(08-05-2009 04:02 PM)JOwl Wrote:  [quote='tanq_tonic' pid='4522595' dateline='1249498300']
[quote='JOwl' pid='4522041' dateline='1249487002']

If I were saying that US military usage of oil is an oil subsidy, then I'd see the relationship -- but I'm not. I'm solely talking about US government expenditures related to mitigating threats to our uniterrupted access to oil.
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If the SPR is meant to mitigate threats to our MILITARY'S access to oil, I still can't grasp how it's a subsidy in any way shape or form.

In an earlier post you mentioned that if this 'subsidy's cost' could be passed off to someone else as it rightfully should, then it would be all the better if we could allocate the government spent subsitdy to encouraging alternative energy instead. (I'm paraphrasing a little, but that's what it seemed to boil down to, at least to me)

I'm not sure who pays for national defense BUT the government, so I can't see who else COULD pay for it . . . but more to the point, if the SPR is meant to guarantee supply in light of potential military needs, how could we eliminate the need for this subsidy? Wind power? Solar power? I guess nuclear power has some application as we have (had?) nuclear subs and carriers.

But planes, tanks, copters?

The argument that this is a subsidy seems like a tremendous stretch.

(08-05-2009 07:45 PM)OptimisticOwl Wrote:  

(08-05-2009 04:02 PM)JOwl Wrote:  What I'm saying is that the government is subsidizing consumers of oil by mitigating our exposure to risks associated with oil dependence. The entire SPR enterprise is a (minimal) effort at insuring ourselves against those risks. If, for example, the government covered collision insurance for everyone's car (thereby making car ownership less risky), wouldn't you consider that a subsidy for cars?

Note: I don't see DoD use of titanium as analogous. If I were saying that US military usage of oil is an oil subsidy, then I'd see the relationship -- but I'm not. I'm solely talking about US government expenditures related to mitigating threats to our uniterrupted access to oil.
-----------------------------

If mitigating the exposure to risk experienced by Americans is the definition of subsidy, then the entire Department of Defense, State Department, etc are subsidies, as well as Customs, Emigration, Border Patrol, the Coast Guard, foreign embassies, etc. Everything they protect us from becomes a subsidized industry. I guess you could define the attempts to exclude illegal immigrants as a subsidy of American labor unions.

Interest comparison to collision coverage, at a time when healthcare coverage is being debated. Is that a subsidy also?

OTOH, if merely getting a financial benefit is a subsidy, then I guess depreciation is a subsidy for builders, the forestry industry, etc.


As near as I can tell, you have used two different definitions of subsidy so far. Maybe it is time you actually defined what you mean by subsidy.

Regardless of how you define subsidy, is it just the "subsidy" for oil that you dislike? Are the subsidies for electric cars, storm windows, corn, milk, coal, whatever, are they all OK? Is this discussion about subsidies or oil?

If your solution (to anything) is to withdraw American "subsidies" to oil (or anything else), does this mean we no longer protect American interests and shipping? If an American oil tanker with an American crew is threatened by pirates, does dispatching a US Navy ship constitute a subsidy? (...to the shores of Tripoli..) How about dispatching American diplomats to negotiate their release? Was the Obama administration subsidizing the news industry by working to free the two journalists from North Korea, or should they have said they have better uses for those dollars? I thought the purpose of our military was to protect Americans and legitimate American interests. Would you withdraw that from selected Americans and selected American interests?

What do/did you want us to do?

It sounds to me that you just don't like oil and Bush, and saying the War in Iraq is a subsidy of oil interests is just a convenient way to hit two birds with one stone. JMO

Agree 100% with what (I understand) you are saying regarding the SPR, and right or wrong, tend to agree generally with the rest of your post as well.

Interesting point that was made tonight. Whatever bill is passed by congress will be very generic and non-specific, basically set forth some lofty goals and some vague general provisions how to get there. The specifics will be supplied by the regulatory agencies charged with writing the regulations to implement the law. That means there will be two classes of people who actually determine what this thing means: (1) bureaucrats, and (2) lobbyists.

