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Hold the corn Nebraska - E85 may not be everything its cracked up to be

Discussion in 'The OT' started by pjmrt, Sep 5, 2006.

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  1. Sep 5, 2006 #21 of 126
    jpl

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    The price of oil is not regulated by the oil companies. It's regulated by what the commodity price is on the comex. What the traders see as the potential supply vs. the potential consumption in the near future governs the price of oil. You can slam big oil all you want, and I'm not saying they're saints. But they're just like any other business. And I would argue that agribusiness is "big" business as well. I don't believe there should be ANY subsidies - not for corn, not for oil, not for left-handed screwdrivers. Doesn't matter.

    Oh, and the next time you shell out that 2.42 for a gallon, consider how much of that is tax. In fact, the government (state and federal) gets the lion's share. The amount that the oil company makes off that gallon is somewhere around a dime. BTW, I thought you were all in favor of high taxes... Guess not when it directly affects you....

    As for the subsidies for the corn growers, I just wish that they would call it just that - corn subsidies. Anyone who thinks that the drive for E85 is energy independence is just fooling themselves. If it were really a cost-efficient way of getting energy you wouldn't NEED government subsidies. The market would push the generation of the product. Whenever government gets involved in pushing energy it never works... the electric car? Wind power? Solar?

    You may argue that hybrid has been a success story, and I would agree... except that didn't originate with government action. It was private industry that came up with the technology.
     
  2. Sep 5, 2006 #22 of 126
    jpl

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    And, Bogy, you should keep away from the conspiracy theories. The drop in the price of oil has nothing to do with the upcoming elections... and Bush couldn't affect the price if he tried (otherwise we would be paying a heck of alot less than we are now). Take a peek at the business pages - there are a number of factors at play:

    1) The disruption that was thought to come from Prudoe Bay isn't as bad as originally predicted. Half the oil that we thought we would lose is now back on tap.

    2) Hurricane season is being downgraded. Many hurricane predictors (including the organization headed by Dr. Gray) have reduced the number of hurricanes. None have touched our refining capacity in the gulf so far this year.

    3) The effects of Katrina have really ebbed with regard to both natural gas and oil. The former is really important, since the two (the price of natural gas and the price of oil) tend to parallel one another. We're now back to pre-Katrina levels for gas production.

    4) Tensions in Iran have eased a bit. And other political situations that have generated such turmoil in the markets as of late (Nigeria, Venezuela) have calmed as well. So potential disruptions are seen as less likely.

    5) Yes, the discovery of that supply in the gulf. It's seen as potentially eclipsing Prudoe Bay, if it works out as promised.

    6) Our refining capacity has come back on line. As I stated in other threads, the thing that really killed us after Katrina, with regard to gas, wasn't the supply of oil - we were running at record levels. It was the supply of refined product. Our refining capacity was severely hurt during Katrina, and we were running at 90 - 95% capacity BEFORE Katrina hit. So, even though we had plenty of oil, we didn't have the capacity to refine it.

    7) We're heading into fall - which always shows a slackening demand (after the summer driving season). Remember, we saw the same phenomenon going into the 2000 election, and no one was claiming that it was politically motivated to help Gore (although releasing oil from the petroleum reserve, I believe WAS designed to be more of a symbolic move).

    8) Demand world wide is easing. Economic forecasts from most large consumers of oil have been ratcheted back.

    All of that says that the traders believe that there will be plenty of supply to meet the perceived demand.
     
  3. Sep 6, 2006 #23 of 126
    djlong

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    ...and the news reported a HUGE new find in the Gulf of Mexico that could increase US reserves by 50% or more
     
  4. Sep 6, 2006 #24 of 126
    jpl

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    Yeah, that was item #5 on my list. I agree with you - it sounds like Bogy is trying to downplay that, but it really is hard to. If it comes to full fruition, that oil will replace Prudoe Bay as the largest US oil reserve.
     
  5. Sep 6, 2006 #25 of 126
    pjmrt

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    True. Sometimes I tend to get cynical about the argument that higher prices will get more oil. But did you hear just how deep this reserve was? Miles beneath the Gulf waters and miles still further under the rock. So maybe sometimes there is some truth told by the oil companies. Enough US oil to last a while.

