Stop Being an Energy Hostage

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Stop being an energy hostage. High energy costs are taking advantage of your business. It is time for you to do something about it. Since traditional energy can only come from an external source, you are an energy hostage. Since you have no way to negotiate your current energy costs from your utility, you are an energy hostage. Since you are dependent on an external energy grid and can not successfully conduct commerce without the grid, you are an energy hostage.

I do believe I have a solution that can give you greater energy independence. Since your business must have energy to exist, you need to find a way to guarantee your future source of energy at a price you can also control. Currently, your options are very limited because energy is controlled in America as if it was life itself. In reality, energy may actually be life itself so why would American business allow itself to be so thoroughly controlled by external forces. Why would American capitalists allow the current traditional energy industry to control their proverbial lives?

THE SOLUTION
The solution to individual business energy independence is to accelerate your access to on-site energy production, dramatically introduce more energy competition, and implement a plan to lower the cost of transportation related energy by going to a natural-gas fueled super-highway followed by fuel-cells.

THE RESISTANCE
Let’s first address what NIMBY’s are saying as they continue their tired old arguments against Americas quest towards a real all-of-the above energy strategy that reduces real costs to the consumer. I consider many of these folks cursed with the Charlie Sheen mentality of “Winning” as they celebrate their successful resistance to broad-based diverse alternative energy solutions that threaten their market share. Killing alternative energy concepts has been their cuas celeb. These undertakers proclaim:

A. Renewable energy is an insignificant contributor to US energy production.
{False. Your right leg is 15% of your body and you do not consider your right leg insignificant. In 2011, renewable energy represented 12% of all U.S. produced electricity. This is a 25% increase over 2009. It is estimated in 2012 we will hit 15% and by 2020, renewable energy will represent 25% of all U.S. electricity. Renewable energy is a significant contributor to U.S. energy production and as a result, long-term energy costs will begin to fall forever.}

B. The capital cost of renewable energy is too high compared to traditional energy solutions.
{False. Refining oil and coal is not cheap and although we have been making capital investments in these industries for 70 years, the capital costs keep going up and the consumer costs keep increasing as well. Renewable capital costs are often one-time investments offset by reductions in operational expenses.}

C. Alternative energy is less efficient than traditional energy solutions.
{Possibly accurate for some alternates but untrue for many other alternate solutions. The real issue is how inefficient traditional energy production can be. If you consider the amount of energy and water it currently takes to produce a btu of energy or a gallon of gas, you might ask yourselves why have we tolerated such and inefficient process related to oil, electricity and gas for so long? Today we have seen cost-effective alternate energy solutions that are much more efficient – like wave turbine energy which uses only the energy of tides or waves while using very efficient underwater turbines which produce no measurable waste.}

D. The return-on-capital/investment for on-site or regional energy production is longer with renewables than traditional energy.
{False. If a business has not developed a plan for on-site energy reduction or energy production the ROI for traditional energy is “infiniti”. I say infiniti because energy purchased from a retailer or a utility must be paid every month, regardless of cost, forever. At least with a plan for on-site energy production, you have a one-time capital expense followed by big energy savings …. FOREVER! Your savings will finance your initial capital investment and within a time-certain period, your capital investment gets paid in full. Your energy costs also fall forever.}

E. The American job market will not benefit from renewables because all of the manufacturers are located outside the U.S.
{False. As true as it is that the largest Wind and Solar manufacturers are located in China and Europe, America has the technology that will produce the next generation of alternative energy solutions:

*Fuel cells
*Advanced batteries
*Nuclear (uranium pellets to energy)
*Advance pulverization
*LNG (liquified natural gas)
*Heat liquefaction – gassification to energy (farm and industrial waste burned to energy)
*Wave energy

The opportunity for future sustainable energy solutions exists in America. We can learn from history and not abandon the alternative energy future by giving the industry away to other countries – such as was done with solar and wind. Lest we forget, the largest solar mirror project was built in the 70’s near Ridgecrest, California. We knew alternative energy was something America could dominate yet we took the easy route and deferred to an oil-based energy future. We gave away the solar industry to China and Europe in the 70’s. Lesson learned.