As an aside, I always chuckle when people attack lobbyists out of one side of their mouth and then turn around immediately and call for some new regulatory agency. Most people don't realize it, but lobbyists do FAR more work with regulatory agencies than with congress. Why? Because that's where the real action is.

At any rate, this makes all these "the bill will do this/no it won't" discussions moot. Bottom line is that the bill, in any of its current drafts, doesn't specifically mandate all of the things that opponents say it does, nor does it preclude those things as its proponents claim. It leaves most of them open to final regulations, and that's where it will be determined whether the bill really does mean those things.

Given that, I'm uncomfortable with any provisioin that COULD BE interpreted to provide things that I don't want. Because knowing what I know about government regulators, if something could be interpreted to mean something, particularly when that "something" consists of more government control, the smart money will bet that when the regulations are written it will mean expanded government. Why? Because the people who write the regs will get more budget and more headcount and more prestige--and have greater latitude to f*** over people--and when you're a bureaucrat, those are the things that count.

(08-08-2009 10:33 PM)Rick Gerlach Wrote:  

(08-05-2009 04:02 PM)JOwl Wrote:  [quote='tanq_tonic' pid='4522595' dateline='1249498300']
[quote='JOwl' pid='4522041' dateline='1249487002']

If I were saying that US military usage of oil is an oil subsidy, then I'd see the relationship -- but I'm not. I'm solely talking about US government expenditures related to mitigating threats to our uniterrupted access to oil.
-----------------------------

If the SPR is meant to mitigate threats to our MILITARY'S access to oil, I still can't grasp how it's a subsidy in any way shape or form.

In an earlier post you mentioned that if this 'subsidy's cost' could be passed off to someone else as it rightfully should, then it would be all the better if we could allocate the government spent subsitdy to encouraging alternative energy instead. (I'm paraphrasing a little, but that's what it seemed to boil down to, at least to me)

I'm not sure who pays for national defense BUT the government, so I can't see who else COULD pay for it . . . but more to the point, if the SPR is meant to guarantee supply in light of potential military needs, how could we eliminate the need for this subsidy? Wind power? Solar power? I guess nuclear power has some application as we have (had?) nuclear subs and carriers.

But planes, tanks, copters?

The argument that this is a subsidy seems like a tremendous stretch.

Interesting hypothetical, but wrong. The SPR isn't dedicated to protect the US military. It is meant to protect the nation from interruption in crude supplies. To the extent that both civilians and the military depend on oil, the SPR protects both.
The subsidy cost should be passed through in the price of oil, forcing both civilians and the military to make more economically efficient decisions with respect to oil consumption.

I don't see these things as subsidies, but even if they are, I see you arguing that the oil subsidy should be eliminated and the money used for other subsidies. So it cannot be that subsidies are intrinsically bad.

So it is just oil.

What i hear you say (your post of 6-8-09) is that you would withdraw the protection of the US for oil shipments, etc. and use the "saved" money to subsidize wind turbines, solar panels, and/or ethanol. Correct me if I am wrong. It is not the subsidy that is wrong, it is the industry/product being subsidied, right?

(08-09-2009 02:32 AM)JOwl Wrote:  

(08-08-2009 10:33 PM)Rick Gerlach Wrote:  

(08-05-2009 04:02 PM)JOwl Wrote:  [quote='tanq_tonic' pid='4522595' dateline='1249498300']
[quote='JOwl' pid='4522041' dateline='1249487002']

If I were saying that US military usage of oil is an oil subsidy, then I'd see the relationship -- but I'm not. I'm solely talking about US government expenditures related to mitigating threats to our uniterrupted access to oil.
-----------------------------

If the SPR is meant to mitigate threats to our MILITARY'S access to oil, I still can't grasp how it's a subsidy in any way shape or form.

In an earlier post you mentioned that if this 'subsidy's cost' could be passed off to someone else as it rightfully should, then it would be all the better if we could allocate the government spent subsitdy to encouraging alternative energy instead. (I'm paraphrasing a little, but that's what it seemed to boil down to, at least to me)

I'm not sure who pays for national defense BUT the government, so I can't see who else COULD pay for it . . . but more to the point, if the SPR is meant to guarantee supply in light of potential military needs, how could we eliminate the need for this subsidy? Wind power? Solar power? I guess nuclear power has some application as we have (had?) nuclear subs and carriers.

