Purchasing and Negotiation Training

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

A recent Associated Press story caught my attention.  It announced an $8 billion dollar wind power project to provide electricity to Los Angeles.  The sub-headline said that sites in Wyoming and Utah would be involved.  What was so intriguing was the remoteness of source and application.   

Four companies, Pathfinder Renewable Wind Energy  , Magnum Energy , Dresser-Rand Industries , and Duke-American Transmission Company  plan to submit their joint proposal to the Southern California Public Power Authority  in early 2015.  It includes a wind farm in Wyoming, an energy storage facility in Utah, and a $2.6 billion, 525 mile transmission line linking the WY and UT sites as well as connecting to a Colorado site before transmitting the electricity along an existing 490 mile transmission line to California.  The claim is that enough energy will be created to serve 1.2 million homes.  

The numbers are impressive 

But the distances imply tremendous energy losses, to say little of the storage technology.  The project calls for building a $4 billion, 2.100 megawatt wind farm in Chugwater, WY, 40 miles north of Cheyenne.  Electricity will be conducted along the new transmission lines to Delta, UT, 130 miles southwest of Salt Lake City.   

The energy created would be stored at the Delta, UT site using underground caverns in existing salt formations.  The storage technology is called Compressed Air Energy Storage (CAES).  As with most energy storage technologies, the practicality depends somewhat on arbitrage.  At times of low demand, excess electricity from wind would be used to compress and inject high pressure air into the caverns, each of which having a 41 million cubic foot volume.  At times of high energy demand, the high pressure air would be combined with natural gas to fire as many as eight electricity producing generators. 

Compressed Air Energy Storage 

CAES is not a new technology.  Future posts will deal with other forms of electrical energy storage.  It is relatively low in cost, enjoys a long useful life, and has good efficiency.  On the downside, it requires special siting (which is ideal for the Utah caverns) but CAES suffers low energy density  and power density.  Add to this the heat loss in long transmission lines and conversion, such as from electricity to air and back, diminishes efficiency.  

Will it work? 

Undoubtedly, it will work but at what cost?  Is the tax payer on the hook for any subsidies?  Nonetheless, as we pursue all options for energy independence, it is probably worth the effort.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Facts are stubborn things.   Hot controversies tend to have each side lining up their own facts, which are usually composed of tangential facts mixed in with copious amounts of opinion or ideology.  Fracking is the epitome of such controversies. 

A Study Conducted by National Academy of Sciences 

The National Academy of Sciences  published a Report on 12 September 2014 in the Proceedings of the National Academy of Sciences.  It concludes that horizontal drilling and hydraulic fracturing (fracking) do not cause contamination of drinking water sources.  However, the report goes on to cite that faulty construction techniques, can potentially allow methane to migrate into wells and aquifers.  The improper cementing of well casings and linings is cited as one of the faulty techniques.  Curiously, poor cementation was cited as a contributory cause to the 2010 BP Deep Water Horizon  disaster in the Gulf of Mexico. 

The researchers were led by Thomas Darrah,  assistant professor of earth sciences at Ohio State University.  His team analyzed drinking water samples from the Marcellus formation in PA and Barnett formation  in TX.  Of the 113 samples in the Marcellus, 7 showed some level of fugitive gas contamination.  Of the 20 samples in the Barnett, only 1 instance of contamination was found.  

Of the eight failures, four were attributed to poor cementing practices, three to faulty production casings, and one to an underground well failure.  In every case, analysis of gases associated with methane appears to eliminate upward migration of methane caused by horizontal drilling or fracking. 

Polemics 

A spokesperson for Energy in Depth, a pro drilling trade association characterized the Report as debunking environmentalists claims that fracking causes environmental damage.  Spokeswoman Katie Brown further emphasized context, claiming that less than 1% of US drilled wells account for groundwater contamination.  She also suggested that some contamination was due to natural causes. 

In rebuttal, the Sierra Club and Food and Water Watch, both  notable for their left wing ideology, decry inadequate regulatory control and allege further that fracking increases migratory methane, climate change, and earthquakes, although factual documentations is lacking.  They claim, absent proof, that even with more stringent regulations were “adequately enforced”, fracking would still be unsafe.  This type of hysteria serves no one’s interests. 

