Archive for the ‘energy.’

Iranian Hostage Crisis, Part 2?

Back in 1980, 52 U.S. diplomats were taken hostage in Iran. This incident, during the Iranian revolution, was a major blow to foreign policy and intelligence in the Middle East. After a botched extraction attempt (I personally know people who flew on that mission… disaster), the Algiers Accords were signed.

The incident was a major blow for the reelection campaign for Jimmy Carter. The very second after Regan was elected, the hostages were released. It also helped strengthen the Islamic revolution under Khomeni and showed vulnerabilities of one of the major superpowers at the time.

Is Iran doing the same thing with oil?

Persian Gulf
As of this writing, there were Iranian supertankers in the persioan gulf that hold about 5 months worth of extra crude oil. Why the stockpiling? Of course, you can use it as economic leverage against any attack on their coun

try, but what if the oil is being held hostage until a new president takes office?

The cost of oil, among many other reasons, have dropped the president’s rating to unprecedented levels. Bringing that sort of supply onto the market would create some serious turbulence in the commodities markets, possibly causing a correction in prices.
There are some hidden paralells that come to mind when comparing the two events. The major underlying theme may be that the Iranian government is trying to garner political and economic influence in the West, albeit indirectly.

Why Offshore Drilling in Florida is a Good Idea

Hear me out. Just give me 2 minutes to explain.

The Florida Coastline: untapped resource

In the next 20 to 30 years the state of Florida will experience a deep local recession (think Detroit). The Baby Boomers who bought up all those retirement villages will start to die off. Also, it’s becoming prohibitively expensive to get a decent house due to the insurance premiums. The real estate market will come into significant overhead supply. The decline in population will reduce sales tax receipts, cut retail spending, and economic growth will slow. Seeing this, people will leave, exacerbating the situation.

The tourism industry won’t save them. With newer (and closer) developments throughout the world being built, Orlando’s strong growth will slow. When it’s cheaper and more fun to go to Dubai for a week, Europeans will stop showing up.

It just keeps coming: the educational system is not graduating good workers, and businesses will have less of incentive to bring their business to the state. In the long term, the state will run out of water.

And the voters don’t notice the problem. They just put in a constitutional amendment to reduce property taxes, which will hurt the state in terms of tax receipts when the housing crash finally ends. This November, they are looking to cut state taxes to schools by a significant amount. Unless we privatize the Florida school system, this will be a bad move.

The solution is offshore drilling.

Offshore Drilling will save the environment. By leasing the land to the oil/nat-gas companies and taxing their profits, you can use that money for 3 major things:

  1. Environmental Insurance in case of a disaster
  2. Tax breaks for green energy (solar and tidal, not wind)
  3. Development of a high-speed rail system

You will also get an increase in jobs. You could also use the tax receipts to subsidize household insurance. We need a combination of solar-heat and desalinization plants to get the water we need to the state.

The solutions to the energy crisis must not only come from long-term renewable energy; it must be subsidized by the energy that is immediately available to the country.

Oil is Tanking… but not for what you think.

This past Thursday, Oil inventories came in with an 8.8 M bbd draw. You could see that crude spiked and then started to drop all of a sudden… did something change in the fundamental picture?


This is where the discrepancy between what oil is fundamentally worth and what a contract is worth to a trader comes into play. This past week, NYMEX increased the margins you need to trade crude oil contracts, both regular and miNY contracts.

Margins for the crude oil, crude oil calendar swap, and crude oil financial futures contracts will go up to $7,250 from $6,500 for clearing members, to $7,975 from $7,150 for members and to $9,788 from $8,775 for customers, NYMEX said in a release.

Margins for the NYMEX miNY crude oil futures contract will rise to $3,625 from $3,250 for clearing members, to $3,988 from $3,575 for members and to $4,894 from $4,388 for customers. Margins for the NYMEX MACI index futures contract will increase to $1,450 from $1,300 for clearing members, to $1,595 from $1,430 for members and to $1,958 from $1,755 for customers.

This decreases the ability for some players to use as many contracts as they used to, as well as some players who can’t trade at all. This has reduced the demand of these contracts significantly, which explains the drop in price.

Hopefully this drop in the price of the contract will keep going as some speculators will have the fear of Vishnu put in them, which will cause a significant correction down to more fundamentally sound levels.

Thanks to Barry for reminding me of this.

A Solution to the Energy Crisis, Part 1

Phillip Greenspun comments on his blog the possibility of converting cars from gas to electric and the financial ramifications of an immediate changeover:

In practical terms, of course, it is a pipe dream. The sheer logistics of moving hundreds of millions of cars would not be something I would want to be tasked to; also, to have public policy aligned with this sort of movement is unrealistic.

A gradual move over from gas to electric is more realistic– and a move to higher MPG vehicles would be even better. The implementation of this idea in terms of public policy is the difficult part. We know we need to remove our energy dependence, but without the help of the federal government, the energy shift will not happen.

I have an idea to create economic incentives for the transportation industry when it comes to energy. Note: this is not my original idea.

Set a standard, say 30 MPG. Any car that gets better than 30 MPG, give it a 5,000 tax credit. Anything worse, give it a 5,000 tax debit. Formulas can be created to help stabilize the supply and demand of these cars. This creates a strong economic incentive for carmakers to put energy conservation at the top of their list. This solution is revenue neutral, which is a strong point for fiscal conservatives.

This idea will piss off the automakers, and I don’t care. They’ve had 30 years since the last great energy crisis to get their act together. We have (supposedly) the smartest engineers in the world, and there are several technically feasible solutions.

Another significant obstacle would be the problem of fleet vehicles and the industries that rely on inefficient vehicles. A conversion to natural gas would be a simple intermediate-term solution. In California, new fleet vehicles are starting to have the requirement of running on natural gas (a fuel we don’t have to import).

This is one step in the right direction.