"Sue OPEC"

Should we sue OPEC for anti-trust violations?:

Sue OPEC, by Thomas W. Evans, Commentary, NY Times: The president of the United States has the power to attack, and perhaps destroy, the Organization of the Petroleum Exporting Countries, the illegal cartel that has driven the price of oil over $130 per barrel. ... The president need simply allow the states to seek relief in the Supreme Court under our antitrust laws.

The oil ministers of the OPEC countries meet periodically to set production quotas ... and in the process establish an artificially high price for crude oil. Under our antitrust laws, this is illegal. Two years ago, Amy Myers Jaffe, an energy expert at Rice University, estimated that the real production cost was $15 a barrel, at a time when the price was approaching $60. Recently, an OPEC spokesman said the price could be $70 a barrel — a little more than half the current price — if speculation and manipulation could be eliminated.

Despite this illegal conduct, ... “under the current state of our federal laws the individual member states of OPEC are afforded immunity from suit brought for damage caused by their commercial activities when they act through OPEC.” ...

Fortunately, there is another way to sue OPEC. Even if actions by individual citizens fail, a seldom-used provision of Article III of the Constitution grants original jurisdiction to the Supreme Court over lawsuits brought by states against “foreign states”...

The attorneys general of the various states should sue OPEC as ... a foreign state. (A joint action by the attorneys general is the method the states used to collectively sue tobacco companies, Microsoft and health maintenance organizations.) ... If the states won the case, the court could recover substantial damages based on assets and commercial activities of OPEC member nations in the United States.

Still, even though the states are allowed to sue OPEC in the Supreme Court, they might not prevail. There are significant separation of powers issues. ...

That’s where the president ... comes in. If the Supreme Court decided to defer to the policies of the political branches, the states could ask the president to issue a statement permitting the lawsuit to go forward... This pathway was established in a statute passed by Congress in the wake of Cuba’s expropriation of American sugar interests. ...

Moreover, confronted with the likelihood of huge damages and restraint of its illegal conduct, OPEC, or some of its members, might seek a settlement establishing production goals that would provide a price closer to actual costs. The probable reduction in the price of heating fuel and gas at the pump might exceed the amount of the current federal stimulus package.

If the president allowed the states to sue OPEC, his actions would undoubtedly anger political leaders in the Middle East and create the need for diplomatic initiatives to limit the fallout. But how stable is the Middle East right now? And isn’t starting a lawsuit better than starting a war?

And, from the LA Times, Sue OPEC (same title, but different authors, different editorial pages):

As the national average price of gasoline raced toward $4 a gallon and airlines laid off workers by the thousands because of rising jet fuel costs, the House of Representatives took action: It overwhelmingly passed the Gas Price Relief for Consumers Act of 2008. The bill would have ... permitted the U.S. Justice Department to charge the Organization of the Petroleum Exporting Countries with violating American antitrust laws.

Even before the 324-84 House vote last month, President Bush pledged a veto, saying OPEC might retaliate against U.S. interests overseas or cut oil production further. But he didn't have to make good on that promise. Senate Republicans held the line for him, last week threatening a filibuster... That effectively killed the bill and, for now, any hope that the United States would finally start treating oil the same way it does computer chips, vitamins, rubber and all other products. ...

If monopoly power is distorting these markets, then sure, we should fix that just as we should fix other market failures (e.g. not fully internalizing environmental costs into production decisions). However, it's unlikely that this is the factor behind the run-up in prices. Monopoly power explains the level of prices, i.e. why price is $8 rather than $5, but it doesn't explain the change in prices, i.e. why the price would change from $8 to $12. There are ways to tell this story, e.g. a war or some other event giving a cartel the cover it needs to raise prices and blame it on external factors, but I don't think that's what's going on in oil markets today, at least I don't think this is a significant factor behind the oil price increases.

For these reasons, if we fix the monopoly power problem, it's unlikely that oil prices will suddenly plummet. Even if monopoly power is a factor, it's unlikely it's as important as the growth in world demand. And while I don't put a lot of faith in the speculation story, I'd be more likely to believe speculation was the cause of the price run up than I would monopoly power.

I don't mean to downplay monopoly power, I've been frustrated that we seem to have lost focus on this aspect of markets over the last few decades, and we don't worry enough about market power in public policy. And maybe breaking up OPEC would bring down the price noticeably (for now, world growth will continue to put upward pressure on oil prices). If so, then we should eliminate the monopoly power, there's no reason to pay more than is necessary (though if we impose carbon taxes to correct other problems in these markets, the price will go back up again, the difference will be who gets the extra revenue).

But I'd also hate to see the oil price discussion get diverted by false hopes. Breaking up OPEC might bring prices down some, but it won't bring back the good old days and the longer term problems remain. At some point we have to face that things are changing, that we have to adjust - we can't keep hoping for a return of the low oil prices of the past because those days aren't coming back (no matter how many holes we drill in Alaska or off our coasts). Maybe technology will save us, but that too will require that we face reality and devote the resources and effort needed to fully investigate and develop alternative energy sources.

Comments

[hari]

The focus of both articles sounds more like a tempest in a teapot! If you continue to feed this type of US-centric views on the public, disregarding (for example) how American domestic tarrifs protect local sugar industry (Fl), there is a good chance of influencing US public opinion to take war-like actions against OPEC down-the-line (eg. Iraq invasion!).

From a market perspective, there is surely something wrong when CFTC cannot provide (any) answers to Congressional investigation on how Texas Intermediate Crude(TIC) strike price is fixed on Futures Market. This is the spot price which consumers end up finally paying at the gas pump.

Let's recall how AGs/Fed & Treasury allowed SIVs to become the *cancer* which killed the housing mortgage market....and brought down the whole economy with present credit crunch.

CFTC must find out exactly how/why strike prices for TIC are not reflecting global supply conditions under OPEC regulated cartel production. There is a mighty leveraged speculation going-on here (with hi fi credits and whatnots) which must be exposed - even if 30% of TIC is/was sold on London futures market. There will be a ceiling now on Lon/TIC futures.