In a separate report, the Department of Energy’s Technology Laboratory  examined a fracking operation in Greene County, PA.  This site-specific study showed that fracture growth stopped about a mile below drinking-water aquifers and that upward migration of gas or fluids was negligible in the Marcellus formation.  

What about Righting the Wrongs 

The statistics divulged in the Report should give pause to the knee jerk, anti-fracking crowd who exhibit little care for facts that do not fit their “world view”.   

Any operator who willingly or negligently fails to protect the environment should be severely disciplined, including fines and debarment for multiple offenses.  We do not need the equivalent of another Deep Water Horizon disaster to act.  Businesses know that training and caution are much cheaper in the long run.  We should allow the proven operators to produce oil & gas while banishing those who disregard the environment. 

Energy independence and environmentalism are not strange bed fellows but soul mates.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

In a press release dated 24 September 2014, Southwest Airlines  based in Dallas, TX announced a purchase agreement with Red Rock Biofuels LLC based on Fort Collins, CO.  This is news but only for the two parties.  The concept of biofuels  used by large consuming transportation companies was born with the sustainability movement.  Nevertheless, it is a good idea.

In 2010 research for my book, Green Purchasing and Sustainability, I discovered many fossil fuel consuming giants in the transportation sector who were already engaged in biofuels.  Some of the notable ones (who proudly proclaim such sustainability measures on their websites) are BNSF Railways, Schneider National, American Airlines , Maersk, and Continental Airlines (since merged with United).  All are testing some form of biofuels made from biomass, algae, even jatropha, a tropical plant.

Biomass

Biomass fuels derive from decomposing plant and animal matter such as dehydrated human sewerage solids and forestry debris.  Red Rock’s first plant will be located in forest rich southern Oregon near the Freemont National Forest and convert about 140,000 tons of feedstock to produce 12 million gallons of biofuels annually.   

In its press release, Red Rock claims that it will “will refine forest residues into high value, low carbon renewable jet, diesel and naphtha fuels.  Utilizing renewable forest residues as a feedstock will help improve ecosystem health and reduce the risk of destructive wildfires in our forests, and our renewable fuels will help our customers address their price volatility, energy security and climate change challenges.”   

This is lofty language to be certain but the underlying science is sound. The forestry biomass of bark, saw dust, wood chips, and forest residue indeed reduces wildfire risks and enhances the environment in other ways. 

So what is the problem? 

The purchase agreement will begin in 2016 when the Red Rock plant is slated to come online.  Moreover, only 3 million gallons per year of bio-jet fuel are involved, about 0.2% of Southwest’s annual fuel consumption.  No information is available on price, but biomass renewables are not subject to the volatile price swings of the petroleum market.  It seems safe to assume this token amount of biofuel is merely a test by Southwest.   Even so, 3 million displaced fossil fuels is a start.  If all these experiments prove positive, we have yet found another avenue to achieve energy independence.

Other factors 

The sulphur-free bio-jet fuel is blended with fossil based jet fuel (a substance similar to kerosene).  Curiously, Southwest has chosen the San Francisco Bay area for its test.  According to Bill Tiffany, Vice President of Supply Chain at Southwest Airlines, “Our commitment to sustainability and efficient operations led us on a search for a viable biofuel that uses a sustainable feedstock with a high rate of success,” 

RRB’s CEO, Terry Kulesa noted, “From the outset, we have sought to build the best possible team of project partners.  A conversation we started with Southwest on the premise of providing renewable jet fuel at cost parity with conventional jet fuel has evolved into a great partnership.  We’re happy to help Southwest diversify its fuel supply.” 

Southwest is a member of Commercial Aviation Alternative Fuels Initiative (CAAFI), a government and industry coalition for the development of alternative jet fuel for commercial aviation.   

Alternative fuels 

The more alternative fuels competing for market share, the lower the price of energy and the better the effect on the environment.  This is the best of all possible outcomes.  I remember in the 1990;s, not so long ago, when those wanting to dispose of waste oil form #6 industrial to restaurant cooking oils had to pay for the privilege.  Now, the receive payment for their discarded waste.  

