Archive for the ‘XL PIPELINE’ category

Pipelines – Why?

January 25, 2017

President Trump has issued an executive order authorizing the completion of the Keystone XL- and Dakota Access pipelines. With a flourish and an “in your face” stare, President Trump reversed positions taken by President Obama. Should we care?

The XL pipeline is intended to bring Canadian tar sand oil to refineries on the US Gulf coast. The Dakota Access project in intended to relive dependency upon rail cars to bring North Dakota “fracked” shale oil to a variety of US refineries. Both projects were opposed by environmental groups and in the case of Dakota Access, native Americans protested the use of what they consider their land and in particularly disturbing their ancestral burial grounds.

President Trump campaigned on a jobs creation platform and said this executive order would create thousands of good paying jobs. Who can be against good paying jobs?

Authorizing the pipelines can best be described as a “non-issue issue”. To be sure concerns about the environment and native American rights are important and issues worthy of consideration. But keep in mind, there is no way importing oil is any better for the environment. And with proper planning (and maybe sharing a little of the oil’s value) with native Americans, all parties could have come to an understanding.

Overlooked so far in this discussion has been the demand for oil has dropped significantly in lock step with the decline of the world oil price. President Obama’s actions were symbolic at best. The builders of both projects were only mildly upset with President Obama’s actions. And yes, behind closed doors, they are only mildly pleased with President Trump’s reversal.

So, was President Trump’s executive order childish pay back? Was it theater? Or, could it have been part of a strategy to unleash US production and help depress world oil prices which would hurt Russia, Iran, and most of the Middle East?

The take away, IMO, completing XL and Dakota Access pipelines are like bullets that didn’t need to be used at this moment. Both represent legitimate global strategies aimed at hindering economic growth in unfriendly foreign powers. Shooting those bullets now, lessens if not negates, their strategic value.

And as for jobs, forget it. These two project represent modest temporary job increases which will not impact in any Rust Belt State. Hmmm.

Getting A Grip

January 23, 2016

News reports have been sounding a lot like “chicken little” recently. To be fair, news reports are just that, they are mostly reports of statements made by politicians and occasionally by those who claim to be financial experts.  If the report is sensational and full of sound bites, all the better.

For example, the Presidential candidates have attributed every foreign or domestic situation as either the fault of a President Obama policy or the lack of one.  Financial gurus are unable to explain the large drop in the markets and alternate between “China is not growing fast enough” to “oil prices have dropped too far and too fast”.  Between the politicians and the financial experts, what is one to do?

Let’s begin with China. China’s growth has been spectacular to be sure. But it is useful to note that China did not build a better mouse trap and the world beat a path to its door.  Rather, China managed to build an export economy by converting uneducated and untrained peasants into productive workers making everything from dresses to gym shoes to furniture etc., items already being produced somewhere else in the world.

China’s growth resulted from producing goods at a low cost and selling it to other nations whose citizens wanted those items. For many of China’s customers, it was good products at lower prices. For others it was products they could finally afford. China’s growth rate averaged about 10% per year, a growth rate which is mathematically unsustainable for extended periods. No one should be surprised that these heady days had to end.

News reports indicate that China is shuttering many of its factories. This can only mean that world demand for more Chinese produced products in not there. While some other low wage countries are probably taking some of China’s share, the main factor is the world is just not buying as much as it did before. In other words, the slow down is not a producer problem but instead a consumer problem. So forget about blaming China and start asking why aren’t consumers outside the US buying more?

But what about oil, isn’t low price good news? No, we are told. Oil has dropped to much and too fast. Hmmm. Of course the price of oil is mainly the result of supply and demand, and right now the world’s oil producers are bent on pumping and selling at what ever price prevails. Hmmm.

OPEC has had life quite comfortable for oh so many years, raising price when ever the urge seemed right. Oil sales were the primary engine for growth in the quality of life for their citizens. Then along came fracking and the Canadian Tar Sands, spurred on by the high price of oil. Hmmm.

