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By Robert Rapier on Oct 7, 2012 with 31 responses

Understanding California’s Gasoline Prices


I am getting numerous questions about the situation with California’s surging gasoline prices. Therefore, I want to take some time to explain what makes California’s gasoline situation unique.

The EPA defines gasoline specifications, but many states have more restrictive specifications. The reasons for this are varied, but are primarily a function of the climate and the population density of an area. A cold, sparsely populated location will not suffer the same air quality issues as a warm, densely populated area and therefore those two locations may require different fuel specifications. Fuel blends that are specific to specific states are called boutique fuels.

An example of this is called the Reid Vapor Pressure (RVP) of the fuel. It can be thought of as a measure of the temperature at which a fuel boils. A fuel with a very low RVP won’t be lost to the atmosphere, but if it is too low it may not properly vaporize in the car’s engine. A fuel with a high RVP will evaporate more quickly — especially in high temperatures — and contribute to ground-level ozone and poor air quality. Specifications vary for RVP between the summer and winter. Summer fuel has a lower RVP (i.e., it is harder to vaporize, but this is compensated for by the higher summer temperature) and is more expensive to produce than winter fuel.

California has strict fuel specifications, and its fuel is produced almost exclusively by California refineries. The specifications for fuel in surrounding states are different, so California is really an island as far as their fuel production is concerned. If they have a shortage, fuel can’t flow in from neighboring regions due to their more restrictive specifications. This greatly increases the risks of a supply disruption in the case of refinery problems.

Oil refining is not a lucrative business most of the time (although oil production is), so refiners don’t maintain a lot of spare capacity. One key to profits in a refinery is to keep refinery utilization high, and that has been the case in California. Refineries there need to run at a high utilization in order to make money. Or, another way to put it is that the refining sector usually has such tight margins that refiners can’t afford idle spare capacity. The capital that they have tied up in equipment needs to be producing, and hence there is a tight balance between supply and demand.

The August refinery fire at Chevron’s (NYSE:CVX) 245,000 bbl/day Richmond refinery reduced capacity there. I addressed this issue in an August episode of R-Squared Energy TV (How Ethanol and the Chevron Refinery Fire Impact Gas Prices — starting at the 2:50 mark), explaining why we could expect to see gasoline prices rise in California relative to the rest of the U.S. I said that I expected price spikes on the West Coast to be significantly higher than price spikes in the rest of the U.S. and that I expected California to “struggle with gasoline prices until well into the Fall.”

The Chevron fire alone was enough to drive gasoline prices in California higher, but an unplanned outage at an ExxonMobil (NYSE:XOM) refinery in Torrance further crimped supplies. In a market that was already seriously constrained, this resulted in very low gasoline inventories that caused some stations to completely running out of fuel. Obviously, in a case like this gasoline prices are going to rise, and if stations are running out of fuel they are going to rise sharply.

Some have suggested a conspiracy by oil companies to drive gasoline prices up in order to help Mitt Romney win the presidency. First of all, we don’t need conspiracy theories when we understand the factors involved. If some choose to believe that Chevron or ExxonMobil purposely took production offline, then they are free to believe what they want. But this belief isn’t realistic. When these companies take production offline, the cost to them will be greater than the benefit from higher gasoline prices. The companies that benefit are those that did not have production problems. So when a Chevron refinery goes down, the beneficiaries are Shell (NYSE:RDS-B), BP (NYSE:BP), Tesoro (NYSE:TSO), etc. Further, does anyone really think Romney could win California? One could make a slightly more believable case if this happened in a key swing state, but not for California.

Several solutions to the gasoline shortage have been suggested, but there are no easy answers. Clearly California could benefit from more refining capacity. That’s a long-term solution, but because refining is normally such a low-margin business it is unlikely that anyone is going to step forward and build one. The people calling for more refining capacity are the same people complaining about high gas prices. But the only way a new refinery would get built is if gas prices are persistently high. So it’s a Catch-22: The public and politicians want lower gas prices and more refining capacity, but the former makes the latter a poor bet.

Another option would be to temporarily relax California’s specifications and allow fuel to be shipped into the area from neighboring states. First, I would assume that this is not something that the governor could simply decree; that it would need to work its way through the system. Second, it would necessarily drive up prices in neighboring states. These states have recently seen some relief from high gasoline prices, but if California starts siphoning off gasoline supplies that will change. Finally, it is very possible that relaxing these specifications will lower the air quality in certain areas.

