Double, double, oil and trouble

(Photo: An explorer at work in Hoima, from

Epic quest for oil in Uganda, by Francis Mugerwa, no photo credit)

Let's face it, short term predictions about oil prices, supply, and demand are one of two things: simple because you presume a straight line, or bullshit either because something in the world changed that you didn't/couldn't account for or because the short term is too short to be useful. And long term, they're easy -- eventually prices get high and both supply and demand drop. Of course, exactly when "eventually" is does remain a question.

With the exception of the Saudis and a few dead-enders, everyone accepts that an extraction peak is coming. Whether that peak is recently past, coming soon, or a decade or two out is still a legitimate subject for debate (although that last is most unlikely, I think). Similarly, almost everyone expects a continuing worldwide increase in demand, especially from India and China.

But right now, we are riding a delicate balance between reduced demand (caused largely by the economic downturn) and at-best-stable supply. Prices are a far cry from the $147 we saw or the historical $20, but have been reasonably stable between $70 and $80 for some time. I've said before that I don't see long-term $40 oil again, and I don't see any reason to change that. Unless we make substantial changes, economic recovery will drive demand for oil, which will drive prices, which will reduce recovery, and the cycle will continue. Our ways out are limited: reduce demand (through conservation, efficiency, and alternatives) or discover a new way to increase supply (through exploration and improved extraction technology). The first is under our control, the second less so. Unfortunately, we seem determined to avoid conservation and alternatives on a large scale. If we fail to address the fundamentally unstable close match between oil supply and demand* we will continue to follow this sort of cycle.

* Economics says that supply and demand curves cross and that cross is a stable market price for a good. But classical economics doesn't say a lot about the dynamics of that process. We know it's not instantaneous. We also know that the assumptions behind classic supply/demand curves are not necessarily valid in the real world (the whole concept of peak oil denies the assumption that rising prices will continuously raise supply).

Signs of Declining Extraction Rates

ExxonMobil Extends Life of Texas Field (2010.01.14):

ExxonMobil announced it will recover an additional 40 million barrels of oil at the Hawkins Field in northeast Texas, equal to the annual energy needs of more than one million Texas households.

The project will extend the life of the field, discovered by the oil giant in 1940, for an additional 25 years. Though a small part of ExxonMobil's reserves the extension of life for such a mature oil feed is at least some evidence that new technologies can help push back the reckoning of the world's "peak oil" moment.

This is a 70 year old field, so it's no surprise that extraction rates are low. What's interesting is that ExxonMobil is willing to spend a lot of money to extract another relatively paltry 40 million barrels (a bit over two months US demand) over 25 years when they could spend that money elsewhere.

Maybe there's no where else for them to spend it?

Aramco to inject CO2 into biggest oilfield by 2012 (2010.02.15):

State oil giant Saudi Aramco plans to inject carbon dioxide into the world's biggest oilfield by 2010, a year ahead of previous plans, a government official said on Monday.

The giant field Ghawar pumped 5 million barrels per day (bpd) in 2008, more than half of top oil exporter Saudi Arabia's output. The kingdom announced plans last year for a pilot project to pump the climate-warming gas into the field to both improve production and reduce emissions.
...
The kingdom plans to inject 40 million standard cubic feet per day (cfd) of CO2 into the field, and has said this is part of the global push to trap emissions rather than because it needs to enhance oil recovery from the field.

Saudi Arabia is famous for being close-mouthed about their level of reserves, and is widely suspected (as are most OPEC members) of inflating their reserves, because OPEC allocates extraction quotas partly based upon reserves. Although Saudi Aramco claims that injecting CO2 is "part of the global push to trap emissions rather than ... to enhance oil recovery", there's no question that gas injection will increase extraction. Gas injection is considered a "secondary recovery" technology.

Sign of declining discovery

One of the Largest Oil Discoveries in 20 Years (2010.02.08):

One tally pegged the Giraffe field -- anyone want to guess how they came up with that name? -- at some 400 million barrels. Heritage's CFO, however, suggested that the wider "Giraffe-Buffalo" field, which encompasses some 3,420 square miles, could contain several billion gallons of crude.

The find is the largest in Sub-Saharan Africa in at least the past 20 years. Previously, the largest onshore fields discovered in sub-Saharan Africa were at Rabi-Kounga in Gabon, where 900 million barrels were found in 1985, and at Kome in Chad, where 485 million barrels were found in 1977.

Four hundred million barrels of oil is about 22 months of US demand and less than 5 days of worldwide demand. The suggestion that the Giraffe-Buffalo field might contain several billion gallons has no real basis -- it's essentially a marketing claim and it does not suggest reserves (which depend upon recovery rate) but total oil in place.

Peaking? Duck!

World Oil Capacity to Peak in 2010 Says Petrobras CEO (2010.02.04):

Gabrielli states in his presentation that the world needs oil volumes the equivalent of one Saudi Arabia every two years to offset future world oil decline rates.

Gabrielli shows world oil capacity peaking in 2010 as shown in the translated version of his chart below. He shows historical world oil production to 2008. Next, he applies a decline rate of 5% per year to existing production represented by the lower light blue area. He then forecasts capacity additions from sanctioned projects estimated from Wood MacKenzie's Global Oil Supply Tool. These oil capacity additions are in four categories: OPEC new projects, OPEC expansion projects, non-OPEC new projects and non-OPEC expansion projects. In 2010 the biggest contributor is OPEC expansion projects which includes about 1.3 mbd from Khurais and 0.8 mbd from Khursaniyah. These additions include both crude oil and natural gas liquids and are sourced from Saudi Arabia's official statements which lack independent verification.

Have we reached peak oil? (2010.01.18):

2009 was a banner year for oil discoveries, with a lot of headlines being generated by finds in Brazil and the deep waters of the Gulf of Mexico. In fact, we saw discoveries on the order of 10 billion barrels of reserves, the highest rate since 2000 when the giant Kashagan field in Kazakhstan was discovered. However, the world is consuming around 83 million barrels a day, which equates to 31 billion barrels a year. So even in this banner year, we are barely replacing one third of the oil we consume.

...

When you look back at the East Texas oil boom early last century, oil wells were being drilled a few hundred feet deep. In the deserts of Saudi Arabia and Iraq, giant oil fields are so close to the surface that you could practically stick a straw in the ground and strike oil. These big, easy finds were relatively inexpensive to develop.

But check out where we're looking now: The latest Gulf of Mexico discovery, Tiber, is a well drilled to a depth of 35,000 feet and lies beneath 4,000 feet of water. Think about that; the well is a mile deeper than Mount Everest is tall. It will likely take 7–10 years before this discovery produces anything. While this is a significant discovery, it certainly isn't cheap oil.

...

Let's put oil-field declines in context. World oil production is roughly 83 million barrels per day. Various estimates place the underlying global decline rate somewhere between 4% and 8% per year. That means that each year we have to add about five million barrels of new production to keep production flat. Step five years out, and we have to replace 25 mb/d of production, or about three times Saudi Arabia's current production. That's a lot of new wells that need to be started just to offset declines.

Plus, this does not account for any growth in oil consumption. Absent global recessions, underlying oil demand is increasing by about 1% per year. This means that five years out we'd need another 5 million barrels of oil per day just to keep the current equilibrium. Frankly, we're not certain that we'll be able to reach that level of production.