    I've maintained for sometime that there is more oil/gas than the energy zealots claim. I remember as kid having someone come to our classroom with this gadget. You would turn the knobs, change how fast you were using natural gas, oil, ... No matter what you did, you ended up running out of Natural Gas ... running out about 5 years ago now. The last time I checked, my water heater was still burning the stuff. :D Funny, they are still saying we run out in about 30 years. Obviously what happened was that there was more than they expected and could afford to mine it. Obviously gas/oil is a limited resource on this planet. But it probably isn't the crisis some make it out to be. The crisis perhaps is the cost of the stuff, not that its going away tomorrow. In otherwords, we have time to make smart choices.
     
  6. Sep 6, 2006 #26 of 126
    jpl

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    One thing that high prices do is that they not only regulate demand (causing people to use less) but they also make other sources cost-effective. For example, there's lots of oil in Canada. The problem is that it's trapped in shale. Extracting the oil from shale is, currently anyway, expensive. When oil's $70 a barrel it's not cost-effective to develop the technology to extract it. If oil hits 80 - 90 bucks a barrel, you can bet that someone in Canada is going to spend quite a bit to grab that oil, and will develop the technology necessary to go after it even more efficiently.

    One reason that it's so stinking expensive to go after the oil in our own country has more to do with political manipulation than anything. That's why I find it laughable when people argue that the politicians are in the back pocket of big oil. If that were true, why haven't we tapped ANWR yet? If that were true, why do we have the endless Congressional investigations into the non-existent monopolistic practices by the oil companies? Why can't we drill off the coast of California? Why are we limited in terms of new drilling in the gulf? Yeah, we hit this big deposit, but there are other areas of the gulf we're prevented from drilling - where Castro has decided to set up some rigs.

    Does big oil give money to Washington? Well, yes. But so do ALOT of industries and interest groups. I got someone incensed when I mentioned that AARP, e.g., is one of the biggest lobbyists in Washingon. It's true - but it still made them mad. Why? Because spending money in Washington is seen as something "dirty." I don't see it that way. Having a lobbying push the position of your organization is a perfectly reasonable and healthy thing to do. It doesn't hurt our democracy - in fact, I think it helps it.
     
  7. Sep 6, 2006 #27 of 126
    jpl

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    BTW, all of this is why price controls are so dangerous. They prevent the demand from being regulated for one. Causing people to consume like supplies were higher than they actually were. And there's no incentive to find new technology/new sources of that commodity. That always leads to the same place - shortages and rationing. The gas lines of the early 70's were a DIRECT result of us mucking with the price of gas. There was no "shortage" - heck there was no "embargo" - oil companies stopped selling in the US because it wasn't profitable. As one economist said, it's better to have $4 gas that you can get than $2 gas that you can't.
     
  8. Sep 6, 2006 #28 of 126
    Bogy

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    :lol:
     
  9. Sep 6, 2006 #29 of 126
    Bogy

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    The price of oil is not regulated by the oil companies? You really believe that? :rolleyes:
    There used to be about 25 oil companies in this country. There are now 5. I'm not an economist, but when competition is removed to that extent, it means two things. Innovation is less important, and the price generally stabilizes. I guess you missed previous charges of price fixing among the oil companies. Also, since oil companies don't just buy oil that is offered on the world market, but already control most of the crude oil in the world, they are selling to themselves. They have a large influence on the price they sell crude to themselves for.

    The tax on gasoline remains the same per gallon no matter how cheap or expensive the gasoline is. The increase in the price of gasoline in the last couple of years has nothing to do with taxes, and there has been no tax increase.

    If there was a cost-efficient way of getting energy you wouldn't need subsidies? Then why did petroleum start getting subsidies in 1916? Don't you think the oil industry should be weaned off their subsidies by now? There is one other name for the subsidies that farmers get. Defense contracts. Part of the reason for keeping the farming industry healthy in this country is so that we are never dependent on other countries for our food source, as we are for energy. Lockheed just got the contract for the moon rocket. Boing is supposed to lose the C-137, and I don't know what they will be given to make up for it. But our defense philosophy, particularly since we are down to so few aircraft manufacturers in this country, is to make sure we have at least a couple who stay healthy. Or do you want to go to Airbus to get the next generation of jet fighters built?
    In the same way, it is important that we keep our agricultural base healthy. Subsidies help stabilize the fluctuations in the market, and carry farmers through bad years. Argentine or Brazil may be able to provide much of our food cheaper, but in time of war, do you want to depend on other countries to eat? We don't label it that way, but the philosophy of our agricultural policies have at their base the understanding that it is important for our defense to provide our own food. And some of us don't think that being able to provide 30% of our energy needs through biomass is a bad thing either.
     
