Deepwater Horizon, Update 2: Photos

Over at the Big Picture Blog, they have outdone themselves again.
This time with a collection of 40 pictures on the oil in troubled Gulf waters. Here is one, where the Mississippi River meets the Gulf of Mexico. It looks like a weather front, but unfortunately, it will never end that fast.

Deepwater Horizon Update

Causes
Although no one is finished investigating, they do seem to have an idea what caused the explosion of the Deepwater Horizon. A methane bubble heated and rose, exploding through various seals. The gas cloud covered the rig, causing other engines to malfunction and explode. The oil surging up behind the methane ensured that the entire rig was inundated.

The heat was caused by the cement being applied around the pipe. You need the cement--it reinforces the pipe and its joints. Oil is a pressurized load, pipe has to be reinforced. So this was, as previously posited, a bad-all-around, unlucky shitstorm.

Remedies
In a previous post, I talked about the various remedies for the Gulf of Mexico oil spill. Gulf fisherman have been hired to put out a lot of barriers/booms across fragile wetlands. The use of chemical dispersants and controlled burn-offs have continued. These have been either completed by, or monitored closely by, the U.S. Coast Guard.

The engineering solutions
The drilling of a detour well is supposed to take three months. In the meantime, oil is still pouring out at a rate of 5,000 barrels/200,000 gallons a day, unimpeded.  BP had two other solutions it wanted to try: the first was having robots fix the leaking lengths of pipe. The robots could not accomplish a fix, but they are still in use as eyes to the underwater surface and assisting in solution number 2.

The second was a cap over the leaks, a sort of umbrella or 'box' that would trap the oil underneath it where it could be pumped out.  But they couldn't stabilize it in the proper position. Once again, methane is the culprit. Methane crystals are lighter than water. They have frozen in the colder temperatures below the surface and made the trap too buoyant. Various solutions are being parsed out: a smaller box, methanol to un-freeze the methane, raising the box to warmer temperatures (but then still allowing a gap). Nobody is giving up. None of these stop-gaps are full solutions. And until a full solution, things will get worse in the Gulf.

The best round-up article (comprehensive, even-handed) I've found is at Associated Press.

BP's Timeline of Operations (shipments, actions, processes) with the Joint Response Team, at the BP site.

States of Emergency
The National Oceanic and Atmospheric Administration (NOAA) Forecast for  May 11 is here. (pdf format: it takes a minute to load. It looks really bad for Louisiana's Atchafalaya Bay (pronounced "chuff-a-lie-ah"). Louisiana's coastline has 3.5 million acres of coastal wetlands, or 40% of all of the coastal wetlands in the lower 48 states, so a lot is at stake already. Among other important things, like oxygen production, the barrier islands and wetlands protect the coast from other seaborne disasters such as hurricanes.
The oil may drift fairly easily to Mobile Bay and then Pensacola some time after that. This disaster is just multiplying.

Louisiana
Terrebonne and Lafourche Parishes (Counties, ya'all) have both declared a state of emergency May 9, 2010. Terrebonne Parish already has a Coast Guard approved plan. Lafourche Parish is meeting with officials today. The governor had already declared an emergency on April 29th--for Plaquemines, St. Tammany, Orleans, and Jefferson Parish.

The Feds have already named the spill "of national significance", which clears the way for Federal assistance.

Mississippi's governor declared a state of emergency on April 30; Alabama's gov declared their state of emergency on May 1. Florida's governor declared a state of emergency for areas around the Panhandle coast on May 1. On May 3, he expanded the state of emergency to include Big Bend and Tampa Bay areas.


More Blowhards and Plenty Blowback on the Blowout
The Congressional hearings with independent oil CEOs start with some private sessions on Tuesday, and move into full howl through the next few weeks. There is nothing so ugly and so beside the point (in my opinion) as a Congressional hearing on oil. The Katrina hearing was an exceedingly bad, over-acted operas by both participants and spectators. That was during the titularly 'oil-friendly' Bush administration.  This is going to be another disaster, nothing will get done there. I will probably report on those in future. It's an eye-opener, all right.