But planes, tanks, copters?

The argument that this is a subsidy seems like a tremendous stretch.

Interesting hypothetical, but wrong. The SPR isn't dedicated to protect the US military. It is meant to protect the nation from interruption in crude supplies. To the extent that both civilians and the military depend on oil, the SPR protects both.
The subsidy cost should be passed through in the price of oil, forcing both civilians and the military to make more economically efficient decisions with respect to oil consumption.

Maybe I'm just dense, but I just don't see that the SPR, if it is held at a relatively static level, and is not increased perpetually, can actually impact the price of oil at any appreciable level, given that it is static and limited in capacity.

(08-10-2009 02:26 AM)Rick Gerlach Wrote:  ...

Maybe I'm just dense, but I just don't see that the SPR, if it is held at a relatively static level, and is not increased perpetually, can actually impact the price of oil at any appreciable level, given that it is static and limited in capacity.

I think the Congressional Reserach Service's report to Congress on the SPR best describes its origins:
"... While no amount of strategic stocks can insulate any oil consuming nation from paying the market price for oil in a supply emergency, the availability of strategic stocks can help blunt the magnitude of the market’s reaction to a crisis. One of the original perceptions of the value of a strategic stockpile was also that its very existence would discourage the use of oil as a political weapon. The
embargo imposed by the Arab producers was just that, and intended to create a very discernible physical disruption.
In response to the experience of the embargo, Congress authorized the Strategic Petroleum Reserve in the Energy Policy and Conservation Act (EPCA, P.L. 94-163) to help prevent a repetition of the economic dislocation caused by the Arab oil embargo. In the event of an interruption, introduction into the market of oil from the Reserve was expected to help calm markets, mitigate sharp price spikes, and reduce
the economic dislocation that had accompanied the 1973 disruption. In so doing, the Reserve would also buy time — time for the crisis to sort itself out or for diplomacy to seek some resolution before a potentially severe oil shortage escalated the crisis beyond diplomacy."

Now I think it's certainly open to debate whether the SPR as currently organized can meet its goals, but it's clear to me that the goal of the SPR is to minimize the potential negative economic consequences of an oil supply shock. To the extent that the US military is a consumer of oil it also receives protection from the SPR, but stockpiling military reserves of oil isn't the purpose of the SPR.

Rick raises the valid point that, because it is static and limited in capacity, the SPR's ability to have any meaningful impact on a long-term problem is severely limited. Moreover, once you use it you don't have it to use any more, and that can be a distinct disadvantage in dealing with certain scenarios. If we faced a long-term shortage in an environment where military action was ongoing (a not unreasonable scenario), I think there is a good chance that SPR would be commandeered to support the military needs. We did stuff like that in WWII.

One big problem with SPR is that it has not been managed intelligently by any administration. Very simply, we should fill it up when prices are down and draw it down when prices are up, and we've been much more in the "buy high, sell low" mode. As long as we are importing 13 million barrels of oil a day, we have a problem with or without SPR. That is what we should be addressing, and are not.

(08-10-2009 12:45 PM)Owl 69/70/75 Wrote:  One big problem with SPR is that it has not been managed intelligently by any administration. Very simply, we should fill it up when prices are down and draw it down when prices are up, and we've been much more in the "buy high, sell low" mode. As long as we are importing 13 million barrels of oil a day, we have a problem with or without SPR. That is what we should be addressing, and are not.

Given that the current average price of the oil in the SPR is $29.08 per barrel, it looks like they've been doing a pretty decent job on turning this into a surplus. As most investors know, market timing can be very difficult. Considering oil hasn't been below $30 on a monthly average basis since September 2003, I'm not sure I'd qualify this as a huge problem.

I have a separate comment on subsidy or not, but not the time to write it down at the moment. I may come back later.

(08-10-2009 12:45 PM)Owl 69/70/75 Wrote:  ... If we faced a long-term shortage in an environment where military action was ongoing (a not unreasonable scenario), I think there is a good chance that SPR would be commandeered to support the military needs. We did stuff like that in WWII.
...