Suddenly the supply side was tilted above the prevailing demand. And as any capitalist knows, when there is more of something than what consumers want, the price goes down. The Saudis, for reason of their own, chose to keep pumping and not reduce their output. The Saudis said they did not want to lose “market share”. Hmmm.

The good thing about capitalism is while a supplier can act irrationally, for example lowering the selling price below the cost to produce, there are consequences. One the Saudis have found is that maintaining market share has not prevented oil revenues from falling.  Revenues have fallen so much that their national budget has a deficit now. Hmmm.

While it might seem appealing to gloat at the Saudi misfortune, one might be wise to hope that they are able to adjust their national budget (which means reducing entitlements for their citizens) and avoid popular unrest.

Just imagine that another Sunni group replaces the royal family and what chaos might ensue (like when Saddam Hussein was toppled in Iraq). Imagine if the new rulers were called ISIS (they are Sunnis too).

There could be other unanticipated consequences of prolonged low oil price. Those companies and countries that have invested in new capacity have done so by borrowing. With income far lower than expected, the chance of default is high. Hmmm.

I wonder whether these lending banks are too big to fail? Hmmm. And who looks demon-like now over the XL Pipeline?

Adam Smith’s “invisible hand” predicts that natural events will correct supply-demand imbalances, and argues governments should not intervene. Keynes, on the other hand, recommends government spending to restart a sluggish or stalled economy. For the past 6 years, by default, the US has followed more the invisible hand approach. In effect the Country accepted higher unemployment for a longer period in exchange for unremarkable but steady growth. Said differently, there is no “bubble” in the US economy to burst now.

In comparison to the rest of the world, except China, the US economy is performing the best. Hmmm.  I wonder what the GOP Presidential candidates will say about the economy?

Government Follies

November 6, 2015

Federal Government carries a large responsibility to serve the people’s interests well.  Regrettably, too many times Congress or the Executive act in ways which are claimed as fact based but upon examination are both politically motivated and even worse, based upon false reasoning. Here are two bi-partisan examples. Representing the GOP is Congress’ repeated attempts to thwart President Obama from closing Guantanamo Bay Detention Facility. The Democrats have countered with Keystone XL decision.

The GOP has longed campaigned to keep Guantanamo open and has claimed that these detainees are the worst of the worst, represent an imminent threat to Americans, and it simply is too dangerous to transfer them in US Supermax prisons. There has been much speculation over the GOP rationale. Reason’s provided have been public safety, cost, and why try to fix something that is not broken. Hmmm.

Proponents for closing Guantanamo have said the GOP is really objecting for two reasons. First, the GOP has long opposed closing and does not want to discredit the neoconservative principles that set the detention facility up in the first place. The second reason sadly flows from GOP wishes to say “no” to anything and everything President Obama supports.

There is a sticky problem associated with these detainees. In US Courts, the fact that waterboarding and other harsh interrogation methods have been used may make it difficult to convict surely “bad” people. For the majority of the remaining detainees, simply charging them with anything credible is very questionable and most likely a reasonable court would consider their detainment unjustified and move to set them free. Would this set a precedent for the worst of the worst too?

One would expect a thinking government would reduce the number of detainees to the lowest number possible. With only the worst of the worst left, close Guantanamo and relocate the remainder in secure US facilities. With the terrorist world having now moved well beyond al Qaeda (like the world has moved beyond Windows 7, 8 and XP), should US Courts rule later for the release of these worst of the worst, what harm could there be?

The Democrats, not wanting to be outdone, have made a sorry joke of the XL decision. The Environmental movement has made XL a test case. The Environmentalist have alleged that building the pipeline is equivalent to endorsing CO2 pollution. Unfortunately, these green advocates appear to not realize the tar sands are in Canada and if the oil produced form these sands does not flow through the XL, Canada can ship it by train (far more dangerous) or move it to the West Coast and export to Asia (where demand remains high).

For a tried and true Environmentalist, the exact argument against building the XL makes little difference.  Lower fossil fuel production is all that counts. For Congress and President Obama, the argument favoring XL should focus on safety and concurrence from Nebraska where the pipeline is to be built.  Safety in the future should be a top concern. For example, if the pipe line were to rupture, what unintended consequences might there be?