  10. Sep 6, 2006 #30 of 126
    jpl

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    I've said, what, 3 times already that I'm opposed to OIL subsidies. Yes, oil should lose their subsidies.

    As for your analogy with defense, I guess I don't understand how that relates. As it currently stands Lockheed-Martin is lead contractor on both the F22 and JSF - that doesn't mean that Boeing is out of the fighter aircraft business. Defense is a very unusual industry. The players all put in to be lead on a contract... but no matter who wins, the other players also tend to get a sizeable piece. For example, the F22 is a LM plane, and yet Boeing makes most of the fuselage, and alot of the avionics. And Pratt-Whitney makes the engines. It's the only industry I know where you get into business with your competitors as a matter of course. When a company puts in for a bid, they're putting in to be the lead contractor - meaning, they're looking to have their design win out. Doesn't mean the other players are out in the cold. How does Airbus get into the game in your scenario? And how is awarding a defense contract the same as a subsidy? Especially since Airbus doesn't make fighter aircraft.

    Also, if what you're saying is correct, then why did the government allow Boeing to buy out McDonell-Douglass a number of years ago? They were the only two commercial airframe manufacturers left in the country. But MD was going bankrupt, so they got bought out by Boeing (the impending bankruptcy is what caused the government to allow the buy-out). Should the government have given MD a subsidy to stay in business? I don't think so. And now we're down to a single commercial airframe company in the US.

    The point about the gas taxes was simply to counter your claim that big oil rolls in the profits just because you're paying 2.42 a gallon (or whatever) for gas. Their profit margin is very thin (yeah, they're very profitable, but when you move hundreds of billions of dollars of a product every year, you're going to be profitable). The government takes the biggest piece.
     
  11. Sep 6, 2006 #31 of 126
    jpl

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    Oh, yeah, and the tax on gas DOES remain the same no matter the price of gas - high. And consider this, when the price of gas goes down, the percentage that the government takes goes up. Just food for thought.
     
  12. Sep 6, 2006 #32 of 126
    Bogy

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    You keep saying you are also against oil receiving subsidies, but it is the subsidies agriculture receives that you keep harping about. When I point out the injustice of Israel's actions, without first and more strenuously pointing out the evil of Palestinian actions, I am blasted for being one sided. No matter how many times I state I find both in error, it is never enough. So you expect a pass just because you are conservative? Of course you do. :lol: Perhaps your very brief acknowledgment that the subsidies oil receives, with the much more vigorous complaints about the subsidies farmers receive seems to be a matter of primarily lip service.

    I'm glad you understand how the defense contractor business works in the aircraft business. However, a number of years ago it was the merger/buyout of Douglas by McDonnell that was controversial. Fairly recently it was the buyout/merger of MD by Boeing that was very controversial. It was only to prevent the bankruptcy of MD that Boeing was allowed/forced to buy/merge with MD. You are entirely correct that what changes is who is the lead contractor, all remaining companies will be involved in any project. The benefit of at least having two competitors in the bidding process is that at least we have the competition of two designs to choose from. There is enough incentive to be the lead contractor that it is taken very seriously. BTW, my wife's family has had 4 generations who built aircraft for Douglas, MD, and now Boeing. In St. Louis a number of my members worked for MD and now Boeing, one of them involved in putting together the bid proposals. In Omaha several friends worked for Lockheed at the new facilities they have just built in Belleview. I've been hearing about the process for a long time, and some of the areas where I have lived have lived and died according to who won the last contract.

    As to Airbus, you are correct, they don't build military aircraft. That was an attempt at humor. Airbus is just one division of the European Aeronautic Defense and Space Company. Then again, the division at Boeing that builds military aircraft is not the same division that builds commercial aircraft. You make the assumption I really don't know anything about the defense industry.