One more option is further development of alternatives, but this is also a longer term solution. The current situation will encourage more people to purchase hybrids and electric cars, and at $5/gallon biofuels like ethanol will become more attractive. Compressed natural gas (CNG) vehicles should also gain traction as a result of this crisis.

While the ExxonMobil refinery has resumed operations, another potential shortage looms as the Phillips 66 (NYSE:PSX) refinery in Los Angeles will soon undergo planned maintenance. They have announced a slight delay in this maintenance to take advantage of current high prices (and certainly to avoid criticism for taking the refinery offline during this emergency), but they can’t delay it forever. This sort of maintenance takes months to plan and involves many contract workers who may have other jobs scheduled, so it likely won’t be delayed for long.

The situation in California is likely to persist for years. There is no simple solution to the problem, but there are steps individuals can take. Consumers have some control over the amount they spend on fuel by avoiding gas guzzlers, taking public transportation when they can, and carpooling whenever possible. Individuals who have long commutes may benefit from purchasing a hybrid or CNG vehicle.

California provides a valuable lesson for the rest of the country, because we are not immune to the problems there. Their special circumstances simply forced these issues to manifest themselves there first. But we will see these problems crop up in other areas, and I believe eventually across the United States. As a country we need to note what is happening in California and plan accordingly.

Link to Original Article: Understanding California’s Gasoline Prices

By Robert Rapier

  1. By Walter Sobchak on October 7, 2012 at 5:12 pm

    The people of California have done this to themselves. It serves them right to suffer. I have no sympathy for them.

    • By Optimist on October 8, 2012 at 4:54 pm

      Oh, yeah! It is an unforgivable crime to seek to improve smog problems or air quality, isn’t it?

      Gas prices will return to normal soon. California will still be a great place to live.

      And if you make your own fuel, there’s no problem…

    • By NewsView on October 9, 2012 at 6:16 pm

      The national epidemics of asthma and heart disease have been demonstrably linked to living next to busy highways, freeways and interstates. To the extent that California has prevailed on auto makers to build cleaner-burning cars that are sold well beyond California’s borders, it benefits everyone in numerous ways. I have family who recall that in the late ’50s and 1960s you often couldn’t see to the end of your own block in a typical suburban area outside of Los Angeles, particularly during the summer months. If the same didn’t and hasn’t happened in your metro area, you can thank California thanks to the efforts that began largely with California legislators decades ago.

      Even if a more efficient car for the sake of better air quality isn’t your schtick, with prices edging closer to $4 and $5 per gallon every day, I shudder to think of the impact of driving a typical pre-catalytic converter car back when getting 8-10MPGs was considered decent. Consumers wanted more fuel efficient cars at least as far back as the energy crisis of the ’70s but the free market didn’t supply them until the California legislature backed consumers’ interests up. Personally, I think this is one of the better examples of the check-and-balance between the public and private sector solving a problem that might not otherwise have been addressed in a proactive, forward-thinking fashion. After all, for all our complaining about high gas prices the pain at the pump would be that much worse if the internal combustion engine had not undergone some aggressive re-engineering over the years.

      By the same token, there are those who complain that if we would more aggressively frack, strip mine for coal, develop and refine America’s oil reserves we could be “energy independent”. That’s probably a fair assumption. But it’s not the only factor to weigh. If and when we run out of energy resources, developing it with abandon and selling it at rock-bottom prices, someday we will again depend on our foreign “friends” to bail us out — and they’ll know full well they can command any price for our economy to go on “ticking” because our own reserves will be long gone. By keeping a hefty portion of our own reserves “on tap” we have a bargaining chip: keep the black gold flowing or we’ll open our reserves and destroy your market monopoly. IF we burn through our bargaining chip, there’s nowhere else to go but into a foreign-energy choke-hold that will make this poor economy look like a picnic in the decades to come.

      It is more strategic in the long run to keep our own natural resources on hand for as long as we possibly can. If and when the Mideast, China and India burns through their supplies we  stand to gain the upper hand in the energy supply business. Distant though that future remains, I vote for rationing our own resources, using other people’s natural resources before their own economies are as dependent upon them as our own. Meanwhile, because we’re not selling domestically-produced oil at cut-rate prices, we can continue to lead the world by developing technologies that will need less and less of a limited or costly resource, thereby allowing us to pay the same over time thanks to making less stretch further. This, in turn, will help offset the low-hanging fruit of easy-to-tap world oil supplies, which have largely been depleted.

