Peddling Ignorance on Energy

It would appear that the President of the United States is appallingly ignorant about America's energy supply and really, really bad at math. Ed Morrisey directs our attention to this juicy quote from Mr. Obama's recent campaign speech at the Copper Mountain Solar Project in Boulder City, Nevada. This is from the official White House transcript:

We have subsidized oil companies for a century. We want to encourage production of oil and gas, and make sure that wherever we've got American resources, we are tapping into them. But they don't need an additional incentive when gas is $3.75 a gallon, when oil is $1.20 a barrel, $1.25 a barrel. They don't need additional incentives. They are doing fine.

Did you get that? The President of the United States thinks that a barrel of oil costs a dollar and twenty five cents. He is only off by about $105.

Morrisey thinks that the President is implying some kind of relationship between the two sets of figures, as if one could calculate oil company profits by subtracting his stated oil price from his stated gas price. That would be stupid on a grand scale and it would mean that the $1.20 figures could not be a typo or mistranscription. The President didn't say "one twenty," really meaning a hundred and twenty. He said a "buck twenty."

I don't think you can tell that from the President's words. What is more likely is that the President is speaking with a careless disregard for what he is talking about. If the transcript is a mistake, no one at the White House has bothered to correct it. Nothing useful can be inferred from the figures he is using even if they were stated accurately.

For a better case in point, see this passage in the President's speech:

An energy strategy that focuses only on drilling and not on an energy strategy that will free ourselves from our dependence on foreign oil, that's a losing strategy. That's not a strategy I'm going to pursue. America uses 20 percent of the world's oil, and we've got 2 percent of the world's oil reserves. Think about -- I wasn't a math major, but I just want -- (laughter) -- if you're using 20, you've only got 2, that means you got to bring in the rest from someplace else. Why wouldn't we want to start finding alternatives that make us less reliant, less dependent on what's going on in the Middle East? (Applause.)

Here the logic is unmistakable. The President is arguing that we must be importing 90% of our oil from other nations. Leave alone for a moment the fact that the argument is utterly stupid. Does he really not know what the genuine figure is? Either he is ignorant about a matter of national importance, or he is lying. Here is the real figure from a recent blockbuster piece by Clifford Kraus and Eric Lipton in the New York Times:

In 2011, the country imported just 45 percent of the liquid fuels it used, down from a record high of 60 percent in 2005.

No, the President is no math major. But consider Mr. Obama's substantive argument: that we need to invest in alternative energy in order to free ourselves from reliance on foreign oil. In fact, we seem to be well on our way to energy independence. Contrary to the President's argument, the supply is coming from, well, wells.

Not only has the United States reduced oil imports from members of the Organization of the Petroleum Exporting Countries by more than 20 percent in the last three years, it has become a net exporter of refined petroleum products like gasoline for the first time since the Truman presidency. The natural gas industry, which less than a decade ago feared running out of domestic gas, is suddenly dealing with a glut so vast that import facilities are applying for licenses to export gas to Europe and Asia.

National oil production, which declined steadily to 4.95 million barrels a day in 2008 from 9.6 million in 1970, has risen over the last four years to nearly 5.7 million barrels a day. The Energy Department projects that daily output could reach nearly seven million barrels by 2020. Some experts think it could eventually hit 10 million barrels — which would put the United States in the same league as Saudi Arabia.

In fact, a policy that focuses solely on drilling (if you mean by that, as the President seems to mean, fossil fuel extraction) is in fact "an energy strategy that will free ourselves [is freeing us] from our dependence on foreign oil." By contrast, the President's alternative energy strategy is contributing nothing toward that end. It is unlikely to do so in the foreseeable future and cannot possibly do so in the near term.

President Obama suddenly wants to take credit for a boom in oil production. As the NYTs piece makes clear, "this turnabout is a story of industry-friendly policies started by President Bush and largely continued by President Obama," policies that Obama opposed as a candidate and that are contrary to the policies he favored when first elected. That's the buried lede in the NYT piece: Dumb Cowboy from Texas Secures U.S. Energy Independence.

