated workers have fared relatively well during and after the Great Recession, and employment levels for workers with a bachelor's degree or higher remained fairly stable even during the worst period of job losses (2008-2010).  As of May 2012, employment for college-educated is at an all-time high of 46.355 million workers, and that is 6.3%, and almost 3 million jobs, above the January 2008 level.  During the first five months of 2o12, employment of workers with a college degree has increased by more than one million jobs at an average rate of 231,000 new jobs per month. The jobless rate for this group of workers fell in May to 3.9%, the lowest rate since December of 2008.    

2. Employment for workers with some college or associate degree is 2.4%, and 837,000 jobs, below January 2008.  The jobless rate for this group in May was 7.9%, slightly below the 8.2% national average, but the highest in 7 months for workers with some college, and up from 7.2% in January.

3. Employment for workers with a high school diploma (but no college) is almost three million jobs and 8% below January 2008.  The May jobless rate for this group was 8.1%.

4. Employment for workers with less than a high school diploma is 1.36 million jobs, and 12% below the January 2008 level. The jobless rate for this group rose in May to 13% from 12.5% in April, and has remained above 12% in every month since January 2009.

Bottom Line: The workers having the most difficult time finding jobs in the "jobless recovery" are those workers with only a high school degree and those workers with less than a high school degree.  Those workers with at least some college have been faring much better, especially those with a bachelor's degree or higher.  Perhaps one explanation is that there are so many unemployed workers seeking employment (above 12 million in every month since January 2009), that many employers have the luxury of being selective and hiring college-educated workers for jobs that traditionally didn't necessarily require a college degree.

And while lacking a high school diploma has always been a liability for workers, that liability has gone from a minor liability to a major setback as we move increasingly into a knowledge-based, 21st century economy.  Comparatively, college-educated workers are doing quite well in an increasingly globalized, information-based economy, and it's the less educated workers that are struggling, and will continue to struggle, to find employment and keep a job.  Whatever the explanation, it's clear that "education matters," and having at least some college has insulated many of those workers from the worst effects of the Great Recession and the subsequent "jobless recovery."

Sunday, June 03, 2012

Sunday Energy Links and Charts

1. Over the last two years, crude oil production in North Dakota has more than doubled, from 277,640 barrels per day in March 2010 to 575,490 barrels per day in March of this year.  At the same time that oil production has been skyrocketing in North Dakota, oil imports from Nigeria have been declining, to the point that for the first time ever, North Dakota oil production has exceeded oil imports from Nigeria in each of the first three months of this year (see chart, data here). And for the last five months that data are available (November - March), North Dakota oil production has also exceeded imports from Colombia (see chart).

Update: By the end of the decade, it is estimated that surging oil production in North Dakota could double again to more than one million barrels per day, putting it on par with production in Texas and imports from Mexico.  

2. "Chesapeake Energy Corp. said it drilled the largest oil gusher in the company’s 23-year history at a “significant” discovery in the Anadarko Basin of Texas and Oklahoma. The Thurman Horn 406H well in the Hogshooter formation produced 5,400 barrels of crude a day during its first eight days of operation. The output was more than twice that of some of the best performing wells in the Eagle Ford shale of south Texas, which Chesapeake counts as its most valuable holding."  [MP: Peak what?]

3. Oil and gas cash boosts PA farming -- "The oil and gas boom in western Pennsylvania has provided a much-needed infusion of capital to farmers in that area. “It’s had mostly a good impact,” said Steve Quillin, local Farm Bureau president. “Just driving around, we saw farmers making improvements and updates to their properties.”