      I fully appreciate that this energy strategy doesn’t satisfy the self-serving “here and now” but it does mean that we end up in the better position in the long run, energy wise, if we exhaust our natural resources more slowly than everyone else around us. If we keep it up — not halting but developing new sources of domestic coal and oil in a controlled manner — we’ll be the last man standing on the world energy stage. And that just might be a better place for our grandchildren to find themselves one day.

  2. By ben on October 8, 2012 at 6:13 am

    RR’s last paragraph is arguably the most important; the situation in California is a wake-up call for what could be a scenario for the national market.   The level of investment made in our refinery infrastructure is miniscule compared to the demands we place and the importnace we attach to this vital sector of the economy.  Alas, refineries are “dirty places” and we tedn to treat ‘em like the crazy aunt in the attic–praying that they will just stay there out of the way and not cause a scene.  Yet, we prevail upon these facilites for performance every time we pull up to a pump with the expectation that it’s simply a matter of “pump and go.”  Well, it takes alot more to ensure that supply is there  for our use than a presumptuous attitude.   That sad part is simply that once this particular episode fades to a bad memory for the consumers in California, precious little will have likely changed in addressing underlying causes that may lead to a marked improvement in the region’s liquid fuels supply/demand dynamics.   As a result, we can probably say, “stay tuned, more at eleven.”  Something that is a likely story-line for the nation in the years ahead without substantive remedial action.  

    The near-term is likely to witness some easing in the price of transportation fuels on a national basis, and it looks like the reduction could be substantial in the months ahead taht brings us back to the price range experienced in 2010.   If that happens, it will most welcome relief for an economy that has only made it about halfway through a systemic deleveraging that is very much keeping a lid on economic growth during the current recovery.  The specter of a double-dip recession remains alive due to stagnate household incomes and only modest business investment.  The Feds current commitment (to QE3) ensures that low intertest rates will continue to save Uncle Sam significant debt refinancing costs even as it esnures meager returns for millions of retirees and fixed-income investors in sort of a classic “pushmepullyou” scenario.  When combined with a fledgling real estate market that still resembles the drunken sailor who, having returned to ship and put back out to sea, is stuck below in his bunk waiting for a return to regular duty.   Climbing that ladder to the main deck may prove a bit more challenging than anticipated.   The object lesson in all this: sober up and stay that way.  Something that is always easier said than done for free people–especially those most unwieldy of all God’s creatures–those devilish Capitalists:)






  3. By Vin Diesel on October 8, 2012 at 12:16 pm

    RR, you said the country needs to plan accordingly for tight refining capacity everywhere.  But the US became a net petroleum products exporter last year for the first time in 50+ years, and Gulf Coast refiners are doing a very profitable business in importing crude oil from Latin America and sending the refined products (diesel/gasoline) back to them and other parts of the world.

    With the reversal of Cushing pipelines to send crude south to the Gulf Coast, it’s gonna create even more arbitrage opportunities for refiners to export petroleum products.  BP said that gasoline consumption peaked in the US in 2007.  So what’s the deal?  Will it be de-facto energy independence in the middle of the country and the coasts will be borderline famished because they’ll have tight capacity and have to compete with the rest of the world for gasoline/diesel imports?


  4. By Robert Rapier on October 8, 2012 at 1:15 pm

    So what’s the deal?  Will it be de-facto energy independence in the middle of the country and the coasts will be borderline famished because they’ll have tight capacity and have to compete with the rest of the world for gasoline/diesel imports?

    Indeed, I think that is likely to be the case. Some relief may be had by building finished product pipelines from Midwestern refineries to the coasts.

    But when I talk about the rest of the country not being immune, I am thinking more broadly about high and spiking gasoline prices in general. While Midwestern gasoline prices do trade at a discount to those in California, oil prices are still high and subject to world markets.


    • By Vin Diesel on October 8, 2012 at 2:31 pm

      Thanks for the response.  Do you know if California has significant gasoline/diesel import capacity like the East Coast does?  

      • By Robert Rapier on October 8, 2012 at 2:37 pm

        I don’t know how much they have, but I think the do import gasoline. I think I recall seeing Singapore as a supplier of gasoline to California. Maybe I ran across that on the state’s official energy site.


