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David O’Reilly Speech on Energy Policy

Still traveling until middle of next week (in London right now, back to Amsterdam tonight, California tomorrow), so limited communications from me until then. Lots going on in the world of energy. Oil has cracked $100 again (and again), which is a major correction in just a couple of months. The House passed a drilling bill, but as Geoff Styles accurately points out (and his detailed look is definitely worth a read), there are some ‘poison pill’ measures that will severely limit the chances that the bill will become law.

In the interim, I was just e-mailed a copy of a speech that Chevron CEO David O’Reilly delivered a couple of days ago on the topic of energy policy. Since I have only skimmed it, I neither endorse nor denounce it. I just thought I would put it out there and let readers have a crack at it.

———————–
“The New Consensus”

David J. O’Reilly

Metropolitan Club, Washington, D.C.

September 17, 2008

Good afternoon.

Thank you Wayne, for your kind introduction.

Before I get started, I want to take a moment to express my concerns for the many people of the Gulf Coast who were affected by hurricanes Gustav and Ike. I’m sure I speak for everyone in the room when I say that our thoughts are with those individuals and communities affected by these devastating storms.

As we meet here today, let me assure you the men and women of Chevron and indeed the entire industry are working hard to restore energy to the impacted areas.

This club has been an important meeting place since it was founded during the Civil War … and Abraham Lincoln was leading the struggle to keep this great country intact.

The club has had many distinguished members.

One can only imagine the conversations that have occurred here … about the reconstruction of our country … about the pathway out of the Great Depression … and about the role America should play in the world …

Ideas that have shaped this country have been tested here. They have solidified into important decisions made just steps away in the White House. Teddy Roosevelt, who was a club member, captured the spirit of this place when he said, “In a moment of decision…. the worst thing you can do is nothing.”

I appreciate your willingness to hear from an out-of-towner in the midst of a Presidential election – an important moment of decision for our entire country.

For me, it’s a bit like speaking to a gathering of play-by-play analysts on the eve of the Super Bowl. What can I tell a room full of political pros about this election that you don’t already know?
I’ll give it a try.

Energy will be an important … vote-determining issue in this election.

Polls show that voters consistently rank gasoline prices as their number two concern, second only to the economy. The two are inextricably linked. High energy prices drive inflation and squeeze family budgets. And the availability of affordable energy is a cornerstone of our prosperity.

Americans are now linking the country’s energy challenges with national security and foreign policy concerns. A poll earlier this year noted that reducing dependence on foreign sources of energy was seen as the top strategy for enhancing national security . . . ahead of improving our intelligence operations!

Public concern over prices hasn’t been this high since the oil shocks of the 1970s.

And with good reason.

The global energy market has been reshaped in ways that are deeply affecting our economy – and those effects are intensifying.

This renewed public concern presents an opportunity.

W. Edwards Deming – one of America’s respected business thinkers – once said: “It is not enough to do your best; you must know what to do, and then do your best.”

The good news is, we know what to do. For over five years, informed observers have seen this situation coming, and offered solutions.

The bad news is … public policy has not kept pace.

Our political system doesn’t deal easily with complex problems requiring long-term solutions.

Our political system moves – and was designed to move – when people demand movement.

And therein lies the opportunity.

Right now, Americans want answers. They want action. They are seeking reliable, affordable and abundant energy – they are seeking energy security.

The worst thing we can do is nothing. We have already lost time. The urgency is clear.

There have been steady, inexorable changes occurring in the global energy system. It is being stressed by growing global demand … and all of us are being affected.

We have reached a moment of decision when it comes to energy policy.

In his new book, Hot, Flat and Crowded, Tom Friedman framed the need for change saying “it will be the biggest single peacetime project humankind will have ever undertaken. Rare is the political leader anywhere in the world who will talk straight about the true size of this challenge.”

This election is an opportunity to make comprehensive and realistic changes to our approach to energy. The time is now for the Presidential candidates to put forward real energy plans … not just campaign slogans.

And, it’s time for a real debate.

The questions I get asked more than any other usually start with the word, “Why?”

“Why are we paying so much to fill up our tanks?

“Why have energy prices risen so far, so fast?

“Why don’t you think oil prices will return to $20 per barrel anytime soon?”

For 20 years, oil traded in a relatively narrow band, fluctuating between $15 and $25 a barrel. Sometimes the price dipped, sometimes it rose. But the effects weren’t overly negative . . . and they had no detrimental effects on the economy.

Quite the opposite, in fact: consistently low energy prices were a major factor in the economic expansions of the 1980s and 1990s.

In the 21st Century, that’s changed. Oil prices have climbed steadily. And the magnitude of the rise has been stunning. Instead of prices in the $20 per barrel range, recently we’ve seen oil prices in the $100 per barrel range.

The answer to the question “why” is a concept I called the “New Energy Equation.” I raised this idea over four years ago here in Washington, and today its implications are more acute than I expected.

There are four reasons that explain why prices have gone up, and why they are likely to remain relatively high.

First is the emergence of a growing middle class around the world which is driving energy demand. There are more than 6 billion people on earth. Everyone in this room is among the so called “Golden Billion,” enjoying a standard of living that many can only dream of.

At the other end of the scale are 2 billion people who have essentially nothing – no electricity, no safe water, living on less than $2/day. In the middle are billions who aspire to our standard of living. The good news is that each year many are beginning to achieve it. But the consequences of this trend are increasing demands for food, goods, services and commodities of all kinds.

Second, geopolitical dynamics continue to put upward pressure on prices. I don’t just mean conflict in the Middle East, although that certainly plays a role.

The situation is far more complicated.

We are seeing a resurgence of “resource nationalism” – the impulse by governments to tightly control domestic resources and exclude foreign investment. As prices increase, these geopolitical dynamics intensify.

