Arctic Leaf

It’s the oil price and cost, baby

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I began what turned out to be a highly ranked leadership program for public officials at the University of Colorado in the early ’80s, as dean of the Graduate School of Public Affairs. I did the same for private-sector folks when I moved to Irvine, Calif., to run a leadership program involving Israeli startup CEOs for the Merage Foundations. Despite the different profiles of participants, one of the compelling themes that seemed pervasive to both — for- profits in Israel and governments everywhere — was and remains building the capacity of leaders to give brief, focused oral presentations or elevator pitches (or, as one presenter once said, “how to seduce someone between the first and fifth floor”). A seduction lesson in oil economics in a thousand words or three minutes’ reading time!

Now that I got your attention! Sex always does it! During the last few days, I read some straightforward, short, informative articles on oil company and environmentalist group perceptions concerning the relationship between the price of oil per barrel and the cost of drilling. Their respective pieces could be converted into simple written or oral elevator pitches that provided strategic background information to the public and political leaders — information often not found in the news media — press, television, cable and social media — concerning oil company or environmentalist decision-making.

This is good news. Most of the academic and, until recently, media coverage of the decline of oil and gasoline prices generally focuses on the dollar or percentage drop in the price of oil and gasoline from a precise date … 3 months, 6 months, a year, many years ago, etc. And, at least by implication in many of its stories, writers assume decision-making is premised on uniform costs of drilling.

But recently, several brief articles in The Wall Street Journal, MarketWatch, OilPrice.com, etc., made it clear that the cost of drilling is not uniform. For example, there is a large variation internal to some countries depending on location and geography and an often larger variation between and among oil-producing nations. Oil hovers around $80 a barrel now, but the cost of drilling varies considerably. In Saudi Arabia, it is $30 per barrel or less on average; in the Arctic, $78; in Canada’s oil sands $74; and in the U.S, $62.

If you’re responsible for an oil company or oil nation budget, a positive cash flow and a profit, you are likely to be concerned by increasingly unfavorable opportunity cost concerning costs of drilling and returns per barrel. In light of current and possibly even lower prices, both companies and nations might begin to think about the following options: cutting back on production and waiting out the decline, pushing to expand oil exports by lowering costs in the hopes of getting a better than domestic price and/or higher market share, lessening your investment in oil and moving toward a more balanced portfolio by producing alternative fuels. If you believe the present price decline is temporary, and that technology will improve drilling cost/price per barrel ratios, you might consider continuing to explore developing wells.

Up to now, the Saudis have acted somewhat counterintuitively. They have created dual prices. Overall, they have sustained relatively high levels of production. For America, they have lowered prices to hold onto or build market share and undercut prices related to U.S. oil shale. For Asia, they have increased prices, hoping that demand, primarily from China and India, and solid production levels in the Kingdom, will not result in a visible drop in market share.

However, the Saudis know that oil revenue has to meet budget needs, including social welfare requirements resulting in part from the Arab Spring. How long they can hold onto lower prices is, in part, an internal political and budget issue, since oil provides a disproportionate share of the country’s public revenue. But, unlike the U.S. and many other nations, where drilling for tight oil is expensive, the Saudis have favorable ratio between production costs and the price of oil. Again, remember the cost of production in the U.S., on average, is about 100 percent above what it is in Saudi Arabia and some other OPEC nations. Deserts may not provide a “wow” place for all Middle East residents or some tourists looking for a place to relax and admire diverse landscapes, but, at the present time, they provide a source of relatively cheap oil. Further, they permit OPEC and the Saudis to play a more important global role in setting prices of oil and its derivative gasoline than their population numbers and their nonoil resources would predict. Lowering prices and keeping production relatively high in the Middle East is probably good for the world’s consumers. But as environmentalists have noted , both could slow oil shale development in the U.S. and with it the slowdown of fracking. Both could also interest oil companies in development of alternative fuels.

Oil-rich nations in the Middle East and OPEC, which control production, will soon think about whether to lower production to sustain revenues. In the next few months, I suspect they will decide to risk losing market share and increase per barrel oil prices. U.S policy and programs should be recalibrated to end the nation’s and West’s often metabolic response to what the Saudis do or what OPEC does. Support for alternative replacement fuels is warranted and will reduce consumer costs over the long haul and help the environment. It will also decrease America’s dependence on Middle East oil and reduce the need to “think” war as a necessary option when developing America’s foreign policy concerning the Middle East.