True, the SPR could have direct military value if it were commandeered (just like when auto plants were repurposed for building aircraft in WWII). But as with the auto industry, the raison d'etre of the SPR is not military. The costs of creating and maintaining the SPR have been incurred to decrease the possibility and/or severity of an "economic dislocation" from an oil price spike.

(08-05-2009 04:02 PM)JOwl Wrote:  As I mentioned before, you're focusing on the little guy among the subsidy estimates in that section of Koplow's report. The SPR is dwarfed by the estimated $10bn - $23bn for defense of oil shipments in the Persian Gulf (estimated as of 1995).
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I think we have gotten offtrack here. JOwl said the money spent for the oil subsidy could have been better spent in other ways, implying that he is in favor of withdrawing the protection of the US military from shipping. What is unclear is the extent to to which he would withdraw it - oil only, MidEast only, world wide, US oil tankers, other countries tankers holding american oil, other products or just oil, what?

What a terrible thought, that the US government should withdraw its protection of American lives and property.

(08-10-2009 03:49 PM)JOwl Wrote:  

(08-10-2009 12:45 PM)Owl 69/70/75 Wrote:  ... If we faced a long-term shortage in an environment where military action was ongoing (a not unreasonable scenario), I think there is a good chance that SPR would be commandeered to support the military needs. We did stuff like that in WWII.
...

True, the SPR could have direct military value if it were commandeered (just like when auto plants were repurposed for building aircraft in WWII). But as with the auto industry, the raison d'etre of the SPR is not military. The costs of creating and maintaining the SPR have been incurred to decrease the possibility and/or severity of an "economic dislocation" from an oil price spike.

Let's face it, an oil embargo on the U.S. would be an attack, albeit economic and not military. The SPR is too limited to have any meaningful impact on price in a crisis, but the reality is that is if there were either an embargo or a catastrophic disruption of supply due to a natural disaster or terrorist attack (or military takeover of shipping or pipelines) the need for an SPR would exist.

It's not there simply to keep prices down, because frankly I don't believe it would do that at all.

(08-10-2009 09:01 PM)Rick Gerlach Wrote:  

(08-10-2009 03:49 PM)JOwl Wrote:  

(08-10-2009 12:45 PM)Owl 69/70/75 Wrote:  ... If we faced a long-term shortage in an environment where military action was ongoing (a not unreasonable scenario), I think there is a good chance that SPR would be commandeered to support the military needs. We did stuff like that in WWII.
...

True, the SPR could have direct military value if it were commandeered (just like when auto plants were repurposed for building aircraft in WWII). But as with the auto industry, the raison d'etre of the SPR is not military. The costs of creating and maintaining the SPR have been incurred to decrease the possibility and/or severity of an "economic dislocation" from an oil price spike.

Let's face it, an oil embargo on the U.S. would be an attack, albeit economic and not military. The SPR is too limited to have any meaningful impact on price in a crisis, but the reality is that is if there were either an embargo or a catastrophic disruption of supply due to a natural disaster or terrorist attack (or military takeover of shipping or pipelines) the need for an SPR would exist.

It's not there simply to keep prices down, because frankly I don't believe it would do that at all.

Exactly. It's not there simply to keep oil prices down. I'll stick with the description I've used throughout this discussion -- it's most akin to insurance, and is intended to limit our exposure to oil shocks.

The cost associated with building and maintaining the SPR subsidizes our consumption of oil-- without the SPR, our oil dependence would entail even greater risks than it currently does. Again, I'll make an analogy to free, state-provided collision insurance: it wouldn't lower the cost of cars, but would decrease the risk associated with owning them. The state's cost of running the program would be, in my mind, clearly a subsidy to car owners.

Also, note that in the case of the SPR I'm not arguing that it shouldn't exist (I think it serves an important purpose). However, I don't think it's prudent to subsidize oil-- we'd be better served if the costs of the SPR program were passed through to the oil's consumers.

(08-10-2009 01:29 PM)gsloth Wrote:  Given that the current average price of the oil in the SPR is $29.08 per barrel, it looks like they've been doing a pretty decent job on turning this into a surplus. As most investors know, market timing can be very difficult. Considering oil hasn't been below $30 on a monthly average basis since September 2003, I'm not sure I'd qualify this as a huge problem.
I have a separate comment on subsidy or not, but not the time to write it down at the moment. I may come back later.

