Affects of Low Gas Prices in the Oil Industry

I work in the oil industry.  As such I get questions all the time about the industry and economic effects of current trends.  Lately the most I get asked is how does the falling price of oil affect my end of the oil business.

To better frame an answer, a few terms about the oil industry need defining.  The petroleum industry is generally broken into three sectors: upstream, midstream and downstream.

Upstream is the exploration and recovery side of the oil industry.  Once exploration is complete, it also involves estimating a potential find and determining whether or not it is worth drilling.  After the initial evaluations are made, then the wells are drilled and the crude is moved to the refineries.

Midstream is a term I rarely hear used since I've been working in the oil industry.  Midstream involves transporting, storing and wholesale marketing of petroleum and getting the crude to the refineries.

Downstream is the final step of refining the crude into various products.  At the downstream section, the crude is turned into various products like gasoline, diesel, lubes, plastics and raw materials for other industrial uses.

So how exactly does the falling prices help and/or hurt the industry?

The upstream sector will take the brunt of the price fall.  It is basic economics.  There becomes a price point where looking for oil and drilling it out of the ground becomes unprofitable.  As oil prices continue to drop, exploration companies are calling off exploration and recovery operations.  Drilling operations that aren't complete will cease or slow down.  These companies will then lay off employees.  It then sets off a chain reaction of lay offs and shutdowns in support industries such as maintenance crews, drilling supplies, piping and other related crafts as well.  Communities, especially ones where fracking took off, will also suffer as people leave to find jobs else where and the money poured in from the workers dries up.

Tax revenues where exploration and test wells are drilled also dries up. 

In the midstream business, if no oil is flowing, there is no need for new pipelines to be built.  Nor are truck drivers needed to get the crude to storage or market.  As existing fields slow down and no new wells come online, those support industries wither up too.

Now is it all gloom and doom?  Not at all. 

Crude oil is a commodity and raw material for the downstream side. 

Refining crude is a capital intense business.  There are costs that vary some but do not affect operations drastically.  Wages and maintenance costs are among the "fixed" costs.  One of the costs that affect refining though is the price of energy.  With falling prices oil, energy prices fall too and thereby one of the costs of operating a refinery falls. 

Also the cheaper oil means refiners pay cheaper price for the main raw material.  One of the misconceptions of the oil industry is that companies make a huge profit on gas.  That simply is not true.  The real money is made further downstream.  Jet fuels, diesel and much further down the line on the chemical side is where the profits roll in. 

While the price of the final product comes down, they won't fall as much as the price of oil except for gasoline.  Notice that diesel hasn't fallen as much as gas prices.  Fixed prices stay the same but operating costs go down and final product price falls but not far.  Sounds like a good mixture for increased profits.

I'm not economist but that in a nutshell is why the oil industry will survive the latest down turn. 

I hate that good hardworking people will lose jobs in the other sectors of the oil industry but they will survive and our economy will keep churning.

Terror Strikes Home - Paris and Belgium

Last week brought home the terror Islamist terror attacks to the Western World's doorsteps.  Twelve people were killed in Paris because some small minded Islamists were insulted and offended by satirical cartoons drawn by Charlie Hebdo artists.

This whackadoo Islamist wish to bring their brand of Islam and terror to the world.  Because they are so up close and personal with Allah and Mohamed they know what God and the Prophet want and are offended by.  If Islamist want to rule by terror in their lands, so be it.  If the people they rule won't rise up against the slaughter and terror, so be it.

When the terror comes to our lands and our homes, we must continue to defend and fight for our way of life.  Islamist are adamant about insults to their religion and way of life.  We, as freedom loving people, must also be equally offended by their hatred of our way of life and acceptance of diversity. 

What do we do next? Again take the war to their lands?  An argument can be made for destruction of their whole society.  Do they really want to make it a war of West vs. Islamist?  If the West fully mobilized and aimed to root out the Islamist, the West wins.  When I say root out Islamists, I mean the whole destruction of society from top down.  Eliminate all fighters, men and potential fighters.  They want a blood bath on our shores, take the fight to their homes and destroy everything they hold dear.

Nazi Germany posed a real threat to the destruction of the free world and the free world armed up and fought back.  The price was  heavy on both sides but the threat has been eliminated.  Nazi Germany nor allies will ever threaten again.  Same with thing happened with Imperial Japan.  A total war of destruction without mercy stopped a society hell bent on domination.  In ending the Pacific theatre of operations, the United States resorted to the only wartime use of nuclear arms.  Again, total war, total destruction and total victory.

