Another reason for the high cost of oil

This is a perfect example of how governments, and in particular, socialist governments, can and do destroy the viability of any wealth creating endeavor.

Look at what is really happening to oil production in nearly all of the oil producing nations and consider why the price of crude is going to continue to go through the roof. It’s a pattern that is being repeated in virtually every oil rich nation in the world. Consider the basics of oil exploration and extraction.

Exploration and discovery - It is getting more and more expensive to find new fields of oil as all the easy ones have already been discovered. Most oil fields will produce for only ten to fifteen years after which the cost of extraction increases the cost of that oil to more than the price at which it can be sold. If it costs $125.00 a barrel to extract and the going price is $115.00 a barrel, the field is shut down. Hundreds if not thousands of oil fields have already gone this way worldwide. (Of course, some of them that shut down when oil was $20.00 a barrel are being reopened like the huge fields in West Texas.) Oil exploration companies know this and are constantly searching for new fields. This costs a great deal of money, with greater and greater risk of failure. Oil exploration equipment wears out and costs a great deal to replace. These costs must come out of the profits from oil production starting with the first barrel of oil.

Extraction and transport - As oil is extracted, fields slowly give out and the cost of pumping including equipment maintenance and replacement goes up as the flow rate goes down. These costs too must be provided for out of the profits of the companies that extract and transport the petroleum.

Refining and distribution - Converting crude oil into saleable gasoline and fuel oil components is another infrastructure intensive activity necessary to turn petroleum into the end products that finally generate the money to pay for all that exploration, extraction, transport, refining and distribution. No one actually makes a dime until that fuel is finally sold to the end user. During the process from the ground to the user’s tank, around a third of the petroleum is used or lost. At every level in the process a portion of the profit must be set aside to cover not only the direct costs of the three (or six) activities, but also the maintenance and replacement of all parts of the required infrastructure from seismographs and drill heads to tankers, pipelines, delivery trucks and fuel pumps. Lose any part of the whole and the system breaks down.

Unfortunately, nearly every oil exporting nation in the world is treating their petroleum as a money tree, skimming profits for the benefit of those in power and neglecting to invest profits to feed the petroleum goose that’s laying the egg of black gold. Here’s a quote from a Newsweek article by David G. Victor on April 17, 2008 about Mexico's oil company, Pemex.

“Pemex generates two fifth's of the Mexican government's income and is a lucrative employer, but it is ailing from neglect. For years the government has milked Pemex of cash without giving it the wherewithal to invest in and develop new sources of oil. When President Felipe Calderon proposed last week to reform Pemex and encourage more private investment in oil exploration and refining, his leftist opponents shut down the country's legislature in protest. Pemex, they claimed, is a cherished national treasure that must not be pushed into private hands."

Those lefties just can’t stand to see private enterprise succeed in providing good jobs, putting people to work and taking them off of government dependency, can they?

"Mexico is hardly the only country that treats its state oil companies as ATMs for governments, unions, cronies and others who siphon the rich benefits for themselves. A large fraction of the world's oil patch is struggling with the problem that bedevils Calderon: how to make state-owned oil companies (which control about three quarters of the world's oil reserves) more effective at finding and producing oil. Venezuela's oil output is flagging. Russia's state-owned gas company, Gazprom, is on the edge of a steep decline in production. And in different ways many of the world's state-owned oil companies are struggling to keep pace with rising demand. Simply privatizing them is politically difficult, and thus most of the world's oil-rich governments are struggling to find ways to make state enterprises perform better.

“Even among state oil companies, Pemex's performance is notably poor. Used as a cash cow for the government, Pemex has never been able to keep enough of its profits to invest in exploration and better technology, the lifeblood of the best oil companies. Until a few years ago, Pemex invested essentially nothing in looking for new oil fields. It relied, instead, on the aging Cantarell field, which was discovered in the 1970s not by Pemex but by fisherman who were angry that the seeping oil was fouling their nets and assumed that Pemex was to blame. Pemex brought the massive field online with relatively simple technology. A scheme in the late 1990s extended the life of the field, but that effort has run out of steam. On the back of Cantarell's decline, total output from Pemex is sliding; some even worry that Mexico could become a net importer of oil in the next decade or two. They're probably wrong, but even the idea makes people nervous.”

