Posts Tagged ‘Oil’

Today BP announced that their “top kill” method of stopping the undersea gusher in the Gulf of Mexico is a failure. Previously they had tried to place a dome over the gusher to contain the oil and redirect it via pipes to the surface. But that was a failure. Then they tried inserting a small pipe into the gusher to suck out most of the oil to the surface.  But that was a failure. Now they admit that their “top kill” is a failure. So now they plan to place another dome on top of the gusher and redirect the oil to the surface through some pipes. Any predictions? Anyone? Anyone?

It is interesting to note that all of the methods that BP is using to try to stop the leak preserve the integrity of the well itself. The well is basically a hole in the ground (mostly rock) that starts one mile under the surface of the ocean. The hole itself is about two miles deep. Imagine how much money it must cost to drill through two miles of rock – and then you strike a huge gusher of oil. Would you want to shut it down? Of course not – this is literally money by the barrel coming out of the ground.  So, from that view BP is doing the right thing. Their first failed attempt to stop the leak would have still allowed them to pump oil from the well. Their second failed attempt actually involved pumping oil from the well with a small pipe – they just couldn’t pump it out fast enough. (We should all have such problems, right?) Their third failed attempt involved putting golf balls (really), cut up pieces of old tires (I’m not kidding here), and “mud” into the hole. I guess the “mud” is some sort of combination of drilling oil and concrete (maybe – I’m not too clear on whether the concrete was a separate attempt from the heavy drilling fluid kind of mud. Anyway, did you ever build sand castles by the seashore and then watch the waves come in and wash everything away?

The interesting thing about the “top kill” (sounds serious, doesn’t it) approach is that if it worked this sort of golf ball, old rubber tires, and “mud” combo would have solidified in the tube and created a plug – sort of how old soap and hair does that in your sink.  Then all BP would have to do is drill through the plug (in a controlled way of course) and voila! They’re back in business. Here’s the thing to note – in case you might have missed where I am going here: all of BP’s approaches to stop the greatest environmental catastrophe in the history of the world have been contingent on preserving their ability to continue to use this oil well once things are under control. – And after all, why not? Wouldn’t you?

Now, let’s suppose this was a real emergency – like maybe BP was being fined one hundred billion dollars a day for every day the well continued to pollute the world. Would there be a way to stop the flow then? You betcha.

It is my belief that pretty much any physicist in the U.S. or any mechanical engineer in the U.S. could come up with a very good way of permanently plugging the leak very quickly – and they could probably come up with the method in less than a day.  As a physicist myself, I feel pretty confident about saying that. So, one has to wonder… Since President Obama has now said he’s in charge of the whole thing, where is his team of physicists? Has he got MIT and Caltech and NASA on the phone? How’s his Tiger Team of the country’s best minds doing? They seem to be keeping pretty quiet. Maybe they are meeting in secret or something.  Or could it be that BP really does have the finest engineering minds in the universe? What happened to President Obama’s head of the Dept of Energy? Didn’t he win the Nobel Prize in physics? What is President Obama waiting for – Albert Einstein to come back?

Yeah, it’s a tough puzzle to figure out.  Not about how to permanently plug the leak – I’ll bet there are even quite a few plumbers who could tell you how to do that. No, I mean why isn’t the President stepping up to the plate and actually taking charge instead of just making speeches about how he feels our pain? Why is he standing by while this catastrophe continues? I’m not asking why BP doesn’t try to permanently plug the well – after all, they’re an oil company, need I say anything more? And please, let’s not bring in the military.  This is not what they do.  A team of physicists and engineers, given the mission to simply stop the leak  permanently, could have a solution in a day. It could be put in place within a week if priority were given to fabricating the necessary fixtures.  It’s just that nobody wants to do that.

So there you have it. Now, as one of my teachers used to say at the end of every lesson, “Any questions? No? Good.”

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These are troubled times. The stock market gyrates wildly every day; major industries are teetering on the verge of extinction; and banks are paying a pathetic 1% interest on savings accounts. So what should you do with your money? Should you just put it in a piggy bank or under your mattress? How about burying it in the backyard? The truth is that burying it is the worst thing you could do with your money. Well OK, I suppose you could just burn it – that would definitely be worse.  The thing that is invisible to most people who want to preserve their wealth is that the U.S. dollar is a really bad way to preserve wealth. Why? Because inflation eats up the value of your dollar every minute that you hang onto it. Here’s an example: suppose you buried a $1,000 in your backyard in 1970 and you dug it up today. How much do you think it would be worth? Would you believe $177.06? That’s right. You can have a lot of fun with inflation calculators, like Tom’s Inflation Calculator.  You can calculate forward and backward in time and really see why it doesn’t pay to squirrel your money away.