    As to farmers, you evidently are willing to see agriculture in this country fold. Never mind that agricultural products are one of our nation's largest exports, and the nations our farmers compete with receive much larger subsidies. Never mind that we have some of the cheapest food on the planet. Let agriculture sink or swim. The problem is, you don't know what the issues really are. And it is simple answers such as "end farm subsidies that support little farmers and let the big boys take over since they do it much more efficiently" that will Let the goal of agribusiness succeed even faster than it already is. They want to follow the model of big oil, and completely control agriculture in this country, and the world. The goal of our government, both Democratic and Republican, has been toward increasingly larger companies controlling farming since at least 1950. Small farmers have never been a priority, and they receive a pittance as far as subsidies. I am sure you will not believe me when I say that I would be in favor of ending subsidies right now. It would clear out "farmers" who have never set foot outside of New York, who rake in the bulk of the subsidies year after year. One of the best things George Bush ever did in six years is to appoint Mike Johanns Secretary of Agriculture. The former governor of Nebraska starting out in a farm family, he understands farming, he lead a farm stat and increased Nebraska's exports significantly, and he wants to stop giving subsidies to agribusiness. He also sees the benefit in developing a new use for a major U.S. crop. You may know something about defense, but I'm not so sure you know much about farming. What I have written may sound contradictory, but the situation is that agribusiness doesn't really want subsidies to end, at least not until they control it all and can set the price like oil can, but they do want to retain the illusion that its just a bunch of inefficient small family farms holding on to tradition that receive the subsidies so they can hold on to their way of life.

    The government takes the biggest piece of the price of gas? And the urban myth that the government most be taking in more money since the price of gas keeps going up? The U.S. Government doesn't agree with you. Take a look at the graph from 2004 here.
    http://www.eia.doe.gov/pub/oil_gas/...ns/primer_on_gasoline_prices/html/petbro.html
    and from 2005 here.
    The percentage taxes make up of a the price of a gallon of gas has dropped from 27% in 2003, to 23% in 2004, to 19% in 2005. What has gone up in the same time period is the cost of crude, from 44% to 53% of the cost of a gallon of gas. However, since the oil companies already own much of the crude they are refining, it isn't all loss for them, is it. If they were actually paying someone else the huge increase, and retaining the same small percentage, I don't believe that explains the tremendous record profits they are reporting. The number of gallons of gas they are selling is not increasing. If anything, due to the increase in cost, if anything their total # of gallons sold should be down. But instead they are racking up huge profits. It's not the taxes.
     
  13. Sep 6, 2006 #33 of 126
    pjmrt

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    Bogy??? Do you understand how the defense contractor business works in the aircraft business? Ok, I had planned to ignore your post until you started making these remarks about McAir, Douglas, and Boeing. I was there, was a McAir employee for a time as was my dad. Controversial? To whom? A mistake, yeah very probably McAir buying Douglas. It was a money sinkhole. Boeing buying McDonnell Douglas most certainly was not to prevent the bankruptcy of McDonnell Douglas. They were (are) suffering from a long stream of bad management. But w/ C-17 production and F/A-18 production plus healthy international sales they were in no danger of bankruptcy. And I recall no one making such claims at that time. Stonecipher was given the job as president (in place of the depleted McDonnell gene pool) basically to sell the company, without a relative of "old man" Mac being the one selling it. So the deal was in the works for some time, and was before the loss of the JSF contract (otherwise it would have been McDonnell-Boeing Corporation instead of just Boeing). In fact the Boeing deal looked like a perfect match on paper - defence and commercial business options mated. But bad management can wreck even the near perfect marriage.
     
  14. Sep 6, 2006 #34 of 126
    Bogy

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    You really don't understand the aircraft business, do you? :lol: :lol:
    I heard it all from the other side. For your information the merger of McDonnell and Douglas was to bail out the M side and they were a drag on Douglas for decades. :lol: You are perfectly right that the bad management of McDonnell was the downfall of the company.

    Actually, I heard it from both sides, the D side when I was in southern California and from my in-laws, and from the M side when I lived in St. Louis. :D
     
  15. Sep 6, 2006 #35 of 126
    pjmrt

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    There was a reason we kept them in California you know:lol:
     
  16. Sep 6, 2006 #36 of 126
    pjmrt

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    By the way, on the subject of defence/aerospace contractors - the McDonnell - Douglas - Boeing thing illustrates an important feature in american business. Commercial & Defense entities don't play well together in general. The defense side has a real problem understanding the pace and flexability of commercial enterprise, and the commercial side fails to comprehend the bureacrasy, high detail/precision, and extreme environments required for the military. Few contractors can carry off both well. And this has to do with E85....., how?
     
  17. Sep 6, 2006 #37 of 126
    jpl

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    You know Bogy, I was going to send you a scathing reply, but decided to refrain. For a couple reasons. First, I went to the gym and took my frustration out on the elliptical machine. Second, I see the futility of this.

