The following graphic shows the timing and relationship between gasoline prices and recessionary events. From this figure, even the casual observer should see the connection between high fuel prices and economic damage.
My conclusion from this is that the higher, longer price spikes cause greater recessions, with a sort of trigger threshold near months-at-$2.50/gallon. The short, mild events have a lower trigger threshold, nearer 2.00-2.25/gallon for several weeks. Look at today's prices all around town. Why are you surprised the economy is taking so long to recover?
Whatever you draw from it, it should be quite clear that years of exposure to $3.00/gallon or higher causes us great damage, for that is exactly what preceded both the "Carter inflation years" and the current "Great Recession" event. (The two mild events were brief problems experienced about 1990 and 2000.)
Another point I'd like to make is that the "Carter inflation years" ended when fuel prices dropped, during Reagan's second term. So, it looks to me like "tax cuts for the rich" and "trickle-down economics" had nothing to do with that recovery. The politicians lied to us about that. (But why should that be surprising?)
The next graphic shows the connection between price spike-ups and world events. My thesis is that many of these price spike episodes are not due to "market" anything, but are deliberate acts perpetrated by those with the oil. I cannot account for everything with this thesis, but I can relate gasoline prices we experienced to troubles we had with the middle east for the four recessionary events identified here.
Going back to the 1970's, we experienced in rapid succcession higher prices due to the "Arab oil embargo", and a further sustained price hike starting with the 1979 Iran hostage crisis. The 1973 embargo was retaliation by the middle eastern oil producers for US foreign policies they hated. We got "crossways" with Iran over the Shah, their revolution, the hostage crisis, and the Iran-Iraq war, all in the 1979-1988 time frame. They are about the 3rd largest crude oil producer in OPEC.
Not many folks know that we backed Iraq during the Iran-Iraq war of 1980-1988, but we did. Saddam Hussein was "our boy" against Iran. We gave him the poison gas bombs that he used in that war, and later against his own Kurds, so that he would not lose that war. Is it any surprise that Iran and OPEC maintained high prices all during that time?
Don't you kind of gather from this that those countries all really do understand the "oil price weapon" as an instrument of economic warfare, and how to use it against us?
Most folks also do not seem to understand that the various terrorist and religious-extremist groups that our troops fight now, are in fact the proxy armies and "favorite charities" of the middle eastern members of OPEC. We are, in point of fact, paying them to kill us, every time we fill our gasoline (or diesel, or jet fuel) tanks.
My best "guesstimate" is that about 25 cents of every fuel dollar finds its way to these groups. Terrorism and guerrilla warfare are expensive: those payrolls, travel expenses, training costs, and weapon costs have to come from somewhere. It should therefore be no surprise to anyone that fuel prices rise, anytime we or our allies seem to be winning in any of these wars.
We are currently winning in Helmand Province in Afghanistan, and our ally Pakistan has been "wiping the floor" with the Taliban in their border region. Gasoline several weeks ago around Waco was about $2.40/gallon. Now it is headed for $2.60/gallon. The industry analysts on the business page of the newspaper predict $3.00/gallon this summer, but cannot supply a coherent explanation as to why this is happening. I think I know why. After seeing these graphs, I hope you know, too.
There's also the notion of "political warfare". Why should these people not be trying to influence our elections? In point of fact, I think they have been, and for a very long time. The third graphic has annotations I made showing the connections I think I see.
Since the early 1970's there has been, more or less, a political party correlation in American politics on the issue of alternative energy / oil independence. The Democrats have been more favorable to alternatives, the Republicans have not been.
If you were a "pusher" of the monopoly product the entire planet is addicted to, would you not want to do anything you could to ensure your addict client stayed addicted? I think OPEC wants to defuse or defeat any alternative fuel initiatives in the country, and so they favor the election of Republican Presidents over Democrats.
To that end, I think they might drop fuel prices a bit preceding the elections to make the Republicans more attractive, since lower fuel prices seem to ease public anxiety about dependence on foreign oil. If they get what the want, fuel prices zoom back up right after the election. If a Democrat wins, prices stay lower after the election for a while. I think this is likely an attempt to undercut alternative fuel initiatives by making their costs look less attractive.
