Capitalism and the Making of the Market

Texas Barnett Shale gas drilling rig near Alva...

Texas Barnett Shale gas drilling rig near Alvarado, Texas (Photo credit: Wikipedia)

Isn’t it amazing that the US is now the largest producer (again) of oil and gas in the world. Particularly in the face of a drilling ban on federal lands (a large percentage of the west) the unalterable ill wishes of the government and its EPA, and vocal opposition from the so-called progressives. Who should be really called regressives because they want to live in the pre-industrial world, where a percentage of the lower classes starved even in the good years.

Yay! For the free-market (or what’s left of it) It may save us yet.

U.S. is now world’s biggest oil producer – Herald and News: Nation/World News

LONDON — The U.S. will remain the world’s biggest oil producer this year after overtaking Saudi Arabia and Russia as extraction of energy from shale rock spurs the nation’s economic recovery, Bank of America Corp. said.

U.S. production of crude oil, along with liquids separated from natural gas, surpassed all other countries this year with daily output exceeding 11 million barrels in the first quarter, the bank said in a report Friday. The country became the world’s largest natural gas producer in 2010. The International Energy Agency said in June that the U.S. was the biggest producer of oil and natural gas liquids.

“The U.S. increase in supply is a very meaningful chunk of oil,” Francisco Blanch, the bank’s head of commodities research, said by phone from New York. “The shale boom is playing a key role in the U.S. recovery. If the U.S. didn’t have this energy supply, prices at the pump would be completely unaffordable.

”Oil extraction is soaring at shale formations in Texas and North Dakota as companies split rocks using high-pressure liquid, a process known as hydraulic fracturing, or fracking. […]

via U.S. is now world’s biggest oil producer – Herald and News: Nation/World News.


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12 Responses to Capitalism and the Making of the Market

  1. Mike says:

    Fracking is extraordinarily wasteful. .

    Moreover, the environmental costs of this waste are not yet determined. It takes time to know these costs. This isn’t so much a “free market” economy as a “freebooter market” economy. The key problem is that the benefits occur in the present and the disbenefits occur far in the future. This causes a misvaluation that results in over-production in the present.


    • NEO says:

      Flaring is wasteful, always has been, but transporting NG by anything but pipeline is really expensive, and we’re not building pipelines, remember.

      It’s not what I’m hearing from my friends in Dakota, the waste is primarily water and sand, and the chemical are treated out of the water. I’m no expert on it though, and go primarily with what I read.

      You have some right on the costs and benefits though which a strict accounting and cleanup would come reasonably close to controlling. Overproduction is a concept, like underproduction, that only has meaning in relation to price. It has no objective definition. Cost must include clean up though but, how do you determine those costs without production?


      • Mike says:

        It’s pretty clear that current price doesn’t include anything for cleanup or use of environmental services. The efficient price, defined as the marginal cost of production including environmental costs plus the minimum return needed to keep investors in the business, is clearly too low thus we have overproduction relative to the level of output if environmental costs were included. That overproduction means higher environmental costs that otherwise would be included. In addition, we have no idea what the full effects are until years in the future long after the overproduction has occurred. That’s why a bit of caution would be wise.


        • NEO says:

          Perhaps, and yet, there are a lot of environmental contractors working in the Bakken (I know little of the others) and the reports are such that I believe they have covered most(although likely not all) costs involved in clean up. While my sources are of course, biased, so are all the others, one way or another.

          This is an area where the perfect is the enemy of the good enough, and further waiting will have severe repercussions on the economy. I think enough account of the ecology is being taken. Could I be wrong? Certainly. But so (and more likely, I think) may be the alarmists, who have an agenda, as well.


        • Mike says:

          Consider a few of the shale gas related remarks in the following commentary.


        • NEO says:

          OK, he makes some sense, but his example is just as simplistic, to wit

          This is worse than a simplistic view of the situation. The shale gas industry has never been profitable at US prices seen since production ramped up bigtime around 2007. Currently it’s at $4.60/mmbtu, still well under an economically rational level, though it swooned near a miserable $2 just two years ago. So the export idea is that US can build out a massive new infrastructure of gas pipeline terminals to liquefy the gas and a fleet of expensive liquid gas tankers in order to ship gas to Europe and Asia, where demand has exploded, and the price is as high as $15/mmbtu. Okay, when and if the US has the ability to export all this gas (big if, considering the needed cap-ex), what happens to American customers who find themselves competing for this commodity with five billion Asians and Europeans? Do they just freeze in the dark? Mr. Friedman apparently failed to notice the hemorrhaging of jobs and incomes among the disintegrating American middle class. I wonder if he thinks they can afford to run their furnaces at $15/mmbtu.

          While the North American price would obviously be higher than $4.60 MMBTU, why would he believe it would be the same as the current European price of $15 MMBTU, which is overpriced because it’s nearly a Russian monopoly. Obviously the European price would decline in some measure, although given the cost of transportation, perhaps not much (Transportation also provides fairly good jobs) and North American prices would rise but to a limited extent, for the same reason. Nor does he refer to the Bakken, which is not only western North Dakota but parts of it extend nearly to Glacier Park (and there are others, as well), it’s not going to end all that soon. And there is a lot of capital around (assuming the whole thing doesn’t collapse, which is not beyond the bounds of reality, either) with not much of anyplace to go.

          In other words, like all of us, he’s preaching to his choir.


        • Mike says:

          Preaching to the choir is popular and always a problem. I think it’s necessary to be cautious and a bit contrarian in this case. Concern with environmental problems is not the only negative indicator for fracking. David Stockman relies on an article in Bloomberg discussing how the Fed’s cheap money policy has encouraged excessive borrowing by fracking companies. Cheap money is hardly a distinguishing aspect of a free market. And, big debt in a volatile industry is seldom a good idea.


        • NEO says:

          That I agree with, as I do with we have a very artificially screwed up economy. I’ve gotten very cautious lately, especially long-term because I don’t think we can keep score anymore. There’s no basis for comparison any more. I’m one of those curmudgeons who don’t believe in big debt at any time, actually. And so I find myself agreeing with you, at least in part, which doesn’t surprise me at all. 🙂


        • Mike says:

          🙂 Thanks for the discussion.


        • NEO says:

          It was fun, and thought provoking, which is fun by another name. Thanks yourself. 🙂


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