Saudi Arabia preparing for oil demand to peak (2010.02.15):

A top Saudi energy official expressed serious concern Monday that world oil demand could peak in the next decade and said his country was preparing for that eventuality by diversifying its economic base.

...

Al-Sabban said the potential that world oil demand had peaked, or would peak soon, was an "alarm that we need to take more seriously" as Saudi charts a course for greater economic diversification.

"We cannot stay put and say 'well, this is something that will happen anyway," al-Sabban said at the Jeddah Economic Forum. The "world cannot wait for us before we are forced to adapt to the reality of lower and lower oil revenues," he added later.

Some experts have argued that demand for oil, the chief export for Saudi Arabia and the vast majority of other Gulf Arab nations, has already peaked. Others say consumption will plateau soon, particularly in developed nations that are pushing for greater reliance on renewable energy sources.

Saudis say don't worry about peak oil (2010.01.28):

There is still plenty of oil in the ground and the world should put aside fears about "peak oil", the head of the Saudi state oil firm Saudi Aramco said on Thursday.

Of course, the Saudis could have no possible reason for encouraging the world to continue to guzzle oil like there's no tomorrow. In all seriousness, as noted above, the Saudis have incentive to inflate their reserves, and no incentive at all to encourage the world to switch from petroleum to alternative energy sources.

Peak Production vs. Oil Price (2010.02.05):

Let me begin with the narrative that all of my energy economics students must know perfectly after my second lecture. The Russian oil output is probably close to peaking, and in any event the director of one of the largest Russian firms says that his country will never produce more than 10 million barrels per day (= 10mb/d). This number may be slightly wrong, but it happens to be one-tenth of the amount (= 100 mb/d) that the present CEO of Total (the French oil major) says is the absolute maximum for world production. (Another Total executive recently suggested 95 mb/d).

If this is not sufficient, consider the following. The discovery of what we think of as conventional oil peaked in 1965. In the early 1980s the annual consumption of oil became larger than the annual discovery, and at the present time only about 1 barrel of (conventional or near-conventional) oil is discovered for every 3 consumed. According to a BP (BP) document, of 54 producing nations only 14 still show increasing production. 30 are past peak output, while output rates are declining in 10.

Non-OPEC countries produce 60% of world oil, and that output has peaked. It is also my opinion that while Russia may not join OPEC – or be allowed to join – it will go along with OPEC’s production agenda. OPEC is the arbiter of the world oil economy today and in the future, although that topic is too complex to be taken up in this note. Output in the U.S. peaked in 1970 at 9.5 mb/d, and production turned up when the giant Prudhoe field in Alaska came on line, but the previous peak was never attained. Instead the new peak was 7.5 mb/d. Today it is less than 6 mb/d, and steadily falling. North Sea oil (Norway + UK) peaked just before the end of the 20th century, and the super-giant Cantarell Field in Mexico – the third largest in the world – peaked slightly before that. Its decline is steeper than students of Mexican oil could possibly have expected.

Roughly two years ago the Saudi oil minister stated that his country would soon be producing 15 mb/d of oil in the not too distant future, and that output could be held for 50 years, but Saudi production has almost certainly peaked at less than 10 mb/d, despite what appears to be exceptional efforts to raise it to 10 mb/d after about 2005. Of course, as far as I am concerned, it does not make any difference what an oil minister or foreign oil expert says about Saudi intentions. Thirty years ago or so it was decided that (sustainable) Saudi production would never exceed 10 mb/d, although a surge output of 2 mb/d might be made available.

Whither Prices?

Gasoline Prices Revisited (2010.01.13):

It has been 18 months since we all worried very much about high oil prices. Starting in July 2008 gasoline prices took an historic plunge dropping from a U.S. average high of $4.11 a gallon all the way down to $1.70 in January 2009.

In retrospect this price drop was a good thing for it did more to slow the downward spiraling recession than most people realized. In the last 12 months however, the situation has reversed and the average price for gasoline is pushing $2.80 a gallon. An increasing number of commentators are starting to talk of the return of $100 oil and $3+ gasoline.

...

There are numerous factors that will affect the balance of forces determining gasoline prices six months from now - the economic situation in the OECD nations, the pace of economic growth in China, India, and several other Asian countries, the stability of the U.S. dollar, the weather, stability of Iran, and perhaps even an OPEC decision to increase oil production if prices get too high.

While it is difficult to foresee clearly the interaction of all these factors, the conventional thinking is that U.S. and OECD oil consumption will remain flat, the Saudis will continue to withhold a couple of million barrels a day (b/d) from the markets, and China will continue to grow rapidly in 2010. Many believe the Chinese are coming up on a massive real estate bubble-burst one of these days, but this still seems to be a couple of years away and is unlikely to have much to do with gas prices next July.

...

Perhaps the most important of these are the announced plans of the U.S. Federal Reserve and Treasury to stop supporting the financial industry, the housing industry, low interest rates, and whatever else they are overtly or covertly subsidizing by the 1st of April. The idea would be to let the U.S. economy try to stand on its own feet prior to the November mid-term elections without the help of hundreds of billions in government subsidies. Whether this plan actually comes to pass is problematic, another couple of months worth of bad economic news may lead to a decision to continue the programs.

The greatest danger from hasty removal of government intervention is the likelihood that interest rates will increase substantially and that the U.S. dollar will fall thereby sending dollar-denominated oil prices higher no matter what happens to supply and demand.

At the minute, a substantial drop in oil prices in the next six months seems unlikely without a major untoward development. Shortages from insufficient global oil production are still a few years away, so for the time being the value of the dollar and the demand for oil will be the controlling factors. A Chinese economic meltdown still seems to be some years off. A better bet is the collapse of the U.S. equities markets which have been disconnected from reality for the past nine months.

We are already getting some numbers showing that the demand for gasoline in the U.S. is slowly dropping - this probably has something to do with the unemployment rate is which is realistically over 20 percent. As gasoline is so important to the average person in the U.S. reductions in automobile use will likely be slow and undertaken reluctantly. The inconveniences of less driving still outweigh the cost of gasoline for most.

...

Unless there is a major geopolitical upheaval in the next six months, oil prices are likely to creep up as they have been doing since last May. Gasoline prices will continue their tradition winter/spring climb likely passing the $3 per gallon mark which seems to be psychological point that impedes the sale of large cars.

How much further prices will go is impossible to responsibly forecast for there are simply too many unknowable variables involved.

The only thing we can be sure of is that this increase is going to damage, perhaps fatally, prospects for a U.S. economic recovery. With more and more money being sent away to pay for "essential" gasoline supplies, there is going to be less and less to pay for everything else.

Start preparing for oil at $200 a barrel (2010.02.08):

...the key issue is not whether petrol and diesel prices should reflect today’s oil price of $75/barrel. It is that booming Asia will in a decade push oil to $200/barrel and maybe $300/barrel. India must prepare for a world of scarce, expensive oil instead of pretending that astronomical subsidies can ensure price stability.

Crude prices off, amid rising risk aversion... (2010.02.07):

In its latest economic brief on the oil market and budget developments, NBK noted that, crude oil prices fell sharply in the second half of January, moving closer towards the $70 per barrel (pb) level. After reaching the $80 pb mark on January 11th, the price of Kuwait Export Crude (KEC) fell by $9 to $71 pb by the 26th. Two factors seem to have been catalysts for the fall.