BTW OPEC will construe any (political) action against its cartel monopoly as a good reason to retaliate, forcing gas pump prices higher still....

[hari]

Info - Lond/TIC Futures market will now be controlled by volume, as agreed by CFTC/Lon yesterday.

[Michael McKinlay]

What might be more important is an independent audit of OPEC's stated reserves.

Some well known experts have found it very troubling that these reserves seem never to drop even after years of high production. Just enough reserves are found every year to replenish that which was pumped.

Years ago OPEC members used the expansion of reserves to increase their quota under OPEC rules and it seems that this tactic is still be used.

The entire world runs on oil and if there are far fewer reserves than advertised we will all be in for a very, very nasty surprise.

[hari]

To begin with, its Texas oilmen who have done the original surveys in Saudi and Gulf States. Western knowledge was required to do such surveys in order to be credible for the primary produces/OPEC.

Of course, OPEC has learnt the ballgame from Texas oilmen and maybe they can do surveys now on their own....However actual audit of existing reserves must be known to US Gov and Energy Dept, as well as, IEA (Paris).

[reason]

So the US wants to have an economic war with Saudi Arabia? Sounds smart to me!

Talk about biting the hand that feeds you.

[reason]

But isn't there a basic problem here. Why is anti-trust law applicable outside the country? The oil market is a world market, not a domestic market. I know the US calls there baseball finals the world series, but this is ridiculous.

[kio]

"Even if monopoly power is a factor, it's unlikely it's as important as the growth in world demand."

So, the US should actually sue these countries with the increased demand?

[anon]

What an incredibly asinine, unrealistic, impractical idea.

[David]

"Moreover, confronted with the likelihood of huge damages and restraint of its illegal conduct, OPEC, or some of its members, might seek a settlement establishing production goals that would provide a price closer to actual costs."

Restraints as in banning the import of their oil? Raising a tariff on it? Yeah, that's not going to have adverse effects for the US at all...

[bakho]

Lost in the memory hole are policies that did weaken OPEC and did decrease the price of oil. CAFE standards and oil efficiency efforts by Presidents Carter and Ford led to a reduction in US oil use by over 20% in the period from 1978 to 1983.

This dropped oil demand enough that OPEC was no longer able to control the price by 1985.
"From 1982 to 1985, OPEC attempted to set production quotas low enough to stabilize prices. These attempts met with repeated failure"

The Carter energy policies DID work for American consumers but it took several years and happened on Reagan's watch. Big Oil took a huge hit and closed many refineries and suffered through lean years because of Carter's energy policies. Carter energy policies were very bad for Big Oil. Because Big Oil has so many ad dollars, we constantly hear about how bad Carter's policies were instead of a more balanced view of winners and losers.

I doubt that we have the standing to "sue" them. We do have the ability to undermine both Big Oil and OPEC by a repeat of the policies of the late 1970s- new CAFE standards and energy efficiency plus oil alternatives.

[methinks]

This could only appear in a US newspaper and be treated as serious and newsworthy - calling OPEC illegal. These commentaries are akin to having Iraq pay for the US war and occupation. What chutzpah, coming from the biggest gangsters on the planet.
Does anyone else see the irony?

[Real Person from the Real World]

So the US wins the law suite, then what? Instead of paying expensive international lawyers to wrangle and get wealthy, why not set up a fund to create better hybrids or electric cars?

[ECONOMISTA NON GRATA]

"Sue OPEC".........?

That's funny.... very, very funny.... wouldn't you think it's a little late in the day...? Perhaps we should all go home and sleep on this one.... Let's not make any harsh decisions while we're in this emotional state of mind.

Where's my Bentley....? I seem to have misplaced my Bentley... Oh my god....!

Sue OPEC, you must be joking.

Best regards,

Econolicious

[David]

The election banter has begun in full force. The reason gas prices are high is because we don't drill off the coast and OPEC is a conspiracy.

That is likely to stir the conservative base (roughly 50 percent of the population), but it ignores several factors including: our geopolitical isolation from the Middle East after a failed and costly war, the dropping value of the dollar, our consumer-driven economy that takes way more than it produces, and the rising demand and wealth of India and China.

But, politicians are forced to 'do something', and telling people to conserve or that we need to massively restructure the public transportation system city by city isn't something people want to hear.

So... Here we go. The War on Terror has now been replaced by a War on Reality.

[Anon]

Have you all forgotten Hotelling's maxim that the monopolist is the friend of the conservationist?

[Ben Stein the Hack]

Suppose the President allowed this lawsuit to proceed. What would happen?

The OPEC members would immediately seek to divest themselves of all US assets that could be construed as belonging to their member nations. At the same time, OPEC would almost certainly shift to the Euro or some other currency. They would basically seek to disentangle themselves as much as possible from the US.

Would they continue selling oil to the US? Unclear.

But basically, this would kill the US economy. At the very least, the US stops becoming an investment for the biggest dollar-surplus countries (other than China). Our current account problems then become apparent. Worst case scenario, we hit a Depression that makes the Great Depression look mild.

[robertdfeinman]

There must be a scapegoat, there is always a scapegoat that is the cause of any present misery.

There are two reasons that scapegoating always arises: it helps get evil people into power and it diverts the public from the real issues.

The only thing different right now is that the various power groups haven't agreed on the scapegoat yet. Current candidates:
1. The oil states, especially Saudi Arabia
2. The seven sisters oil companies
3. Environmentalists
4. Speculators
5. The Chinese (with a nod to India)

Of course, there are some inescapable causes, but they reflect badly on us:
1. Overconsumption (SUV's, exurban sprawl, excessive consumerism, etc.)
2. Lack of conservation
3. Underinvestment in alternative energy including R&D
4. Overpopulation and rising consumption in developing countries
5. Resource depletion

Now if you were a politician which you rather say: drill off shore (which will add 0.5% to supplies for a decade in six to ten years) or impose mandatory driving restrictions (some combination of real CAFE standards, gas taxes, and other behavioral modifications)?