Instead we have seen a typical GOP-Democrat food fight with both sides spewing out nonsense. The XL will not make a drop in the bucket with employment (new jobs) nor is it key to America’s energy policy. In fact today the urgency of completing the XL has been overtaken by the new oil fracking has brought to market. Fracking has been so successful that the price of oil has crashed and may not justify actually building XL at this time.

With safety concerns in hand and the State of Nebraska on board (the specific pathway), Federal Government approval should be a foregone conclusion. It appears, however, that President Obama will rule against the XL application on environmental grounds. (thinking ahead to the 2016 election and votes?) Sadly, the Federal Government will have spoken with an erred political tongue and will have once more taught the public how little the Government can be trusted to make sound decisions.

Making The News

January 7, 2015

When a home town resident makes the national news, like on TV or in the major newspapers, most people sit up and say “Wow, he/she is from where I live”. I suspect our subconscious also thinks, “next time it could be me”.

This may not be the distinction we think it is. Making the news is not only about having our name mentioned in an article, sometimes the news is constructed with public interest in mind and our names are just props to add a dimension of realism to the “news”.

For example, consider these three news reports from today.

XL pipeline. The GOP has been saying for weeks that one of its first pieces of business in the 114th Congress would be to pass a XL pipeline piece of legislation. The GOP claims that if the President vetoes the bill it will be clear who is responsible for a non-productive Congress. This week the White House weighed in with the statement that the President would indeed veto a XL bill if it was passed before the State Department completed its review.

The news media could be clear that the XL pipeline is a “nothing” issue. They could point out that it will make no difference if the Pipeline is built or if it is not. The pipeline won’t create in total jobs nor will it cause environmental catastrophes. (or they could publish the data that refutes this “nothing” claim.) But you would never realize data existed from reading or listening to the news. The news business is, instead, hyping this probable veto as a declared war between the White House and Congress. OMG.

It is far more probable that the XL is just a pawn. The President will hold it hostage until there is something (in his opinion) worth trading for in return for XL’s passage. This prediction, however, is not as newsworthy as a fight. Hmmm.

Charlie Hebdo. This morning (6 hours later) the news media is abuzz with reports of the alleged terrorist shooting at the offices of Charlie Hebdo, a French satirical magazine. The news, of course, is that the shooting took place, that many innocent people were killed, and that it took place in an area near the American Embassy in Paris. But that does not take much time to share.

Making the news has already taken over. The media is reporting how ISIS is behind this attack and that other major cities around the world are on high alert for similar attacks. One reported asked the White House spokesperson whether the TSA would tighten its airport security procedures is response. Hmmm.

Clearly the shooting must be thoroughly investigated and those responsible identified. Clearly in the process of the investigation the scope of the conspiracy will be determined and it might be ISIS. It is even more probable it will not be directly connected to ISIS but rather to groups espousing the same or similar ideology. But waiting isn’t as flashy as asserting right now. If news organization were to act prudently, the 24/7 listeners would move their attention on to something else.

Falling Oil Prices. Yesterday the stock market fell for the third straight day. News reports lamented claiming investors had lost confidence and fear was taking over the markets because oil was now $50 a barrel. “Investors are worried” market reports spouted. “Their will be consequences to this sudden drop of oil price and we do not know what they all will be”, the “news” deliverers said.

Try for a moment to remember only a few years back when the only direction oil prices went was up. The same prognosticators cried then that rising oil (and gasoline) prices would strangle the economy. Woe is me.

Of course there will be consequence to such a precipitous drop in oil price. Some producing countries will see the major part of their economy disappear. The entire oil exploration sector will take a holiday until supply and demand begin to catch up. Isn’t that how capitalism is suppose to work?

A far more likely explanation for the stock market drop is the hidden market makers churning the relatively high stock valuations (of all sorts of businesses) to make money while the market drops and then buy back and make money while the market rises.

Hmmm. Who wants to report that? Fear and doom make much better news.