Money from oil and gas leases has allowed agriculture to expand. The influx of cash has prompted some older farmers to retire, but their farms have been absorbed by others or have been rented."
5. The Economist -- "America's “unconventional” gas boom continues to amaze. Between 2005 and 2010 the country’s shale-gas industry, which produces natural gas from shale rock by bombarding it with water and chemicals—a technique known as hydraulic fracturing, or “fracking”—grew by 45% a year. As a proportion of America’s overall gas production shale gas has increased from 4% in 2005 to 24% today. America produces more gas than it knows what to do with. Its storage facilities are rapidly filling, and its gas price has collapsed. Last month it dipped below $2 per million British thermal units: less than a sixth of the pre-boom price and too low for producers to break even.

Those are problems most European and Asian countries, which respectively pay roughly four and six times more for their gas, would relish. America’s gas boom confers a huge economic advantage. It has created hundreds of thousands of jobs, directly and indirectly. And it has rejuvenated several industries, including petrochemicals, where ethane produced from natural gas is a feedstock."


6.  The chart below shows monthly imports of crude oil from January 2000 to March 2012, on a three-month moving average basis (to smooth out monthly volatility).  U.S. imports of crude oil fell in March to an average of 10,672,670 barrels per day, the lowest level since February 2000, slightly more than 12 years ago.

Obesity Czar Bloomberg's War on Sugar

"Mayor Bloomberg believes that government has a duty to educate its citizens and even to "nudge" them in the right direction. But the real lesson here is that a government that pays most health-care bills will soon be dictating the everyday behavior of its people. An America that needs government to protect its citizens from 20-ounce sodas has bigger problems than obesity."

~WSJ editorial yesterday

Saturday, June 02, 2012

Renewable Energy Receives 82X More in Tax Preferences Than Fossil Fuels, Adjusted for Output

2011Tax Preferences Production (quadrillion BTUs)Preferences per
Quadrillion  BTUs
Fossil Fuels$1.7B81.08$20,966,946

Renewable/Fossil FuelsFossil Fuels/RenewablesRenewables/Fossil Fuels

The table above displays: 

a) The tax preferences in 2011 that went to renewables ($12.9 billion) and fossil fuels ($1.7 billion), for a ratio of 7.6:1 in favor of renewables over fossil fuels, data here;

b) 2011 production levels for renewables (7.52 quadrillion BTUs) and fossil fuels (81.08 quadrillion BTUs), for a ratio of 10.8:1 in favor of fossil fuels over renewalbes (data here); and 

c) Tax preferences per quadrillion BTUs for renewables ($1.7 billion) and fossil fuels (about $21 million), for a ratio of almost 82:1 in favor of renewables over fossil fuels.

And what kind of return have taxpayers gotten for their coerced investment in the renewable energy sector over the last few years, e.g. in terms of business success, industry profits, and job creation?  Not a very good return, and not very many jobs.  In fact, it's likely a pretty negative return.  As my AEI colleague Marc Thiessen reported in the Washington Post last week:

"Since taking office, Obama has invested billions of taxpayer dollars in private businesses [mostly in renewable energy companies], including as part of his stimulus spending bill. Many of those investments have turned out to be unmitigated disasters — leaving in their wake bankruptcies, layoffs, criminal investigations and taxpayers on the hook for billions."

And the Washington Examiner reported last week that "The wind industry has actually lost about 10,000 jobs since 2009." 

The White House here lists five reasons to repeal tax subsidies for oil companies, and some of those might be valid reasons.  But that brings up the question: Why is the government providing forcing taxpayers to provide subsidies to private energy companies in the first place?  And if the outrage for forcing taxpayers to subsidize successful, job-creating oil companies that provide more than one-third of our energy is justified, where is the outrage for forcing taxpayers to subsidize unprofitable, renewable solar and wind companies with weak job creation, at 82 times the production-adjusted level of oil companies? 

As I reported recently on CD, even the government's own forecast estimates that the renewable share of total energy demand will increase from about 7% currently to less than 11% even by 2035, while fossil fuel sources will still contribute more than three-quarters of our energy (77%) in 2035.  Even massive taxpayer subsidies won't change the economic and scientific reality that hydrocarbon energy will fuel America's economy for many generations to come.       