In 2012 we can create the demand for sustainable energy and create the solutions right here on U.S. soil and all Americans will benefit from our revolutionary solutions.}

F. Most energy is used in transportation. You can’t replace the oil and gas used in transportation with alternative energy.
{False. While it is true we will never have a country that is free of oil and gasoline, we can substantially reduce our reliance on foreign oil by converting all vehicle fueling to natural gas. Natural gas burns at a high energy rate and we have a millennium’s worth of natural gas in America. We already have the nationwide fueling infrastructure with fueling stations everywhere. The technology exists to convert the vehicles and the stations easily. Once we remove the oil-based energy from our transportation needs, we will discover we have enough U.S. energy production to dramatically reduce our reliance on foreign oil. }

G. Solar production and Wind Farms do not create as many jobs as traditional refineries or traditional power plants?
{True, yet somewhat apples and oranges. There is something incredibly efficient about taking energy provided by God, (the blowing wind, the beaming sun, tidal flow and gravity), and converting it to useable energy. I would think the Lord would say: “nice-job” because to waste these natural resources seems pretty stupid from a business standpoint. The fact you do not need as many people on-site to run these new power plants is simply the ultimate expression of efficient manufacturing. }

However, for America to be even more successful, we need to be the researchers that invent the new alternatives. We then need to get the patents for the technology. We will manufacture the robots and the software that manufactures the new energy solutions. We will create new industry expertise and new professional experts. We will export those products at a profit to other countries. We will use the products in America and build the facilities with American workers including welders, plumbers and machinists. We will revolutionize entire industries. We will lower operating costs for every business in America. This is the job creation benefit of pursuing alternative energy solutions and it does differ from traditional energy solutions because the job creation opportunities are broader.

H. The cost of energy is primarily due to high taxes on fuel such as gasoline, not the cost of production and crude.
{Mega-false. State Taxes and Federal Excise Taxes represent a smaller percentage of the price of a gallon of gas than they did in the 70’s. As a matter of fact, in 2010-2012 the breakdown is as follows:
i). Taxes 12%
ii). Refining 6%
iii). Distribution 6%
iv). Crude Oil 76%

[Source: Sam Avro -ConsumerEnergyReport.com]
The average retail selling price of a gallon of gas in early 2012 is $3.38 per gallon.
Keep in mind, the crude oil component of cost was less than 45% of the cost of a gallon of gas in February 2000, yet increased to 76% in 2012 when the average price of a gallon of gas was $1.38. 76%! It is not the tax component of a gallon of gas that is contributing to the extra $2.00 increase in the price of a gallon of gas in 2012.

Also, more importantly, in 2012, U.S. oil companies are discovering, refining, producing and distributing more oil and gasoline from American sources than at any time in the last 40 years. }

What is causing this fantastic increase in retail prices?

We all know wages are stagnant for the last few years so the cost increase is not related to employment-related costs. We also know what the industry pays for oil leases on public-lands has not increased dramatically over the last decade so the costs related to oil leases is not adding dramatically to the crude oil process. We also know many producers, (Shell, Chevron, BP) not only discover and refine their own crude oil, they also own the distribution channel that sells the gas to the consumers and businesses. We know that the global markets are selling crude at the highest price they can and U.S. oil producers are also selling crude oil =not at or near their actual costs, but at whatever rate the market will bear.

Check out this information related to the cost to find, refine and sell a barrel of oil:

A measure of the total cost to produce crude oil and natural gas is the upstream costs. The upstream cost includes lifting and finding costs. Lifting costs are the costs to operate and maintain oil and gas wells and related equipment and facilities to bring oil and gas to the surface. Finding costs are the costs of exploring for and developing reserves of oil and gas and the costs to purchase properties or acquire leases that might contain oil and gas reserves.

EIA collects data related to these costs from the largest (major), U.S. oil and gas producers in its Financial Reporting System (FRS). The data are generally representative of the average cost for the FRS companies to find and produce their own particular mix of crude oil and natural gas in their production locations in the U.S. and in other countries and regions of the world. The table below is adapted from the Performance Profiles of Major Energy Producers, 2009.