Third, new supplies of oil resources are challenging to find and extract. Since we started using oil, most of the easy-to-reach, inexpensive supplies have been used. What’s left is harder to find … more difficult to drill … and more expensive to produce.

And fourth, we have deliberately constrained our own supply by placing limitations on domestic exploration and drilling. In the past 20 years, America’s production has fallen by nearly 4 million barrels of oil a day – this is the equivalent of taking a major oil producing country’s supply off the world market.

And over the same period, U.S. demand grew by more than 4 million barrels per day. Less supply, in a time of rising demand, means higher prices.

Last year global production barely exceeded demand. Spare capacity stood at just over 2 million barrels per day. World oil production barely increased.

Last year, 7 of the top 15 oil producing countries experienced flat to declining production compared to 2006. Among them were Mexico, Venezuela, Norway, and Nigeria.

Although in recent months the supply and demand balance has improved, there are accumulating risks to the supply of reliable, affordable energy in the future.

The fundamentals underlying the global energy market have changed. And they aren’t going to change back.

But there are solutions.

And the necessary actions we must take become apparent when people understand the realities of energy.

Let me provide you with some information about our energy system.

Americans are the largest consumers of energy in the world. And we have benefitted greatly from it. We generate about a quarter of the world’s gross domestic product and consume a quarter of the world’s energy.

We are becoming more efficient in our use of energy. Today, we use half of the energy per unit of GDP compared to 40 years ago.

So where does this energy come from?

Almost 40 percent is oil … about 23 percent each from natural gas and coal … 8 percent is generated from nuclear.

Renewables make up 7 percent … of that hydro power contributes about half.

Less than one half of one percent comes from wind; solar is even smaller than that.

We import about two-thirds of our oil, and 15 percent of our natural gas. All of the rest of our energy – coal, nuclear, renewables – is produced here at home.

Let me dispel one myth. The U.S. is not an energy weakling. Our country is an energy powerhouse.

America is the number 1 producer of nuclear power and ethanol….

We’re the number 2 producer of coal, natural gas and wind power …

And we’re the number 3 producer of oil.

When looking at the energy system from a global perspective … the picture is very similar. Like America, 85 percent of the global economy is powered by oil, natural gas and coal. And by 2030, experts predict we will need 50 percent more.

Now, I want to make one important point … and that point is “scale.” The scale of the global energy system is simply enormous … and destined to get much larger. Today the world consumes, from all energy sources, the equivalent of 10 million barrels of oil each and every hour. That’s about 120,000 gallons per second.

These are key facts about energy. And facts are the antidote to all the myths, half-truths and impossible contradictions, which too often pass for energy “thinking.”

For instance:

We want to decrease our reliance on foreign oil. But we restrict domestic production and call on OPEC to increase its production.

We want less carbon, but are fearful of nuclear power, one of the few scalable sources of energy that generates no carbon.

We want energy companies to invest their profits to provide new supplies, but we threaten to take away those profits through “windfall profit” taxes.

Time and time again, someone tells us that he or she has found the solution to all our problems. Some are purely phony … some are real … but not realistic.

Renewable energy is very real. We need it. It will be an essential part of the future I envision. But it’s not realistic to suppose that it can replace conventional energy in a timeframe that some suggest.

Our energy system has required massive investment over many decades. To supply the daily needs of 300 million people here in the U.S. with new energy sources requires time and money – lots of both! And it’s unrealistic to think major parts of it can be replaced in just a decade.

Now, I believe we will develop and implement new technologies that will move our economy toward a greater reliance on renewables and alternatives. But the development and application of new technology always takes time.

Look at the computer industry. It took about fifty years from the development of the silicon chip before computers were a widespread part of everyday life.

Will energy alternatives take that long? I hope not. But we need to be realistic.

Even with the rapid growth of renewables, experts estimate that over 80 percent of global energy consumed in 2030 will still come from oil, natural gas and coal.

These conventional energy sources will remain indispensible to meeting demand for decades to come, even as we pursue greater contributions from renewable energy.

The flipside to misplaced hope in alternatives is the notion that we can simply drill our way out of the problem.

We can’t. There aren’t enough domestic reserves … and what there are will take time to develop. But more access will help!

We need to get beyond simplistic solutions – slogans, really – and focus on our primary objective – energy security. The reality is that there are no silver bullets, no quick and easy answers.

Massive scale…. long lead times… tight spare capacity … growing demand … these are the realities we face.

There are solutions. And those solutions are not “either/ or,” …

It’s not a choice between “more drilling or more efficiency.”

It’s not a choice between coal or wind.

It’s not a choice between nuclear or solar.

We need it all!

We need greater efficiency and more renewables… we need nuclear and clean coal … we need wind and oil and natural gas.

Our path to energy security cannot rely on just one option – it must pursue many options.

Last year, the National Petroleum Council published a study titled “Facing the Hard Truths about Energy”.

It laid out five essential and urgent steps to achieve energy security Let me go through them:

First, moderate demand by increasing energy efficiency in all sectors of our economy.

Second, expand and diversify all U.S. domestic energy supplies.

Third, strengthen global and U.S. energy security through a renewed commitment to energy trade and investment.

Fourth, enhance science and engineering capabilities to meet these new challenges.

And fifth, address greenhouse gases through a transparent, predictable carbon policy.

Let me say a little bit more about this last point, because I know how much it is discussed today.

One of the largest contributors to greenhouse gas concentrations in the atmosphere is fossil fuels.

There is no doubt that carbon dioxide concentrations in the atmosphere have increased. And although there is uncertainty about the future impacts on climate, most people agree that it’s not a good idea to continue unrestricted hydrocarbon combustion. And I agree.

But how should we reduce emissions in a realistic timeframe given the scale of the energy system and the growing demand?

Once again, many proposals are being discussed.

