Time Odyssey

This has got to be the dumbest idea put forward today. Not that I’m against McCain as, some basic policy disagreements not withstanding, I think he would make as good a President as Obama. That being said – opening up Alaska’s wilderness and Drilling off the Gulf Coast states is just asinine. As a species we do not exactly have a good track record when it comes to safety and opening up new sources of error just doesn’t make sense when there are good alternatives that could be brought on-stream assuming someone can get the markets to settle down.

There are a number of issues at play here.

The first is that oil prices currently are being completely driven by speculation, not economics. While the cost of a barrel of oil appears to have remained in line with the capabilities of the technology to extract it, some yahoo a couple of years back suggested that if the price of oil had kept pace with inflation over the past 30 years that we’d be in $200 territory before 2010. And guess what? The speculators are driving the price up into that territory despite the fact that it doesn’t cost $200 a barrel to get oil from the ground to the refinery. So essentially we are dealing with a pile of people whose greed and command of the markets is forcing a situation that doesn’t have to happen.

The second then involves the political process and development of monetary policy which would effectively curb this ramant speculation. The problem isn’t, as Obama puts it, windfall profits. The problem is and always has been the fact that markets have long since stopped representing a perfect market because the state of intelligence gathering is such that the largest players have information available at their fingertips that the small investor just doesn’t have. The small investor for example doesn’t have the resources to invest in multi-million dollar computer systems to track market heuristics or ‘do lunch’ with industry subject matter specialists. Even mid-sized investment firms are at a disadvantage here simply due to networking size and access to information sources. The upshot of this is that the markets are more subject to imperfect information than ever before and that gives the high end speculators an edge in that they can get into and out of markets faster than the heathen masses that follow.

If you really want to control the price of gas then what you do is put a 100% tax on the speculators for every dollar they bid up the price of a commodity over the 60% threshold set as representing loan sharking. Essentially this sets an artificial ceiling on how high a commodity price can go, but at the same time you would need to put in some type of reporting mechanism that indicates what the true cost of getting a commodity to market actually is. So if the true cost of getting a barrel of oil to the average refinery is say $50/barrel, then speculators can ramp up the price to $80/barrel but for every dollar they raise the price beyond this limit they will be subject to a 100% tax of any profits derived over $30/contract option. THAT would crimp oil speculation in very short order and bring prices back down in line with what is reasonable for the consumer.

The third thing is that there are other technologies out there that are developed and could be brought on stream in mass quantities within 3 years which would almost completely eliminate the need for dependance on foreign oil. Rentech’s (RTK) Fischer-Tropsch process for example is a good example of an intermediary technology which would bridge the gap between oil dependence and conversion to environmentally friendly green technologies. The process is capable of taking a wide variety of feed-stocks and converting them into syngas which can then be used to create a wide range of clean burning diesel products and other petrochemicals. This includes things such as coal stocks, dirty oil deposits (like the Canadian Oil Sands), animal wastes, and other biopollutants which are currently costing substantial moneys to treat assuming they don’t end-up directly dumped into the environment to begin with.  There is more than enough source material around North America that we don’t need to go drilling for more oil unnecessarily.

Plus this puts us one step further towards sustainably moving the entire transportation industry towards greener energy including railways, shipping, trucking, and air transportation for which there are no hybrid-electric solutions which will effectively replace diesel in the short term.  – K