The Art of Implementing Energy Independence
Submitted by the_sentry on July 1, 2006 - 11:55am.
Economy
The reaon why so many people starve is because they take so much in tax-grain. Therefore they starve. ~Lao Tzu
You know, I've posted on many different topics over the past weeks. This would include illegal immigration, NAFTA, North Korea, Iraq, Iran, the War on Terror, the Bolivarian Revolution.
The world does seem like a crazy place, does it not?
In any case, I've given some long thought on how to offset the energy costs in this country, how to wrest some control back from the OPEC cartels, and in turn how to raise the standard of living for all peoples on the planet over the issue of energy. Granted, I am a layman. I am no expert on these matters, but before you dismiss this blog completely, hear me out because I am of the impression that what I have to say is very important.
For those who are driving, it probably hasn't been lost on you that the price of gasoline is going up, up, up. Nations are making major economic maneuvers in which to either further drive up the cost of this oil, or they are seeking collusion in which to secure a place from which to get oil. In the backdrop? Well, there are all sorts of alternatives and renewables that are making a splash as well. For the purposes of this argument, I am going to elaborate a bit on ethanol, its potential, and how this can be utililized in order to save the US economy, and offset the profits of the OPEC cartel.
Yes, farm belt people, I hope you are listening.
Many contracts are now being explored for ethanol. But, at the same time, there are a lot of arguments as towards production. Furthermore, because of current US policies, subsidized crops here in the United States and the European Union are in turn monopolizing agriculture, and developing nations cannot in turn get a free hand (or even an opportunity) in which to expand their own economies under the auspicions of free trade. It's a major source of contention not only with Mexico (who is under a clause of free trade with the United States), and other nations who are complaining loudly over the WTO charter. In terms of many of these nations: Agriculture is one of the few commodities that just about anyone can develop and export. Therefore, if you truly look at the subsidies, they are in fact contributing to third world poverty overseas.
An example of how this works in Mexico, and addressing the illegal immigration debate in turn.
First, it starts with the US government subsidizing the American farmers. They in turn take these costs and pass on a lower price to the consumer. The consumer in the US appreciates these lower costs, even though part of it was offset with tax dollars. HOWEVER: These costs are also passed on to Mexico under the NAFTA treaty. Mexican consumers ALSO buy the lower-priced agriculture. In turn? This puts Mexican farmers out of business. They lay off all of their farm hands. And, all of the immediate businesses which relied on the agricultural industry in Mexico also dry up. So, with that being said, they in turn come to the United States to work HERE, even daring a border crossing in order to find employment.
Nice system, eh?
Well, it's unfortunate that so many Americans do not want to look at this debate because of the implications of more farmers losing their lands as they did in the 1980s. But, fear not, for this debate not only addresses this factor, but also our reliance upon foreign oil, improving refinery, and at the same time providing another linchpin for the US economy in the form of ETHANOL, including the potential to develop another cartel in the process.
Are you ready?
FIRST: DROP subsidies to the US farmer. The EU needs to do the same thing to their farming industry. In the short-term? Yes, farmers in the United States lose money. But, you need to hear me out.
SECOND: Once the subsidies are dropped, then this report is presented to the WTO. Nations see this, and in turn start growing crops en masse for the purposes of exportation, because you have put them (or so they would think) on an even playing ground. More corn and more cane is grown, in fact so much that the world is GLUTTED with agricultural products.
THIRD: Once the world is glutted with agricultural products, these products in turn are converted to ethanol. Ethanol mixture in turn become dirt cheap as opposed to the absolute price of gasoline. Consumers make the switch because they are all too happy to find something to fill their cars that is dramatically cheaper.
FOURTH: While the US farmer is slowly recouping offset costs over the rise of the ethanol industry (and this does take time to "cultivate", no pun intended), these growers in turn utilize the NAFTA charter to organize growers into a CARTEL in order for cooperative pricing controls over this commodity. The cartel also seeks to develop refineries in order to further make the price of conversion to ethanol more cost-feasible on a whole. This cartel in turn prices the standard of their commodity on the NYMEX exchange pegged against the US CURRENCY (are you paying attention?). Once this happens, and they are able to offer a bigger price, this NAFTA cartel in turn pushes for cooperation with other nations in South America to join the cartel in the hopes of creating an ethanol pipeline that runs from Brazil all the way to Canada in order to expedite the process and thus cut the cost even further.