What a great change for the better.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

In previous posts, we have spoken about environmentalism and green energy sources, as if they were mutually exclusive.  In August of 2013, I referred to the Ivanpah Solar Electric Generating System solar farm project as a success. Now, this giant solar farm and others like it are causing environmental damage.  They are producing such high levels of heat that birds flying over it are incinerated.

Ivanpah uses a new and more expensive technology than a conventional solar power plant.  The so-called Solar-thermal process focuses concentrated sunlight to convert water in the boiler into steam, which powers a turbine to make electricity.  It does not use the now traditional photovoltaic wafer technology.

Data Points on the Ivanpah Solar Electric Generating System

• Ivanpah is a joint effort by NRG Energy Inc.,  Google and BrightSource Energy
• The site is located 45 miles southwest of Las Vegas and covers about 5 square miles in the Mojave Desert
• It enjoys almost constant sunshine for most part of the year
• It is also close to transmission lines that carry power to customers
• More than 300,000 computer-controlled mirrors (each roughly the size of an average garage door) reflect sunlight to boilers on top of 450-foot towers.
• The system produces 400 megawatts at full power, claimed to be sufficient to power 140,000 homes
• The $2.2 billion price tag is the largest ever for a single solar project

So far, so good 

Ivanpah is now being ironically mocked by various environmental groups as the Bird-Scorching Solar Project. The claim is that the mirrors scorch and incinerates birds that fly through the 1,000 degrees +/- F heat surrounding the towers.  Federal biologists have noticed that these birds appeared to have singed or burnt feathers.  Other biologists believe that the birds may have mistaken the vast shimmering reflective panels for a lake.

Bugs are also attracted to the bright light from the mirrors, which draws preying birds to the reflected light.  One estimate is that one bird catches fire every 1-2 minutes, pushing the annual estimated bird kill count in the hundreds of thousands.  Another estimate is 28,000 while BrightSource estimates the total at only 1,000.  Obviously, these estimates cannot all be right. Despite its low estimate, BrightSource has offered $1.8 million in compensation for the expected bird deaths.

Spokespersons for BrightSource and NRG have diplomatically addressed but downplayed the wildlife problem.  State and federal regulators are conducting a two-year study of Ivanpah’s effects on birds and environmental groups are openly questioning the value of cleaner power due to the damage on native wildlife.  To add insult to injury, Native American tribes have also objected to the project, saying that the towers and the glare generated by the panels are visually obtrusive.

BrightSource’s submittal of pans for its second big solar farm in Riverside County drew objections from the National Park, the US Fish and Wildlife Service over concerns that heat produced by the plant could kill golden eagles and other protected species.

What is the rational solution?

Both the radical environmental left and dismissive investors on the right tend to stake our untenable claims.  While it is provable that windmills, solar panels, and biofuels will not replace fossil fuels for the foreseeable future, developing all sources of energy has always been a wise policy.  Most renewable energy technologies require vast stretches of territory while delivering pitiful small energy returns compared to fossil fuels.  Boondoggles like ethanol,  invade the food chain, artificially driving prices up, and creating more pollution that gasoline and diesel alternatives.

We need to proceed on all fronts.  There simply is not enough history or data on Ivanpah on which to make sound judgments or take decisive, well-advised action.  For example, estimates on the number of birds killed each year in the U.S alone range from over 350 million to just under one billion are killed by flying into windows and fixed glass, another unreliable statistic.

Stay the course, pursue all alternatives, and let’s collect and study the data.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

We have discussed electric cars in several posts.  We have also discussed the online course, How to $ave Thousands Buying a New or Used Car.  so it was with great interest that I relished two contrasting stories on Tesla’s effort to sell directly to customers, rather than through dealership networks.  

James L, Gattuso from the Roe Institute for Economic Policy a unit of the conservative Heritage Foundation argued for allowing Tesla to sell its electric cars directly to consumers, bypassing dealers.  Defending the status quo was Jonathan Collegio of the National Automobile Dealers Association (NADA). 

Tesla cannot sell its electric cars directly to consumers in 48 states because of laws requiring franchised dealerships.  Since it has never had franchised dealerships, Tesla provides galleries, similar to show rooms, around the country, but the actual sale is conducted online.  For all other automobile manufactures, online transactions of new vehicles must be accomplished through a dealer, although the online agent may try to conceal this fact.  Tesla is the target of lawsuits from dealer organizations in several states which insist that Tesla must follow the franchise model. 