I hope the know-nothing pols on either side of the carpet leave these engineers and the Coast Guard to do their job. They are working as fast, smart, and hard as possible. They deserve credit for a good solid effort. Let's give that credit, and let them stick with it. We'll get to the punishments when we can take a better stock of the damage. Remedies come first.

Engineering and the Deepwater Horizon

Oil supply is finite. The oil companies therefore work pretty hard on new ways to get it, new sources, and new efficiencies. Standards of safety and cleanliness rose with the ecological movement--and the rise of international banking and insurance risk pools. But geological terrain remains a huge challenge for the oil industry. So does human error.

The Deepwater Horizon was a new advance in offshore drilling, a "seventeenth generation" oilfield platform: large, built in 2001 so new, 396 feet x 256 feet wide, (100 feet wider than a football field), holding a 126-person crew. The drilling was done, and they were cementing the steel casing at the time of the blowout.

The final assessments on the DH catastrophe are in the future. But as the Christian Science Monitor said, the risk of blowout is always present in the oil industry. Geology is going to be a major factor.

According to the Schlumberger Oil Glossary, a blowout is:

An uncontrolled flow of reservoir fluids into the wellbore, and sometimes catastrophically to the surface. A blowout may consist of salt water, oil, gas or a mixture of these. Blowouts occur in all types of exploration and production operations, not just during drilling operations. 

In other words, an unforeseen extra volume flows up due to a drastic change in pressure or volume of fluids or gases. Some geologic turbulence occurred, and despite state-of-the art technology, everything went to hell. Seventeen workers were injured; eleven died. Five fireboats responded, both private and Coast Guard. Search and rescue by the Coast Guard by sea and land. The platform is gone.

How to Clean an Oil Spill
Here is a good general introduction: the four ways to clean an oil spill  Then I added one more large category.
a. Nothing. Truly, that sometimes is the best thing. Just as you would not scrub your face with a floor brush, a cleaning effort can do as much or more damage as leaving Nature to sort it out. (Not right now, though.)

b. Booms and Skimmers. This is what we heard about first. A boom is like a long hot dog with a flange or draft. The flange keeps it upright in the water. The cylindrical part may or may not be absorbent of oil. They are rated for use according to the turbulence of the water. A swamp flange, for instance, will be different than the ones used in the Gulf.

For this disaster, we've also heard about spreading booms for containment and then burning the oil off. The no-win/no-win: air pollution or oceanic pollution? For various reasons, the air pollution seemed a better choice.
I would say, chief among these is the economic health of shore communities and the fate of wetlands. Like a. above, it is a dispersal method.

c. Dispersant Chemicals. That's kind of like help for a. natural breakdown of the compounds in wind, water, salt, and sun.

d. Biological Agents: bacteria that eat oil for dinner. Here is a picture, much magnified of course. This one sounds better than all the rest. Reason: because the oil does not have to go anywhere else. With other methods, even boom-and-skim, something has to happen to the oil collected afterward. Also it gives us a warm feeling to know that Earth can handle its own problems.  In truth, oil is geologically under pressure. That means it leaks naturally, too, and frequently from the ocean floor or through seeps on land. (That's why these bacteria exist in nature. It's not a reason to yawn over massive industrial oil spills though.)

Here is a 1992 article about MIT's study of bacteria that can eat oil, methane, and even PCBs, transforming them to carbon dioxide and water. The study was trying to figure out the biochemical mechanism so it can be duplicated chemically as well as understood biologically. Now you can buy those bacteria by the drum at janitorial supply firms.

e. Feats of Engineering.
This video gives a good basic explanation of the situation and the engineering problems, from al-Jazeera.

The best place to find out what's going on with the Oil Spill is at the British Petroleum site. This is one of their strengths--they always give excellent information. Right now, I am sure they are employing the first through fourth remedies (the first, nothing, by default), but the permanent remedy will be one of engineering: drilling a new shaft that diverts the oil before it gets to the break points in the old pipe. BP started working on the alternate well on Sunday, May 2. They expect this procedure to take three months. Usually off-shore well-drilling takes seven to ten years--this is not nearly as deep though. But it must be done right/safely, so anything faster is not realistic.

Here is a map of the spill, updated daily at British Petroleum.