Sometimes years of profligate living just lead to a poorer future. This story gets told in literature all the time, but not in our present popular culture or by office seekers.

It's the silly season. Ignore it and enjoy the summer weather, the winter will be cold when heating homes becomes the focus and will come soon enough...

[Bruce Wilder]

robertdfeinman: "There must be a scapegoat, there is always a scapegoat . . ."

Indeed.

If we cannot jail Bush and his cronies for war crimes and rampant political and business corruption, maybe we could so offend Saudi Arabia, that they would stop lending money to us to finance our profligate ways.

[TigerPaw]

This is beyond hilarious. There are many reasons the world now collectively snickers at the US. This is yet another one.

[piglet]

Brilliant. The US should establish punitive tariffs against oil imports from OPEC members. That will teach 'em!

[kthomas]

How funny. Sue OPEC?

Those poor Shieks in Saudi always get the blame. This article is a joke, which is why I'm sure Prof. Thoma has posted.

Such a lawsuit would enrich....the attorneys.

[Nicolas]

Agree with TigerPaw. This is one of the most ridiculous posts on this blog. Countries could be sued not to extract enough oil for big American Hummers, but waging wars on foreign countries is just fine, really.

Since we are into suing, one of America's favourite sport, why don't Somalia, Pakistan, Iraq, Afghanistan or Sudan sue the US for attacking them. After all, murder is a more serious crime then collusion.

By the way, OPEC's high prices is probably its best gift to humankind. When global warming is just around the corner, it effectively forces everybody to abandon oil energy, even the most selfish polluters who didn't sign the Kyoto protocol.

[dilbert dogbert]

robertfeinman,
Cold winters: Reminded me of what the son of a coworker told me about the winter he spent with his wife's midwest farm family. They had a cold spell and ran the home heater night and day full blast and the highest the inside temp got to was 45 degrees. This was a kid who grew up in the SF Bay area.
Bring it on!!! Mission Accomplished!!!

[Frank]

This is pure nonsense and political posturing!

says...

mark i know this is micro
but i took a jagged ride thru your popstface here

example:

"Monopoly power explains the level of prices, i.e. why price is $8 rather than $5, but it doesn't explain the change in prices, i.e. why the price would change from $8 to $12. "

i'm with ya
why now for pete's sake
why not before and always...
...it requires an explanation
if firms/ or nations acting as if a firm
fail to use their monopoly power
to maximize profits ..always.
except if the firm has reason to low all the price
at least some of the time
to deter rival products entering the market
or
plain old fear of regulation

then as you write

"... a war or some other event giving a cartel the cover it needs to raise prices and blame it on external factors..."

demand and or supply shocks etc etc

like NOW eh ??
between a gulf war and two new thursty asian giants....

... but then comes your "but"
and u say not NOW

" .. I don't think that's what's going on in oil markets today, at least I don't think this is a significant factor behind the oil price increases "

in other words what

its a demand and or supply shock ..for real

what cause ??? a sudden vast shift in expected
future demand and supply
needless to say in opposite directions

then you thow us the kat nip

"And while I don't put a lot of faith in the speculation story, I'd be more likely to believe speculation was the cause of the price run up than I would monopoly power"

speculation spirals need a cause
as well as a cloak

even if its only
a hideously indulgent credit policy
turning a blind eye to specs latest mischief
after running from their house lot backed security
levitation trick
to this nasty set of raw and crude commodity spirals

hell its been
tornedo ally on the commodity exchanges

[Mark Thoma]

I've tried to learn something from the housing bubble, but maybe I haven't learned enough. People I relied upon at first - those who had detailed knowledge of these markets based upon analysis backed by evidence - said there was no bubble, and they explained why. They were wrong.

I hear the same thing again, there is no oil price bubble, and here's why (there's some language problems in using the term bubble interchangeably with speculation, or to describe any run up in prices, but I won't deal with that here).

My view is that it's probably some of both speculation and world demand growth, but what I don't know is how much of the run up to attribute to the various factors - world demand, speculation, and perhaps monopoly power. I guess one thing that would resolve it is a big price crash that then results in a new, much lower price level, but for now I am thinking and listening and trying to come up with a better answer to this question, i.e. a better answer about how to apportion the price change into various causes. I am open to the fact that a lot of it is due to speculation, but there are enough nagging questions here that it's not yet time to jump over and embrace that as the cause of most of the price change. But as more evidence accumulates, perhaps more clarity will emerge. But my main point is that no matter the cause, and no matter if problems are fixed, the long-run problems (environmental and high resource costs) remain.

[W P Gardner]

This reminds me of a Monty Python skit in which a number of UK ministers are trying to figure out how to raise more revenue for the state: one says, "I think we should tax all foreigners living abroad."

Take a good look at the commodities futures markets. Most of these markets are manipulated in one way or another by governments. The US does not have any jurisdiction over them (or is actively manipulating the prices itself). To expect free market behavior and no cartels in global commodity markets is crazy.

[roger]

It amazes me that the external factor - war and the threat of war - is simply left out of the narrative.

For five years, Iraq has underproduced, due to a war. Granted, we are beginning from an oil regime in which oil exports from Iraq were sanctioned, but it is as if they still are. At the same time, sanctions are put - for no good reason - on Iran's oil. Together, it is as if Saudi Arabia was taken off line.

Simple solution would be: make peace with Iran, take down the sanction regime, stop pressuring Iraq to privatize the oil fields and let them have the money the U.S. has frozen to re-invest in those fields, under the old Iraqi Oil ministry.After the moratorium and forgiveness of Iraq's debt, which was resolved in 2004, they were in an excellent position to borrow heavily to reinvest in the oil fields if the government had been independent and if it had simply retain the old Iraqi oil ministry's way of doing business - which is no different from most of the world's.

So if we are going to sue, sue Bush and Co. Yet, in a fortunate bit of poetric justice, the people who voted for Bush are the one's most hit by skyrocketing gas prices - thje ones with the longest commutes, the ones living in the exurbs and the country. Excellente!
The morons should pay more - it is a moron tax.

