Germany's Nuclear Winter

Yesterday's decision by Germany to leave nuclear energy, may be brilliant or catastrophic. They will allow 8 nuclear power plants to close by year-end with the remaining 9, for a total of 17, to close in 2022. These plants represent approximately 23% of Germany's electrical generation capacity. Taking the 8 down this year will, reduce capacity by 10% or so. The catastrophe is that it will result in much higher prices, which will cause rational usage to take place. People and businesses overnight will have to adjust their behavior. Manufacturing costs will rise, and cause Germany companies to look outside the country for cheaper manufacturing. This will likely cause unemployment to increase and tax revenue to decrease, partially offset by constructing power lines from the coastal wind farms down to the southern manufacturing sites (which will take time and will still need back-up systems for those long gray days) and constructing natural gas pipelines from the ever-reliable eastern countries (have not they learned from the previous two natural gas shutdowns from Russia).

The timing of this seems most interesting and brilliant. Suppose that Germany is tired of bailing out countries who have not saved adequately and refuse to realize that they are in debt, but because the hard working Germans are rich, they can continue to pay while the party countries continue to party. Suppose this is Germany's way of saying - Sorry, the party IS over, because we don't have the revenue stream any longer. What will Portugal, Ireland and Greece do? If the French can't push out their retirement age for all of its pensioners, then they are not likely to pick up where Germany has left off. So with the two richest countries not willing to continue to pay for the hangovers (1 and 2), where does that leave the EU and the Euro? Ask China, for they are willing to bail out Portugal.

Think wisely and act rationally.

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Big Oil Lie?

A couple of weeks ago, our politicians (37% of Representatives are lawyers and 60% of Senators are lawyers - not much practical work experience or "real" understanding of how businesses operate) tried to blame the recent high gasoline prices on the Big Oil companies. How is it that we have come to this point, where our elected officials have never closed a company book on operations at the end of a fiscal year, yet they try to finger an industry that has contracted. According to the Energy Information Administration, in 1981 - the previous peak, there were 324 refineries producing 18,621,000 barrels of refined products per day; by the 2008 peak, there were 150 refineries producing 17,594,000 barrels of refined products per day. Thousands of jobs were lost in those years due to poor LIFE CYCLE refining margins, yet we only lost 1.027 million barrels per day of capacity. Years of cheap energy kept us addicted to gasoline. There are several inconsistencies or factors that have been overlooked. Let us start with the obvious: 1) WE IMPORT MORE THAN 51% OF OUR LUQUID FUEL NEEDS and have for years (the EIA in its most recent forecast, shows that since 1990, imports have been above 40% to high of 60% in 2005.). How is this Big Oil's fault? Emerging market demand as sky rocketed since India and China have entered the global markets. As they represent one-third of the global population with a rapidly growing middle class, demand exceeds supply. WE DO NOT CONTROL SUPPLY. 2) When technologies improve through capital investment, production can improve and increase. Since 2000, shale gas production in the US has increased at annual rate of 17%, according to the EIA. This was due to horizontal drilling and fracturing techniques developed by the industry. What happened to natural gas prices - they fell. But many don't like the techniques for various reasons. WE HAVE BECOME THE SAUDI ARABIA OF NATURAL GAS. Supply exceeds demand at this time. 3) Big Oil pays a higher tax rate than all other sectors over the 2005-2009 range, according to Bloomberg (January 24-30, 2011). The 2010 Earnings by Industry show that the Beverage and Tobacco Products sector earned 21.7 cents of net income per dollar of sales. Oil and Natural Gas earned 5.7 cents, with all manufacturing at 8.5 cents. The industry has spent over $200 billion per year since 2006. The industry employs 9.2 million people, who are paid excellent wages. We do not want to eliminate these jobs. Think of the multiplier effect. 4) When a gallon of milk costs as much as a gallon of gasoline and the number of people employed to explore for, develop, refine and distribute, dwarfs that of the dairy industry, with large subsidies, lest we forget, then we have a problem. Europe pays twice this. This is not Big Oil's fault - it is the consumer's. And what about all of us buying bottle water? We are willing to pay up for the water, but guess what? the bottle is made of petroleum. 5) Don't blame Big Oil, blame Congress, Salazar and most of all - us and US. We do not want drilling off of the coasts. We do not want wind off of Hyannis Port. We do not want nuclear. We do not want natural gas drilling. We do not promote heat pump technology. Then how on earth should we expect this country to compete? If everyone thinks that we pay too much, then we should buy the oil equities, buy a smaller car, live closer to work, take public transportation, get a better job, get a college degree in something that the US needs, get an extra job, car pool, ride a bike, or write our Representative or better yet, vote him or her out of office and we should run for office. Hopefully, we know how to balance a check book. But most of all, we should quit complaining, because we live in one of the greatest countries on this planet.


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