Basic Oil Economics or No More Jed Clampetts

T"...when up from the ground come a-bubblin' crude."oday’s Morning Joe program on MSNBC featured a typically brain-dead discussion of oil prices. I’ll summarize…

Joe Scarborough: We’re producing more oil, but the price is still high. That’s un-possible!

Time Mag’s Richard Stengel: I know. Can you believe it?

What’s missing from this discussion – and all the blather we’ve heard and will hear from the GOP during the 2012 election – is a fundamental understanding of what it means to produce petrochemical liquid fuels.

Oil Pumping Basics

Since before the Macondo explosion and leak, I’ve been a fan of The Oil Drum, a peak-everything blog that focuses on the oil patch. You really can learn quite a bit from the authors and the commenters, who tend to be oil field vets. Here’s what’s most important to this discussion:

It costs money to get oil.

The photo above is from the opening credits of the classic TV show The Beverly Hillbillies in which Jed Clampett is “shootin’ at some food, when up from the ground comes a-bubblin’ crude.” Half a century ago, that was a plausible scenario – oil deposits almost on the surface could be breached with virtually zero effort. Dig a hole anywhere in Texas, and you’re rich!

Those days are long, long gone. Hence peak oil. Peak oil does not necessarily mean that there’s no more oil in the ground; it means that we’ve reached (and surpassed) the point of diminishing returns in terms of the cost of getting oil.

Think about this: the Macondo well – referred to by workers as ‘the well from hell’ – required sending robotic submersibles a mile down in the ocean and then drilling a hole an additional two miles into the earth. So you’re reaching down a total of three miles just to get to the “discovered” deposit before you find out what’s actually down there. (Satan, as it turned out…)

That kind of engineering doesn’t come cheap.

If there were an easier and cheaper place to get oil, don’t you think BP would have opted for that? Of course they would have, but the fact is that there isn’t an easier place to get oil. Hence Macondo.

“Economic” Oil Extraction

It’s silly to criticize Obama or any part of the US government for restricting off shore oil production because the oil companies are already sitting on a giant number of leases. The reason that these leases aren’t being used is that it’s not “economic” to go get the oil – the price doesn’t justify the cost of extraction.

There’s a clear correlation between the price of oil and the amount of production, and this confirms the basic peak oil argument. The cheap and easy oil is all gone, so prices have to reach certain thresholds before it’s worth the effort to go get the oil we know is in the ground.

This is why 2008 was a banner year for deep water oil. Prices sky-rocketed, and suddenly it was worth the effort to drill down three miles to get to a deposit. Drilling platforms were double- and triple-booked. Even though prices fell by half from their peak as a result of the financial meltdown, they quickly rebounded to the $70 – $80 region.

After a brief hiatus, it was back to work for the rigs. A prime driver of BP’s foolish haste capping Macondo was that the drilling rig was already late for its next assignment. They also wanted to skip a step and turn the exploratory well into a production well to get the oil to market quickly.

With the current price of oil (NYMEX) over $100, seriously whacky oil sources become profitable – shale oil and even drilling in the Arctic Ocean. That is insane!

So, we know that we can get more oil if the price is high enough. Therefore, producing more oil won’t make prices go down to what they have been in the past; it will only make prices pull back from their highs.

So, sorry Newt. $2.50 per gallon gas is exactly as plausible as you becoming President of the United States.

The Two Main Drivers of Oil Extraction Costs

Obviously, the simple costs of getting labor and machinery out to the oil deposit’s location and then drilling, lining and capping the well represent the primary factor in the equation that determines if an oil well is economic to drill. Equally obvious is the fact that the market price – and no other factor – influences the decision to produce or not to produce. There are likely a few exceptions of deposits close to population centers or very close to coastlines, but there are so many leases on known deposits that fights over the exceptions are political shenanigans and little more.

Here’s what’s not obvious and what’s really behind the peak oil equation – the amount of energy it takes to produce energy. Deep sea submersible, massive mud-pumping ships and floating cities called “drilling platforms” don’t run on unicorn tears. They mostly run on oil.

As oil gets harder and harder to reach, it takes more and more energy to pump that next barrel. And even within a single deposit, the first barrels come out on their own but as pressure drops it takes more and more energy to get each successive barrel. Pumping the bottom of a well that’s three miles below the earth’s surface requires a lot of suction!

Compare the easy Texas drilling of the Jed Clampett days to the process of separating oil from Canadian tar sands or shale. It takes a lot of money and energy just to get the crude. Then you need to include the costs and energy inputs of distillation. That doesn’t come for free either.