Does the rest of the world need to continuously keep vigilant against terror groups?  Yes.  Can the West entirely eliminate terror groups?  No.  Should the West mobilize to destroy and annihilate societies that support extremism?  Yes.  How?  Arm to the teeth, invade and destroy all strongholds of the enemy.  Completely destroy societies if it means massacre of the people.  This is no different than the World War II fire bombings of Dresden and Tokyo.  You don't just break and destroy the infrastructure, you break and destroy the will of the people.

And when the blood letting is done, we remind Muslims they are free to practice their religion in their countries and lands but they must police themselves against extremists.  If they don't the price will be heavy....all Muslims will pay with death and total annihilation of their religion.  And the first place the massacre will start will be the nuclear bombing of their holy sites.

Will it ever happen?  Of course not.  The West, including the United States, don't have the stomach or the will to take such extreme measures.  But it is a price we must pay if we wish not to live in constant fear.  Instead, the alternative, is much cleaner. No one wants to send their sons and daughters into battle.  Again, look at the price the West and Allies paid to destroy a global threat.  I doubt we'd pay such a heavy price again but one would be paid to achieve out goals. 

Instead our governments wish to adhere to our ideas of justice and not impose our will on our enemies.  We should instead, adhere to our enemies ideas of justice and impose it on them for the crimes the commit against our societies. 

Revamping Website...by killing it off

I've decided to kill of my website of The Monkey Cage due to lack of time to keep up with it....especially since I'm now married.

Instead I'm distilling everything down to two blogs:  The Untitled Sports Blog and The Monkey Blog.  One for all sports and the other for all other topics.  I hate to do it but time constraints call for it.  Hopefully I'll be able to update more often.

Unkle  Monkee

Disastrous Week in America

It's been a disastrous week in the United States.  North Korea and its saber rattling grabbed headlines in recent weeks.

Suddenly the nation's attention turned to Boston Marathon bombings.  Tragically three people died and over a hundred injured. 

As the law enforcement began its investigation in Boston, more tragedy struck in West, Texas.  An explosion killed twelve people, possibly more, and leveled a good portion of the small Texas town.

While it didn't make headline news, an explosion at the ExxonMobil Beaumont refinery occurred on Wednesday.

I don't really have anything profound to say about these events.  This is more an acknowledgement of events that happened this week in our history and lifetime. 

It's also to remember those who lost lives and loved ones, to remember first responders and ordinary citizens who help those injured, to remember doctors and nurses who attended the victims in the aftermath and to pray for all those affected in anyway by these events.

North Korean Tensions

North Korea again raises the stakes in the constant US-South Korea war of words.  Kim Jong-un continues to threatening rhetoric and saber rattling against the United States.  He falls back on the tried and tired argument of American imperialism and the threat posed to North Korea.

Kim's aims are obvious to the world but at home it is a different story.  The Kim dynasty maintains power through tight control of all aspects of society and despotic rule.  The message put out concerns the evil Americans and their puppet states of South Korea and Japan. 

Deception and distraction of the home crowd is the true name of the game.  The ordinary North Korean citizen is starving, tired and oppressed.  If Kim keeps the natives distracted with the bogey man of America, his chances of the masses overthrowing him are kept low.  Likewise, Kim must prove his prowess in dealing with the West to the military elite.  The military elite lose just as much as Kim if the masses overthrow the government.  Kim plays a balancing game in keeping the top and bottom of North Korean society.

The United States too must play the game.  The must show a military commitment to its allies of Japan and South Korea.  Japan does not want to rearm.  Nor do they want to build nukes.  However both are options should North Korea continue to threaten Japan.  South Korea too has considered nuclear weapons should the U.S. falter in living up to military deals.  Things are tense enough without adding nuclear armed states to the area.

I've said it before, the U.S. needs to stop paying attention to Kim when North Korea throws tantrums.  In the past the U.S. rewarded bad behavior with food and fuel to the isolated country.  It needs to stop.  Starve the country into submission.  President Barrack Obama needs to do something other presidents after have failed to do...stop giving in.  Deliver a firm message that no attack by North Korean forces on any American interest will be tolerated.  Also state that an attack on any American ally will be considered an attack on America itself and to expect a full retaliation.

It's time to stop rewarding temper tantrums and slap the North Korean child around like the little brat it is.