Update: See related analysis from my AEI colleague Steve Hayward last September on the Enterprise Blog (federal electric subsidies per unit of production).

Drill, Drill, Drill = Shovel-Ready Jobs, Jobs, Jobs

While yesterday's disappointing employment report reflects an economy struggling to create jobs during an extended, sub-par "jobless recovery," it's been a much rosier employment picture in one of America's most successful "shovel-ready" job-creating industries: Oil and Gas Extraction.

The chart above displays the monthly percentage changes in employment levels since January 2007 for oil and gas extraction jobs compared to total nonfarm payroll jobs. As of last month, total nonfarm payroll employment is 3.0%, and 4.1 million jobs, below the January 2007 level. In contrast, the explosion of new oil and gas jobs has increased employment in that industry by more than 38% since January 2007. Over the last 12 months, oil and gas companies have added 21,800 new workers, at a rate of almost 100 new hires every business day. And this just accounts for the new jobs created that involve the actual drilling, extraction and production of oil and gas.

A recent study found that for every one new job added in oil and gas extraction activities, there were three new additional jobs created elsewhere in the economy. The report also found that "the jobs-multiplier effect of U.S. oil and natural gas activity is higher than many other U.S. industries, including the financial, telecommunications, software and non-residential construction sectors. This is the result of the energy industry’s long supply chains and relatively high levels of spending by employees and suppliers." As a result of the multiplier effect, the U.S. economy has potentially been adding almost 400 new jobs per day over the last year due to increased oil and gas production.

Imagine what the jobless rate might be today, and imagine all of the additional shovel-ready, energy-related jobs (direct and indirect jobs) that could have been created over the last several years in the oil and gas industry (and its supporting industries), if the Obama administration: a) hadn't been so unfriendly to the low-cost, job-creating, dependable fossil fuel industry (think Keystone XL pipeline for example) that doesn't require picking the pockets of the taxpayers; and b) instead been so over-friendly to the subsidy-dependent, high-cost, unreliable but politically-favored "green" energies. On the other hand, imagine what the jobless rate might be today if we hadn't had the tremendous "energy-stimulus" to the U.S. economy that has resulted over the last few years from increased oil and gas drilling due to technological advances of hydraulic fracturing and horizontal drilling, and taking place mostly on private land? 

Weak Jobs Report Boosts Romney's Intrade Odds

Romney's Intrade odds got a boost yesterday up to 41.5% after the weak jobs report, and President Obama's odds took a hit, falling to 54.1% (see chart), the lowest since January.   

Friday, June 01, 2012

Energy Stimulus Hits Texas: San Antonio Sees Unprecedented Growth Thanks to Eagle Ford Shale

Not even a hint of a recession in South San Antonio, where businesses are popping up overnight, like popcorn in a microwave.......

"Rarely does a week go by that the Southside Chamber is not involved in a ribbon cutting,” said Tom Shaw, president of the Southside San Antonio Chamber of Commerce. New apartments have also been constructed to account for a growing population.

"It’s just like popcorn starting to hit in the microwave,” said Shaw. “Pop, pop, pop; it’s hitting all over the place."

Shaw suspected that growth would continue for decades in the area. While growth is not a new concept on the south side, it is the explosiveness at which it is happening that is catching many by surprise. It continues to be driven by economic factors like the Eagle Ford Shale.

Utilities Continue to Cut Natural Gas Rates as the Shale Revolution Saves Consumers Billions

More evidence of the significant benefits from the Shale Revolution....

1. "Philadelphia Gas Works announced today the latest decrease in natural gas rates, which have been falling because of low commodity prices. The new rate for residential customers is $1.35 per hundred cubic feet, down 2.5% from $1.40. Rates also decreased for commercial, industrial and municipal customers. In the last year, PGW’s residential natural gas rate has fallen 13%. On an annualized basis, a typical PGW residential customer now pays $181 less than 12 months ago."

