Baseball Crank
Covering the Front and Back Pages of the Newspaper
May 30, 2008
POLITICS: Oily Mess

I've been tied up with a bunch of stuff this week, so pardon that the last few days have been slow here. We finally posted yesterday a very lengthy roundtable we had over at RedState about a week ago on high oil prices and the future of the automobile, which largely consisted of the rest of us arguing against a suggestion by Francis Cianfrocca, a/k/a blackhedd, our resident businessman. I'd highly recommend this article circulated as part of the roundtable by Paul Cella, which makes the case for methanol as the substitute fuel of the future (not to be confused with corn-based ethanol, which remains a gigantic, expensive and harmful boondoggle - more here).

I'm still reading up on whether methanol really lives up to the hype of the New Atlantis argument, but it's one of the few practical long-term solutions. Of course, more domestic oil exploration, drilling and refining is still the nearer-term (5-10 year) solution.

Posted by Baseball Crank at 9:12 AM | Politics 2008 | Comments (6) | TrackBack (0)
Comments

I did read the roundtable; it was a very interesting discussion, and of course, the implications of the energy problem are obviously serious. I haven't had a chance to read the methanol article, but it sounds promising from what was said in the discussion.

I've decided that -drilling- for oil domestically (I don't know enough about the coal-to-oil argument) is not the answer. First, it won't seem to make that much of a difference, and even if it did, I think high oil prices are exactly what we need to make alternative forms of energy more competitive.

Nuclear has to be in the mix as well, although the concerns about the supply of uranium were well-noted, as uranium seems to be concentrated in countries which don't like us.

It was also interesting to see so many Red Staters consider government solutions to the problem -taxes, tariffs, etc. There is an obvious confict between the foreign policy implications of energy, which conservatives view as a proper sphere for government action, and the business side of energy, where conservatives prefer a laissez-faire approach.

I think, ultimately, there will need to be government involvement at some point. For the moment, I like the idea of simply allowing oil prices to remain high and let some of these alternative energy technologies mature a little. If oil drops again, I wouldn't be against some mix of government policies to inflate the prices.

If methanol really proves to be an answer for automobiles and all that stands in the way is infrastructure, then the government should step in and make sure it happens.

Posted by: MVH at May 30, 2008 10:57 AM

"uranium seems to be concentrated in countries which don't like us."

Like Australia and Canada, who produce 51% of the world uranium supply?

Posted by: Joel B. at May 30, 2008 1:35 PM

I took the uranium information from the T. Boone Pickens interview, where he said:

"I think the greatest source of uranium is Russia, and they're no friend."

I thought he mentioned Iran, too, but as I reread it he was talking about oil with Iran.

If Australia and Canada have 51%, that is very good news.

Posted by: MVH at May 30, 2008 2:33 PM

Refining is generally regarded as something that would dramatically change things, but this isn't something that would depress prices all that much. To some degree, regionally (CA, AZ), but not overall. Chevron's CEO said before congress in the past week that refinery capacity is not an issue.

And take the recent utilization rate.
http://tonto.eia.doe.gov/dnav/pet/hist/mopueus2m.htm

As you can see, this has been steadily been walked down, after years of surging due to modernization (and intentionally closing refineries). This is largely from not being as profitable on the crack spread (gap between raw materials and finished). Valero, for example, knows it could walk capacity up. They just wouldn't make that much money on it, so why bother?
One year ago, they had a crack spread of roughly $25, now it's under $10. Margins aren't high enough to get the $4b+ for the plant, new pipelines, oil contracts and more.
This rate is going to stay low until crude drops, or demand surges. I'll go with demand not surging.

Here's CATO from 3 years ago.
http://www.cato.org/pub_display.php?pub_id=3792

Some states(California) could get a big boost from another refinery or two - but remember when Shell tried to close down their Bakersfield plant a couple of years ago?

Posted by: Dave at May 31, 2008 3:24 AM

Ah! One more link:
http://www.thetruthaboutcars.com/the-truth-about-high-gas-prices-or-how-i-learned-to-relax-and-pay-67-to-fill-up-my-suv/

As to domestic exploration, there is not enough to move the market. Personally, I'd save it for calamities and needing it for defense purposes. You never know when Saudia Arabia might get democracy, and a bit hostile.
Private companies (and Alaska) would get much more out of any ANWR type drilling than the average citizen.

If you want to change things, three things:
1) Eliminate the sugar tariffs, and all tariffs on ethanol
2) Strengthen the dollar by radially reforming the tax system to include a VAT and the current(simplified) taxes. Balance the budget, and drives up the personal savings rate.
Policy changes towards a strong dollar would be more effective than anything else, short of substitution.
3) Require a 50% margin on oil speculation - at least walk it up from the 7% it is at now.

As to methanol - it's interesting, but quite lethal, as well, even after being burned. The only way to start it would be for the government to step in and start a nationwide methanol (and ethanol, sure, why not) delivery system.
I have more faith in Ethanol than Methanol.

Posted by: Dave at May 31, 2008 4:03 AM

More info on methanol:

I found this report here
http://www.methanol.org/fuelcell/special/ami.pdf

This report goes into more detail about methanol than the magazine article. Of course, it was published by the American Methanol Institute, so it is hardly an unbiased source.

Nevertheless, it is clear from the report that the major auto companies are working on methanol-based fuel cells, which makes me feel a little better about the credibility of methanol as a fuel.

Posted by: MVH at June 1, 2008 11:49 AM
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