Over time, the price of ethanol slowly rises, but in the end the cartel still keeps the price lower than a standard gallon of gasoline. Furthermore, with control of the refineries, this cartel has the actual control of the energy in question. Oil becomes a commodity in the mixture as opposed to the whole enchilada.
And, in the end? You have more nations that are working to create energy for cheaper consumption. You also have less reliance upon current OPEC petrol-states that are becoming more and more threatening of using oil as a weapon. You have a secondary cartel which is helping drive up demand for American currency in which to purchase commodities, which is what the value of our dollar is pegged against. You have also pushed for the improvement of economies throughout Latin America, and this industry in turn pushes for less crops which are often converted into illicit drugs for sale in the United States. (War on drugs, anyone?) You have also slowed down illegal immigration because those migrants have less motivation to jump the border into the United States.
And, you have passed on a cheaper product to the end consumer.
Now, keep in mind that this would also include more collusion and strengthening of the NAFTA cartel. But, in light of many of these nations overseas, their grinding poverty, and the rise of radical idelogies that are threatening to push violence towards more industrialized nations, I am of the impression that a shift in the politics and economics of energy are long overdue.
And, we can use it as a lifeline for the US economy in the process. (Oh, and for those who are under the assumption that this sounds "familiar", you are correct, it is. It's based on economic overtures in the 1980s which drove the oil commodities and consumption from regional markets in the United States to foreign markets overseas. If people want consumers to use ethanol, they have to "hook" them on the product first.)
Thoughts are welcome on this topic, and thanks for reading.
Sources:
http://www.pgfreepress.com/portals-code/list.cgi?paper=26&cat=23&id=678714&more=
Prince George Free Press: WTO debates subsidies
http://www.euractiv.com/en/trade/wto-talks-awaiting-compromise/article-156493
Euractive: WTO talks still awaiting a compromise
http://thechronicleherald.ca/Opinion/512960.html
Chronicle Herald: Culture of entitlement deeply rooted in agriculture
http://freeinternetpress.com/modules.php?name=News&file=article&sid=7420
Free Internet Press. WTO has not kept promise to poor nations
http://online.wsj.com/public/article/SB115100948305787940-tA5PP0Ya_9U0AlXBQQhnaDyMIYc_20060725.html?mod=tff_main_tff_top
The Wall Street Journal: Immigration's costs, and benefits
http://www.mysanantonio.com/business/stories/MYSA062206.1E.BIZ.COLhendricks.mexico.db38d2.html
San Antonio Express: López Obrador does have a point on trade
Peak Oil Passnotes: $80 Here We Come
By Edward Tapamor
30 Jun 2006 at 11:01 AM EDT
PARIS (ResourceInvestor.com) -- To follow on from what we were talking about last week, it would be a brave man to bet against $80 later this year. In fact $80 will be an easy target if we get anything out of the ordinary happening, and most times ordinary is bad enough.
In 2005 we would not have had $70.85 oil if it had not been for Hurricane Katrina. Katrina spooked the markets higher than they otherwise would have been. But remember that when Hurricane Rita came onshore to the east of Houston and Galveston later in the year oil did not hit $70.85 again. A second massive hurricane narrowly missed the heart of the Texan oil business, blowing rigs around like confetti in an April churchyard, yet $70.85 could not be reached
Now, some nine months later oil is sitting quite happily at around $72. This should tell us something.
Firstly it should tell us that any unexpected events around the world will force up prices. We mentioned one last week that has dropped off the media radar for the moment. That is the reply from Iran to Americas and the G7s proposals on nuclear energy.
When the G7 met and formulated some kind of consensus action over Iran and their capabilities they demanded that Iran reply by mid July. Iran turned around and picked what seems to be an arbitrary date to reply, August 22nd. It could be an arbitrary date, just picked out of the air to show the Iranian public that Iran will do things at its own pace. Certainly that is possible.