A Little More Overview
Bloomberg reports Business News--so before anyone gets riled--this story is partly about stock prices. It also reviews the problems that BP has had in the United States this past decade. The Alaska Pipeline spill could only have been human inattention. The final report on the refinery disaster in Texas City blamed most of it on bad management, i.e., outdated infrastructure and lax training. That will probably not be the finding in the report for the Deepwater Horizon.

Those problems began to surface under the latter part of the reign of CEO John Brown. Brown worked diligently to internalize UN standards of cleanliness and environmental safety to business as usual. His enthusiastic response to the British "Publish What You Pay" campaign added fiscal transparency to an industry that has a poor reputation in that regard. So much of BP's work has been very fine. You won't always hear that, and especially not now--not even from Bloomberg.


Risky Business
But regardless of BP's tarnished reputation or its gleaming internal values, a platform exploded. Seventeen people were injured. Eleven people were killed. Now the turtles are dying, the tourist and fishing industry will take a body hit, the oyster beds may be ruined. A massive effort by government agencies, private citizens, and firms has been employed.  BP will spend millions on it, and like all disasters, things will still not be the way they were before.

Pressurized parts of the earth do not answer to any safety or health regulation. The burden is on the oil companies to plan for these contingencies. Yet somehow like farmers who depend on weather and land knowledge--you can consult an almanac or a geological table, use an army of consultants, build new technologies, and get better equipment. You will still take a risk. This time we are all sharing it, someplace besides the gas pump.

Going to Extremes

I’ve got a radical impulse and you do. It’s the tendency to take any issue, infuse it with passion—and then exaggerate. Hopefully I won't do it here. Or, not too much.

The Pipeline Through the Former Soviet Union

I studied radical impulse while writing my Master’s thesis, which was about an oil pipeline across former Soviet states.  I was predisposed to favor this huge, megabuck construction—and readers, the oil companies did a socially-aware, risk-avoiding job on this project. Plus, they brought capitalism and opportunity to places there was none. In the former Soviet world, nobody knew how to make a deal outside of a furtive back room. Suddenly they were meeting international bankers, insurers, and engineers in broad daylight, filling out forms, and learning how to set this up for domestic banks, insurance, and engineering. Whoa!!

It’s equally true that the oil was bypassing rural townships that needed an electrical grid and some oil to fuel it. Trade would help these people, including this counterintuitive pipeline trade. But I didn’t kid myself about whose lifestyle we were supporting. Oil-greedy Europe and the U.S.? Answer: Yes. High mucky-mucks in poor states? Yes. How about the world’s political economy, the entire world? You bet. 

It wasn’t going to help these poor to Not build that pipeline either. Especially with this kick-ass job the operator did, supported by an army of expert consultants and following the codified social /financial/ environmental regs of the World Bank. Three countries now have savings accounts for sustainable development and education. Before that—they only had decreasing security in every arena. Personal safety. Little hospital equipment. Unemployed teachers and empty schools.

But groups protested. The Kurds. Extreme British-based environmental groups. Extreme American environmental groups. They demonstrated, they spilled green paint and threw stuff at oil conventions. They screamed on their Web site. They harassed the World Bank, who gave them an open process and plenty of venues to make their points. The more the World Bank gave, the more the radicalized groups shouted that they were pushed out, that ‘deals’ were being made, possibly around water coolers. Do people talk in the employee lounge? Of course they do. It’s not a conspiracy, it’s shooting the shit at work. But radicalized groups can’t afford to concede that.

The Kurds wanted information pamphlets published in Kurdish languages for their ethnic group. They got it. A self-appointed watchdog discovered a problem with one of the sealants (paint, okay, is a sealant). No amount of delay, repair, or re-certification would shut these protesters up. They scared the crap out of the Republic of Georgia’s administrators, who were (after all) not used to a citizenry that believed it could scream at its government. I’m sure those functionaries wished, at least briefly, for a few Soviet manners that summer.

Was this really about the environment? Some were truly concerned. Most wrote reports that consisted of some travel pictures and a few drunken conversations, some interviews with people not used to having their opinion asked and fumbling for polite answers. Those were mostly taken out of context. In the end, I thought the radical gig was about seeing the world and funding the travel plans. This sounds terrible, even to them, so they lie to themselves and others about a Cause.