2. "Elizabethtown (N.J.) Gas residential customers could spend less to heat their homes this upcoming winter. The company has filed a petition with the New Jersey Board of Public Utilities to lower rates for supplying natural gas to residential customers by an average of 2.3%."

3. "South Jersey Gas proposed a rate reduction today that would save residential customers an average of 1.1% on their natural gas bills. SJG has filed petitions with the New Jersey Board of Public Utilities that will lead to an overall decrease of $1.44 on a 100-therm monthly natural gas bill. This filing follows a series of other reductions to customers' bill costs over the past two years, including a 10.6% rate reduction granted in 2010, a 3.4% reduction granted in September 2011, and two Basic Gas Supply Service bill credits for $23 million and $20 million issued in April 2011 and December 2011, respectively." 

4. "In a filing made today with the New Jersey Board of Public Utilities, PSE&G has proposed to lower winter natural gas bills this fall by an additional 5.2% a month for residential customers. If the request is approved, it will result in the ninth decrease in a row in natural gas supply charges, for a total savings of 39% -- or about $674 -- since January 2009, when wholesale prices started to drop."


5. Electricity customers in Oklahoma are benefiting from low natural gas prices as the two largest utilities lowered charges for fuel going into the peak summer months. Oklahoma Gas and Electric Co. will lower its fuel costs by $50 million in the next 12 months, while Public Service Co. of Oklahoma will drop its fuel costs by $70 million.

MP: Lower natural gas prices have already delivered a powerful $250 billion economic stimulus to the U.S. economy over the last three years from cost savings for natural gas customers (residential, commercial, industrial and electric utilities), according to a recent study by the American Gas Association (see CD post). And these new announcements today of further rate cuts by utilities in Pennsylvania and New Jersey indicate that the significant cost savings from the energy stimulus known as the "Shale Revolution" will continue.  Importantly, this ongoing economic stimulus from shale gas, unlike the politically-favored alternative energies, doesn't require any tax subsidies, tax credits, public expenditures, procurement preferences or grants.

Energy Milestone: Gas Rig Share Falls Below 30%

In response to natural gas prices falling to inflation-adjusted multi-decade low levels over the last several years, along with high oil prices, there has been an ongoing switch in drilling activity from natural gas to oil, as can be seen in the chart above of rig shares.  Now a new milestone has been reached.  For the first time since Baker-Hughes started tracking the rig split between oil and gas in 1987, the share of active rigs drilling for natural gas fell below 30% last week and the oil share rose to a new record high of 70%.

Economic Lesson(s): Prices transmit information about relative scarcity.  Incentive matter. Producers respond to prices and incentives.  Through the invisible hand of the market and the motivation of profit-maximization, producers are naturally switching production from relatively abundant natural gas to relatively scarce crude oil.  It's a good example of market forces at work, re-allocating resources through "spontaneous order," without any need for central planning.     

Today's Employment Report

Today's employment report paints a somewhat bleak and mixed picture of current U.S. labor market conditions, with an increase of only 69,000 payroll jobs in May (less than half of the 150,000 consensus expectation) and an increase in the May jobless rate to 8.2%.  While most reactions to the job data could be best described as "disappointment," here are a few bright spots in today's report:

1. Manufacturing payrolls increased in May by 12,000, which was the eighth consecutive monthly gain in factory jobs, and the 18th monthly increase out of the last 19 months.  For the 11th straight month, the manufacturing jobless rate (7.1%) was below the national rate (7.7% NSA).  Manufacturing employment at just below 12 million in May was at the highest level in slightly more than three years, since April 2009.  Since 2010, manufacturing employment has increased by almost 500,000 jobs.

2. The more comprehensive measure of employed workers from the May household survey (includes self-employed workers) increased by 422,000 jobs last month, and has shown an increase of almost 1.5 million jobs this year, vs. the 823,000 increase in payroll employment from January to May.  Total civilian employment in May of 142.3 million was the highest since December 2008, more than three years ago.  

