Allen Gilmer and Ramona Hovey at Drillinginfo's Energy Strategy Partners group sent me a preview of a study they are doing about well head gas pricing in Texas that they claim is ambiguous. I beg to differ. Click on the thumbnails to the left and take a quick look. Now sit back and let me tell you a story about Carrot Farming, and, when you finish it, click on these pictures again and leave a comment for the wolrd to see.
Wilbur Maynard here. Friends call me Dub. I do some carrot farming down the valley. I know, I know, it ain't sorghum or spinach, or some t'other crops the valley's famous for, but it's a livin'. Or was.
You'd thinks carrots would be easy... don't rot very easy, easy to truck... see, Chicago and the east coast, they looooove carrots. Especially in the winter time, when they make all that carrot salad. The going rate for a bushel of carrots up there is usually near $3-4 a bushel in the winter time. There is also a carrot clearinghouse where all the carrot buyers go near Monroe, Louisiana. We call it the Bugs Bunny Hub, and you could usually sell your carrots for about 9o% of what you could sell 'em for in Chicago. Me and daddy used to do that some.
There used to be a guy who would come by during harvest time who would pay us "Bugs minus a nickle". Saved us trucking them, and made some sense. He either sold 'em at Bugs Bunny or he would move 'em and a bunch others up the line.
He sold out and another guy started comin' by. Fella named Tex Yew. He only offered me 75% of Bugs, which by my counting, was a WHOLE lot of nickles less than Bugs. He said things were changing... we had a free market now, which apparently meant only that I get paid less for our carrots relative to Bugs. I asked the man, "Where you get all that? I thought free and open markets brought competition and thus middleman margins down?"
I mean, I am not an educated man, I was just quotin' some of the smart college fellas at the diner in town about the free market stuff. I figured that them smart carrot and toy train commissioners back in Austin who oversee this stuff must know all about that, is what I thought. But I was real concerned because, hell, this winter, carrots were going for about $10 a bushel, up from $0.90 a few years back, and 25% of 10 smackers is a whole lot more than a nickle.
"You damn carrot farmers are sure a greedy bunch. You've been gettin' a free ride all these years, usin' gummint handouts and such, and now you are complaining? I tell ya, it just makes me mad... makes me want to whup you. Didn't you hear me, boy? Tellin' you 'bout the free market... you a communist?" is what 'ol Tex said to me.
Well, I told ol' Tex to get his fat ass and his $100 dollar cigar the hell off my property. I'm gonna go to Bugs and sell my own damn carrots, thank you very much, is what I told him.
"You ARE a dumb hick", he sneered. "You only got the one road that comes by your farm, and I bought it from the county when we all got the Free Enterprise. No more gummint handouts for you, boy. The toll for hicks is a goddamn dollar a bushel!"
Well, I was a might taken aback, because, see, I had never had anyone do business with me thisaway. Especially when they wanted to buy MY goddam carrots!
How much you charging Charlie next door to move his carrots? I asked.
"What? Jesus H. Christ! Explain to me how that is any of your damn business? We got a deal or not? I don't have all day." old Yew said to me.
I figured I was outfoxed here, since the old SOB apparently owned the only road by my farm, although I admit, I was havin' trouble figurin' out what part of this was the good ol' free markets that was so efficient that I learned about in school. I told him I would pay his damn dollar, 'cause it was a damn sight cheaper than the $2.50 he wanted to charge me before.
I loaded up my truck and started off. Sure enough, not two miles down, stood a toll booth . The fella in the booth looked me and my truck over real slow like and said, "Friend, toll'l be 'bout $2.00 a bushel".
Friend, my ass, is what I was thinkin, but I responded I think you are mistaken. I just made a deal with your boss Tex for a $1.00 a bushel.
"Yeah, but that was for just moving 'em on down the road. The other $1.00 is for road maintainence", he told me. "Gotta make a profit, you know".
But this road hadn't seen any kinda road crew in right near 10 years! You got potholes amd washouts all up and down it! is what I said to the man.
"Exactly", he says, "thats why you need to pay the maintainence. How is it gonna be fixed unless you pay to fix it? It's called the User Pays deal. You lucky your trucking yourself, cause then ol' Tex would have charged you another $1 a bushel for carrot loss, since a lot of carrots get knocked out of our trucks bouncing around these potholes", he added.
Well, I just paid the ol' boy, glad to get on to Monroe and Bugs. Mebbe this awful headache would go away if I could get away from this ol' boy. As I pulled onto the state Highway 4 miles further, lo and behold, if there wasn't another damn ol' toll booth!
"Hello", said the toll both lady. "You aren't carrying a whole lot of carrots today" she smiled.