Given that during most of the life of the SPR the price has been substantially lower than that, that's not a sign of great management.

I actually saw something detailing a number of really ridiculous moves that have been made, but I can't find it easily and it's too late at night for me to look hard for it.

(08-10-2009 03:49 PM)JOwl Wrote:  True, the SPR could have direct military value if it were commandeered (just like when auto plants were repurposed for building aircraft in WWII). But as with the auto industry, the raison d'etre of the SPR is not military. The costs of creating and maintaining the SPR have been incurred to decrease the possibility and/or severity of an "economic dislocation" from an oil price spike.

You mean, like last summer? That worked well.

The problem with the SPR is that it's too small to provide relief against anything more than a short-term outage. Any long term problem will exhaust the SPR and then where are we?

This is one of the fallacies behind the current "energy plan." If we do everything in Obama's "energy plan" and it all works, we will import more oil in 2015 than we do today. Why? Because most of the "plan" doesn't address oil, and the parts that do have too small an impact. We will lose more domestic production from production declines if we don't drill here, drill now, than the reduction in total oil demand from all of the conservation and alternative energy initiatives in the "plan." Do the math--more imports.

We import 13 million barrels of oil a day. Unless we want our children and grandchildren dying in the deserts of Asia to ensure that the emir of Jihadistan is a friendly despot instead of an unfriendly despot, we need 13 million barrels of solution.

Drill here, drill now could provide 2-4 million barrels in the 4-6 year time frame (industry says 3-5, the government report that supposedly said "10 years" actually says 4-6 if you read it, I'll go with 4-6).
Sugar cane ethanol could provide 2 million barrels starting in about 2 years (4 million if we drop the Cuban trade restrictions).
A crash program to develop nuclear, wind, and solar, plus improved transmission and distribution infrastructure, plus improved electric storage technology, would enable us to put 15 million electric cars on the road (Obama's goal is 1 million by 2015) saving another 2-4 million (the higher number assumes significant improvement in battery technology) in the 10-15 year (estimated) time frame. Yes, nuclear has to be in that mix to make it work, to the tune of 50-100 new power plants nationwide.
Improved mass transit and high-speed intercity rail might save half a million barrels by 2020.
Past that, we're pretty much waiting in technologies that exist only in laboratory settings as of now.

We can do it, but the kind of finger pointing that has substituted for energy policy in the past won't get it done. We need all hands on deck--conservation, alternatives, and conventional--to solve this problem.

(08-11-2009 12:25 AM)Owl 69/70/75 Wrote:  

(08-10-2009 01:29 PM)gsloth Wrote:  Given that the current average price of the oil in the SPR is $29.08 per barrel, it looks like they've been doing a pretty decent job on turning this into a surplus. As most investors know, market timing can be very difficult. Considering oil hasn't been below $30 on a monthly average basis since September 2003, I'm not sure I'd qualify this as a huge problem.
I have a separate comment on subsidy or not, but not the time to write it down at the moment. I may come back later.

Given that during most of the life of the SPR the price has been substantially lower than that, that's not a sign of great management.

I actually saw something detailing a number of really ridiculous moves that have been made, but I can't find it easily and it's too late at night for me to look hard for it.

I thought that initially, too, but it is in a state of constant replenishment. It's not a static inventory. Otherwise, those should be much lower from older purchases. Could it have been better? Maybe. Not sure how the sales are accounted for. If it isn't FIFO, I might be disappointed with that average costs, too.

(08-11-2009 08:16 AM)gsloth Wrote:  I thought that initially, too, but it is in a state of constant replenishment. It's not a static inventory. Otherwise, those should be much lower from older purchases. Could it have been better? Maybe. Not sure how the sales are accounted for. If it isn't FIFO, I might be disappointed with that average costs, too.

How is it in a state of constant replenishment? What is being replenished?

Don't want to belabor the point, my big concern is not about costs (which at least in theory are recovered when the oil is sold, to respond to a point raised earlier) but about the fact that SPR simply is not--and can never be--big enough to have a material impact on anything more than a short-term spike--and it hasn't been used particularly efficiently in even those cases.

