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On Hole Cards, Or, “Drill, Baby, Drill”? Why? Is Canada Out Of Sand? May 25, 2011

In America, today, there are three kinds of drivers: those who look at the other gas pumps down at the ol’ gas station and think: “Oh my God, I can’t believe how much that guy’s spending on gas”, those who look at their own pump down at the ol’ gas station and think: “Oh my God, I can’t believe how much I’m spending on gas” – and those who are doing both at the same time.

Naturally, this has brought the Sarah Palins of the world back out in public, and once again the mantra of “Drill, Baby, Drill” can be heard all the way from the Florida coast to the Arctic National Wildlife Refuge.

But what if those folks have it exactly backwards?

What if, in a world of depleting oil resources, the last thing you want to do is use yours up?

To put it another way: why isn’t all our oil part of the Strategic Petroleum Reserve?

Consider the inexorable logic of the Big Lie. If a man has a consuming love for cats and dedicates himself to the protection of cats, you have only to accuse him of killing and mistreating cats. Your lie will have the unmistakable ring of truth, whereas his outraged denials will reek of falsehood and evasion.

–From the book Ghost of Chance, by William S. Burroughs

So here’s the thing: we produce a surprising amount of our own oil right here in the USA (in fact, we’re the world’s third-largest oil producer), but we don’t produce enough to cover our current use, and that’s why we import about half of the roughly 19 million barrels of oil we use daily. The vast majority of that is used in vehicles or for heating; almost none is used to generate electricity.

Our largest suppliers of oil, despite what you might think, are not all from the Middle East: instead, it’s Canada, Saudi Arabia, Mexico, Nigeria, and Venezuela, in that order.

(Perhaps you’re thinking: “Canada? Oil?” Yes. Canada and Oil. They provide us with more than twice as much as Saudi Arabia from huge “oil sand” resources, primarily in Alberta; the exploitation of those resources has created a huge environmental controversy.)

Now if you ask me, an ideal situation would be one where we decided to get out of the business of using oil altogether – and to help make my point, we have some helpful numbers from a guy that you pay every day to figure this stuff out: Mark Doms; he’s the Chief Economist for the US Department of Commerce, and, to paraphrase Little Feat, he’s always handy with a chart.

According to Doms, 60% of our 2010 trade deficit (about $265 billion) represents the cost of imported petroleum products, and if things continue through December as they did the first three months of this year, in 2011 every American, man, woman, and child, will pay a “tax” of about $1000 to import all that petroleum.

Do you know what we, individually, spend on gas? In March of this year, the average household spent just over $300 on that month’s gasoline; 5 months ago that number was $56 lower. The way it works out, every time gas goes up 10¢ a gallon, it costs the average household another $7 a month.

And that’s not all: less than half of the total cost of imported oil is paid at the pump: about 44% of imported oil is used by businesses; another 15% is used by governments across the USA, and that means almost 60% of the cost of imported petroleum is “folded into” the price of everything else.

(A quick author’s note: you’ve seen the words “oil” and “petroleum” used liberally in this story; the exact literal reality is that in each instance we should really be referring to “petroleum products”, and that’s because we import and export not just crude oil, but a variety of other petroleum products. I get tired of using the phrase “petroleum products” over and over, and I’m probably using “oil” and “petroleum” more interchangeably than I should.)

So get this: if we were out of the importing oil business, we’d save about $300 billion a year – and as it turns out, over a 10-year period we could actually convert the entire US auto fleet to electric cars powered by windmills by providing $15,000 cash “buy-outs” for today’s 135,000,000 gasoline cars and building the wind generation and “smart grid” we’d need to support the effort…and doing all that would cost…wait for it…about $250 billion a year.

If I get the math right, 20 years after we first started building windmills and subsidizing cars, everything would be paid off; and every year after that the US economy would generate a $300 billion “profit” on our investment – unless the price of a barrel of oil goes up. If it does, the amount of money coming back to our wallets every single year from then on, obviously, also goes up.

And if we were out of the “using oil for driving” business, once everything was paid off we could put almost $4000 a year (in today’s dollars) right back in the pocketbooks of every family in this country – which, if you ask me, represents a pretty good “tax cut”.

Let’s also keep in mind that any new oil drilled on our public lands might not necessarily end up in the US; that’s because even if oil companies were 100% free to “Drill, Baby, Drill” in our waters to their hearts’ content…they’d also be perfectly free to sell as much of that same oil, anywhere in the world, to whatever entity might end up being the highest bidder – and today, our friends in places like India and China are desperate to be that high bidder.