[anne]

A bubble in oil prices, if there is a bubble, should be seriously tried in the coming several days with the rise in prices for oil in China. I would suspect that the tensions in the Middle East are more of a bubbly factor.

[hari]

Follow the outcome of meeting in Saudi Arabia with producers and hedge funds/investment banks and you'll be finally convinced that there is not a supply constraint from OPECs side - speculation is being leveraged (similar to SIVs) by hi fi sector because of greed and (for sure) credit from Fed/supervised banking sector.

How long will it take to expose this *cabal* and its mafia-type exposure of American capitalism and its most negative features?

Inevitably the gloabl consequences will be serious for US Gov.

[Mark Thoma]

I included "tension in the Middle East" under the broad term "speculation," but perhaps risk factors due to regional instabilities deserve a separate category. This is another area where the analysis has puzzled me - risk due to instabilities in the region isn't cited very often as a major factor in all of this by the analysts, but it seems like it ought to play a role. So there are nagging questions here too. And overall, how much to attribute to all the factors that might have played a role? I haven't found a satisfactory answer to that question.

[hari]

The political tension in the Middle East is engineered by US Gov policy not only in Iraq but also vis-a-vis Palestine.

Although Israeli Gov (I guess) is *appeasing* in GWB language - by dealing with Hamas & agreeing to a cease fire.

[hari]

Mainland China has increased domestic gas price by 17% to contain impact of TIC spot crude price.

[hari]

If fradulent practices have now been investigated by FBI and +400 hi fi sector *inmates* have been taken into custody by FBI and also *charged* for fraud - including *top dogs* of BS/Hedge Fund (bankrupt due to its SIVs manipulation) - can anyone imagine if CFTC will be able to corner the hedge funds and investment banks including some pension funds which are speculating on strike price of TIC/spot prices - thereby creating the oil price bubble?

It's high time academics come to recognize/question the greed of hi fi sector in todays globalized markets and how it is successfully damaging US *capatalist mecca* world-wide.

[anne]

Mark Thoma:

"I included 'tension in the Middle East' under the broad term 'speculation,' but perhaps risk factors due to regional instabilities deserve a separate category. This is another area where the analysis has puzzled me - risk due to instabilities in the region isn't cited very often as a major factor in all of this by the analysts...."

Right.

Hari:

"Mainland China has increased domestic gas price by 17%...."

Selectively.

[hari]

The Housing Bubble and this on-going oil price bubble is teaching us to be not only on watch against the greed in hi fi sector due principally, I suggest, because US has become the first class debtor nation in the world today.

Globalization has led us into this new frontier of international financial transactions without frontiers, and Lon TIC spot market has been utilized for this speculative bubble - when CFTC is able to download all the transactions.

Some of us warned about this new frontier of wild-west financial transformation during GATT/WTO negotiations (before Asean financial markets meltdown) but Rubonomics enforced the new frontier of boarderless control for benefit of US hi fi sector.

It's this nefarious transformation of international trade policy which people like Dani have been arguing against...and (finally) getting a hearing now.

It is also reason why both mainland China and India are not prepared to *open* their domestic financial markets (Asean meltdown taught them a lesson!).

[hari]

There is no *selectivity* by Chinese action on oil prices.

[anne]

http://www.nytimes.com/2008/06/20/world/asia/20china.html?hp&pagewanted=print

June 20, 2008

China Sharply Raises Energy Prices
By KEITH BRADSHER

HONG KONG — Farmers were exempted on Thursday night from the latest increase in fuel prices, as were three provinces damaged in earthquakes last month: Sichuan, Shaanxi and Gansu provinces....

Power plants that rely on oil have also been shutting down because of high prices. While China relies mainly on coal and hydroelectric power for electricity generation, oil-fired plants are important in southeastern China....

China struggles each summer to generate enough electricity, although there have been a few signs that electricity generation capacity is beginning to catch up with demand. The government also announced on Thursday night that it was limiting increases in coal prices, which would help power companies afford their fuel — although at the risk of introducing the same kind of price control distortions to the coal market that have already caused problems for diesel users.

[JV]

How silly. Right up there with "UN Peacekeppers" and "World Court."

Just stop buying their oil. Duh!

Here is one for you.
http://newt.org/tabid/102/articleType/ArticleView/articleId/3514/Our-Declaration-of-Energy-Independence.aspx

If you don't like this idea please propose something more senseable than suing OPEC because you don't like gas prices at your local gas station.

If you are not part of the solution you are part of the problem! (The Devil made me say that!!)

[anne]

http://www.nytimes.com/2008/06/20/world/asia/20china.html?hp&pagewanted=print

President Hu Jintao and Prime Minister Wen Jiabao took the highly unusual step on June 5 of jointly ordering that tractors and other farm vehicles be given top priority for all supplies of diesel — usually the kind of measure that would be handled by far more junior officials....

Farmers were exempted on Thursday night from the latest increase in fuel prices....

The government also announced on Thursday night that it was limiting increases in coal prices....

[Lafayette]

Article: The oil ministers of the OPEC countries meet periodically to set production quotas ... and in the process establish an artificially high price for crude oil. Under our antitrust laws, this is illegal.

Sue them in what court? The deals are transacted abroad, so an American court has no jurisdiction in the matter. For the matter to be anti-trust in the US, it would have been necessary that OPEC be conducting business in the US to contravene American laws. All the countries selling the oil are sovereign states, and the prices are fixed based upon a quotation for Brent Crude (or its equivalent) in London.

Besides, try suing OPEC ... and see what happens when the oil starts arriving at US ports with increasing delays. OPEC has got Uncle Sam by the short 'n curlies -- or hasn't the author of this tedious article noticed ... ?

[Patricia Shannon]

Am I totally confused? Is this really April 1?

OPEC know that their oil won't last forever. They know they have to charge a high enough price now, in order to save and invest for the time when their oil runs out. Too bad there are so many Americans that are too dumb to do the same. What whiney wimps our people are.