The bottom line is that high gasoline prices are here to stay, and there’s nothing that any politician can do about it. Anybody who says otherwise is either a liar or a fool.

Struggling Cities Also Have Highest Foreclosure Rate


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Click on the image to see which communities have been hit hardest by the foreclosure crisis.

Providence, Pawtucket, Central Falls and Woonsocket are not only four of the most “highly distressed” cities in the state in terms of municipal budgets, they also have the highest percentage of foreclosures, according to a new report from HousingWorks RI.

Central Falls has the highest percentage of its housing stock lost to foreclosure since 2009 with 13.66 percent of the supply. Providence is the second highest in the state with 9.78 percent. Woonsocket is third with 8.21 percent and Pawtucket fourth with 6.5 percent. West Warwick, the other city identified by Gov. Chafee as being “highly distressed” was sixth after North Providence.

“No community in Rhode Island has been immune to the volatile housing market, but foreclosures affect communities differently depending on the location of those foreclosures,” reads the report. “For example, in the state’s urban communities, high concentrations of foreclosures can blight entire neighborhoods with boarded up buildings.”

Also, the total number of foreclosures in Rhode Island went up in 2011, after dipping down in 2010, according to the report. In 2010, there were 1,891 residential foreclosures in the state, an average of 157 a month. In 2011, the number of foreclosures increased to 2,009 – or an average of 167 per month, according to the report. In 2009, there were 2,840 foreclosures in Rhode Island.

With almost a third of foreclosures in the state since 2009 being multi-family homes, Rhode Island’s rental home economy has been decimated by the foreclosure crisis, says the report – noting that in three years the state lost an estimated 6,300 rental properties.

“The increased demand for apartments coupled with a decreased supply has made affording a quality rental home much harder for Rhode Islanders,” reads the report. “The high rates of multifamily foreclosures in the state have resulted in the rental housing market becoming one of the most vulnerable segments of our economy. 40 percent of Rhode Islanders rent their homes and 1 in 4 of those renters are extremely cost burdened, spending more than 50 percent of their income on housing expenses.”

Central Falls and Providence have the highest percentage of multi-family home foreclosures, accounting for more than 50 percent of the total in the state.

“Each multi-family foreclosure affects multiple rental homes, which in turn threatens tenants with possible eviction,” according to the report. “For every multi-family property foreclosed, approximately two to three families find themselves without shelter.”

HousingWorks RI offered some potential fixes for this crisis in its report:

“For Rhode Island to remain truly competitive in attracting and retaining businesses and growing a vibrant workforce, the state must elevate long-term affordable housing into its overall economic development strategy and develop a consistent funding policy for long-term affordable housing development and operation.

The $25 million housing bond included in the Governor’s FY2013 budget is a first step, but lawmakers must consider a $50 million housing bond in order to maintain the success of the state’s Building Homes Rhode Island program. Investment in affordable housing programs will help the state emerge from the foreclosure crisis economically stronger.

Other states are taking decisive actions to grow their supply of long-term affordable rental homes. For example, in Massachusetts, the Governor’s FY 2013 budget recommends spending almost $375 million on housing programs, an increase of more than $25 million over current spending in FY 2012. In Connecticut, the Governor recently announced that he is substantially increasing the state’s commitment to affordable housing as a driver for economic growth, bringing that state’s total commitment to nearly $500 million over the next ten years.”

Click HERE to see the full report.

Dear RI: Where’s the Work?


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For those who have never had a day of unemployment that they did not choose, there are no words which can describe the state. For those who, like me, have, you know the feelings. You know the self-loathing, the worthlessness, the despondence, the anger. But most of all, the fear. There is a special terror reserved for the jobless, a dark vicious terror that constantly lurks in the back of one’s mind. It is the terror that the bills will catch up with you. The terror that this may not be temporary, that you may never work again. That it will catch you, and in the end, kill you. And you carry that with you for months.