Put all of this together, and you get back to the question I posed at the top of the story: why in the world would we be in a hurry to “Drill, Baby, Drill”, when we could, instead, put all our efforts into getting out of oil, which would save us so much money that the conversion pays for itself?

Then, when oil’s running $400 a barrel or so, let’s use our oil to pay China back the trillion dollars we owe ‘em…which, at current production rates, would only take about 400 days, assuming it were possible to divert all our production for that purpose.

To state it a bit more ironically, it may be that the smartest thing we can do right now is to conserve every possible drop of oil we have…until we don’t need it any more, and it becomes a sort of Strategic Cash Reserve that can help strengthen the dollar and reduce the national debt in the years to come, both at the same time.

Or to put it another way, the next time someone tells you they want to “Drill, Baby, Drill”…you can step right up, look them square in the eye, and ask: “Why do you hate America?”

And won’t that be fun?


On Making Coal Mining Safer, Or, “It’s The Fines, Stupid!” April 8, 2010

Filed under: Coal Mining,Economics,Labor Issues,Mine Safety — fakeconsultant @ 3:24 am
Tags: , , , , , ,

By now more or less everyone is aware that there has been a disastrous mining accident in West Virginia this week.

There are many people dead, and at the time this is written it is still possible that survivors might be found.

We don’t know much about why these disasters happen, for the most part, and we don’t really understand how to make things better.

Today, I’m here to fix some of that.

By the end of today’s story, you’ll understand a lot more about why people die in mines than you do now—and as an extra bonus, we’ll also discuss a radical new way to bring market forces into the process of making mines safer.

“…Death is still working like a mole,
And digs my grave at each remove:
Let grace work too, and on my soul
Drop from above…”

–George Herbert, Grace

As so often happens, we’re going to need to cover a bit of background: a bit less than half of coal mined in the US is found underground, and no matter how you go about it, mining coal is pretty frightening.

The “room and pillar” method of setting up a mine sounds like what it is: you clear out a large underground space, but you leave “pillars” of unmined ore to support whatever might be above, which could be additional levels of “rooms”, or it could be the mountain itself—but it’s most likely to be both.

“Longwall” mining involves removing far more material than room and pillar mining, and to make that happen the roof immediately adjacent to the mining equipment is braced. Eventually that bracing is removed and the roof is allowed to collapse behind the miners as they leave the mined space.

Here’s a video that illustrates the technique, courtesy of the Government of New South Wales, Australia’s Mine Subsidence Board:

If you can picture a five foot tall, 20 foot wide, spinning cylinder with giant teeth that can move up and down, attached to a low-slung tractor, you have a pretty good idea of what the continuous mining machine that’s used in room and pillar environments looks like.

Longwall machines have a spinning head that travels the length of the wall being mined; as a result these machines can be hundreds of feel long…or across, if you prefer.

The mines are accessed by different types of “shafts”. Some shafts are drilled diagonally into relatively shallow mines. Deeper mines are accessed with vertical shafts, which can reach down 2000 feet or more; additionally, there are conveyor systems, sometimes miles long, that move the ore up to the surface for processing.

So what can go wrong?

The first problem is dust. Coal dust is highly combustible (and the smaller the dust particles in any given volume of air, the more explosive potential exists), and there are lots of ways to create it: the mining machines create clouds of dust as they attack the walls, the conveyors carry dust through the mine, and vehicles stir up dust on the floors, to name just a few.

Once the dust is in the air, in sufficient quantity, any spark could cause an explosion—and just operating the machinery in the mine creates lots and lots of sparks.

(The presence of dust is also associated with black lung disease, but that’s a story for another day.)

The region of the country, oddly enough, has a lot to do with how much, and what size, of dust you’ll be dealing with in your mine, and mines in each District under the Mine Safety and Health Administration’s (MSHA) jurisdiction have their own particular dust characteristics.

It’s possible to monitor the air, in real time, and there are devices that measure how much explosive potential exists in the rock that’s in the chamber with the miners.

Coal dust can be controlled, first, by mixing it or covering it with other nonexplosive dust (finely ground limestone is often used for this purpose), and by getting water on the dust to keep it out of the air.

