Obama's Oil Flim-Flam - Krauthammer in the Washington Post

Last edited Fri Mar 16, 2012, 05:21 PM - Edit history (2)

http://www.washingtonpost.com/opinions/obamas-oil-flimflam/2012/03/15/gIQA7x77ES_story.html

Krauthammer goes off on a typical Conservative rant of irrelevancies and distortions in his article in today's WaPo. Basically he makes the oft heard conservative argument that we can produce enough oil domestically to significantly increase our independence on imported oil and bring down the price of that oil, if only the Democrats would allow drilling everywhere domestically. In fact, legitimate reviews of our potential domestic supplies of oil have concluded that we could only produce about 1% to 3% of our needs using increased domestic production of oil.

Scientific American

(.. since we consume about 25% of the world's oil supply that would mean greatly expanded U.S. production of oil might equal 4% of our domestic needs ...by 2030.)


Krauthammer would have us believe we can drill off the coast and be delivering more gas in a couple months. It takes about 5 years, at best, to go from exploring an area known to have oil beneath it, to producing a steady flow of oil for refining. And how much could we find of domestic sourced oil? Maybe about 3% to 5% of our needs. THAT'S WHY DRILLING FOR DOMESTIC OIL IS NOT A PLAN.

Regarding the Keystone pipeline, why do they want to build a pipeline all the way to Louisiana when there is plenty of refining capacity in the Midwest - which just happens to be right in the population center of our gasoline market? Simple. The oil companies want to refine the tar sands oil into diesel for sale (from a duty free area in Louisiana) to foreign buyers. None of it is planned for domestic sale. It's not that much of a loss though. The Keystone Pipeline will produce about 3% of our needs, in about FIVE YEARS. In a few more years they MIGHT get to 5% of our demand.

Amid all the talk about high oil prices nobody is noting that West Texas oil which for decades sold at a premium to North Sea Brent has in the last few years been selling for LESS THAN North Sea Brent.
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One thing that nobody seems to notice among all the talk about high oil prices is that West Texas Intermediate oil for decades sold at a PREMIUM to North Sea Brent - ABOUT 6% TO 8%. In the last several years that began to change. Amazingly, WTI's premium over NSB oil began to shrink around 2005-2006. By 2006 the premium was only 1.1%. In 1997 WTI was selling at a .7% DISCOUNT to North Sea Brent. And in 2011 West Texas Intermediate was selling at a 14% discount to North Sea Brent. And why is that? The narrowing of the WTI premium and then the discounting of WTI relative to North Sea Brent just happened to coincide with the production of Ethanol in significant volume in the U.S.

Now, in the last year the price of oil has been pushed up by speculators due to Supply risks presented by 1) The Arab Spring, and 2) Iran's progress toward producing a nuclear bomb. The increasing risk to the supply of oil has increased the impact ethanol has on the price of oil/gas in the U.S. as ethanol is unaffected by any risks tothe supply of mid-East oil. [font size="3"]But when you consider that historically, West Texas oil's premium has been about 6% - 8% (to North Sea Brent) and the fact that West Texas oil is now trading about 14% BELOW North Sea Brent this means Ethanol has reduced the price of domestically produced (and mostly domestically consumed) oil by 20% - 22%! [/font]

Now since about half our gasoline supply comes from imported oil that reduces Ethanol's lowering impact on the price of gas about half. So, we can say that ethanol has kept our gasoline prices about 10% to 11% lower than they would have been if we were not producing ethanol at a volume equal to a little over 10% of our light transportation fuel supply. [font size="3"]So, if it weren't for ethanol we would be paying about $.40 MORE for gas than we currently are.[/font] [/font]

Of course, we could do more by making methanol from natural gas (for about $1.60, wholesale) and add that to the ethanol up to about another 5% of the fuel supply (for use only in Flex Fuel Vehicles of course) saving even more.