Open Choke is the nom de plume of an anonymous oil and gas industry executive.
Open Choke's ideas and opinions do not necessarily represent the ideas or opinions of Drillinginfo.com, its owners, or employees.
I was reading some of my pre-"blog" columns and want to republish the best of 'em with some slight editing and rewriting to make 'em better. This came from January, 2003
My dad gave me a book called "Down By the River" by Charles Bowden, and I decided it was one of the best books and best WRITTEN books I have read in years. The topic of the book is the illegal drug trade between the US and Mexico.
A few interesting statistics about the illegal drug bidness...
Mexico's income from the drug industry is $27-$32 billion per year (according to U.S. intelligence sources), which is equal to or greater than 10% of Mexico's gross domestic product... $200 billion GDP in 1995!
Mexico legally exports $20 billion, but has debt service of $25 to $35 billion per year, so without the illegal drug trade, Mexico would be dead tomorrow.
Prior to 1968, Mexico had no real debt. That all changed in the Luis Echeverria administration when Mexico began piling on the red ink for populist give-away programs... you know, what people do when they want to buy votes. His successor the "dog" Lopez Portillo (because he said he would fight like a dog for Mexico's economy) choked Mexico on that same debt. Take away the $30 billion per year of illegal drug money, and Mexico's economy collapses at a depression level rate of -6% per year instead of its current growth rate of 5%.
The illegal drug trade provides 3 to 4 times what Pemex turns over to Mexico each year $27-$32 billion per year compared to $7-$8 billion per year.
A report from Mexico's Centro de Investigaciones y Seguridad Nacional states that if the drug business were to vanish, the Mexican economy would shrink by 63% and the US economy would shrink by 19-22%.
The State Department's Bureau of Intelligence and Research clarifies the economics of the cocaine trade. The leaf costs $650 in Peru, after lab processing in Columbia, the cost is $1,050, in Miami it is $23,000, wholesale Chicago is $33,000, and broken down and sold brings in $188,000 retail. And we bitch about pipeline takes.
El Paso banks bring in deposits ofover $700 million per year that cannot be accounted for from the local economy. San Antonio runs $3 billion per year over the legal economy. Brookings Institute report "Global Habit" notes that US and Europe spend around $122 billion per year on heroin, cocaine, and marijuana. After laundering, $85 billion is invested in business, meaning the outlaw drug trade is larger than the Ukranian or Kuwaiti Gross Domestic Products.
U.S. Congressional investigators concluded that US and European banks launder betwen $500 billion and $1 trillion per year of "dirty money"... not including real estate transfers, bogus security titles and wire fraud. For comparison, the GDP of the Netherlands is $625 billion with Australia, Russia, Mexico, India, Brazil, South Korea, and Spain fitting snugly within the $500 billion and $1 trillion limits.
How do these numbers compare to the oil business? Solomon Smith Barney and Lehman Brothers just released reports forecating global E&P spending of $130 billion...
.... or, how about ExxonMobil's 2002 revenues of $187.5 billion in revenues, or Royal Dutch Shell's $177.281 billion, or BP's $148 billion... or, alternatively, the sum total of the US crude oil consumption is $150 billion per year at $25 per barrel.
Pretty startling, the size and scope of this "enemy" with whom we are at "war".
But you want to know what bothers me the most about these stats?
The contrabandistas don't pay any taxes!
They don't have the collective power of federal, state, and local bureacratization to choke them to death with poorly concieved, economically nonsensical, arbitrary rules and regulations the rest of us have to live with.
Finally, these folks don't have to pay the US plaintiff attorney business tax (estimated to be 30% by several studies). Instead, we spend $20 billion dollars a year on some ridiculous "War on Drugs", and it isn't even slowing it down. The REAL "War on Drugs" would be to subject these guys to the same regulatory and civil action anvils and chains imposed on all legitimate businesses in our "free market" economy.
You know what we pay directly in taxes in our business?
For a mythical $1.39 Gallon of Gasoline: (I told you, I wrote this in 2003!)
$0.24 State Tax $0.18 Federal Tax $0.15 Retail Spread $0.25 Refining, Marketing, Distribution $0.57 Crude Oil coming out of the ground... of that $0.57
$0.043 State Severance Tax $0.013 Ad Valorem Tax
So we have a basic $0.476 or a royalty of some 30% straight off the top paid to various govenrmental bodies (misnamed "taxes", because they are regardless of profitability to the producers, refiners, or retail sellers).
However, Foreign Oil, or Fur'n Ol', is only taxed at $0.05 to $0.10 per barrel as a tarrif here in the good ol' "we want energy security" US of A, INSTEAD OF 7.5% Severance and 2.5% Ad Valorem, and since a barrel of oil makes 19 gallons of gas, the government take per gallon of gas made from foreign oil is only $0.425.
Uhh, isn't THAT Corporate Welfare for Foreign Oil? It IS sure as hell a defacto tax credit...
The total tax take goes up to 50% when income and property taxes are calculated out.
Yet, the huge illegal drug business is exempt. We need their lobbyist!
But it seems to me that if this study is remotely close to
being correct it would make much more sense from an environmental perspective
for me to keep driving my big internal combustion engine SUV than to sell it
and buy a new hybrid.
My question is this: Is it better for me to appear to
be a politically correct environmentalist, not unlike a movie star who drives a
Prius and then uses a private jet for travel, or to actually be an
Thank you for your help.
Well Albert, the answer is, of course, to APPEAR to be a poltically correct environmentalist, because, to quote an old Saturday Night Live character "It's better to look good than to feel good, dahling!" Far better to look good, expecially when it makes points with your friends and colleagues, than to actually be for something as mundane as the truth.
But hey, didn't you find that article was a tad suspect when it said the overall cost of energy was on the order of $1.90 t0 $4.00 per mile. Average car goes what? 150k miles? How can that be $300k? For any regular car? If the cost to purchase is, say, $35k, and it requires $1000 per year for 15 years for maintenance to make it $50k, and it gets, say 15 miles per gallon or 10,000 gallons of gas over its lifetime for another say, $30k that takes overall cost to $80k. If that is the case, who is subsidizing us? The car manufacturers? Maybe that is why they are all going belly up.... "we lose $220 thousand per car, but we make it up on volume", or maybe, as the Church Lady would say.... Satan? Umm, I mean the Big Oil and Gas companies? In any case, thanks for whoever is subsidizing my vehicle so heavily... a big Open Choke Hats Off!