[bob mcmanus]

Apparently, and despite 150k+ troops in Iraq right now, most people in the thread just ignored the last line of the article.

"And isn’t starting a lawsuit better than starting a war?"

And perhaps it should be ignored. But I remember that the author od Crossing the Rubicon moved to South America, and I remember the lines from Three Days of the Condor:

It's simple economics. Today it's oil, right? In ten or fifteen years, food. Plutonium. Maybe even sooner. Now, what do you think the people are gonna want us to do then?
Joe Turner: Ask them?
Higgins: Not now - then! Ask 'em when they're running out. Ask 'em when there's no heat in their homes and they're cold. Ask 'em when their engines stop. Ask 'em when people who have never known hunger start going hungry. You wanna know something? They won't want us to ask 'em. They'll just want us to get it for 'em!

Iraq was stupid and crazy. Too.

[Andrew]

An interesting and related question from rdan over at Angry Bear:

"Part of a staff report from reports from AIE and others mentioned. It occurs to me also, is there a difference between a ban and a moratorium?

In a Nutshell

_ Between 1999 and 2007, drilling permits for oil and gas development on public lands increased more than 361%.
_ Since 2004, the Bureau of Land Management has issued 28,776 permits to drill on public land; in that same time, only 18,954 wells were actually drilled.
_ Oil and gas companies have stockpiled nearly 10,000 extra permits to drill that they are not using to increase domestic production.
_ Onshore, of the 47.5 million acres of federal lands leased by oil and gas companies, only about 13 million acres are actually producing oil and gas.
_ Offshore, only 10.5 million of the 44 million leased acres are currently producing oil or gas.
_ Combined, oil and gas companies hold leases to nearly 68 million acres of federal land that are not producing oil and gas.
_ The 68 million acres of leased, inactive federal land could produce an additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day.
_ That would nearly double total U.S. oil production, and increase natural gas production by 75%.
_ 4.8 million barrels of oil equals more than six times the estimated peak production from the Arctic National Wildlife Refuge.
_ Development of and production from the 68 million acres currently under lease but not in production would cut US imports of oil by one third.

The magnitude of the numbers caught my eye. Does anyone have any knowledge of why the leases are not being developed?"

[gordon]

If the US Govt. were concerned about the possibility of an oil bubble raising prices, it need only threaten to sell some of the strategic reserve at cost price. The threat alone would probably burst any bubble which may be out there, or at least cause a substantial leak. Come to think of it, since the US Govt. is obviously buying crude itself to squirrel away in the Louisiana and Texas caverns, maybe it could continue to operate as a contract purchaser at prices below the current, possibly bubbled, spot price.

But what Roger said may be the best answer of all.

[jamzo]

it was said that the stock market was not bubbling

then there was the DOT.COM CRISIS

it was said that electricity prices in california were not bubbling

then there was ENRON

a very short time ago it was said that housing prices were not bubbling

then there was SUBPRIME MORTGAGE CRISIS

now it is said that oil prices are not bubbling

how much longer will the financial markets be "gamed"

financial regualtory structure can the need to fail?

[Patricia Shannon]

http://www.sciencedaily.com/releases/2008/06/080619175522.htm

Expect More Droughts, Heavy Downpours, Excessive Heat, And Intense Hurricanes Due To Global Warming, NOAA

ScienceDaily (June 20, 2008) — The U.S. Climate Change Science Program and the Subcommittee on Global Change Research has released a scientific assessment that provides the first comprehensive analysis of observed and projected changes in weather and climate extremes in North America and U.S. territories. Among the major findings reported in this assessment are that droughts, heavy downpours, excessive heat, and intense hurricanes are likely to become more commonplace as humans continue to increase the atmospheric concentrations of heat-trapping greenhouse gases.

[Patricia Shannon]

http://www.msnbc.msn.com/id/25268181/

MSNBC staff and news service reports
updated 2 hours, 36 minutes ago

WASHINGTON - Droughts will get drier, storms will get stormier and floods will get deeper with a warming climate across North America, U.S. government experts said in a report billed as the first continental assessment of extreme events.

Events that have seemed relatively rare will become commonplace, said the latest report from the U.S. Climate Change Science Program, a joint effort of more than a dozen government agencies.
...
There has been an increase in the frequency of heavy downpours, especially over northern states, and these are likely to continue in the future, Thomas Karl, director of the National Climatic Data Center, said in a briefing Thursday.

For example, Karl said, by the end of this century rainfall amounts expected to occur every 20 years could be taking place every five years.
...
The report itself noted that "intense precipitation (the heaviest 1 percent of daily precipitation totals) in the continental U.S. increased by 20 percent over the past century while total precipitation increased by 7 percent."
...
At the same time heavy rains increase, there'll be more droughts, especially in the Southwest, Karl said.

"When it rains, it rains harder and when it's not raining, it's warmer — there is more evaporation, and droughts can last longer," he explained.

The Southwestern drought that began in 1999 is beginning to rival some of the greatest droughts on record including those of the 1930s and 1950s, he added.

Gerald Meehl, a senior scientist at the National Center for Atmospheric Research, said there has been a trend toward increasing power in hurricanes since the 1970s in the Atlantic and western Pacific, a change that can be linked to rising sea surface temperatures.
...
The full report is online at www.usgcrp.gov

[tim stevens]

Typical liberal (and other un-Americans) response: sue 'em.

Terrorists problems? sue 'em.
McCain not a citizen? sue him.
Not enough illegal aliens in the US, get the ACLU, La Raza etc to sue.
Got flying Imam problems? CAIR will happily sue.
Al Gore didn't win? Well, he sued didn't he?
Don't like high gas prices? Well, let's sue OPEC?

BTY economics 101 you dummies. The purpose of prices is to convey the scarcity of something. Its not a measurement of the greediness of big bad oil.

[jdd]

Incredibly stupid editorials written by second-rate legal minds with absolutely zero understanding of cartel behavior, politics, litigation reality, or the real-world facts of oil.