And that is the price pattern I see in the record, for every single election except the last one. (That one is clouded by the price drop that happens every time our stock market crashes.)
This has nothing to do with market forces. This looks to me like brazen attempts to use monopoly pricing as a weapon, and as a tool to interfere in our politics to maintain our addiction to their oil. This has been "hiding-in-plain-sight" for decades. And I don't like it. Not one little bit.
Are you not tired of paying these bastards to kill us? Does it not infuriate you that hostile foreigners have been interfering in our elections? Then get off your collective duffs and go do something about it!
If your elected representation won't work toward alternative energy ASAP, then elect new ones who will. But you must communicate with them about it! You have to act.
Your vehicles are already running just fine on an E-10 (10%)ethanol blend in your gasoline right now. That ethanol is American-made, and every bit we use instead of gasoline makes a dent in the enemy's budget. Ask your representation to push for E-20 or even E-30 blends. My vehicles and equipment have been running just fine on it for 3 years now.
I have already been doing my bit. I tried the stiffer E-blends and they work just fine. And, I published this for you.
Update 1-3-15:
The recent explosion of US “fracking” technology (hydraulic
fracturing plus horizontal-turn drilling) has modified the picture of oil
prices versus recessions.
Unexpectedly, the US has become a
leading producer of crude oils for the world market. Plus,
there has been an associated massive production increase and price drop
in natural gas.
OPEC has chosen to take the income “hit” and not cut back
their production in response. Their
reasoning is twofold: (1) fear of loss
of market share, and (2) hope that low
oil prices will curtail US “fracking” recoveries. We will see how that plays-out.
Oil prices are now such (at around $55/barrel) that US
regular gasoline prices are nearing $2.00/gal for the first time in a very long
time. This is very close to the price
one would expect for a truly competitive commodity, based on 1958 gasoline prices in the US, and the inflation factor since then.
It is no coincidence that the exceedingly-weak US “Great Recession”
recovery has suddenly picked up steam.
The timing of the acceleration in our economic recovery versus the
precipitous drop in oil prices is quite damning. There can be no doubt that
higher-than-competitive-commodity oil prices damage economies. Oil prices are a superposition of the competitive
commodity price, overlain by an erratic
increase from speculation, and further overlain
quite often by punitive price levels when OPEC is politically unhappy with the
west. That’s been the history.
This economic improvement we are experiencing will persist
as long as oil, gas, and fuel prices remain low. (Government policies have almost nothing to
do with this, from either party.) How long that improvement continues depends
in part upon US “fracking” and in part upon OPEC. Continued US “fracking” in the short term may
depend upon adequate prices. In the long
term, we need some solutions to some
rather intractable problems to continue our big-time “fracking” activities.
The long-term problems with “fracking” have to do with (1)
contamination of groundwater with combustible natural gas, (2) induced earthquake activity, (3) lack of suitable freshwater supply to
support the demand for “fracking”, and
(4) safety problems with the transport of the volatile crude that “fracking”
inherently produces.
Groundwater
Contamination
Groundwater contamination is geology-dependent. In Texas,
the rock layers lie relatively flat,
and are relatively undistorted and unfractured. This is because the rocks are largely old sea
bottom that was never subjected to mountain-building. We Texans haven’t seen any significant
contamination of ground water by methane freed from shale. The exceptions trace to improperly-built
wells whose casings leak.
This isn’t true in the shales being tapped in the
Appalachians, or in the shales being
tapped in the eastern Rockies. There the
freed gas has multiple paths to reach the surface besides the well, no matter how well-built it might have
been. Those paths are the vast
multitudes of fractures in the highly-contorted rocks that subject to mountain-building
in eons past. That mountain-building may
have ceased long ago, but those cracks
last forever.
This is why there are persistent reports of kitchen water
taps bursting into flames or exploding,
from those very same regions of the country. It’s very unwise to “frack” for gas in that
kind of geology.