3. Temporary help employment for professional and business services increased in May to almost 2.5 million jobs, reaching the highest employment level for those workers in more than four years going back to February 2008.   With continued growth in temporary employment this summer, the number of temporary jobs in the U.S. economy should exceed pre-recession levels sometime this summer.      

4. The jobless rate for college graduates fell to 3.9% in May, the lowest unemployment rate for that group since December 2008, almost three and-a-half years ago.

Update: Scott Grannis provides some of his always-insightful commentary (and graphs) on today's jobs report:

"So I think the market's reaction to today's news has been excessively pessimistic. I don't see convincing signs of deterioration in the outlook; I see an economy that continues to grow at a sub-par pace, and that's been the case for the most of the past three years."

Thursday, May 31, 2012

April Restaurant Index Above 100 for 6th Month

"The outlook for the restaurant industry remained positive for the coming months, as the National Restaurant Association’s Restaurant Performance Index (RPI) stood well above 100 in April. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.6 in April, down 0.6 percent from the strong level of 102.2 registered in March. Despite the decline, April represented the sixth consecutive month that the RPI stood above 100 (see red line in chart above), which signifies expansion in the index of key industry indicators.

Although the Restaurant Performance Index dipped somewhat in April, it remained solidly in positive territory. Restaurant operators reported positive same-store sales for the 11th consecutive month, and a majority of them expect business to continue to improve in the months ahead.

 The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 102.2 in April – down slightly from a 15-month high of 102.4 registered in March (see red line in chart). April also represented the eighth consecutive month that the Expectations Index stood above 100, which signifies a positive outlook among restaurant operators for business conditions in the coming months."

MP: Further evidence of an improving outlook for U.S. restaurants is provided by Census data showing that sales for "Food Services and Drinking Places" were up by 8.5% in April from a year earlier, following a 7.4% increase in March.  After being flat in 2008 and 2009, sales at "food services and drinking places" are now 17% above the June 2009 level when the recession officially ended, and set a new monthly record high (in both real and nominal dollars) of almost $44 billion in April.  

Moreover, sales at "Full Service Restaurants" set a new monthly record high (both nominal and real dollars) of $20.4 billion in March, and were up by 13.1% year-over-year, following a 13.7% increase in February. The relevant data suggest that the restaurant industry has made a full recovery from the recession and is now operating back above pre-recession levels for inflation-adjusted sales. Regardless of how consumers answer confidence survey questions, the strong improvements in restaurant sales and the RPI in recent months would indicate that tracking actual consumers spending on restaurant meals is reflecting a high level of consumer confidence. 

March U.S. Oil Production Highest Since 1998

Domestic Oil Production is Booming in North Dakota and Texas on Private Land: It's the Fuel of the Future
The Department of Energy released data today showing that U.S. field production of crude oil came close to reaching a 14-year high in March, with average daily production of 6.26 million barrels.  That was the highest average daily oil production in any month since June 1998, almost 14 years ago, when average output was slightly higher at 6.267 million barrels.

March oil production was 11% ahead of last year, as 630,000 more barrels were produced on average each day in March compared to last year.  Production increases of 215,000 more barrels per day in North Dakota in March of this year, and 388,000 more barrels per day in Texas were responsible for most of the overall national increase of 630,000 barrels per day.

It should be noted that these significant increases of crude oil production in North Dakota and Texas over the last year are taking place mostly on private and state lands, and have nothing to do with President Obama's "All-of-the-above" energy policy he introduced in his January State of the Union address.

Related: From my oral testimony today before the House Oversight Committee, full written testimony here.

"Even the government’s own forecasts predict that renewable energy will continue to play a relatively minor role as an energy source over the next several decades out to the year 2035. And traditional energy sources like oil, gas and coal will continue to provide the overwhelming share (more than three-quarters) of the fuel required to meet U.S. energy demand for the next three decades at least.