North Korean Nuke Test

North Korea again tested a nuclear weapon despite tough talk from the United States, its allies and the United Nations.  The problem with everyone involved is North Korea just gets stern warnings.

North Korea is a rogue state under the influence of the Kim dynasty.  Kim Jung Un's is young and inexperienced.  As he tries to consolidate his power and put his people in place, the North Korean people continue to suffer hunger, repression and unimaginable fears and ills.  To keep his people distracted from their peril, Kim creates phantom enemies and threats.

The most convenient enemy is the United States.  The Kim dynasty continually conjures imaginary threats from the United States and South Korea.  The government tells the people the USA is coming to attack North Korea.  It's a similar tactic used by Venezuela's Hugo Chavez.  The Korean people have no outside information.  The government controls all media and access to internet.  North Koreans can't make a decision form themselves.  Even if they don't believe official government sources, what alternative do they have?  They definitely can't speak out and voice opinions.

I laughed when a friend of mine posted on Facebook "Yay Bill Richardson for going to N. Korea with google to open up Internet, and for standing up against nuclear testing...go, Bill go!"  Richardson wasn't going to open up anything for North Korea.  Google wasn't going to get new business either.  I love my friend to death and she is one of the smartest people I know.  However she is also very naive in understanding how the real world works.  The Korean people, I sometimes drop the North because they are after all Korean, really want food and a decent living.  They care about Richardson, Google or the internet.

So what is the solution to North Korean nuclear testing?  Quit talking and toughen up sanctions.  In the past, the USA and UN place embargoes but relent with food and fuel for the people.  Unfortunately the people never get what they need.  The ruling elite and the armed forces get fed.  

This time, I hate to say it, but starving North Korea into submission seems the only real answer.  No food or fuel for anyone.  The outcomes are harsh but necessary.  Starve the elite and the army and they turn on Kim.  Starve the people and they get desperate and overthrow Kim or die.  It may seem barbaric stance I take but short of war, there isn't much other recourse.

 The United States must also make clear that any military provocation by North Korea will be met with equal or greater force.  If they attack the South or Japan, the USA is taking the kid gloves off and taking out Pyongyang.  I don't mean nuking the city but instead leveling all government offices, buildings and military targets.  Also hitting the infrastructure that keeps the ruling elite comfortable while the people suffer.  Also make clear that any nuclear attack on anyone will result in the annihilation of North Korea.

Unfortunately, I don't think President Barack Obama has the strength to make such a bold but necessary declaration. 

A Day of Relaxing and Fishing

Normally I don't publish personal topics in my blog.  While I won't detail my personal life, I figure what's the point of having a personal website if I can't use it to keep track of things I do.

So starting in 2013, I plan on tracking more of my personal activities in addition to pledging to again pick up writing with vigor.

To begin 2013, I went on my first fishing adventure of the new year.

Texas Parks and Wildlife Department maintains a winter rainbow trout stocking program in rivers, lakes and community ponds.  The program is wildly successful.  Over the years, the number of waters stocked has grown.

Every year I plan on going but I never make it out to one of the sites.  Mary Jo Peckham Park is one of the local Harris County stocking sites.  TWPD stocks the small lake every two weeks. 

Saturday I ventured out to Peckham.  The results?  Nothing but high winds.  I couldn't use my super light rod.  So I just put a worm on the end of my hook and hoped for something.  I walked the perimeter of the pond hoping that I would catch something.

After a couple of hours of silence, a man told me to go try near the circulation pumps.  The trout like the constant change of cold water.  He told me the man in purple jacket caught a nice sized trout and others were pulling up trout.  So I pulled up my lines and went.

Not much action going on.  I saw three trout pulled out of the water.  One by a teenage couple near me.  The other by the man in purple jacket.  The third by a goose swimming along the shore line.  A group of kids thought the goose catching a trout was both funny and aggravating.

It was about 3:00 p.m. when I decided to call it a day.  On a whim I decided to check out Tom Bass Park.  In the first section there is a pond.  The pond is really not much more than a puddle.  I decided to try it anyway.  I was stunned.  I pulled up three catfish.  The smallest was 16 inches.  It ended up being a nice little haul.

While there I talked to a man who was fishing with his kids.  He gave me directions to the bigger community lake on the other side of the golf course.  I tried finding the lake twice but my map obviously wasn't very good.  I was stunned that it was a decent size pond.  It may be next weekends destination.

 Tom Bass Park Community Pond

(click on pictures for bigger view)

My Catch of The Day