First, rising risk aversion across global markets saw a flight to the US dollar, which traditionally puts a damper on crude prices.

Secondly, the announcement of new measures to stem the growth of credit in China raised concerns of slower oil demand; China has accounted for 40% of the growth in global oil demand in recent years.

Yet despite the latest leg down, more bullish analysts still expect crude prices to remain range bound between $70-80 pb over coming weeks, before pushing higher as tighter crude market fundamentals (including rising demand and shrinking inventories) start to reassert themselves.

...This seems to reflect the view that current price levels – despite some volatility – are essentially well supported, backed by a recovering world economy and commitment from OPEC to keep prices in the $70-80 pb range.

...The Centre for Global Energy Studies (CGES) has revised up its forecast for incremental oil demand in 2010 for the second month in a row, this time to 1.2 million barrels per day (mbpd), at a 1.4% growth rate, from 1.0 mbpd a month earlier. This compares to its forecast of 0.7 mbpd in November. The centre expects year-on-year growth in demand in every quarter this year, although decelerating as the year unfolds as the base effect from weak growth in 2009 recedes. The International Energy Agency (IEA) has retained its bullish forecast for growth in oil demand of around 1.4 mbpd (1.7%). Both institutions (and others) expect practically all of this year’s growth to come from countries outside the OECD. The so-called BRIC countries – Brazil, Russia, India, and China – for example, could account for half of all the increase in global oil demand this year.

There's more...

John "Big Oil" McCain

8

Days after John McCain decided he now likes off-shore drilling, Hess Oil exec's paid him almost

$350,000

John McCain, Maverick...

There's more...

Oil: Less Speculation, $200/bbl, Risk Premium, and Sources.

In my previous entry "Drill Here. Drill Now. Pay Less." More Conservative Bullshit., I discussed some of the basic memes that are out there about our current relationship with petrochemicals, including the idea that speculation was at the root of the current price shock, whether the price shock is directly related to "liberal politicians" (as Newt Gingrich has suggested), oil and food, oil supply and demand, and alternatives.

Because I have a family history in the 'awl bidness' and a couple of groups I'm involved with, and because any rational person wants to understand why the world is the way it is, I try to keep up with current ideas and trends in the petrochemical world and how they effect the rest of the world.

Here are a few of the sources I read. If you are interested in what's happening, you should read them too:

Dedicated Oil Sources
The Oil Drum: Discussions about Energy and Our Future
Royal Dutch Shell plc.com
Vancouver Peak Oil Executive

Generalized Economics Sources
Paul Krugman
Brad Delong
Marginal Revolution
Paul Kedrosky

What's Changed Recently?
One thing that has changed is that the generalized economics blogosphere appears to be coming down even harder against the idea that oil is a bubble or that speculation is responsible for much of the price shock. Part of that is because "a bubble" is very poorly defined (and usually after the fact) and that "speculation" is so incredibly vague as to be almost meaningless. Technically, anyone who buys a stock or currency or any commodity in order to make money selling it later is a speculator.

Another thing that has changed is that the meme of $200/bbl oil seems to be gaining traction. A quick Google turns up more than 12 million hits. Goldman Sachs suggested the idea in March, but there were other* mentions before that. Now the conversations are happening everywhere. Deutsche Bank is warning that $200 oil would "break the back of the global economy". Call options on oil at $200 (December) are up almost 40% since the end of April.

Risk Premium
And a third thing is the risk premium. Risk premium is the amount of the price of oil attributable to various risks around the world. For our purposes, the risk premium is the rise in oil price attributable to the possibility of disruption in oil supply.

We know from previous experience that world events can have significant impacts upon oil prices. The first Gulf War was associated with nearly a doubling of oil prices. The Iranian revolution and accompanying OPEC price increase raised oil prices 20%. The 1973 embargo raised prices 187%, according to the EIA.

Several major possibilities are in the front of people's minds: Nigeria, Iran, Russia.

In Nigeria, MEND has successfully attacked (for the first time) one of the distant offshore platforms. They've also cut pipelines onshore, cutting off 120K bpd. Nigeria supplies about 2400K bpd, so that is only .5%, but the capability begins to worry one.

Iran supplies about 4100K bpd. If the US military becomes more active there, everyone expects at least part of that supply to be cut off (as a significant amount of Iraq's oil extraction capacity has been off the market since the US invasion).

Russia is the second largest extracter of oil after Saudi Arabia at almost 9700K bpd. Their extraction is declining and they are showing signs of resource nationalism, especially in natural gas.

The way risk premiums work is that each oil buyer (consciously or unconsciously) calculates an expected value (EV) for oil in the future. They incorporate their beliefs about the likelihood of a disruption event and the resulting price into that EV, and that informs the price they are willing to pay for an oil futures contract. Various sources suggest that the risk premium right now is between $20 and $50 per barrel, or between 14% and 35% of the price.

Of these, I consider the Iran scenario to be the most worrisome because of volume, but the Nigeria scenario most likely and overall, scariest. In fact, I fear that MEND is showing others how to make significant strikes against the developed nations by disrupting oil supplies. The map at the top of the post links to a dynamic map at NewScientist. Click around. Look at the "Oil pinch points" portion and the Straits of Hormuz and Malacca. It's easy to see Iran disrupting travel through Hormuz, which is only 21 miles wide. Malacca is perhaps of more concern. At 500 miles long, Malacca narrows to only 1.5 nautical miles wide and portions are only 82 feet deep -- shallow enough that some supertankers must use other passages. Despite that, roughly 1/4 of world oil travels through Malacca. In 2003, 1/3 of global piracy attacks were in the strait of Malacca (I note that Wikipedia is not the greatest source).

I can easily see effective disruption of oil transport happening in either Hormuz or Malacca. If 1/4 of world extraction were to be destroyed, embargoed, or even just threatened for a few days, there could be a price spike the likes of which the world has never seen. Sam Bodman, US energy secretary, has indicated that every 1% rise in oil demand means a 20% rise in price. Taking 25% of supply out of the equation would (by his numbers) raise the price of a barrel of oil 500%, or to about $700. I don't see it being quite that bad, but I can easily see a doubling to $280 or even $300. And I have no doubt that re-routing would happen quickly to drop prices back, and that the US Navy would be patrolling the Strait as soon as possible.

But for a few days, we'd find out what Peak Oil really means.

So that's the news. Nothing** suggests that prices are going to drop anytime soon. Conventional wisdom is against it, which may be the only argument for lower prices :-). If political worries smooth over (which seems unlikely while Bush is in office or if McCain is elected), we could see the risk premium drop. That might get us back to $100 oil, but I doubt any better than that. IMO, the most effective weapon we have against high oil prices right now is diplomacy, and I mean that in the archaic sense of talking, not the neocon sense of preparing to attack.


* Yes, I consider that link a joke.

** Actually, I just read one thing. Gasoline usage is dropping in the US, and as a result, oil stocks are rising (that is, the amount of oil stored). We had a bit of a dip in prices last week as a result before they shot back up again. We've seen the basic scenario before: oil price shock lowers economic output, which lowers oil demand, which reduces oil price. But with multiple growing economies in the world demanding oil, it's going to be harder to make this scenario work this time.

