Morris R. Beschloss 2016-08-05 03:36:23
Regulatory overkill A recent interview with Chevron CEO John Watson disclosed this respected oil CEO magnate’s reasoning behind the dizzying fluctuations of fossil fuel; as well as supplemental energy factors required to jump-start the current U.S., and other developed and developing national global economies. While applauding the impressive growth of hydraulic fracturing (fracking) as leading the U.S. to the multi-decade objective of energy independence, he accused America’s leadership of knuckling under to Saudi Arabia and OPEC associates; to bring prices down to nip fracking of oil and natural gas in the bud. With the administration’s regulators, such as the EPA, in charge, Watson believes the world-leading U.S. economy has been “strangulated” to a breakeven level. He accused those elements of wanting to extinguish fossil fuels in general, and bring coal to extinction, in particular. Watson believes there is a supplemental role for renewables (wind, solar, biofuels and nuclear, etc.) to allow the world to realize its objectives of maximum growth. But he intimates that the “war on coal,” plus numerous other restraints, has largely contributed to America’s 2% economic growth restraint. Whether this is by accident or design, Watson claims industrial manufacturing and mining employment will be held at a minimum, while much of the developing and developed economic world will be precluded from reaching the maximum objectives of which they are capable. He is firm in his belief that America’s tripling of oil production, from 3.4 million bpd in 2008 to 10.2 mbpd in 2014, stung the OPEC leadership into action. The subsequent price drops brought revenues down for America’s global oil production, along with Russia’s, to unprofitable levels. The Saudis, commanding the lowest production costs in the world, used this leverage to expand markets, while forcing the U.S. to reverse its new found volumes. Watson adds the $100 per barrel mark that opened America’s shale fields wide to further growth, subsequently caused Saudi Arabia’s reaction. This brought oil prices down from the $100 high in early 2014 to less than $30 per barrel by late 2015. This has led to increasing bankruptcies by small- and middle-sized companies involved in fracking oil exploration and production. It also caused U.S. banks to severely reduce fracking loans and forced an increasing number into bankruptcy. Watson concludes that a global rational supply/demand situation, thus bringing prices back to a reasonable level, would allow global producers and users to benefit equally from such a balanced approach. OIL EQUALS GLOBAL WEALTH? Where gold once reigned as the global indicator of economic wealth increase and/or decrease, it seems oil, whose price fluctuations has dominated recent media headlines, has gained the upper hand. Where gold-rich reserve nations such as South Africa, Indonesia and the U.S. once held the trigger on gold prices, such lopsided dependence has shifted to oil. The price extremities of crude oil at $145 per barrel in June 2008 and $26 per barrel in February 2016 consistently awaited the pluses of oil inventory in Cushing, Okla. — ostensibly the United States’ largest accumulation report at 10:30 a.m., Eastern time every Wednesday. But overriding these indications have been the whims of Saudi Arabia in maximizing its oil production and export levels to more than 10 million barrels of oil a day. Although both Russia and the U.S. can match this production, only the Saudis can generate the “above 10 million” level since 90% of its excavation is used to expand its market dominance. Saudi Arabia, with a population barely exceeding 30 million, has exercised geopolitical power by expanding its influence worldwide through penetration of crude oil market demand. Both the Russians and even more the U.S., use a sizable proportion of crude oil production and product derivative evolution for internal purposes. In tracking the breakdown of oil pricing from $100 per barrel in mid- 2014 to its early 2016 low point of $26, it was largely due to Saudi Arabia’s refusal to cut back production at the several OPEC meetings that took place in this two-year time interval. Subsequently, the burden of cutbacks has been forced on non-OPEC nations, primarily the U.S. “fracking expansion,” deep sea drilling, oil sands conversion and Brazil’s offshore Petrobas production. Also adding to the cutbacks have been Nigeria, Libya, Iraq and South Sudan. Consequently, Saudi Arabia, which is planning a trillion-dollar sovereign wealth fund based on the revival of the multi-national Aramco, has become a dominant world power factor. The Saudis literally command the availability of oil and its pricing levels, primarily based on the objectives of its national interest. IS COAL’S DEMISE JUSTIFIABLE? While the decimation of the U.S. coal reserve — the largest in the world — has become a political football engendered by the Obama administration and Democratic presidential nominee Hillary Clinton, the unfortunate facts support coal’s growing obsolescence. Unquestionably, its U.S.-based coal disintegration has been unmercifully handled, creating tens of thousands of formerly employed coal miners in such coal-based states as West Virginia, Virginia, Kentucky, Ohio, Pennsylvania and even New York. Its cost effectiveness and productivity has been increasingly outstripped by natural gas, and has been greatly exacerbated in the past six years as a side benefit of oil fracking. This has made natural gas more readily available (at very low prices) as the major firing power for electric utilities. While the Environmental Protection Agency and its regulatory extremism has engendered justifiable anger, even coal’s reduction to one third usage as an electric utility powering element is headed for extinction. Its only retention at this point is based on current usage, and is forbidden in existing facility expansion and additional construction. Natural gas has picked up the two thirds total usage, while oil had been obsoleted decades ago. Even in jeopardy are the substantial coal exports to China, India and most of the world’s underdeveloped nations, which are still using coal due to the unavailability of natural gas. This, however, will evolve as greater American-based liquid natural gas supply and its export dock facilities make huge amounts of that leading fossil fuel available worldwide. The tragic bankruptcy of Peabody Coal, the nation’s greatest coal producer, only signals the final obsolescence of coal in the next several decades. This unfortunate, but logical turn of events will continue to create major employee displacement and a resultant victim of regulatory aggression in the meantime. It is the ultimate irony that those fossil-fuel antagonists who have politically engendered the “death of coal” are actually supported by international, state and regional regulations. They are overwhelmingly represented by conservatives, who have been successful in putting the blame of coal’s death on the back of the “climate control” campaign. EXPANDED U.S. EXPORTS With job creation and American trade treaties bandied about as counterproductive in the ongoing presidential candidates’ debates, nothing could be further from the truth. When citing the lopsided imbalance of deficits in the Sino-American relationship, this has come about mostly by large American conglomerates’ relocation of a portion of their manufacturing facilities abroad to become more cost-effective in the totality of their multi-billion-dollar international businesses. Foreign automotive manufacturers have done the same thing in exact reverse, with many manufacturing and financing operations becoming increasingly numerous, especially in the Southeast and in some mid-American states. When citing the diminution of American manufacturing workers as victims of these moves — starting in earnest in the last 30 years — those accusing “worker displacement” as an economic denigration have not cited the near tripling of U. S. exports in this time period. This has largely been because of global trade treaties that had not previously existed. Also not cited by the confrontational presidential opponents have been the increasing regulations and the minimum wage and overtime handcuffs with which the 100% domestic millions of independent businesses totally producing goods and services within the United States have had to deal with. With the world’s leading American consumer sector, both in total gross domestic product and proportion (two-thirds) of total business revenues more highly capitalized than ever, they have increasingly been loathe to expend their monetary liquidity. This has limited IPOs as well as progressive expansion. While the European community is verging on economic disintegration, bi-partisan trade with the U.S., in addition to major partners Mexico and Canada, should be embraced, not rejected. With the presidential elections hanging in the balance, America’s economic future and national growth in general will be dependent on a winning candidate who best serves the interests of America’s unlimited economic potential, especially that of the world’s incomparable accumulation of multimillions of independent businesses. WANT MORE PVF-RELATED NEWS? Sign up for the twice-monthly PVF e-Newsletter for all the latest news and product information, as well as the thoughts and opinions from subject-matter experts. Visit www.supplyht.com/eNewsletters.
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