Monday, August 02, 2010

Oil -- Builds Economic Strength in Many Ways

To no one's surprise, oil remains a primary source of energy. The Gulf of Mexico oil leak did nothing to change our demand. Oil is holding onto its dominance because there are no competitive alternatives or substitutes. Sure, it's possible to power cars with natural gas -- and the government should urge auto-makers to build more natural-gas powered vehicles -- but no other fuel matches oil for cost and versatility.

Sure, we could use more ethanol -- if we opened our economy to imports. Brazil has plenty to sell us, if only we would remove the import tariff that makes their product at least as expensive as our domestic product. Unfortunately, diverting huge quantities of corn away from animal feed and into ethanol production has led to increases in the cost of animal feed. In turn, those increases have led to higher food prices. If we were to eliminate the tariff on ethanol imported from Brazil, we would see a drop in many food prices and an increase in ethanol mixed with gasoline.

Furthermore, without oil the airline industry would crash land. Never will we see an electric airplane.

If we were to mix more ethanol with gasoline, we would reduce our need to import oil from nations that are enemies of freedom.

Meanwhile, if we were to increase our domestic oil drilling activities, we would further reduce our need to import oil from muslim and other unfriendly nations. Moreover, when it comes to paychecks, oil industry jobs pay at least double the national average. What are we waiting for?

Gulf Spill Triggers New Oil-Field Work

Cameron International Corp. could emerge as an unlikely beneficiary in the Gulf of Mexico oil spill

The company came under intense scrutiny in the first days after the Deepwater Horizon drilling rig exploded April 20, killing 11 workers and sparking the worst offshore oil spill in U.S. history. Cameron built the rig's blowout preventer, a critical safety device that failed to shut down the well.

In the weeks since the disaster, however, investigators have focused on decisions made by BP PLC, the well's primary owner, and Transocean Ltd., which owned the rig and the blowout preventer and was responsible for their maintenance.

Now, it appears the disaster could help generate new sales for Houston-based Cameron, which reports second quarter earnings on Wednesday. In the wake of the well accident, regulators in the U.S. and overseas are expected to require stronger, more reliable blowout preventers. Oil companies, fearing liability, also are looking to beef up their safety systems even before any new rules go into effect.

Other major manufacturers of oil-field safety equipment are already seeing increased business. Oceaneering International Inc., which makes deepwater drilling equipment, including the underwater robots that monitor and control blowout preventers, last week said it anticipated increased demand for its products due to the Gulf disaster. On Thursday, executives from National Oilwell Varco Inc., the second biggest maker of blowout preventers for offshore rigs after Cameron, said they are ordering new equipment to meet a surge in orders for new or enhanced blowout preventers.

National Oilwell Varco Chief Executive Pete Miller said the company is also developing a new, more powerful blowout preventer that had already been in the works before the Gulf disaster. He said the device will be able to cut tougher drill pipe and require less hydraulic force to operate than previous models.

Mr. Miller also said he expects to see more business for maintaining safety equipment. Investigators into the Deepwater Horizon disaster have uncovered signs that the rig's blowout preventer was modified after it was built and may not have been properly maintained. Transocean has said it conducted all required maintenance.

Cameron's stock tumbled more than 30% in the weeks after the spill began. It has rebounded somewhat since then, but remains well below its pre-disaster level. Jim Crandell, an analyst with Barclays in New York, said Cameron maintains a strong reputation in the industry and shouldn't suffer in the long term. Cameron declined to comment.

Two other companies with ties to the Gulf disaster, Transocean and Anadarko Petroleum Corp., also report earnings this week, and may not fare as well as Cameron.

Transocean, which releases its results on Wednesday, has faced increased scrutiny in recent weeks as investigators have probed its maintenance practices and the decisions made by its workers aboard the rig. Transocean has defended its workers and said BP was responsible for most major decisions on the well.

At the same time, Transocean has also suffered from the Obama administration's deepwater drilling moratorium. Transocean, the world's biggest deepwater driller, is battling with customers that are trying to cancel contracts due to the moratorium. Even when the moratorium is lifted, the company and its competitors are likely to see increased costs due to tightened maintenance requirements and higher insurance rates, says Arun Jayaram, an analyst with Credit Suisse in New York.

Anadarko, which owned a 25% stake in BP's well, is unlikely to see the effects of the spill in its second quarter earnings, which it will release Tuesday. But The Woodlands, Texas, company could ultimately face huge costs.

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