Or it could be a not-so-arbitrary date that Iran picked because extending the tension into the heart of the American driving season, into the heart of the Asian cooling season is going to put the screw right on. There will be tension. There will be speculation. There will be uncertainty around the markets. What will happen if Iran send back a letter as rambling as the one President Ahmadinejad sent to President Bush? What happens if America rejects the response out of hand? If there is anyone who thinks Iran and America will find common ground and everything will be fantastically easy then we would like whatever it is you are smoking.
Then again we could just be looking at some more of the same. The American public cannot escape using oil, using energy. They do not have any public transport to speak of. The rich are becoming more and more energy intensive, the waste levels are incredible. The prices may be going up but debt is more attractive to the American public than a bicycle.
Chinas demand rose by 600,000 barrels a day year-on-year in May in figures released this week. Their domestic output, hampered by the decline of Daquing, rose by 100,000 barrels per day. In America April data from the Energy Information Administration (EIA) showed US output fell by 460,000 barrels per day year-on-year, with demand staying put.
OPECs latest output shows a fall of 770,000 barrels per day in May that could be partially deliberate to quietly support prices or a result of over stretching fields and having to give them a rest. But add all this up and new fields in Nigeria like Bonga are a drop in the oily ocean.
So, how about a left field, spanner-in-the-works style problem? After all, this week will give us a new President in Mexico. Presidents often do the most unpopular things they have to do first. So that when it comes around to the next election they can do the popular things. What would happen if the new incumbent in Mexico City were to break some bad news about Canterell? Say the possibility that the water cut is racing away to the top of the field at an alarmingly fast rate. Mexican output for May stood at 3.77 million barrels per day, yes you guessed it, down 112,000 barrels year on year.
To break out over the new record price of $75 set on April 21st is now already within touching distance. A few more years of declining output, energy wastage and geo-political chicanery and we might look back on Hurricane Katrina with fond nostalgia.
Source: http://www.resourceinvestor.com/pebble.asp?relid=21159
The Railroad Industry: What's Different This Time
These asset-intensive behemoths could still be a good bet if the economy sours.
In the classic board game Monopoly, railroads are a pretty good investment. In contrast, real-world railroad stocks have been perennial underperformers, making disappointed investors wish they possessed the portfolio equivalent of a "get out of jail free" card. Until recently, that is. During the last few years, railroads have been singing a more dulcet tune, one that they might continue to croon even if the economy takes a protracted dive.
A Brief History
From their inception in the 1830s through the first half of the 20th century, railroads transported most of North America's freight. In 1956, however, President Eisenhower signed landmark legislation that spawned the modern highway system, which, in turn, gave rise to the trucking industry. Subsequent government acts freed truckers and railroads from government regulation (for the most part), further intensifying the natural competition between the two.
As could be expected, truckers' superior service records and greater flexibility prompted shippers, over time, to shift their freight to trucks instead of railroads. The railroads had a tough time remaining competitive; only certain freight groups, such as coal, were immune to these pressures because they could not easily be shipped by truck. Many believed that the government would eventually take over the industry, a la Amtrak.
Another factor didn't help: Railroads have to maintain their tracks while truckers look to the government to foot the bill for highway maintenance. As a result, the railroad industry spends a greater percentage of sales on capital expenditures than any North American industry. Correspondingly, the industry as a whole has not been able to earn its cost of capital--that is, create economic value--for many years.
The Present
Today, six railroads dominate the North American landscape: Burlington Northern Santa Fe BNI and Union Pacific UNP govern the western two thirds of the United States, CSX CSX and Norfolk Southern NSC operate east of the Mississippi, and Canadian National CNI and Canadian Pacific CP run extensive networks throughout Canada and parts of the United States. Each company is a collection of many smaller railroads, the end product of years of industry consolidation. Other small regional railroads also exist, but in the interest of focus, I will stick to trends affecting "The Big Six."
Unbeknownst to many, these firms have been absolutely crushing the market in the last couple of years. "But wait," I hear you saying, "you said this was an industry that doesn't earn its cost of capital, so why is everyone so excited?" True, the industry as a whole is still struggling to create economic value, but several recent trends have converged to produce perhaps the best operating environment for railroads in a half-century. As part of that, the trucking industry is facing a host of challenges that have threatened its competitive advantage over railroads. Let's look more closely at three freight groups to get a better grasp of the situation:
Coal
Coal is the largest commodity transported by railroads and, as such, has always been one of the industry's most profitable and stable freight groups. Railroads move about 60% of the United States' coal, primarily because it is too heavy for trucks to transport cost-effectively over long distances. This is all well and good, but historically demand for coal hasn't grown all that much.