      • By Bill James on October 8, 2012 at 8:24 pm

        Hi Vin.
        The US East Coast has major import heartache coming its way between very few local, refineries closing and Euro financial issues. Imports from Europe will likely be complicated by labor strikes and currency problems affecting EU refineries’ ability to buy oil.

        Look at the Regional Gasoline Stocks in this weeks TWIP. The US East has inventory levels not seen since 1990.

        • By Vin Diesel on October 9, 2012 at 5:24 pm

          Indeed, it appears that the coasts are diverging vis-a-vis the center of the country, because the coasts have to pay world prices for BOTH crude and refined products.  This will create an interesting dynamic for both Canada and the US…   

  5. By Roy N on October 8, 2012 at 2:34 pm

    This problem cannot be properly addressed without considering politics which Rapier excludes.  Unabated environmentalism based on junk science is a major factor in this shortage. 

    • By Optimist on October 8, 2012 at 4:58 pm

      Care to explain yopurself, Roy? Enlighten us with the real science?

      This should be good…

  6. By Adrienne Adams on October 8, 2012 at 2:36 pm

    There is a fourth option in response for rising gas prices and shrinking supply: reduce demand through policies designed to encourage less driving. Cities and metros can change zoning laws to encourage infill development, transit-oriented-development, and higher density residential development; cities can provide incentives for employers to move to urban cores (as Seattle has done with Amazon, and San Francisco with Twitter). These structural changes have  deeper and longer-lasting effects on gas consumption than either price or supply disincentives. See this article on the Atlantic Cities blog: 2 Different Ways to Cut Driving by 1/5

    The party is coming to an end: gas prices aren’t likely to ever become cheap again, and as this post points out the supply chain is vulnerable in many ways. The sooner that we start moving towards public policies that reward less fuel-intensive lifestyles the better.

  7. By Optimist on October 8, 2012 at 5:00 pm

    The party will continue, regardless of gas prices, which, contrary to all the hysteria, mostly adds up to a minor inconvenience, for most people…

    • By Adrienne Adams on October 8, 2012 at 6:35 pm

      I appreciate your optimism, Optimist. However I disagree that high gas prices are a “minor inconvenience” for “most people.” Gas prices affect the cost not only of driving our cars, but the cost of nearly all our goods, services, and food. Retailers are reluctant to raise prices right now so they are mostly absorbing the higher fuel cost, reducing profits. When we spend more on gasoline we spend less on other things. High gas prices have a ripple effect throughout our economy.

      • By Bill James on October 8, 2012 at 8:39 pm

        Hi Optimist and Adrienne

        I recommend reading about the Stockdale Paradox; unwavering faith that we will prevail while facing the most brutal facts.

        The brutal facts are that life requires energy. Oil energy is finite. US Peak Oil was in 1970. We have been at war (counting no-fly missions) since 1990 defending access to foreign oil. Since Peak Oil national debt has risen 43x, in tandem with oil imports, from $.4 to $16 trillion. Americans face Oil Famine; monolithic dependence on a source of energy 50% outside our control that we must borrow to import.  Debt seems likely to collapse this house of cards in the next 0-24 months.

        Israel and Iran has stated a willingness to go to war over mutually exclusive objectives. Read the articles “The Drums of August.” If we have until next August to get ready it will help. Once war breaks out, I do not see how we do not lose the ability to use debt/printed money to import oil.

        Life requires energy. Less affordable energy, less life. Less energy, much less life.

        If our policymakers rally our efforts, we can cut our need for oil by more than 50%. Doing it in a year is possible, but unlikely. Using half the oil, still give us more oil than most others in the world.

        The solution is self-reliance. It will be far from “a minor inconvenience.” If we embrace self-reliance we will do OK. It will be brutal, but we can be OK.

        • By Optimist on October 8, 2012 at 9:50 pm

          On average, we spend more driving for recreation than for work. According to the link inside the link, we only spend $40/week on average on gasoline. It’s not a crisis, it’s an irritation. One we like to complain about. If it was a crisis, we might actually do something about it. On average we’re not there yet.

          The reasons behind the current high prices in California basically add up to little spare capacity and bad luck. Spare capacity will remain low. Our luck will change. Prices will come down. After the dust settles little will have changed, if 2008 is anything to go by.

