Post Harvey Fallout on the Oil Business

[wdolson]

I spent much of my professional life in the oil business - including steam floods, and a variety of enhanced oil recovery operations. The way you described the geology - the types of oil wells- the method of fracking wells....was the best summary I have seen. Very well done.

Thanks. I guess my sister taught me well. She's a petroleum Geologist in Bakersfield. She spent a number of years at Getty before Texaco bought them.

Getty's people were experts in secondary recovery when Texaco took over. My sister told me a story of a Texaco rep telling them about the "new" secondary recovery techniques they were pioneering in Texas. After the presentation, one of the engineers pointed out that they had been doing all those things and more in California for 20 years. The two corporate cultures did not mesh well.

I think much of the pipes and pumps of the Houston infrastructure will be just fine after the flooding. What will be distracting is that the workers can't get to the pump switches - partially because they have a house/family that demands their attention more than their employers business. The recovery effort to return neighborhoods to functioning sewers and clean water and reliable power - should take priority over restarting the refineries and pipelines. The sooner the roads are cleared, and drywall is piled in the front of residences, the sooner professionals can get to the big petro complexes and do the start up. and the sooner the petro complexes start, the less Wall Street gamblers will make - so there is an incentive to hype the mechanical issues over the human issues.

True. To run any modern industrial concern requires a lot of infrastructure beyond just the stuff that's easily seen. To replace equipment that was damaged, the parts need to be brought in by road most of the time, unless the company wants to spring for a helicopter. If the roads are washed out, the trucks can't get in.

Workers need places to live, food to eat, schools for their kids, etc. If the workers are worried about their own lives, they aren't going to be concentrating on their work. Even if the company sets up temporary trailer parks, schools, and hot meal service for their employees, the overall infrastructure of the surrounding area is so badly damaged, work will be slowed down by shortages of everything. Even if the company wanted to spring for a helicopter to fly in supplies, that's impossible if all the helicopters in the area are occupied with other things.

Back in the 70s and 80s a British journalist named James Burke did some programs for the BBC and PBS. He later did a couple of series for The Learning Channel in the US. In his late 70s series Connections he did an episode on what would happen if the tech of the modern world stopped.

He examined how to survive if you lived in a major city like New York and you had to get out along with everyone else because there was no power, no food, and no water. He cataloged a string of miracles that would have to occur just to get to a farm that was in working order. And then he asked the question, "would you know how to grow food if you did get here?"

He went on to talk about the northeast blackout of 1965 and how New York went from a metropolis to a trap. The power was off overnight. The damage to Houston is different, but it's longer lasting.

Oil companies are masters at doing business in remote places. They have developed oil projects in the frozen areas of northern Alaska, the jungles of Borneo, off shore in many places around the world, etc. But first off that's oil production, most refineries are in cities or near them, and trying to get many refineries back online at the same time in an urban area that is also out of commission is a tough task.

It may all be back in record time. We can achieve amazing feats of infrastructure repair when we put our minds to it. But it won't be easy.

 

[AZ Desert Driver]

We are so interdependent and fragile. Last month, our country had focused on our differences about monuments and where our origins were based. Today, some are helping strangers survive. From hate to love after a rain storm. Perhaps we need a global storm? nah- we will return to our hateful ways just as soon as we can..History says so.

 

[kort677]

I see Wall Street buying up petroleum supplies, and hedging them to profit from the supply/demand that happens in disasters. There may be a few crooks that price gouge during the storm...but the evil ones are on Wall Street- profiting from the suffering of others. Legal, just flipping immoral .

I hate to be The one who has to inform you of the reality of how things work. This is basic supply and demand. The lessening of availability of an in demand product will always force prices higher. Would you rather have fuel at a higher price or would you rather have no supply at an artificially lower price?

 

[AZ Desert Driver]

The inventory in a gas stations tanks cost $ and was being sold for x+$0.10 before the storm. He COULD sell it at the same margin that he previously found fair. But because of the panic, he can now sell at gouging prices. He can refill his inventory after the storm at fair margins to his suppliers also, but they too sold their terminal inventory to Wall Street who increased the price due to panic. Legal- sure. Immoral - judgement call. When is it OK to take advantage of folks misery. Whenever you can? If profit is to be made, take it or someone else will?
Thats the way it is? I am not a babe in the woods...have seen many types of deals that take advantage of others. With the profits come bragging rights at being a better negotiator. Find someone over a barrel and push them into it and then brag. been there, done that and now I am having guilt pangs and recoil when I see others following that immoral path.