That has changed recently, however, as growth in electric demand has skyrocketed, both here and abroad. Natural-gas prices remain much higher than historical levels, and nuclear generation is operating at full capacity. As a result, utilities are burning more coal to generate power. Morningstar coal analyst Elizabeth Collins expects demand for coal to continue, especially as new coal-fired electric-generating plants are built over the next several years.
Coal constitutes about 25% of revenue for both CSX and Norfolk Southern, but the firms likely to see the most volume growth in coal are the two western railroads, Burlington Northern Santa Fe and Union Pacific, whose coal franchises represent closer to 20% of sales. These two carriers serve the Powder River Basin (PRB), an area of Wyoming where low-sulfur coal is particularly abundant. Though PRB coal has lower energy content, it is cheaper than other types of coal, and its low sulfur content makes it more environmentally friendly. As emissions standards tighten, many utilities are opting for the cheaper, cleaner PRB coal in order to be in compliance.
Agricultural Products
Agricultural products are another important commodity group for the railroads. Trucks shy away from hauling grain, corn, and the like because of their inherently low weight/value ratio and because their delivery is not typically time-sensitive. Two factors are likely to keep demand for agricultural products strong despite an economic swoon. First, people in several emerging markets, China in particular, are consuming more beef as their diets evolve to include more protein. As a result, their countries have begun importing more agricultural products that can be used as livestock feed.
The other factor has to do with one of today's hottest industries: ethanol. The Big Six have found themselves right in the middle of the ethanol craze and stand to benefit in several ways. As ethanol production increases, the railroads will be transporting corn needed for production to the facilities and then moving the final product to fuel-mixing plants, since ethanol cannot be transported via pipelines (though it can be hauled in trucks). In addition, the byproducts of ethanol production have value as a feedstock, so the railroads are likely to transport those as well.
The only railroads that wouldn't be a good play on these trends are CSX and Norfolk Southern. The other four are all big players in the agricultural transportation market and are strategically positioned to handle both the increase in exports as well as the increase in domestic demand stemming from growing ethanol production.
Intermodal
Last, but not least, is intermodal transportation. Intermodal refers to the process of moving a container or trailer via more than one mode (e.g., truck and rail). A simple intermodal transaction might go like this: A container arrives at port via steamship, a truck moves the container from port to local railyard, a railroad moves the container to Chicago, and a truck moves the container from Chicago to the local distribution center.
Intermodal transportation has grown substantially in recent years and is projected to grow at 6%-7% annually over the next five years. Three related reasons are driving this growth: First, the domestic trend toward outsourcing manufacturing operations has greatly lengthened supply chains, meaning more goods are traveling longer distances to reach their destinations. Second, the trucking industry is in the midst of one of its worst-ever driver shortages as potential drivers spurn the long hours away from home for relatively low pay. As a result, trucking firms have had a tough time expanding fleets to accommodate all the containers coming into the ports. Third, fuel prices have been on the rise (you noticed?), and rail transportation is as much as 3 times more fuel-efficient than truck transportation, especially over longer distances. None of these factors is expected to change much in the near future.
Intermodal transportation is a significant revenue source for several of the railroads, but particularly Burlington Northern Santa Fe, Norfolk Southern, and Canadian Pacific. For each firm, intermodal jobs account for at least 20% of total revenue, and the companies are tweaking their networks to open up capacity for future growth.
Closing Thoughts
The Monopoly analogy is particularly apt, given that some shippers claim that the railroads themselves are a monopoly (or an oligopoly functioning as a monopoly). Whether you agree or not, what cannot be argued is that these are some pretty good times for the railroads, and, in my view, the party should continue for at least a little while longer. Sure, there are reasons to be skeptical: Transportation rates may rise to the point that outsourcing is no longer as attractive as it once was, the trucking industry could find some sort of Band-Aid for its driver shortage, and the railroads' less-than-stellar service record could invite further government regulation as the industry continues to hike its rates. And let's not forget that railroads still haul some highly cyclical products (e.g., automobiles, chemicals, etc.), remain extremely capital-intensive, and refuse to add capacity until their returns improve.
