Friday, April 21, 2006

Bringing down OPEC...Part II

How to we bring down OPEC?

Raymond Learsy offers a few suggestions on how to do this in his latest book. Here are some details of what he suggests:

1) Tap the Strategic Petroleum Reserve – The actual number of barrels released would not make much of a difference on the "supply" side of supply and demand, but it would have a profound impact on the oil price. Oil prices are not driven by the free market and supply and demand. Instead, it inflates by OPEC-inspired rumor and irrational fear of certain events that attract investors seeking to make a buck on price gyrations. The result is people buying oil futures and pushing the price higher and higher. But if the government showed that a certain price for oil would trigger a release of a large quantity from the strategic reserve, then it would increase the risk of these investments and drive the speculators to the sidelines. The result…oil prices drop.

2) Nuclear Power – France is 80% nuclear. We are nowhere close to that. Why? Mainly because of political foot-dragging about nuclear waste disposal. One kg of oil produces 4 kw of electricity. One kg of uranium generates 400,000 kw of electricity (more than 7 million kw if uranium is recycled, but Jimmy Carter banned uranium recycling in 1977). It is cleaner, cheaper and if recycled will reduce the volume of nuclear waste that needed disposal. If the enviro-kooks would come to the table on this, we could get more plants built and not only reduce oil consumption, but also help protect the environment.

3) Control demand – Bush pushed through a cap-and-trade Clear Skies initiative as part of his environmental policy. This states that power companies have so many "emission credits" that they can consume, basically keeping a tally on the amount of pollution they dump into the environment. Go over your allotted credits, and you can buy more from a "cleaner" power company. This does two things. It rewards those who are friendly to the environment with more money (and NO tax dollars) and it increases costs for those who don’t take measures to reduce pollution. Why not do the same for gasoline?

Everyone gets an allotment of Gasoline Purchase Permits. Reach your allotment, and you can purchase more on the free market from the private sector (those who take the proper measures to reduce gasoline consumption). You CAN’T buy these credits from the government and therefore it won’t be a hidden tax. Instead, it will reward those who carpool, own fuel-efficient cars, and avoid discretionary driving and it will increase costs for those who don’t. The result is less oil consumption nationwide. This can even be pushed as part of the war on terror. In WWII, people who wanted to do their part against the Nazis planted victory gardens. Now, people could reduce their fuel consumption, make money by selling their allotted extra GPPs and feel that they are doing their part in keeping American money out of the pockets of the rich oil barons of the Middle East. And it would go a long way in altering the world’s perception of Americans as self-indulgent anti-environment consumers.

4) Put OPEC on trial – Oil prices are governed by collusion and OPEC is not afraid to show this when they hold meetings for the purpose of setting production quotas. The idea of these quotas is to limit the amount of crude produced and thus keep the price of oil high. THIS IS ILLEGAL. The World Trade Organization has a rule equivalent to antitrust laws in which it prohibits members from setting quantitative restrictions on imports and exports. This is an outright ban on conspiracies to artificially manipulate markets. If the US led an international "posse" aimed at putting the OPEC nations on trial for this, the "fear factor" that drives much of the oil price could begin to work in our favor and thus lead to lower prices.

5) Alternative sources of fuel – There are A LOT of options here. To do it justice, I will discuss these in a separate post. Tune in tomorrow (or later tonight depending on how much time I have).


Gayle said...

Well, John, I certainly have the victory gardens! We eat out of our gardens all year round.

My car, at least my favorite one, is large. It's old, but it's efficient. It's an 87 (I think) Lincoln Town Car and is voracious on gas. My truck is a huge monster of a truck, a ton-and-a-half, that also eats gas, but it's our farm truck so mostly we only use it on the farm, and to sell produce once a week in town at Farmer's Market. We do have a tiny car, an exp, which get 32 mpg, it's standard gear. I love the shifting, but I hate being that close to the pavement. Still, push come to shove, I would use it more than I do if necessary... and it may very well be necessary.

Good post. :)

WRBishop said...