Initially, why would the USA want to take a belligerent act towards the Saudis? That is what "suing" OPEC would do. Unless things have changed in the past 10 years, only S.A. has excess capacity for production. It controls OPEC because it decides whether to use all of its capacity. The other nations all cheat on their quotas. Should the US arrest Saudi diplomats? What would that achieve?

Economically, the theory is just plain dumb. OPEC doesn't want the price of oil this high. At this price, alternatives become feasible. OPEC learned this lesson in the 1970s when it restricted supply, drove the price up, and that led to many other, non-OPEC sources. Then the price went way down. Not good business.

In terms of litigation, the only option would be a civil judgment, because you can't politically just arrest a bunch of foreign diplomats -- they are immune. And exactly how will that judgment be enforced and against whom? Our allies? Great move. Or against Iran? Oh, wait, aren't Iranian assets already frozen? The US really needs to chase out sovereign wealth funds right now, considering they are propping up our banking system.

I can't believe the NY Times actually published the piece where the idiot says that suing could force "OPEC" to price closer to actual cost. Yeah right. More like, if anything, the lawsuit, if it could proceed in say D. Fantasyland, would lead to the defendant nations simply selling on the market to other countries. Either non-defendant countries would make up the difference or the supply available to the US would be reduced, driving prices up. Net, net, either a negative effect or zero effect. Well, except for the lawyers who would be paid, I assume, from the treasury.

These professors should all be fired for authoring this garbage. Not for political reasons. But for displaying that they not only have no clue in their area of "expertise" but also for existing in a delusional state where they don't realize how incredibly stupid they come off.

[reason]

In a later post, the loss of natural asset value is treated as a cost of extraction. This is more realistic than thinking the cost is the dollar labour and materials cost of extraction is the only cost.

[reason]

jdd...
I'm not against having idiocy appear in papers like the NY Times. I'm sure they'll publish a flood of outraged responses (at least in the letters section). It is far better having it there than in a Murdoch rag.

[anne]

"Typical liberal (and other un-Americans) response...."

Typical idiotic rottenness.

[reason]

Anne
the correct answer to Tim Stevens here is to point out that the (mostly) liberal commentators regard this particular article as idiocy. That should cause him some cognitive dissonance.

[anne]

Mark Thoma:

"I don't mean to downplay monopoly power, I've been frustrated that we seem to have lost focus on this aspect of markets over the last few decades, and we don't worry enough about market power in public policy. And maybe breaking up OPEC would bring down the price noticeably (for now, world growth will continue to put upward pressure on oil prices). If so, then we should eliminate the monopoly power, there's no reason to pay more than is necessary (though if we impose carbon taxes to correct other problems in these markets, the price will go back up again, the difference will be who gets the extra revenue)."

Right.

[Remember, though, conservatives never ever go to court.]

[hari]

Anyone suggesting the breaking up of OPEC is surely living in a fantasy land....

Oil being a scarce commodity will inevitably continue to exert enormous pressure on global economic development as emerging economies scale up their production systems. It's only when alternative to oil is found and is able to compete with hydrocarbons, there is a chance of a different energy market and scenario

[anne]

"Typical liberal (and other un-Americans) response...."

Thomas W. Evans, who was an adviser to Presidents Ronald Reagan and George H. W. Bush, is the author of “The Education of Ronald Reagan.”

"Typical liberal (and other un-Americans) response...."

[methinks]

The US can't solve the problem of its inordinate dependence on fossil fuel? The technology is not 10 or 20 years away -its here now. The Japanese previewed an automobile the other day that runs on water. It gets something like 156 miles per liter of H2O. Of course, this wasn't front page news. We also have hydrogen, solar and fuel cell technology, right now.
So what stands in the way? Our Lords and Masters -the ones we kill and die for. When they can profit from any new technology in the way they profit from fossil fuels, then and only then will we see it.
Most people who suggest solutions to the energy, food, or carbon "crisis" have absolutely no clue as to what or who stands in the way of any serious resolution.

[Dim Heathens]

Typical conservative (and other uber-Americans) response: whine, blame liberals and call them un-American.

Terrorists problems? Whine and blame liberals.
McCain losing the election? Whine and blame liberals.
Too many immigrants in the US? Whine and blame liberals.
Got flying Imam problems? Whine and blame liberals.
Al Gore won? Whine and blame liberals.
Don't like high gas prices? Whine and blame liberals.

BTY blogging 101 you dummies. The purpose of commentary is to convey an individual's idiocy on any subject. Whining and blaming is not a good measure of intelligence.

[Lafayette]

The OPEC members would immediately seek to divest themselves of all US assets that could be construed as belonging to their member nations

Iran has already done so. No flies on them.

The scenario is not What if? but So what? America is still the country with the largest FDI (Foreign Direct Investment) destination and the most open economy for investment purposes. Those countries buying assets on sale will be other than OPEC.

Like Russia (or China redeploying its dollar overhang), for instance.

Anyone for Russian lessons? Nyet?

[anne]

http://www.nytimes.com/2008/06/20/opinion/20fri3.html?ref=opinion&pagewanted=print

June 20, 2008

Running on Vapors

Honda Motor chose a good week to introduce its new hydrogen-powered car. With gas prices rising above $4 a gallon, we could hardly be more eager for an alternative energy source, especially one that claims to have no bad effects on the environment. A car powered by a ubiquitous, inexhaustible gas that emits nothing worse than water.

Where do we sign up?

Still, as Honda announced that it would start leasing its FCX Clarity — and that the actress Jamie Lee Curtis would be among the first customers — it called to mind the vast distance between developing a cool set of wheels to turn heads on Southern California's freeways and producing a mass-market car.

The Clarity is meant to look like a regular car built in a regular factory. But Honda is only making 200 between now and 2010. And it can't help bringing to mind the time-traveling DeLorean in "Back to the Future" that ran on beer and banana peels.

Hydrogen has long been the dream of car visionaries. During the oil crisis of the late 1970s, there was a $33,000 Dodge Omni retooled to run on hydrogen. Today, Toyota and General Motors have prototype hydrogen cars. But there is still work to be done.