You can decide for yourself which set of policies he should have pursued. What is certain is that he is feeding adoring audiences with a diet of falsehoods leavened with stupid arguments. It is scarcely impossible that the President is as ignorant about energy policy as he seems above. I will be more charitable. He just doesn't give a rat's ass about the truth of anything that he is saying.

Comments

[A.I.]

Obama's point is not that we need to import 90% of our oil today KB, it is that our 2% of reserves aren't going to last as long as the rest of the worlds 98% and while you may be right that we could in the short run produce our own needs, that is not sustainable. So, maybe it makes sense not to put all our eggs in the crude oil basket. Maybe we should encourage all alternative energy production which not only includes wind and solar, but also natural gas, coal, nuclear, bio-fuels, etc.

Moressey's speculation about what was meant by $1.20 is ridiculous. There is a link between $3.75 gas, $120 crude and oil company profits. Oil companies maintain stockpiles of crude. If they purchased those stockpiles for $60 a barrel and can now sell them for twice that, that's a tidy profit. Yes, they are paying $120 for new supplies, but you can bet they aren't stockpiling as much oil at these prices as they did in the past, meaning huge profits on the difference in reserves. Meanwhile, $3.75 gas makes all the new supplies profitable. A suspicious person might even think there would be temptation to manipulate markets precisely to that end.

But back to your point KB: that domestic drilling is freeing us from dependence on foreign oil. Perhaps so, but it isn't freeing us from high oil and refined product prices. That is because even if every commodity trade in oil futures is on the up and up, there is no link between U.S. production and prices--so says an Associated Press study: http://thinkprogress.org/green/2012/03/21/449164/ap-fact-check-in-36-years-of-data-not-a-shred-of-evidence-that-drilling-reduces-gas-prices/

So who is really "Peddling Ignorance on Energy"? I must conclude that Obama may not be 100% right, but you my friend are peddling a barrel full of something that sure ain't oil.

[larry kurtz]

You're from Arkansas or Missouri, right, Ken? Your own biopolitics thesis suggests you're predisposed to hating black people.

Expect another blowout in the Gulf unless President Obama gets ahead of that story, too. Plastics gasification, biofuels, increases in fuel prices by ending subsidies for Big Oil=landslide for Barack in November.

If KXL has done anything it is to show the importance of organized labor building the nation’s infrastructure.

ND Gov. Jack Dalrymple and Roy Blount (earth hater-MO) are prostitutes courting wholesale earth hatred, defying workplace safety, and attracting the lowest common denominator to work the patch with reckless disregard for the environmental consequences of his gift from speculators.

It would be revolutionary to see unions encouraged in the oil patch and coal fields where membership would buy health care insurance and take it out of the hands of the employers who could impose religious restrictions on coverage.

KXL will never be completed.

[Ken Blanchard]

A.I.: I am glad you turned on your Star Trek universal translator, because otherwise we would have had to interpret the President based on what he said. The President said nothing about how long our oil would last compared to how long the rest of the world's oil supply would last. That is sheer invention on your part.

He said "America uses 20 percent of the world's oil, and we've got 2 percent of the world's oil reserves. Think about -- I wasn't a math major, but I just want -- (laughter) -- if you're using 20, you've only got 2, that means you got to bring in the rest from someplace else." That only makes sense if you think you can subtract the 2 from the twenty to how much of our oil comes from "someplace else." That's utter nonsense, and now amount of creativity can disguise it. The 2% figure is also obviously wrong for all practical purpose.

[larry kurtz]

Btw, Doc: you can feel confident that this interested party is visiting this blog less and less as you pontificate for your own edification.

Color me: nearly gone.

[A.I.]

There is no reason to think your jaundiced interpretation of Obama's remarks are any more legitimate than mine KB. And, I don't need any kind of translator to know energy policy has to do with planning for the future.