Meanwhile, Back at the Ranch

We have this at home, too. Radicalizers latch on any exception and use it to prove a conspiracy against some segment of us. Extremists can’t afford to think an honest mistake was made or a legitimate complaint was filed. That goes for a lot of advocacy groups, left and right.

We are pushed, pulled, and yanked through knotholes, sussed for donations and told to be afraid. We are even taught to hate, to berate others, to despair. Somewhere, beyond this whirlwind, there is compromise, good faith, good judgment, a procedure in place. We almost never hear about that. 

Heroic efforts been scarred by lying dissenters and lying advocates alike. They have stopped the questions half-formed in our mouths. Distracted us from thinking it out.

This is not right. I will hold to that until my last breath. Call me radical if you like.

Fissile Material--Toward a Price Prediction

I'm just beginning to study this.

This is a map of nuclear power use in the world. You can see that Europe is highly invested in nuclear power plants, especially for its small land area. The U.S. has as many plants, but a great deal more land mass. Europe's reliance on nuclear power, a lot of plants around a lot of people, also shows that nuclear power can be secure and useful to us.

The two big economies in South America have started building nuclear plants, although Brazil is a world leader in biofuels. The depressed economies of Africa, the Arab states, Central Asia and the Pacific have not invested. This may be good for security and non-proliferation, but mostly it represents disinvestment.

It's especially ironic that Central Asia has none. Several of those states are very rich in uranium. In some cases, the mines are abandoned and off-limits, which by no means tells us they are secure. I might add that Afghanistan is just south of those states, and Iran only a short sail across the Caspian Sea from Kazakhstan. In some ways, greater demand for the fuel could increase security. Those mines will be attended, and starving Tajiks will work for legitimate wages.

And here's a closer look at nuclear power plants in the United States.

Reactors are powered by nuclear fission. Eventually the fissile material degrades and must be removed. That's one issue with world-wide political ramifications world-wide and within nations. Here is a map of U.S. spent fissile material storage. So far, we are storing it where we use it, with the exception of New Mexico and Utah.     Both of those states have a great deal of defense-related waste.

The second issue is that nuclear material, once removed, must be replaced.

The rate of growth in nuclear power plants is high. Eventually the price of fissile material will create a cycle, just as oil prices do. That cycle will affect the boom and bust of uranium and plutonium-producing countries. e don't know the shape of that cycle yet--how gradual or constant the demand will be over time, but most plants need to refuel every twenty-five years. Chances are the price cycle for nuclear fuel will sometimes offset and sometimes heighten future tensions over oil and gas pricing.

Consumer countries that use this fuel will have a. a price cycle that coincides with b. a disposal cycle.  These two together will create their own price spike--as the fuel price goes up, so does the price for storing the spent fuel. Thus, there will be periods when end-use consumers feel as though it costs too much to operate nuclear plants. Between those times, we will still buy toasters and wide-screen televisions.

It's also good to note that the fuel is going to go up in price from high point to high point. But what is really going to cost, in the long run, is the price for storage of spent fuels. It can't just go anywhere. It can't go in just any way. That's something to think about over the long haul.  A plan now is best. I hope we have a comprehensive one. Otherwise, the world will be sending it to dubiously-attended storage facilities in, say, Central Africa.

Maps: Renewable Energy Articles blog; WikiInvest (oh yeah, definitely money to earn here); NEI (nuclear energy institute)

Oil Spill in Port Arthur

This is a bad news but good news story. The bad news is that the tug w/ 2 barges collided with the tanker. The good news is that the Coast Guard and the oil company got right on containment, it's in a low-turbulence area, and not in the immediate vicinity of any wetlands.  The water movement matters because high turbulence increases the spread. It also makes globs of oil-mixed-with-salt-water foam, a kind of stinky soapy glop that's harder to suck up or get rid of.

Because crap happens, people learn to deal, and they know what to do. But I'm not Pollyanna. There's always a loss when a mistake like this is made. This matters extremely for the ecology of the Gulf of Mexico and the near environs of Houston.