Disclosure: I am passively invested in the extraction side of petrochemicals. I do not own stock in or have any active (decision-making) relationship with any company mentioned in the post.

[Updated: 2008.07.01 14:03 PDT to add final ** paragraph about reduced demand in the US possibly lowering prices.]

There's more...

"Drill Here. Drill Now. Pay Less." More Conservative Bullshit.

Newt Gingrich, primary beneficiary of the 1994 "Contract with on America", has started a "Drill Here. Drill Now. Pay Less." ad campaign in conjunction with last year's book, A Contract with the Earth. In classic Newtian fashion, DHDNPL breaks down into a small set of bullet points:

• We have problems:
• Dictators controlling US energy supplies
• Billions of US dollars going overseas
• Airline industry in trouble
• Trucking industry in trouble
• Food prices up
• This is "a politician's energy crisis":
• Liberal politicians deny us:
• nuclear power
• clean coal
• shale oil
• offshore drilling
• We need to get the price of gasoline down in the short term
• We need to increase alternative sources of fuel in the long term:
• Hydrogen
• Nuclear Power
• Solar Energy
• Wind Power

Let's look at them one by one and then overall, shall we?

We Have Problems
Absolutely, we do. No one paying $4 or more for a gallon of gas can deny that. And every one of Newt's bullet points is at least arguably true, even if his explanations for them are sometimes not so.

The US imported between 12.75 and 14 million barrels per day (Mbpd) during the month of May 2008 against a monthly average usage during Q1 2008 of between 19.75 and 20.8 Mbpd. That translates to importing about 2/3 of our petrochemical usage at a daily cost of $1.7 billion (assume 13.33 Mbpd @ $130) or about $630 trillion annually.

The Top Ten countries of origin for US petrochemical imports are (in kbpd, March 2008): Canada (2542), Saudi Arabia (1542), Mexico (1358), Nigeria (1174), Venezuela (1033), Iraq (772), Algeria (441), Russia (402), Angola (388), Virgin Islands (290). I think it's reasonable to consider that Canada, Mexico, Venezuela, and the Virgin Islands (about 5.2 Mpbd between them) are not ruled by dictators (although reasonable people can disagree) vs. 4.7 Mbpd that are. That still leaves 2.8 to 4 Mpbd unaccounted for, and countries like Libya and Azerbaijan on that list are certainly dictatorships, but I just can't put the Bahamas, Belgium, France, and Germany on that list.

Not All Problems are Energy Related
The Airline industry is certainly in trouble. But that's nothing new. In the 30 years since US deregulation of the airline industry, losses top gains by $13 billion, largely caused by overcapacity and the resulting downward price pressure. Energy prices don't help, but the industry wasn't making money when oil was cheap, either.

The Trucking industry is also suffering, but for different reasons. The average long-haul truck gets about 6 mpg in the US (other sources say 4.5 to 7.5), whereas Canada averaged 7.15 mpg in 1999. I read an article (can't find a source) suggesting that 10 mpg was within reach. In 2003, it was suggested that $1.40 diesel would drive truckers to improve their aerodynamics, tires, and transmissions. High speed raises fuel usage, and up to 50% of engine hours are spent idling. There are huge gains to be made by simple procedural efficiencies.

There is a lot of press about worldwide food prices. Some suggest that biofuels are causing the rise. But world coarse grain production peaked in 1996-1997 at 907 million tons and declined to 860 million tons in 2000-2001. Inconsistency in crop yields has reduced grain inventories worldwide. The cost of petrochemicals has unquestionably transferred some grain from food use to fuel use, but the essential problem of grain supply was with us before the current oil price rise. We have relied upon the "Green Revolution" to increase global food production and in doing so have outstripped our available carrying capacity.

Liberal Politicians Have Nothing to do With These Problems
In Newt's reality, we don't have infinite nuclear power, clean coal, oil shale derived petrochemicals, and energy independence because of offshore drilling because of "liberal politicians".

Aside from the fact that conservatives controlled the entire executive and legislative branches of government for several years there, Newt's blamefest for liberal boogiemen lacks foundation in other ways.

Both Congress and President George H. W. Bush have prevented offshore drilling: the 97th US Congress (House controlled by the Democratic Party 244 - 191, Senate by the Republican Party 53 - 46 - 1) banned offshore oil drilling in 1981; the first President Bush's executive order banned coastal oil exploration in 1990. It's hard to see how a split Congress and Bush 41 can be considered "liberal politicians".

Nuclear power has been stalled in the US since the Three Mile Island accident in 1979. No new plants have been built since 1973, although there are now multiple applications for nuclear plants before the NRC (pdf). Environmental concerns undoubtedly played a part in the unofficial moratorium, but low petroleum prices and an institutional switch to natural gas were almost certainly more important factors.

Clean coal has been a priority of the DoE during the present Bush administration. And isn't it funny how lack of action by energy companies becomes "liberal politicians locking us out of clean coal" while the Chinese work on it? Free marketeers like Newt always say that government incentives are distorting the market until they want incentives for their pet projects, and then the lack of those incentives is suddenly the fault of "liberal politicians". Clean coal is a wonderful idea if it can be done, but the fact that it's not happening is not about liberal politicians blocking it, it's about technical difficulty.

Oil shale? Like the Canadian tar sands, oil shale is tremendously dirty and difficult to extract economically. In Alberta, two-thirds of the extracted energy goes into the extraction process, along with huge volumes of water. It's not clear yet that the tar sands are energy positive and the ecological impact is enormous and obvious. Oil shale will be the same way in the US. We are not ready yet to safely and economically extract that energy, and we may never be ready. Liberal policies have nothing to do with it.

Gas Prices in the Short Term
The price of gas in the short term is driven by supply and demand, with additional complicating factors. Oil production* worldwide is about 86 Mbpd and closely matches demand. However, excess extraction capacity in the OPEC nations has dropped precipitously in the last few years. According to J. L. Williams at wtrg.com, OPEC spare capacity has dropped from 6 million bpd to under 2 million:

In mid 2002, there was over 6 million barrels per day of excess production capacity and by mid-2003 the excess was below 2 million. During much of 2004 and 2005 the spare capacity to produce oil was under a million barrels per day. A million barrels per day is not enough spare capacity to cover an interruption of supply from most OPEC producers.
In a world that consumes over 80 million barrels per day of petroleum products that added a significant risk premium to crude oil price and is largely responsible for prices in excess of $40-$50 per barrel

Without significant spare capacity, we lack extraction buffers against short-term supply interruptions like those happening in Nigeria or the 2006 pipeline shutdown in Alaska. Instead, we must rely upon post-extraction storage buffers like the US Strategic Petroleum Reserve.

*Oil "production" is more properly termed "extraction" because the process does not "produce" anything but merely "extracts" existing petrochemicals from one reservoir (presumably a natural one) into another (presumably an artificial one). I prefer the more correct term "extraction" not only because it properly explains the process, but because it reminds us that we are dealing with a fixed existing supply of material instead of the expandable output of a production line.

In the short term, supply and demand fundamentals explain a great deal about oil and gas prices. Concerns about future supply include militarism, nationalism, activism, accidents, weather, and resource nationalism. Some believe that these non-supply factors may account for $50/bbl of cost. Others believe that fundamentals adequately explain oil at $150 or even more. Others think we have plenty of oil and this is all some sort of speculator-driven conspiracy.

