The Latest Wacky Idea from American Protectionists

American Protectionists have come up with another of their wacky ideas. Putting "Buy American" provisions in the stimulus bill wasn't enough. They forgot to add those provisions to the "Cash for Clunkers" and we find that foreign automakers made off like bandits! (Naturally, I don't care about the foreign automakers making off like bandits, I encourage all companies, foreign and domestic, to make off like bandits if by that we mean selling products to people that they want). Now Gen. Wesley Clark and his cadre are trying to get country of origin labeling on oil.

I first heard of this coming into work today. And I laughed out loud, I thought it was a joke. So searching the news, I find that it isn't a joke, these people are serious. And they don't know what they are talking about either. Having worked in the oil industry I know a thing or two about it.

So let's start with the whole country of origin labeling thing anyway. What does "Made in the USA" mean? Well, it can mean any number of things. It could mean that the final product was assembled in the US (with 100% foreign parts), it could mean that some amount of parts were manufactured in the US, it could mean that the raw materials were from the US, it could mean that the whole shebang was begun and developed in the US (with 100% foreign labor), it could mean that it was actually built in Japan in the city of Usa. Basically, whatever you want it to mean.

Let me say that I am not worried that terrorists are profiting from the gasoline I use, nor do I care that some 10 year old in Vietnam works 12 hours a day at a factory to make my clothes, and I am not worried about the illegal immigrants that pick the vegetables I eat for $10 a day. I only have so much time in my life, I can't save the whole world. So I focus on my family and improving those around me within my means. Maybe when I am independently wealthy I can start to worry about the personal problems of people halfway around the world, but at that time I will try to actually do something about it, not just talk about it and protest in the comfort of my hometown. I wouldn't mind retiring, living in Africa and helping develop village water systems so that people can have clean drinking water. (If I do, you can bet there will be a lot of gasoline or diesel generators spewing out gobs of CO2).

If you are not like me and want to try to save the world, be prepared to have to deal with being a hypocrite. Extreme positions rarely have any wiggle room. Just accept the fact that the coffee you drink is harvested with slave labor, tyrannical dictators skim the money from oil companies for their personal use, and money spent on foreign (and domestic products) is going to go buy drugs, booze, women, and guns for some less than savory people.

So now that you know I have no problem with foreign products, let me talk about labeling the country of origin of oil. What exactly are we labeling? Are we labeling the gasoline itself? Well, gasoline isn't exactly a single product. Besides being a liquid, it is a blend of several liquids. And once those liquids are dumped in a tank or piped through a pipeline, it all gets mixed together.

A Primer on Gasoline

Let's look at the service station where you get your gas. A typical small service station may have three or four 2,000 - 5,000 gallon underground tanks (one for each grade). These probably get filled up once a week when the tank is 1/3 - 1/2 full. They buy their gasoline from a wholesaler. The wholesaler has the gasoline at a transfer station. There are several 250,000 gallon tanks. Several gas companies (BP, Shell, Conoco, etc) may use the same transfer station (it is more cost effective than having everyone build their own - so yes, the transfer station may be run by Shell, but you will see BP tankers pulling up to get their gas). Pipelines run to the transfer stations carrying gasoline from whatever refinery it was made in, or port where it was imported. The gasoline is stored in the big containers. It is all mixed together, because it is all the same thing. The basic content of gasoline is regulated by the government (how much ethanol, how many octane, etc).

So why all the commercials about one companies gas being better than the other? Well, that all has to do with additives. Besides the big tanks with straight gasoline, there are also a bunch of little tanks with each gas companies proprietary additives. So when a truck pulls up to load up 2,000 gallons of Super X gasoline, 1999 gallons of gasoline are pumped in and 1 gallon of Super X additives are mixed with it. This is actually a very efficient process, and allows companies who don't refine gasoline, to still market their own special blend!

So, let's take a step backwards to the refinery. Oil refining is a process where a relatively useless raw material (crude oil) is turned into useful end products. Here is a graphic of what comes from a barrel of oil:

More than 3/4 of each barrel of oil gets turned into fuel of some sort. In the US, we have built our transportation fleet around gasoline (primarily because our initial supply of oil in the US from Texas and Oklahoma was well suited to the chemical process that produces lots of gasoline). Our refining capacity is not enough to supply our demand for gasoline so we import a lot from Europe. Import gasoline. Europe has built their transportation fleet around diesel fuel (primarily because their initial supply of oil from the North Sea was well suited to a chemical process that made equal amounts of diesel and gasoline - they sell the gasoline to the US).

The major factor in the flow of oil is proximity (it costs money to move oil long distances). So at times, we export oil (yes, I said export - the US produces about 5 million barrels a day and export about 1.5 million barrels of it, almost 1/3 of the oil the US produces is EXPORTED - and I am perfectly fine with that) from Alaska to Japan or Korea, because it is more cost efficient to do that and import oil from Mexico or Venezuela (corrupt dictators notwithstanding). when it gets to the refinery, it goes into a big tank (sort of like a transfer station). And it all gets mixed together (Louisiana crude, California crude, Texas crude, North Sea, Saudi, etc.) if it is roughly the same type of oil (light, heavy, sweet, sour, etc. - crude oil is just like cream in some respects). The refinery draws from these feedstocks as they work their magic and presto out comes gasoline and other products.

