May 26th, 2008 by Dave
Separately, DetNews had an excellent article on the economics of gas. They noted that the key issue for gasoline is refining, not the price of oil. They also pointed out that many oil refineries are currently running at a loss.
Yes, you heard right. Some of the refineries that produce our gasoline are running at a loss. That, better than any lunacy about how environmentalists are in control of the Bush Administration, (which is every bit as likely as Jerry Falwell running the Democratic Party, especially now that he’s dead), explains why there have been no new refineries constructed over the past decade. In fact, some years ago a major gas company closed down some refineries, because they weren’t making their target profits - and at that point, they weren’t even losing money.
One who is either paranoid or has a good memory of oil company shenanigans might think that ExxonMobil is doing its bit to shove some competitors over the edge, and perhaps into its gaping maw. ExxonMobil, you see, is doing very well in this climate, because they do quite a bit of drilling in addition to refining. Companies that mostly refine are probably losing money now; those that mostly drill are probably quite happy.
But what about antitrust law, you may ask? Do you remember a few years back when Microsoft was found guilty of violating such law? Do you remember the penalty? I’ll remind you, if not — they were made to promise not to break the law again. (This wasn’t their first offense, either.) There were a few more penalties, but none so vicious as those you would get for stealing a stick of gum, or parking in a handicapped space.
This article both shows why the price of gas won’t rise in a linear fashion with the price of oil - and why new refineries are unlikely to appear any time soon. It also shows why combining trips, driving with fuel efficiency in mind, and, yes, considering gas mileage when replacing a car, along with such apparently unrelated thoughts such as not buying unnecessary plastic toys, shutting off unused lights, and enabling Energy Star on our computers, are terrific ideas.
May 19th, 2008 by Dave
Fool me once, shame on you; fool me twice, shame on me. Yet like most people, I keep getting fooled by a corporate news media that doesn’t spend the time to get stories right. I should really have known better because I’ve been watching news outlets screw up Chrysler reporting since the days of the “unsafe minivan door latch.” That’s the latch that held up more often (as a proportion of accidents) than the “safer” ones competitors had.
Chrysler’s Chief Procurement Officer, John Campi, talked about his plans to reduce parts costs by 25% over three years; it was reported by some reputable outlets as Campi pushing around suppliers for 25% price cuts or see their business go to China and other low-labor-cost countries. While Campi certainly could be expected to do this, Chrysler PR people noted that his stated plan was “on taking cost out of the entire supply chain, which includes costs Chrysler has within its operations and are part of the supply chain. To that end, the collaborative cost-savings initiative…calls for Chrysler to stabilize its production schedule; reduce engineering change notices and reduce component proliferation.”
This would cut costs for both Chrysler and the parts suppliers, according to Campi, increasing their profits while raising Chrysler’s. He said: “Not once in any public or private discussion have I ever suggested that suppliers would have to reduce pricing to meet the 25% cost out challenge without our mutual objective of protecting their profitability in dollars and percent. Our drive for cost reduction will only be accomplished with collaboration between Chrysler and our supply base. That simply cannot happen if it is not mutually beneficial.”
It’s hard to say how sincere he is, given his (and Bob Nardelli’s) background, but I will say that Chrysler’s done it before. The famous SCORE effort (search for it on Allpar) saved Chrysler billions and also put billions into the hands of its suppliers.
If they can get those cost reductions without pushing suppliers into Mexico, China, India, or wherever the cheap-labor hot-spot of the year is - will some South American country be next? - I’m all for it.
May 5th, 2008 by Bill C
This entry is posted with Bill’s permission. It was written in 2002 but still applies.
When I was visiting a web site today, I hit one of those “pop-up” ads. This one reminded me that sales of illegal drugs help fund terrorism. Of course, they are also beginning once more to help bolster the real economy of the now-friendly Afghanistan, but we’ll pretend that doesn’t matter for the moment. Let’s just agree that a portion of the proceeds from the huge international drug trade does wind up in the hands of terrorists. That’s bad, right?
What no one, especially no one in our oil- industry- friendly Administration or Congress, is saying is that terrorists get a lot more money from oil. Isn’t that bad, too? I may be wrong, but I don’t think Osama bin Laden’s wealth is rooted in the drug trade.
During the recent hostilities between the Israelis and the Palestinians, Iraqi President Saddam Hussein offered $25,000 each to the families of the Palestinian suicide bombers. That’s a nice hunk of change. But Iraq has been under all sorts of embargoes and restrictions since the Gulf War. Their domestic economy is in ruins; many Iraqis are living under terrible hardships and the death rate among Iraqi children is skyrocketing. So where is Hussein getting the money?
A lot of it is coming from us.
The CIA World Factbook says Iraq’s exports include oil, oil products, fertilizer and sulfur. Oil accounts for 95% of the export total. According to the federal Energy Information Administration, Iraq’s current output is somewhere between 1.5 million and 2.3 million barrels a day. We take about a third of that. Last year, 8% of our total oil imports came from Iraq.
Yesterday, crude oil for June Delivery closed at $26.12 on the New York Mercantile Exchange. That’s down fifty cents from the previous day and the price is likely to decline further, now that Iraq has announced resumption of oil deliveries. If we multiply the lower production figure by 33%, the government’s own figures show we are consume about 495,000 barrels of oil daily from Iraq. Based on the May 7 closing price, that works out to $12,929,400 each day. We pay over $4.7 billion per year for Iraqi oil. Remember, that’s using the administration’s lower production figures.