The job hunt is nearly as disheartening. Each letter sent out is a gamble, each interview a risk. Plenty will offer you tips, plenty will suggest you talk to so-and-so, plenty will say “perhaps if you tried here.” And you force yourself to nod, because you think to yourself, “I have done all of that already,” but you do not wish to get into a fight. But no one will treat you with respect; be it the callous souls who tell you, even in the midst of the worst economic catastrophe since the Great Depression, to “get a job,” or the people whom you are applying for a job with. You will be left on the line for weeks, sometimes without ever getting a response telling you someone else has been hired. Alternatively, they will send you some of the cruelest words in the English language, “thank you for your interest…”

I have sympathy for employers; it is not easy to pull the trigger and tell the job-seeker they will not be hired. But I have no sympathy for the politician who sees the suffering of their policies and yet continues with their madness. The politician says that they have imposed their policies so cities and towns “will get their fiscal house in order.” But they have not imposed fiscal order; they have imposed pain and suffering. Tell the victims of these policies that the political leadership has brought fiscal order. Tell the family who has abandoned their home and is living in their car because property taxes went too high, or the landlord forced to raise rents on tenants they know cannot afford it. Tell the vast majority of the people of this state who pay taxes at a rate nearly twice that of those who can most-afford it that we are bringing fiscal order. Our political leadership has a perverse definition of “order”.

Where’s the work that was promised? I was fortunate enough that I could work for free as a volunteer while I searched for a job. Most are not that lucky. They languish, in trouble, waiting for work that will end their weariness and replace it with accomplishment. Through this hell that has been imposed, they march onwards, driven by the idea of hope, our state motto. The motto so sacred to Rhode Islanders that we placed it on our flag so that it might symbolize us. The Statehouse should be the house that hope built. Instead, it is hope’s marble mausoleum.

The party in power names itself “democratic”. Perhaps they need a lesson in democracy. The word means the people rule. The people. Not the Speaker of the House nor the President of the Senate. If the representatives of the people delivers a bill, “democracy” means the leadership must consider it and bring it to vote by those same representatives, not hold it for further study, their epithet for saying they have killed it. This means that if the people cry out for fairness in our taxes, you cannot dismiss this cry as not having a chance. The people get to decide that, too.

But our “leadership” tells us that we must wait, that the tax policies they enacted six years ago during good times have not yet had their full effect. And yet, our unemployment rate has risen back to 11%, while the rest of the nation sees declines. Our “leadership” tells us we must not tax job creators, while the state loses the very jobs we are asking the creators to create. Our “leadership” tells us business favors tax consistency, but only if that consistency is going down. Our “leadership” tells us they want Rhode Island to be a place where anyone can live, but their policies force cities and towns to raise property taxes so high no one can live here.

I say this as a Rhode Islander. I say this as someone who only recently found a job in this state after nearly a year of trying, and I was not confining myself to only the state. I looked beyond our borders reluctantly, because deep in my heart, I know there is truly no other state for me. I am not ashamed or abashed to say I love Rhode Island, in all its oddities. I do not believe any true Rhode Islander can contemplate fleeing this state without any regret or sadness. And yet, that contemplation has been very real to me. And it is real to the thousands of Rhode Islanders who remain without work, many who have been searching longer than I have, many of whom are more deserving then I am.

There are those who will despise me for what I’ve written here. They will attack me, perhaps call me a demagogue. They will find fault with whatever I say, and seek to undermine my reputation. I do not care about my reputation though, I care about Rhode Island. The naysayers will point to our 11% unemployment rate and deride the citizens of this state as stupid for not abandoning it. They will insult the place of my birth, and me, not knowing or comprehending that the reason the unemployed stay is because as much as circumstances prevent them, they also have hope. They believe in this state. The naysayers look at an idea and say “we cannot do this,” and they will find such and such a reason to stop it. But those with hope will look at an idea and say, “how can we make this work” and search for ways until they have exhausted all possibilities.

Ship Building

We want to make our state work. We want to rebuild this state with our own sweat. We are not asking the politicians in the government to break a sweat, we will do that. We will work the hours, we will do the labor. We ask merely that the politicians on Smith Hill have the decency to relieve the pressures that prevent us from doing so, that they reverse their mistaken policies and free the people of this state to work. That they keep those already working employed. That they enforce policies that actually will bring the idle gainful work. That they take no more from those who have already sacrificed too much.

There is a dividing line between people. On one side are those who do not love this state, who cannot imagine a way out of this crisis, who call for it to be abandoned or else denigrate its people and its government. On the other are those who wish to give their lives for this state, who wish to improve it, who see its possibilities even in the midsts of its failures. I ask the leaders of this state to be the leaders that we know they can be, and lead this state to greatness. Where’s the work? It is before us.

Why RI Should ‘Ban the Box’ on Job Applications


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Every week in Rhode Island thousands of people are ushered through the court system, and every year nearly 20,000 will be released from prison.  There are 30,000 people currently on probation, as we have one of the highest rates of government supervision in the nation.  Over 100,000 Rhode Islanders have some manner of conviction on their records.  The effects of those convictions can vary greatly.