Alternatives in the Long Term

The best way to encourage alternative energy development is a combination of high energy prices and public policy. If public policy says that government will subsidize or prefer clean or renewable energy, then the market should respond relatively quickly. It is the very cheapness of petrochemicals (and the widespread externalization of pollution and other negatives) which has prevented the development of alternatives to this point. If we are in favor of non-petrochemical energy sources, we should be pleased about high petrochemical prices. I know it's hard, but that's why they call economics "the dismal science."

As for specific alternatives Newt likes, hydrogen isn't an energy source, it's just a storage medium. One of the major problems facing us is that petrochemicals are very energy dense. We can't build batteries that store energy nearly as well as gasoline does. Hydrogen (possibly in some kind of aerogel frame) is pretty promising in that regard.

Nuclear power has a definite place in our future, especially if pebble-bed reactors pan out. If so, we add 85 years of uranium (at current usage levels) to our energy supplies. Nuclear fission power is thus a bridging technology, which is exactly what we need while we finish developing long-term sustainable systems.

Solar, hydro, and wind power are true renewable technologies, and the high price of petrochemicals is encouraging development and deployment around the world. Subsidies would speed up deployment, but the market is taking care of that so long as the cost of oil remains high.

Typical Conservative Bullshit Posturing

"Drill Here. Drill Now. Pay Less." is a typical piece of bullshit Conservative posturing. Most of Newt's supporting points aren't, but that's not the worst of it. The solution won't solve any of the problems. Studies of ANWR show that drilling there will yield maybe $.01/gallon improvement in gas prices. In 2025. ANWR would deliver 875 Kbpd at peak and a total of about 10.4 billion barrels. Bush's plan for offshore drilling alleges 18 billion barrels, so we might suggest that the offshore flow would be double ANWR or about 1.7 Mbpd and so we might get another 3 - 5 cents off each gallon of gas.

In return for that 4 - 6 cents off a gallon of gas, this is what we get:

Oil spills. This is the 1979 Ixtoc I spill -- the largest accidental oil spill in history (only the deliberate release of oil during Gulf War 1 was larger) -- 140 million gallons spilled over at least six months. Despite Newt's lie that Hurricane Katrina couldn't knock out modern oil platforms, Katrina destroyed at least 46 platforms. And let me remind you that Exxon has still not paid their fine for the 1989 Exxon Valdez spill in Prince William Sound.

What DHDNPL will do is enrich American oil companies. As resource nationalism denies them access to major fields in Russia, Venezuela, and the Middle East, the non-national oil companies like ExxonMobil, RoyalDutchShell, and Chevron are trying to ensure their access to other sources. I'm sure that if politicians were to arrange for offshore drilling to be allowed in the US, they'd be richly rewarded.

Oh. I guess they already are.

Disclosure: I am passively invested in the extraction side of petrochemicals. I do not own stock in or have any active (decision-making) relationship with any company mentioned in the post.

[Updated 2008.06.19 0825 to remove reference to Argentina as a dictatorship. Guess I'm still living in the past :-)]

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John "Big Oil" McCain

22

Number of top John McCain presidential campaign advisors & fundraisers that are with big oil. -- McCain Source

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Alaska = Strategic Petroleum Reserves

The president believes Congress shouldn't waste any more time," White House press secretary Dana Perino told The Associated Press on Tuesday.

"He will explicitly call on Congress to ... pass legislation lifting the congressional ban on safe, environmentally friendly offshore oil drilling," Perino said. "He wants to work with states to determine where offshore drilling should occur."

Bush also will reiterate his call for development of oil in the Arctic National Wildlife Refuge in Alaska, Perino said. McCain has opposed drilling in the refuge, maintaining that the pristine areas in northeastern Alaska should be protected from energy development.

On Monday, McCain made lifting the federal ban on offshore oil and gas development a key part of his energy plan. The Arizona senator said states should be allowed to pursue energy exploration in waters near their coasts and receive some of the royalty revenue. -- AP

Drilling in Alaska, due to it's small size and the small volume of oil is equivalent to tapping into our Strategic Petroleum Reserves and is more plunder of America's treasure by this short-sighted Bush/Cheney administration and will leave America without a strategic reserve and less capable to respond in the future to any emergency situation that might arise.

Yet another thoughtless, and risky plan from the man with the reverse midas touch. Is there any doubt this will profit his oil buddies and not the American people, leaving America weaker and less secure.

We should be thinking of real solutions and not recycled political stunts from the 70's

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Bush Begs Saudi's

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Plantagenetry

I wasn't going to mention the festivities but this picture needed reposting, with some minor photoshoppery.

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Econ 101: Supply, Demand, and the Gas Tax Holiday

Basics of Supply and Demand
Anyone who has taken a survey econ course has seen diagrams like the one above, commonly called a supply and demand diagram or supply and demand curves.

The horizontal axis (Q) is Quantity supplied of a product. Q2 is a larger quantity (greater supply) than Q1. The vertical axis (P) is Price to purchase the product. P2 is a larger price than P1.

The blue line labeled S is a supply curve for our product. As with most supply curves, it increases monotonically and tells us that, as the price P rises, the quantity Q of the product supplied also rises. This makes intuitive sense: if someone will pay a lot more for a hamburger, more people go into business selling hamburgers and the supply increases.

The red line labeled D1 is a demand curve for our product. As with most demand curves, it decreases monotonically and tells us that, as the price P falls, the quantity Q of the product demanded rises. This also makes intuitive sense: if the price of hamburgers drops, more people buy them.

These are typical supply and demand curves. There are others. These are representative supply and demand curves, they do not represent any specific product and market. It is possible (given the right sort of data) to generate actual supply and demand curves for actual products.

The point where S crosses D1 is a market equilibrium, where the supply of and demand for our product are equal. At this point, the market price is P1 and the quantity supplied is Q1. Equilibrium indicates that the price and supply will stay there once they are there. If the price is below the equilibrium, less of the product will be supplied (a shortage) and the price will be bid up. The higher price will encourage entry of other suppliers (or current suppliers will increase production if possible), the quantity supplied will increase and the price will drop toward the equilibrium.

The red curve labeled D2 is an alternate demand curve. Suppose that our product is made available to a new market: at any given price, more people want to buy our product, and the demand curve is shifted right, representing an increase in demand. With this increase in demand comes a new equilibrium, where D2 crosses S. Notice that both the price and quantity produced have increased at this new equilibrium: price from P1 to P2 and quantity from Q1 to Q2.


Markets
"Free markets" are amazing things. Left to themselves, they establish price and production amounts magically, without human intervention. Or do they?

"Free" market sounds like something that is unfettered, unconstrained, unregulated, and well, unreal. Markets are unable to operate without certain preconditions: good governance, stable currencies, security, confidence, etc. Without security and stability, markets fail. Without contract enforcement mechanisms, markets fail. Without producer and consumer confidence, markets fail.

Free marketeers often complain about government regulation. Economists (and remember, there's a reason why economics is called "the dismal science") will use supply and demand curves to show you that almost any government intervention (taxation, price supports or caps, etc.) distorts the free market and generates inefficiencies. And according to the theory, they are correct. However, honest economists will also admit that there are good reasons for governments to regulate markets (pdf), reasons which may go beyond economics.