Besides a cost savings argument by eliminating he middleman, Tesla contends that its electric cars are so different from traditional auto sales the dealerships will not have the expertise or incentive.  Well, that argument needs work.  Gattuso points out that direct-to-the-consumer sales are common in most all other industries such as computers.  The free market argument is that dealerships are not required and that dealerships protect themselves, not the public. 

The dealers have their say 

NADA’s Collegio strikes the defensive posture one would expect of an industry spokesperson.  He begins with the contention that the 16.4 million new cars and truck that will be sold this year are best purchased through dealers.  But where is the proof?  He cites local independent dealers but makes no mention of mega dealers who own many individual dealerships or of Auto Nation  and CarMax.

A straw man argument is made of the number of jobs, averaging $52,500 per year, local taxes paid, and service to communities provided by auto dealerships.  Is the conclusion that eliminating dealerships eliminates job?  This is not addressed, nor is the economic reality that productivity may reduce jobs but drastically reduces prices. 

A matter of choice 

Why not let the consumer decide?  The NADA claims to be protecting the consumer even though its mission is to advance the interest of its dealer members.  Suppose that customers had the right to choose between using a dealer or a manufacturer.  Some, if not most of the buying public would rather avoid the dealership experience which can be about as pleasant as a colonoscopy.   

Many other manufacturers from electronics to home furnishings sell directly to the customer.  This is known as the business–to-consumer (B2C) model. 

I want everyone to have a choice.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

What could possibly be the connection amongst these three obviously disparate concepts? 

Money Ball 

Baseball fans know the movie “Money Ball” about the 2002 Oakland A’s and their iconic then 44 year old General Manager, Billy Beane .  This fabulous movie starring Brad Pitt as Billy is as much about Lowest TCO as it is about baseball, two of my most cherished passions.  From 2002 to present day, the Oakland team has the highest win percentage as a function of team payroll.  For the past dozen years, the A’s sport a win percentages comparable to the NY Yankees, Boston Red Sox, St. Louis Cardinals, and other high profile MLB franchises but with a fraction of their payroll.  

I heard Beane deliver the closing keynote at an Alternative Investments conference in Denver last August at which I spoke on Oil & Gas opportunities.He spoke of the parallels between investing and baseball success.  Beane gained baseball immortality by hiring a nerdy recent college grad economics and math whiz from Yale who had never played and knew pitiful little about baseball.  This pair of geniuses were able to reduce the “art of winning baseball teams” to a more reliable science using facts measure by “Dollars and Numbers” ($’s & #’s). 

Beane stressed that the best business decisions are made on the basis of hard data, not by looking at the allure of the prospect, but at the $’s & #’s.  Beane’s success over the ensuing years is based upon some startling data.  For example, the number one predictor of a baseball player’s value and contribution to team success is his on-base-percentage (OBP)  – not his fielding accuracy, throwing arm, batting average or power, base running, or other skills and talents.    

Virtually every personnel decision was analyzed by a cost algorithm.  Beane found that bunting or stealing a base did not positively contribute to the winning percentage.  He also found that paying “$3 million bonuses” to high school prospects was a waste of money as they had not undergone the extent of player development at a college kid had experienced and are therefore far too risky.   

DFW International Airport 

A few years after moving to the DFW metroplex in 1999,  the Boeing Company sought to relocate its corporate offices.  Chicago and Dallas were two finalists.  Anyone who travels extensively knows these two city’s airports well.  Chicago has the cramped O’Hare and older in town Midway airports.  Dallas has spacious DFW International and Love Field closer to town.  

Despite the superiority of the Dallas airports, the aerospace and defense giant chose Chicago.  Boeing cited the vibrant street life of Chicago, America’s third largest city compared to the uncluttered casual street life of Dallas the 8^th largest city.  One of the things I noticed when considering the metroplex was that on street parking was plentiful in Dallas and Fort Worth.   

In retrospect, the loss of Boeing was not meaningful in terms of economic impact.  While it would have been a prestigious “get”, for the north Texas business community, they only relocated a few hundred execs.  All other jobs stayed at its facilities around the world.  Boeing chose Chicago. 