In that context, whether we have 2% of the world's oil reserves or 5%, we can't continue to use 20% and not find ourselves more heavily reliant on imports at some point. In short, drill baby drill is a stop-gap measure at best if we want to be energy independent. And even during some period in which we might achieve temporary domestic oil production/use balance, we would still be subject to international oil markets unless we somehow forced all of our production to be sold in-country--which of course will not happen.

That is reality KB, a reality the administration has acknowledged on many occasions and through its support of a multiple-source approach to securing our energy future. One confusing reference to $1.20 barrels of oil does not change that nor do your efforts to twist references to the gap between U.S. oil reserves and usage.

[Bill Fleming]

The only way anyone could miss the point of this argument is if they wanted to. Here's a parallel history that may help KB sort things out. Right now he's sounding a lot like the kind of guy who would have lobbied for AT&T keeping long distance rates as high as possible, because after all, it's the only thing we've got that's working, right? http://appsnewbie.com/apps/long-distance-rates-history-att-to-internet-to-voip/

[Ken Blanchard]

Larry: Not that! Anything but that!

[Donald Pay]

I find your post rather stupid.

One of the the statistics that the oil industry uses is reserve life (reserves divided by annual production). This statistic combines two important oil statistics in a way that can give you the long term economic viability of an oil company. The higher the reserve life the better long term bet the company is. When applied to countries, the US has 10 years of reserves (figured in 2011), the smallest reserve life of any of the top oil producing countries. This doesn't mean that oil will run dry in 2021. It could mean that oil price used in the calculation isn't expected to be high enough to make the oil most expensive to produce economic, thus not part of reserves. The point to make here is that (1) oil from the US is currently being produced extremely fast (maybe imprudently fast) on a reserves basis, compared to other countries (Brazil and China are comparable), and (2) other countries can determine how much reserves we have by manipulating their far higher oil production. In short, we are not in control of our energy future as long as we are addicted to oil.

There could be several reasons for our low reserve life, but one is not that we lack technical capability to produce the oil, as is the case in Venezuela, for example. The real issue is price. The remaining oil resources (oil that is in the ground but too expensive or held too tightly to produce) is comparatively difficult and expensive to produce in the US.

If, for example, the Republicans try to make good on a promise of $2.50 gas, they would have to do that by destroying the economy. To get $2.50 gas they would have to declare war on Saudi Arabia, Iraq and/or Iran and occupy them without any disruption in the oil market. Or they could simply go for even bigger subsidies of the oil industry, provided they wanted to gut the rest of the budget. Or they could put the US in a permanent recessionary downward spiral. Otherwise, the Republican energy plan is a ten year plan into the dark ages.

As a side note, the oil well that has been proposed on my mineral estate in ND requires a huge initial investment. The only way they can produce that oil is to use the law to take my property (my rights to the oil) and pay me what they say the oil is worth. After subtracting their huge investment, I won't be an oil billionaire. The highest Hess well ever paid me was about $100.

The reason there is more oil being produced on private land is because the laws are rigged to favor the oil companies against the property owner.

It would be nice, KB, if you really understood what it is you are trying to convey.

[Ken Blanchard]

Bill: No one missed the point of the President's argument, except maybe Donald. The President's obvious point was that since our share of the world's oil is 2% an our consumption is 20% of the world total, we have to buy the rest from Saudi Arabia. That means that we can't drill our way to energy sufficiency. The only way we can break our dependence on foreign oil is by developing alternative energy.

If the President's reference to math was a joke intended to indicate that the math is easy. If it were, and we use the President's figures, that means the percentage of foreign oil we consume should be about 90%. It's half that. The two figures are incommensurate. The one dependents on oil in the ground and the other on the size of the economy. To put it mildly, these are not closely related figures.