Market Failures
One of the biggest reasons for government to regulate markets is "market failure". We've just seen an enormous one in the US, the so-called "subprime meltdown". The Long-Term Capital Management fiasco of the late 1990s also comes to mind.

Market failures include things like:

• Monopoly: where a producer has market power
• Monopsony: where a consumer has market power
• Externalities: where a producer or consumer doesn't pay the "real" cost of a good
• Public Goods: where a producer can't be properly compensated for the real benefit of a good
• Asymmetric Information: where one side of a transaction lacks relevant information

McCain's Gas Tax Holiday Proposal

John McCain wants to suspend federal gasoline taxes for the three months of the summer holiday. Specifically:

McCain urged Congress to institute a "gas-tax holiday" by suspending the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day. By some estimates, the government would lose about $10 billion in revenue. He also renewed his call for the United States to stop adding to the Strategic Petroleum Reserve and thus lessen to some extent the worldwide demand for oil.
Combined, he said, the two proposals would reduce gas prices, which would have a trickle-down effect, and "help to spread relief across the American economy."

What would such a "gas-tax holiday" actually do, economically, to supply and demand? Since economists aren't physicists, it's impossible to say for sure, but here are a couple of the more believable scenarios:

• Assuming we are currently at a market equilibrium (a questionable assumption, considering the constant change in gas prices), reducing the price of a gallon of gas by 18.4 cents to the consumer would increase demand for gas. Increased demand should increase supply, but the summertime supply of gasoline in the US is relatively fixed, so the supply cannot increase. As a result, the price will resume the starting equilibrium -- and the total value of the tax reduction will accrue to the oil companies.
  
• The tax reduction will be split between the producers and the consumers, as apparently happened in Illinois in 2000, when gas hit $2/gallon for the first time. In the case of a real reduction in price to consumers, demand for gas will rise, raising the price of gasoline, but not as much as in the first scenario. However, gasoline usage will also rise, increasing the US carbon footprint.
  

Realistically, the gas-tax holiday will have little effect upon the average American. The price of gas might go down, but if it does, the amount of gasoline used will go up, pushing prices back up and increasing the flow of carbon into the atmosphere.

Sounds like a losing proposition to me, on the merits.

But it does appear to be pretty good political theatre.

NOTE: Nothing in this post should be construed as an endorsement of any Democratic candidate for president. It is an article with facts and opinions about politics. I have not made up my mind, and GNB is not endorsing any candidate prior to there being a clear nominee.

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Oil

$100

A Barrel

Oil (crude oil futures for February deliver) hit $100 a barrel just after noon today, before closing at $99.62, up $3.64 today.

Three years ago when I was still totally not myself, I went through about a four-week phase when I first heard about peak-oil, of really freaking out about, well, basically that The End Of The World is coming. I remember specifically predicting -- and again, this wasn't really me; I wasn't home in any real sense of the word -- that we'd be at $100 oil by the end of 2006.

Eh... One year and two days off. Not bad, not bad.

And the world didn't end. So we've got that going for us.

The New York Times

Oil prices, which had fallen to a low of $50 a barrel at the beginning of 2007, have quadrupled since 2003.

Gasoline has lagged the rise in the price of oil. It stands at a nationwide average of $3.05 a gallon for regular grade, according to AAA, the automobile club. That is below the all-time peak in May of $3.23 a gallon, but it is 73 cents higher than at this time a year ago. Some analysts worry that gasoline could hit $4 a gallon by next spring if oil prices remain at high levels.

Oil is now within reach of its historic inflation-adjusted high reached in April 1980 in the aftermath of the Iranian revolution when oil prices jumped to the equivalent of $102.81 a barrel in today’s money.

Unlike the oil shocks of the 1970s and 1980s, which were caused by sudden interruptions in oil supplies from the Middle East, the latest surge is fundamentally different. Prices have risen steadily over several years because of a rise in demand for oil and gasoline in both developed and developing countries.

Two-thirds of the world's proven oil reserves live in the middle east.

The war(s) goes on.

No real commitment to alternative fuels exists on a national scale, regardless of what may be happening at individual and regional power companies (some of whom are fiercely committed.) As a nation and a world, our need for oil continues to rise, while the pool of oil continues to shrink. People continue to die and starve and wars are fought over oil (e.g.: Iraq, Africa (throw a dart damn near anywhere)).

And if you're asking yourself why, just remember this...

The Vice President of the United States is still Richard Cheney.

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Hugo Chávez Loses Referendum

photo Marcelo Garcia/Agence France-Presse-Getty-Images

Term Limits Stay; Chávez to Go. In 2012.
(If he can't get this passed by then. Or hold on some other way.)

By 51-49%, Hugo Chávez lost a referendum Sunday evening which would have abolished term limits, allowing him to keep running for President of Venezuela every seven years. Till death do us part.

New York Times

The outcome is a stunning development in a country where Mr. Chávez and his supporters control nearly all of the levers of power. Almost immediately after the results were broadcast on state television, Mr. Chávez conceded defeat, describing the results as a “photo finish.”

“I congratulate my adversaries for this victory,” he said. “For now, we could not do it.”

Opposition leaders were ecstatic. “Tonight, Venezuela has won,” said Manuel Rosales, governor of Zulia State and the opposition’s candidate in presidential elections last year.

Uncertainty over Mr. Chávez’s reforms, meanwhile, has led to accelerating capital flight as rich Venezuelans and private companies rush to buy assets abroad denominated in dollars or euros. The currency, the bolívar, currently trades at about 6,100 to the dollar in street trading, compared with an official rate of 2,150.

Venezuela’s state-controlled oil industry is also showing signs of strain, grappling with a purge of opposition management by Mr. Chávez and a retooling of the state oil company to focus on social welfare projects while aging oil fields need maintenance.

Petróleos de Venezuela, the state oil company, says it produces 3.3 million barrels a day, but OPEC places its output at just 2.4 million barrels. And private economists estimate that a third of oil production goes to meet domestic consumption, which is surging because of a subsidy that keeps gasoline prices at about seven cents a gallon.

CNN

More than nine million of Venezuelan's 16 million eligible voters went to the polls Sunday.

President of the National Electoral Council, Tibisay Lucena, said the process "shows the entire world that we are a democratic country."

Chavez, in what he called a talk "from my heart" acknowledging the results, thanked those who opposed his proposal, saying the election had proven that Venezuelan democracy is maturing.

Thousands of people gathered in the streets, many of them university students who worked to defeat the measure, burst into singing their country's national anthem upon hearing the news.

Earlier in Caracas, Chavez -- clad in his trademark red shirt and cradling his grandson -- made the sign of the cross when he voted, then took his paper ballot and placed it in a box. "For me, it's a very happy day," he had said.

He dipped his right pinky in ink, collected his paper receipt from the voting machine and then gave an uncharacteristically short talk with the news media.

"Let's wait for the results tonight," he told reporters. "We'll accept them, whatever they may be."

Chavez called Venezuela's electoral system "one of the most transparent in the world," and said its voting machines are among "the most modern of the world."

If the amendments were approved, Chavez could have run for president in seven-year terms.

At present, the president's term runs six years, and current law would not allow Chavez to run again after his term ends in 2012.

Wow. Not what I would have predicted. (Continuing the great News Blog tradition of blowing election predictions. Heh.)