So we all know that oil comes from evil countries that have no rights, right? Yeah, the top 15 countries that we import oil from include Mexico (backwards I'll give you, but not evil), Columbia (see Mexico), Brazil, United Kingdom, Norway, and Ecuador. If we include all Petroleum imports the Virgin Islands makes the top 15 list as well. Oh, wait, I forgot the number one country that we import from, the evil terrorist hording giant of ... Canada. Wait a minute, Canada? The ones that end their sentences with "eh" and play hockey year round. That Canada? Well, we must barely import more oil from them than the 2nd place evil country Venezuela right? Wrong. We import about 2 million barrels a day from Canada. Venezuela only sells us 1 million barrels a day. In fact of the non-evil countries I mentioned above they account for 40% of our oil imports.

So what about the evil countries? Well, I didn't make a judgement on Nigeria, Algeria, Kuwait, and Angola. They account for another 16% of our imports. Then there is Iraq (which I think is our friend), 4% and Saudi Arabia (just because terrorists come from the country does not mean the country is bad), 9%. Of the top 15 importers, only Venezuela (whose leader actually has spoken about the evil Americans) at 10% and Russia (who keeps on flipping as to whether they want to be our friend) at 3%. So this whole labeling thing boils down to 13% of the oil we import (which is only about 8-9% of the actual oil we use). Got that, 8-9%.

Now that we have a general idea of how everything gets mixed together in one great big soup, how are we to accomplish labeling. I can think of a few ways:

1) We have separate supply streams for foreign and domestic oil. This would necessitate a large expenditure of capital for new tanks, refineries, pipelines, etc. After all we don't want to soil our oil with any of that foreign stuff.

2) We have signs at the pump that change on a regular basis based on the most recent shipment of fuel. The sign would list where the gasoline came from, what feedstocks were used, etc. etc. etc. When you realize that there is no gas in your town that you can buy in good conscience, maybe you will come to your senses and continue to support terrorists and tin pot dictators.

3) Just have a general sign on each pump of where the gasoline came from on average, updated on a yearly basis. This is a scaled down version of #2, hopefully it would assauge the guilt of most of the people that are worried about buying foreign oil. They would be able to buy gas at one gas station in their state.

Now, lets look at some of the logistical problems that might pop up. I mentioned before about the "Made in the USA" label. If the gas is refined in the US, is it "Made in the USA"? If it is refined in Europe with US oil and re-imported is it "Made in the USA"? If foreign gasoline is blended with US gasoline is it "Made in the USA"? What percentage is needed? 50%? 30%? 10%? Does the ethanol or other fuel additives count towards this percentage? What about oil from Saudi Arabia that is pumped with American Made machinery, onloaded to an American flagged ship and transported to the USA?

How about this dilemma, what if for some reason we decided to buy oil only from friendly countries. This would mean that our supply of oil was limited. Best case moneywise for us is that friendly countries stopped selling oil to others and only sold to the USA. In which case those other countries would be faced with the decision to a) buy oil from the "evil" countries or b) have their economy do a nose dive which has always worked out for people's well being. Right.

Or on the other hand, since we have artificially limited our supply (by not buying from whoever has oil to sell), the price of oil to us will go up (since now the people supplying our oil know there is no where else for us to turn). That $140 oil did a good job in 2008 of keeping the economy and jobs roaring, didn't it. So in a way, we are captives to the "evil" countries. But then again, they are captives to us. Who else is going to buy the 10 million barrels we import? There isn't the demand for it. Which means, while they hold our gas spigot, we hold their purse strings. So it is in both of our best interests to just play nice.

I will tell you a solution that I can get behind. Have the US government copyright/patent/trademark the "Made in the USA" label. Then rather than worry about where a product was made, just charge a royalty for each product that contains the label. Those who are socially conscious to the point of wanting to engage in isolationism, can buy their Coca Cola with the "Made in the USA" label for $2.50. I'll pick up the case right next to it that doesn't have the label for $2.25. The fact that they were bottled in the same place less than 20 minutes apart is irrelevant. The "Made in the USA" label already is just a salve to help some not feel guilty about supporting "evil". The US government isn't making any money on it though, and I could get behind that proposal that would change that.

And to top it all off, if you believe we are so righteous because we don't import oil from super "evil" Iran or Libya, try this out. Europe does, a lot of it. And remember what I mentioned about them exporting the gasoline that they don't need because they rely on diesel? That's right it comes in to the good ol' USA and you pump it into your Toyota hybrid every time you go to the pump. Even when we embargo countries we still end up using their products.

Not to beat a dead horse, but look at that graphic again. A little more than 7% of the oil we use goes to "Other Uses." What are those? Things like plastics, petroleum jelly, and tar. So while you may be buying your organically raised milk that is certified from Vermont, it is coming to you in packaging that was made from "evil" oil. Every time you put some lotion on, you are donating a few tenths of a cent to the terrorists. Simply driving your car (even if it is all electric or runs on 100% ethanol) helps support Hugo Chavez because the heavy oil they have in Venezuela results in a higher amount of tar than light oil from Texas or Saudi Arabia. All asphalt is is tar and gravel. I can see the signs now, "This road was paved courtesy of the communist Hugo Chavez, by driving on it you are directly supporting his regime."