 

[kort677]

The inventory in a gas stations tanks cost $ and was being sold for x+$0.10 before the storm. He COULD sell it at the same margin that he previously found fair. But because of the panic, he can now sell at gouging prices. He can refill his inventory after the storm at fair margins to his suppliers also, but they too sold their terminal inventory to Wall Street who increased the price due to panic. Legal- sure. Immoral - judgement call. When is it OK to take advantage of folks misery. Whenever you can? If profit is to be made, take it or someone else will?
Thats the way it is? I am not a babe in the woods...have seen many types of deals that take advantage of others. With the profits come bragging rights at being a better negotiator. Find someone over a barrel and push them into it and then brag. been there, done that and now I am having guilt pangs and recoil when I see others following that immoral path.

Do you realize the small amount of fuel that is stored in your corner station's tanks?

 

[wdolson]

I hate to be The one who has to inform you of the reality of how things work. This is basic supply and demand. The lessening of availability of an in demand product will always force prices higher. Would you rather have fuel at a higher price or would you rather have no supply at an artificially lower price?

I know supply and demand are gospel in American capitalistic theory, but while supply and demand are real forces in the market, there are many ways to put a thumb on the scale too and history is full of them.

John Rockerfeller ended up with Standard Oil broken up into a bunch of companies because he was manipulating the oil market. People from Enron went to prison for manipulating the electricity market.

More recently as supplies from the Bakken and other North American fields came online, people were scratching their heads why oil prices didn't fall. The market was glutted with oil, yet the prices stayed high. Right after Putin went into Crimea, suddenly the price of oil dropped.

Many years ago I heard an interview with an investigative journalist who had investigated the world oil market since 1980. He found evidence that some world governments including the US in collusion with some oil companies had been manipulating the markets for political reasons.

In the 1980s, oil prices worldwide were very low for much of the decade. He found evidence that some people were losing their shirt in the spot oil market, but seemed to keep coming up with more money to keep the spot price of crude down. The goal of this was to hurt the Soviet Union which was very dependent on oil exports. The reporter had interviewed the last Soviet foreign minister who said the low price of oil contributed to the failure of the USSR.

After about 1990 until just recently, the US's biggest threat was China. China is very dependent on oil imports and the same forces that kept prices low, ran them up and kept them up to hurt China. The US also did a number of things to mess with China when they tried to make deals to secure cheaper oil in Venezuela, Iraq, and Libya.

The author predicted that the price of oil would remain high until somebody with an economy dependent on oil export like Russia did something we didn't like and needed to be taken down. Despite supplies of North America crude going way up between 2000 and 2010, the price of oil remained high until the US started sanctioning Russia for taking Crimea. Then it suddenly dropped. Coincidentally, this also hurt Iran, which the US also wants to take down.

The Saudis are one of the other countries involved and they turn the spigots on and off as needed to keep oil prices where the governments want them to be.

The low oil prices have badly hurt Russia. Its economy has shrunk to a point their GDP is smaller than Italy's. Getting oil prices back to high levels is one of the things Putin wants very badly.

Supply and demand is a factor in this sort of situation though. The supply of oil remains high, but refining capacity in the US is low. Unless the US can import enough refined gasoline to meet their needs, all the refineries being offline is going to push gas prices up across the US. That will increase the margins for those who are refining gas and/or importing it.

Some of it might be excuses, but US refining capacity hasn't increased much since the 1970s and demand has increased with the population. A few years ago I was reading that US refining capacity was right on the edge of meeting demand and just one good sized refinery being down for more than a few days would cause prices to rise across the country. As of a few years ago the US was importing most of its diesel because there wasn't enough refining capacity in this country to produce it and gasoline.

I haven't seen anything recently about the capacity situation, but i suspect it has just become worse, not better.

 

[The Peacemaker]

This is why I love Elon.