Arctic Leaf

Methanol — the fuel in waiting

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Methanol is a bit of a mystery. It is the simplest form of a hydrocarbon, one oxygen atom attached to simple methane molecule. Therefore, it burns. Methanol is one of the largest manufactured trading commodities after oil, and has about half the energy value of gasoline (but its high octane rating pushes this up to 70 percent). It is a liquid at room temperature and would therefore fit right into our current gasoline infrastructure — as opposed to compressed natural gas or electricity, which require a whole new delivery system.

Methanol made from natural gas would sell for about $1 less than gasoline. Methanol can also be made from food waste, municipal garbage and just about any other organic source.

So why aren’t we using methanol in our cars? It would be the simplest thing in the world to substitute methanol for gasoline in our current infrastructure. Car engines can burn methanol with a minor $200 adjustment that can be performed by any mechanic. You might have to fill up a little more often, but the savings on fuel would be significant — about $600 a year. So what’s stopping us?

Well, methanol seems to be caught in a time warp. It is the dreaded “wood alcohol” of the Depression Era. Methanol is poisonous, as opposed to (corn) ethyl alcohol, which only gets you drunk. (In fact, commercial products such as rubbing alcohol are “denatured” by adding methanol so people will not drink them.) But if methanol is poisonous, so is gasoline, as well as many, many other oil products. Yet methanol is somehow caught up in old EPA regulations that make it illegal to burn in car engines — even though it is hardly different from the corn ethanol that currently fills one-tenth of our gas tanks.

Methanol’s main feedstock is natural gas, and for a long time that was seen as a problem. “Methanol wasn’t practical because the price of natural gas was so high and we seemed to be running out of it,” said Yossie Hollander, whose Fuel Freedom Foundation has been promoting the use of methanol for some time. “But now that natural gas prices have come down, it makes perfect sense to use it to make methanol. We could do away with the $300 billion a year we still spend on importing oil.”

The EPA actually granted California an exemption during the 1990s that allowed 15,000 methanol-powered cars on the road. The experiment was a success and customers were happy but natural gas prices reached $11 per million BTUs in 2005 and the whole thing was called off. Only a few months later, the fracking revolution started to bring down the price of natural gas. It now sells at $4 per mBTU. Yet, for some reason the EPA has not yet reconsidered its long-standing position on methanol.

At the Methanol Policy Forum last year, Anne Korin of the Institute for the Analysis of Global Security (IAGS), made a very insightful remark. “I think methanol fares poorly in Washington precisely because it doesn’t need any subsidies or government assistance in making it economical. For that reason you have no big constituency behind it and no member of Congress crusading on its behalf.”

That may be about to change, however. China has a million cars burning methanol on the road and wants to expand. In the past few weeks alone, Texas and Louisiana have been hit with what is being called “Methanol Mania.” The Chinese are planning to build six major processing plants to turn the Gulf Coast into the world’s biggest center of methanol manufacture. One project will be the largest methanol refinery in the world, two times the size of one located in Trinidad.

All this methanol is intended to be sent back to China. The Chinese want to employ it as a feedstock for their own plastics industry, plus use it in Chinese cars. They will be shipping it the expanded Panama Canal, which will be completed in 2015.

But at some point someone in this country is going to look around and say, “Hey, why don’t we use some of this methanol to power our own automobiles.” At that point the methanol industry, along with the Texas and Louisiana, may have enough political leverage to get the EPA off the dime and see a decision about using methanol in our cars as well.

(Photo credit: Stockcarracing.com)

Arctic Leaf

The decline of oil and gas prices, replacement fuels and Nostradamus

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“It’s a puzzlement,” said the King to Anna in “The King and I,” one of my favorite musicals, particularly when Yul Brynner was the King. It is reasonable to assume, in light of the lack of agreement among experts, that the Chief Economic Adviser to President Obama and the head of the Federal Reserve Bank could well copy the King’s frustrated words when asked by the president to interpret the impact that the fall in oil and gasoline prices has on “weaning the nation from oil” and on the U.S. economy. It certainly is a puzzlement!

What we believe now may not be what we know or think we know in even the near future. In this context, experts are sometimes those who opine about economic measurements the day after they happen. When they make predictions or guesses about the behavior and likely cause and effect relationships about the future economy, past experience suggests they risk significant errors and the loss or downgrading of their reputations. As Walter Cronkite used to say, “And that’s the way it is” and will be (my addition).