Some talk about reducing emissions by 20 percent by 2020. It sounds good! 20 by 20! Others talk about reducing emissions by 50, 60 or even 70 percent by 2050.

Even with the best of intentions, it will be challenging. If we were to shutdown the entire global transportation system today – all cars, trucks, buses, trains, planes and ships, we would reduce greenhouse gas emissions by about 15 percent! That’s one-five percent.

And meaningful reductions will be expensive to achieve.

The International Energy Agency predicts that the real costs to meet greenhouse gas reduction targets will be $45 trillion dollars. That’s above and beyond the investments necessary to meet future energy demand. It’s a cost every one of us in this room needs to understand. Not just a cost on business, it is a cost on society. One that you and I will pay.

We are facing a moment of decision when it comes to our energy future.

And the time to act … is now.

I am confident we can take the right steps forward to achieve energy security. And I am not alone in my views.

The American public is now engaged on energy.

We’re embracing energy efficiency. We’re endorsing the need to develop more of our own supplies – renewables and conventional energy. And … we’re striving to use energy in a more environmentally responsible manner.

When you look at this momentum, it’s easy to see the new consensus building in America about energy.

That’s important because we need collaboration to achieve real progress.

Businesses and consumers need affordable energy. Young and old want renewable energy; Republicans and Democrats seek reduced emissions.

But we need leadership to achieve results.

This election – this moment of decision – is a time for the Presidential candidates to explain how they will lead.

Next week, when they meet at the University of Mississippi, the candidates must clarify their positions.

They need to reconcile campaign promises with tangible actions:

What are their plans for making our economy more energy efficient?
Do they have concrete actions to grow all forms of domestic energy – nuclear … natural gas … renewables … oil … and coal?

How will they de-carbonize the world’s largest economy without undermining energy security or threatening our prosperity?
What’s the cost … and who will pay … for their proposed plans?

We need to hear the debate. And we all need to judge the integrity of their proposals.

On the eve of the Civil War, Abraham Lincoln observed: “Public sentiment is everything. With public sentiment, nothing can fail; without it, nothing can succeed.”

Today, public sentiment supports action on energy policy.

That action should lead to a future of greater energy efficiency … enhanced supplies of all forms of energy … and reduced emissions.

While I am concerned about the urgency of the situation today, I’m also optimistic.

I believe that, by the time my grandchildren are my age, our energy system will look much different. But we must get started now.

Our standard of living and our nation’s security will be shaped by the energy policy of our next President.

Our new consensus on energy has a common goal – for America to be secure. We need to work together to achieve it.

Thank you.

September 19, 2008 Posted by | Chevron, energy policy | 241 Comments

Oil Watchdog on Fuel from Algae

I have gotten out of the habit of visiting Oil Watchdog whenever I want a bit of energy-themed comic relief. They are so ‘over the top’ and transparent that it really hasn’t been necessary to debunk them. As I have documented before, on the one hand they accuse oil companies of not supporting alternative energy or donating any of their profits. Yet where oil companies are funding alternative energy and donating to colleges, they are accused of ‘greenwashing’ and attempting to control university research. You can see some of the articles I have written documenting their intellectual dishonesty and inconsistent ‘reporting’ here. As you can see, they will even take a rumor (“I absolutely can’t vouch for the truth of this story…”) and attempt to spread it.

While it has been six months since I have been there, I thought I would check in to see what kind of negative spin they would put on falling gas prices. I was expecting “it’s an attempt to control the election”, which seems to be a common theme during election years (even though the price also falls in non-election years). Instead, Judy Dugan was again proudly putting her ignorance on display:

Show us your algae!

I was reading up today on research about turning pond scum into biodiesel. One promising thread is that algae can be fed the carbon dioxide emitted by power plants, multiplying their oil production on a waste greenhouse gas. Algae may also thrive on ground garbage. It’s a concept that needs intensive, expensive research to prove if algae are an energy savior, a false promise, or something in between. Then I came across a paragraph in a Science Daily article from a few days ago that stopped me cold:

This was ‘above the fold.’ Below the fold, I knew without even looking what kind of story it must have been to stop Dugan cold. She had obviously made the shocking discovery that oil companies are involved in this research!

“Some of these pragmatic issues may have been tackled already by the various private companies, including oil industry giants Chevron and Shell, which are already researching algae fuel, but a published scientific report on these fundamentals will be a major benefit to other researchers looking into algae biofuel.”

Uh-oh! Time to put on the ‘Big Oil is greenwashing and trying to control our energy supplies’ hat:

If Big Oil is doing this research and keeping even interim results to itself, we can’t trust oil companies with anything surrounding our desperate need for a better energy future.

It’s the same reason that universities shouldn’t be taking big bucks from oil companies in return for letting the companies shroud research results in delay, secrecy and proprietary rights.

So, Dugan wants 1). Oil companies taxed into submission (previous posts); 2). Oil companies to put some of their ‘ill-gotten gains’ into research on new energy supplies; 3). But if they do, she wants the results to be publicly available to all. Now, remind me again what the incentive would be for a publicly traded company to do this research if there was no profit to be gained? And wouldn’t other companies – and other countries for that matter – love to sit back and reap the rewards of Chevron’s research?

Here Dugan puts her ignorance up on a pedestal:

But if Chevron is funding the research, it will control the result and can just as easily bury it, calling the effort a disappointing failure.

I don’t guess Dugan is aware of the U.S. DOE Aquatic Species Program. You can read the 328 page close-out report here. You can also read a guest post from John Benemann, the man who co-authored that report:

Algal Biodiesel: Fact or Fiction?