How 'bout them apples? Er, them barrels of oil?

At least they have paper receipts for their voting machines. Nice touch.

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Do NOT Mess With An Original Gangsta

слово!

(or “Word!” in English)

It was June of 2001—yes, there was a world—an America before September 11th of that year, and George Bush, whose shiftlessness, arrogance, and balls-to-the-wall stupidity we were just beginning to glean took his very first meeting with Russian President Vladimir Putin. It was in Slovenia for a summit, and Bush at his faux-empathetic best saw fit to let the whole world know what he thought of his Russian counterpart. In a move that should have been a red flag for the crazy to come, Bush went to his “faith healer” schtick and gave us his “sense” of the man via little more than a handshake and a look:

“I looked the man in the eye. I found him to be very straight forward and trustworthy and we had a very good dialogue.”

“I was able to get a sense of his soul.”

That was six years ago. An eon in diplomatic time—and an ever-loving eternity when you factor in 9-11.

Which brings us to today, a post 9-11 world where the landscape is radically different from those “soul-gazing” days of '01. A landscape featuring a topography of mingled Asian sand and Caspian ice —via AP:

He (Putin) also suggested Moscow and Tehran should have a veto on Western plans for new pipelines to carry oil and natural gas from the Caspian Sea, using routes that would bypass Russian soil and break the Kremlin's monopoly on energy deliveries from the region.

Putin came to Tehran for a summit of the five nations bordering the Caspian, but his visit was aimed more at strengthening efforts to blunt U.S. economic and military ties in the area. Yet he also refused to set a date for completing Iran's first nuclear reactor, trying to avoid an outright show of support for Iran's defiance over its nuclear program.


Putin strongly warned outside powers against use of force in the region, a clear reference to the United States, which many in Iran fear will attack over the West's suspicions that the Iranians are secretly trying to develop nuclear weapons.

Iranian President Mahmoud Ahmadinejad made similar comments.
"We are saying that no (Caspian) nations should offer their territory to outside powers for aggression or any military action against any of the Caspian states," Putin said.
The five national leaders at the summit later signed a declaration that included a similar statement — an apparent reflection of Iranian fears that the United States could use Azerbaijan's territory as a staging ground for military strikes in Iran.
Putin has warned against such attacks previously, but reiterating them in Tehran gave them greater resonance — particularly at a summit for a region where Moscow deeply resents U.S. and European attempts at greater influence.

-------------------------------------------

At the same time, Putin — on the first trip to Iran by a Kremlin leader since Josef Stalin visited in 1943 for talks with Winston Churchill and Franklin D. Roosevelt during World War II — said Moscow wouldn't back down on its obligation to finish the plant.

"Russia has clearly stated that it's going to complete this work," Putin said. "We are not renouncing this obligation."

Cue the big brain on Driftglass:

Hmm. Where have I seen this before? Nuclear states with imperial ambitions?

Taking a rooting, tampering interest in countries with strategically valuable resources?

Countries which can trade geopolitical importance for power and prestige, and through which their dominant partner nations can carry out a cold, proxy war at a safe distance?

Oh yeah.

So meet the












New War...



...same as the












Cold War.

He hammers the nail through the wall, into the neighbors' apartment and through the back of mama's old breakfront. Bush (and his imperialist handlers) were so dead set on treating Iran like a wet food stamp that there was almost no way this Putin/Ahmadinejad love connection wasn't gonna go down—especially after the shitty treatment he got here in New York during his visit. Now, no one is saying that we should have extended to Ahmadinejad the tender courtesies that Mickey Kaus does to his goat friends, but one would have to be a fool to see that Putin's perfectly-timed, and historically-destined cuddle wouldn't be a result of the U.S.'s ham-fisted non-diplomacy. And while a cuddle it may be, the arms of said Caspian cuddle-er while capable of the gentle diplomatic caress we're seeing now, are just as capable of and ready to casually snap the neck of anybody who really pisses him off.

Which leads us to the crux of this situation...which Hubris lays out succinctly:

He wants to make it clear to Bughouse Dick that if he moves against Iran there will be consequences. We have seen this whacky topic of invading Iran ebb and flow based on the level of Dick's meds recently. Hopefully this message from Pooty Poot will quiet down the trained monkeys about invading Iran.

Russia is the only country that is helping Iran to realize its nuclear program in a peaceful way, he said.

If you want to keep it that way Richard, keep your trap shut...

As a public service to the President and Vice-President, I'm gonna lay this out for you real simple-like.

DO. NOT. FUCK. AROUND. WITH. VLADIMIR. PUTIN.

Okay?

Now, I know you want to fuck with him, but let's be clear—he ain't like you. Meaning, that for all the tough talk you guys have spit out over the years with the aid of handlers and broadcast transmitters hidden in your suit jackets, this son-of-a-bitch—Vladimir Vladimirovich Putin walked the walk—and probably shot the bullets, and car-batteried the gonads of people who got in his way.

Actually did it, okay?

To you, Mr. President, Putin was in the KGB when it was your daddy's job to see to it that as many members of that organization ended up face-down in Gorky Park with poisoned shivs in their backs. And it was Putin's job to make sure he piano-wired the carotid arteries of anyone trying to poison-shiv his KGB buddies. You ducked conflict. This guy dipped it in his borscht and ate it, happily.

And to you, Mr. Cheney, for all your diabolical thinking, your hand-rubbing and mordant chuckles over evil plans set in motion via dark-roomed, “cigarette-smoking man” calls from you, understand that Putin worked as the kind of low-level spook who handled the dirtiest of the dirty work. Tail a guy, brace him, beat the living shit out of him, dope him up, torch his place, torch his nads. He's everything you are—minus the innate cowardice to actually do the evil with his bare hands. Say what you will, but that does something to a man. It's what separates a button pusher, from a trigger man. And that trigger-man runs the only place that has near as many nukes as we do.

You see, there are “Original Gangstas”, and there are “Posers”. Kind of like the whole Tupac Shakur and Suge Knight paradigm. “Pac”, as he was called, was in essence a master showman. A more than capable actor who could put across the image and superficial trappings of the toughest of the tough street hoods. He played this role on record, to the press, and very convincingly on film. If you didn't look at him too close, he could easily scan as the the living embodiment of the image he portrayed.

But an image is all it was. For all his bluster and “Thug Life” tats, and gangsta-talk, Pac, in spite of some troubled family surroundings wasn't a “thug” or a tough guy at all. He went to art school. He studied poetry, jazz, acting and ballet. Performed Shakespeare to boot. By the time he was twenty he'd read Salinger and Melville, and the feminist works of Alice Walker and Robin Morgan.

A “Thug”? Hardly.He got his big break dancing behind Humpty-Hump in Digital Undergorund—not from taking nine, or nine-hundred bullets “Fiddy-Cent— style. (he caught a couple of slugs and checked himself out of a hospital hours after a minor scuffle once) And once given light, he adopted the “Thug Life” mantra, lifestyle and requisite attitude as a performer's persona. A performer's persona.