By favoring new, costly, subsidy-dependent alternative energy sources over traditional sources, and by not fully supporting the proven, job-creating, low-cost fossil fuels, it would be more accurate to describe President Obama’s costly energy strategy as “some of the most costly above” instead of “all-of-the-above.”

What we really want is an energy policy that is not based on “all-of-the-above” or “some of the above,” regardless of cost, reliability, and economic and scientific merits, but rather an energy policy that is grounded in the logic of “all of the energy sources that are actually cost-competitive.”

President Obama might wish for an energy future of alternative energy, but the scientific and economic realities suggest that the "fuels of the future" will mostly be the same as the "fuels of the past" — dependable, reliable and low-cost oil, natural gas, coal and nuclear."

Wednesday, May 30, 2012

Gas Drops Below $3 per Gallon in South Carolina

Damn those greedy oil speculators, they've driven gas prices down to $3 per gallon in South Carolina.  

Update: Gas is now below $3 per gallon in South Carolina, currently as low as $2.98 on Saturday morning. 

Oil Prosperity Update for Eagle Ford Texas

1. Fuel Fix -- "Robust drilling activity in the Eagle Ford Shale is rescuing the state’s lodging sector. San Antonio-based Source Strategies says in its newest Hotel Brand Report that hotels in the counties with the most oil-and-gas production were responsible for 75% of the $151.3 million in additional revenues hotels produced statewide between the first quarter 2011 and the first quarter this year. That occurred even though those oil-and-gas-rich areas account for only 38% of the 395,100 hotel rooms in Texas. The rest of the hotel sector recorded insignificant revenue gains of 3.2%.

“The economic impact of oil and gas is huge,” said Bruce Walker, president of Source Strategies."

2.  — "The sales tax revenue bump generated by Eagle Ford Shale production could have a positive effect on local governments’ creditworthiness, according to analysis by a noted rating agency.

A study by Moody’s Investor Service showed increased revenues could have a “credit positive” effect on bond ratings for 61 entities Moody’s rates across a 20-county region of South Texas impacted by Eagle Ford development."

MP: Welcome to the new Bakken.....

Markets in Everything: Belgian Soccer Fans for Sale on eBay to Root for Your Country in Euro 2012

Listed on Ebay (current bid approx. $445 with 7 days left):

"Once again we Belgians have no team to root for at the Euro 2012 soccer championship. Since tournaments are much more fun when you have a favorite team, we decided to put our fandom for sale on eBay.  All profits will be sent directly to Unicef. 

What is for sale: During Euro 2012, all members of this Facebook Group will root for the national soccer team of the highest bidder, or the national team of his choice. Even if it's Holland. We will watch the games, wear the colors, possibly even buy the flag and learn the national anthem. Pictures and videos will be made and sent to the winning bidder to be posted on his or her website.  Slight hooliganism is available at extra cost. We can, for example, kick a pigeon or smoke in a non-smoking area if such pleases our master.

Once the team is eliminated, we will grieve for 24 hours and then put ourselves for sale again on eBay. Hopefully joined by the previous winner since he or she will also have become an orphaned soccer fan by then." 

HT: Marc Purcell

ASA Staffing Index for Temporary and Contract Employment is Highest for Week 21 Since 2008

The American Staffing Association's (ASA) Staffing Index for temporary employment activity rose to 94 last week, which was the highest index reading for Week 21 since 2008 when the index was also 94.  It's just several points below the 96 index level for the comparable week in 2007.  It's also the highest weekly reading so far this year, and 8% above its year earlier level.  The ASA Staffing Index has historically been a leading indicator for the overall labor market, and the upward trend this year in the index to a four-year high last week could be an indication of broader-based employment gains over the summer months.     

Markets in Everything. Or Not. No More Gender Based Price Discrimination in New York City

WSJ -- "In New York City, 38 businesses have been hit this year for violating a little-known provision that has many pulling their hair: gender-pricing discrimination. The majority of violations so far this year—103—were issued to salons and barbershops.