You see Dugan, despite the ignorance that you seem to wear like a badge of honor, the oil companies don’t have a monopoly in this area. The US government studied it for many years, but concluded in their close-out report that costs were too high, and many technical challenges remain. So if Chevron does decide to shelve it, I am sure that you will conclude that they were ‘burying it’ (after all, you are programmed to put the negative spin on). And in my opinion, they will eventually shelve it, for the very reasons that were laid out in the close-out report.

Despite that, Greenfuel Technologies (not an oil company, Dugan) has been making some pretty big claims in this area (claims that violate thermodynamics, according to Krassen Dimitrov). And because there is so much misinformation around the subject of algal fuels, it isn’t surprising that a massive fraud has already been perpetrated on gullible investors. Sorry, Dugan, no oil companies to blame on that one. But if you know a little about the history of the algal biodiesel program, you could have smelled that fraud coming from a mile away.

August 24, 2008 Posted by | algal biodiesel, Chevron, FTCR, Judy Dugan, oil watchdog, Shell | 31 Comments

Oil Stocks for 2008

CNN is recommending oil stocks for 2008:

Oil stocks: Best picks for 2008

They cover the integrated oil companies, the independents, the refiners, natural gas, and oil services. Here is what they said about the majors:

Experts generally expect nearly all oil stock sectors to do well in 2008 – although not as well as in 2007.

If you think the price of crude is going to go down, investors like Mark Gilman, an oil and gas analyst with the Benchmark Company, say go with the big boys.

With their diversification, high dividends and low stock prices compared to revenue, big oil companies that produce, refine and market oil and natural gas like Exxon Mobil (XOM, Fortune 500), BP (BP), ConocoPhillips (COP, Fortune 500), Chevron (CVX, Fortune 500) and Royal Dutch Shell (RDSA) make good defensive plays.

I especially liked this next bit:

In the integrated space, Gheit likes BP, simply because he thinks the company’s fortunes must change. Over the last few years, the British company has suffered a major pipeline spill in Alaska, a tipped-over rig in the Gulf of Mexico, a natural gas trading scandal, and a lethal refinery explosion.

“They’ve been in the penalty box for the last five years,” said Gheit. “Everything that could go wrong went wrong.”

As a result, BP’s stock has suffered, at least relative to other “Big Oil” companies. It gained 15 percent in the last 12 months and 84 percent over the last five years, compared with Conoco’s 26 percent gain over the last 12 months and 248 percent gain since 2002. It could be catch-up time for BP.

Disclaimer: I own COP stock (and have since 2002), and Gheit owns BP stock. Gheit has also been wrong on the direction of oil prices for the past 5 years.

January 15, 2008 Posted by | BP, Chevron, ConocoPhillips, ExxonMobil, investing, oil companies, Shell | 6 Comments

Oil Watchdog Accepts Money from Big Oil

Consumer organization Oil Watchdog has admitted to accepting money from Chevron. This is odd behavior for an organization that has been fiercely critical of universities and museums that accept donations from oil companies.

Oil Watchdog staff member John Simpson, after having accepted the contribution from Chevron, defended his actions by claiming he gave the money to a friend. Simpson also argued that Chevron didn’t really need the money anyway. Following this admission, Simpson made a plea for more funding from readers. Must be tough times for Oil Watchdog’s trial lawyer backers.

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* Note: When reporting on Oil Watchdog’s misdeeds, I will try keep to the journalistic standards they have set. The only difference is, unlike Oil Watchdog’s reporting, what I reported above is actually true. Maybe misleading, but true. 🙂

November 7, 2007 Posted by | Chevron, FTCR, humor, oil watchdog | 3 Comments

Oil Watchdog Praises COP

I must be in Bizarro World:

Watching Conoco’s Next Move

Nope, no surprise today in ConocoPhillips’ third quarter profit report… down some on lower refining profits, up some on higher oil prices. The net effect was a 5.2% drop from last year’s comparable period.

One interesting point in the report was that Conoco, unlike the rest of Big Oil, kept its refineries running at 97% of capacity in the quarter. Nationally, the figure was probably under 90%. The big question is whether Conoco and other refiners will cut back on making and storing gasoline in the next few months–which will determine pump prices next spring.

If refiners keep supplies low and try for the profit percentage they got last May (when regular gasoline prices hit a national record of nearly $3.25 a gallon with crude oil costing 20% less than it does today)… say hello to $4.50 pump prices.

That is the first time I have ever heard this “unbiased” organization say anything that was remotely complimentary about an oil company. Lo and behold, COP (unlike the rest of Big Oil) didn’t artificially hold refining capacity down. They must think keeping a refinery up and running is like keeping your corner grocery store up and running.

Refineries run 24/7, but they do come down for routine maintenance, and they come down when things break. A utilization rate of 97% is not sustainable over the course of the year. And if Oil Watchdog wanted to do a bit of investigative reporting, they could look at some related industries to see what utilization numbers look like. I can tell you that when I worked in the chemical industry, our utilization numbers hovered around 92%. We weren’t trying to keep capacity low, it’s just that things break and maintenance must be done. But Oil Watchdog thinks it’s a Big Oil conspiracy.

I have mentioned a couple of times the funny press releases they sometimes issue. The latest may be the funniest one yet. Keep in mind that this was self-issued by Oil Watchdog:

NEWS RELEASE

October 25, 2007

CONTACT: John M. Simpson,
310-392-0522, x317, or cell: 310-292-1902

Consumer Advocate Confronts Chevron Chief Executive Over Soaring Gasoline Prices With “Golden Nozzle Award”

Los Angeles, CA — Consumer Advocates from Oilwatchdog.org today confronted Chevron CEO Dave O’Reilly over soaring gasoline prices and presented him with a symbolic “Golden Nozzle Award.”

The “Golden Nozzle Award” goes to Chevron for sticking it to California consumers with continued price gouging at the pumps, the Foundation for Taxpayer and Consumer Rights (FTCR) said.

