[FoRK] Oil

Stephen Williams sdw at lig.net
Sat May 24 12:22:05 PDT 2008


Russell Turpin wrote:
> sdw writes:
>   
>> And require that their oil be sold only in the US, not on the 
>> open market.
>>     
>
> What difference do you think that will make? Oil is fungible. And
> transportable. Admittedly, an oil producing nation can subsidize
> internal prices. I'm skeptical of how well that works for a nation 
> that imports two-thirds of what it uses. And should we be subsidizing
> use anyway?
>   
I wasn't talking about subsidizing use.  I was referring to resources 
extracted from public land.  The Saudi's et al are placing a premium on 
that unearned mineral right.  Oil companies to some extent enjoy a 
premium on unearned mineral resale, or sale minus mineral royalties.  My 
point was that it might make sense to nationalize, in a sense, the 
mineral right.  I am not talking about nationalizing a company, and to 
the contrary, it might make sense to foster new startups specifically 
incentivized to provide real competition and efficiency.

The cost of raw minerals is in some sense unearned value.  This is more 
true when the cost of extraction is a small percentage of wholesale and 
when those costs are mostly one time charges for long-producing sources, 
like Saudi oil fields.  This is much less so when the cost of extraction 
is a high percentage of the costs; diamonds or gold perhaps.  This is 
not unlike fishing, farming, etc.

There is something inefficient about the market when the extreme end of 
the unearned mineral market earns nearly unlimited income with no real 
value add over found resources.  If it is the case that exploration and 
production costs for the most expensive ventures are controlling the 
price for all oil production, where the old-guard production has to have 
become less and less expensive, then the market is broken.  Isn't the 
price explosion timing conveniently concurrent with an administration 
that is oil industry entangled, Saudi et al entangled, and adept at 
pissing off Arabs / Muslims / etc.?

I'm sure that a lot of this occurs because the supply is ultimately 
limited, however it seems that there are many opportunities for gouging 
that are probably happening.
>> We need competition. Real competition. And some creative barriers.
>> Like, allow unlimited domestic oil exploration only to startups 
>> that have no ownership by existing multi-nationals. 
>>     
>
> You do realize that DECREASES competition?
>   
Globally yes, but within our sandbox, it would create viability for new 
players and price pressure on the multinationals.  Probably not a 
workable scheme, but possible.
>   
>> And put a cap on earnings percentage..
>>     
>
> So after a well pays out, and then generates some profit for the 
> investors, it is taxed at 100%? Nationalized, in other words. 
> Investing in oil wells is very much like investing in startups. Most 
> don't pay out. Ideally, you make it up on the ones that pay out large. 
> Cap how much a project can pay out, and independent exploration will 
> dry up. 
>   
I was speaking only of the large known reserves.  I have no problem with 
rewarding exploration and speculative investment, although at a certain 
point some public competition with that makes sense.  Government funding 
of geologists is not a bad thing.
>   
>> The problem we have right now is that no producers or processors or
>> resellers have an interest in lowering price, or profit, and now 
>> that we have a global market..
>>     
>
> We have had a global market in oil for many decades. Tankers are old
> technology. I'm not sure what to make of your comments on profit. 
> Every company for which I have worked and in which I have invested 
> wanted to make as much profit as it could. Most failed. But that still 
> was the intent. Prices aren't lowered in charity. They are lowered to
> expand market penetration or to meet market competition. 
>   
Exactly.  We have more or less full penetration and no real competition 
it seems.  Oligarchies are not competition.
>   
>> ..now the oligopoly has succeeded in gaming consumers, apparently 
>> for no good reason other than that we invaded other Arab / Muslim 
>> nations.
>>     
>
> Saudi Arabia is the only nation that potentially is withholding 
> production capacity. And I'm a bit skeptical that it has any to spare.
> My suspicion is that everyone who has oil to sell right now is running 
> full out. It is, after all, selling for the highest prices ever. And I 
> know for a fact that there are a hell of lot of projects to develop 
> more production. Rigs, people, and equipment are in short supply the 
> world around. Possibly, we'll see a big bump up in production because 
> of that, and a crash in price. Possibly, it will take all that and more 
> to keep up with exhaustion of existing reservoirs. There are different 
> views of that. The crystal ball I bought to predict how much oil will 
> flow was fucked up from the get go, and the gypsy who sold it to me 
> long since closed up shop.
>
>   
If no one is withholding or restricting and the problem is that we 
suddenly have too many emerging markets using too much oil, then there's 
not much that can be done except find alternatives.  Once you have a 
market that is selling at the highest price, increasing production too 
much could kill the golden goose.  I expect that anyone not at capacity 
would be careful about increasing output too much too quickly.  Lack of 
refinery capacity is a good excuse.

sdw



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