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The Costs of War in Syria

By Ryan McMaken
Thursday, September 5th, 2013

As Rothbard pointed out, war and militarism are socialism writ large, and not surprisingly, war is very expensive to the taxpayers, and especially to those who are the targets of military intervention.

There is presently a debate in Congress and in the media about how expensive the war in Syria will be. In the American policy debate The expenses are only calculated in estimated monetary terms, and so we know that the debate will of course ignore  all damage done to the Syrians themselves and to global markets, which are always damaged and stunted by wars.

Nevertheless, even the very tame and limited argument over the costs to the U.S. treasury will be based mostly on conjecture and dishonest assessments of the true cost.

We might get some glimpses of some of the honest estimates as the debate rages between the bureaucrats and the politicians, although even those are still nothing more than estimates.  The bureaucrats (i.e. the Pentagon) will use the drive to war in Syria as an opportunity to demand that more taxpayer money flow into their coffers. We have seen this already with former Defense Secretary Leon Panetta’s claim that the tiny cuts imposed by sequestration “are weakening the United States’ ability to respond effectively to a major crisis in the world.”  It will be in the Defense Department’s interest to high-ball the costs of the war.

Nevertheless, even the Defense’ Department’s claims of costs for the Syria war will likely be well below the true cost by the time the public hears them, for the Department will be restrained by the Obama Administration’s competing interest to make the war appear as cheap as possible. Fearing resistance from some taxpayers, the Administration will naturally wish to have the war appear cheap, easy, and no big deal, as regards to cost.

Indeed, John Kerry was claiming yesterday that unnamed “Arab countries” have offered to pay for the war. This claim by the Obama Administration should be seen as being on more or less the same levels as the Bush Administration’s claim in 2003 that the Iraq war and the reconstruction of the country would be paid out of Iraqi oil revenues.

Those who remember the debate of Iraq War costs a decade ago will also recall the Bush Administration’s outrage over General Eric Shinseki’s (correct) estimate that hundreds of thousands of troops would be necessary to restore peace to Iraq in a reasonable amount of time. The Administration claimed only a fraction of that number, and thus, only a fraction of the funds, would be necessary.

So, politicians want a war to appear cheap, at least up front, while the bureaucrats want bigger budgets. Once the war starts, though, all bets are off, and any political or legal authorization given to the administration to wage war will be a de facto blank check for future unlimited outlays for occupation and conflict on an unlimited timeline. We’ve already seen this in both Afghanistan and Iraq, and while the two countries descended into chaos, the claim was made that since the U.S. regime had “broken” Iraq and Afghanistan, the taxpayers were now on the hook to finance the “fixing” of the broken countries.

The regime knows that all it needs to do is start a war, and the money will begin to flow indefinitely. Thanks to Robert Higgs’s Crisis and Leviathan, we know that war is generally a winning proposition for states, for it leads to greater revenues and more control of the domestic population, continually ratcheted up by new wars. Rothbard noted in  his essay “War, Peace, and the State” that while wars can lead to the downfall of states, they upside is often enormous for them, as wars secure vast new powers for the regime both domestically and internationally. And since Syria poses no threat to the U.S. military or to U.S. territory, the prospects are all excellent for the politicians, bureaucrats, government contractors and intellectuals who all stand to get rich off the latest conflict.

The taxpayers will of course fare less well, whether in the form of a far greater tax burden or by their misfortune in holding a currency ever more de-valued by the need to deficit-finance endless war.

For the government class though, times are good, as long as enough of the population can be neutralized or even convinced to support the latest conflict. Thanks to what Hans-Hermann Hoppe calls “the myth of national defense,” wars are among the easiest big government programs to sell to the citizenry, for so few are willing to entertain possibilities outside the status quo of state monopolies for the provision of defense.

And in those cases where convincing the voters might prove more challenging, the state can always goad foreign nations into making an aggressive move than can lead to war, or the state may rely on a small army of intellectuals to provide the propaganda necessary to sweep all opposition aside.