Costs for Producing Crude Oil and Natural Gas, 2007–2009
2009 Dollars per Barrel of Oil Equivalent1

Lifting Costs Finding Costs Total Upstream Costs
United States – Average $12.18 $21.58 $33.76
On-shore $12.73 $18.65 $31.38
Off-shore $10.09 $41.51 $51.60

Others – Average $ 9.95 $15.13 $25.08
Canada $12.69 $12.07 $24.76
Africa $10.31 $35.01 $45.32
Mid- East $ 9.89 $ 6.99 $16.88
Cen/SoAm $ 6.21 $20.43 $26.64

15,618 cubic feet of natural gas equivalent to one barrel.

[Source: Tables 10, 11 and 12, Performance Profiles of Major Energy Producers, 2009.

Last reviewed: July 5, 2012]

A barrel of crude was selling in the global markets for $80.00 in June, 2012. If the information above is correct, there is a very healthy gross-profit margin in the energy business. even though we keep hearing the industry only has a net profit of 10%, it should be clearly understood that the net profit of 10% is after all SG&A costs, after all bonuses, after all advertising and after all tax payments. 10% of net on billions is an awesome level of profit. What sucks is all of us are greatly contributing to this outstanding level of profitability by the high prices we pay every single day for energy. I’m telling you, we are all energy hostages with Stockholm syndrome because we are actually blaming everyone else for these high costs and buying into the energy industry’s story that excise taxes and regulation are driving up costs. In my business, something that is creating a giant cost burden for me never results in historic company profits for me. The reality is the global markets allow for a nearly unlimited retail price and every energy producer is just feeding at the trough to the detriment of the general public.

Without any realistic options for individual businesses to become energy independent, we just take it in the gut. Frustrating is an understatement. We have a serious disconnect here and the energy industry is taking us for a ride that we are paying handsomely for.

As previously stated, we all know from observing the annual reports of the entire energy sector, that the profits are significant. I for one am happy to see profitable companies, I just don’t want to be a sucker – paying more for a product than I need to pay while the seller reaps historic rewards off of my overpayment. This hurts all American businesses, depresses job growth, adds costs to everything sold in the U.S. economy, and hurts economic growth.

So, I think it is safe to refute the assumption that it is the excise taxes that are driving up the cost of a gallon of gas. No, my friends, the vast majority of the cost of a gallon is simply what the producers have determined the market will bear since many of them completely control their discovery, refining, transportation and distribution costs. This is also the same group that is fighting against the growth of alternative energy solutions. By the way, this is the same group receiving taxpayer subsidies and being almost exclusively funded through the high prices we pay for energy everyday.

If we want a break in energy costs, we are going to have to pick a fight with some very entrenched special interests who specifically do not have our low energy costs interests as their primary priority.

If we as business people want to get the price of gasoline to come down, we need to demand the industry get a better handle on its costs and pass along the savings to us. If they can’t achieve that goal, we need to develop the myriad of new alternative forms of energy ourselves and get much more competition into the energy markets.

How we achieve this goal is where we should be focusing our efforts. We should be asking our elected officials to explain specifically how they are going to expand the energy market and bring many more alternative energy solutions on-line in 2013. It is not good enough to just develop what is in the ground, we need to think much bigger and broader. We need solutions at the individual user level so we can have on-site generation alternatives. As private-businesses, the more local control business owners retain for on-site energy production, the better chance we have to lower our long-term energy cost liabilities.

Energy costs are built-into everything sold in the U.S.. From food and equipment to transportation and manufacturing, a portion of the price of all things includes the ever-increasing cost of energy. Yet the cost of energy is normally seen as something out of the control of ordinary Americans, however that assertion could not be further from the truth if Americans chose to do something about it. Lower the cost of energy and you can lower the short-term and long-term operational cost of everything for every business in America. Lowering the cost of everything in American sounds like a strategic goal worthy of our focused attention and we must demand action on a nationwide plan to implement this strategy.

