Redstate

If you click on the image you can use the url as a link or html image tag also I think the YT idea is a good one I'll see what I can put together.

Founder and contributor to The Minority Report and Editor for The Hinzsight Report

I thought the same thing also Neil, but Mr. Blunt's office noted that this pricing was derived from:

...the methodology employed by Speaker Pelosi and House Democrats that suspending shipments into the Strategic Petroleum Reserve (between 40-77,000 barrels of oil a day) would reduce gas prices by at least 5 cents

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Thou art the Great Cat, the avenger of the Gods, and the judge of words...-Inscription on the Royal Tombs at Thebes

and I think this is the reason for the footnote on methodology I also think it was a wise choice to show a range here instead of an arbitrary static number they picked out of thin air -- it shows a grasp of the situation and volatility of those numbers.

Founder and contributor to The Minority Report and Editor for The Hinzsight Report

that the relationship between the sources to not be able to be added directly. The relationship between supply and demand is exponential/logarithmic (depending on which way you're looking at it).
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Out with the Oak King.

I think the issue is also far more complicated than this table suggests. My previous comment was intended to be in a vacuum.
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Out with the Oak King.

go forth and rip it apart, smart guy.

At a rate of 6,000 earmarks per spending bill, Speaker Pelosi is selling America's future to the special intrest groups.

Using the high end of his projections, gasoline becomes free. Even using the average "savings" to make a projection on gasoline prices doesn't take into account any increase in worldwide demand or in reduced supply that will soon occur as oil reserves shrink in oil producing countries. Also, there is no mention that any of the new domestic production would not yield any new meaningful supplies for several years (I'm not saying that we shouldn't do it by the way). Finally, the assertion that building new refinery capacity will do anything to significantly lower the price of gasoline assumes that there are stockpiles of crude that are just waiting to be refined but for the lack of refinery capacity. New domestic refineries could potentially yield some price relief only because it would reduce some of the transportation costs.

You make me wish I had more daylight to eviscerate this with...

I'll go with the CLiff's Notes Version.

--"Using the high end of his projections, gasoline becomes free" - The likelihood of that event occurring is somewhere on the order of 0.05^7. That's like saying seven different independent random variables will perform at least 2 standard deviations better than expected. I'm sure one of us will also in the Pick Six tommorrow as well.

--"new domestic production would not yield any new meaningful supplies for several years" - Google Friedman, Milton, Theory of Rational Expectations.

--"Finally, the assertion that building new refinery capacity will do anything to significantly lower the price of gasoline assumes that there are stockpiles of crude that are just waiting to be refined but for the lack of refinery capacity" - making that statement assumes two untrue things.

1) Oil companies wouldn't have an aversion to inventory holding costs.

2) Oil companies would lack the mathematical sophistication to be able to properly determine an EOQ when they buy from their various supplies.

At a rate of 6,000 earmarks per spending bill, Speaker Pelosi is selling America's future to the special intrest groups.

way it is presented. It presents an unrealistic, overly rosy scenario that is easy to mock as a fairy tale.

--"The likelihood of that event occurring is somewhere on the order of 0.05^7. That's like saying seven different independent random variables will perform at least 2 standard deviations better than expected. I'm sure one of us will also in the Pick Six tommorrow as well." I'm not the one making this claim. It is the Congressmen that is using this approach to claim a reduction of at least $1.98

--"Google Friedman, Milton, Theory of Rational Expectations" - You are assuming that the intention to drill will reduce prices by the amount stated in the chart. That's possible, but is it worth $1.50 - $4.00? Not likely.

--"making that statement assumes two untrue things.
1) Oil companies wouldn't have an aversion to inventory holding costs.
2) Oil companies would lack the mathematical sophistication to be able to properly determine an EOQ when they buy from their various supplies." There is no inventory holding cost now since there is no excess inventory. Building new refineries for the purpose of refining non-existent surplus oil supplies doesn't make sense.

--I'm not the one making this claim. It is the Congressmen that is using this approach to claim a reduction of at least $1.98

OK, so what evidence do you have proving this is rediculous.

--You are assuming that the intention to drill will reduce prices by the amount stated in the chart. That's possible, but is it worth $1.50 - $4.00? Not likely.