So here is the way it is and might be:

1. The GDP grew at a healthy rate of 3.5 percent in the third quarter, related in part to increased government spending (mostly military), the reduction of imports (including oil) and the growth of net exports and a modest increase in consumer spending.

2. Gasoline prices per gallon at the pump and per barrel oil prices have trended downward significantly. Gasoline now hovers just below $3 a gallon, the lowest price in four years. Oil prices average around $80 a barrel, decreasing by near 25 percent since June. The decline in prices of both gasoline and oil reflects the glut of oil worldwide, increased U.S. oil production, falling demand for gasoline and oil, and the likely desire of exporting nations (particularly in the Middle East) to protect global market share.

Okay, what do these numbers add up to? I don’t know precisely and neither do many so-called experts. Some have indicated that oil and gas prices at the pump will continue to fall to well under $80 per barrel, generating a decline in the production of new wells because of an increasingly unfavorable balance between costs of drilling and price of gasoline. They don’t see pressure on the demand side coming soon as EU nations and China’s economies either stagnate or slow down considerably and U.S. economic growth stays below 3 percent annually.

Other experts (do you get a diploma for being an expert?), indicate that gas and oil prices will increase soon. They assume increased tension in the Middle East, the continued friction between the West and Russia, the change of heart of the Saudis as well as OPEC concerning support of policies to limit production (from no support at the present time, to support) and a more robust U.S. economy combined with a relaxation of exports as well as improved consumer demand for gasoline,

Nothing, as the old adage suggests, is certain but death and taxes. Knowledge of economic trends and correlations combined with assumptions concerning cause and effect relationships rarely add up to much beyond clairvoyance with respect to predictions. Even Nostradamus had his problems.

If I had to place a bet I would tilt toward gas and oil prices rising again relatively soon, but it is only a tilt and I wouldn’t put a lot of money on the table. I do believe the Saudis and OPEC will move to put a cap on production and try to increase prices in the relatively near future. They plainly need the revenue. They will risk losing market share. Russia’s oil production will move downward because of lack of drilling materials and capital generated by western sanctions. The U.S. economy has shown resilience and growth…perhaps not as robust as we would like, but growth just the same. While current low gas prices may temporarily impede sales of electric cars and replacement fuels, the future for replacement fuels, such as ethanol, in general looks reasonable, if the gap between gas prices and E85 remains over 20 percent — a percentage that will lead to increased use of E85. Estimates of larger cost differentials between electric cars, natural gas and cellulosic-based ethanol based on technological innovations and gasoline suggest an extremely competitive fuel market with larger market shares allocated to gasoline alternatives. This outcome depends on the weakening or end of monopolistic oil company franchise agreements limiting the sale of replacement fuels, capital investment in blenders and infrastructure and cheaper production and distribution costs for replacement fuels. Competition, if my tilt is correct, will offer lower fuel prices to consumers, and probably lend a degree of stability to fuel markets as well as provide a cleaner environment with less greenhouse gas emissions. It will buy time until renewables provide a significant percentage of in-use automobiles and overall demand.

Landon Hall

Hey Nebraskans, 1 in 10 of you drives a flex-fuel vehicle

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Nebraska is the nation’s third-leading corn producer (behind Iowa and Illinois), and it’s also fertile ground for the ethanol industry.

As the state Department of Agriculture notes, Nebraska has 25 operating ethanol plants that produce more than 1.2 billion gallons of ethanol a year. These operations employ about 3,000 people.

So it’s no surprise that Nebraskans are ahead of much of the nation when it comes to adopting ethanol as a transportation fuel. There are 67 stations in the state where E85 (a blend of up to 85 percent ethanol and the rest traditional gasoline) is available, according to the Alternative Fuels Data Center.

About 10 percent of Nebraskans drive a vehicle that is branded flex-fuel, with the tell-tale badge on the rear or a yellow gas cap, meaning it can run any ethanol concentration (including E85) or gasoline or any blend of the two. The benefits of running E85 in a flex-fuel vehicle are numerous: It’s often cheaper than regular gas, even when you account for the roughly 30 percent reduction in fuel economy compared with gas; ethanol produces less toxic pollutants that harm health, and fewer greenhouse-gas emissions that harm the environment. The vehicle’s engine also has more power and better performance on ethanol.

