Sunday, March 30, 2014

Lessons that Greens should Learn from Keystone (Part 2 of Series)

Today we build on Part 1 of this series: How conflict over environmental issues (e.g., Global Warming) is being used to divert the Public's attention from energy policy objectives of Special Interests -- such as exporting U.S. oil.

The Court of Public Opinion: In a just released Washington Post Poll, Americans approve of building the Keystone XL pipeline by a margin of 3 to 1 -- concluding that economic benefits far outweigh environmental risks.

While support for Keystone from Republicans (and Independents) would be expected, polling data also reflects that ~50% of Democrats support the project (with wide division by income levels).
Looking at other national polling, this reaction shouldn't come as a surprise to Environmental Interests. In the latest Pew and Gallup research, "Strengthening the Economy" is the top priority -- with "Global Warming" almost dead last in importance.
By making Global Warming the focal point of the Keystone XL debate, Environmental Interests never connected with the American Public (including ~50% of Democrats) on pocketbook issues they consider most important. Even though reputable independent sources say that Keystone will create only about 35 permanent jobs, what most Americans are hearing and believing is very different. Clearly, public opinion is tuning out environmental messaging.

At the risk of becoming irrelevant outside their Base, Environmental Interests need to use Keystone as a wake up call to: (1) Connect better on key economic issues; (2) Hold Republicans much more accountable for their "double-speak" messaging; (3) Do some soul-searching for pragmatic solutions in the real world.

Inconsistency in Republican Values: In past messaging of why Keystone XL is needed, proponents used three core building blocks. But in current efforts to end the +40 year ban on exporting U.S. oil, Republicans are now making a 180° about-face from the very "core principles and values" they originally made why Keystone is important:

Republican Messaging:
Need for Keystone
Republican Messaging:
Need to Export U.S. Oil
Objective of Special
Interests All Along
:
If "core values" of independence from Mid-East oil, lower gasoline prices, and job creation are important to Keystone XL, these same underlying values should also apply equally to any other national energy policy issue.

Independence from Mid-East Oil: As discussed in Part 1 of this blog series, Keystone is crucial in expanding the existing north/south pipeline capacity to move U.S. and Canadian oil to both Gulf Coast refineries and ports (for potential foreign market
exports of crude and refined products such as gasoline). However, Keystone XL does not address two major issues with America's current or future dependence on Middle-East oil: (1) The lack of East/West pipelines to move oil to major markets in California and the Atlantic Seaboard which are heavily dependent on foreign oil; (2) The Jones Act.(1)
(1) The Jones Act is a ~100 year old maritime U.S. shipping law which explains how importing oil from Middle East countries can be cheaper than transporting oil via tanker from the U.S. Gulf Coast area to East and West Coast markets.

Republican bravado that Keystone XL would achieve U.S. energy security from Mid-East oil if not a "pants on fire" statement, is pretty darn close to it. But even if the "energy security" aspects of Keystone are simply a matter of overselling potential benefits (which happens all the time on both sides of political theater), a deeper trust problem exists as to exactly what are the Republican core values and principles?

Republican Double-Speak on the Importance
of Independence from Middle-East Oil

In arguments to end the +40 year U.S. oil export ban, current Republican messaging emphasizes the importance of America standing for "free and open market international trade". But in making this free trade argument, what happened to the "core value" of oil independence? Per the Energy Information Agency's long-range forecast through 2040, U.S. foreign oil dependency (currently at ~40%) is expected to remain above +30%.

Historical and Projections of U.S.
Oil Production & Consumption:
The Cato Institute (a leading Conservative/Republican Think Tank) has a guiding policy paper which explains why free-trade must always be the underlying core value and that actions to achieve U.S. oil independence have been, and always will be bad policy. Under this view of conservative principles, the international market should always be the driver.

But the point in today's blog is not about the pro's or con's of international trade. It's about "trust", and how this is broken when "doublespeak" occurs on core principles. Is independence from Middle-East oil important or not? In supporting Keystone XL, it's important -- but in exporting U.S. oil, it isn't.

