A most pleasant holiday in the company of the journalist who covers Oil, Big and Small, for a major news organization set me to musing.
Is there such a thing as Small Oil?
Having proved his mettle as the journalist covering the industry that extracts methane gas from coal beds, our Thanksgiving guest had been recently immersed in learning how his new field works.
Fortunately, he didn't talk much shop over the turkey and stuffing. If he had, it would have been like having Stephen Hawking across the table talking quantum physics. A bit over my head.
I know, for example, that a barrel of crude today costs $82.34 US, down 21 cents from the day before. But that's about it until the stuff, having been refined into fuel for my old pick-up truck, reaches the local gas pump, where it costs $2.61 per US gallon. These things I understand even if they do involve numbers. Everything else is a mystery and involves other, bigger numbers; enormous numbers; staggering numbers. I do not handle big numbers well, which is one reason why I have never invited Stephen Hawking to dine with me on Thanksgiving Day.
My clumsy musings after our guest's occasional remarks about the Awl Bidness raised a plethora of questions.
The United States military is by far the world's largest consumer of petroleum. The largest by so far that if you stood on the flight deck of the USS George Washington in the Yalu Sea and looked toward the second biggest user, you'd need the Hubble telescope to see it as a speck in a nebula dwarfed by a black hole. U.S. military consumption of oil is a very big number indeed.
Now, if you consider that each barrel consumed by the U.S. military costs $82.34, and do the multiplication, the result is a number so large that. . . . oh, my, that what? I suppose if you transmogrified the dollars into inches and imagined a coil of rope that long, you could dangle it from the tops of all the peaks in the Himalayas and still have enough rope left over to dangle from the highest building in Texas, which happens to be where our journalist friend works.
What kind of contracts do they have for all that military oil? They must have contracts. The captain of the George Washington doesn't just park next to a pump off the coast of South Korea and fill 'er up. Somebody, probably in the Pentagon, has worked up a contract with somebody, probably in Texas, to determine how much of our tax money will be involved in filling up the aircraft carrier, and all the other things the military uses that run on gas, not to mention the oil to lubricate them and generate the energy that lights the Pentagon, and all sorts of other stuff.
What are all those contracts worth? Who, if anyone, oversees the guy who negotiates them? What relationship do they have, say, with the kind of money that Texicans like Tom DeLay launder? Does Texas have a secret laundering process that cleanses money without leaving it all soggy and yukky? Or is this all funny money, like derivatives and toxic assets and Monopoly? Sometimes in places where lots and lots of money is involved, some people are tempted to do things that are, well, you might say, a wee bit shady. Might that happen every now and then with military oil contracts? Just asking. Then there's the entire matter of our foreign policy and whether there's a sort of Tinker to Evers to Chance connection between, oh, pick one . . . launching wars in the Middle East and the quantity of oil our military uses. Just meandering, not even asking. Back to smaller matters and numbers I can deal with.
I have concluded that there is such a thing as Small Oil, but it's relative. Small Oil is the gas that I pump into my pick-up. I used to pump it from a place on Highway 28 near the Interstate. It was the highest-priced gas in town but it was convenient. Then a discount outfit moved in down the block and began selling gas 20 cents a gallon cheaper than my station. Now my station has the cheapest gas in town, always beating the price of the discount guy down the street by a penny.
The company that makes the gas for my station had profits -- profits, mind you, not sales -- of 600 million dollars last year, which is Small Oil. Big Oil doesn't even begin counting profits until they reach a billion or so. Yet my station didn't even flinch when it cranked down its prices to match the discount competitor's. What's 20 or 30 lousy pennies per gallon among friends?
If Small Oil has that much pricing leeway, and still makes a tidy profit (the CEO got a huge bonus last month), how much pricing leeway does Big Oil have? Exxon Mobil is, after all, the most profitable corporation in the history of profit. As certified patriots with Support Our Troops stickers on all their tanker trucks, does Big Oil knock 20 or 30 cents a gallon off the going price for their military customers? Probably not.
Oil contracts must be different from other military contracts. Buying three or four hundred Stealth airplanes that will be obsolete in 10 or 12 years is one thing. You can always recycle the scrap metal, or whatever they're made of. Sure, you get the occasional $1,000 hammer or $10,000 toilet seat but who, other than Russ Feingold, ever blinked an eye? Small spuds, bud.
But when you talk about the biggest consumer of petroleum products on the whole bloody planet, and you're talking about $82.34 per barrel at the wellhead, you are talking serious money.
How serious? Maybe our journalist friend will explain it next Thanksgiving. Or the one after.