The cost to Americans in the form of higher energy prices, lost trade opportunities, and other hidden costs will be immense, but even the cost in dollars to the taxpayers when calculated in terms of the true costs of empire, cannot be predicted.

Source

EIA: U.S. Dry Gas Production Growth Levels Off Following Decline in Gas Prices

The U.S. Energy Information Administration (EIA) said in a report that the U.S. dry natural gas production has increased since late 2005 due mainly to rapid growth in production from shale gas resources. However, there have been two notable instances (see red ovals in the chart) in the last seven years when natural gas production leveled off during a period of falling spot natural gas prices.

The first was during the recent economic recession and the latest began in the fourth quarter of 2011 and continued through the first quarter of 2012.

Weather events (see green ovals) have also affected U.S. natural gas production.

The major events over the past seven years that have caused dry gas output to level off or even decline include:

  • Hurricanes Katrina and Rita (Sep-Oct 2005) – Disrupted up to 12.2 billion cubic feet per day (Bcf/d) in offshore natural gas production.
  • Hurricanes Gustav and Ike (Sep 2008) – Disrupted up to 9.5 Bcf/d in offshore natural gas production.
  • Economic recession and falling prices (Oct 2008- Sep 2009) – Reduced industrial and manufacturing activity, and lower electricity use eased demand for natural gas as a feedstock and a power generation fuel. Natural gas prices fell sharply as a result.
  • Winter well freeze-offs (Feb 2011) – Disrupted up to 7.5 Bcf/d in natural gas production from Texas to Arizona, when water froze inside wellheads during extremely cold weather and blocked gas flows.
  • Supply overhang and falling natural gas prices (Oct 2011-Mar 2012) - A warm winter that reduced heating fuel demand and record high gas inventories resulted in a nearly 50% drop in gas prices, causing some energy companies to postpone new drilling and cut back on some existing operations.

Natural gas production was relatively flat between October 2011 and March 2012, when Henry Hub spot gas prices declined from just above $3.50 to around $2.00 per million British thermal units in March. Preliminary EIA data indicate a slight drop in production during March, according to the Natural Gas Monthly report released on May 31.

Of the five large gas-producing states tracked monthly by EIA—Texas, Louisiana, New Mexico, Oklahoma, and Wyoming—New Mexico had the highest percentage decline in its March gross natural gas production, down 2.2 percent from the previous month, while Texas had the largest volumetric drop, down 150 million cubic feet per day. States that EIA does not presently track on a monthly basis, such as Pennsylvania, may have seen their gas output increase during March.

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USA: Cheniere CEO Sees Domestic Gas Prices at USD 2/MMBtu

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In an interview on E&ETV yesterday, Cheniere CEO Charif Souki said that domestic natural gas prices could drop to $2 per million British thermal units as a result of improved drilling technologies, regardless of whether LNG exports are increased.

The rationale is this is no longer an exploration play. We know where the resource is. This is now a technology play. Technology plays become better, not worse.

We are learning how to image better, so we know where we have to drill. Our drill bits are getting better, so we know how to manage them and get them to the right place faster and better with less intrusion.

John Berge was talking last week about being able to reduce the amount of water used in the fracking process by 80 percent over the next few years. So, this is going to become a better and better process,” he said.

“We’re very early in the learning curve and we’re going to be able to find this resource more easily, faster and cheaper over a long period of time.

Whatever we can do to export is not going to be sufficient to make any impact at all. Most of the studies talk about 20 cents, I would propose that 20 cents statistically is insignificant, because gas prices can go up or down 20 cents every week. So, over a 20 year period, if our impact by modeling is 20 cents, that’s fine,” he added.

Cheniere of USA is developing a project to add liquefaction and export capabilities to the existing infrastructure at the Sabine Pass LNG terminal.

The Liquefaction Project is being designed and permitted for up to four modular LNG trains, each with a nominal capacity of approximately 4.5 mtpa.