One note: the area was evacuated because of sulfides in the oil. Everybody needs to know that this is going to be forever common. The oil we are drilling now is increasingly more sulphurous or 'sour' crude. The wells of sweet light crude are lucky finds among the newer wells, pumping off the top. As we return to old wells with new technology, to get more of what we couldn't reach before, the oil is not as sweet. Other top-producing wells world-wide are sour, too: it depends. It's the refining that takes the sulphur out, and increasingly sulphur disposal is becoming a problem in the oil industry.

So the presence of sulfides also suggests that the oil had not yet been refined. There are refineries in the Caribbean, in fact the political climate for building one there is much more friendly. But you can bet things are screwed up for refining with all the rescue traffic to Haiti. The effects of Haiti's earthquake aren't just in Haiti, but all over--including, this minute, probably Houston.  We are all one.

Oil: The Alaskan Issue

I am not enthusiastic about drilling the ANWR, but I think we’d be better off drilling it before the panic than after, when we will desperately grant every concession and overlook any abuse.

Conundrum No. 1: 
If I am right, then it would be better for a “green administration” to do the oversight on the  “Not-green” thing.

Conundrum No. 2:
We could only hold fast to green conditions during a market upsurge in price, because green drilling is more expensive to accomplish—the price has to make the effort worthwhile. However, a price upsurge means panic mode, when we want product and don’t care about method.

Conundrum No. 3:
If I was in charge, I would drill the ANWR as greenly as possible, and commandeer it as part of a strategic reserve for the Pacific coast and Hawaii. This would make sense for the nation, but private oil is a more efficient upstream operator, and they won’t want to have anything to do with a plan like that.

So the USG would join a joint venture with independent oil companies (many partners, but one turnkey operator), where the U.S. takes its lease price in barrels. That is what the rest of the world does, and it works.

Except the government has this huge deficit, and the invitation to sell oil rather than bank it strategically would be huge.

By looking at these three conundrums, you can extrapolate how our polarized politics is not doing us any good at all in many critical areas—not just energy. But I’ll take it further:

Conundrum No. 4:
The answers to the first three conundrums lies in getting a statesman rather than a leader or a politician. However, it’s still politics, and the political capital spent on this one would be massive. Your statesman must be a politician, or she won’t be a statesman very long.

So we will drill the ANWR when it is expedient and we are desperate and don’t pay attention.

Therefore, I am not enthusiastic about drilling the ANWR . . . but . . . .

Anti-Drilling, ANWR: Defenders of Wildlife site, and there are others, none of whom appear to study economics  . . .  .

Pro-Drilling, ANWR: Independent Oil's ANWR.org site, which, how efficient of them to get the .org site that signifies non-profits . . . . Map courtesy US Fisheries & Wildlife Service.

Oil: Three Re-readings of History--the Third One

This will probably make more sense if you read the First Two First.

Another Perception: The Poetic Justice of Oil and Terrorism
In 1979, we guessed Iran’s theocracy would try to destroy us. And we were still looking at international affairs as a matter of states in competition. But states are losing power on all sides. The market for ideas—socialism, theocracy, democracy, utopia, perceptions of “boom” and “bust”. The lust for power, which nowadays is less about “ownership” (the state) than about “decision control” (markets). Markets for money, fuel, risk-reduction/insurance, and ideas all transcend borders. In the words of the late great political economist Susan Strange, “states are working a holding action” against the greater power of international markets.

According to anti-oil-war screeds, we’re being punished for our greedy lifestyle; we’ve paid good money for our own destruction. That’s kind of poetic, but it doesn’t provide a solution that anyone can live with.

More accurately, we needed oil. We pay money to people who may or may not like us, but need to sell it. We do this all the time, and not just for gasoline. Sometimes we pay thieves or oppressors, knowingly or unknowingly, and that goes for all markets, from fast food on up.

In the 1990’s, Osama bin Ladin’s share of the family money funded his choices, and he chose exile from his family, his nation or any nation. That didn’t mean Bin Ladin was cut off, or had no place to go: he had plenty of transactions, technologies, and safe houses available to him. He chose crime, another international, interlocking, transborder set of markets, in order to promulgate an idea, or his own power, or whatever horrible motivation it is.

He may be in Afghanistan. That doesn’t make him an Afghanistani  nationalist. He may call us the Great Satan, but that's just a screen. His actions have not been confined against one country.

