Paid for by big oil?

[LCHIEN]

... 2008 gas is not substantially different from 1922 gas. 80 years of improvement in production techniques and economies of scale SHOULD result in relatively lower gas prices for something that is essentially the same.
....

that's a vast oversimplification.
1922 gas most likely came from a land well and a formation most likely under 2000 feet deep found by following oil seeps or salt domes observable in the ground above.
2008 gas most likely came from a offshore platform, some in water over 3000 feet deep, in formations 20,000 feet below that. Sophisticated 3D seismic techniques were required to locate it, derricks located on floating ships bobbing up and down over a drill pipe with directional controlled drilling into the ocean bottom and below, productions platforms offshore, pipelines to the shore, huge piles of environmental and safety regulations and international deals. Production techniques like fracturing and injection unheard of and unimagined in 1922 are used to stimulate the wells to capture a higher percentage of whats in the ground.

It may smell the same to you but the oil prospectors (I don't think they called them petroleum engineers back then) of 1922 would be way more amazed than the driver of a 1922 auto looking at a 2008 car.

You should also note, that the expensive oil techniques I've described above are the result of international cartels setting prices. They have lots of oil they can produce at much, much lower prices, but they price oil at the marginal prices non-cartel producers have to charge due to the conditions they have to explore and produce under.

[germdoc]

I appreciate the comments of the engineers and energy industry people who are responding. (Seriously) One of the beauties of this forum is we have people with such a breadth of experience to provide their own perspectives.

Unfortunately this is a darn complicated thing. Article in today's Washington Post reiterates this: http://www.washingtonpost.com/wp-dyn...l?hpid=topnews.

I am having trouble finding sympathy for speculators. As the book says, "They neither sow nor do they reap", but they seem to drive up prices a great deal. At the gut level I just think it's wrong for people to make money by doing nothing, just bidding at the right time. Especially when we're not talking about beanie babies or silver but a vital commodity like oil. What's wrong with the old Puritan work ethic, you don't work in the field, you don't eat??

[dkerfoot]

80 years of improvement in production techniques and economies of scale SHOULD result in relatively lower gas prices for something that is essentially the same.

If true, then the same logic should apply to lumber prices, but even more so, since lumber is a renewable resource, right?

One thing we should all remember: While it is true that oil is traded as a commodity and therefore speculation does influence the price - it is in fact our consumption, and the likely continuing increase in consumption that drives the speculation.

Whether it is hog bellies, corn or oil, commodity prices are still driven by supply and demand - with some short-term fluctuations driven by emotional speculation. The price at the pump today may be caused by speculation, but supply and demand determines the average price for gas for the year 2008.

[jackellis]

I think the answer is in developing alternatives, which are available, plentiful in number and economically attractive and current world oil prices. There's a lot of momentum toward the switch to alternatives (aside from corn-based ethanol, which is economic madness) and we should start to see meaningful results soon.

I should point out that speculators are a necessary evil for efficient markets. *Most* of the time, they provide valuable services like making sure there's enough depth and liquidity to trading, limiting price swings, and standing ready to buy when others won't. Many speculators are going to lose everything they've made and perhaps more if there's a bubble and it bursts.

High prices are doing what they're supposed to do: increasing supply, reducing demand, and stimulating the development of alternatives. It's causing a huge shift in the types of autos people are buying here from large SUVs and trucks to small, very economical cars. We're in a transition period that is going to be pretty painful and cause a great deal of disruption but there are lots of smart people working their tails off to solve this and at least some of them are going to succeed. It's not fun when high gas prices are poking a hole in your wallet, but remember that for many years, the real (inflation-adjusted) price of gasoline fell and we all benefited accordingly. It's unlikely to ever be at two dollars a gallon, but it should be affordable.

To Loring's point about the cost of finding and extracting oil. A fixed drilling platform in the deepwater portion of the Gulf of Mexico can cost billions to build and many millions of dollars a month to maintain. Shell has invested something like $20 billion (with a b) to develop facilities for extracting oil in Siberia - I think the place is Sahkalin Island. Steel, engineering talent, ships to drill exploration wells, drill pipe, drilling mud - everything required to explore for and produce oil is in short supply because prices were so low until a few years ago that the manufacturers had to shrink their businesses to survive. Day rates for on-shore drilling rigs have exploded because none were built for many years and now they're very much in demand.

[RAFlorida]

I agree with Black Wallnut

about the political paths being wrote. What we don't need is issues that get bogged down with flame or terse expressions. That being said, I need to put my two cents in about the price of gass. The price has gone crazy yes, there are those gas hungry vehicles, waistfull driving, etc., and that really needs to be address. But the really sad thing is that so many Americans live from week to week pay checks. ( I know, that's their fault?). The thing I'm trying to get at is that when fuel price goes up, so does the price for bread, milk, food, medicine, and a whole host of everything else. So where does that leave 62% of the Americans with small paychecks? They are the real victims. Not the person that works and makes 50 thousand dollars or more a year. Anyway, I rant and shout like everybody else about the high cost of gas AND food, medicine, etc.

[germdoc]

I should point out that speculators are a necessary evil for efficient markets. *Most* of the time, they provide valuable services like making sure there's enough depth and liquidity to trading, limiting price swings, and standing ready to buy when others won't. Many speculators are going to lose everything they've made and perhaps more if there's a bubble and it bursts.

I'm still having trouble finding sympathy for them...

On a side note, prices everywhere are going up. What really gets me is the price of ORANGE JUICE--over $5.69 a gallon. My teenagers go through a gallon every 1-2 days. I've been trying to get them to switch to Tang or one of those flavored orange drinks without success.