As a capitalist, it is my job to get the best value for my dollar. When gas prices go up within 20 minutes of a hurricane or one single refinery fire, I know I am not getting the best value from my energy providers. Someone out there is playing with supply, demand, and retail prices … and every single large and small business is being over-charged as a result. Capitalists are specifically not government and benevolence is a choice for capitalists not a responsibility. I do not need to be benevolent to other private capitalists. I can root for every business to be successful and still root for my own business success. If I have to choose, I prefer to pay less for energy than more for energy. I assure you it is not part of my business plan to pay more for energy than I need to just to make sure someone else’s business does well at my expense. I know every conservative business can agree to that assertion.

I celebrate those that have made a business out of the energy needs of all Americans. They are entrepreneurs, capitalists and equal participants in our economic opportunity. Yet, their business is no more amazing than every other business in America and they should be constantly challenged to be efficient and cost-effective.

At the end of the day, energy providers are simply one of the many vendors every business person must manage and whose cost every business must control. The one thing the energy business should not be receiving is taxpayer funding … especially for the traditional energy solutions. We as taxpayers have been funding the industry for decades and we do not need to provide taxpayer subsidies to mature industries that are already profitable – especially when the end of pipe consumer energy costs seem to increase year after year with no prospects for major reductions in prices. What are we really getting for our subsidy? I do not want to pay at the pump and pay again when I pay my taxes. I’m sure every fiscal conservative could agree with this sentiment.

The energy business is sucking at the “teet” of everyone in our country because we as consumers are their primary revenue source. We also provide large public subsidies to the industry. In the past we have also had very limited options to practices that look more and more monopolistic than free-market. The facts are, if you are on the grid or if you own a vehicle, you are fully funding the entire energy business. You are their most steady source of highly profitable revenue. The more we pay as consumers, the more the energy providers make. When was the last time you received your “thank-you-card?

Without trying to sound like anything other than a business person that is tired of getting taken advantage of, I must say Americans have been getting the shaft ever since the oil-embargo of the 70’s. Somehow we managed to put our own personal cost reduction interests behind the needs of the very industry that is actually driving up our personal energy costs. As I said, as a business owner, I have the responsibility to make sure I am getting the best-options and the best value value from all of my vendors. It’s time the energy industry came under much more cost-centered scrutiny. As their largest customer, we-the-people deserve better deal.

Frankly, I am very supportive of everyone’s ability to earn as much money as they can as long as they are not the only game in town and I am not over-paying for it. I say this because the energy industry is an important U.S. job creator whose products all businesses need in order to exist. However, as a business person, I need access to every option that can help my business succeed at the best possible value. Why am I paying so much for energy with no end in sight? Why are my energy options so constricted, limited, expensive, and traditional? Why is it so easy for my energy costs to increase at the whim of my energy provider yet my ability to opt-out so impossible? It is clear to me that I am not getting the best value for my energy dollar from many of the current energy providers and as a capitalist, I demand a much better deal.

So without attempting in any way to force anyone in the traditional energy industry to unnaturally lower their prices just because i asked for it, I will instead demand access to more energy options that can crete more competition in the energy market. As history demonstrates competition in the energy markets by bringing on more creative alternative solutions will result in more options for all businesses and can result in lower long-term energy costs. I’m sure every business person would agree with this sentiment as well.

Our nation has been finding, refining and distributing oil and gas for decades. It would be fair to say if there were new methods that would drive down traditional oil and energy consumer costs, we would have seen them by now, In other words, it is fair to make this statement: traditional energy prices at the consumer level will continue to go up and up as far as the eye can see. How does this reality help the 4 million U.S. businesses that rely on energy to run their businesses?

The only logical conclusion is to create more energy options that can compete with traditional energy solutions. As we capitalists know and practice to the level of a religion. competition is the most effective way to lower costs for commodity-based products. We need more energy competition so all of our businesses can lower the cost of that great unfunded liability … energy costs.

America has the most innovative culture in the world and our free-market system produces more opportunity that anywhere else in the globe. We must unleash the alternative energy pioneers. Fracking , which still uses a lot of water, is a perfect example of using a newer innovative process to access a traditional product. Fracking natural gas is not an alternative energy solution but one has to wonder … what took the industry so long to discover and implement Fracking as a solution? The good news is America is producing an endless supply of natural gas today.