Now, his “buddy” Marion “Suge” Knight is a different story altogether. The 300 lb. monster rolled with Compton's vicious Mob Piru Bloods gang as a teen. The “Bloods” of drive-by killing fame. Suge would use his hulking size eventually nab a football scholarship to UNLV, and from there to “bodyguard” jobs for stars which he'd eventually parlay into a career in “concert promotion”—that usually ended up with disagreeing parties being broken and bloodied in an alley somewhere off Crenshaw Avenue. And eventually, he wound up in trouble with the law over the relatively minor issues of grand theft auto, concealed weapons and attempted murder charges. Had a restraining order put on him for cutting off a girlfriend's ponytail in front of her home. Capped a dude twice with a hot .38. Broke another guy's jaw pistol-whippin' him.

Suge was NOT an actor. He was the real. The awful, ugly, deadly and down-and-dirty real.

And in this world, you have your wannabe gangstas...of the “Pac”—for all his “talent”—mold, and the Original Gangstas of the just-as-soon-as-shoot-you-as-hand-you-a-cigar Suge Knight mold.

Bush and Cheney fall into the “Pac” camp. They can talk a good game but have no real “record” to stand on. Putin is in the “Suge” school, with a trail of broken and non-breathing bodies behind him. Bush and Cheney rat-fuck. Putin, as we've seen in the case of Alexander Litvinenko will rat-poison a mother-fucker.

There's one hell of a difference between the two. And as we saw on that fateful night in that parking lot in Las Vegas, one dude walked away from the gunfire, and one wound up on a slab. Guess who did what.

You might—Mssrs. Bush and Cheney take a lesson from that. You've been verrry successful as posers for all your lives. You've parlayed it into great personal success. But you need to check your bullshit at the door when you're dealing with an “O.G” (Original Gangsta) like Vladimir Vladimirovich Putin. You said you “looked into his eyes and saw his soul”. John McCain, for all his silliness noted the other day that when he looked into Putin's eyes, he saw three letters: “K.G.B.” It's a quip. A nifty sound-bite. But John McCain probably knows a shitload more about what it looks like staring into a hard, brutal man's eyes than Bush and Cheney ever will. Putin's got the icy look of a man who's seen life ebb out of more than a couple people, and more than a couple of times directly because of him.

One last thing. When I was a teenager, there was a little deli/grocery store in my neighborhood called “Slim's”. And as is often the case, a name like “Slim” is given to a fella who is not that. The proprietor—“Slim”—was a man-mountain. six-foot-five and about 270 lbs. None of it fat. Arms like picnic roasts. Hands like baseball mitts. Big, southern fella with a “Paw” from the “Hillbilly Bears” countenance. Wore overalls all the time, and had a huge burn welt on his right upper arm—just below a faded, crude green Marine Corps bulldog tattoo. Said he got the burn when a dude attacked him with an arc welder. He never said what happened to the dude...and he didn't have to.

Anyways, one day I'm in his store, and there's a real jerk at the counter harassing one of Slim's daughters at the register. Lewd, chattering about everything, being a general nuisance. He hands her a five-dollar bill for his purchase amidst his distracting patter, and then upon receiving his change, went ballistic, claiming that he'd given her a twenty and that she was stiffing him. I know it was a fiver, as I was standing behind him for five minutes practically watching his every annoying move. She corrected him—“No, you gave me a five. I put it right here.” He countered with curses, threats, counter-pounding and demands that she give him change he wasn't entitled to. When I heard her call out to the back room “Daddy!”, I knew it was all over.

Slim lumbered from the back, ducking his head at the short doorway, and the clown at the counter, who evidently was pulling a scam and had never been in the store before—and didn't know who he was fucking with continued with his invective. “Oh, now you gonna call this mother-fucker out here? Who the fuck is you? Who the fuck is you?”, he railed.

“You need to calm down, kid. Watch your mouth in my store.”, Slim rumbled. “And don't be bothering my daughter.”

“Fuck your daughter!”, the idiot yelled as I took a step or two back. “She gypped me! I gave her a twenty, she's saying I gave her a five! I want my Goddamn change! All of it!”

“Baby, what did he give you?”

“A-a five”, she stammered.

“We don't be gypping people who come in here, mister. I been here twenty years and we don't do that. I think you made a mistake.”

“I made a mistake?”, the guy screamed. “No, this is a mistake!” And with that, he upset a jar of pickles that was on the counter, tipping it over and as it wasn't 100% sealed, spilling pickle brine all over the counter.

“Mister...I ain't no play-toy.” Slim intoned. And he threw a couple of paper towels at the guy. “You need to wipe that up, right now.”

“Yeah, well I want my fuckin' change right now! All of it! Right now!”

And with that, I heard—I didn't see because it was too damned fast—Slim whip one of those baseball-mitt hands out and grab this dude by the clavicle. The other hand hit the guy's hip, and with one quick motion, Slim yanked him into the air, and slammed him down hard onto the counter with a “BOOM!” that shook the gum rack and penny-candy boxes.

He had the guy pinned in an unnatural position that looked for certain to snap his neck if he kept him like that for long. The man's face was pressed hard against the brine-soaked countertop.

“I told YOU, I ain't no Goddamned play-toy! I gave you a chance to wipe that shit up—now you're gonna lick it up! NOW LICK IT UP!. Sure as shootin', homeboy started to loll his tongue out and lick at the liquid like some sort of spine-twisted cat at a bowl. “Annnh! Annnh! Annnnh!” he went, lapping up the spillled brine as Slim moved him about like a human dishrag.

“I told-you-what-to-do, but-you-didn't-wanna-listen, did-you? Now-look-at-cha! Told-you-I-wasn't-no-Goddamn-play-toy, right? Huh? I-didn't-hear-you? Am-I-a-Goddamned-play-toy?” “Annnh! Annnh! Annn-n-n-n-n-n-h!” was the throttled response again.

The correct answer of course, was “no”. Slim was absolutely not a “play-toy”. Certain people you'll come across in life are just not. And Vladimir Vladimirovich Putin is one of those people. An “Original Gangsta”, if you will.

You don't just fuck around with folks like that. And the absolute worst thing you can do is “play” tough guy with them when you don't have the pedigree for it. Take heed the tales of “Pac”, and “Suge”, of “Slim” and “The Counter-Licker”, and if you have any sense at all, Mr. Bush and Mr. Cheney, you'll go to the phones before you even think of going to the generals.

'Cause from what I remember seeing, being forced to lick up pickle brine ...is an absolute bitch.

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Iraq Oil Pipeline Blown, Again, Once More, Forever.

Gunmen Blow Up Iraq's North Export Pipeline

Unknown attackers have blown up part of an Iraqi pipeline that pumps crude oil from Kirkuk oil fields to the Turkish export terminal, Ceyhan, a senior Iraqi oil official and a shipping agent said Wednesday.

The attack took place in the section of the pipeline connecting the oil-rich city of Kirkuk to the Baiji, home to Iraq's largest oil refinery. Iraq usually pumps Kirkuk crude oil to the refinery, 250 kilometers north of Baghdad, which takes what it needs before it pumps the rest to Ceyhan.

I don't know how many times I have to explain this. We will never get any significant oil out of Iraq. Not when Commandante Abdul can just walk up to any section of the hundreds of miles of pipeline or sub pumping stations and drop a couple of hand grenades. On sale now in the local market, buy 1 get 2 free. Oops, sorry. Looks like you are going to need a new high pressure oil pump. Better order one from the only local supply. Saudi Arabia. Why are we wasting money on this? A junior analyst can tell you we ain't ever going to get production up. Ever. Na ga hap-pen...

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