[gjat]

Dude,
Don't be an orange hater. It's good for them, is better than soda, and most importantly, contributes millions to my State's tax base. In fact, you should only buy Tropicana or Florida's Best, or any juice from Florida. Say no to California and Brazillian juice, they're run by communist dog haters and I hear they put food coloring and mole urine in their juice.

[RAFlorida]

Gjat, you said it all!

About the OJ, (NOT the human oj either). All those other places put nasty stuff in their OJ, where as us Sunshine state guarantee only the BEST juice. I heard of one guy over in Lake Alfred trying to make the bad stuff from other places run his car!

[germdoc]

Dude,
Don't be an orange hater. It's good for them, is better than soda, and most importantly, contributes millions to my State's tax base. In fact, you should only buy Tropicana or Florida's Best, or any juice from Florida. Say no to California and Brazillian juice, they're run by communist dog haters and I hear they put food coloring and mole urine in their juice.

My kids won't drink anything but Tropicana. My youngest son hates pulp, so it has to be pulpless. (I love pulp myself...) They're pickier about their orange juice than anything else...

[JR]

Say no to California and Brazillian juice, they're run by communist dog haters and I hear they put food coloring and mole urine in their juice.

LOL! Our growers say that you can have the market. There is virtually zero orange crop in Orange County. About $30M in Ventura county. I guess they may still have some orange orchards in the central valley.

Now, if it's strawberrys you want...

JR

[germdoc]

Not to beat a dead horse, but yet another article on oil prices and the role of speculators:

http://www.telegraph.co.uk/money/mai...2/ccoil122.xml

The money quote is this: "Lehman's latest report - Is it a Bubble? - says commodity index funds have exploded from $70bn (Ł36bn) to $235bn since early 2006. This includes $90bn of fresh money. Energy takes the lion's share. Every $100m flow of investment money into oil lifts crude prices by 1.6pc, it said."

[gjat]

LOL! Our growers say that you can have the market. There is virtually zero orange crop in Orange County. About $30M in Ventura county. I guess they may still have some orange orchards in the central valley.

Now, if it's strawberrys you want...

JR

We have the best strawberries in the WORLD right here in Plant City, home of the Annual Strawberry Festivial and oft visited by the President of the United States (well, at least once that I know of). I'm sure RAFlorida would join me in testifying that we both know that in one of the Back to the Future movies, they fueled the Flux-Capacitor on a strawberry from California. Granted, California has the best almonds and mighty fine wine, as well as a reputation for producing fruits, but give Florida it's due. Plant City Strawberries, Central Florida Oranges, and Ruskin Tomatos are superior.


Lest you think we've strayed off-topic, that's why the Feds won't let Florida drill for oil in the Gulf. Combinining the oil rescouces with our agriculture, they're afraid we'd become the world's second super-power after succeding from the Union.

[jziegler]

LOL! Our growers say that you can have the market. There is virtually zero orange crop in Orange County. About $30M in Ventura county. I guess they may still have some orange orchards in the central valley.

Now, if it's strawberrys you want...

JR

Jersey berries ALWAYS taste better than those CA berries shipped across the country. The shipped ones are tasteless in comparison.

And to gjat, New Jersey has fine tomatoes as well. The town I live in is supposedly the first place in the new world where a tomoto was eaten publicly. Plus, where else would you get your cranberries and blueberries from?

Jim

[RAFlorida]

Once again Gjat has said what's needed saying.

The Parks' strawberry farm has some of the BEST strawberrys grown anywhere. And yes, if they started drilling for that oil off our coast, along with the wealth we earn from berries, oranges, tourism, movies, we would become the most powerful state/nation anywhere! lol
But seriously, Florida has grown leaps and bounds in the past 30 years and I for one love the expansion because it improved the economy down here. The only problem is the cose of fuel, that raises the cost for gathering the oranges, making OJ, transporting it to the store and then you, the consumer must buy gas to drive to the store to buy the OJ. My question is, where/when will the price level off. After it goes so high that the retired, the poor, the just making ends meet worker, has nothing left? They have to pawn or sell some of their furniture to buy fuel? Look at you people living up north where it cost you 300, 400, or more dollars just to stay comfortable during the winter. Should it cost THAT much? Do the math. For the past 30 years the cost of living has increased faster than some of the wage earners pay check.
As tax payers I think we as a whole can change a lot of the stuff that's gone unchecked. I know we can not correct all of this mess, but if we decided to do SOMETHING, we could make changes where changes are needed!
Enough of my rant. To you Gjat and all the rest of us great Floridians, have a great day and a better tomorrow....

[gjat]

Plus, where else would you get your cranberries and blueberries from?

Jim

Exactly why I will vote for Florida to remain a member of the Union. Plain pancakes suck.

But back on topic. Oil speculators help finance the oil industry to drill and develop new oil fields. If oil companies could not pre-sell oil before it's out of the ground, they would have to charge more to finance the development costs and would have to work on a greater than 9% margin.

It all really goes back to supply and demand. Drilling new fields will ease some supply, but the oil demand is rising due to US industry and and other developing countries such as China and India. US demand for gas has been relatively flat to negative compared to increased demands for industry. It's not about decreasing demand by ONLY decreasing auto consumption, but turning to other energy sources for industry as well. Nuclear, energy recovery from production process, more efficient power plants, developing cleaner use of coal, building our own refineries. I think it's sad that Congress and News Media is screaming about the CEO that runs EXXON gets paid $50million a year running a 100-Billion business that is 90% owned by stockholders for retirement when you compare it to Oprah who makes $70million a year running a 2 billion dollar business that owned by who??