In November 2011, Sabine Liquefaction, a unit of Cheniere, entered into a lump sum turnkey contract for the engineering, procurement and construction of the first two trains of the project with Bechtel Oil, Gas and Chemicals.

Sabine Liquefaction has also entered into four long-term customer sale and purchase agreements for 16 mtpa of LNG volumes, which represents approximately 89 percent of the nominal LNG volumes.

The customers include BG Gulf Coast LNG for 5.5 mtpa, Gas Natural Fenosa for 3.5 mtpa, KOGAS for 3.5 mtpa and GAIL (India) for 3.5 mtpa.

LNG World News Staff

Insight: Natural gas pain is oil’s gain as frack crews head to North Dakota

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By Selam Gebrekidan
NEW YORK | Mon Mar 19, 2012 4:43am EDT

(Reuters) – Collapsing natural gas prices have yielded an unexpected boon for North Dakota‘s shale oil bonanza, easing a shortage of fracking crews that had tempered the biggest U.S. oil boom in a generation.

Energy companies in the Bakken shale patch have boosted activity recently thanks to an exceptionally mild winter and an influx of oil workers trained in the specialized tasks required to prepare wells for production, principally the controversial technique of hydraulic fracturing.

State data released this month showed energy companies in January fracked more wells than they drilled for the first time in five months, suggesting oil output could grow even faster than last year’s 35 percent surge as a year-long shortage of workers and equipment finally begins to subside.

As output accelerates, North Dakota should overtake Alaska as the second-largest U.S. producer within months, extending an unexpected oil rush that has already upended the global crude market, clipped U.S. oil imports, and made the state’s economy the fastest-growing in the union.

Six new crews trained in “well completion” — fracking and other work that follows drilling — have moved into North Dakota in the past two months alone, according to the state regulator and industry sources. Back in December, the state was 10 crews short of the number needed to keep up with newly drilled wells.

“Three to four months ago, the operators were begging for fracking crews,” said Monte Besler, who consults companies on fracking jobs in North Dakota’s Bakken shale prospect. Now “companies are calling, asking if we have a well to frack.”

For the last three years, smaller oil companies with thin pockets were forced to wait for two to three months before they could book fracking crews and get oil out of their wells. As more and more wells were drilled, that backlog has grown.

Last year, an average 12 percent of all oil wells were idled in North Dakota. Even so, output in January hit 546,000 barrels per day, doubling in the last two years and pushing the state ahead of California as the country’s third-largest producer.

FEWER WELLS IDLE

Fracking, which unlocks trapped oil by injecting tight shale seams with a slurry of water, sand and chemicals, has drawn fierce protests in some parts of the country, but it has not generated heated opposition in North Dakota.

The number of idle wells waiting to be completed in the state reached a record 908 last June, the result of a new drilling rush and heavy spring floods. Only 733 wells were idle in August as crews caught up, but the figure crept steadily higher until the start of this year.

Now, the industry may be turning a corner in North Dakota, the fastest-growing oil frontier in the world.

“Both rig count and hydraulic fracturing crews are limiting factors. Should they continue to rise together, production will not only increase, it will accelerate,” said Lynn Helms, director of the state Industrial Commission’s Oil and Gas Division.

The tame winter likely played an important role in helping reduce the number of idle wells — those that have been drilled but not yet fracked and prepped for production. That number fell by 11 in January, as oil operations that would normally be slowed by blizzards were able to carry on, experts said.

Residents of the northern Midwest state — accustomed to temperatures as low as minus 40 degrees Fahrenheit (-40 Celsius) in winter and snow piles as high as 107 inches — this year enjoyed the fourth warmest since 1894, according to the National Weather Service.

The milder conditions also helped prevent the usual exodus of warm-weather workers that occurs when blizzards set in.

“Not everyone wants to work in North Dakota in the winter,” Besler said.

The backlog of unfinished wells has also begun to subside because the pace with which new wells are drilled has leveled off. The state hasn’t added new rigs since November.

The latest state data shows oil companies brought 37 new rigs to North Dakota’s in 2011 but have not added more since November. The rig count held steady at 200 in January 2012, although more than 200 new wells were drilled in that period.