[D.E. Bishop]

I take it none of you commenters are sports fans. President Obama is well-known for his love of sports. This is what the "buck-twenty" is about:

ESPN is the cathedral of sports-worshippers. The jock commentators/reporters there set the trends in use of sports slang. Numbers in the 100-199 range are spoken as "a buck 57," for example. That term means "one hundred fifty-seven."

When Obama said "a buck twenty," he was indeed saying "one hundred twenty."

Buncha sports illiterates!

[Ken Blanchard]

A.I.: As I said in my reply to Bill, the percentage of the world's oil we consume is a function of the relative size of the U.S. Economy. By contrast, the share of our oil that comes from other countries is a function of the our national consumption minus our national oil production.

You say: "whether we have 2% of the world's oil reserves or 5%, we can't continue to use 20% and not find ourselves more heavily reliant on imports at some point." That may be true; but there is no reason to believe it. The 2% refers to proven reserves, which are a bad indication of how much oil we really have. The twenty percent may up or down independently of our oil production or consumption, depending on the economies of other nations. It is quite possible, according to the New York Times, that the U.S. will eventually rival Saudi Arabia in production.

What is certain is that the President's math trick was bogus.

[john davidson]

"Btw, Doc: you can feel confident that this interested party is visiting this blog less and less as you pontificate for your own edification. Color me: nearly gone."

Hey Larry, where you gonna go?

jd

[john davidson]

Lar - Huffpo! www.huffingtonpost.com/

[Ken Blanchard]

DEB: I acknowledged that possibility above. Having heard the tape, it is likely that that is what he meant, though he says "Three seventy five" meaning $3.75 and "one twenty" apparently meaning a hundred and twenty. In the transcript it reads $1.20. No one has yet bothered to correct it. At any rate, saying what a barrel of oil or a dollar of gas costs doesn't really tell you anything about how well oil companies are doing.

[Bill Fleming]

KB, you're not arguing that the energy companies are hurting for bucks are you?

[Ken Blanchard]

Bill: no. I am arguing that the President is either clueless or disingenuous in his comments.

[Ken Blanchard]

Larry: you accuse me of racism on the basis of two facts: that I am from Arkansas and that I make arguments that today are widely accepted in the social sciences. I suspect that you know about as much about Arkansas as a hog knows about Sunday. That would be more than you know about biopolitics. Your comment demonstrates the worst kind of prejudice.

I can't say that I will be sorry to lose you from the pages. On very rare occasions you do offer a useful contribution. They are more than balanced out by your habit of ad hominem dribble.

I suggest that you leave this blog and switch over to the Northern Valley Beacon. That would raise the average IQ at both locations.

[larry kurtz]

You're a tool, Ken.

[Bill Fleming]

Catfight! (now girls...)

[Ken Blanchard]

Bill: you see by Larry's comment that I am up against no ordinary mind.

[Bill Fleming]

Yes Ken, I would brush up against it as infrequently as possible were I you. There's no telling where that thing's been. LOL.

[Bill Fleming]

(...some context for Larry Kurtz... he is an absurdist. Good mind, insane wit. A shockmaster. Zenlike sometimes, only not so subtle. He recently proposed marriage to Kevin Woster on Blogmore for example, and asked Sibby on Madville if he wanted to do a 3-way. Laugh, throw things or puke, it's all the same to him. Keeps him on his toes and us off balance. He's not yet ready for the Yoda Award, but perhaps (at least in his mind, and sometimes ours as well) has thrown his hat in the ring. Hope that helps, KB.)

[Donald Pay]

Anyone interested in understanding the violation of property rights involved in the oil and gas industry might want to read thisL

http://www.propublica.org/article/forced-pooling-when-landowners-cant-say-no-to-drilling

[Dave]

So, um... I'm gonna go out on a limb here and say that The President most likely said "when gas is 375 a gallon, when oil is 120 a barrel, 125 a barrel". And the transcript is in err. I don't have the audio, so I'll leave it for KB to find that and prove me wrong.