OK, explain why this isn't likely. Keeping in mind that you've assumned a time frame over which this would occur that may be significantly shorter than the time frame COngressman Blunt assumes.

--There is no inventory holding cost now since there is no excess inventory. Building new refineries for the purpose of refining non-existent surplus oil supplies doesn't make sense.

Or, there is no excess inventory because the oil companies know that the costs associated with getting the refining capacity built under existing regulatory policies far outweighs any tangible benefit. Change the policies, and they have a reason to drill and refine at a higher capacity. Business don't produce on the maximum scale they can produce or on the maximum scale we would like them to. They produce on the scale that maximizes their shareholders' value.

At a rate of 6,000 earmarks per spending bill, Speaker Pelosi is selling America's future to the special intrest groups.

Which Congressman Blunt claims will reduce prices by a minimum of $0.90 and as much as $2.50.

For your reference, an assesment from the EIA concerning deep water petroleum exploration. FACTS

The projections in the OCS access case indicate that access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017. Total domestic production of crude oil from 2012 through 2030 in the OCS access case is projected to be 1.6 percent higher than in the reference case, and 3 percent higher in 2030 alone, at 5.6 million barrels per day. For the lower 48 OCS, annual crude oil production in 2030 is projected to be 7 percent higher—2.4 million barrels per day in the OCS access case compared with 2.2 million barrels per day in the reference case (Figure 20). Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant.

OCS as a percentage of US Domestic Production has gone from 11.20% of Domestic production in 1988 to 26.98% of US production in 2008. That's an increase of roughly 0.79%/year.

Run that trend for until 2030, to match your cited model, and you get 47.4% of US domestic production from OCS sources. If we get 2.2M bbl now from OCS, even if I'm more pessimistic than your modeler, and assume 0 improvement in domestic prodction; not 7%, I still get 3.9M bbl of OCS oil, not 2.4M bbl.

At a rate of 6,000 earmarks per spending bill, Speaker Pelosi is selling America's future to the special intrest groups.

as a percentage of total production to determine future total OCS production.

is such that the amount dictated by that methodology would be physically impossible or economically impractical. I haven;t seen sufficient evidence to prove that assumption.

At a rate of 6,000 earmarks per spending bill, Speaker Pelosi is selling America's future to the special intrest groups.

Same government source. Rep Blunt claims $0.70 - $1.60 savings on gasoline. Now, to be fair, he does include shale in that line item so it's not possible to really know how much of that savings he is claiming will come from drilling in ANWR. However, even given the most optimistic forecasts for ANWR, we are looking at a potential of $1.40 per barrel of oil on the world market. FACTS

With respect to the world oil price impact, projected ANWR oil production constitutes between 0.4 and 1.2 percent of total world oil consumption in 2030, based on the low and high resource cases, respectively.17 Consequently, ANWR oil production is not projected to have a large impact on world oil prices. Relative to the AEO2008 reference case, ANWR oil production is projected to have its largest oil price reduction impacts as follows: a reduction in low-sulfur, light (LSL) crude oil18 prices of $0.41 per barrel (2006 dollars) in 2026 in the low oil resource case, $0.75 per barrel in 2025 in the mean oil resource case, and $1.44 per barrel in 2027 in the high oil resource case. Assuming that world oil markets continue to work as they do today, the Organization of Petroleum Exporting Countries (OPEC) could neutralize any potential price impact of ANWR oil production by reducing its oil exports by an equal amount.

Well, at the heart of these indisputible FACTS is a modeling simulation that assumes the price of oil in 2030 will be in the ballpark of $60 per bbl. That would link any predicted decreases in gas prices that your simulation produces to a set of gasoline prices that result from a model that assumes they are in the $2 to $2.50 range. (Don't we both wish that were the case).

Then there is this rather naive assumption that OPEC could cut the supply on the market to prop up unit prices. I think you bolded it for emphasis, so I consider it more than fair game.

"Assuming that world oil markets continue to work as they do today, the Organization of Petroleum Exporting Countries (OPEC) could neutralize any potential price impact of ANWR oil production by reducing its oil exports by an equal amount."

The implicit assumption made in this statement is that OPEC nations have yet another source of revenue handy that would compensate them for the considerable delta they would lose for not selling at EOQ. (It's not just the purchaser that does well from EOQ price breaks.)

