Energy Politics

Iraq may have up to an $80 billion surplus this year due to oil revenues, despite only contributing minimally to the country’s rebuilding efforts. Jack Cafferty over at CNN states what’s running through many people’s minds, namely that Iraq start footing more of the financial bill of rebuilding.

So far, the U.S. has spent $700 billion on Iraq since 2003. Fair enough, we went over and broke some stuff, it’s only fair that we fix it. But since Iraq is a country rich in natural resources, and it’s becoming increasingly clearer that the U.S. isn’t going to be in the country forever, it’s only fair that we expect them to increase their payments.

And in fairness again, the Iraqis are planning to increase their social spending on hospitals, airports, and renovation of Baghdad. Hopefully they’ll throw in some money toward renovating their oil production as well, and get those numbers back up to pre-invasion figures. If we get anything else out of this war besides a stable, democracy-friendly nation right in the heart of the Middle East, it certainly wouldn’t hurt to increase the world’s spare capacity either.

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

Presidential candidate Barack Obama is backing limited offshore drilling and tapping reserves, which I suppose is a step in the right direction for him. But he’s pulling out that old political chestnut that he can get us off of foreign oil supplies in 10 years.

If this sounds familiar, it’s because Obama’s voter friendly rhetoric is the same well-meaning promise that every president since Richard Nixon has promised since the 1970. It certainly plays to our national myths of self-stability, but not to the realities of a country that has 300 million citizens, many of which rely on automobiles both for personal transportation but also for delivery of goods and services.

With money we spend on oil being funneled to terrorists and other political extremists in the Middle East as well as our own hemisphere, it certainly is a noble goal to limit capital access to people who want to kill us, or at the very least overthrow our system and replace it with something straight out of Dark Ages. But it’s an empty promise. We need oil too much. Our own oil reserves are too small to sustain us, and all the easy-to-get-to oil proved reserves in friendly countries are too small. It’s a sad fact of life that most of the world’s crude lies in countries who don’t favor democracy or the free market,  and we have to deal with that.

So if you want to believe Obama when he says we can get off of oil in 10 years, fine. I’m sure McCain will be making that same argument soon, if he hasn’t already. I suppose if it were going to happen, it might be now, with all the added emphasis on energy conservation and seeking out viable alternative fuels. But odds are it’s just as reliable as George H. W. Bush’s promises that involved reading his lips. You know how that turned out.

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

Scanning the internet, I came across this odd website devoted to discussing the world after the oil crash. Now, apart from the usual defeatist rants about how production can never increase, we’re already in post-peak and that we’ll enter wars for the last drops, the site seems like it was designed to hawk a bunch of post-apocalyptic survival guides.

Really!  You may be interested in “The Urban Homestead,” which happily teaches you how to turn your home into a survival center. Or you can buy one of the solar panels that will no doubt power all the electrical devices that will no longer be produced following society’s breakdown. Hey, where’s the guide for showing you how to set up defensive positions to defend your home from the marauding gangs of pillagers who will control the highways after society’s collapse?

Oh wait, they have those too. Darn.

The site seems to be well-linked, referencing several mainstream news stories to support its bleak view. Still, I’m not quite ready to start tricking out my car with machine gun turrets and other “Mad Max” junkyard chic just yet. Something about this site just seems rather frightful. Not as frightful as the idea of Tom Laughlin still trying to make another “Billy Jack” movie, but frightful just the same. I know that movies like “No Blade of Grass,” “A Boy and His Dog” and “The Quiet Earth” play to our fears that the end of the world is just a heartbeat away, but how many times in history has man risen to the occassion and found a solution to a major dilemma?

There’s still great challenges to overcome. Websites like these have already thrown in the towel and are patiently awaiting the vermin inheriting the Earth.

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

Disband your lynch mob and stop burning stock traders in effigy, because a motion in the House of Representatives to punish energy speculators has just failed.

But just barely. Opponents House blocked the bill, which achieved 276-151, only nine votes short of passing. A similar bill in the Senate is also stalled, since Republicans are trying to add language that encourages drilling in areas currently restricted by federal law.

Oil prices jumped up $5 today, based on increased gasoline usage. If prices are swinging back upward, the Senate bill might get new legs. But if prices are sliding back down again, we can expect some of the extremes to die down, for now anyway.

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

You might think that I’m going to blog today about the fact that oil prices are at a six-week low. But no, I wanted to address something that offended me instead. It seems that one of the homes built on the reality show “Extreme Makeover: Home Edition” is being foreclosed on because the owners rather stupidly borrowed a loan against it.