SLUMPING NATGAS PRICE PROVIDES RELIEF

North Dakota has gotten a boost from the fall-off in natural gas drilling due to the collapse in prices to 10-year lows. Energy companies such as Chesapeake and Encana have shut existing natural gas wells and cut back on new ones. Last week, the number of rigs drilling for gas in the United States sank to the lowest level in 10 years as major producers slimmed down their gas business, according to data from Houston-based oil services firm Baker Hughes. [ID:nL2E8EG9OY] The fewer gas wells drilled, the less need for skilled fracking crews in the country’s shale gas outposts.

Fracking in oil patches is similar to the process used in gas wells, except for the inherent power of the pumps employed. Crews inject high-pressure water, sand and chemicals to free hydrocarbons trapped in shale rock. So big service firms such as Halliburton, Baker Hughes and Schlumberger  are reshuffling crews from shale gas fields to oil prospects in the badlands. “We have moved or are moving about eight crews. Some of those crews are moving as we speak,” Mark McCollum, Halliburton’s chief financial officer, said at an industry summit in February.

Halliburton declined to specify where the crews were moving.

Calgary-based Calfrac moved one crew into the Bakken in late 2011, according to an SEC filing. Privately owned FTS International no longer works in the gas-rich Barnett shale but has set up operations in the Utica, an emerging prospect in Ohio and western Pennsylvania, according to a company representative.

The reallocations come with some efficiency losses. Halliburton had to scale back its 24-hour operations and is still trying to solve logistical problems. “You actually take the crew from one basin and they have to go stay in motels, you have to pay them per diems for a while. And then you have to double up your personnel while you’re training new, locally based crew on the equipment once it is moved,” McCollum said.

At the same time, a shortage of key equipment such as pressure pumps is easing as companies start taking delivery of material ordered months or even years ago.

It takes about 15 such pumps to frack a gas well, and many more for oil wells. The total pressure-pumping capacity in the United States at the end of 2012 will be 19 million horsepower, two-and-a-half times more than in 2009, according to Dan Pickering, analyst with Tudor Holt and Pickering in Houston.

FRACKING AROUND THE NATION

Easing personnel constraints suggest recruiters may be meeting with success in nationwide campaigns to attract workers with specialized knowledge of complex pumps and hazmat trucks — and a willingness to brave harsh conditions.

Even with U.S. unemployment at 8.3 percent, such skilled labor remains in short supply despite salaries from $70,000 to $120,000 a year. In North Dakota, unemployment was just 3.2 percent in January, the lowest rate in the nation.

Fracking crews, much like roughnecks on drilling rigs, clock in 12-hour shifts for two straight weeks before getting a day off. They live in camps far from cities and towns. Jobs are transient — a few weeks at a single location. Most workers divide their time between the California desert, Texas ranchlands and the freezing badlands of the Midwest state.

Companies have scrambled to nab talent, with recruiters scouring far and wide. Military bases have gotten frequent visits, and some companies have hired truckers from Europe.

“There’s definitely a push to look all over for people who have good experience since it takes at least six months to train someone how to use a fracking pump,” said David Vaucher, analyst with IHS Cambridge Energy Research.

(Editing by David Gregorio)

‘Stupid’ and Oil Prices

Obama’s Forrest Gump analysis of rising gas prices.

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‘The American people aren’t stupid,” thundered President Obama yesterday in Miami, ridiculing Republicans who are blaming him for rising gasoline prices. Let’s hope he’s right, because not even Forrest Gump could believe the logic of what Mr. Obama is trying to sell.

To wit, that a) gasoline prices are beyond his control, but b) to the extent oil and gas production is rising in America, his energy policies deserve all the credit, and c) higher prices are one more reason to raise taxes on oil and gas drillers while handing even more subsidies to his friends in green energy. Where to begin?