But wait! You can have even more fun.  Try the compound interest calculator at moneychimp. Then try both calculators together like this: let’s suppose you had $1,000 in 1970 and that you put it in the bank at 5% annual compound interest. What would your investment be worth in 2008? It would be worth $6,385.48. So you ask what would the inflated value of the original $1,000 investment be after those same 38 years? The answer from Tom is $5647.59.  If you subtract the inflated value of your investment from the total value you have a net profit (before taxes of course) of $737.89. How’s that for a 38 year investment of $1,000? It gets to be a lot more fun if you change the interest rates on the compound interest calculation. For example, if you only get 4% interest on your original investment it only accumulates to $4560.68, for a net loss in buying power of $1,086.91. You should have spent the money while you had it!

You can have hours of fun with these calculators. Here’s another fun thing to do: pretend you are a credit card company and you loan some poor, bad-credit-history, sucker $5,000 at 33% interest. Just for fun let’s assume the poor guy only  makes minimum payments. So how much does he have to pay the credit card company? $15,628.61!!! And it takes him 23 years and 5 months to pay off the card! You can do your own calculations at this website.

Getting back to your $1,000, what can you do to preserve your buying power? Put it in the stock market? Hmmm….maybe not.  Bonds at 3% interest? I don’t think so.  How about buying gold? Well, let’s see. In 1970 gold was selling for about $35 an ounce. Today it is at $765.50 an ounce.  So $1,000 in gold in 1970 would have the buying power of $ 21,871. 43 today.  Just for fun, let’s check on oil. In 1970 oil was selling for about $3 a barrel.  Today it’s about $44 a barrel, so $1000 worth of oil in 1970 would be worth about $14,666.67 today. Let’s see how that compares with inflation…Hmmm, oh yes, I remember – according to Tom’s inflation calculator $1000 dollars, buried in a tin can in your back yard in 1970, would have the buying power of $177.06 today.

So what does this all mean? First, it means that whatever money you make from your job begins to decline in value the moment you receive it (sort of like when you drive your brand new car off the dealer’s lot). The worst thing you can do with your money is to hoard it. It’s value will evaporate.  Your money can lose value even if it is gaining interest in a bank!! It all depends on the interest rate you are receiving.  We all know stocks can be risky investments – boy, am I glad I didn’t by stock in American Motors in 1970!  Commodities can be risky too, especially in the short term.  On the other hand, they don’t tend to go out of business and vanish like U.S. companies do.  So, should you go out and buy commodities? Maybe. I have no idea if commodity prices will continue to go up.

I only know the worst thing you can do: whatever you do, don’t bury your money in the backyard!

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Five months ago, the price of oil was over $147 a barrel. Today it is about $47 a barrel. How can that be? Did the intrinsic value of oil just evaporate?  Is oil just not as useful as it used to be? Or is it that the U.S. dollar is now worth a lot more than it used to be? How could that happen?  Did we just strike oil or something? No, we didn’t, and yes, oil is just as useful as it used to be. So what is going on here?

How about Las Vegas. In June of 2007 the median price of a home in Las Vegas was $305,000; in June of 2008 the median price of a Las Vegas home was $225, 000 – a loss of 26% of its value. So, what happened to its value? How can the intrinsic value of a house just disappear? Or did the U.S. dollar suddenly increase in value so you don’t need so many of them to buy a house? The problem we are facing today when we try to establish the value of commodities, whether they are barrels of oil, ounces of gold, or three bedroom homes is that not only does the value of each commodity change over time, but so does the value of the U.S. dollar.  It’s like trying to drive a car at a constant 50mph while you have to keep adjusting your pressure on the gas pedal because your fuel flow keeps changing while at the same time your speedometer is fluctuating randomly.  Sooner or later you are going to get a speeding ticket.