"Oh What a Tangled Web We Weave When First We Practice to Deceive". -- Old English Proverb.
A key to Republican success in achieving public opinion support for Keystone XL is the simplicity of their messaging. After all, it's just common sense that if oil supplies increase (by removing "big-government" barriers) that gasoline prices will decrease. This is just basic economics -- Right?
Well, not exactly. Since 2008, total U.S. oil production has now increased 50% as a result of amazing technology breakthroughs in fracking and horizontal drilling. So with this record growth (especially during the past three years), what's happened to gasoline prices? While pump prices have decreased slightly, they sure haven't returned to $2 levels as promised by many prominent Republican leaders.

Yearly Average of U.S. Gas Prices
In messaging on gasoline prices, Republican trust problems are two-fold: (1) What can be called an "Original Sin"; (2) Yet another 180° about-face on core values.

The Original Sin: An inconvenient fact with "Drill, Baby, Drill" is the very high cost of extracting oil from fracking/horizontal drilling -- which is 4 to 6 times higher than from conventional oil fields in the Middle East. According to Oil Analysts, the average cost of new oil production from U.S. tight oil and shale gas regions is ~$70 a barrel, with marginal costs (the last barrels produced) as high as $114 a barrel in 2012.1, 2, 3

In order to achieve a return to $2 gasoline would require a precipitous price drop to ~$40 a barrel (bbl) -- a market price significantly below the costs to extract oil using fracking/horizontal or deep-sea drilling. Thus, without a continuance of high market prices (currently over $100/bbl) much of this unconventional U.S. oil would be uneconomic to extract.

Republican leaders have always known these facts of high drilling costs and the non-reality of dramatically lower U.S. gasoline prices, but continue to present a story that people "want" to hear.

More Inconsistencies in Stated Republican Core Values: "Drill, Baby, Drill" can have numerous benefits within the economy (e.g., job creation, reduced U.S. trade deficit) and even the environment. While Environmentalists are absolutely correct that fracking must be safe, this engineering advancement also has the potential to dramatically reduce man-made (anthropogenic) Global Warming (AGW). In using safe fracking practices to extract needed and high value crude oil, a resulting by-product is low cost and lower carbon emission natural gas (displacing coal in electricity generation, oil in transportation fuels).

Where there is wide disagreement with "Drill, Baby, Drill" is its impact on oil prices. Democrats commonly argue that increased production (especially through high cost fracking) wouldn't make much difference, with a belief that oil prices are determined by international markets. Republican pro-drilling proponents adamantly disagree. So, who is right?

In almost all oil transactions, the price that producers receive is derived from a market benchmark value of crude oil. In the U.S., this is West Texas Intermediate (WTI). Internationally, the benchmark is Brent. The two crude oils are of similar quality and historically have been priced very close to each other (the Democrats argument).

However beginning in 2011, prices began to differ between the two crudes. The record growth in U.S. oil production caused a buildup of crude oil inventories at Cushing, Oklahoma, where WTI is priced. This created a supply and demand imbalance at the hub, causing WTI (the U.S. benchmark) to trade lower than the international Brent benchmark.


Note -- Most Current Oil Commodity Prices:

But instead of declaring "Victory" that increased oil production can indeed reduce prices -- Republicans are now contradicting their very own stated core values. In current efforts to end the +40 year old U.S. ban on exporting crude oil, Republicans argue that U.S. oil producers need higher prices.

In order to achieve this Special Interests' objective of higher crude prices for oil producers, the XL and other spurs of the massive Keystone pipeline project play critical roles.

First, Keystone will provide pipeline capacity around Cushing, Oklahoma that will eliminate the bottleneck of oil flow (that currently results in oversupply and depresses U.S. prices) at this critical Hub where WTI benchmark is priced.

Spurs of Keystone Pipeline Project
Second, by achieving an unobstructed flow of oil to Gulf of Mexico ports coupled with eliminating the current ban on exporting oil, U.S. oil prices would be forced upward to align with the higher Brent benchmark as Producers would now have a choice to sell into domestic or international markets.

Every once in a while just the "perfect" quote comes along that makes it crystal clear where corporations loyalties are: "I don’t make decisions based on what’s good for the U.S.” -- (Exxon CEO).

What's Up Next: In our next blog, we will continue this series by looking at (1) The job creation claims used to justify Keystone; (2) Some needed soul-searching by Environmental Interests.