In a story in the Grand Island Independent by Robert Pore this week, Gov. Dave Heineman encouraged Nebraskans who own flex-fuel vehicles to support the state’s ethanol industry, and take advantage of a renewable resource grown locally, by filling up with E85. “E85 continues to gain popularity across our state and country – allowing us to continue to reduce our dependence on foreign oil,” Heineman said.

Nebraskans will have the opportunity to learn more about ethanol and other replacement fuels during a free screening of the Fuel Freedom Foundation-produced documentary “PUMP” on Nov. 12 on the University of Nebraska campus in Lincoln. The film will be shown at 7 p.m. at the Mary Riepma Ross Media Arts Center, 313 N. 13th Street. As this calendar notice on the Lincoln Journal Star website notes, the screening will be hosted by the Nebraska Ethanol Board, the Urban Air Initiative and the Association of Nebraska Ethanol Producers. After the film, Doug Durante, executive director of the Clean Fuels Development Coalition, will lead a brief panel discussion and take questions from the audience.

“PUMP” is playing in theaters in several other cities, including Anchorage and Tucson. Visit PUMPTheMovie.com for more information.

Arctic Leaf

From Philosophy About Truth To The Wisdom Of EPA Models About Emissions

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Rereading Alfred North Whitehead, one of my favorite philosophers, provides the context for the current debate over the wisdom of using the EPA’s amended transportation emissions model (Motor Vehicle Emission Simulator, or MOVES) for state-by-state analysis. He once indicated that, “There are no whole truths; all truths are half-truths. It is trying to treat them as whole truths that plays the devil.”

I am uncertain about Whitehead’s skepticism, if treated as an absolute. However, it does give pause when judging the use of an amended MOVES model, based mostly on advocacy research by the nonprofit group, the Coordinating Research Council (CRC). The CRC is funded by the oil industry, through the American Petroleum Institute (API), and auto manufacturers.

CRC was tasked by the EPA with amending MOVES and applying it to measure and determine the impact of vehicular emissions. The model and related CRC analysis was subject to comments in the Federal Register but the structure of the Register mutes easy dialogue over tough, but important, methodological disagreements among experts. Apparently, no refereed panel subjected the CRC’s process or product to critique before the EPA granted both its imperator and sent it out to the states for their use.

I am concerned that if the critics are correct, premature statewide use of the amended MOVES model will mistakenly impede development and use of alternative transitional fuels to replace gasoline, particularly ethanol, and negatively influence related federal, state and local policies and programs concerning the same. If this occurs, because of apparent mistakes in the model (and the data plugged into it), the road to significant use of renewable fuels in the future will be paved with higher costs for consumers, higher levels of pollutants and higher GHG emissions.

With some exceptions, the EPA has been a strong supporter of unbiased, nonpartisan research. Gina McCarthy, its present leader, is an outstanding administrator, like many of her predecessors, like Douglas Costle (I am proud to say that Doug worked with me on urban policy, way, way back in the sixties), Russell Train, Carol Browner, William Reilly, Christine Todd Whitman, Bill Ruckelshaus and Lee Thomas. No axes to grind; no ideological or client bias…only a commitment to help improve the environment for the American people. I feel comfortable that she will listen to the critics of MOVES.

The amended MOVES may well be the best thing since the invention of Swiss cheese. It could well help the nation, its states and its citizens determine the truths or even half-truths (that acknowledge uncertainties) related to gasoline use and alternative replacement fuels. But why the hurry in making it the gold standard for emission and pollutant analysis at the state or, indeed, the federal level, in light of some of the perceived methodological and participatory problems?

Some history! Relatively recently, the EPA correctly criticized CRC because of its uneven (at best) analytical approach to reviewing the effect of E15 on car engines. Paraphrasing the EPA’s conclusions, the published CRC study reflected a bad sample as well as too small a sample. Its findings, indicating that E15 had an almost uniform negative impact on internal combustion engines didn’t comport with facts.

The CRC’s study of E15 was, pure and simple, advocacy research. CRC reports generally reflect the views of its oil and auto industry funders and results can be predicted early on before their analytical efforts are completed. Some of its reports are better than others. But overall, it is not known for independent unbiased research.

The EPA’s desire for stakeholder involvement in up grading and use of MOVES to measure emissions is laudable. However it seems that the CRC was the primary stakeholder involved on a sustained basis in the effort. No representatives of the replacement fuel industry, no nonpartisan independent nonprofit think tanks, no government-sponsored research groups and no business or environmental advocacy groups were apparently included in the effort. Given the cast of characters (or the lack thereof) in the MOVES’ update, there’s little wonder that the CRC’s approach and subsequently the EPA’s efforts to encourage states to use the amended model have been and, I bet, will be heavily criticized in the months ahead.