He and his followers chose a set of heinous transactions that hurt us and others in other parts of the world. In 2001, they blew up our skies. They have transformed our politics, and continue to do so. But in a way that we barely see, what they do has little or nothing to do with the state. What they are really involved in is markets.

Note: I have used Susan Strange’s far-reaching ideas in The Retreat of the State and other texts; I have borrowed some terminology from R.G.H. Siu's The Craft of Power.)
Tgace, if you're reading this, that Craft of Power might be something you would like. John Wiley and Sons. Might be out of print. Might be too business-oriented, try to check it out first . . . .

Oil: Three Re-readings of History--the First Two

The study of oil is the study of a major market in “political economy”. Politics adds emotion, mis-step, and conflict to a reasonably straightforward set of supply and demand curves.

A. The 1967 Energy Crisis and the Arab Oil Embargo (1973)
Around 1967, U.S. domestic oil production left no surplus capacity: we were using everything we could pull out of the well. By 1973, the U.S. market status tipped. We were no longer an oil-producing nation but an oil-consuming nation. And we entered that buyer's floor with a heavy step.

The title “Arab Oil Embargo.” is partisan, and the way it's noted, at least in the West. But it’s equally justifiable to call it the year of “American Buyer Domination.” Certainly we crowded out a lot of little buyers. And we know which of these two conditions has proven more lasting.

1973 was also a year in the oil market’s economic cycle that coincided with “disinvestment.”  There was no surplus capacity world-wide, either. The oil market turned into a seller’s market, rather than a buyer’s market, for the first time in history.

Oil Market Cycle
The oil market cycle is historically a decade long. The high point: high demand creates a high price, but there's not enough infrastructure to bring in needed supply. The oil companies start investing in greater infrastructure so they can deliver. Supply increases, and price travels down to the low point. The oil companies slow their investment and cap wells—after all, there’s no sense in building, or keeping a staff around, if you can’t make money. Prices eventually travel back up to a new high.

In periods of high demand, when it looked like buyers might cooperate, OPEC (the Organization of Petroleum Exporting Countries) always talked about how to gain buyer concessions, or, more plainly, leverage something for themselves. This is a normal human behavior as well as normal cartel behavior. They certainly talked about it again in 1967, when the U.S. was running close to the wire. But in 1973, Arab members of OPEC (OAPEC) decided that they wanted to leverage politics. The embargo supported Egypt against U.S. intervention for Israel in the Yom Kippur War.

In sum, the price was bound to go up—a lot—according to every free enterprise/market model we have developed. The embargo added panic and further reduced supply: it sounded like an abrupt cutoff. It wasn’t, but it was still serious enough: OAPEC reduced its crude sales 5%, and said they would reduce supply a further 5% per month. So the price didn’t correct into sky-high, it went into orbit. Or, it felt like it.

Oil companies were already trying to meet contracts and adjust world distribution. But democracies have voters. States have national security considerations. So Panic added government interference (France needs it! Britain needs it! Ship it here first! We will nationalize our oil companies!). Adjusting distribution became complicated, quickly.

In the meantime, oil companies were also out locating new supply, consistent with a period of high prices/new investment in their cycle.

The Iranian Hostage Crisis (1979)
Jimmy Carter did not nationalize our oil companies, unlike many leaders of free market economies world-wide. He did institute price controls in an effort to reduce citizen panic (politics), which was a bad idea for getting supply in (economics). He also instituted the U.S. Department of Energy—long overdue.

Carter was smart, but not ruthless. We elected him because, after Nixon, somebody harmless sounded good (politics). He was a hairsplitter at a time when we had double-digit inflation but no gasoline. World-wide, people were afraid to take chances (market perception), so the economy tanked instead of adjusting.

In 1979, Iran fell, which raised the real price of oil to refiners higher than any other event before or since, including the Oil Embargo/American Buy-Up and the fall of the Twin Towers. We had hostages there. They had a theocracy, anarchy, an anti-American leader who was not a communist—but who could tell for sure?—Ayatollah Khomeini.