And I have a difficult time seeing how it is a subsidy. There are plenty of subsidies in the oil patch. They have two primary and intended effects--one, the price we pay at the pump is lower, and two, the price differential between domestic and foreign production is reduced so that we can produce relatively more domestically than we would without the subsidies. The value of both of those may be questioned, but those are the impacts.

Increasing oil company profits is not an impact. Without the subsidies, the cost structures of all oil companies would ratchet up. They would all just raise their prices to cover the additional costs and keep profitability at the same level. As long as everyone would had the same cost environment, nobody could undercut them, and the higher prices would stick.

(08-11-2009 08:45 AM)Owl 69/70/75 Wrote:  

(08-11-2009 08:16 AM)gsloth Wrote:  I thought that initially, too, but it is in a state of constant replenishment. It's not a static inventory. Otherwise, those should be much lower from older purchases. Could it have been better? Maybe. Not sure how the sales are accounted for. If it isn't FIFO, I might be disappointed with that average costs, too.

How is it in a state of constant replenishment? What is being replenished?

Well, just in the last 5 years, 27.2 million barrels have been exchanged, and another 11 million sold during Katrina. Now, the exchanges are supposed to be a net zero cost, but I have my doubts about how that can be truly accounted for.

There are also periodic drawdowns to test the various storage systems and delivery mechanisms. Probably no single event is huge, but over time, it will add up.

Also going against this is the fact that over one-sixth of the current volume has come since Bush's order in 2001 to increase capacity from just under 600MM barrels at the time to the current 700MM+. That will definitely skew the average cost. And the SPR is actually supposed to get to 1 billion barrel capacity within a few years. Filling it will take longer. (I don't think that has been authorized yet.) There goes the average even higher.

(08-11-2009 08:45 AM)Owl 69/70/75 Wrote:  And I have a difficult time seeing how it is a subsidy. There are plenty of subsidies in the oil patch. They have two primary and intended effects--one, the price we pay at the pump is lower, and two, the price differential between domestic and foreign production is reduced so that we can produce relatively more domestically than we would without the subsidies. The value of both of those may be questioned, but those are the impacts.

Again, it's a subsidy on consumption, not production. The government bears cost to reduce some of the risk to consumers.

(08-11-2009 09:21 AM)gsloth Wrote:  

(08-11-2009 08:45 AM)Owl 69/70/75 Wrote:  

(08-11-2009 08:16 AM)gsloth Wrote:  I thought that initially, too, but it is in a state of constant replenishment. It's not a static inventory. Otherwise, those should be much lower from older purchases. Could it have been better? Maybe. Not sure how the sales are accounted for. If it isn't FIFO, I might be disappointed with that average costs, too.

How is it in a state of constant replenishment? What is being replenished?

Well, just in the last 5 years, 27.2 million barrels have been exchanged, and another 11 million sold during Katrina. Now, the exchanges are supposed to be a net zero cost, but I have my doubts about how that can be truly accounted for.
There are also periodic drawdowns to test the various storage systems and delivery mechanisms. Probably no single event is huge, but over time, it will add up.
Also going against this is the fact that over one-sixth of the current volume has come since Bush's order in 2001 to increase capacity from just under 600MM barrels at the time to the current 700MM+. That will definitely skew the average cost. And the SPR is actually supposed to get to 1 billion barrel capacity within a few years. Filling it will take longer. (I don't think that has been authorized yet.) There goes the average even higher.

So we've had 5% turnover and 15% increase in the last 8 years. That may meet your definition of constant replenishment, but it doesn't mine.

If we were going to do it at all, we should have figured out that prices were inevitably headed up over time and filled it up back when prices were in the teens. Reagan, Bush, and Clinton could have filled it up cheaper than Shrub and Obama. Of course the argument against is the question of how much good it actually does. At 700 million barrels, it's a little over 50 days of imports if we drain it. That's not a long-term option. What it is really doing is not far from speculating (perish the thought). Buy now and hold until the price goes up.

Any thoughts on the other comments? I think the other issues are more important than this one.