A culture of criminal background checks has cast a cloud of discrimination upon many people and their families.  HB 7760 and 7864 [concerning pre-interview criminal background checks] accept the fact that we live within one community- and we need to look carefully at policies that can go awry of their original intent regarding the safety of all.

I am in some ways typical of a person with a criminal record, particularly as we can only be evaluated on an individual basis.  My past is terrible.  The things I did two decades ago are despicable, and some have argued that I should continue to be punished and a life of homelessness or unemployment is appropriate.  However, whether I lived out such an existence in prison or the community, I would become a burden on the state.  On the one hand, my crimes are far more severe than most of the convicted; yet on the other hand, I bring more capacity to the table than most of the convicted.

In 2005 I was released from prison after 11 years, 8 months and restricted by an electronic monitoring ankle bracelet for one year.  Prior to my release (as a pre-condition of getting parole), I was only able to find one job, and it took me two hours to get to work.  After a few months, and with school starting soon, I sought a job closer to home in Woonsocket, at a Sears department store warehouse.  I did not check the “box” asking if I had been “convicted of a felony in the past seven years.”

My interview at Sears went well.  I submitted to a drug test, and upon the second interview I mentioned he would need to speak with my parole officer before taking the job.  When we got into my very distant past, it was clear I was not getting the job despite my willingness to work hard for under $8 per hour.  Others like me generally do not get that far, as many have been convicted in the past seven years.  He may have been more comfortable if my history were less severe, yet if that lighter crime were more recent, I probably would not have made the interview.

Last summer I transferred my probation to New Orleans and looked for an apartment.  I introduced myself as a Tulane Law Student.  After going through the process, I asked if they discriminated against anyone.  The agent assured me they did not, and requested my non-refundable $50 application fee.  I asked about “people with convictions.”  She did not know; they use a third party to do their background checks, but she was helpful enough to find their policy:  Anyone with a felony conviction within the past seven years is barred from living in River Garden, one of the largest housing complexes in New Orleans. And anyone who ever had a crime of violence or property damage cannot live there.  This is a common policy.

Last year we introduced the “Ban the Box” bill to This Committee.   We have gained the support of many, as I expect you will continue to see in the legislative process.  Some of you likely recall who came out in opposition: a lobbyist who represents background check companies.  They could not provide any evidence of people with criminal records creating less effective workplaces, yet evidence of these policies decimating communities is overwhelming.  They are likely familiar that their companies frequently violate the federal Fair Credit Reporting Act (FCRA), which has standards for checking people’s information.  Background checks have a consistent error rate, evidenced by the approximately 100,000 voters barred from the polls in Florida in 2000 because their names were similar to others who were barred by felony convictions.

Background check companies are blunt data miners who rarely recognize corrections or expungements, and certainly cannot assess the actual job applicant- whether 20 days or 20 years after conviction.  This Legislature has held many hearings on expunging criminal records, even reforms proposed by the Attorney General.  Those expungements are useless where background check companies do not update material.  Their goal, understandably, is profit rather than safety.

When NY Governor Cuomo was Attorney General, he filed a series of discrimination suits against companies based on FCRA, Title VII, and New York anti-discrimination laws.  He elicited millions of dollars in settlements and voluntary reforms in their hiring policies.  Appropriate law in Rhode Island could provide guidance and protection for our own companies, allowing them to avoid the type of hiring policies that the EEOC has condemned.  The EEOC is stepping up its enforcement, and recently negotiated a $3.1 million settlement with Pepsi, including a change to their hiring practice, as they had conducted blanket denials based on criminal records.

My prospects of returning to Rhode Island and raising my daughter are largely tied to what this legislature does in the coming years.  Nearly a third of public school students have a parent who is under government supervision like myself; would I be barred from volunteering?  Barred from school property?  Will I be allowed to work based on my skills and efforts?  Will I be allowed to rent or buy a home anywhere I like?  This nation has been on a dangerous slope over recent decades, and if we do not reverse course we will have a caste society that forces me to create a different economy, a different school system, and a different community.  This is not what I want, and I am confident that it is not what the people of Rhode Island want.  Ultimately, we will all sink or swim together.

These comments were submitted to the House Labor Committee and entered into the record at its hearing on Wednesday on a bill that would make concerning pre-interview criminal background checks, or as it has been called “Ban the Box” because it would make it illegal to have a box on a job application asking if one has been convicted of a felony.