At a rate of 6,000 earmarks per spending bill, Speaker Pelosi is selling America's future to the special intrest groups.

However, Congressman Blunt's numbers are so easy to dispute that it makes it too easy to dismiss it as propaganda. That's really what I'm arguing about here. I have made clear in previous posts that I would prefer to get off of oil, domestic or foreign, as soon as possible. However, I realize that in order to manage through the transition, we will need to secure a steady supply of oil from domestic and from friendly foreign sources. I happen to think, and I think the evidence supports, that we cannot drill our way to energy independence. There's just not enough domestic sources of petroleum to offset what we import from places like Saudi Arabia, Venezuela, Nigeria, and other countries run by tyrants.

On the issue of OPEC, we have recent evidence from the 90's and in this decade where our presidents have gone, hat in hand, to beg for just a "bit more". Unfortunately, those acts of personal and national humiliation did not convince OPEC to increase production.

Using a model that relies on inputs that are off by 100% does not dismiss what Congressman Blunt released as propaganda.

At a rate of 6,000 earmarks per spending bill, Speaker Pelosi is selling America's future to the special intrest groups.

calculation for total production from these sources. If my math is correct (and there's a good chance it isn't), doesn't using $4.20/gallon as an assumption actually lower the expected benefit from ANWR production?

Blunt's rate of savings comes from the premise that the current high oil prices are driven by a needlessly artificial shortage of supply. Hence, the higher the price are driven, the higher the marginal savings per extra gallon pumped.

This works a wee bit like a learning curve. The first five gallons of podential domestic production towards closing the gap between current an ideal supply are worth more than the second and so forth....

Now I will conceed one area Cong. Blunt could have swung and missed. If OPEC really could afford to lose revenue for a while, they could offer us oil at a enough of a discount to make the R&D risk associate with OCS, ANWR et al, seem economically disadvantageous. Of course then, we've won a partial victory without even firing a shot.

At a rate of 6,000 earmarks per spending bill, Speaker Pelosi is selling America's future to the special intrest groups.

While there is a good deal of evidence that additional refineries would level out price spikes caused by natural disasters or those caused by the sudden unexpexted closure of a refinery, there is not much evidence that it will reduce costs overall. Here's are a couple of interesting article that notes that oil company profits related to refining operations have been declining even in this high crude oil price environment. Why would anyone build additional capacity if their return on investment is suspect.

Interesting

In 2008, Chevron recorded its largest first-quarter profit ever: $5.17 billion. But according to the San Francisco Chronicle, Chevron's profits from refining and selling gasoline in the United States were actually down 99 percent in the first quarter of 2008 from a year earlier, and "during the previous two quarters, the company actually lost money making gas." That $5 billion in profits is derived primarily from extracting the oil out of the ground and selling it on the open market where prices are set.

The relatively small percentage of the price of a gallon of gas that goes toward refinery profit margins pokes some holes in the notion that environmental regulations -- at least as applied to refineries -- are a primary villain in inflicting high gas prices on the public. According to this theory, which seems to get more media time with every nickel jump in the price of a gallon of gas, "extremist" air quality regulations combined with legal harassment by environmental activists have inhibited refinery owners from building new refineries.

Interesting II

"Refining margins have been horrible," said Phil Flynn of Alaron Trading in Chicago. Because consumer demand has been declining, refineries simply aren't producing as much", he said.

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"Wikipedia is the best thing ever. Anyone in the world can write anything they want about any subject, so you know you are getting the best possible information." -- Michael Scott

Money's comment is on par with yours.

Founder and contributor to The Minority Report and Editor for The Hinzsight Report

and I agree with you, but mostly in theory. I hate pandering too, but the holiday is just for the summer.

The holiday makes the point that McCain thinks gas prices are too high. As we see from Obama's remarks about gradual adjustment, Barry thinks gas prices are too low.

For once, the pandering is making a political point that I *actually* almost support. Let folks get another reminder of where the Democrats (including Obama) are trying to take the price of gas.

Whether the holiday happens or not doesn't matter as much as public perception. We need to explain better what is really going on and what the Democrats would do if we let them.

The free exchange of ideas inevitably yields both heat and light.

Unfair. Unbalanced. Unmedicated. -- IMAO