The value of commodities is more or less based upon the work needed to create them and the amount of demand for them. Sometimes, breakthroughs are made in production methods and prices can fall drastically; sometimes the price can skyrocket because all of a sudden everyone decides they need a particular thing – like maybe a hula hoop.  This is understandable and it is something that most of us can learn to live with, but the problem becomes much more difficult when our currency is also wildly fluctuating.  The time has come for us to reassess how our currency obtains is value.

For thousands of years, money in many civilizations consisted of gold or something related to gold. Even the U.S. valued it currency in relation to gold, until 1971 when President Nixon decided to decouple the dollar entirely from gold. Its value is now somewhat arbitrary and it is traded on the world markets by speculators.  Gold, although long used as a monetary standard, is not necessarily the best way to determine the value of a dollar. In fact, because there is a limited supply of gold in the world, having a gold standard places a limit on how much money can be created and therefore a limit on how much wealth can exist.

It appears that Nixon’s decision to eliminate the gold standard for the U.S. dollar worked for a while, but now we are beginning to see an unintended effect: the rapid and enhanced fluctuation in prices of “commodities” because the value of the dollar and the value of commodities priced in dollars are changing independently and simultaneously.

A partial solution to this problem can be borrowed from the way science defines the meter. The meter, which really could be any arbitrary length, is defined as “the length of the path traveled by light in vacuum during a time interval of 1/299792458 of a second”. Pretty exact, isn’t it?  With this agreed upon definition of the meter, scientists and engineers all over the world can design products and devices, knowing that they will fit perfectly together with each other today, tomorrow, and ten years from now.  Even though the value of your house may increase or decrease by 50% or more next year, you can be sure than the boundary markers of your house lot, that was surveyed by people using laser devices, won’t change by a millionth of an inch in a hundred years.

So why can’t we also come up with a solid definition of the dollar? We can, the problem is that our government likes having an arbitrary value for the dollar. That way our government has the ability to print its way out of debt.  That Dick Nixon was a genius, wasn’t he? Wouldn’t it be great if we could all do that?

Perhaps it is time to create a new currency – a world dollar – that does derive a fixed value from something that can be easily defined, but not limited in extent, like gold. Then all world currencies would be valued against this, and, I suppose, eventually the entire world would use this single, solid, unchanging currency.

Maybe then we would even be able to say what a barrel of oil is really worth.

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It may come as a surprise to most people, but we don’t really have an energy crisis, and we don’t have an oil shortage either! During the past couple of days, CNN has been reporting on the discovery of vast oil reserves in North Dakota. It’s not really a discovery though, because the oil business has known about the North Dakota oil for a long time. However, the media only now are revealing to us that there is three times the amount of oil in North Dakota as there is in Texas!

I suppose a lot of people have forgotten about the announcement of the vast oil reserves discovered in the Gulf of Mexico a couple of years ago. That is an offshore place where our oil companies are already drilling. The estimates were that the oil under the Gulf waters is greater than all of the oil in Saudi Arabia. Did you hear, about a year ago, when it was announced that huge amounts of oil lie under the ocean off Ireland’s northwest coast? Once again the estimates were that there was more oil there than there is in Saudi Arabia. If you consider the vast amounts of oil in North Dakota, the Gulf, off the coast of Ireland, and other places it is pretty clear that we won’t be running out of oil tomorrow.

Recently, it was announced that Exxon Mobil reported the largest quarterly profit of any American company in U.S. history. Exxon Mobil drills for some of their oil, but not all of it. They also buy a lot of oil from Middle East sources and refine it so they can sell the resulting gasoline and other products. You might wonder why they don’t just drill for all their oil, especially if there is so much in North Dakota, under the Gulf of Mexico, off the coast of Ireland, and other places. The answer is really pretty simple. Exxon Mobil might be in the oil business but they are really in the moneymaking business, like any other profit making company. In some cases they can make more money buying oil from the Middle East and refining it than by drilling for crude itself.

The oil in North Dakota is a good example of how this works. It’s about two miles underground, so it isn’t exactly the low-hanging fruit the oil companies would like to pick. It’s expensive to drill that deep. Same with the Gulf of Mexico and the Irish coast. However, with oil now at $120 a barrel it suddenly makes economic sense to drill in North Dakota, and the place is booming. It won’t be too long before we are flooded with North Dakota oil, but don’t expect price of gasoline to go down. It doesn’t work that way.