The home, valued at approximately $450,000 and provided to the family for free, is now another victim of bad loans in this economy. Now, you might be wondering why I’m talking about this here, but the thing that forced my hand is that I think it reflects one of the basic flaws of our society: we encourage dangerous investment habits and try to reward short-sightedness for being “bold” and “exciting.”

Case in point: part of the reason why we have such a wishy-washy economy at the moment is because all these subprime loans are coming back to haunt us. People getting involved in high-risk investments and acting like they could treat them with disdain.

Now, you would think the people in this Extreme Makeover would have learned their lesson. These are people who had just won the cosmic lottery: a brand-new house with all bills paid, plus bonus goodies like college funds for their kids and a maintenance fund.

So they take out a loan against their house to start a construction business. Which is already a high-risk industry to begin with, but come on, these people just got greedy. Who needs $450,000 for a small start-up business? These people were greedy and wanted something successful right out of the starting gate. The problem is you don’t always get to make a profit immediately. It takes years to build a business, forge relationships, drum up sales.

Some people might show sympathy for the poor Harpers. Not me. As far as I’m concerned, it’s their own fault for not leaving themselves an out. And I think Lake City mayor Willie Oswalt, who helped construct part of the house, said it best:

“It’s aggravating. It just makes you mad. You do that much work, and they just squander it.”

So  what’s the moral to all of this? I think it’s a few things.

1. If you get some major windfall, BE GRATEFUL FOR IT FOR THE REST OF YOUR LIFE. Don’t treat any major obstacles in your life as just some temporary setback that you can forget once you overcome them. It’s called experience people, use it.

2. Some people don’t appreciate a free gift. This Harper family got such a gift, and they ruined it. A free house and enough money to pay the taxes on it for 25 years. What do they do? Take out a very risky loan against the house. Bad financial planning is what got them into their old, bad house to begin with. Coming from the Brooklyn projects, they moved into a house outside Atlanta with a bunch of problems. They seriously should have learned from that experience not to rush into things and think things through before they act. But once they had a house, they treated it with disdain. That’s like being a smoker and getting a lung transplant, and then returning to smoking once afterward.

3. You can be good people and still make dumb decisions. The Harpers had a sympathetic story where their two-year-old son died because an ambulance didn’t reach the house in time. They worked hard to make enough money to move out of their home. Okay, fair enough. But they bought a house where the septic tank overflowed and flooded the house with fecal matter. Things got worse, until Extreme Makeovers came to the rescue! And the rest is history. Look, I’m sure they had rough lives. But that doesn’t excuse bad planning.

I end this blog with another bit of bad news: Bennigan’s, one of my favorite casual dining food chains, has declare bankruptcy. Why? Because they insisted on cutting corners in food quality while trying to stick it to their customers and raise prices. They got greedy, and now they’re going to be out of business. I mention this not just because I love their chicken fingers and fries, but because it ties in not just with the Harper’s story but with one of my country’s core problems. Making stupid business decisions without thinking through the long-term ramifications of such.

Adjustable rate home loans? Sure! The interest rate is never going to go up! Subprime buyers are a great untapped market, and people are entitled to their own homes! A construction business? Yes! It’s like printing our own money! We’ll just use the house as collateral! We didn’t pay for the thing in the first place, so who cares?

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

Once again, oil supplies in Nigeria have been disrupted due to militant attacks. Rebels destroyed part of an oil pipeline today, sending prices up $1.47.

What this group wants is ultimately irrelevant. But the real issue here is how seriously we should be taking oil as a national security issue. If we have reached the point where spare capacity is stretched so thin that a temporary setback like a pipeline attack can affect oil prices. we have to ask just how safe oil production is in some countries, and how safe it should be.

Which is why I’m curious if the U.S. military should declare high-risk oil zones like the Nigerian Delta to be free-fire zones where terrorists, kidnappers and militants are to be be violently engaged. I’m not certain if this would solve the problem or enflame it, forcing random attacks to evolve into more creative and long-running violence campaigns. Like von Clauswitz said, “Never engage the enemy for too long, or you allow them to adapt to your tactics.”

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

I wanted to add an addendum to yesterday’s post. It seems there’s more news concerning high fuel prices’ effects on driving.  A  study  by the University of Alabama and Harvard Medical School shows a decline in fatal traffic accidents of 2.3% was found for every 10% increase in gas prices.

Just for teenagers, a 10% increase in prices drops fatalities by 6%. Teens seem more likely to drive dangerously due to either inexperience or just raging hormones, which suddenly seems to dry up when driving is cutting into a larger portion of one’s budget.

The articles adds, “There is also clear evidence that Americans drive bigger cars when the price of gasoline is low, and smaller cars when the price goes up; a statistic that is not surprising at all considering the current brisk sales of hybrids and small, fuel-efficient cars.”

