Some Day We'll Laugh About This...

I got a call from my mother last night. As usually, I was immediately worried that something happend to my 6-year-old half brother Nick. As usual, I was right. When my step-father got home, he didn't pull up all the way in the driveway, so when my mother got home, she wouldn't have been able to get her car in. Therefore, little six-year-old Nicholas decided that he wanted to pull the car up himself. My step-father fell asleep, and Nick went outside, opened the door, and got behind the wheel. He didn't know how to start the car, but he did manage to shift into neutral. The car rolled backward out of the driveway, across the street, over the curb, and finally came to a rest in the middle of the neighbor's front lawn. He's fine, aside from being completely terrified.

BP Pipeline Shutdown - Neglected Factors and Incomplete Information

There certainly are many factors that I couldn't consider in my previous post because the data is unavailable.

The most important is the operation cost. Profit is defined as revenue minus costs incurred. The costs that BP incurs are not available, so my post only shows how BP's gross revenue increases. I don't know what the effect will be on the operation cost. To repair the pipeline will certainly cost BP some money, but will it be more than the increased revenue?

There are other factors as well, as this is a greatly oversimplified analysis. For example, for BP's daily oil production, the only data available was the yearly production value, which I used to calculate an average daily value. The actual daily value may not be so constant due to several factors. One factor is something called demand elasticity. Essentially, as the price goes up, the amount that consumers purchase goes down. Therefore, BP's production may decrease as the price goes up. Much like the electricity market, however, gasoline is very demand inelastic in the short term, i.e. as the price goes up, consumers still purchase about the same amount, at least in the short term. Therefore, a short-term increase in oil price is not likely to have much of an effect on the global demand for oil.

A much more complete and scholarly analysis has been promised by the Dark Wraith. As of now, it's not up yet, but I'm sure it will be soon.

Who Really Gains from the BP Alaskan Pipeline Shutdown

Here are some interesting figures relating to the shutdown of the Alaskan pipeline:

Oil prices before the shutdown: $73.75 [link]
Oil prices after the shutdown: $76.98 [link]


BP's worldwide production with the pipeline in operation:
963,000,000 barrels per year, or an average of 2,638,400 barrels per day [link]

BP's gross daily revenue with the pipeline in place:
2,638,400 * 73.75 = $194,582,000

BP owns a quarter share of the oil field served by the pipeline, so they stand to loose about 100,000 barrels per day of crude production [link]. Therefore, their total daily revenue is:

(2,638,400 - 100,000) * 76.98 = $195,406,032

With the higher price, that is $824,032 per day more than when the pipeline was operational. I don't know exactly how much the increased overhead cost to BP will be with the pipeline shut down, but it will certainly be significant, so it seems possible that with the current price, BP will may still lose money. That current price, however, is only the result of the news that the pipeline will be shutdown. When it is actually shut down, prices are certain to rise significantly. If the price reaches $78 to $80 per barrel, BP will take in $3,413,200 to $8,490,000 more per day than with the pipeline operational. If the pipeline is down for 2-3 months, BP stands likely to bring in anywhere from $204,792,000 to $764,100,000 in increased gross revenue if the price of oil is between $78 to $80 per barrel.

Certainly the repairs need to be done, however, had BP not waited until there was an imminent danger of catastrophe, it is likely the line could have been repaired more gradually, with only a minimal interruption in output. I believe that BP's strategy was to wait until the necessary repairs on the line would require a complete shutdown, so that the reduced production would drive up prices, resulting in increased profit. It is a common strategy in other industries as well. Enron, for example, created the energy crisis in California by deliberately taking generating plants off-line for "maintenance." Due to the decreased capacity, there was a predictable spike in energy prices, and Enron's profits were tremendous.

A Theory about the War in Lebanon

By destroying Lebanon, support for Hezbollah has, predictably, only increased in Lebanon. Therefore, the war only hurts long-term Israeli security. So that begs the question, why is Israel at war with Lebanon?

My theory is that it has at least something to do with further justification for sanctions against Iran.

Iran right now is not defenseless militarily. Of course, they don't pose a significant challenge to US hegemony, but their military is significant enough that a war would cost a significant number of American soldiers lives, and so it is not politically feasible. Bullies only pick on those who can't fight back.

Sanctions, however, offer the opportunity to gradually, over the course of several years, cripple the Iranian economy and undermine their military strength, until eventually they are defenseless enough for "regime change."

The problem is, in order to impose sanctions, Russia and China must be convinced not to veto. The presence of an alleged, but largely unsubstantiated, nuclear weapons program was not enough. Until recently, Iranian support for Hezbollah has been largely ignored. By creating such a terrible humanitarian crisis in Lebanon, the US/Israel has forced the UN to act, and therefore, they must address the issue of Iranian support of Hezbollah, possibly convincing Russia and China not to veto.


**Clarification:
The above post was merely speculation about the possible goals of the US/Israel in invading Lebanon. All along, it was my intention to imply that I do in fact disagree with these goals. I apologize if I did not make this clear.

The "Big Box Ordinance"

The Chicago Sun-Times today proudly touted that a new Target store will not be built on the South Side as proof that the Big Box Ordinance is just wrong for the city [link].

Well, isn't keeping these stores out of Chicago sort of the point of the ordinance?

The Big Box Ordinance was not intended to create a living wage for service workers, it was intended to help local business owners by keeping the big chains like WalMart out of Chicago. Target deciding not to build a store in Chicago is exactly the effect of the ordinance that we should hope for. If we want to create a living wage in Chicago, we can't limit legislation to companies that can just as easily go somewhere else.