Two major, well-respected national energy and environmental organizations, Energy Future Coalition (EFC) and Urban Air Initiative, have asked the EPA to immediately suspend the use of the MOVES with respect to ethanol blends. Both want the CRC/MOVES study and model to be peer reviewed by experts at Oak Ridge National Lab (ORNL), and the National Renewable Energy Lab (NREL). I would add the Argonne National Laboratory because of its role in administering GREET, The Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation Model. Further, both implicitly argue that Congress should not use the CRC study and MOVES until the data and methodological issues are fixed. Indeed, before policy concerning the use of alternative replacement fuels is debated by the administration, Congress and the states both appear to want to be certain that MOVES is able to provide reasonably accurate estimates of emissions and market-related measurements, particularly with respect to ethanol and, as Whitehead would probably say, at least provide half-truths, or, as Dragnet’s Detective Jack Webb often said, “Just the facts, ma’am,” or at least just the half-truths, nothing but at least the half-truths.

What are the key issues upsetting the critics like the EFC and the Urban Air Initiative? Apart from the pedigree of the CRC and the de minimis roles granted other stakeholders than the oil industry, the CRC/MOVES model, reflects match blending instead of splash blending to develop ethanol/gasoline blends. Sounds like two different recipes with different products — and it is. Splash blending is used in most vehicles in the U.S. and generally is perceived as producing less pollution.

Let’s skip the precise formula. It’s complicated and more than you want to know. Just know that according to the letter sent to the EPA by the EFC and Urban Air Quality on Oct. 20th, the use of match blending requires higher boiling points for distillation, and these points, in turn are generally the worst polluting aromatic parts of gasoline. It noted that match blending, as prescribed by the MOVES, results in blaming ethanol for increased emissions rather than the base fuel. There is no regulatory, mechanical or health justification for adding high boiling point hydrocarbons to test fuels for purposes of measuring changes in vehicle tailpipe emissions, when ethanol is part of the fuel mixture. Independent investigations by automakers and other fuel experts confirm that the use of match blending in the study mistakenly attributed increased emission levels to ethanol rather than to the addition of aromatics and other high boiling hydrocarbons, thereby significantly distorting the model’s emission results. A peer-reviewed analysis, which will be published shortly, found that the degradation of emissions which can result is primarily due to the added hydrocarbons, but has often been incorrectly attributed to the ethanol.

The policy issues involved due to the methodological errors are significant. If states and other government entities, as well as fuel supply chain participants, use the model in its present form, they will mistakenly believe that ethanol’s emissions and pollutants are higher than reported in study after study over the past decade. The reported results will be just plain wrong. They will not even be half-truths, but zero truths. Distortions in decision making concerning the wisdom of alternative transitional replacement fuels, particularly ethanol, will occur and generate weaker ethanol markets and opportunities to build a strategic path to renewables. The EPA, rather than encourage use of the study and the model, should pull both back and suggest waiting until refereed review panels finish their work.

Landon Hall

Hollander: Oil is a ‘burden for the American people’

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Fuel Freedom co-founder and Chairman Yossie Hollander guided PUMP the movie to a successful weekend in Atlanta, hosting two Q&As after Friday night’s and Saturday night’s showings at the historic Plaza Theatre.

He also promoted the film and its message on radio, appearing on both WMLB-AM1690 (“The Voice of the Arts”) and its sister station, WCFO-AM1160 (“The Talk of the Town”). You can listen to the first interview below:

During the segment, Hollander was asked how he got involved with PUMP, a project more than two years in the making.

He answered: “We realized long ago that oil is one of the toughest problems we have. We are funding our enemies, but it’s mainly a burden for the American people. It’s the air we breathe. The brown cloud you see above Atlanta is not from coal, it’s from oil.

“And mostly it’s the burden on our pockets. Families really suffer, and we figured out this is the biggest problem that we can solve. If we can do it with cheaper American fuels, we can actually change America.”

Here’s the second interview, on WCFO, which aired Saturday and Sunday:

PUMP premiered in September and continues to play in theaters around the country. This week it debuts in Tucson, Anchorage and Brunswick, Maine. Visit PumpTheMovie.com for theaters and times, and to buy tickets.