Mexico is but one example of how government run industries can become so riddled with corruption. Mexico's Constitution requires that its hydrocarbons be owned by the people. This translates to their being controlled by corrupt politicians who have no incentive to make the operation generate a return on investment or even become self sustaining. The end goal of virtually all politicians seems to be to take as much money as possible from wherever it can be taken by whatever means necessary to further their political careers.

Quoting David G. Victor once more, “Part of the problem is that risk taking, which is essential to success in oil, is strongly discouraged. My colleagues at Stanford, in a study released last week, have shown that a system of tough laws that control procurement make managers wary of projects that could fail. Although such laws are designed to help stamp out corruption, a noble goal, they are administered by parts of the Mexican government that know little about the risky nature of the oil business.”

Government politicians, socialist leaders and dictators, despots of all kinds who run governments, and the vast majority of their subjects haven’t a clue how to manage any kind of business profitably. They understand virtually none of the risks of business and the risky nature of the oil business in particular. When it comes to choosing between investing profits in their enterprise to cover risks and for benefits that may come in the future or promoting their own fortunes by sticking the cash into the public’s pockets for candy and toys, you know what they’ll choose. Politicians will use it to buy votes or favor. Socialist leaders will use it to satisfy the masses. Dictators will use it to control their subjects. Despots of all kinds will use it for personal aggrandizement. Virtually all government members will use it primarily to strengthen their hold on power. The concept of investing profits back into the enterprise to cover risks or for deferred gain later is as alien to them as would be little green men from Krypton. No one from the left has the slightest clue how to run and sustain an enterprise. All they really know how to do is destroy those who do. There must be an axiom here somewhere.

Look at what the left has done to our American oil industry. First of all, they have made the entire industry the focus of constant class warfare with their hate campaigns. Next, they have prohibited exploration in virtually all of the promising areas in and around the nation. They have even prevented exploration in the Gulf of Mexico while giving the green light to our good friends in China to do so together with our other good friends in Cuba. That’s really a smart move that is certain to benefit the environment in the Gulf and keep oil spills from soiling our coasts. If the Chuck Schumers in our Congress have their way, the “obscene billions in profits” of our oil companies (actually a relatively small return on investment in the long run) will become obscene taxes in the hands of Senator Schumer and friends. Then they will have even more money to use in pork barrel projects and earmarks designed solely to buy votes to insure their reelection.

Teddy Kennedy’s “big dig” in Boston is the champion so far. The Big Dig was a project to take a pre-existing 3.5-mile (5.6 km) interstate highway and relocate it underground. It ended up costing $14.6 billion, or over $4 billion per mile. It did absolutely nothing of what it was touted to do, but it did buy Teddy and his boys a lot of votes and other more direct benefits at the expense of federal tax payers. Any private citizen who had any part in such a monstrous boondoggle would have been vilified in the press, denounced by politicians, tried in the courts and probably have ended up in jail. But because he’s liberal Democrat Teddy Kennedy he still sits in the Senate and curses others who are rank amateurs at misappropriation of public funds. And he will continue to be a champion of pork barrel projects and earmarks because he can get away with it. I guess the moral I was looking for is, Steal from a few, even a few thousand people and you will go to prison. Steal from the public treasury and if you support liberal causes, they will make you a saint. Hate campaigns and stealing public money must not bother the public much. In fact it seems to help politicians gain office. Maybe that's why there are more indicted and convicted criminals sitting in Congress than in nearly any other public group of similar size.

Thanks to the use by the left of class envy in fomenting hatred for virtually all successful businesses and industries, their friends in the media make billions by beating up on “greedy capitalists” and turning “profits” into a dirty word. They seem bent on doing to American industry what the Mexicans have done to Pemex, what Chavez is doing to the Venezuelan oil industry, and what the Russians are doing to theirs. That’s certainly strangling the goose that’s laying the golden eggs all because it's infinitely easier to destroy than to build. It amazes me that so many people will actually cut their own throats to spite those who have achieved more than they just because it’s easy. The joy that small children seem to express by destroying sand castles and other things built painstakingly by careful hands seems natural and we usually laugh at such antics. Sadly, unscrupulous leaders whip this tendency into a political force for destruction when those children become adults without the wherewithal to build and create for themselves.