1) Releasing oil from the SPR would only have an impact if you could refine what you released. Until we build more refineries more oil does us not much good. Right now people are looking at what is currently in the reserves around the world. If they feel that there is not enough there to withstand say Iran shutting off its pumps then the dollar per barrel goes up out of fear. Likewise you start pulling oil out of the SPR and after that initial price drop fear will set in that the SPR is running low and the price shoots higher than before you tapped into it. I will go back to my initial point though... if you cannot refine it what good is it?

2) France is 80% nuclear but France is also the size of Road Island...and exaggeration but you get my point. I like nuclear power but until we get our borders under control I don't want to live next door to a 3 Mile Island!

3) Gasoline is a commodity so how are you going to take something we have the right to buy with our own money and then say that you are going to restrict how much we can have. People have the right to waste or save their hard earned green backs however they want. Do you consider a drive from say Florida to the Rockies for a family vacation a discretionary driving habit? What happens if in the middle of your trip you run out of the Permits and no one is around to sell you more? Sounds like the start of a black market if you ask me. The high price of gas is going to force a market change before any of this will happen in my opinion.

4)Shoot this would not happen no matter how you slice it. The WTO needs OPEC as badly as the U.S does on its own. OPEC knows they have the world by the short hairs until they run out of oil and till then nobody is going to tell them what to do.


John The Patriot said...

Bishop, I don't have a problem with anyone disagreeing with my ideas, in fact it's not even my's Raymond Learsy's. But if you read this blog enough you'll see that I also encourage people who disagree with me to propose their own solutions to back up their dissent, and saying "that won't work" isn't an alternative solution.

I'm sure you and I will both agree that the status quo is not an option. OPEC will continue pushing prices up until our economy can no longer take it, the result is economic collapse and possible depression. The only question is at what per-barrell price will this occur.

I suppose one could say "if you don't like the price, then don't buy gas" but in the 'oil age' this is not feasible. Yes, I could purchase a bicycle and use that to get around, but what about electricity and heating? Most of this in America requires oil to produce. Bottom line, our economy is oil dependent and THAT is what must be changed.

In order to make such a change, it will be inconvenient. I agree that limiting purchase ability on gasoline is not ideal, but I would be willing to take on this inconvenience if it helped get us out from under OPEC's boot. Remember, we are at war with an enemy who is funded mainly by OUR dollars from the oil market...and I don't like that.

These ideas may not be perfect, but so far they are the best ideas proposed. Our political leaders have yet to come up with anything better and they seem content to just let things go until it's too late for our economy. That's unacceptable to me, which is why I endorse Learsy's ideas and will continue to do so until some better ideas come along.

Thanks for the comments and the healthy debate.

WRBishop said...

I did not mean to simply say it won't work by any means. It may have been a winded response but the point I was trying to make, which would also be my solution, is to switch the demand from the Gas Supply/Demand curve to the Alternative Supply/Demand curve. This can only happen if the consumer makes it happen. We need to decide that Corn Diesel or Alcohol Food fuel will power our cars not the Government. I am all about good ideas and am very open to all opinions but to me, and I stess to me, Learsy's are non-starter ideas; meaning yeah they sound good but that is about it.

OPEC will go away on their own in time but in the meantime there is no nation on this planet which can tell them what to do. If we could have we would have.

John The Patriot said...

Good point, Bishop. Alternative fuels are the answer. The problem is we HAVE the technology for this. In fact, GM makes most of the cars that Brazil uses. But, for some reason, it's not happening here. My guess is, it's big oil and the money they use in lobbying to keep our transition to alternative energy from happening. That aggravates me.

Thanks for the comments

WRBishop said...

Yeah unfortunately until we the consumer force the big auto makers to start marketing those cars here they will have no incentive to do so. I mean it is really mind boggling that Ford can post a 1.1 BILLION dollar loss and still pump out the same thing day after day. I think if Ford switched to alternative based fuel autos (specifically hydrogen or ethanol), which it is reported that they are, they will really have a jump on a growing market and climb back into the black. This could be what triggers the change you and I are both speaking of.