          There is nothing brutal about needing energy. Supplies have not proven finite, so far. “Proven” reserves are still increasing. Technology for extraction will keep improving. Those are past trends, likely to hold for the foreseeable future.

          Expensive oil has many benefits, including communicating urgency. It also encourage suppliers to supply more and consumers to consume less. Again, no crisis, just one of the few remaining relatively free markets, behaving as it should.

          Consistently high oil prices would also encourage alternatives to come to market. At current prices, inconvenient as they are, alternatives still don’t appear to pencil out.

          Self-reliance is expansive, inconvenient and makes no sense.

  8. By NewsView on October 9, 2012 at 5:39 pm

    It’s not every season you hear of a fire at an electrical substation or a garment factory. As I recall, there was also a fire at a refinery in Richmond, CA outside San Francisco this year that put residents in a panic over toxic fumes (they were told to hunker down indoors for the better part of a week). Likewise there was a similar disruption on the Canadian side of the border this past summer. This brings to mind two problems: At the first news of a disruption prices rise at the pump before the existing circulation is exhausted. If it was merely a shortage one might assume it should take a couple of days (or weeks) to impact prices at the pump. Second, I believe there are too many “disruptions” at strangely critical times.

    Rather than petitioning congress to look into price gouging, Sen. Feinstein should consider pushing the matter of more inspections of accident-prone facilities at the state legislative level. Fires and other such accidents not only represent a cost passed onto consumers but a threat to the health and safety of residents adjacent to refineries, which indirectly drives up costs over the long term because that spurs more people to take the not-in-my-backyard stance when the building of additional refining capacity is proposed elsewhere. Were the building of additional refineries to evoke more public support and less fear, it would help bring down prices over time, whereas repeated news of accidents and mishaps contributes to a narrow supply chain and greater price volatility due to the presence of too few refineries competing for business. In any case, oil refinery safety records deserve more scrutiny. If there were less in the way of accidents, there would be less in the way of price spikes.

  9. By Optimist on October 10, 2012 at 5:56 pm

    Nationwide there is a glut of refining capacity, hence the news of refineries closing.

    California is different, but not excempt from the trend: building refining capacity does not make business sense. Hence, capacity will remain tight, and accident-prone.

    Feinstein is playing dumb, like the president. The scary part is that it seems to work well…

  10. By mac on October 11, 2012 at 11:58 am

    Once again, the implicit assumption in many of the comments above is that we will be forever chained to oil. and that we will descend into various apocalyptic scenarios on that account.

    (I guess if your retirement check comes from an oil company, then this is emotionally appealing and makes sense)

    I find it odd that some on R-Squared see oil supply shortfalls and refinery shortfalls as a spur to increased P/E and refinery capacity in the U.S.

    This “drill baby, drill” idea is to apparently increase U.S. oil production and refinery capacity, so that we can run out oil sooner rather than later.   This scenario is appealing to vested oil interests, oil company retirees, stock holders and the oil companies themselves.  Why give up this gravy train …. for soueces that are cheaper by the mile than gasoline or.diesel derived from crude oil…. ?

    Such as natural gas or electricity…………..

    The answer is simple,  The oil companies are loathe to switch to an alternative such as nat gas as they are making record profits from oil with their huge already built-out infrastructure.  Thus, they have little or no incentive to switch allegiance , even though traditional oil companies hold many of the leases, for example, here in the Eagle Ford formation in south-central Texas,  a formation that is indeed just chock full of natural gas.

    After all, my friends, this is truly the Golden Age of Oil Profits;

    It is not, however,  the Golden Age of Oil Discovery -  THAT,  effectively passed us by long ago.

    So, cheaper alternatives sit by the wayside, as oil profits soar and an ever increasing proportion of the world’s wealth flows to the oil companies.

    Short to mid-term,  oil stocks are probably a pretty good bet.  But in the end, they are folly,  just as is our sole dependence on oil.


  11. By mac on October 11, 2012 at 2:50 pm

    “But, my retirement comes from an oil company.”…………………….


    Responsible retirement fund portfolio managers invest in the broader U.S, and international stock markets (not just in-house company stock)  Many retirement portfolio managers often have investments in  mutual funds (which are by nature diversified), as well as various  debt instruments such as municipal bonds, MUNIs, and also corporate paper and various government bonds (U.S  government issued  T-Bills and inflation adjusted U.S. Savings Bonds for example.)