[Ken Blanchard]

Dave: The President did say three seventy five and one twenty. For that very reason, we cannot say the transcript is in error. We don't know what he meant by "one twenty". I only know that the transcript has not been corrected, and that simply saying the price of a barrel of oil tells us nothing about how well the oil companies are doing.

[Dave]

Yes... You see there's a video link next to the transcript... Seems Ed Morrisey, the folks at hotair.com and Ken are the ones "peddling ignorance" here... Shame shame Ken...

Morrisey it seems is not even interested in the truth about what The President said: "I have had a couple of people e-mail me to suggest that the transcription was in error, and Obama said “one twenty” as in $120 rather than $1.20. That’s possible — but first, this is the official White House transcription. Second, the argument makes even less sense that way. Obama’s claiming that the profit is the difference between $3.75 a gallon and $1.20 a barrel. If it’s $120 a barrel in this form, Obama would be claiming that they’re taking a bath, not profiting. And either way, the direct comparison between a gallon of refined gasoline and the cost of a barrel of oil to demonstrate the scope of profit is completely absurd. As one correspondent to Instapundit says, it seems as if Obama is completely unaware that gasoline has to be refined from the oil."

And it seems that Morrisey is completely unaware that when a 42 gallon barrel is processed, you may get something like 15 gallons of gasoline, 9 gal. of fuel oil, 10 gal. of jet fuel (Kerosene) and 4 gal of other "heavy" products such as lubricants, grease, asphalt / bitumene and plastics and 4 gallons of lighter condensates/naphtha. So the profitability is not completely dependent on the price of gasoline...

[Ken Blanchard]

Dave: contrary to what you say, that was Morrisey's point. You can't infer anything from the simple price of a gallon of gas and a barrel of oil. Yet the President was surely trying to infer something, wasn't he?

[Bill Fleming]

I think he was inferring that the oil companies make a lot of money. The most expensive oil to mine costs about $35 a barrel. (That's the stuff from the way-deep offshore rigs.) More common is $5-10 bucks a barrel. It's a cheap get. And when prices for both crude and refined gasoline get as high as they are now, the oil boys are makin' a ton o' dough.

[Ken Blanchard]

Yeah, Bill. It's a good thing they have fairies to store and ship the oil and cover all the other costs. Otherwise, you'd have figure in the costs before you make any jaundiced conclusions about profits.

In fact, oil company profit margins are notoriously low, averaging around six and half percent. By contrast, Apples profit margin is 22%. Coca-Cola enjoys 33%. None of this means that the oil companies aren't makin' a ton o' dough. However, just stating the price of a barrel of oil doesn't tell you anything useful. The best thing you can say about this part of the speech is that it was impressionistic banter masquerading as argument.

By contrast, his remarks on energy independence were dangerous distortions of the truth about the energy market.

[Dave]

Nice try Ken... Having a discussion with you is like arguing with someone wearing a "CHOOSE IGNORANCE" T-shirt... That must be the new GOP paradigm though. I give you data pulled from a refiners web site, and you dismiss it as an unknown. The price of a gallon of gas is a piece of the puzzle. The most volatile piece of the puzzle. And you can infer quite a bit from that. (unless you choose ignorance...)
Fact-O-The matter is low margin operations like drilling and refining are outsourced. Pulling the oil up and allowing Wall St. speculation is where oil is turned into "gold". Pulling oil up for $10 or $20 a barrel and having Koch industries bid it up to one-twenty gives you a pretty significant profit. (unless of course you choose ignorance)

[Ken Blanchard]

Dave: see "fairies" above. To estimate profits, you have to figure in total cost.

[Dave]

Ken, your position that I am wrong because "we just don't know" may hold water with your fellow travelers, it is simply BS.

Question: When oil goes from eighty to one-twenty (dollars, not cents...) per barrel, Where does that additional $40 per barrel go?

Hint: The cost to drill and refine does not go up, and it doesn't go to any "faries"... Therefore...