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Nazareth, Pa., United States

Thursday, December 11, 2014

Big Oil's Message - Please Join Us

John Felmy is Big Oil's Chief Economist. He can tell you everything you need to know about the history of our oil-based economy. But he didn't start out being their financial czar. He's a Pennsylvania boy who was born in Williamsport, went to high school in Jersey Shore and ended up going to Penn State University with just $20 in his pocket. His interest in oil and the Lehigh Valley began during summers spent working with a repair crew on the Tidewater Oil Pipeline, He learned something about both the economy and oil in those early years, and was in town recently to speak to the Lehigh Valley Tea Party. He spared some time for a bottom-feeding blogger, too. "I'll speak to anybody," he admitted.

One of the first things he pointed out is that the Tidewater Oil Pipeline, which extends from northwestern Pa. to Bayonne, N.J., was built to break J.D. Rockefeller's grip on the railroads. You see, King Cole and rail used to be the main mode of transportation.

These days, it's impossible to deny the impact the oil industry has on the economy. Nearly 10 million Americans are employed in the oil and gas industry, which accounts for nearly 8% of our gross domestic product. Moreover, Big Oil is actually owned mostly by you and me. Tens of millions of Americans have IRAs and pension funds that are heavily invested in oil and gas.

But haven't we peaked? Not so, states Felmy. He notes that, over the years, there has always been a fear that we will soon run out. In the 1870s, when oil was used primarily for kerosene, the first big scare occurred. This was repeated again in the 1900s, when the first cars began appearing on highways. It happened again in the 1970s, when the long lines at fuel pumps resulted from price controls on oil that had already been produced.

The likelihood of a real oil shortage anytime soon is remote. The reason for that is twofold - technology and markets.

"Technology has changed everything, especially in Pennsylvania," Felmy assures. He notes that we now have the ability to drill in deep water, more than two miles under surface. In addition, it is now economical to draw oil from the Canadian Oil Sands, which will result in 170 billion barrels. Finally, he points to advances in hydraulic fracturing and horizontal drilling that have made Pennsylvania the third largest producer of natural gas in the country.

Markets are better now, too,he claims. The market now dictates price. "If you don't allow the markets to set the price, that's when you run out of stuff because the price is set too low," he explains. He derided the windfall profit tax, which was finally repealed during the Reagan years. as a terrible idea that "decreased production, increased imports and destroyed jobs."

As an economist, he supports the PennEast pipeline, a proposed 110-mile long pipeline from Pennsylvania to New Jersey, going through parts of Northampton County. "Policy has to be robust, redundant and reliable," he argues."If you don't have enough natural gas where you use it, you lose opportunity. This gives people and business the benefit of a lower price."

Noting that Pennsylvania has one of the highest corporate income taxes in the country, he opposes a severance tax. "Before you move down this road, tell us we're not paying our fair share already." But he supports an impact fee as "something you clearly need. Communities are clearly impacted and should share in the revenue."

Felmy stressed that the notion that the oil industry receives tax subsidies as "sheer nonsense." He noted that, like any other business, they can deduct the cost of production.

The immediate problem facing Big Oil, states Felmy, is a lack of education. "In Washington, facts don't matter," he notes. "It's talking points," which leads to misconceptions. But there's an even bigger, long range problem. A lack of labor.

"People are retiring and we need to get people in and trained," he explained. There are good-paying jobs for welders, gauge readers and those who have acquired technical skills that are taught in our community colleges. It is possible for a person in his early 20s to make $100,000 per year in these jobs. And this has a ripple effect. In North Dakota, for example, where the oil industry is well-established, he saw a local McDonald's offering a $200 signing bonus because it is strapped for labor as a result of so many people working in the oil industry.

"Please join us," he concluded.


Anonymous said...

Interesting reading.

Anonymous said...

"Please join us"

In Hell, suckers!

John said...

I'm sure he has ample faint praise for solar and wind power generation.

Anonymous said...

Solar and wind are a flea on the ass of our energy needs and don't figure to get much bigger. Fracking and its impact on supply of the global, fungible commodities it provide are the primary reason prices are plummeting.

Anonymous said...

One of your best articles.

c said...

Oil extraction from the Canadian Tar sands is a miserable process. Makes the region look like something from a JR Token book. Mordor.

Bernie O'Hare said...

"I'm sure he has ample faint praise for solar and wind power generation."

I asked and he has no problem with alternative fuels. 5432

Bernie O'Hare said...

c, when was the last time you really looked at the technology employed for that extraction? I am used to reading, day after day, just how terrible Big Oil is. Thought it might not be a bad idea to get its side of the story.

Anonymous said...

Fracking and its impact on supply of the global, fungible commodities it provide are the primary reason prices are plummeting.

The reason is that OPEC is in a price war with smaller countries that tried to grab some of the market by lowering prices of their crude. OPEC will keep the taps flowing until others come in line with what OPEC wants the price set at, as they can outlast them all. When OPEC undercut pricing it started a cascade effect on every other oil producer to meet the lower prices in order to retain market share.

Fracking was a low profit extraction process when prices were high. Some wells have already begun shutting down.

Bernie O'Hare said...

Although your explanation is mostly wrong, that's the market at work. If prices go down, so does the demand for fracking.

Anonymous said...

626am, here's an interesting article on the rise of solar. Bigger deal than many realize, worldwide.


Anonymous said...

Try googling "crude oil price war." You will get a better understanding of why prices are dropping. If fracking was as cheap to produce oil as a standard well, they wouldn't be shutting down. Demand for oil hasn't lessened. Only the profit margin for the producers.

c said...

It has been a couple of years since I've read about the impact of tar sand extraction. The technology is fascinating but the environmental impact is sobering. I'm not certain if the technology and remediation processes have changed over the last 3-4 years. It is a very energy intensive process. We depend on Canadian oil to a large degree in this country specifically the oil derived from tar sands. So I guess I'll answer your question in part with a question. Where can one find the best objective information on the topic....not written by environmental extremists or by those motivated by profit? One final point, we would be best suited to reduce our consumption...if Volkswagens in Germany are deriving almost 70 mpg why are we not employing this same technology here?

Anonymous said...

Correct. Drilling permits were down 40% in November and December is looking even worse. That's the boom and bust nature of a global commodity; especially energy. Three consecutive mild winters brought PA drilling to a crawl in 2012. Rigs packed up and headed for Bakken (N. Dakota) and Eagle Ford (Texas)plays withing weeks. The trick is to remain competitive in slow times in an effort to be the first to restart when prices rise and drilling restarts.

It's also important to note that most of what is currently being extracted in the Marcellus-Utica play is dry gas. Western PA has abundant wet gas (which is more valuable because it has more uses). Below the wet and dry is oil, but extracting it it from its low pressure reserves requires a significant investment in compression stations. My experience with the industry is that they count pennies everyday and production is highly price sensitive. A 10% extraction fee is unlikely with a GOP legislature. But it would be crippling to the only thing going right in our economy. A tax would also do little to help the state's finances. It will only hurt the $100 million annual impact it's had to our state's economy.

Anonymous said...

The guy is an uber ginger. As we all know gingers have no soul.