I’m trying to make sense of the moratorium of drilling in the Gulf of Mexico. This cannot be good for the U.S. economy. But it is interesting that it comes along right when Government Motors is about to release the Chevy Volt. You know, the electric car that costs $41,000 which no one wants. They are going to steal around $6,000 from your neighbor to entice you to buy it so the cost does go down in that regard.
I ran the numbers. Let’s say you managed to buy this little vehicle for a discounted price of $35,000 including rebates, incentives and tax credits. Let’s say gasoline is $3 gallon. Let’s also assume given that cost you would spend $2,000 for fuel a year. It’s a decent average. Depending on your car maybe you blow through $200 a month or so on fuel. Let’s also assume you could buy a used Honda for $7,000 which is roughly the same size as the Volt. That is a difference of $28,000. Think maybe you could buy a lot of gasoline for that money? Yea, about 14 years worth before breaking even on your Volt purchase. It’s just a dumb purchase for all except the elite earth and granola people.
The Obama administration’s six-month ban on exploratory deep- water drilling has four more months to go. What happens after that, nobody knows. Analysts from Morgan Stanley to our own Byron King say it could easily become a 12-18-month ban.
The result: As existing Gulf of Mexico fields deplete, fewer new ones would come on line to replace them. The resulting shock could see 6% of all the oil the U.S. uses — 1.2 million barrels a day — disappear over time.
New legislation tightening the rules on offshore drilling could come up for a vote in the House as soon as tomorrow (today). Never mind that existing rules were neither followed nor enforced in the Deepwater incident, we need new rules. The new rules would further crimp Gulf production.
In the end, the U.S. could need to import 80% of its oil from foreign producers. That’s up 20% from current needs. At current levels of consumption, the U.S. will need to import 15 million barrels of oil a day.
Where are those imports coming from? From these “iffy, at best” sources:
* Venezuela: Hugo Chavez is making noises about cutting off the U.S. supply if border tensions with U.S. ally Colombia heat up any further. Sure, he’s said this before and it’s always been a bluff. But we’re not talking about the most stable of leaders here… His socialist schemes have cut Venezuelan oil production more than 25% over the last decade
* Nigeria: Elections next year could easily heat up the split between Muslims in the north and Christians in the south. And it might give new life to the warlords in the south who’ve bedeviled the oil industry for years. Shell has been hit so hard by rebel attacks that just today it announced it’s willing to sell five leases to local firms. You don’t walk away from 2 billion barrels of reserves without a good reason
* Mexico: Production at Cantarell, once the world’s second-largest oil field, just fell below 500,000 barrels a day. Six years ago, it was over 2 million. Mexico is still on track to become a net oil importer in the next two years
* Saudi Arabia: Hoo boy. Earlier this month, King Abdullah ordered Saudi Aramco to cease oil exploration to preserve the nation’s resources for future generations. At least, that’s how state media interpreted it.
What’s more, former Saudi ambassador to the U.S. Prince Turki, is rumored to have written a letter warning his relatives to flee the country before the House of Saud is overthrown. (The letter’s authenticity is in doubt, but in a stable regime, this kind of rumor wouldn’t see the light of day.)
The U.S. No. 1 supplier is Canada. The Alberta oil sands have been pitched increasingly as the one saving grace for U.S. consumers. Unfortunately, the Chinese have designs on the sands too.
As has been their habit around the world of late, the Chinese bought a 9% stake in Canada’s biggest oil sands project from ConocoPhillips.
Now, plans are under way for two pipelines stretching from Alberta to the British Columbia coast… where the oil would then be loaded on tankers bound for China. Even without the pipelines, this tanker traffic has tripled since 2008.
Canadians see this as a good deal for two reasons…
* They fear it’ll be harder to sell their carbon-intensive oil to Americans if climate change legislation passes in Washington
* They can get a better price from the Chinese. One firm, Enbridge, figures it can get up to $3 a barrel more from China, where oil demand is growing, than from the United States.
“Canadian tar patch producers are quickly recognizing that China will be the real market for the billions of barrels of oil they hope to extract,” Jeff Rubin, former chief economist at CIBC World Markets, comments.
“Opening up an Asian market,” Canada’s prestigious newspaper The Globe and Mail put it this way last week, “would mean that Canadian oil producers no longer have to passively accept whatever price U.S. refiners are willing to pay. They could play U.S. and Asian customers off against one another in search of the best deal.”
Bottom line: In the wake of the Gulf disaster, U.S. policy is heading willy-nilly toward a rock and a hard place, clamping down on Gulf of Mexico production at a time when it’s possibly needed more than ever…
Other countries can’t wait to get their hands on all that offshore drilling hardware sitting idle in the Gulf.
“In the rest of the world, countries are generally sticking with their energy plans,” says Daniel Yergin, author of the Pulitzer-winning history of the oil industry The Prize. And the operators of those rigs won’t pass up the $500,000 daily rental fees if they can find them elsewhere.
“Whether it’s Brazil, Angola or Norway, offshore developments are very much tied into their overall economic development goals,” Yergin tells NPR, “and so I think they are going to continue. Some countries may even see an intensification of activity as operators move away from the Gulf of Mexico, at least temporarily, to other parts of the world.”
Gee that sounds awfully familiar. Where have we heard that before?
“By Nov. 30, there may not be much of a U.S. deep-water drilling industry left,” wrote Byron King in this very space two weeks ago. “Drilling vessels are major articles of capital equipment. They need work, and they need to generate cash flow. If the rigs aren’t getting paid to drill in the GOM, they’ll find another locale. It’s a global industry. Anchors aweigh, my boys.”
This isn’t hypothetical, either: Diamond Offshore announced earlier this month it’s moving a big drilling vessel to Egypt. It won’t be back for a long time, if ever.
So we stop drilling in the Gulf losing 20% of our production. Gasoline prices rise. People have no other choice but to purchase Government Motors vehicles at some point. Unfortunately it looks like Nissan with their all electric vehicle for the same price beat the government to it. But when gasoline rises to $6 a gallon the numbers will start to add up. Again, the best way to get there is to essentially stop production in our own country.
And have you wondered why the government is not behind natural gas? We have plenty of that fuel. Our vehicles and supply systems could be easily retrofitted to burn nat gas. The supply is plentiful and the price should be cheaper than $3 gasoline. If nothing else big rigs could be using them. But for some reason the government just cannot get behind this relatively cheap, efficient and clean fuel. Why is that?
Because the radicals in Washington want control of everything. They will tell you what is permissible to drive and what fuel you can put in it. They control health care. Now finance. And this blowout in the Gulf was a gift so they can further control oil drilling in the country. Just more of your freedoms and liberties being sucked right out from under you.
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