Which means that not only are people driving safer, they’re also driving safer vehicles. If you’re in a car, you’re much more likely to survive a collision if you crash into another car as opposed to being smashed by a monster-sized SUV.  With less people being able to afford vehicles that only get 10 mpg, we’ll see less fatalities even if the number of accidents remains consistent simply because the vehicles involved in collisions will be smaller and not able to create as much damage.

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

As you grumble to yourself while filling up your tank, at least take this to heart: driving fatalities have dropped since oil prices have increased.

There was a 9% decrease nationwide in traffic deaths from January through May compared to the same period last year. This includes an 18% drop in deaths in March 2008 compared to March 2007. At least 31 states have had a decrease in deaths during the first half of the year of at least 10%, with some claiming to have seen a drop of 20%. Only a handful of states have actually increased their driving deaths compared to the same time last year.

Now of course, the state governments want you to think it’s a fallacy to believe that less speeding, aggressive driving and overall time on the road is the cause of less deaths. No, the government is to thank for this, with police officers pursuing more speeders and drunk drivers, teen-licensing programs and safer vehicles.

I’m sorry guys, but THAT’s the fallacy. People don’t break driving laws out of ignorance. No sane person actually believes it’s perfectly okay to cut people off, drive drunk, ram another vehicle or drive 20mph over the posted speed limit. People do those things because they think they won’t get caught, or they don’t care how their actions may affect other people. Human behavior dictates that there’s always extenuating circumstances to skirt the rules, usually when it benefits the person justifying this behavior.

Which means when gas is cheap and plentiful, people are less likely to be concerned about how their driving habits are affecting their fuel economy, let alone the safety of their fellow drivers. But when they have to pay $4 a gallon, suddenly every drop of gasoline is sacred.  You’re less likely to get sideswiped by some idiot running a red light at supersonic speeds when fuel prices are high, because less people can afford to be burning up all that gas.

I would love to believe that people are driving safer out of the kindness of their heart, but I know better. As sad as it is to admit it, just as selfishness causes accidents to happen when people drive carelessly, selfishness about paying for fuel is likewise keeping people safer when they can’t afford to be racing to every red light.

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

With a hatred usually reserved only for the boogeyman or Lindsay Lohan movies, the U.S. Senate has set its sights on energy traders accused of driving up oil prices with a new bill aimed at cracking down on excessive oil speculation.

The bill is being championed by Senate Democrats to try to get record oil prices under control. However, they face opposition from Senate Republicans, who argue that the bill should also open up offshore oil production currently banned by federal law. They argue that by just focusing on speculators, the bill will fail to fix the supply and demand problems that are also affecting oil prices. The Democrats counter that E&Ps already have access to enough federal lands to accomodate production needs.

However, if you’re looking for radical changes in any kind of policy, you might as well keep looking. Democrats only hold a slight majority in the Senate, which means both parties have enough voting power to halt any policies brought up by the other side. And since Democrats and Republicans seem to have fundamentally different views on what is causing high oil prices, we’re unlikely to see any definitive laws be enacted unless they’re severely watered down to the point that they do nothing.

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

It’s funny how little it takes people to compromise their values just to have a quick fix solution. Hugo Chavez, the lovable dictator from Venezuela, has decided to grant the citizens of New Hampshire some free heating oil to help them out this winter.

Two years ago, New Hampshirites turned down Chavez flatly. However, skyrocketing fuel costs have concerned residents and now they’re willing to throw in their hat with the pudgy socialist.

Back in 2006, New Hampshire Senator John Sununu called the offer it a “disgrace” and an attempt at grandstanding by Chavez. However, other New England states have embraced the offer, with New Hampshire remaining the last holdout in the upper Northeast. Today’s agreement brings an end to that. Even Sununu, who is still a critic of Chavez, said he is in favor of programs such as the one Chavez offers.

You know, we Americans are a fickle bunch. We thrive on stories about the American Way Of Life, the American Dream, freedoms to prosper and the such. But at the first sign of trouble, the first pinprick that bursts the protective bubbles we’ve made for ourselves, we become willing to throw in our lot with snake oil salesmen like Chavez.

Six million people in New England rely on heating oil for the winter months, so that’s a lot of people willing to get a break. But at what price? Is going through times of extreme effects of the economy the price we have to pay for living in a free society? I would think yes. But really, this is just a bad response to rising oil prices.

So, how much cognitive dissonance do you have, New Englanders? I’m sure plenty of the traditionally blue states up there love Chavez calling President Bush “the devil” and such, but do you really want to increase diplomatic relations with a country run by a man who recently tried to resurrect Hitler’s thought police policies?

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com