Honda's president said that the Clarity costs several hundred thousand dollars to make. The lease of $600 a month is heavily subsidized. To lease one, you must live in a small slice of Southern California, close to one of the few hydrogen fueling stations in the country. There's also a subsidy on that. It costs the fueling station at the University of California, Irvine, about $10 a kilogram for hydrogen that it will sell for $5, according to Scott Samuelsen, director of the university's National Fuel Cell Research Center. Without that subsidy, the Clarity would get about 7 miles to the dollar — at current gas prices, about the same as a Honda Accord.

There's less than meets the eye on the environment, too. Hydrogen usually needs to be peeled off other molecules, and the most common method gives the Clarity a bigger carbon footprint than the Toyota Prius, Mr. Samuelsen said. Still, skeptics once said the Prius would never become a mass-market car....

[methinks]

When I said there was an auto that ran on water I didn't mean hydrogen with water as a byproduct. Google the Japanese company Genepax, or watch this short video.
http://www.youtube.com/watch?v=eb9urNUFzAM

[Patricia Shannon]

methinks,

I appreciate your link to the "car that runs on water", but I believe this thing is either a joke or a fraud. Or simply a misunderstanding of the whole energy cycle.

They mention an "energy generator". Where does the energy converter get the energy to take the hydrogen from the water? If there is such an energy converter, it must take more energy to create it in the first place than it produces. For instance, when we burn fuel, the energy originally came from the sun. The amount of energy produced by the fuel is less than the amount of solar energy used in the first place, millions of years ago in the case of oil and coal, a few years or decades ago in the case of wood.

[methinks]

PS:
I always enjoy your comments. This is how the system is explained http://www.engadget.com/2008/06/13/genepax-shows-off-water-powered-fuel-cell-vehicle/

"The key to that system, it seems, is its membrane electrode assembly (or MEA), which contains a material that's capable of breaking down water into hydrogen and oxygen through a chemical reaction. Not surprisingly, the company isn't getting much more specific than that, with it only saying that it's adopted a "well-known process to produce hydrogen from water to the MEA." Currently, that system costs on the order of ¥2,000,000 (or about $18,700 -- not including the car), but company says that if it can get it into mass production that could be cut to ¥500,000 or less (or just under $5,000)."

However, my point from a previous post is that the technology to solve our problems with fossil fuels is already here -and it is cost effective. For a start, Congress could mandate that all new vehicles after 2011 be hybrids. We could take 20% of the "defense" budget and use it to fund R&D in alternative technologies. But you and I know that none of this will ever happen. Why? Because there is a class that stands in the way.

[Lafayette]

methinks: However, my point from a previous post is that the technology to solve our problems with fossil fuels is already here -and it is cost effective.

That may be true. But, there is no clear path given by any present technology. Gasification of fossil fuels is technically possible, but is a hydrogen powered economy either practical or less expensive? Consider these arguments, here from WP.

Also from WP: However, there are both technical and economic challenges to implementing wide-scale use of hydrogen vehicles, as well as less expensive alternatives. The time-frame in which challenges may be overcome is likely to be at least several decades, and hydrogen vehicles may never become broadly available. For mobile applications, hydrogen has been called "one of the least efficient, most expensive ways to reduce greenhouse gases"

[NB: The above quote is taken from a WP article that does not site comparative costs of transforming fossil fuels into hydrogen.]

And, from the National Renewable Energy Laboratory: The NREL PEC system produces electricity from sunlight without the expense and complication of electrolyzers, at a solar-to-hydrogen conversion efficiency of 12.4% lower heating value (LHV) using captured light. Research is underway to identify more efficient, lower cost materials and systems that are durable and stable against corrosion in an aqueous environment.

For the above to be competitive, the conversion ratio must be quintupled (imo). That's at least a decade away.

Besides, hydrogen would require implementing another distribution system. Whilst electric cars would recharge from an existing system and at night, thereby exploiting an electrical grid that is largely under employed during those hours.

Frankly, I support arguments that militate for a multiple approach to new energy supplies, both clean fossil fuels and renewable energy. We shall always need energy, so nothing will go wasted.

[methinks]

Lafayette,
Let me answer you with a few questions. Why did the automotive industry buy and dismantle the trolley system? Why were they allowed to? Why did congress phase out tax credits for hybrids like the Prius? Why did Raygun remove solar panels from the White House?
The technology is here, right now, to cut our oil consumption in half within the next 10 years. If you don't see this it's because you don't want to.
And as I said earlier, the problem is a class of people who stand in the way.

[Lafayette]

methinks: The technology is here, right now, to cut our oil consumption in half within the next 10 years. If you don't see this it's because you don't want to.

You've not read my posts on the matter. The technology "being there" is a matter of cost-of-usage and either experiments in a laboratory or current off-the-shelf mechanisms.

Cost, furthermore, is a matter of taxation. You are right to have misgivings that tax rebates are no longer given for electric cars. Rebates are key to the adoption of energy technologies, old or new.

France has introduced what they call "bonus-malus", meaning that cars that pollute "less" or "more" than a norm are either given rebates or surtaxed accordingly. Meaning that over-polluting cars pay for the under-polluting vehicle rebates.

Geothermal heating is a good idea for individual houses with sufficient land for sub-surface heat captors. I had a tax rebate, here in France, of half the cost of a geothermic heat pump. My electricity bill was cut to 95 euros ($150) a month -- for a three bedroom family-sized house. I have no other energy bill.

Because geothermal energy is constrained to surface land, obviously other renewable sources are necessary. This week's Economist gives an excellent run-down of the alternatives, where they are in terms of development and their potential.

What is obvious, however, from that article is that whilst American Venture Capital is looking for "Next Great Idea", other nations are going ahead with installing current technology. The Danes have already built massive wind farms in low-water seas off their coast. Spain has built the largest-to-date solar farm in Andalusia.

So, I suppose as regards technology usage, we must agree. Let all technologies bloom ... the market will then decide what suits best each requirement.