    I wanted to make one thing clear - I never said you had no knowledge of the defense business. In truth I know very little about you. I gave that info for a couple reasons. First - many people don't know anything about the defense industry. I can't tell you how many times I've heard business reports on CNBC where it was clear that the analyst was making an invalid statement out of ignorance of the industry. Second, I didn't put it out there just for your benefit. I'm sure what I stated came as news to some on this thread. Third I work for a defense contractor and have first-hand knowledge that I was imparting. And finally, I was expounding - I was giving an analogy.

    Next, you really know very little about me - yet you speak like you know what goes on in my head and heart. Oh, you have some basic info about me - you know I live in PA, and if you really paid attention you could narrow down my area to within a 2-mile radius. You know that I have 3 1/2 kids (#4 due in January). You know that I'm married, and again if you paid attention you know I have a dog. You know I'm a devout Catholic, and you know I'm conservative... and let's see... oh yeah, you know that I'm of Italian descent... and you could probably gleen that both my parents were immigrants.

    But that's really it. You really don't know what motivates me, what I feel about a great many things, nor what goes on in my head. You seem to base your impressions of me based on, well, bias. Sorry, but that's the way I see it. When you make broad general statements about Catholics (in terms of how we all vote), about conservatives (we're all money-grubbing, hate-filled, evil monsters that want to throw the unfortunate out on the street), heck, I have a feeling that the only reason you didn't make a general statement about Pennsylvanians because BillPA is from here, and we seem to be pretty different ideologically - that was a joke -- didn't want to assume anything.

    You don't know my name, or how old I am, or what kind of house I live in. You don't know where I was born, or where I grew up, or anything substantive about me. And yet you act as if you know so much about me. The truth is you know very little. I make no assumptions about you personally (oh, I've made general statements about, say, liberals, but I reserve judgement on people because I know it's impossible to pigeon-hole someone based on things like political party). In other words, I don't pretend to know much about you. I don't presume to know where you come from, or what you think and feel about things. The fact that you seemed to take offense at my explanation of the defense industry, e.g., is an example. I don't know your background. Heck you could be an executive VP at Boeing, for all I know... I meant no offense - sorry you took it that way.
     
  18. Sep 6, 2006 #38 of 126
    pjmrt

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    No, he's too firmly connected with reality to be a Boeing VP -- and if that don't scare you, nothing will. :lol:
     
  19. Sep 6, 2006 #39 of 126
    jpl

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    You're exactly right. I went from working for a Wall St. bank to working for a defense contractor. Talk about night and day! The former: standards, what the heck are you talking about? The latter: we have a SOP for everything! Need to hit the bathroom? Not without following that procedure there, bud!

    You're also right about the fighting that happens between defense companies. They have very distinct cultures, and you saw a REAL clash after the end of the cold war when these companies were forced to merge to survive. It continually amazes me that these companies can work so well together in a prime/subcontractor relationship, though. You NEVER see that happen in any other business. There's none of this: well, we beat the pants off you for this contract... why don't you do some sub work for us!

    As for the McD/Boeing merger, it's good to have an inside opinion - I'd never heard that before. I was always led to believe that it was the company going belly-up that made it possible. At the very least, that's how it was justified to the government.
     
  20. Sep 6, 2006 #40 of 126
    pjmrt

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    We had a common saying - it takes a really long time for a big corporation to die. None of the McDonnell offspring had the sense of the founder, most affectionately called "old man Mac". The company shifted away from engineering led, develop the products the customer wants and needs - to a "bean counter" led, where the only thing that mattered was the stock price for that quarter. This was Stonecipher's strong suit. He was very good at improving the "bottom line" for the short term, driving the stock price through a split, while the infrastructure crumbled, moral dropped, and internal research and development was cut so deep the future looked dim. But let us remember, the company still had the Navy production SuperHornet E/F program spooling up, the C-17, and international sales of the Eagle (F-15) and Hornet C/D. Add to that Harpoon/SLAM... and an entry into UAVs, and I really doubt they were in any danger of going belly-up anytime soon. Eventually, sure. I suspect that without Boeing buying them out (even though the McDonnell clan refused to call it that, preferring "merger" :D ) MD would have pittled through at least another 5-10 years, perhaps coming to their senses and sacking the poor management/executives. Instead they infested Boeing with those managers.

    This seems to be a difference between Lockheed and McAir/Boeing. The Lockheed management seem to be more engineering led, a lot more competitent, and from what I could tell, treated their employees better - at least the engineering staff. I guess that is why Lockheed is #1, and building the Orion to take people back to the moon. Sorry, I guess that sounds like a commercial for Lockheed.
     
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