Comments on Brian Duncan’s “Oil Company Risks”

I think Brian did a great job explaining the risks that oil companies are facing, such as reduction in skilled labor and tight debt markets. This has resulted in leveraged project difficulties as well as scarcity of materials like steel and concrete. However, this article made me wonder about possible solutions that can help us improve our current situation.

The U.S. is the largest oil consumer worldwide. 68% of oil was purchased by consumers and industries. We have been extremely dependent on oil for hundreds of years. Now, oil prices are over $108 per barrel. We are desperate for alternatives.

First of all, oil companies have 10 years of reserves under ground. They are not facing scarcity issues, so investing more money for alternatives doesn’t make financial sense. To them, no alternative makes them profit.

The Hybrid car is not the solution. Most people can’t substitute their car for a hybrid car because of the cars $30,000 or more price tag makes it unaffordable.
Ethanol is not the solution either. It takes more energy to produce ethanol than it can actually yield. It takes acres of corn to produce just a little ethanol. Here is the equation:

11 Acres = 1 year’s oil supply for 1 vehicle

If we want to produce enough ethanol for every vehicle on the road, we will have to cover 97% of farming land with corn. That is not possible at all.

We might be able to reserve tar sand like Canada does. It takes strip mines to get at the goo, called bitumen, which must then be heated with steam and hot water, and then processed with caustic chemicals. It can be harmful to our environment in the long run.

I believe the way to get rid of the oil dependency is to change our life style. We must use more coal, and take public transportation. We need to stop using oil like we have in the past. Use natural solar energy, such as sunlight, wind, and water as alternatives. It takes everyone to make it happen. From saving empty plastic bottles to using a car pool, we all need to start to conserve. It might be a little too late. However, we are left with no other choices.

http://www.energybulletin.net/1253.html

http://www.cbsnews.com/stories/2006/01/20/60minutes/main1225184.shtml

EF2 tornado hit Atlanta

Last night, Atlanta was hit by an EF2 tornado. We haven’t seen a tornado like this for decades. The Georgia Dome, CNN, Equitable building, Philips Arena, and the Western hotel were all damaged. At this moment, downtown Atlanta is still in a big mess. Firefighters are cleaning up the streets and rescuer teams are working night and day to help victims recover from the storm.
The City of Atlanta officials estimated that the damage was roughly $200 millions. The Georgia Dome had damage of about $150 millions. There was more damage all over the Georgia counties that hasn’t been reported yet. This was a tragedy for many people who were hit by the storm. I was actually driving on I75 toward downtown Atlanta at 9:30p.m. To me, it was horrifying. I was not able to see outside the windshield. The hale was so heavy and it almost damaged my car. I turned on my emergency lights. I had to stop on the highway a couple of times just to avoid an accident. That was the worst storm I have ever experienced.
We talked about weather risk the other day in class. It is a component of financial risk and is unavoidable. A lot of the rebuild will be paid by insurance. However, there is still some basic risk, which is the cost that is not hedged, such as the time it will take to recover, the inconvenience that victims will have to go through, and the mental scars.

http://www.myfoxatlanta.com/myfox/pages/News/Local?pageId=3.2

http://news.yahoo.com/s/ap/20080315/ap_on_re_us/atlanta_storm

Economy Upgrade

My biggest concern is becoming a reality. We are in a recession and the stock market keeps experiencing low points day after day. Some economists say that Wall Street is close to its bottom; others disagree. The stock market is still volatile. One aspect that drives the stock market to fall is the consistent withdraw of many investors.
Credit risk is also hurting the economy and perceptions. Banks and other lenders have tightened their standards for credit approval and consumers are feeling the credit crunch. The credit market will play itself out before it can turn back around.
The Fed will have another interest rate cut next Tuesday. We don’t know how much the cut will be. Experts say it can be up to 1 full point. The lower interest will work as a cushion for our recession. The prime rate is 6% now. It will help borrowers with adjustable loans to reduce their monthly payment. Another Fed cut is less likely to pull us out of the depressed economy.
The U.S. dollar has also been dramatically depreciated over the past year. Based on today’s exchange rate, $1 = 7 Yuan and $1 = 0.6 Euro. That made the record low. We don’t know how long it will take for us to get out of the recession at this point. I hope we can pull our way out someday.

http://biz.yahoo.com/ap/080315/wall_main.html

http://biz.yahoo.com/ap/080315/fed_interest_rates.html