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Current Oil Prices: U.S. (WTI) Versus International (Brent):

Additional News Stories:
Will Keystone Reduce U.S. Gasoline Prices? (Christian Science Monitor)
Exporting U.S. Oil (N.Y. Times)
Calls to Lift U.S. Export Ban to Punish Russia (Business Week).
Approve Keystone XL to keep Russia in Check (New York Post).
Percent of Oil Demand that U.S. Imports (EIA)
Production Cost of Oil Sands in Canada
Testimony by Senator Markey on Oil Exports and Keystone
Conservatives Can Be Green

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Tuesday, February 18, 2014

The Real Republican Agenda with Keystone -- Selling U.S. Oil Overseas

With the Keystone pipeline, Republican Strategists are using conflict over environmental issues to divert public attention from their real policy objective -- exporting U.S. oil.

In today's toxic political landscape of Red versus Blue States, almost any policy issue pinned with a label of "environmental" not only automatically invokes extreme partisanship. This division also closes people's minds, eliminating the need to question whether a proposed policy is in the best interests for all average Americans - regardless of environmental issues.

In trying to shape public opinion, it's always much easier to demonize an environmental label like Global Warming in a 30 second soundbite, rather than to explain and justify something complicated like trade policy.

Extreme Partisanship Over the Environment: For years, negative ideological "values" messaging from Conservative Think Tanks, Media Sources, and Religious Groups have associated and demonized environmental policy initiatives as big-government, socialism, anti-free markets, job loss, and even with Faith (worshiping the Green Dragon).

The effectiveness of this negative messaging is absolutely evident in national polling, where partisan divides on environmental issues are greater than on major issues like the budget deficit, health care, and Social Security.

Widest Partisan Differences Over Issues
(% rating each a top priority)
Issue:
Rep
Dem
Ind
Diff
Protecting the Environment:
28%
65%
48%
-37%
Problems of Poor & Needy:
32%
64%
48%
-32%
Reducing U.S. Budget Deficit:
80%
49%
66%
-31%
Dealing with Global Warming:
14%
42%
27%
-28%

The Keystone XL pipeline project illustrates this strategy of diversion at work, where current Republican actions are now revealing what Keystone was really always about:

"With record growth in U.S. oil production, Republican and Oil State politicians, big business leaders, and oil lobbyists are all calling to end a nearly 40 year ban on U.S. crude oil exports. The ban was put into place after the 1973 OPEC Oil Embargo." (The Hill)

With a Keystone debate defined by the highly partisan environmental issue of Global Warming, there has been little discussion how Keystone is
intrinsically linked to the policy issue of exporting oil -- as the TransCanda and other north to south pipeline projects provide the critical infrastructure to move U.S. (and Canadian) oil to potential foreign markets.

The Issue of Trust: During the coming year, there will be much debate over whether lifting the U.S. oil export ban is good policy. Maybe its a good idea, maybe not. But the point in today's blog is not really about policy issues. It's about the bedrock of "Trust" to the American Public in addressing issues that have nothing to do with Global Warming.

In the 2012 Presidential Campaign, Keystone was the "Poster Child" of conflict between Environmentalists and Republicans over energy issues -- where Global Warming/Climate Change was (and still is) the epicenter of debate. Less than a year ago in the debt ceiling debacle in Congress, Republicans threatened to shut the Federal Government down unless President Obama approved Keystone XL.

But in current messaging to end the +40 year U.S. Oil Export Ban, Republicans are now refuting the very "principles and values" they have made of why Keystone is critically needed.

Republican Messaging:
Need for Keystone
Republican Messaging:
Need to Export U.S. Oil
Actual Republican
Objective All Along
:
Today, we will look at the first of three key building blocks of past Republican messaging of why Keystone was needed -- and how ending the oil export ban is a 180° about-face to the original Keystone arguments made to the American Public. Let's try and be clear though -- it's not the Republican "ideological values" that are in question here,
such as the principle of free market trade.

The problem is the inconsistency in the Republican double-speak messaging and the lack of public dialogue/debate of what ideological arguments like free market trade actually mean (e.g., potential of higher gasoline prices to U.S. consumers).

Foreign Oil Dependence: Spin Doctors are in over-drive giving the American Public the impression that the U.S. has or is on the cusp of attaining Energy Independence -- and that most of the remaining oil we do import is from Canada.

But per U.S. Department of Energy information, the U.S. currently imports ~40% of its oil requirements -- where the single largest importer is from the OPEC Cartel. As we've previously shown, every time you fill up your tank, you are sending 36¢ per gallon to OPEC countries.