FTCR stressed that soaring gas prices are largely caused by a lack of refined gasoline, not rising prices of crude oil.

“Chevron controls the amount of gasoline they make and the company artificially lowers gasoline supplies to drive up gasoline prices,” said John M. Simpson, an FTCR consumer advocate. “When refinery utilization rates are cut, prices to consumers and Chevron’s profits go up. That’s why Chevron has not built a new refinery in 30 years.”

FTCR said government regulation of refinery supplies is necessary to control soaring prices and Big Oil’s huge profits. FTCR bestowed the Golden Nozzle Award on Chevron for:

– Chevron’s outlandish profits driven by excessive gasoline prices.
– The company’s leading role in funding the opposition to the development of alternative fuels through the failed Proposition 87.
– Chevron’s refusal to clean up toxic waste contamination in the Amazon despite ample profits to cover the cost.

See a photo of the Golden Nozzle here.

Read more about Chevron’s record here.

O’Reilly spoke to Town Hall Los Angeles, a nonprofit organization promoting public policy discussions, on “Securing California’s Energy Future.” Simpson attended in order to present Chevron CEO Dave O’Reilly with a golden gasoline pump nozzle.

In the second quarter Chevron’s overall $5.38 billion profit was its highest ever for a single quarter, up 23.6% from $4.35 billion in the same quarter last year. Refining profits were up 41% in the US, to $781 million from $554 million. Chevron’s third quarter profits are due to be released next week.

—————

The Foundation for Taxpayer and Consumer Rights is California’s leading non-profit and non-partisan consumer watchdog group. For more information visit us on the web at: http://www.consumerwatchdog.org/ and http://www.oilwatchdog.org/.

I swear I am going to start writing my own press releases. I mean, you create your own award, stalk the Chevron CEO trying to deliver it, and write a press release and then a diary about it. Is that over the top, or what? Oh, and as far as I can tell, they no longer allow comments there. The links to “Click to display or hide comments” no longer work.

October 27, 2007 Posted by | Chevron, ConocoPhillips, FTCR, Judy Dugan | Comments Off on Oil Watchdog Praises COP

Oil Watchdog Praises COP

I must be in Bizarro World:

Watching Conoco’s Next Move

Nope, no surprise today in ConocoPhillips’ third quarter profit report… down some on lower refining profits, up some on higher oil prices. The net effect was a 5.2% drop from last year’s comparable period.

One interesting point in the report was that Conoco, unlike the rest of Big Oil, kept its refineries running at 97% of capacity in the quarter. Nationally, the figure was probably under 90%. The big question is whether Conoco and other refiners will cut back on making and storing gasoline in the next few months–which will determine pump prices next spring.

If refiners keep supplies low and try for the profit percentage they got last May (when regular gasoline prices hit a national record of nearly $3.25 a gallon with crude oil costing 20% less than it does today)… say hello to $4.50 pump prices.

That is the first time I have ever heard this “unbiased” organization say anything that was remotely complimentary about an oil company. Lo and behold, COP (unlike the rest of Big Oil) didn’t artificially hold refining capacity down. They must think keeping a refinery up and running is like keeping your corner grocery store up and running.

Refineries run 24/7, but they do come down for routine maintenance, and they come down when things break. A utilization rate of 97% is not sustainable over the course of the year. And if Oil Watchdog wanted to do a bit of investigative reporting, they could look at some related industries to see what utilization numbers look like. I can tell you that when I worked in the chemical industry, our utilization numbers hovered around 92%. We weren’t trying to keep capacity low, it’s just that things break and maintenance must be done. But Oil Watchdog thinks it’s a Big Oil conspiracy.

I have mentioned a couple of times the funny press releases they sometimes issue. The latest may be the funniest one yet. Keep in mind that this was self-issued by Oil Watchdog:

NEWS RELEASE

October 25, 2007

CONTACT: John M. Simpson,
310-392-0522, x317, or cell: 310-292-1902

Consumer Advocate Confronts Chevron Chief Executive Over Soaring Gasoline Prices With “Golden Nozzle Award”

Los Angeles, CA — Consumer Advocates from Oilwatchdog.org today confronted Chevron CEO Dave O’Reilly over soaring gasoline prices and presented him with a symbolic “Golden Nozzle Award.”

The “Golden Nozzle Award” goes to Chevron for sticking it to California consumers with continued price gouging at the pumps, the Foundation for Taxpayer and Consumer Rights (FTCR) said.

FTCR stressed that soaring gas prices are largely caused by a lack of refined gasoline, not rising prices of crude oil.

“Chevron controls the amount of gasoline they make and the company artificially lowers gasoline supplies to drive up gasoline prices,” said John M. Simpson, an FTCR consumer advocate. “When refinery utilization rates are cut, prices to consumers and Chevron’s profits go up. That’s why Chevron has not built a new refinery in 30 years.”

FTCR said government regulation of refinery supplies is necessary to control soaring prices and Big Oil’s huge profits. FTCR bestowed the Golden Nozzle Award on Chevron for:

– Chevron’s outlandish profits driven by excessive gasoline prices.
– The company’s leading role in funding the opposition to the development of alternative fuels through the failed Proposition 87.
– Chevron’s refusal to clean up toxic waste contamination in the Amazon despite ample profits to cover the cost.

See a photo of the Golden Nozzle here.

Read more about Chevron’s record here.

O’Reilly spoke to Town Hall Los Angeles, a nonprofit organization promoting public policy discussions, on “Securing California’s Energy Future.” Simpson attended in order to present Chevron CEO Dave O’Reilly with a golden gasoline pump nozzle.

In the second quarter Chevron’s overall $5.38 billion profit was its highest ever for a single quarter, up 23.6% from $4.35 billion in the same quarter last year. Refining profits were up 41% in the US, to $781 million from $554 million. Chevron’s third quarter profits are due to be released next week.

