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Thread: for what it's worth - $125 oil and $5 gasoline

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    Banned Melonie's Avatar
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    Default for what it's worth - $125 oil and $5 gasoline

    (snip)"Oil at $125 a Barrel, Gasoline at $5

    John Hofmeister is the former president of Shell Oil and now CEO of the public-policy group Citizens for Affordable Energy. He paints a very stark (even bleak, as he gets further into the speech) picture of the future of energy production in the US unless we change our current policies. First, because of the aftereffects of the moratorium. It is his belief that the drilling moratorium will effectively still be in place until at least the middle of 2012. There won't even be new rules until the end of 2011, and then the lawsuits start.

    Gulf oil production will be down by up to 1 million barrels a day. Imported oil is now 67% of oil usage but will go to 75% by 2012. He thinks crude oil will be up to $125 and gasoline between $4-$5 at the pump. And it will only get worse.

    He describes the problem with the electricity from coal production. The average coal plant is 38 years old, with a planned-for life of 50 years. Our energy production capability is rapidly aging, and we are not updating it fast enough.

    He argues that the fight between the right and the left has given us 37 years without a realistic energy policy, as policy gets driven by two-year political cycles but good energy planning takes decades. There are 13 government agencies that regulate the energy industry, with conflicting mandates that change very two years. There are 22 congressional committees that have some level of involvement and oversight of the energy industry.

    The following table is from data provided by Triple Double Advisors LLC, an energy specialty investment firm in Houston, Texas. John White was sitting next to me and showed me this table, pointing out the poor performance in terms of investor returns from renewable energy sources and the larger returns from Master Limited Partnerships where investors are seeking yield. It seems the market is voting that it doesn't have much confidence in the renewable energy world. Hofmeister suggests that government subsidies for renewable energy will go away under the pressure to get the fiscal deficit under control. Maybe the market senses that. He says we need to create a 50-year plan for our energy policy that transcends the political cycle. (I am going to get this speech transcribed and will post it so you can read it. This guy talks sense.)




    from


    disclaimer ... in the past I have owned gas and oil royalty trusts such as BPT, SJT etc.

    Also, certain earnings from a Master Limited Partnership investment are exempt from certain federal and state taxes ... per ... a fact that may 'goose' overall returns for those with relatively high incomes and / or those who live in high tax rate states who will soon become subject to higher income tax / cap gains tax rates.

    And for anybody with interest, here is a discussion of some new MLP's in the energy sector that are now available to 'average' investors because they trade like ETF's ...

    ~
    Last edited by Melonie; 10-02-2010 at 05:14 PM.

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    Banned Eric Stoner's Avatar
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    Default Re: for what it's worth - $125 oil and $5 gasoline

    You forgot to add in the effects of a falling dollar which has already added at least $10 to every barrel of imported oil , just this year, with more to come.
    Last edited by Eric Stoner; 10-04-2010 at 11:50 AM.

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    Default Re: for what it's worth - $125 oil and $5 gasoline

    ^^^ very true ! The author's projections were strictly based on a reduction in US 'domestic' offshore oil production due to the Obama moratorium, and the resulting increase in bid volume / bid prices for the remaining world market oil ( i.e. future international oil production that has not already been contractually promised to China or India )

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    Default Re: for what it's worth - $125 oil and $5 gasoline

    Here is the "flaw" in the logic of the "drill baby drill" theory and how it is supposed to lead to "energy independence" All that oil regardless of where it comes from is "world market oil"

    It is well known that for years a large perctage often the majority of oil coming through the alaska pipeline got loaded onto tankers are sent to in the 80's mostly to Japan now more to China IE it was sold "on the world market" and despite what Sarah Palin would have you believe did not help US energy independene one little bit. Drilling in the Gulf or the OCS would/could be no different. Now if when the federal goverment sells the leases they were to "require/stipulate" that any and all oil found be used in and ONLY in the US that would be one thing but that is not how it is and that is not likely to change. Especailly when the company buying the leases is someone like BRITISH Petroleum or Royal DUTCH Shell or Citgo IE non US owned/based companies.

    If that BP well had come in rather than blowing up, what was stopping BP from selling all that oil to China or India if they wanted to pay top dollar? NOTHING

    So much for the "energy independence" idea

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    Banned Melonie's Avatar
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    Default Re: for what it's worth - $125 oil and $5 gasoline

    ^^^ nice try, but one HUGE oversight. For every barrel of oil that is pumped from Alaska, or from the deep water gulf coast, or from any other territory under US jurisdiction, the US federal gov't and some US state gov't collect royalties based on the inherent crude price value of that oil. These are real dollars that were flowing INTO the US economy. This is true whether the final purchaser is in America or in China. When this oil is not pumped from US territory, there are no such royalty payments. And when oil pumped from foreign jurisdictions is purchased and imported into the USA to replace the curtailed 'domestic' production resulting from the Obama moratorium, the cost of those royalty payments flows OUT OF the US economy and into the pockets of Hugo Chavez, the latest Nigerian despot, Arab oil shieks etc. instead.

    So while the 'global' price of crude oil including royalties may be $80, the price of those royalties alone may be $20. Thus net-net, pumping a barrel of oil from US territory costs the US economy $60, as opposed to purchasing a barrel of oil from a foreign source costing the full $80. On top of this, when oil is purchased from foreign sources instead of domestically produced, by one means or another, US taxpayers wind up having to make up for an additional $20 per barrel in lost federal and state oil royalty income via additional tax revenues collected from them via other means. Thus on $80 world market oil, there is a real world net-net price difference to the US economy of $100 versus $60 or $40 per barrel for the purchase of foreign oil versus the production of domestic oil.

    ~
    Last edited by Melonie; 10-04-2010 at 01:36 PM.

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    God/dess Zofia's Avatar
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    Default Re: for what it's worth - $125 oil and $5 gasoline

    Quote Originally Posted by phonehome View Post
    Here is the "flaw" in the logic of the "drill baby drill" theory and how it is supposed to lead to "energy independence" All that oil regardless of where it comes from is "world market oil"

    It is well known that for years a large perctage often the majority of oil coming through the alaska pipeline got loaded onto tankers are sent to in the 80's mostly to Japan now more to China IE it was sold "on the world market" and despite what Sarah Palin would have you believe did not help US energy independene one little bit. ...
    Second huge hole in your argument. When congress authorized the Trans Alaska Pipeline System it prohibited the sale of oil transported through TAPS to foreign buyers. Thus from 1973 to 1995, Alaskan oil was solely used by the United States. From 1995 to 2000 (long before Sarah Palin's entry into politics), the law was amended to allow exports to some North Pacific Rim nations. During that time only about 7% of Alaskan oil was exported, mostly to South Korea, Japan and China. The law again changed in 2000 sending all of Alaska's oil south to the lower 48.

    The US does export refined petroleum product though, about 1,000,000 barrels per day. Mostly specialty fuels that are hard to find elsewhere in the world. The source of those exports might certainly contain some Alaskan crude. Yet the value added by refining far outweighs any cost of crude, foreign or domestic.

    Z

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