Oil Sources of Current U.S. Gasoline Supply1
(Compared by barrels of oil produced)
(1) While it is technically correct that Canada is the largest "single country" oil importer, in a context of "energy security" this is misleading. OPEC currently imports far more oil to the U.S.

Understanding Some Oil Basics 101: Even in long-term forecasts through 2040, the Department of Energy projects that U.S. dependency on imported oil will stubbornly be above +30%. So with this likelihood, why would policymakers even consider lifting the U.S. oil export ban? The answer is found in the fact that not all crude oil is created the same. It can be heavy or light, sour (high sulfur content) or sweet.

With the exceptional increase in U.S. oil production from tight shale formations/fracking (e.g., North Dakota, Texas, etc.) there is good and bad news. Most of this oil is high quality light crude, relatively easy to refine in refineries that are not terribly complex. The bad news is many U.S. refineries can not use this lighter oil. Prior to the shale boom, U.S. refiners spent billions of dollars to configure their plants for heavier and sour foreign oils (Canada, Venezuela, and Saudi Arabia).

The below chart from the EIA illustrates this above point. While U.S. imports of light crudes have been reduced dramatically in recent years (displaced by new oil production from North Dakota, Texas, etc.), imports of heavy crudes have remained constant.

U.S. Oil Dependency & Security: The OPEC Oil Cartel (which largely influences international oil prices) is comprised of countries in the Middle East, Africa, and South America. Currently, OPEC is the largest foreign oil supplier to the U.S. with imports primarily consisting of heavy oil from Saudi Arabia and Venezuela (the 2nd and 3rd largest individual country oil importers to the U.S.).
OPEC Imports to U.S.

When the issue of U.S. foreign oil dependency and security are raised, it's important to understand several key points: (1) Where oil refineries are located; (2) Ports of entry for OPEC oil; (3) The oil pipeline infrastructure; (4) A Federal maritime law called the Jones Act.

While most Venezuelan oil goes to U.S. Gulf Coast refineries, ports of entry for Saudi heavy crude are much more diverse -- not just to refineries on the Gulf (where Saudi Arabia owns three major refineries), but to U.S. East and West Coasts as well.

Location of U.S. Oil Refineries
The significance of Saudi and other Middle East OPEC countries oil imports to the U.S. can be illustrated by California -- where foreign imports (with Saudi Arabia being by far the largest importer) make up 50% of Refiners' oil sources (with very little Canadian imports).

There are two major reasons for this high OPEC and Middle East dependency on both the U.S. East and West Coasts: (1) The U.S. oil pipeline system; (2) The Jones Act.

Oil Sources for California Refineries
The U.S. oil pipeline infrastructure is primarily a North to South system, moving oil in America's heartland. While the Keystone XL pipeline project enhances this existing distribution System -- it really doesn't address major deficiencies in moving oil East or West to refineries on U.S. Coasts (e.g., Northeast and California).

Major U.S. Oil Pipelines & High OPEC Imports
There are three transportation ways to move oil, via: (1) Pipeline (least costly), (2) Maritime shipping; and (3) Rail (the most expensive and as recently seen, the most dangerous).

Shipping between U.S. ports costs significantly more than international voyages. This is largely because of a 94-year-old federal law (Jones Act) which requires domestic cargoes to travel on U.S.built, owned and crewed vessels. A qualifying U.S. tanker currently commands rates about 10 times more than a non U.S. tanker of the same size.(2)

The Jones Act explains how importing oil from half way around the world (Middle East OPEC countries of Saudi Arabia, Iraq, etc.) can be cheaper than transporting oil via tanker from the U.S. Gulf Coast area to East and West Coast markets. Also, the Jones Act combined with the lack of East/West U.S. oil pipeline capacity can explain why the Department of Energy's long-range forecast (through 2040) expects U.S. foreign oil dependency to remain stubbornly above +30%.

A Needed Change in Approach: When Environmentalists allow (and embrace) any policy issue to be solely defined by an environmental label, they are taking a "bait" that Republicans want. In achieving this "Framing", Republicans are given a free pass (or certainly less public questioning) on whether proposed policies are in the best interests of all average Americans regardless of environmental issues and even if these policies truly "walk the talk" on conservative or libertarian values.

To be more effective, Environmentalists must improve in engaging Republicans on two fronts: (1) Questioning the validity of their message; and perhaps even more importantly, (2) Questioning whether their Messengers can be trusted on any policy issue that could have environmental consequences.