Of course, because of the UN sanctions, Iraqi oil is exported in exchange for food and humanitarian supplies. But it has also been used to pay for things like the more than $73 million in drilling equipment purchased from the U.S. (Note: when those sales were made, Vice President Cheney owned stakes in the two companies that made them.) The sanctions haven’t stopped Saddam Hussein from accumulating cash do things like build new palaces, fund weapons development and give big bucks to suicide bombers and those who train and equip them.
As with many in the current administration, National Security Advisor Condoleezza Rice misses the connection. When she spoke about Iraq’s 30-day oil embargo at Texas A&M University in April, Ms. Rice said, “We ought to remind them that they’re going to have a hard time eating their oil.” While it’s a cute quip, she overlooks, or ignores, the problem that Americans have no trouble whatsoever “eating their oil.”
Our appetite for oil is higher than it was in the 1970s. That is not an opinion: it’s a fact. It is also a fact that a large percentage of the oil we import goes to fuel our vehicles, whose overall average fuel economy is lower than it was in the 1980s. Despite decades of lip service to decreasing American independence on foreign oil, we now consume far more oil from the Middle East than in the days of the Arab oil embargo.
Much of our increased appetite can be traced to the growing popularity of light trucks and sport-utility vehicles. Especially sport-utility vehicles. The majority of passenger cars sold in America today are smaller than the cars sold in the 1970s. While sales of “econo-boxes” make up only a small percentage of automobile sales, the best-selling models still have 6-cylinder engines and get reasonable mileage while serving the transportation needs of their owners.
It has been estimated that a five-percent improvement in the average fuel economy of American vehicles would reduce our imports of foreign oil to the point we could cut Iraq off completely.
Five percent? I have a way we can do that now. There is no need for a mass switch to Toyota Priuses or Honda Insights. Or abandoning SUVs. There is no need for government mandates, new gas taxes or increases in the CAFE standards. Detroit does not have to come up with any new technology and nobody is laid off. Moreover, almost everyone would be happy because there is no need to fight over drilling in the Alaskan National Wildlife Reserve. We can save that oil for when we might really need it. Oh yeah, air quality would improve, too.
And, get this: It saves money - your money.
What is this miracle? How will it work?
It’s simple: all that is needed is for all of us to make a better buying decision when it’s new vehicle time. There are more than fifty different sport utility vehicles on the market. A number of them perform just fine with a 6-cylinder engine. There are even some that can get by with a 4-cylinder engine. Buy one of those instead of a giant barge that is neither sporty nor particularly utilitarian. If you are one of the many pickup owners whose trucks never actually carry a load anywhere near their capacities, perhaps you could get a smaller truck or even a big truck with a smaller engine. If you really need the torque because you carry loads of sheetrock or tow a trailer, why not buy a diesel? If you carry lots of people frequently, buy a minivan. If enough people start to involve their heads in their personal vehicle decisions, we could chop our oil imports dramatically in five years without a major lifestyle change.
Think about it. You win because you are avoiding the vehicles with the huge profit margins, getting more value for your money. You win again by not paying extra for a bigger engine. You continue to win because you don’t have to fill the tank as often. On top of everything else, you help your country by keeping your money out of Saddam Hussein’s pockets.
It’s a winning situation for everyone except Iraq. And the terrorists. And the arms merchants. And Dick Cheney. But Cheney’s happiness is a small sacrifice; one I’m sure we’re all willing to make to win the war on terrorism.
But, I can hear you saying, what about the safety of that three-ton steel cocoon? Well, unless you can guarantee that all you’ll ever hit is a Honda, the truth is they’re not all that safe. In rollovers and collisions involving things like trees, Peterbilts and other three-ton cocoons, it seems your chances of injury or death may actually be higher.
Gee, getting the facts and using your head when selecting your next vehicle might not only be patriotic, it might even help you live longer. This program looks better and better all the time.
In a recent interview, Harry Longwell, executive vice president of ExxonMobil, said OPEC’s influence on the world’s oil supply is going to grow in the coming years. Oil production from non-member countries is expected to decline. This means we need to move quickly to safeguard our national interests. Iraq may not currently be an active participant in OPEC, but it is a member. And don’t forget about Libya. Qaddafi has provided a safe haven for terrorism for years. Remember Lockerbie? Osama bin Laden isn’t the only one with a fondness for doing bad things with airplanes.
It is time to start making public service ads linking Lincoln Navigators and Cadillac Escalades to the Al-Qaida. That guy sitting in his Chevrolet Avalanche needs to be reminded that it’s time for a real change: instead of just folding down the back seat, he should do his part to cut off the means for nutball tyrants to fund ruthless killers. Paint a 4-cylinder Jeep Liberty red, white and blue and make it a symbol of freedom from the threat of Saddam Hussein’s weapons of mass destruction. And, we should slap bumper stickers that say “I Help Support Worldwide Terrorism” on gas guzzlers, whether they are cars, trucks or SUVs.
We don’t need to spend billions invading Iraq. Let’s face it: Saddam Hussein doesn’t have that many friends. We have a chance, as individuals, to put a real crimp in his ability to buy more.
And save millions of dollars while we do it.
Can’t get much more All- American than that.