Landon Hall

Yet more evidence that air pollution harms health

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Research announced this week at the University of Pittsburgh is only the latest to suggest a link between air pollution and a higher risk of children developing autism.

Motor vehicles – cars, trucks and SUVs – account for about half the air pollution in the United States, the EPA says, with much of the rest coming from industrial sources and coal-fired power plants.

Smog levels are much worse in urban areas than rural ones: According to the American Lung Association’s State of the Air 2014 report, 47 percent of the nation — 147.6 million people — live in places where pollution levels make it dangerous to breathe.

Air toxics, as they’re called, can contribute to asthma and other respiratory problems; heart disease. Experts think that these toxics can have a particularly devastating impact on babies when they’re in the womb, and when the children are very young.

Although much of the science on these effects has only been conducted in the past decade, a 2008 report at UCLA’s Institute of the Environment and Sustainability says: “Recently this research has begun to focus on one specific source of modern-day air pollution – traffic exhaust.”

The study, led by Dr. Beate Ritz, goes on:

“These studies largely focused on potential mortality impacts of airborne particulate matter small enough to penetrate into the human respiratory tract, referred to as PM10 (particulate matter less than 10 microns in aerodynamic diameter) and more recently have examined PM2.5, even smaller size particles which can penetrate deep into the lung. Most findings from this research indicated infants living in areas with high levels of these types of particulate matter had a greater risk of mortality during the first year of life, particularly from respiratory causes.”

Autism Spectrum Disorder (ASD), a neurological disorder whose symptoms can range from having trouble fitting in with peers to repetitive behaviors to a complete lack of communication and even seizures, now affects an estimated 1 in every 68 U.S. children, a 30 percent increase since 2012. Little is still known about the causes, but many experts believe genetics or environmental exposures, or a combination, are to blame.

The University of Pittsburgh report, led by a health professor of epidemiology named Evelyn Talbott, found that children who were somewhere on the autism spectrum were 1.4 to 2 times as likely to have been exposed to air pollution during their mothers’ pregnancies, compared with children who did not have an ASD. The affected children showed higher levels of styrene, cyanide and chromium.

Irva Hertz-Picciotto, a UC Davis researcher not affiliated with the Pitt study, told the Pittsburgh Post-Gazette that this and other studies like it “do suggest some kind of a link where a family who has children with autism were living usually closer to areas with higher [air toxic] measurements.”

In Utah, where some regions have very poor air quality in wintertime, the incidence of autism is 1 in 47 children, far higher than the national average. Earlier this year, a Harvard study showed that “exposure in the womb to diesel, lead, manganese, mercury, methylene chloride and an overall measure of metals was ‘significantly associated with autism spectrum disorder,’ with the highest association from exposure to diesel exhaust,” according to a story in the Provo Herald Extra.

Given the significant adverse health effects that result from gasoline when it’s combusted inside engines, it makes sense to incorporate cleaner-burning fuels into the nation’s fleet of vehicles. The EPA says as much, saying replacement fuels, including “natural gas, propane, methanol, ethanol, electricity, and biodiesel” can be ” cleaner than gasoline or diesel and can reduce emissions of harmful pollutants.”

(Photo: Los Angeles air, via Shutterstock)

Arctic Leaf

James Bond, low oil prices, the Russians and OPEC

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Calling Miss Moneypenny…we need you to get to James Bond quickly. Urgently! According to respected sources, there is a conspiracy in place on the part of the U.S. government and the West to both foster the increased production of shale gas and to drive down demand for gasoline in order to decrease Middle Eastern and Russian oil prices to levels well below production and distribution costs. The effort is aimed at breaking up OPEC, keeping the Saudis in line regarding present levels of production and hurting Russia until it comes to its senses concerning Ukraine. Can you put me in touch with Bond? He could be helpful in determining whether there is manipulation of the market? He’s just the best!

Paranoia has set in on the part of some in the media. The “glut” of oil on the market and low demand has made new drilling an “iffy” thing. The production costs of oil per barrel have not kept pace with revenue from sales. Prices at the pump for gasoline have decreased significantly.

How can we explain the phenomena, except by the presence of manipulation? Indeed, it’s enlightening to see (assumedly) planned, tough, provocative statements from so-called experts that often make headlines followed by weak “No it cannot be true” statements by the same experts to protect their credentials. Being bipolar is, in these instances, seemingly a characteristic.

Thanks to CNBC, here are some summary comments.