There are all kinds of considerations that determine how well “wetting” the ever-present dust clouds will work, including the surface tension of the liquid, droplet size, dust size…well, anyway, it’s a complex business, and the results have been pretty hit-and-miss.

There is good news: an experimental “water curtain” system is now coming into the field that offers the potential to reduce dust to 50% of the levels seen with today’s systems.

Oddly enough, no one thought, for the longest time, that dust was even a hazard—until November of 1963, when the worst known mine disaster in history killed 1,197 workers at Japan’s Miike coal mine.

Methane is the second big hazard. Concentrations above 5% are dangerous, and MSHA limits acceptable methane levels in the mines to 1%. The risk, as MSHA succinctly puts it, is from “frictional ignitions”, just as it is with coal dust.

Here’s what the folks at have to say about all this:

“…The problem is that methane is unavoidable. When you mine coal, you expose fissures and pores in the coal bed in which methane is lying. Therefore, you cannot help but release into a confined area a gas that is not only highly flammable with the potential to violently explode in a ball of flame but one that is also an asphyxiant, capable of driving out oxygen and causing death by suffocation…”

You’ll notice methane actually causes two problems: it can kill you if it blows up—and even if it doesn’t, just the presence of enough methane in the air can kill you.

The very imperfect solution here is ventilation—but the “forced air” ventilation requirement can be reduced considerably through the use of boreholes and “bleeders” to vent methane away from work areas using natural drafts.

The third reason people get killed in mines has to do with “geography”.

What I mean is that, instead of an explosion, the mine either caves in or floods; the one usually caused by removing pillars unsafely, the other sometimes caused by hitting unexpected pockets of water (the Quecreek Mine in Pennsylvania was flooded in just this way).

So here’s the thing: making life safe in this amazingly dangerous environment is amazingly expensive, and the common wisdom has been that if you’re running a mine it’s probably cheaper to let the MSHA folks levy a few fines—and to let a few miners die—than to really do what needs to be done to protect those workers.

That’s why, sometimes, mines consist of two mountains: the mountain that’s being bored into, and the mountain of violations that pile up over the course of a few decades of unsafe behavior—a mountain so large that sometimes even Fox News feels compelled to weigh in on just how bad things have become.

And that’s how we get to the “proposal” part of my proposal.

Now I know this is going to sound obvious: but if it’s cheaper today to violate the rules than it is to comply…well, why not make it more expensive to violate the rules than to comply?

Here’s what I mean: If a mine is missing a piece of safety equipment…say, the amount of ventilation is found to be insufficient…and the cost to mitigate the problem is $100,000…then let’s set the fine at $150,000, per day, per occurrence.

If it becomes known to MSHA that the new water curtain system is the best way to go, mandate that it be adopted—and once again, set the fine for failure to comply at 150% of the cost of compliance.

Now here’s the good part: we do not have sufficient personnel at MSHA to inspect all these mines…but we do know how to get those folks out there, and how to fund them, all thanks to the War on Drugs.

Travel through Texas, or Florida, or Tennessee, and you may very well find yourself being pulled over by a cop who basically earns his living shaking down those he is able to catch with drugs.

Seizures of cars and cash are the motivation here, and many of the drug task forces (as well as quite a few “traditional” law enforcement agencies) are highly dependent on this type of funding.

As you might guess, this creates…aggressive…officers, who are hustling, like crazy, to bring in all the income they can.

Well, I thought to myself, why not apply the same model to mine safety enforcement?

Why not create a “Mine Safety Task Force” that would be empowered to enter and inspect any mine at will, would be free to find each and every violation that might possibly exist—and who would have a financial stake in finding and fixing violations?

Now you might say to yourself that this could create people who cause way too much trouble for the mines—but if your father or brother was lying dead in that mine…if maybe you were next…would you think maybe causing mine owners some trouble they have never had before might be a pretty good idea after all?

One additional step: closures.

In addition to fines, there should be mandatory mine closures (with the mine providing pay to workers during the closure) for particularly egregious violations, or for patterns of the same violation over a long period of time.

What does all this do?

It makes the Power Of The Free Market into an enforcement tool, as it’s no longer cheaper to violate safety rules than it is to obey them…and what Good Conservative Mine Owner wants to tell America, out loud and in public, that they no longer believe in the free market?

So there you go: we now understand why these accidents occur, and we now have a plan that makes it too expensive to kill workers as a cost of doing business, which is a huge change from what we seem to be doing now.

What’s not to love?