Violence is the province of those who lack: the patience to build and create, the will to control their envy, the intellect to understand the real world and the love to control their hatred. It takes skill, caring, determination, intelligence, and time to learn how to build and create anything of value. None of these are required to destroy that which we cannot equal. A classic example is the soldier who slaughtered Archimedes simply because he couldn’t understand what the symbols drawn in the sand by Archimedes represented. Other examples include Czech Jan Hus (burned at the stake), the thousands killed by the Inquisition, the imprisonment of Gallileo and others like him, the demolition of ancient Buddhist statues by the Taliban, even the current flush of terrorism. All of these represent the temporary triumph of intolerance and ignorance over reason, usually through force of violence.

Lemons and Lemonade

I have read Michelle Obama’s Princeton theses in light of the controversy it interjected into the campaign and the attention all kinds of media have given it. Considering its source, I see nothing radical, dangerous, or even very controversial in it. I see it as a very normal expression of a young, intelligent black woman in the America of 1985. I think there is a way for the average American to understand it in the broad American culture rather than in the black culture segment within that broader culture from whence it originated. Merely replace each word white in the thesis with the word, American or even, non black wherever it refers to race and it becomes much more understandable.

America has assimilated many different ethnic and racial subgroups over the years. Many of these had to fight their way through prejudice and bigotry to become truly integrated into the American melting-pot. Yet even many of these still maintain at least part of their heritage and their culture. Many live in neighborhoods or even cities where they are with mostly others of their own ethnic background, often bound by language which tends to isolate them. In these circumstances, natural as they are, it becomes easy and convenient to blame those outsiders for many of the individual’s and the group’s problems. Successful members of these groups may even use the overcoming of these often imagined problems as their means to success. Unfortunately it is far easier to succumb to the temptation to blame others other than engage in the hard work of overcoming these problems in a positive manner.

There are many groups who have actually done this in America. Nationalities like the Irish, Italians, Germans and other Europeans faced with terrible discrimination and bigotry at first, then overcame it and became integrated into America, at least mostly. Of course, these were all white or Caucasian people and thus more easily integrated. I think you would find that those immigrants who came to our shores in the late nineteenth and early twentieth centuries did not see it as very easy. Look at the non Caucasian immigrants from China, Korea, Viet Nam, Cambodia, The Phillippines and elsewhere on the Pacific rim. Still in the process of integration, many of these people became highly educated and successful, some say driven by cultures that prize education, family continuity and self reliance. Few of these people used discrimination as an excuse for poor performance.

The latest cultural, ethnic invasion of America by Latinos may be creating another group to use the excuse of being denied advantages by those in the majority. This is an easy trap for those who lack the will to succeed on their own to fall into. Blaming the powerful in any venue, social, economic, ethnic, racial, and/or political, as the reason for one’s failure absolves a person from any fault. The blame game has been taken to the heights of excusing one’s own failure. Whether it’s big business, big government, the boss, the wealthy, or even Whitey, it’s the same lame and actually damaging effect. It actually keeps many so-called disadvantaged people from solving their own problems. After all, Since I am not the cause of my problems, I cannot do anything about them. As long as a person can blame those other than themselves, they have an excuse for failure in virtually any endeavor.

Misdirected and often unscrupulous leaders of these groups gather support by keeping their constituents downtrodden and so beholden to them. By virtually screaming discrimination or conspiracy and anti establishment rhetoric at every opportunity, these hate mongers and rabble rousers promote themselves and seek to control their followers. They do this by blaming the group they call oppressors, of an evil conspiracy against the helpless victims in their supporting groups. Then they call these imagined oppressors every evil name in the book as if most of their efforts were directed specifically to oppress them. This of course is right out of the NAZI play book.

All actions of these leaders, no matter how evil or outlandish is condoned or excused with, it wasn’t their fault, or look where they came from. While the best known of these leaders are currently from the Black community, there are a number in the Latino community who seem to be growing in power and influence. Currently, the reverend Wright has gained the spotlight because of these actions, but he is merely one of a large group of destroyers who spout hate to rally their supporters. These are small people who take advantage of the ignorance and frustration of those they seek to lead in promoting their own agenda of hate. The lynch mob is their most prominent accomplishment. The really sad thing is that these leaders not only do great damage to those they purport to be aiding, but they help advance the efforts of their counterparts in the other groups. White supremacists, for instance, gain much credence from those leaders in minority groups who speak out with inciting, hateful charges against whites. Were it not for these minority leaders, white supremacists would have no more power than a distasteful joke.