    Retirement portfolios often include Real Estate investments, usually REITs (real estate investment trusts),  because Reits are much more liquid than raw land, commercial buildings, or homes. They can be easily traded on the NASDQ, NYSE, etc.

    Sometimes portfolio managers also dabble in currency speculation, hedge funds, etc..

    The point is that most responsible portfolio managers have a diversified portfolio that can be relatively easily modified.

    I assume that the stocks, bonds and real estate “retirement” investments of Exxon-Mobile are diversified in this way.  If this is not the case, then former Exxon employees have a great deal to worry about.

    A perfect case in point is ENRON,  where an employee’s entire retirement with-holdings were re-invested in worthless ENRON stock in a kind of modified Ponzi scam.

    So, if your Duke Energy (coal) portfolio manager decides to invest in a few windmills, or Exelon (largest U.S. Nuke provider) buys John Deer’s windmill holdings,  I wouldn’t be too alarmed.

    If oil fades, then portfolio managers will purchase other income producing stock, or bonds, etc. on the open market.  Just that simple. If your oil company has nat gas holdings, why worry ????

    Portfolio managers often change horses in mid-stream

    Oil is a fungible commodity.  So are stocks.  Both are openly traded on international markets.  The price of oil does not always represent the true, on-going demand for oil.  And volatile stock prices often do not represent the true underlying value of a company.


    Volatility is the way speculators make money.  Without volatility in the commodities and stock markets, you might as well put your money into a traditional bank savings account at less than 1 % interest.


  12. By mac on October 11, 2012 at 3:35 pm

    mac said:

    “So, if your Duke Energy (coal) portfolio manager decides to invest in a few windmills, or Exelon (largest U.S. Nuke provider) buys John Deer’s windmill holdings,  I wouldn’t be too alarmed.”


    Whoa……………wait a minute…….


    I made a mistake.   The retirement fund portfolio managers at Duke Energy and Exelon  did NOT  buy windmill stocks to flesh out their retirement fund portfolios…………………………

    Duke Corp. and Exelon actually purchased the windmills farms outright…….

    OOps……I goofed…


  13. By mac on October 11, 2012 at 5:38 pm

    What do windmills have to do with summer blend gas in CA. ?

    Nothing ,,,,,,,,,,,,,,

    …….., except to say that if we were not solely dependent on oil, then the California summer blend gas agony crisis and the resultant smog would be a mere footnote in history instead of an unrelenting nightmare.

    Ding dong,…………. I actually lived in LA during the Max Smog years.  Your eyes burned every day and your chest ached when you went to sleep ar night.

    I am not the least. 


    We need ?? more gas powered (so-called “cheaper”) gasoline cars in the San Fernando Valley ???  Or, the greater LA area. So say the the bizarre Free Enterprise OIl Crackpots.

    I guess we all just need is a good whiff of Sarin Gas before we set off for work in LA……….

    That would at least give “Angelinos” some perspective and perhaps stop the endless complaining,  coughing, asthma, lung cancer and other mysterious complaints that have no foundation in fact according to EXXON, who are the world authority for just about everything. I reckon. . .













    Don’t know what a Santa Ana wind is, ?,  or the seldom seen (because of air pollution) Catalina Mountains ?   Then, you haven’t lived in L.A.

    The Surf is Not Up……………  Robert…….

    The tide is going out……………… for oil and gas alone.

    “Bitchen”……….. as we used to say.






    I lived in LA in the 60′s, choking on smog.

    When you live in an urban area like LA versus the wide-open spaces of Texas and Oklahoma, you develop a different perspective on particulate pollution.

    My chest,  literally ached every night while I lived in Santa Monica, until I got wise and moved away.

    California has too many rules and regulations ? 

    Yup. if you’re from Snow Mass,  Colorado or maybe Boise, Idaho or some other mythical place where the internal combustion engine does not exist.


  14. By Optimist on October 11, 2012 at 6:00 pm

    Thanks Mac,

    That was enough horse manure too keep my entire community well fertilzed until spring.

    Please explain how it is that Big Oil can prevent anybody else from developing energy sources that is cheaper than gasoline or diesel. I know, why let bothersome facts and irksome data get in the way of a good story?

    Once again, the implicit assumption in many of the comments above is that we will be forever chained to oil.