The city's Department of Consumer Affairs began stepping up enforcement of the law last year, when it issued 580 gender-pricing violations to businesses, more than double the 212 doled out the year before. "We wanted to really send a strong message to businesses about this kind of illegal pricing, so we did a very focused sweep over the course of the year," said the department's commissioner, Jonathan Mintz. "That sweep was largely targeted at salons and barbershops and laundry and dry cleaning." The fines for first-time violations range from $50 to $200, while those for subsequent ones are $100 to $500.

"This is a very basic consumer-protection law and it is also a very basic civil-rights law," said Mr. Mintz. "I think there are completely legitimate reasons to charge different prices for different services and that one should be specific for what those reasons are," he added. "Reasons are not chromosomes."

While salons have received the most violations so far this year, in 2011 laundry and dry-cleaning businesses received 272 violations, compared with 269 for salons. In 2010, on the other hand, dry cleaners had only five violations, while "miscellaneous nonfood retail," which includes salons, had 207 violations."

Tuesday, May 29, 2012

Center of Gravity in Oil World Shifts to Americas; It's the "Equivalent of a Category 5 Hurricane"

As U.S. oil production ramps up, net oil imports have fallen to a 20-year low of 42.4% in 2012 through April.

The Washington Post reported recently on the new world energy map that is emerging, and it is no longer centered on the Middle East, but on the Americas:

"From Canada to Colombia to Brazil, oil and gas production in the Western Hemisphere is booming, with the United States emerging less dependent on supplies from an unstable Middle East. Central to the new energy equation is the United States itself, which has ramped up production and is now churning out 1.7 million more barrels of oil and liquid fuel per day than in 2005.

“There are new players and drivers in the world,” said Ruben Etcheverry, chief executive of Gas and Oil of Neuquen, a state-owned energy firm that is positioning itself to develop oil and gas fields here in Patagonia. “There is a new geopolitical shift, and those countries that never provided oil and gas can now do so. For the United States, there is a glimmer of the possibility of self-sufficiency.”

Oil produced in Persian Gulf countries — notably Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq — will remain vital to the world’s energy picture. But what was once a seemingly unalterable truth — that American oil production would steadily fall while the United States remained heavily reliant on Middle Eastern supplies — is being turned on its head.

Perhaps the biggest development in the worldwide realignment is how the United States went from importing 60 percent of its liquid fuels in 2005 to 45 percent last year (MP: Net oil imports have since fallen to a 20-year low of 42.4% this year through April, see chart above). The economic downturn in the United States, improvements in automobile efficiency and an increasing reliance on biofuels all played a role.

But a major driver has been the use of hydraulic fracturing. By blasting water, chemicals and tiny artificial beads at high pressure into tight rock formations to make them porous, workers have increased oil production in North Dakota from a few thousand barrels a day a decade ago to nearly half a million barrels today.

Conservative estimates are that oil and natural gas produced through “fracking,” as the process is better known, could amount to 3 million barrels a day by 2020. “We have a revolution here,” said Larry Goldstein, director of the Energy Policy Research Foundation in New York. 'In 47 years in this business, I’ve never seen anything like this. This is the equivalent of a Category 5 hurricane.'"

Dueling Consumer Confidence Reports

1. Last Friday, Thomson Reuters/University of Michigan reported that its consumer sentiment index increased in May for the ninth straight month.  That set a new record for the most consecutive monthly increases in the history of the index going back to 1978.  It was also the most upbeat American consumers have been in more than fours years, since October 2007 before the recession started.  Bloomberg reported that "A record number of households said they'd heard better news on the jobs outlook, which combined with cheaper gasoline and an improving housing market may help sustain consumer spending and shield the economy from Europe's debt crisis."

2.  This morning, Gallup reported that its Economic Confidence Index held at -16 last week, the highest index level in the four-plus years of Gallup Daily tracking in the United States.