No, ma'am. I just got me a section spread. Not like the big guys.
"Well, since you're carrying less, I'm gonna have to charge you more per bushel" she says.
Now, how is that? I got a smaller truck, a lot less wear and tear on your road here... why is it more? I said to her.
"Well, you see we need to recoup the cost of my time of you paying me. See, a big load coming through takes the same amount of my time to collect the toll as a a small load like yours so it makes a lot more economic sense for me to spend my time collecting tolls on only large loads unless, of course, you pay me to make up the difference" she smiled sweetly.
Now how could I argue with that? I figured I was learnin' big time College level economics today. Hell, maybe even college Doctor level! I asked her... Just how many more of these ol' toll booths are there between here and Bugs?
"Don't rightly know. Our part is the next 14 miles. That's all I can really tell you."
This road owning business was looking like a whole lot better deal than being a carrot farmer to this ol' carrot farmer, I was thinking to myself. Who owns this stretch? I ask.
"It is owned by State Hiway 214, LLC" she says.
No kiddin', and who owns that?, I ask.
"Why, its owned by ol' Tex Yew. He bought up all these roads around here. Clever son of a gun he is, 'cause everywhere there is an intersection, he put each stretch into different companies, so that each can collect tolls on each part. Now, don't get me wrong, we don't collude with each other or nothing, because that would be wrong and illegal. Each of us are free to set our tolls however we see fit in order to maximize the revenue to Tex. Its free markets at work! This is bona fide... approved by FART, you know, the Federal Administration for Road Travel, if you don't believe me."
Holy mother of God! is what I was thinking to myself. How many different roads would I need to take to get to Bugs? I was trying to count them in my head, but I was getting dizzy.
Uh, how much these tolls usually run? I asked the lady. I mean, for each road?
"That all depends!", she said. "Depends on what you negotiate."
I didn't pay the lady, I just turned the truck around and drove it back to the farm, but not before the guy on the county road toll booth pulled me over and charged me another $0.85 per bushel to get them back. He said he didn't see a lot of traffic this direction, but needed to collect a toll either way.
I got home, and called up Tex and said You are a bad man, Tex. I'm thinkin' about callin' me a lawyer.
"Bring 'er on, boy. I got me a hunnert lawyers, and the best part about it, I get paid more if you sue me!" he laughed.
How you work that? I asked.
"'Cause I am also a Carrot Utility... I provide all the carrots to north Texas carrot salad makers. Luby's mostly. A course I have to compete with the other Carrot utilities, it being a free market and all. But as a Carrot Utility, I get paid on a cost plus basis, and the more money I spend on lawyers, the more costs I have, the more dollars I make! And hell, if in the snowball chance in hell you outlast my set of tricky dicks, I get to pass that along as a cost too! Damn, I looooove the free markets!" explained Tex.
I told ol' Tex Yew to just come pick up his damn carrots.
"I can only pay you 65% of Bugs now", he chuckled.
Fine, I said. Just come get 'em. I have a property note due and my kids need their school stuff.
"Mebbe only 60%" he added.
Whatever. Its yours. Come get it. What choice do I have?
"Now you are talking like a true American", says ol' Tex.
"Free markets, and all" I added.
So, readers. How you like them carrots? When Allen and Ramona forwarded me their study, they told me that it was ambiguous... that local markets, like Houston Ship, Waha, and Agua Dulce were decoupled from Henry Hub, so you couldn't make a definitive conclusion from the results.
Well, Allen and Ramona. I can. In a free market, goods go to where they can be sold for the highest net price. Oil, since it can be trucked or shipped, or railed, or pipelined, has a world market value that reflects the cost of transporting like-quality crude to that location. If gas sell for 22% less in District 2 relative to Henry Hub today than it did 3 years ago, that means that the cost to transport that gas to where it could get Henry Hub prices went up by that differential. Period. Not "local markets" and all that other BS. When you look over the graph and the map from the study, you will see that producers, royalty owners, and that goddam sickening political abstraction " The Schoolchildren of Texas" are taking it hard in the shorts... paying a 12% on average penalty for producing gas here at all. Some more fiery temperments might say that the "School Children" part of this equation makes what is happening here pedophilia, but not me. I am much more circumspect.
I hope the Carrot and Toy Train Commissioners think about this as they continue to line their general accounts with Utility money and send their staff to smirk and poke each other as they roll their eyes and make googoo eyes at the pipeline lobbyist, the estimable Mr. Nugent, while producers testifies. "Need a ride back to the commission, Mr. Nugent?" one asked on the way out. Those staffers know who I am talking about. Don't think I didn't see it. I was sitting right in front of him.
Anyone can use all or part of this and can retransmit as they see fit.