So, how long will these “newly discovered” reserves last? A pretty long time I would guess. Of course it will keep costing more, and it will keep polluting the atmosphere when we burn it, but we aren’t going to run out of oil in your lifetime. The real question is how long do we want to keep living this way? Isn’t there a better, cleaner, cheaper, more reliable form of energy that we could use? The answer to that is yes, but don’t tell the oil companies. We have heard a lot of people talk about getting alternative energy from the wind and sun and other less well-known sources, like ocean waves or ocean tidal power. These are the so-called green energy sources. However, don’t be fooled, by the green label. I would call this environmental energy. Remember reading about the law of conservation of energy in high school physics? As far as I know, no one is looking at the environmental impact of these “green” energy devices that could extract truly massive amounts of energy out of the natural environment and convert it into electricity. What will the long-term effect be on the environment? Is anybody asking that question?

One form of energy that a lot of people are very concerned about is nuclear energy. It sort of has a bad name, doesn’t it? It sounds something like “nuclear bomb”, and that’s pretty scary. Then there are the radiation leaks that occurred at Three Mile Island and Chernobyl. That was pretty scary too. Despite the fears and doubts of many Americans, nuclear fission reactors are used extensively throughout the world today and they now have a remarkable safety record. France gets about 80% of its electricity from nuclear power. In the U.S. there are currently 104 operating nuclear reactors. Looking towards the future, the Nuclear Regulatory Commission is currently reviewing nine license applications for new nuclear power plants and there are another twenty-four nuclear power plants that have been proposed in the U.S. This brings to thirty-three the number of possible nuclear power plants that could be built in the next ten to twenty years. (Are these the thirty nuclear plants you refer to, Johnny, when you say you want to build them before 2030? Come on Johnny, that’s not really a government program. That’s just current nuclear industry plans.)

The principal problem with nuclear fission power plants that does require some concern is radioactive waste. All fission plants generate nuclear waste products that have dangerous levels of radiation. These waste products remain dangerous for 100 years after they are removed from the plant, and they need secure, safe, storage. This seems to be the primary problem with nuclear fission power plants these days, but it needs to be taken seriously. There is another potential form of nuclear power plant that doesn’t have this problem: nuclear fusion.

Before the turn of the century, the U.S. had a major research program dedicated to developing nuclear fusion power. The U.S. effort envisioned the use of high-energy lasers to confine the fusion reaction; however, the experiments were not as productive as hoped. Meanwhile, the Russians were exploring the use of high field magnets to confine fusion reactions. It turns out that the Russians had some success using magnets they called tokamaks. Today the world’s leading effort to develop nuclear fusion reactors is conducted in France at the International Thermonuclear Experimental Reactor (ITER). It uses tokamak technology. From its inception, ITER has been funded by a consortium of the world’s major nuclear technology countries including the European Union, Russia, China, India, and the United States. However, recently the U.S. elected to reset its ITER funding to zero dollars. “Zero?” Yep, zero. We’re not playing anymore. Meanwhile, China immediately increased its funding for ITER by 10% to make up for the loss of U.S. funding, and work goes on at ITER unabated, without us. Our government didn’t stop with cutting funding for ITER. U.S. government funding for nuclear physics research in general at all of our research facilities has seen breathtakingly massive cuts this year. The European Union is now the clear world leader in nuclear physics research.

How have we come to this state of affairs? How have we gone from being the world leader in physics research to being a bystander relegated to the fringes of scientific inquiry? Why doesn’t our government have a coherent energy plan for our country? Why are we always saying we want to be energy independent, but we take no steps to attain energy independence? The answers are unavoidable: our government has no interest in developing nuclear energy. Our government has no interest in becoming energy independent. Our government is a government of big business, by big business, and for big business, and the purpose of big business is to maximize profits for its owners, not to take care of the people of this country.

The time has come for our government to once again have an independent sense of vision and destiny. We need to have an energy policy based upon real knowledge of our country’s energy reserves and requirements and the advice of our best, independent, scientists and physicists. We need a government that will no longer be led by big business and their interests. We need a government that will provide independent leadership and set a rational, well thought out course for permanent energy self-sufficiency. It’s your choice this November. Choose wisely.

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The Imaginary Oil Crisis

If you listen to John McCain you might think that we were in danger of running out of energy tomorrow. You might think that we are in a desperate situation and we need to start digging for offshore oil right now…today…this minute, and if we do, why you can bet that oil prices will come down tomorrow after all that offshore oil starts flowing to our gas pumps next month. I can’t wait, can you?