3. Also this morning, The Conference Board reported that its consumer confidence index fell to a five-month low in May, as Americans were less optimistic about current labor market and business conditions, as well as the short-term outlook.

What are we to make of these conflicting consumer confidence reports?  Perhaps it's a reflection of the weakness in survey-based measures of consumer confidence, or that surveys have large margins of error?  

In other news today, S&P reported that its Case-Shiller Home Price Index dropped in March by 2% to a post-crisis low.  Note that the Case-Shiller home price index is calculated based on a three-month moving average with a two month lag and is therefore based on home prices in January, February and March.  The sales and price gains I was reporting recently were for April, and those improvements won't be captured by the Case-Shiller index until next month's report. 

IJ Helps Caveman Blogger Fight for Free Speech

The Institute for Justice asks a very important question: "Can the government throw you in jail for offering advice on the Internet about what food people should buy at the grocery store?"

"That is exactly the claim made by the North Carolina Board of Dietetics/Nutrition. In December 2011, diabetic blogger Steve Cooksey started a Dear Abby-style advice column on his popular blog (www.diabetes-warrior.net) to answer reader questions. One month later, the State Board informed Steve that he could not give readers advice on diet, whether for free or for compensation, because doing so constituted the unlicensed, and thus criminal, practice of dietetics. The State Board also told Steve that his private emails and telephone calls with readers and friends were illegal, as was his paid life-coaching service. The State Board went through Steve's writings with a red pen, indicating what he may and may not say without a government-issued license."

"But the First Amendment does not allow the government to ban people from sharing ordinary advice about diet, or scrub the Internet—from blogs to Facebook to Twitter—of speech the government does not like. North Carolina can no more force Steve to become a licensed dietitian than it could require Dear Abby to become a licensed psychologist."

"That is why on May 30, 2012, Steve Cooksey joined the Institute for Justice in filing a major free speech lawsuit against the State Board in the U.S. District Court for the Western District of North Carolina, Charlotte Division. This lawsuit seeks to answer one of the most important unresolved questions in First Amendment law: When does the government's power to license occupations trump free speech?"

Watch video above for more information.  

Chicago Fed: Midwest Manufacturing Is Booming; Midwest April Auto Production Soars to 2007 Level

The ChicagoFederal Reserve reported today that its Midwest Manufacturing Index increased 2.4% in April compared to March, following a revised 0.22% monthly decline in March. The April increase was the largest monthly gain in Midwest manufacturing activity since September 2003, more than 8 years ago, and brought the index to the highest level since June 2008, almost four years ago.   

Here are some highlights of manufacturing activity in the 7th Federal Reserve district that covers Illinois, Indiana, Iowa, Michigan, and Wisconsin:

1. Manufacturing output in the Midwest region rose 12% from a year earlier in April, more than twice the 5.8% increase in national manufacturing output over the same period (see chart).  In comparison, the overall U.S. economy (real GDP) grew by only 2.1% in the period from Q1 2011 to Q2 2012. 
2. Regional machinery output in April gained 11.5% from its year-earlier level, compared to a 6.6% increase in machinery output at the national level. 

3. Regional steel output improved 10.7% from its April 2011 level, compared to a 7.6% increase in national steel output over that period.

4. The Midwest’s automotive output increased by a whopping 28.2% in April from its year-ago level, compared to a 16.4% gain in national automotive output.  The index level of 99.6 for Midwest auto sector production in April was at the highest level since November 2007, indicating that the auto industry in the Midwest has now made a complete recovery from the effects of the Great Recession.  

MP: Midwest manufacturing output growth continues to lead national manufacturing output growth, which continues to lead overall economic growth measured by real GDP.  The lastest Chicago Fed report suggests that U.S. manufacturing, especially in the Midwest, remains at the forefront of the economic recovery measured by growth rates in output.  In another milestone for manufacturing, Midwest automotive production in April returned to its pre-recession 2007 level for the first time since the recession started in December 2007.