A major contributing factor to relocating to the DFW metroplex was the airport.  I was flying 100,000 miles per year, mostly in the US.  My Rhode Island home was only about 35 miles from Boston’s Logan Airport but the Big Dig, which went on for a dozen years, made that commute at least 90 minutes.  Add a six hour coast to coast flight, plus the time change, and the travel day was shot.  If I had two weeks booked back to back on the west coast, it made no sense to fly home all day Saturday and fly back all day Sunday. 

As with Toyota’s decision to move to north Texas , mine had other factors as well. The weather, political climate, spirit of the Texas people, and economy all had an impact.  So did the reduced travel times and nonstop flights to almost anywhere in the US and many foreign destinations. 

Lowest Total Cost of Ownership (TCO) 

Practitioners of professional purchasing are not surprised by the Beane or Boeing decisions, or their success for that matter.  It is all about $’s & #’s. In other words, it aint about the price, it’s the cost!  The Lowest TCO  is a sound business concept that applies well beyond purchasing.  It is the basis for Billy Beane’s baseball success and DFW International’s role in attracting business and boosting the north Texas economy.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

By now it is old news that Toyota  is moving its U.S. headquarters (its largest sales market) to Plano, TX from Torrance, CA.  Certainly the high tax, anti-business environment cultivated aggressively for decades in CA influenced Toyota’s move.   Toyota started with one hundred potential locations before shrinking that list to four other choices besides the north Dallas suburb that also hosts Frito-Lay.  But other factors in play are the corresponding equivalent of Lowest Total Cost of Ownership (TCO).The TCO philosophy places paramount emphasis on facts as expressed by “Dollars and Numbers” ($’s & #’s).  Business decisions must rely almost exclusively on facts; these are measured by ($’s & #’s).  

Thousands of jobs, millions in payroll, and billions in economic boost 

Toyota is relocating thousands of employees who will generate a large economic bonanza to an already vibrant business environment in north Texas.  Although Toyota did not publicly disclose the competitors for its new headquarters, a request from the Associated Press  for public records found that the Tarheel state had offered more than $100 million in incentives to lure the world’s largest automaker to the Charlotte area.  

NC felt compelled to more than double the offer of the Lone Star state as Texas has no corporate or personal income tax.  NC Commerce Secretary  Sharon Decker, noted that relocating companies compare the total cost of a new site along with financial incentives.  Mike Michels, A Toyota spokesman said, “Incentives were just one of the many consideration.”  They also factored in transportation, cost of living, educational opportunities, and geography.  Toyota has production plants in San Antonio, Kentucky, Mississippi, and Indiana, all within or near the Central Time zone.   

DFW International Airport 

The availability of direct flights between the U.S. was a crucial factor as executives fly between HQ and Japan hundreds of times per year.  Charlotte Douglas International Airport is much smaller, has no direct flights to Japan, and is on the east coast, remote from Toyota’s operations in the U.S.  DFW has direct flights to Japan. 

Gov. Rick Perry’s office said that it offered Toyota about $40 million in incentives and the City of Plano kicked in another $6.75 million.  At less than half of NCs offer, it was not about the price; it was all about the cost! 

NC learned this lesson even though it probably never had a realistic chance.  Personnel relocation and severance costs are a large expense for relocating companies.  Adding the other costs into consideration, and the Lowest TCO choice was obvious.  According to Jim Lentz Toyota’s CEO for North America, “…the Dallas metro area was far an above the best choice.” 

Moral of the story 

Many suppliers who deal with Toyota, or Wal-Mart  , or Boeing, et al, understand that while it might appear that these organizations have a price fixation. It is really always about costs.   It is economically axiomatic that the lower the cost, the more prices can be reduced.  

Wouldn’t it be wise to emulate this successful business model?

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

The Dallas Morning news energy writer, James Osborne, reported in a story dated 20 August that natural gas sales for motor vehicles is running far ahead of projections.  He cites $2.2 million in tax revenues through the end of July even though the Texas comptroller’s office had projected less than $1 million for the entire fiscal year 2014, which ends in August.   