Keystone XL was never about U.S. oil security. At best, the heavy oils from the Canadian tar sands would displace Venezuelan and Mexican heavy oil imports to Gulf refineries. Republican bravado that Keystone XL would achieve U.S. oil security from Mid-Eastern oil if not a "pants on fire" statement, is pretty darn close to it.

(Note: Our next Blog will discuss the Republican double-speak on two other key claims of Keystone XL -- (1) Reduction in gasoline prices; (2) Net Job Creation.)

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Additional News Stories:
U.S. Refiners Don't Care if Keystone Gets Built (Wall St. Journal).
The Psychology of Why Environmentalists Need to be More Specific.
Pew Research Poll on Keystone Pipeline
On a Decade Left in U.S. Shale Boom?
U.S. Light Crude under price pressure without lifting oil export ban
Washington Post Poll Shows 65% of Americans Approve of Keystone

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Tuesday, February 04, 2014

What Greens "Don't Get" about the Republican War on Global Warming.

Note: Today's blog uses the term "Greens" as those who believe human actions (anthropogenic) of burning fossil fuels is the primary driver in Climate Change.

In messaging to shape public opinion, Greens constantly agonize over the lack of understanding and denial of science by Conservatives -- and target this "knowledge problem" as the major obstacle in achieving Green policies. But in reality, its Greens who are not very "street smart" in their approach to both opposition and connecting with most Americans.
Conservatives Are Much Smarter Than Greens Think.

The Big Question: In the Greens' World, there is a yes/no big question that everyone must answer, "Is Global Warming caused by humans?" It defines who you are -- as either a carbon tax loving Warmist, or a science ignorant Denier. But as public opinion polls are reflecting, Greens need to ask themselves a Big Question: Don't they need to do a better job in their message and messaging?

Latest Pew Research Poll Results: While over two-thirds of Americans believe the Earth is warming, only 44% are buying into the Greens' Argument that it's mostly caused by human activity (anthropogenic). Even among the strongest group of Greens supporters, about one-third of Democrats are unconvinced. Clearly public acceptance problems exist with the Greens' science message and their "people skills" in connecting -- as the majority of Americans share uncertainty, doubt, or skepticism as voiced by Conservatives.

Greens need to abandon their Ivory Towers and messaging that's far too often patronizing, apocalyptic, and plays the "guilt card". Better resonating science and economic messages must be developed with messengers who are good teachers and bridge builders. Greens also need to be much more adept in responding to both ideological opposition by Conservatives and the hidden agendas of Republican policies when driven by big-business.

A Good Starting Place for Greens -- Stop Stereotyping: Greens' characterization of Conservatives as comic dimwits is both incorrect and counterproductive. As numerous social science studies and poll research show, Conservatives have general science knowledge equal to, or exceeding other politically affiliated groups. In fact, one recent research study found that with increasing levels of scientific literacy, even more partisan polarization occurs over Global Warming.

Take the Pew Research Quiz on Science and Technology to see where your general knowledge ranks compared to the U.S. Public.

But stopping stereotyping is more than just about about fair play -- its about "people skills" with the Greens' Target Market. Negative labeling hurts efforts to connect with Independents, Moderates, and even one-third of Democrats by sending a wrong message: If you disagree or have doubts with the Greens' Argument, you must be ignorant. Patronizing name-calling only alienates and does not win people over, as the Pew Poll is reflecting.

Greens must understand the difference between ideological opposition versus fair questions over science uncertainty, especially the perceived urgency to act (e.g., predictive ability of climate models).

A Major Obstacle & Need For Bridge Building: Contrary to the ubiquitous negative messaging by Greens, science knowledge really isn't the key problem in achieving greater public acceptance. A major problem is the current and growing polarization in "cultural values ideology" between Red State (Conservatives) versus Blue State (Liberals). When issues are strictly defined or framed in terms of ideological values such as Good versus Evil, the results are toxic. There can be no real public dialogue, people of differing views are demonized, and finding common ground is impossible.

When differences are defined
in terms of moral values,
compromise is impossible.
The key in solving any problem
is to find common ground
between differing views.

After decades of negative ideological "values" messaging on environmental issues from Conservative Think Tanks, Media Sources, and Religious Groups, it's now just a reflex knee-jerk reaction for Conservatives (with spillover to Moderates and Independents) to associate and demonize almost any environmental policy initiative as big-government, socialism, anti-free markets, job loss, and sadly even with Faith (worshiping the Green Dragon).