Induced Earthquake
Activity
This does not seem to trace to the original “fracking”
activity. Instead it traces rather
reliably to massive injections of “fracking” wastewater down disposal
wells. Wherever the injection quantities
are large in a given well, the frequent
earthquakes cluster in that same region.
Most are pretty weak, under
Richter magnitude 3, some have
approached magnitude 4.
There is nothing in our experience to suggest that magnitude
4 is the maximum we will see. No
one can rule out large quakes. The risk is with us as long as there are
massive amounts of “fracking” wastewater to dispose of, in these wells. As long as we never re-use “frack”
water, we will have this massive
disposal problem, and it will induce
earthquakes.
Lack of Freshwater
Supply to Support “Fracking”
It takes immense amounts of fresh water to “frack” a single
well. None of this is ever re-used, nor it is technologically-possible to
decontaminate water used in that way. The
additives vary from company to company,
but all use either sand or glass beads,
and usually a little diesel fuel.
Used “frack” water comes back at near 10 times the salinity of sea
water, and is contaminated by heavy
metals, and by radioactive minerals, in addition to the additives. Only the sand or glass beads get left
behind: they hold the newly-fractured
cracks in the rocks open, so that
natural gas and volatile crudes can percolate out.
The problem is lack of enough freshwater supplies. In most areas of interest, there is not enough fresh water available to
support both people and “fracking”, especially
with the drought in recent years. This assessment
completely excludes the demand increases due to population growth. That’s even worse.
This problem will persist as long as fresh water is used for
“fracking”, and will be much, much worse as long as “frack” water is not
reused. The solution is to start with
sea water, not fresh water, and then to re-use it. This will require some R&D to develop a
new additive package that works in salty water to carry sand or glass
beads, even in brines 10 times more
salty than sea water.
Nobody wants to pay for that R&D.
Transport Safety with
Volatile “Frack” Crudes
What “fracking” frees best from shales is natural gas, which is inherently very mobile. Some shales (by no means all of them) contain
condensed-phase hydrocarbons volatile enough to percolate out after hydraulic
fracturing, albeit more slowly than
natural gas. Typically, these resemble a light, runny winter diesel fuel, or even a kerosene, in physical properties. More commonly, shale contains very immobile condensed
hydrocarbons resembling tar. These cannot
be recovered by “fracking” at all.
The shales in south Texas,
and some of the shales and adjacent dolomites in the Wyoming region
actually do yield light, volatile
crudes. The problem is what to transport
them in. There are not enough
pipelines to do that job. Pipelines are safer
than rail transport, all the spills and
fires notwithstanding.
The problem is that we are transporting these
relatively-volatile materials in rail tank cars intended for normal (heavy)
crude oils, specifically DOT 111 tank cars. Normal crudes are relatively-nonvolatile and
rather hard to ignite in accidents. DOT
111 cars puncture or leak frequently in derail accidents, but this isn’t that serious a problem as long
as the contents are non-volatile. These
shale-“frack” light crude materials resemble nothing so much as No. 1 winter
diesel, which is illegal to ship in DOT
111 cars, precisely since it is too
volatile.
The problem is that no one wants to pay for expanding the
fleet of tougher-rated tank cars. So, many outfits routinely mis-classify “frack” light
crudes as non-volatile crudes, in order
to “legally” use the abundant but inadequate DOT-111 cars. We’ve already seen the result of this kind of
bottom line-only thinking, in a series
of rather serious rail fire-and-explosion disasters, the most deadly (so far) in Lac
Megantic, Quebec.
Volatile shale-“fracked” crudes simply should not be shipped
in vulnerable DOT 111 cars, period. It is demonstrably too dangerous.
Conclusions
“Fracking” shales for natural gas and light crudes has had a
very beneficial effect on the US economy and its export-import picture. We should continue this activity as a
reliable bridge to things in the near future that are even better.
But, we must address
the four problem areas I just outlined.
And I also just told you what the solutions are. The problem is, as always,
who pays. What is the value of a
human life? What is the value of a
livable environment? It’s not an either-or
decision, it’s striking the appropriate balance!
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