Frequently, when members, even famous and admired members, of these disadvantaged minorities try to help their fellows by pointing out that they have the power to overcome being at a disadvantage. That by self reliance, hard work and positive effort on their part they can pull themselves up economically and socially. Even when they offer encouragement by example, effort, or pointing out that positive effort is more likely to get positive results than negative effort, they risk being condemned by many in their community to whom being a victim is their greatest asset. I illustrate with one example where all I need do is mention the name of one who is greatly admired by virtually all Americans, Bill Cosby. The response to his words of encouraging advice to his fellows was to be called by many an Uncle Tom. That was pathetic. Like the name calling done in third grade playgrounds it was childish and unworthy. His response to this attack was an indication of his greatness and humanity.

In his book, The True Believer, Eric Hoffer describes men who think so little of themselves they can only gain self-esteem by abandoning self to a cause. These true believers, as he calls them, will do anything, including committing suicide, for their cause. Following their leaders who enslave them to serve the leader’s own and often undefined purpose, these are not men of free will, but true slaves of those who manipulate them. Such is the enemy free men now face.

Man has a natural instinct for enslavement. All great and small movements utilize this pack animal instinct to control masses of people as tools of opportunistic leaders. Humanitarian civilization tends to counter this instinct while mobs, movements, charismatic leaders, and fundamentalists tend to nurture and expand it.

The real power in mobs, movements, fundamentalism, and other uses of instincts to control lies in a very simple, irrefutable fact—that it is infinitely easier to damage or destroy to change things than to build or create. Only the most rudimentary skills were used by a few men to bring down the World Trade Center in just a few minutes. Contrast this with the immense effort required to design and build those same structures. In the same vein, it is far easier to make angry criticisms of ideas that differ from your own than to listen to those ideas and then make calculated judgments. Closed minds can be true agents of evil.

Of those controllable by such leaders, Eric Hoffer wrote, “People unfit for freedom—who cannot do much with it—are hungry for power. The desire for freedom is an attribute of a have type of self. It says: leave me alone and I shall grow, learn, and realize my capacities. The desire for power is basically an attribute of a have not type of self.”

What is needed is for these kinds of men in any group or society to be treated for what they are, immature annoyances to society serving their own egos for their own selfish purposes. There are many of these types of leaders. Most common today are those leading the inner city gangs in the drug culture and living off of the misery of others. These are the little Napoleons with maybe a few dozen soldiers who create and destroy victims and whose lives are almost always short and violent. The romantic picture of these contemporary pirates as portrayed by our entertainment world is a far cry from the sordid realities of their lives and those of the victims of their actions. In truth these are the marauding packs of humans like feral dogs, bent on destruction and death. Why? Simply because it is far easier than being civilized. Civilization requires hard work and respect for others. Gang life disdains both as does the life of any who are slaves to the command of others rather than free men.

Benjamin Franklin said, “Those who desire to give up freedom in order to gain security will not have, nor do they deserve, either one.”

James Allen said, “Before complaining that you are a slave to another, be sure that you are not a slave to self. Look within;...You will find there, perchance, slavish thoughts, slavish desires, and in your daily life and conduct slavish habits. Conquer these; cease to be a slave to self, and no man will have the power to enslave you.”

What all of this says is that many people, placed at a disadvantage by any circumstance, will blame something outside of self and so be defeated from the outset. Those who realize it is up to them and so work to overcome their disadvantage often reach heights of success in spite of overwhelming handicaps. Joni Erickson Tada is one great example. Paralyzed by a diving accident at seventeen, her life was virtually over. Joni refused to be defeated and with herculean effort refocused her life and became an inspiration to thousands of handicapped people all over the world. Her books are now sold all over the world and her positive contribution to humanity is priceless.

I am reminded of an old saying I really like and try to act on. If life hands you a lemon, make lemonade. I firmly believe life has handed a lemon to many out there, but most just decry about and fight the lemon while a few add their own form of sugar, ice and water creating a delightful beverage. The individual has the power to chose between bitterness and joy.