When Exxon/Mobil is a major cash contributor to conservative religious groups to fight Global Warming as satanic -- you know some serious "culture wars" are going on.

The result of this negative messaging is clearly evident in national polling, where partisan divides on environmental issues are greater than on major issues like the budget deficit, health care, Social Security, etc.

Widest Partisan Differences Over Issues
(% rating each a top priority)
Issue:
Rep
Dem
Ind
Diff
Protecting the Environment:
28%
65%
48%
-37%
Problems of Poor & Needy:
32%
64%
48%
-32%
Reducing U.S. Budget Deficit:
80%
49%
66%
-31%
Dealing with Global Warming:
14%
42%
27%
-28%

This extremely negative mindset on environmental issues can explain why over 40% of Tea Party Republicans and 25% of all Republicans (per Pew Polling) believe Global Warming is not even happening.

The consequences of this cultural divide results in very different perspectives in how Global Warming is presented and viewed in the public arena. Where science is the driver for the Greens' messengers, ideological values (effecting policy outcomes) are the drivers for Conservatives.
As Viewed by
Greens
As Viewed by Conservatives

This difference in perspective creates a serious dilemma for Greens -- as it's virtually impossible to discuss Climate Change as a stand-alone science issue. Any argument that human actions are primarily causing Climate Change is intrinsically linked to specific policy outcomes. The most prevalent example is a carbon tax, which will have opposition across partisan, cultural, and socioeconomic lines (e.g., with lower income groups as a regressive tax).

Playing by the Conservatives' Rules: Greens need to fully grasp the importance of ideological motivation in forming public opinion -- emphasizing their own positive set of values that can cross partisan divides and achieve key objectives. By messaging positive ideological values better, they may even find some surprising new friends.

Bridge Building to Find & Develop Common Ground

A recent New York Times article illustrates the incredible potential of connecting on ideological values -- where Greens and Conservative Libertarians (the most negative partisan faction opposing Climate Change policies) have found common ground in support of solar energy.

Recognizing Hidden Agendas: In addition to addressing climate science uncertainty and ideological conflicts better, Greens also need to improve their messaging to a third type of opposition. For decades, Republican Strategists have used environmental issues to divert public attention from hidden objectives of big-business special interests. When issues can be framed in a context of "The Environment versus Job Loss/Higher Costs", Republican policy-makers can avoid public opinion scrutiny and answering hard questions that can have nothing to do with the environment.

By achieving this "Framing", Republicans are given a free pass (or certainly less public questioning) on whether their proposed policies are in the best interests of average Americans (regardless of environmental issues) and if these policies truly "walk the talk" on conservative or libertarian values.

The Keystone pipeline project is a perfect illustration of this Republican strategy, where we now (or should) know what Keystone was originally always about -- exporting U.S. oil to foreign markets (like energy hungry China):

With record growth in U.S. oil production, Republican and Oil State politicians, big business leaders, and oil lobbyists are all calling to end a nearly 40 year ban on U.S. crude oil exports. The ban was put into place in the wake of the 1973 OPEC Oil Embargo.

The Issue of Republican Trust: During the coming year, there will be much debate over whether lifting the oil export ban is good policy. But in this public debate there is something even more important to Greens than Global Warming. It about the bedrock of public opinion -- the issue of Trust and if Republican messengers can be trusted:

Where on the cusp of likely Keystone approval, the Republican narrative to the American Public on why Keystone was important has now completely changed.

In the 2012 Presidential Campaign, Keystone was the "Poster Child" of conflict between Environmentalists and Republicans over energy issues. Less than a year ago in the debt ceiling debacle in Congress, Republicans threatened to shut the Federal Government down unless President Obama approved Keystone.

Republican Messaging
to the U.S. Public:
Hidden Agenda
Policy Objective:
In our next follow-up Blog, we will look at the three key building blocks of past Republican messaging of why Keystone was needed -- and how ending the oil export ban is a 180° about-face to Keystone's original arguments.

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Additional Stories:
Scare Tactics not moving U.S. Public Opinion

Sunday, January 05, 2014

Where does U.S. Gasoline come from?