Railroad executives like to tout the long-term "structural changes" that have gone on in the industry over the last few years. But Norfolk Southern CEO Wick Moorman admitted at his firm's recent annual meeting that "we will not know how deep and how significant these underlying [structural changes] are until we see a soft patch in the economy." That time may be upon us, and only time will tell if the "rail renaissance" ultimately, uh, derails. My hunch, though, is that the industry will still continue to thrive, and while Mr. Market may not agree with me, his broad violent thrashes could create what I'd view as some excellent bargains.
Source: http://news.morningstar.com/article/article.asp?id=166861
Well, I'm not much of a writer but do have a few point to add.
I've read that actually cost per barrel for the major oil companies to pump from existing wells maybe as low as $15/barrel. I did not save the link but there was Saudi official in the news a few weeks back expressing concern that these trader manufactured artificial prices of $70/barrel created by speculation and manipulation would ultimately hurt their bottom line. The major concern by consumers in the US and push to conserve and push for alternative sources was not good for them in the long term.
Though hitting peak-oil is a concern we are seeing price manipulation on a grand scale mainly fron our own oil companies controlling supply, refinery profit margins, and output. Add the bogus price per barrel for crude and they have created a near crisies that is impacting the US and world economies.
The long term soloution has to start with conservation and a changing of our energy usage. Detroit does not get it. Toyota is eating their lunch and their answer is to deny Toyota has better fuel efficency. You see adds for the big Flex-fuel trucks and SUV's. No matter what the liquid fuel source is we can't all keep driving vehicles that get no better the 20 mpg under typical driving conditon. They are offering free fuel for a year etc.. The American consumer has to drive policy with their wallets since industry and the government won't. We are using about 22 million barrels of crude oil a day in this country and more then a third of that is for gasoline production.
We also need to alter our energy use patterns in out homes and businesses. We need to get rid of all the plug-in power adapters and appliances that draw current even when the devices they power are not in use. Only energy efficent lighting should be available. We should be promoting the use of solar energy for water heating or preheating and production of electricity in our homes. It should be incorporated in all new construction. Every gallon of gasoline, heating oil, natural gas, or kw watt/hr of electricity we each save each day will have a massive impact on our need for oil.
We need to save the petroleum based fuels for where they are needed and develop aternative energy sources for everyting else.
Expanded thoughts on the cartel: Just some quick thoughts here on the cartel itself, and why it is necessary. For those farmers who would be concerned about losing their lands during the push for this new cartel, the cartel itself would work as a cooperative to help offset costs and protect the lands of farmers during lean years as long as a long-term consistent crop ratio was reported. In a sense, I AM arguing about putting the power of the world BACK into the hands of the farmer.
And, as far as the manipulation of the cartel itself, once you have another industry in place that is only using oil as one of the components (and not the entire commodity), then you have taken control out of their hands, or at the least reduced their influence drastically.
Furthermore: Once the railroad industry begins to take off, this industry no longer requires subsidies either. And, as they expand their industries, more and more tracks are laid down for mass transportation. This in turn reduces the demand for oil as more people use these types of services to commute to their jobs.
The world can change, folks. We just have to work at it. And, in light of how aggressive OPEC nations are becoming in the face of the rising cost of oil, I am of the impression that it is high time for a change!
Thanks for reading.
What do we do for renewable energy sources when the climate doesn't cooperate in growing the crops?
And just as an aside, any comments on the article in the Washington Post about the crop subsidies that are apparently going to non-farmers? (Curiously enough, a lot of them in Texas...let's give Texas back to Mexico. Sorry to all those in occupied-Texas!)
"Nationwide, the federal government has paid at least $1.3 billion in subsidies for rice and other crops since 2000 to individuals who do no farming at all, according to an analysis of government records by The Washington Post.