Nonetheless, some technologies, in order for an immediate uptake, will evidently need some prompting ... from an administration that care about ecology.

The market solution has brought us to a newer cost paradigm, which is goodness. Still, to assure that existing energy-technologies have a quick uptake will require some prompting from the government.

[Patricia Shannon]

methinks

Thank you for the link. I'll read it after work.

[Patricia Shannon]

methinks,

I meant to add that I agree with your other comments.

[Lafayette]

methinks: the problem is a class of people who stand in the way.

I don't dispute this. That "class of people" are linked to either BigOil or BigCoal.

Still, from what I know of the subject, the real saviour in the short-term is Nuclear Energy. The technology is there, the fuel is abundant in America (though a bit dangerous to extract), and it delivers more kilowatt power for the investment necessary than any other alternative. Or even, all the other alternatives put together.

There are 34 nuclear plants projected but not yet licensed for construction. Why not? Certainly because this administration is biased in the matter.

The above list of 34 nuclear generator license applications can be consulted in this Congressional report, here, from which this comment is also extracted: Federal energy policy may play a crucial role in determining whether the current interest in new nuclear reactors leads to a significant expansion of the U.S. nuclear power industry. Nuclear opponents have long maintained that nuclear power will never be economically viable without federal subsidies and should be abandoned in favor of safer alternatives.

But supporters contend that nuclear power will be vital in diversifying the nation’s future energy supply and reducing greenhouse gas emissions, and that federal subsidies for at least the first few new reactors are justified. The greenhouse gas issue has also prompted some environmentalists to support nuclear power expansion.

If additional capacity needs to be added, then that electricity can only come from coal-powered plants, gas-powered plants or nuclear plants. Nuclear plants take two years longer to build than the others, which take four years. And yet, it generate more electricity than the others.

Given America's laxity in the matter and given the time-delay-to-operation for the number of kilowatts effectively generated, that nuclear generation should be given the priority. Immediately.

America has no longer the luxury of polemicizing. A decision must be taken.

[hari]

Today's news from Rhineland - why not reopen the coal mines at these unit prices with improved technology? The Min of Energy said they've not closed the pits down either...it will be subject to reconsideration given current prices for crude.

[Lafayette]

A sad tale

Here is the DOE forecast of planned capacity additions to existing electrical generation -- the largest being carbon based, both coal and gas.

What's the total from non-CO2 emitting nuclear energy? Zip.

[Lafayette]

hari: The Min of Energy said they've not closed the pits down either...it will be subject to reconsideration given current prices for crude.

Germany, in consummate stupidity, passed a law to close its nuclear plants. Therefore, it is busy building humongous coal-fired plants. The open-air mines are working, scaring the landscape. I saw a reportage on TV just yesterday.

The forests around Germany are slowly dieing and it is visible to the naked eye - bare brown pine tree-trunks pointing their fingers skywards.

German Greens are eggheads, just the sort of intelligentsia that can lead a nation to ruin. The Socialists did the same in France with the introduction of the 35-hour work week. Ten years later the French are wondering why their standard of living has eroded.

The simple fact that man exists pollutes the earth's ecology. Our choices, in terms of earth-care, are simply selecting and implementing pollution that affects it the least.

Or, not selecting policy, like lead-heads idiocy regarding Kyoto ... a well-written scenario to please vested oil and coal interests. Both produce the overwhelming majority of electricity production in America.

What went wrong? Enron went wrong.

[Lafayette]

Fred: ... and then impose tariffs to pushback against the Asian mercantilists.

Which is the sort of economic policy that predated the Great Depression and helped spark it.

And which will likely ignite another global Trade War that will have devastating effects on World Economies (particularly in the US and the EU), which is the only engine working presently to increase growth.

And, which will provoke the Chinese to massively divest itself of its dollar holding, thereby plunging the dollar.

If this is your Magic Bullet, may I suggest you look for another gun?

[Lafayette]

PS: Where does the energy converter get the energy to take the hydrogen from the water? If there is such an energy converter, it must take more energy to create it in the first place than it produces.

Yes, electrolysis of water, to separate the hydrogen atoms from the two oxygen atoms requires, more energy input than it yields.

There are, however, other ways. They are explained, here.

Using nuclear generated electricity to employ electrolysis will allow hydrogen to be used in fuel cells. However, will fuel cells be more or less efficient than battery-powered engines, charged overnight from the residential electrical socket?

That depends upon the type of transport being considered - small weights over small distances or large-weights over large distances.

When all these variable are factored into a National Transportation Grid (who transports what and where), then it becomes pretty much obvious that One Solution is not optimal in every circumstance.

However, I do feel that long-distance hauling (of people and cargo) should be given back to railroads who develop Hi-speed Trains, run on nuclear driven electrical grids over long distances. And, even, urban transportation as well. Commercial jet aircraft are in for a painful paradigm shift in the not so distant future.

The idea of "every home with a car for all usages" is a fine idea ... whose end has probably come? Unless a family wants to spend most of its discretionary income paying for the freedom it offers.

[Carl the Econ student]

It seems pretty easy to me. The whole free trade world thing is we pay low prices on Chinese goods at Wal-Marts. These goods may or may not contain lead or other harmfuls. If we start testing these products and finding these harmfuls, then pull them off the shelves. It takes China a little while to come around and make a safer product. If not that then start holding goods from China and India in our ports. Sooner or later they will run out of demand and the production goes down. If production goes down the demand for oil goes down. If that happens the world price goes down. This would also help our balance of trade deficit, which grows at a rate of over $23,000 a second. Instead of buying the two-dollar flip-flops made in China that give you lead poisoning. Go for the ten-dollar brand name made in a reputable country. The amount of money you save on medical bills you can use to put gas in the SUV.

[Lafayette]

Econ student: The whole free trade world thing is we pay low prices on Chinese goods at Wal-Marts.

I'd give this nonsense a C-. (At least there are no spelling errors.)

The "whole" of free trade is a LOT more than just Chinese trade with America.