Per the U.S. Department of Energy:
  • 69% of the pump price of gas is crude oil cost which equals $2.24 per gallon.
  • 60% of crude oil is from domestic sources and 40% comes from imports:
  • Domestic Oil:$1.34(60%)
    Imported Oil:$0.90(40%)
    Cost Per Gallon$2.24

    (Note: Crude oil cost of $2.24 per gallon is equal to 59¢ per litre or €.43 per litre.)

    The following two charts show where this oil comes from in U.S. gasoline:
  • The significance of Texas region (TX, NM, LA) in U.S. oil production.
  • That the "Non Free Trade Cartel" of OPEC is a larger supplier of
        imported oil than Canada.
  • Origin of Oil in U.S. Gasoline Supply
    (Bar Chart Perspective)
    Origin of Oil in U.S. Gasoline Supply
    (Bubble Chart Perspective)
    Notes on Domestic Production: Total U.S. oil production (with record growth during the past two years) has now increased 50% since 2008. Through the extensive use of fracking and horizontal drilling, almost all of this growth is occurring in six U.S. tight oil formation regions -- especially in the Texas region (TX, NM, LA) and North Dakota:

    U.S. Oil Production Growth Regions
    As discussed in our last blog, the production cost of extracting oil from fracking/horizontal drilling is very expensive -- up to 4 to 6 times higher than from conventional oil fields in the Middle East. Without a continuance of high market prices for crude oil (currently $107/bbl for Brent, $95/bbl for WTI) much of this U.S. oil would be uneconomic to extract.

    Notes on Foreign Oil Sources: A common misconception in public opinion is that the OPEC Cartel represents only countries from the Middle East. OPEC members also include countries in Africa and South America. The OPEC member of Venezuela (the 4th leading oil importer to the U.S.) is very "oil hostile" -- and has nationalized and continues to seize U.S. Oil Companies' assets.
    OPEC Oil Imports to U.S

    Following The Money Trail: As stated earlier, 69% of the pump price of gasoline is crude oil cost -- which currently equals $2.24 per gallon. The next chart breaks down where and how much of your money is going every time you fill up.
    One thing that should pique/grab American consumers' attention is just how much of their gasoline dollars are going to the "non free trade cartel" of OPEC and other "questionably friendly" foreign countries (like Russia).

    Where U.S. Gasoline Money For Oil Goes:
    (per gallon)
    When a Politician or "Talking Head" attacks renewable energy (especially biofuels) with the ideological statement "The free market should determine energy winners and losers, not big-government" -- everyone should think about something:

    Every time we fill up our tank, consumers have "no choice" but to send 36¢ per gallon to OPEC (about $220 a year for an average driver). This is the equivalent to a "mandate" that 16% of the U.S. gasoline supply be blended with OPEC oil. This is anything but a "Free Market".

    Related News Stories:
    Ethanol and U.S. Foreign Oil Dependence

    Thursday, December 26, 2013

    Spin Doctors on U.S. Oil Production, Costs, and Energy Policy.

    Spin Doctor: A person (such as a "Talking Head") who tries to control the way something is described to influence public opinion in a way that helps their side and hurts (often demonizing) differing views. "Spinning" always contains some elements of truth to enhance credibility, but conveniently overlooks/dismisses any facts not helpful in forming the desired public perception.

    Current Status of U.S. Foreign Oil Dependency: Over the past 7 years, the amount of oil supplied from foreign sources has decreased from an all-time record peak of 60% in 2005 to currently ~40%. While lower oil consumption (resulting from economic recession, greater auto efficiency) has played a part, this amazing (and hopefully sustainable) achievement has been primarily the result of technology advancements in oil extraction.

    Per the U.S. Energy Information Agency's (EIA) long-term forecast, foreign oil use is expected to decline even further (with an estimated 32% from oil imports by 2040).

    Through the extensive use of fracking and horizontal drilling, almost all of this domestic growth in oil and natural gas production is occurring in six U.S. regions:

    History of U.S. Oil Production
    & Consumption:
    Increased U.S. Oil Production Growth Regions

    What Spin Doctors Don't Tell Us On U.S. Foreign Oil Dependency: In this renaissance of U.S. oil production, one often hears the sound-bites of "Energy Independence", "Freedom from Mid-Eastern Oil", "Canada is now America's #1 Oil Importer". The problem with these now generally held public perceptions is that they don't exactly tell the full story.