Patrick Legland, head of global research at Société Générale, recently said that it was an interesting coincidence that the two events — a drop in oil prices and lower demand — suggests that the U.S. could be deliberately manipulating the market to hurt Russia. Is it lower demand or is the U.S. clearly maneuvering? Legland goes on to indicate lack of in-depth knowledge. Timothy Ash, head of emerging markets research at Standard Bank suggested the U.S. would obviously deny any accusations of manipulation and there is no evidence to suggest that this is the case. “It’s very had to prove. I have heard such suggestions before. It is clearly useful for the West as it adds pressure on Russia” (and, I would add, on OPEC).

Oh, there is more, Jim Rickerts, managing director at Tangent, in a courageous and clear-cut example of ambiguity, stated that manipulation is plausible, although we have no evidence.

Clearly, the manipulation assertions, even though there is little evidence, sell more papers, build a bigger audience for cable news and provide fodder for Twitter and politicians. To the tune of “Politics and Polka,” sing with me, “apparent correlation is not causation, correlation is not causation.”

Oil prices are on a downward spiral, while production and distribution costs are going up in the U.S. and much of the West. It is implausible that the government is behind these trends. Consumer demand is down, even with lower prices at the pump, because of the economy. The government has relatively few tools, except the public and private bully pulpit in the short term, to leverage prices. The current boom in oil shale and resulting surpluses result from decisions made by an extended group of people often years ago — for example, oil companies who recognized that the era of easy-to-drill and cheap oil was coming to an end, speculators who led the market in trumping the benefits in investing long in oil shale and waiting for assumed value to catch up, consumers who seemed to be on a high concerning use of gasoline and technological breakthroughs that made oil from shale seem more amendable to cost benefit calculations.

While there are examples of government manipulating prices of goods (e.g., price controls), most have led to unpredictable and often negative results. The U.S. government, whether controlled by Republicans or Democrats, has not shown itself adept at price setting and manipulation. Nor is it good at keeping things secret — something necessary if it engaged in international manipulation. The New York Times would already have a leaked copy of the strategy and unsigned emails would have been given to the Washington Post. Public discussion of the strategy probably would risk sometimes fake, sometimes real approbation-depending who gets hurt or will get hurt. The U.S. would face copycats, as they have in the past, like the Saudis and OPEC and, maybe someday, Russia. They would say, “well, if the U.S. can do it, why can’t we?” The U.S. would calmly respond, No we are not manipulating oil markets. You give us too much credit and assume to many skills. Also, remember, the U.S and the oil companies believe in free markets. Don’t they? Well maybe, but clearly, not all the time with respect to the government and almost none of the time with respect to the oil companies? (Try getting replacement fuels at the pump of an oil-company franchised “gas” station.)

Okay, Miss Moneypenny, I changed my mind. We don’t need James Bond nor do we want to pay for the Bond girls. (Besides, the last Bond looked like President Putin when his shirt was unbuttoned and Sean Connery is on Medicare.) What we need is prayer and penitence for the experts for travailing in rumors. It is not terribly helpful when trying to sort out complicated issues related to oil prices and demand. If the government is somehow manipulating the market, many, even very pro-market advocates, will give it credit for a strategy that, should it be successful, might limit Russia’s desires concerning Ukraine and OPEC’s efforts at price fixing in the past. While the word has an evil sound, perhaps legitimately, manipulation would likely be judged better than war. But before credit is offered, look at the data and well-reviewed studies. Don’t fret, there is very little evidence that government manipulation has occurred in the recent past or is occurring at the present time.

Fuel Freedom Staff

Exec: North American rail network could be headed for gridlock

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Calgary-based Canadian Pacific Railway Ltd., has dropped merger talks with CSX Corp. of Jacksonville, Fla., and remarks this week by the always-blunt Canadian Pacific CEO E. Hunter Harrison are very telling about the future of oil traveling by rail.

The volume of oil, including that produced in the Bakken shale formation in North Dakota and southern Canada, is soaring, and yet many communities are concerned about the increased rail traffic to carry the oil to refineries. In 2013 a derailment and resulting inferno in Quebec killed 47 people, and since then the issue has been on the minds of activists, local politicians and the U.S. government, which is considering stronger tank-car hulls and other safety improvements.

Harrison said mergers are needed to prevent gridlock in the North American rail system.