    Once again Mac shows an incredible ability to create an assumption (in everybody else’s minds, no less) where none existed before. You are a fine fiction writer, Mac. Unfortunately, this is not a fiction writing blog…

  15. By mac on October 13, 2012 at 5:54 pm

    Optimist says:

    “That was enough horse manure too keep my entire community well fertilzed until spring.

    Please explain how it is that Big Oil can prevent anybody else from developing energy sources that is cheaper than gasoline or diesel. I know, why let bothersome facts and irksome data get in the way of a good story?”


    Those “bothersome facts” are simply that CNG and electrical energy are already cheaper by the mile than gasoline/diesel.

    Assuming that the EU statistical base is correct, and that we will run out of oil in 2048, then perhaps we should actually start implementing a move to alternative fuels and/or energy sources to run our transportation sector.

    I think “official” U.S. statistics say we will run out of oil sometime in the 2050′s.

    We will, in all likelihood  never suck out all the oil from beneath the earth’s surface, simply because other alternatives to oil will become increasingly competitive.  Natural Gas and electricity are already cheaper by the mile than traditional, refined oil based fuels..

    If we begin to run our transportation sector on fuels other than oil, it will not mean the end of oil.  Conservatively, about half the known oil reserves are still in the ground.  It simply means that we will become less dependent on oil alone. 

    As I also said, many vertically integrated P&E oil companies also either have natural gas investments or hold leases on properties that produce not only natural gas, but also condensates and crude.


    Big deal !!!!  If natural gas becomes popular, then present day oil companies will simply switch  a to getting a larger proportion of their income from producing natural gas.  It’s not the end of the traditional oil company  It’s simply that traditional oil companies will become broader based “energy companies”

    There is also nothing to prevent traditional oil companies from investing in electricity or electric vehicles.

    You worry too much……………………..


  16. By mac on October 13, 2012 at 6:36 pm

    OOps……………. you might say…………… there is also lots of Natural Gas in the Mid-East. 

    You are right.

    And yup……………….Exxon has a 30/70 deal with  QATAR for exactly that reason.  The gas is  frozen, bottled and exported as LNG to the EU and U.S. and sold as LNG.

    Who says that the traditional western oil companies hate CNG/LNG because it is a “supposed” competitor to oil  ?

    Apparently,  not Exxon-Mobile.

  17. By mac on October 13, 2012 at 7:02 pm

    Why spend the extra money on the oil refining process when natural gas can usually be sent from the well-head directly to the consumer.

    Of course, natural gas must sometimes be “scrubbed” to remove impurities, but the basic well-head to market process is usually simpler and less expensive than oil refining

    Which leads us to the obvious conclusion that CNG is generally cheaper than refined oil products.

    And, that is indeed the case.

  18. By mac on October 13, 2012 at 11:30 pm

    Exxon used to be Humble oil and then they merged with Mobil Oil to become Exxon- Mobil.

    And, the present, so-called Oil Companies of the future will morph into “generalized energy companies” as they embrace viable renewable energy alternatives.

    Remember Shell Solar ? or BP’s “Beyond Petroleum” excursion into solar power ?

    Relax, Optimist…………………….

    Traditional oil companies will morph into more generalized energy companies, embracing renewables, (or they will simply cease to exist).  But, old fashioned “stand alone” oil companies are just about a thing of the past.


  19. By mac on October 14, 2012 at 1:07 am

    Please explain this to me, dear readers of R-Squared Energy Blog. why increasing our dependence on oil by exploring for more oil will somehow supposedly “deliver” us from oil. This massive effort to find more oil  will, in fact, only increase  world wide demand for oil.   

    By all means, let us build more internal combustion engine vehicles and suck down all known oil reserves. (Two barrels of consumption for every single barrel discovered)

    About 40 million vehicles dependent on oil were manufactured and sold world wide last year .

    Have at it .

    Yes, of course and by all means, let us discover more oil so that the general public will become re-convinced that the temporary relief this might provide will convince the unwashed masses that oil supplies are unlimited.

    But,  thank God for outfits like R-Squared that persistently decry the current state of affairs without actually suggesting any viable alternative to the present mess.



  20. By mac on October 14, 2012 at 1:31 am

    The answer is simple. We can run many of our vehicles on natural gas and /or electricity.

    The idea that we MUST run all our vehicles on oil is…….well ……….stoopid.

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