—————

The Foundation for Taxpayer and Consumer Rights is California’s leading non-profit and non-partisan consumer watchdog group. For more information visit us on the web at: http://www.consumerwatchdog.org/ and http://www.oilwatchdog.org/.

I swear I am going to start writing my own press releases. I mean, you create your own award, stalk the Chevron CEO trying to deliver it, and write a press release and then a diary about it. Is that over the top, or what? Oh, and as far as I can tell, they no longer allow comments there. The links to “Click to display or hide comments” no longer work.

October 27, 2007 Posted by | Chevron, ConocoPhillips, FTCR, Judy Dugan | 7 Comments

Where I Go for Comic Relief

I am going to have to start issuing my own press releases. That’s what our good friends at Oil Watchdog – the oil-hating arm of the FTCR, like to do. They write their own press releases – daily – and use as reference material other press releases they have written. Their sources are frequently “Insider”, who frequently says very silly things. Not the kind of things an actual insider would say. Things like this: “Oil companies have cut back production in refineries to a mere 87 percent of potential and the surplus in storage tanks is drying up fast.”

Sounds like someone never heard of fall turnaround season. You know, that time of year – every year – where utilization falls and finished product inventories tend to get pulled down. Let me make a stunning prediction: It will happen again next spring. And again next fall. An insider would know that, and they would know why it happens in fall and spring. But I digress.

Oil Watchdog had fallen to the level of occasional comic relief for me, but I see that their latest press-release has even been picked up by the New York Times, which apparently has very low standards:

Spike in Crude Oil Price to $88/Barrel Without New Runup in Pump Price Exposes Oil Industry Deception, Profiteering

“Oil companies exert nearly complete control over the supply of gasoline, through decisions about their refineries, their oil and gasoline imports, and the supply they keep on hand,” said Dugan. “They can roughly tune the supply to match their price targets.”

This is truly priceless. Let’s refresh our memories here.

They whined about oil company greed.
They whined about oil company generosity.

They whined when gas prices went high.
They whined when gas prices went low.

They whined that oil companies aren’t making biofuels.
They whined that oil companies are making biofuels.

They whined that oil companies were funding research into finding more oil.
They whined that oil companies were funding research into alternative fuels.

I could go on. Really. They wrote an article called Defining Gouging. I thought, “Finally. At least someone made an attempt.” Then I read the article. They didn’t define gouging. They just went on and on about the need for anti-gouging legislation. As far as I can tell, they must sit around in a room and brainstorm every day on how to put a negative slant on any story involving oil companies.

So, you can see why I finally got bored with Oil Watchdog. After a while, you figure out that your opponent has an energy IQ of 60, and then you realize that there is no sport in the debate. After all, look what Oil Watchdog did in response to being challenged on their claims.

First, they chose to hide the comments. Originally they were visible by default. Second, they chose to label critics with: “This commentor has been flagged as a suspected shill for BigOil. You can view the history of their comments by clicking on the user’s screen name at the end of this entry.” But, they must have felt like they were still getting pummeled, because now they have taken the step of requiring comments to be approved before posting. That’s right, they now censor those who challenge their ludicrous claims. For their current entry, it looks like they have locked comments. Don’t know if this is the newest trend.

Perhaps the biggest irony is their frequent criticisms of oil companies donating money to various causes. Why? Because they won’t reveal the source of their own funding. It has been established that they are a front for trial lawyers. Their many articles on the “hot gas lawsuit” could have provided a hint. Not that there is anything wrong with that. But don’t be hypocrites. Be up front about what you are doing. Let the world know why you are promoting anti-gouging legislation and hot gas lawsuits. Who might benefit there?

You could have used your organization to promote an actual discussion of the critical energy issues facing the world. Instead, by hiding behind the veil of “consumer advocates”, and by writing about subjects that you are ignorant of, you have made yourselves into laughingstocks.

October 17, 2007 Posted by | Chevron, ConocoPhillips, ExxonMobil, FTCR, Jamie Court, Judy Dugan, litigation, Shell | Comments Off on Where I Go for Comic Relief

Where I Go for Comic Relief

I am going to have to start issuing my own press releases. That’s what our good friends at Oil Watchdog – the oil-hating arm of the FTCR, like to do. They write their own press releases – daily – and use as reference material other press releases they have written. Their sources are frequently “Insider”, who frequently says very silly things. Not the kind of things an actual insider would say. Things like this: “Oil companies have cut back production in refineries to a mere 87 percent of potential and the surplus in storage tanks is drying up fast.”

Sounds like someone never heard of fall turnaround season. You know, that time of year – every year – where utilization falls and finished product inventories tend to get pulled down. Let me make a stunning prediction: It will happen again next spring. And again next fall. An insider would know that, and they would know why it happens in fall and spring. But I digress.

Oil Watchdog had fallen to the level of occasional comic relief for me, but I see that their latest press-release has even been picked up by the New York Times, which apparently has very low standards:

Spike in Crude Oil Price to $88/Barrel Without New Runup in Pump Price Exposes Oil Industry Deception, Profiteering

“Oil companies exert nearly complete control over the supply of gasoline, through decisions about their refineries, their oil and gasoline imports, and the supply they keep on hand,” said Dugan. “They can roughly tune the supply to match their price targets.”

This is truly priceless. Let’s refresh our memories here.

They whined about oil company greed.
They whined about oil company generosity.

They whined when gas prices went high.
They whined when gas prices went low.

They whined that oil companies aren’t making biofuels.
They whined that oil companies are making biofuels.

They whined that oil companies were funding research into finding more oil.
They whined that oil companies were funding research into alternative fuels.