    While it is correct that Canada is now the "single country" largest exporter of oil to the U.S., the Mid-east dominated oil cartel of OPEC (which includes a very oil-hostile Venezuela) remains America's largest supplier of foreign oil.

    Putting the above chart into a global perspective, OPEC oil consumed in the U.S. is more (or about equal in the case of Japan) than the "total" amount of oil consumed in other leading industrialized nations:

    U.S. OPEC Oil Imports Versus
    Total Oil Consumed in Other Nations
    Understanding the massive U.S. appetite for oil is pretty simple -- the American "love affair" with cars. Compared to the rest of the world, the U.S. remains hopelessly addicted to gasoline. Americans (per capita/person) consume more than 300 gallons of gasoline per year, which is by far the highest among 128 countries. That's more than three Germans, or ~7 people in France.

    Use of Cherry-Picking Ideological Arguments: Perhaps the most hypocritical example of selective cherry-picking by "Spin Doctors" is the commonly used "sound-bite": "Free Markets should determine energy winners and losers, not big-government".

    The following graph (using EIA data) breaks out the individual components of current pump gas prices -- where U.S. consumers currently "have no choice" but to pay 37¢ per gallon to OPEC for crude oil costs.1

    From an ideological argument perspective, this is the equivalent of a mandate that 16% of all gasoline be blended with OPEC oil. 2

    Components of Gas Pump Price
    (U.S. average of $3.34 per gallon @ November 2013)

    1 69% of the current pump price of gasoline is crude oil costs ($2.30 per gallon). 40% of all crude oil is from foreign sources (92¢). 40% of foreign oil is from OPEC (37¢).
    2 40% of all oil consumed is from foreign sources and 40% of foreign oil is from OPEC (40% times 40% equals 16%.)

    OPEC is anything but "free market trade" -- a cartel that manipulates markets, restricts output and fixes prices that's had a devastating effect on the U.S. economy. But OPEC's reach is beyond just its Middle-East members, where Venezuela has nationalized and continues to seize U.S. Oil Companies' assets.

    What The Spin Doctors Don't Tell Us On Economics: The message of "Drill, Baby, Drill" has mass public perception appeal of basic supply/demand economics that even a caveman can understand. It's just common sense that if U.S. oil production increases (by removing "big-government" barriers) that gasoline prices at the pump will decrease -- Right? Well, not exactly.

    An inconvenient fact is that extracting oil using fracking and horizontal drilling technology has dramatically higher costs than in typical Middle East oilfields. According to Oil Analysts, the average cost of new oil production from U.S. tight oil and shale gas regions is ~$70 a barrel, with marginal costs (the last barrels produced) as high as $114 a barrel in 2012.1, 2, 3

    Conversely, for conventional oil output in the Middle East, average production costs are just over $20 a barrel , with marginal costs at ~$30 per barrel.

    World-Wide Marginal Production Cost of Oil

    While there are numerous economic benefits in developing domestic energy resources (e.g., job creation, economic development, reducing the massive U.S. Trade Deficit) -- expectations of significantly lowering the "current" price of crude oil isn't one of them. Simply stated, because of the high extraction costs of advanced technologies, increased U.S. oil production is totally dependent on maintaining high oil market prices.

    In order to achieve claims made by "Spin Doctors" for a return to $2 gasoline by increasing U.S. oil production would require a precipitous price drop to ~$40 a barrel (bbl) -- a market price significantly below either the average (~$70/bbl) or marginal (~$110/bbl) costs to extract oil using fracking/horizontal and deep-sea drilling.

    We Need to have a "Real" Energy Policy Debate: In order to have a meaningful dialog everyone needs to pause, take a deep breath, and move away from the extreme polarization that partisan "Spin Doctors" create. Energy policy shouldn't be limited to "Red State vs. Blue State" tunnel vision on any one specific "hot button" issue (ranging from Conservatives mistrust of big government to Environmentalists' adamancy‎ on Climate Change).

    It's about addressing a myriad of problems and trying to solve them -- compromising and finding common interests in a bigger picture rather than focusing on things that divide us.

    Overlapping Issues with Energy Policies:

    Additional News Stories:
    In U.S. Public Opinion Polls, Saudi Arabia is viewed very unfavorably.
    Record Growth in U.S. Oil Production.
    Global Oil Prices and Energy Security
    Fact Check on Keystone Pipeline Claims