Natural gas prices are still low because there appears to be massive inventory and significant competition. Now if we can convert our vehicles to natural gas, which is cheaper to operate in a vehicle, every American will see a reduction in their fueling costs. This is just one simple example that involves a traditional product. Imagine how many creative options we will uncover once we remove the remaining obstacles to innovation. Obstacles such as continuing to subsidize and protect one traditional energy industry solution while at the same time making it more difficult to research, develop, implement and create demand for alternatives. “Release The Alternative Energy Hounds” and we all benefit.

CONCLUSION

Let’s catalogue what we have agreed upon:

1. Businesses need energy to sustain their business operations
2. Energy cost inflation is driving up the cost of everything in our economy
3. Competition drives down costs
4. We need more competition in the energy market.
5. Businesses need access to more cost-effective energy options
6. Businesses should not be subsidizing other profitable private-sector businesses
7. America is the most innovative country in the world
8. We have developed alternative options and have the ability to develop even more.

Ok, now that we agree on the goals, let’s see if we can understand the depth of the challenge and the available opportunities.

The first criticism of alternative energy options used to be that they are expensive and do not efficiently produce the same energy output for unit cost as traditional energy solutions.
This criticism used to me partially true and partially false. It is true that wind produces less energy than nuclear or coal per btu, however there is no waste and there is no other man-made energy required to get to the energy. Wind farms take up more real-estate however fuel cells do not. Fuel-cells produce more btu’s than solar and about the the same as coal. The point is today there are so many alternatives to choose from and the benefits vary based on your needs and requirements. As we fully develop newer options, American ingenuity will produce a wide selection of the most-efficient and at the same time most cost-effective alternative energy solutions.

However, these old arguments are normally used as a way to slow the progress related to introducing new energy alternatives. By arguing that the old traditional energy options are superior, they hope to slow the adoption of alternative solutions. This assertion is not much different than what the largest buggy-whip manufacturer must have been saying once the first Model T drove down the town’s main street. You will always get resistance from anyone with large market share if you are trying to do anything that might impact their market share. It is the definition of economic NIMBYism – don’t move my cheese. However, any traditional solution may start as the lower cost solution yet once the alternative can reach scale, the cost difference melt away.

I prefer to take the capitalists approach to the question and instead turn it into a challenge. The challenge for America is this: How can we produce the next generation of cost-effective energy options for all Americans to benefit from. What I am looking for is the person or persons that can present me with a plan to do exactly what i have challenged them to do. I will hire that person and tell the naysayer to take a hike. This is how we meet the challenges of Americas energy future.

Stand up for your business. Stop being an energy hostage. Demand more energy options for your business.

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This entry was posted in "We-the-People - 1 Business Dude's Perspective on Current Political Theatre, Energy, Jobs, Politics, Tax Rate Discussion, Uncategorized and tagged , , , , , , , . Bookmark the permalink.

4 Responses to Stop Being an Energy Hostage

  1. btg5885 says:

    Vincent, this is excellent. I agree with your premise and the need to do an all the above strategy depending on the sourcing and access. Thanks for mentioning the tidal energy as well. The only thing I would add is the concerted effort on conservation. Energy not used pays even greater dividends. Well done. BTG

    • vincentmudd says:

      Thanks u BTG. I agree 100% on the conservation comment however what I am concerned about is the impact prices have on behavior because behavior can change. In other words, I may use less water or gas because the price went up. This means I am conserving. However, if prices fall, will you continue to conserve? This is why I am so focused on technology and product related changes. A low flush toilet, satellite weather based irrigation system or a Prius are saving water of energy for every second they are used -regardless of behavior.

      I fully support conservation and will always encourage more of it , ( that feels like a pun). I support systematic changes in products, technology and infrastructure even more because I want the savings baked into the cake forever.

  2. btg5885 says:

    Speaking of low flush toilets, have you seen the Bill Gates challenge to develop a water-less toilet. The innovations were amazing. The key is scalability and affordability, but he is on the right track. Well done.

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