To be certain, this revenue from natural gas shrinks to insignificance compared to gasoline and diesel fuel consumption.  In 2012, petroleum sales in Texas were about $118 Billion according t the U.S. Energy Information Administration as compared to the approximately $30 million in natural gas sales.  Yet, the doubling over expectations in natural gas may foreshadow future growth.    

Who is fueling the growth? 

The public and private sector have dipped their toes up to their ankles into the natural gas vehicle markets.  In 2012, the Dallas Area Rapid Transit (DART) tested 30 and 40-foot buses  fueled by compressed natural gas (CNG).  These heavy duty, low floor buses are scheduled to replace the current fleet of liquefied natural gas (LNG) and clean diesel buses which began service in 1998. The full fleet conversion should be complete in 2015. DART is building four CNG fueling stations so they are making a serious investment. 

Major private sector companies like UPS  are also testing the alternative fuels markets, including natural gas.   Clean Energy Fuels  based in CA but founded by the iconic T Boone Pickens, is the largest retailer of natural gas for automobiles.  Its sales are on the upswing and will build facilities around Texas as it anticipates the growing trend toward natural gas vehicles.  Besides a play on words, Love’s,  the truck stop chain, will soon open a Compressed Natural Gas (CNG) filling station at Dallas’s Love Field,  the smaller but “in town” airport compared to DFW International.

A major drawback to the use of natural gas powered vehicles is the loss of cargo and net payloads due to the large on board fuel tanks required.  Here is one example.   Yet, many fleet vehicles are not materially impacted by these tanks.  For example, utility companies deploy scores of patrol and trouble vehicles that carry little cargo more than laptops and portable tool kits.  Small package couriers and limo services do not rely upon ample cargo space.  Larger operators like UPS and FedEx, who do need the extra space and maximum payload, may well be more interested in image and Corporate Social Responsibility (CSR)  rather than unspecified economic benefits of natural gas.

Let the marketplace decide 

The battle of the fuels is a good thing.  As alternative fuels to gasoline and diesel become more plentiful and attractive, economic pressures will force prices down.  Some may choose natural gas for reasons other than price of energy equivalence and still others may believe in the environmental superiority of natural gas over other petroleum alternatives.  

I am all for all options all the time.

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

In a November 2013 post, we spoke of the hypocrisy of ethanol.  Taxpayers are subsidizing a Quixotic chase whose only economic benefit accrues to huge Agra-businesses.  This corporate welfare shame bears no resemblance to free market principles.  Further, it does violence to the environment and artificially invades the food chain, creating shortages and driving up prices to feed people and live stock. 

In a related example of mismanaged energy policy, the Keystone XL Pipe Line continues to be blocked by tiny but formidable far left interests who hold sway with the Obama administration.  This myopic and cynical minority are causing damage to vital interests to the U.S. such as energy independence and high paying construction jobs.  In a remarkable irony, big labor on the left is in favor of building it but some big businesses on the right are not.  For instance, Burlington Northern Santa Fe Railway,  (BNSF) principally owned and controlled by crony capitalist billionaire Warren Buffet and the Canadian Pacific Railway, LTD (CP)  are in no hurry to see the pipeline built; it is in their understandable economic interests for Oil & Gas production to rely upon rail  The same is true for Trinity Industries, a large rail car builder whose stock has risen 250% in the past year from about $20 to $50 per share as the demand for rail cars soars.  Trinity cannot keep up with the demand and will not until the pipeline is built, if ever, some years in the future.   

In yet another illustration of hypocrisy, General Electric headed by another crony capitalism pal of the Obama administration, Jeff Immelt, has announced that it will dramatically expand locomotive production at its new Fort Worth, TX plant to supply BNSF.  The business forces, aligned with loony so-called “environmentalists” constitute a formidable economic lobby against the Keystone KL Pipeline.

Parallels between ethanol and the Keystone XL Pipeline 

Energy exploration in northwestern North Dakota is literally blowing out of the ground.  Rich resources in the Bakken Shale formation are driving petroleum production up, unemployment down to the lowest rate in the nation, and have lit the state’s economy on fire.  So far, so good. 

However, the many years of delay in approving the Keystone XL Pipe Line have exacted their economic and environmental costs.  Most of the negative consequences are predictable; indeed, catastrophes such as derailed oil tank cars are directly attributable to the lack of the pipeline.   