It’s true enough that oil prices can’t be commanded from the Oval Office, so in that sense Mr. Obama’s disavowal of blame is a rare show of humility in the face of market forces. Would that he showed similar modesty in trying to command the tides of home prices, car sales (“cash for clunkers”), or the production of electric batteries.

The oil price surge has several likely sources. One is the turmoil in the Middle East, especially new fears of a supply shock from a conflict with Iran. But it’s worth recalling that Mr. Obama also blamed the last oil-price surge, in spring 2011, on the Libyan uprising. Moammar Gadhafi is now gone and Libyan oil production is coming back on stream, yet oil prices dipped only briefly below $90 a barrel and have been rising since October. Something else must be going on.

Mr. Obama yesterday blamed rising demand from the likes of Brazil and China, and there is something to that as well. But this energy demand is also not new, and if anything Chinese and Brazilian economic growth has been slowing in recent months.

Another suspect—one Mr. Obama doesn’t like to mention—is U.S. monetary policy. Oil is traded in dollars, and its price therefore rises when the value of the dollar falls, all else being equal. The Federal Reserve throughout Mr. Obama’s term has pursued the easiest monetary policy in modern times, expressly to revive the housing market. It has done so with the private support and urging of the White House and through Mr. Obama’s appointees who are now a majority on the Fed’s Board of Governors.

Oil staged its last price surge along with other commodity prices when the Fed revved up its second burst of “quantitative easing” in 2010-2011. Prices stabilized when QE2 ended. But in recent months the Fed has again signaled its commitment to near-zero interest rates first through 2013, and recently through 2014. Commodity prices, including oil, have since begun another surge, and hedge funds have begun to bet on commodity plays again. John Paulson says he’s betting on gold, the ultimate hedge against a falling dollar.

Fed officials and Mr. Obama want to take credit for easy money if stock-market and housing prices rise, but then deny any responsibility if commodity prices rise too, causing food and energy prices to soar for consumers. They can’t have it both ways, as not-so-stupid Americans intuitively understand when they buy groceries or gas. This is the double-edged sword of an economic recovery “built to last” on easy money rather than on sound fiscal and regulatory policies.

As for domestic energy, Mr. Obama rightly points to the rising share of U.S. oil consumption now produced at home. But this trend began in the late Bush Administration, which opened up large new areas on and offshore for oil and gas drilling that are now coming on stream. Mr. Obama sneered at expanded drilling as a candidate in 2008 and for most of his term has done little to expand it.

In early 2010, he proposed to open some new areas to drilling but shut that down after the Gulf oil spill. According to the Greater New Orleans Gulf Permits Index for January 31, over the previous three months the feds issued an average of three deep-water drilling permits a month compared to the historical average of seven. Over the same three months, the feds approved an average of 4.7 shallow-water permits a month, compared to the historical average of 14.7.

Approval of an offshore drilling plan now takes 92 days, 31 more than the historical average. And so far in 2012, an average of 23% of all drilling plans have been approved, compared to the average of 73.4%.

Oh, and don’t forget the Keystone XL pipeline, which would have increased the delivery of oil from Canada and North Dakota’s Bakken Shale to Gulf Coast refineries, replacing oil from Venezuela.

The reality is that most of the increase in U.S. oil and gas production has come despite the Obama Administration. It is flowing from the shale boom, which is the result of private technological advances and investment. Mr. Obama has seen the energy sun rise and is crowing like a rooster that he made it happen.

Mr. Obama yesterday also repeated his proposal that now is the time to raise taxes on oil and gas companies, as if doing so will make them more likely to drill. He must not believe the economic truism that when you tax something you get less of it, including fewer of the new jobs they’ve created.

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We’d almost feel sorry for Mr. Obama’s gas-price predicament if it weren’t a case of rough justice. The President has deliberately sought to raise the price of energy throughout the economy via his cap-and-trade agenda. He is now getting his wish, albeit a little too overtly for political comfort. Mr. Obama has also spent three years blaming George W. Bush for every economic ill. If Mr. Obama now feels frustrated by economic events beyond his control, perhaps he should call Mr. Bush for consolation.

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