Our oil companies lost significant assets (the market for energy, the insurer’s market took the hit). The U.S. froze Iranian assets in its borders (the market for money) and went to the U.N.'s judicial system, protesting the violations of international law governing embassies and ambassadors (politics). Khomeini flipped off the courts, the U.N., and the U.S. one more time. Iran started to go to hell—participating in neither international politics nor international markets. Our hostage rescue failed.

So we elected Ronald Reagan, who was inspiring and yes, ruthless for American interests (politics). He also believed, absolutely, in market-based, rather than government-based, pricing. That worked for us on the energy front. Iran released our hostages but not oil company assets. We didn’t release their assets either. But people calmed down. States with government-run oil companies and no hostages also calmed down—and—why is this?

The supplies newly located since 1973 came on-line and were distributed (economics).

We have never forgiven Carter for being who we wanted him to be. We have never had gasoline under a dollar a gallon since 1973. That’s not Carter, OAPEC, or even Khomeini. This is all demand and supply.

(Note: I have over-simplified Daniel Yergin’s great history, The Prize; Susan Strange’s far-reaching ideas in The Retreat of the State and other texts. I recommend these books. None of them is a beach read. The oil cycle theory belongs to E.L Morse at HETCO. He is also brilliant. The opinions and any inaccuracies are of course my own.)

Eight Things About the Oil Business

I wrote a thesis in this subject. So this is not a rant for any side of the question. It's my public service--trying to make educated voters.

1. There is upstream oil, that’s the well. Midstream oil is the pipeline or tanker. Downstream oil is the refinery and distribution thereafter. You mostly hear about upstream, but you have to think about each aspect if you’re considering the market.

Upstream
2. It takes four years from the time of discovery/speculation to drill down to oil on land and seven to ten or longer to drill for it offshore. That does not include a time allowance for war, politics, glaciers, alligators or boa constrictors on-site. So if an oil exploration company finds crude in outer Whazoo, we’re still not getting it right away. And during the drilling process, wars, politics, glaciers, and boa constrictors don’t go away.

3. You can’t just pump oil at any rate you like. Each well has a different pump rate. And when oil wells get old, you have to baby them. Oil wells in Eastern Iraq (and Mexico’s Cantarella Field) have been compromised through over-pumping. Repair takes a lot longer than proper maintenance. As with anything else, it costs plenty to fix what’s ruined. And sometimes repair doesn’t work.

Midstream
4. Distribution has been worked out by the oil companies to minimize costs. Therefore, most of the United States’ oil supply comes from non-Arab states. That would be 1. Canada and 2. Latin America and 3. Western Africa. Europe and Japan get most of their oil from the Persian Gulf and from Russia or other former Soviet states.

5. Because we get our oil from Latin America and West Africa, we should pay more attention to what goes on there politically, economically, and for that matter, weather-wise. To do this, you have to read British Broadcasting Corporation news articles. The U.S. news is about starlets with love problems.

6. Just because we aren’t in direct line to the Persian Gulf for oil, doesn’t mean those events don’t affect us—because—they do. (Ask anyone military.) West Africa’s crude, for instance, could easily ship to Europe for a premium price if the Arab states could not ship. Russia’s price would go up. The supply is a world supply, and a knock in one place reverberates everywhere else. As of 1973. That’s just the way it is.

Downstream
7. Worldwide distribution (tankers/pipelines) is pretty stable overall, by which I mean it corrects quickly to meet those knocks. But any local distribution is precarious: inside Iraq as it traverses ethnic divides, across Azerbaijan or Georgia when Russia is on its way in. Past poor people in hovels on its way to developed countries. This is a fact, and we need to consider it when thinking about deferred costs in our life with oil.

8. U.S. distribution is a lot more precarious than you guess. Most refineries are on the Gulf Coast. So is the nation’s Strategic Reserve. My proof is Hurricane Katrina. The issue with gasoline prices and other oil-related supply for the nation had far more to do with refineries out of production than Oil Platforms getting blown about the Gulf of Mexico. Then there is the U.S. pipeline network, also concentrated on the Gulf--and the less-networked pipelines from Western Canada to the North Central States. In the event of shortage, the further you are from the Gulf, the longer the wait for relief.

And I have at least two more posts planned on U.S. oil. I’ll do this again, inbetween other philosophies and memoirs and tales . . . .