I could go on. Really. They wrote an article called Defining Gouging. I thought, “Finally. At least someone made an attempt.” Then I read the article. They didn’t define gouging. They just went on and on about the need for anti-gouging legislation. As far as I can tell, they must sit around in a room and brainstorm every day on how to put a negative slant on any story involving oil companies.

So, you can see why I finally got bored with Oil Watchdog. After a while, you figure out that your opponent has an energy IQ of 60, and then you realize that there is no sport in the debate. After all, look what Oil Watchdog did in response to being challenged on their claims.

First, they chose to hide the comments. Originally they were visible by default. Second, they chose to label critics with: “This commentor has been flagged as a suspected shill for BigOil. You can view the history of their comments by clicking on the user’s screen name at the end of this entry.” But, they must have felt like they were still getting pummeled, because now they have taken the step of requiring comments to be approved before posting. That’s right, they now censor those who challenge their ludicrous claims. For their current entry, it looks like they have locked comments. Don’t know if this is the newest trend.

Perhaps the biggest irony is their frequent criticisms of oil companies donating money to various causes. Why? Because they won’t reveal the source of their own funding. It has been established that they are a front for trial lawyers. Their many articles on the “hot gas lawsuit” could have provided a hint. Not that there is anything wrong with that. But don’t be hypocrites. Be up front about what you are doing. Let the world know why you are promoting anti-gouging legislation and hot gas lawsuits. Who might benefit there?

You could have used your organization to promote an actual discussion of the critical energy issues facing the world. Instead, by hiding behind the veil of “consumer advocates”, and by writing about subjects that you are ignorant of, you have made yourselves into laughingstocks.

October 17, 2007 Posted by | Chevron, ConocoPhillips, ExxonMobil, FTCR, Jamie Court, Judy Dugan, litigation, Shell | 1 Comment

Time to Sell Oil Stocks?

A CNNMoney article is warning investors that oil, and oil company stocks are overvalued:

Beware Big Oil stocks

“Nobody in his right mind thinks this oil price is sustainable or justified by market fundamentals,” said Fadel Gheit, a senior energy analyst at Oppenheimer. “The higher prices go, the greater the risk for downside potential.” Over the last month the price of U.S. crude on the New York Mercantile Exchange has surged nearly 20 percent, hitting a record high of $83.90 a barrel last week.

Yet the AMEX oil and gas index, which tracks both large and small U.S. oil companies as well as refiners and oil service firms, has risen just over 6 percent over the same time. The big integrated oil companies haven’t done much better. Exxon Mobil (Charts, Fortune 500) and ConocoPhillips (Charts, Fortune 500) are up about 8 percent, while Chevron (Charts, Fortune 500) has risen just over 6 percent.

I think oil prices have gotten a little ahead of themselves at this point, and I think they will correct some by the end of the year. In fact, in a recent story on Daily Kos that asked for predictions on the year end price of oil, my prediction was $73.50. But is oil outrageously overpriced, given the fundamentals? I don’t think so. And neither do some others. Returning to the CNN story:

Gheit said investors are betting oil prices won’t stay at their current record levels. His view is by no means unanimous across the industry. Many experts say a limited supply coupled with seemingly infinite new demand does justify oil prices above $80.

“With China and India growing the way they are, they’re just not going to go down,” said Harry Clark, whose firm Clark Capital Management has a buy rating on the whole energy sector. “$100 oil, it’s only a matter of when, not if.”

Gheit thinks the ride is over:

But Gheit seemed to think the sector may be played out. He pointed to the impressive growth the sector has seen over the last five years – crude prices along with shares of Exxon, Conoco and Chevron have roughly tripled during that time. “A lot of people say energy has already exceeded the wildest expectations,” he said. “If oil prices come down, you’re going to see total migration out of the sector” and into things like technology, which has lagged the broader market for the last several years.

I think Gheit is wrong about the fundamentals being completely out of whack. And he has been very wrong on oil prices in the past. From February 2007:

“If someone came up to me five years ago and said the price of oil was going to be above $40, I would have put them in a straitjacket because it seemed so unrealistic,” [Oppenheimer & Co. analyst Fadel] Gheit said. “Now, when oil starts moving down toward $50 barrel, we get excited and think it’s a great bargain.”

But he is correct that investors are betting that prices won’t stay high. Otherwise, oil company stocks would have kept better pace with the price of oil.

Oil company stock is currently valued as if crude cost $60 a barrel, according to Mark Gilman, a New York-based oil and gas analyst with the brokerage The Benchmark Co. But given what it costs to produce a barrel of crude and the amount of oil left in the ground, Gilman thinks even $60 is too high.

“You take out all the fluff and the fear and the speculation, and $35 to $40 is where the price of crude ultimately belongs,” he said. When asked if that could mean a halving of Big Oil share prices, he said that sounded about right.

That’s the bet, isn’t it? If you think oil prices will fall to $60, oil company stocks are priced about right. If you think it will fall to less than $60, then they are overpriced. But if you think oil prices will stay above $60, then oil company stocks are still undervalued. If you are in the “Peak Oil now” camp, then you may look at this one of two ways. One, oil prices may be going much higher, and you feel that oil company stocks will follow. On the other hand, you may think that with Peak Oil, oil companies are going to die a slow death and their stock should be avoided. Personally, I think they will morph more and more into energy companies over time, and high oil prices will give them the cash to move into other areas.

If you want to know why Gheit really thinks the sector is overvalued, here he is commenting last month:

Gheit says there’s plenty of oil out there, it just needs to get to a price where it’s profitable to extract. “We have so far consumed one trillion barrels” in all of history, he said, pointing to a 2000 study from the U.S. Geological Survey that made predictions based on rising prices, technology advances and assumed new discoveries based on past finds. “There are three trillion more to go.”