If you listened to George Bush a few years ago you might have thought we were in immediate danger of a nuclear or biological attack from Iraq. You might have thought that there was no time to waste; we had to invade immediately. There was no telling when that diabolical, fiendishly clever Saddam would choose to unleash his array of biological, chemical, and nuclear weapons upon the free world. Aren’t you glad we acted? Now we can sleep at night, safe from imminent attack by those Iraqis, who also happen to be swimming in oil. Thank God we finally corrected one of Saddam’s worst, most dastardly deeds – the one where, thirty-seven years ago, he booted the U.S. oil companies out of Iraq. Well, thankfully, things are back the way they should be now that the new Iraqi government has awarded no-bid contracts to those same companies to get the oil flowing again. That Saddam was a sly one, wasn’t he?

If you remember the Arab oil embargo in the early 1970’s you might recall how the price of oil skyrocketed too. There wasn’t enough gas any more so the price went up – supply and demand and that sort of thing. The major oil companies came out with dire predictions: we only had enough oil on Planet Earth to last about another twenty years. Yikes! Upon reflection though, it is pretty clear the price of gas, which rose during the embargo from about seventy-five cents a gallon to about a buck fifty (this are approximate numbers – what, you expect me to remember every detail from forty years ago?) really should not have come down much after the embargo was lifted, after all, you know its supply and demand, and besides, like the oil companies said, it wouldn’t be long until we didn’t have any gas at all.

Here’s something to think about: in the 1960s a gallon of gas cost between 30 and 40 cents. A new house cost between $30,000 and $40,000. A typical electrical engineer’s salary was about $10,000. Tuition for a top college was between $1500 and $2000 a semester. Today a gallon of gas is between 3 and 4 dollars. A new house costs between $300,000 and $400,000. A typical electrical engineer earns about $100,000. Tuition for a top college is about $15,000 to $20,000 a semester. In general, things cost about ten times more today than they did in the 1960s. That’s inflation for you.

So why all the fuss about oil? It’s just inflation right? Not exactly. The real problem we face, and from which our Republican leaders have cleverly diverted our attention, is the mortgage meltdown. The U.S. banking industry has saddled the entire world with a ton of bad debt. Maybe a trillion dollars, maybe more, that our clever bankers wrapped up in pretty wrapping paper and sold as triple A rated securities to unsuspecting investors. Too bad that when they opened the pretty wrappers they found a pile of doggy poo instead. You may recall that the next thing that happened was our banking industry tanked (come on, you remember – it wasn’t that long ago, just before the offshore drilling crisis, actually). Anyway, it was about then that the rest of the world said they didn’t want to buy our pretty packages of doggy poo anymore. It turns out they weren’t too keen on our money anymore either and they began selling dollars for Euros and other currencies. A lot of people didn’t feel good about buying currencies so they bought other things that would keep their value as the dollar began losing its value (also called inflation by some who like to think positive). So they bought valuable things like gold. They also bought oil. You can do that you know on the stock market. You don’t really have to take delivery of the oil either. So guess what happened? The price of oil went up! Or, if you are a believer in the theory of relativity, the price of the dollar went down! It’s all in how you look at it.

Supply and demand, that’s the free market place for you. Well, gee. Now, oil’s down again! And the dollar is up! Incredible how that works. Let’s see, a gallon of gas is now about ten times what it cost in the psychedelic sixties. Sounds right to me. Everything else costs about ten times more too. So Johnny, what is the crisis all about? Why do we need to start drilling TODAY? What about the meltdown in our mortgage market? What about the fact that the greediness of the banking and real estate industry has caused a collapse in our economy throwing millions of people out of work and millions more out of their houses that they can’t pay for? What about the fact that even people with good credit can’t get a loan anymore? What about the fact that without a housing construction pyramid scheme in operation we don’t really have any American industry anymore because we have outsourced all of our manufacturing jobs? I know it costs me about $10 more a week to buy gas, but is that really the problem?

OK, Johnny. We need to DRILL OFFSHORE RIGHT NOW. I heard you, I heard you. I’m so glad you have the experience to be Commander in Chief. I just wish you were our Commander in Chief when Saddam was around. I’ll bet you would have found those nukes. He probably buried them offshore along the Iraqi coastline along with all his biological and chemical weapons.

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