Some of them collect hundreds of thousands of dollars without planting a seed. Mary Anna Hudson, 87, from the River Oaks neighborhood in Houston, has received $191,000 over the past decade. For Houston surgeon Jimmy Frank Howell, the total was $490,709."
http://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962.html
One Nation...under surveillance
I understand why the subsidies are in place, but at the same time, the better solution is to manipulate the market so the subsidies are no longer required. If it required investment in anything, I would argue that more ethanol refineries be built, and furthermore, more investment to help this new agriculture cartel take off and this would be the insurance for farm owners instead of the US government itself.
On the topic of global warming. Something has to be done to change habits of the consumer. Note that if the railroad industry starts taking off again (which they would if more coal and ethanol has to be shipped), this industry in turn improves infrastructure which can be used for mass transportation...this also changes the habits of the consumer in question. As for the issue of global warming, ethanol burns much more cleanly than gasoline, and furthermore, with more mass trasnportation in place, you are reducing the amount of Co2 entering the atmosphere.
And on that note....you are also taking a lot of hot air away from the Bolivarian Revolution and Al Qaida since the free market works via the agricultural cartel to expand the economies and infrastructures in the Third world.
Proposal: Create a cooperative effort for all farmers in North America with the intention of financial, economic, and regional security.
NAFTA COOPERATIVE: Instead of working against the Mexican farmer, or the Canadian farmer, start a 3-nation cooperative which protects the interests of all parties. Regulate the control and growth of agriculture. Farmers know better how to implement this than the respective governments. The primary intention of this would be to create a system to grow, transport, and refine ethanol. It can be applied to other crops as well so that farmers in North America are not cutting each other's throats over crop competition. Regulations towards pesticides and working conditions can also be agreed upon.
REFINERIES: In the future, as more renewables are applied to the end product of what goes into a gas tank, the key will be the refinement, as oil will only be one component in the mix as opposed to the exlusive commodity. If there is a time to act on this, it should be NOW before OPEC gains control of the end resource. (Especially since some mixtures are comprised more of ethanol than actual refined oil which comprises gasoline.) Furthermore, as more refineries are built, and larger quanities of ethanol are produced, more investment is returned to improve the process as a whole.
EXPAND YOUR MEMBERSHIP: As more ethanol comes into demand, expand the charter to include other nations in Latin America. In turn, you have more productive crops for profit, and less inclination to sell illegal crops for the purposes of recreational and narcotic drugs. Furthermore, as more and more nations become charter members, then the price of crops can be regulated even further when it comes to sales of said crops on the NYMEX exchange in the open market.
TRANSPORT: The railroad system is the only way to transport ethanol and coal at this point. But, this isn't a bad thing as more infrastucture could also be invested after profits are yielded for more passenger service trains at a lower price. And, as more transport becomes available on a regional basis, the overall cost of the product is further reduced due to available and easier transport.
IMMIGRATION: As Mexico's economy starts to stabilize, there is less incentive for Mexican citizens to cross the border into the United States. It is an argument for national security in this nation.
In conclusion, it's an argument of regional farmers working together, united. With these efforts in place, the price of oil will come down. This in turn will provide less financing to radical groups like Al Qaida. It also reduces the influence of the Bolivarian Revolution that is being spearheaded by Hugo Chavez.
Now, to get the customer "hooked" on ethanol.
The facilities have to be in place, and the market is going to have to be glutted with this product. This will make the product in turn dirt-cheap, and the consumer in the market will be all too happy to make the change. (NOTE: How did we get addicted to foreign oil? Why, the Saudis did the same thing to the world back in the 1980s.)
Can the keys be offered here? It depends on whether or not farmers are willing to drive an engine that could continue to power industry in the face of peak oil production in conjunction with rising demand.
The future is yours if you want it.
For those who would argue about ethanol vs. another resource, keep in mind that as more and more renewables are considered for the open market, those who control the refineries are going to become more and more important as opposed to those who are exporting the raw commodity unto itself. And, as far as ethanol goes, agriculture is the one industry that any nation can get into. A "natural resources" card is not required.
ALSO: I don't know if this is lost on folks, but what I am talking about is a cartel that prices AGRICULTURE commodities pegged against a currency used by the United States.
See? Al Gore and the bankers can get along after all...
http://myspace.com/the_sentry