The former chairman of Shell, the IEA, and the NPC have all recently come out and endorsed the Peak Lite concept, in which demand is growing faster than supplies. This will place a lot of pressure on oil prices, even if there is oil left to be found. It doesn’t matter if the earth is a hollow sphere completely filled with oil if you can’t extract it fast enough to meet demand.

I don’t see anything on the horizon that leads me to believe that we will be oversupplied any time soon. We could go into recession, or there could be some surprise out there that destroys demand, but don’t expect to see a flood of new supply any time soon. A little, maybe. But not a lot.

Gheit has been on the wrong end of this oil price rise. But I think it was driven by some fundamental factors that he doesn’t seem to consider. For me, I am betting that oil prices stay above $60 for the long-term. And I will repeat something I have said before: I only invest for the long-term.

Disclosure: I do own oil company stock, for the long-term.

October 2, 2007 Posted by | Chevron, ConocoPhillips, ExxonMobil, investing, oil prices | Comments Off on Time to Sell Oil Stocks?

Time to Sell Oil Stocks?

A CNNMoney article is warning investors that oil, and oil company stocks are overvalued:

Beware Big Oil stocks

“Nobody in his right mind thinks this oil price is sustainable or justified by market fundamentals,” said Fadel Gheit, a senior energy analyst at Oppenheimer. “The higher prices go, the greater the risk for downside potential.” Over the last month the price of U.S. crude on the New York Mercantile Exchange has surged nearly 20 percent, hitting a record high of $83.90 a barrel last week.

Yet the AMEX oil and gas index, which tracks both large and small U.S. oil companies as well as refiners and oil service firms, has risen just over 6 percent over the same time. The big integrated oil companies haven’t done much better. Exxon Mobil (Charts, Fortune 500) and ConocoPhillips (Charts, Fortune 500) are up about 8 percent, while Chevron (Charts, Fortune 500) has risen just over 6 percent.

I think oil prices have gotten a little ahead of themselves at this point, and I think they will correct some by the end of the year. In fact, in a recent story on Daily Kos that asked for predictions on the year end price of oil, my prediction was $73.50. But is oil outrageously overpriced, given the fundamentals? I don’t think so. And neither do some others. Returning to the CNN story:

Gheit said investors are betting oil prices won’t stay at their current record levels. His view is by no means unanimous across the industry. Many experts say a limited supply coupled with seemingly infinite new demand does justify oil prices above $80.

“With China and India growing the way they are, they’re just not going to go down,” said Harry Clark, whose firm Clark Capital Management has a buy rating on the whole energy sector. “$100 oil, it’s only a matter of when, not if.”

Gheit thinks the ride is over:

But Gheit seemed to think the sector may be played out. He pointed to the impressive growth the sector has seen over the last five years – crude prices along with shares of Exxon, Conoco and Chevron have roughly tripled during that time. “A lot of people say energy has already exceeded the wildest expectations,” he said. “If oil prices come down, you’re going to see total migration out of the sector” and into things like technology, which has lagged the broader market for the last several years.

I think Gheit is wrong about the fundamentals being completely out of whack. And he has been very wrong on oil prices in the past. From February 2007:

“If someone came up to me five years ago and said the price of oil was going to be above $40, I would have put them in a straitjacket because it seemed so unrealistic,” [Oppenheimer & Co. analyst Fadel] Gheit said. “Now, when oil starts moving down toward $50 barrel, we get excited and think it’s a great bargain.”

But he is correct that investors are betting that prices won’t stay high. Otherwise, oil company stocks would have kept better pace with the price of oil.

Oil company stock is currently valued as if crude cost $60 a barrel, according to Mark Gilman, a New York-based oil and gas analyst with the brokerage The Benchmark Co. But given what it costs to produce a barrel of crude and the amount of oil left in the ground, Gilman thinks even $60 is too high.

“You take out all the fluff and the fear and the speculation, and $35 to $40 is where the price of crude ultimately belongs,” he said. When asked if that could mean a halving of Big Oil share prices, he said that sounded about right.

That’s the bet, isn’t it? If you think oil prices will fall to $60, oil company stocks are priced about right. If you think it will fall to less than $60, then they are overpriced. But if you think oil prices will stay above $60, then oil company stocks are still undervalued. If you are in the “Peak Oil now” camp, then you may look at this one of two ways. One, oil prices may be going much higher, and you feel that oil company stocks will follow. On the other hand, you may think that with Peak Oil, oil companies are going to die a slow death and their stock should be avoided. Personally, I think they will morph more and more into energy companies over time, and high oil prices will give them the cash to move into other areas.

If you want to know why Gheit really thinks the sector is overvalued, here he is commenting last month:

Gheit says there’s plenty of oil out there, it just needs to get to a price where it’s profitable to extract. “We have so far consumed one trillion barrels” in all of history, he said, pointing to a 2000 study from the U.S. Geological Survey that made predictions based on rising prices, technology advances and assumed new discoveries based on past finds. “There are three trillion more to go.”

The former chairman of Shell, the IEA, and the NPC have all recently come out and endorsed the Peak Lite concept, in which demand is growing faster than supplies. This will place a lot of pressure on oil prices, even if there is oil left to be found. It doesn’t matter if the earth is a hollow sphere completely filled with oil if you can’t extract it fast enough to meet demand.

I don’t see anything on the horizon that leads me to believe that we will be oversupplied any time soon. We could go into recession, or there could be some surprise out there that destroys demand, but don’t expect to see a flood of new supply any time soon. A little, maybe. But not a lot.

Gheit has been on the wrong end of this oil price rise. But I think it was driven by some fundamental factors that he doesn’t seem to consider. For me, I am betting that oil prices stay above $60 for the long-term. And I will repeat something I have said before: I only invest for the long-term.

Disclosure: I do own oil company stock, for the long-term.

October 2, 2007 Posted by | Chevron, ConocoPhillips, ExxonMobil, investing, oil prices | 7 Comments