“There’s a desire to put more tonnage on the rail,” Harrison said during a conference call Tuesday, according to Toronto’s Globe and Mail. At the same time, governments are saying that we want to slow you down because of [hazardous materials] and crude. There’s no more infrastructure [being built]. No one wants the railroad to run through their backyard, or their city.”

E&E Publishing’s Blake Sobczak has much more from Harrison on that subject. Here are quotes from Harrison in a story Wednesday on E&E’s Energy Wire page (subscription required):

“We even have issues on our network now where there’s city councils and groups of citizens banded together who say, ‘We don’t want you to run trains at night.’ … In my view, at least, we are quickly approaching a time where none of this works.”

In New York state, a coalition of environmental groups led by Earthjustice filed a petition with the state urging a ban on allowing older DOT-111 tank cars going through the Port of Albany. Charlene Benton, president of the Ezra Prentice Homes Tenants Association, said in an Earthjustice statement that many families live “within a few feet of these bomb trains. Our families deserve to live free of the daily fear that one of these trains will blow up in our backyard. The time to act is now, before it is too late.”

Arctic Leaf

“Methanol Mania” Hits The Gulf Coast

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Lane Kelley of ICIS Chemical Business calls it “methanol mania” and he probably wasn’t exaggerating. Last week Texas and Louisiana underwent an explosion of activity, promising to turn the region into a world center for methanol.

Earlier this month, Louisiana Gov. Bobby Jindal announced that Castleton Commodities International LLC (CCI), a Connecticut firm, will be building a $1.2 billion methanol manufacturing plant on the Mississippi River in Plaquemines Parish. The plant is expected to produce $1.8 million tons of methanol a year.

“This plant will help our children stay in Louisiana instead of leaving the state to find jobs,” said Jindal. “My number one priority it to make Louisiana a business friendly place.”

But that’s not even half of it. The Environmental Protection Administration (EPA) just gave its final approval to a $1 billion methanol plant to be built near Beaumont, Texas. The facility will be operated by Natgasoline LLC, a subsidiary of a Netherlands-based company that already employs 72,000 people in 35 countries. It will employ thousands of construction workers and carry a $20 million payroll when it begins operating in of 2016.

Does that sound like a lot? Well, don’t forget Methanex Corporation, the country’s largest manufacturer of methanol, is in the process of moving two plants back from Chile to Louisiana. One plant is scheduled to open in a few months. And ZEEP (Zero Emissions Energy Plants), an Austin-based company, has just raised $1 million for a proposed plant in St. James Parish, La.

Does that sound like a full plate? Well, it’s still just the beginning. The Connell Group, a government-supported operation, announced long-range plans for what would be the largest methanol plant in the world — even if only half it gets built. The first unit, located in either Texas or Louisiana, would produce 3.6 million tons a year, twice the current world record holder in Trinidad. Together, the two units would produce more than the current U.S. demand, 6.3 million tons a year. The term “Gigafactory” soon may be standard vocabulary.

So what’s going on? Well, the plan is for nearly all this Texas and Louisiana methanol production to be exported to China. The widening of the Panama Canal for supertankers, scheduled to be completed in early 2016, will be a bit part of the puzzle. Believe it or not, China also has plans to build three more plants in Oregon and Washington. But they run into trouble there, of the West Coast’s dislike of fossil fuels.

So China is planning to use American natural gas as a substitute for its own coal, in producing large amounts of methanol. It’s no different from the Chinese buying up farmland in Brazil and Ukraine in order to grow crops.

But the Chinese have other things in mind as well. Zhejiang Geely Holding Group Co., Ltd, Chery International, Shanghai Maple Guorun Automobile Co., Ltd. and Shanghai Automotive Industry Corp. all produce methanol-adaptive cars, which now accounts for eight percent of China’s fuel consumption. Israel is also experimenting with methanol from natural gas as a substitute for imported oil.

Methanol produces only 50 percent of the energy of gasoline, but its higher octane rating brings it up into the 65 percent range. It produces 40 percent less carbon dioxide and other pollutants and would go a long way toward helping China improve its pollution problems. As far as methanol production is concerned, China sees only see an upside.

So what’s going on in this country? Well, so far we have the world’s largest reserves of natural gas, we are on the verge of becoming a world center methanol manufacturer — yet we still have a set of rules and regulations and sheer inertia that prevent us from powering our cars with methanol. For some strange reason, the United States is about to become a world center for the production of methanol, yet we still haven’t figured out how to put it to one of its best uses.

Sounds like an opportunity for somebody.