Pipelines have always been the most economical, efficient, safest, and fastest way to transport fuel from source to treatment to distribution.  A far secondary alternative is rail.  It is slower, more expensive, and riskier.  But those daunting problems are just for starters.   

As more rail cars and resources are devoted to energy, less is available for agriculture.  For decades, agriculture has been ND’s largest industry, accounting for more than a quarter of the state’s economy.   

The unavailability of rail resources forces companies like BNSF and CP to prioritize cargo according to fees and fares.  As of 22 August 2014, BNSF, the largest RR company in ND, has a backlog of 1,336 rail cars waiting to ship grain and other agricultural products.  CP had a backlog of another 1,000 cars for agricultural purposes.  For perspective, a unit train, meaning just one commodity like autos or grain, as opposed to a manifest train carrying many commodities, may be 100 to 125 cars long and between 7,500 and 10,000 feet, depending on type. 

In August, the US Department of Agriculture has expressed concern that CP will be unable to fulfill nearly 30,000 requests from farmers and others for rail cars before October.  Through elected representatives, constituents in the agriculturally bountiful states of ND, South Dakota (SD), Minnesota (MN) are pressuring the Surface Transportation Board the regulatory body affecting railroads, to favor agriculture, with perishable products, over petroleum, with stockpile-able products.  However, stockpile infrastructure is scarce in ND.   

Both railroads insist that oil shipments have not displaced crop shipments.  They blame the cold winter and an increase in shipments of all types due to the improving economy, at least in ND.  

Misguided energy policy impacts the food industry again 

Just as ethanol decreases the feed stocks available to humans and animals and thereby drives up costs, food giants like General Mills and Cargill are losing production.  In reporting an earning drop in August, Cargill cited “higher costs related to rail car shortages”. 

A study by ND State University found that rail congestion could cost farmers $160 million as the oversupply of gran drives prices down.  An aggravating factor is the projected record harvest of 272 million bushels of wheat, up from 235 million last year.  Corn and soybean are also expected to produce record harvest. 

So what is the take away? 

The Keystone XL pipe line could create sorely needed high paying jobs, enhance energy independence, and provide the safest method of transporting petroleum products.  Rail resources are inadequate to handle both petroleum and agriculture.  The result could impose avoidable disasters on US farmers and consumers.  The only counter-arguments are from politically based ideologues who are unable to confront the realities of science and economics.

Build the D@!n Keystone XL Pipe Line!

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

When the average American thinks about earthquakes, what comes to mind?  Certainly, California; it has more and more severe quakes than any other stated.  This is due to the geology of faults and tectonic plates.  The Pacific Ring of Fire, in which the entire west coasts of the U.S and Canada share major exposure and risk are well known.

If you live in Texas, whether or not connected with the Oil and Gas (O & G) industry, it is impossible to ignore the claims by some of the “scientific connection” between hydraulic fracturing and incidence of earthquakes.  This map of fault lines shows that the geologic facts.  Fault lines and consequent earthquakes are as much a part of Texas as the climate.  Both have always been here and have little to do with man’s dithering around the edges.   

Compare the Texas Tectonic map to the Texas Earthquake map.  To anyone with more than freshman geology credentials, it is obvious that the incidence of earthquake locations overlay the fault lines.  Whether earthquakes are mathematically correlated to fracking is in serious doubt.   

Fracking and Quakes: History or Hysteria

 The Barnett Shale formation is an energy rich source of natural gas in north Texas, particularly the Dallas Ft Worth (DFW) metroplex, is also the source of claims of fracking induced earthquakes.  Many of these claims allege that underground disposal wells for used fracking water have caused the earthquakes. Some also claim that hydraulic fracking is the cause but scientific data is scarce.  Correlation, especially when wrought of politics, does not equal causation.  One way to eliminate specious speculation is to recycle fracking water instead of underground injection.   

The Texas Railroad Commission TRCC)  , which, despite its title, has control over the O & G industry in TX, has hired a seismologist but has expressed public doubt about the connection between earthquakes and disposal wells. According to TRCC Commissioner Christi Craddick , “With over 34,000 of these currently operating in Texas, it is important that sound science be our guide in determining if there are any links to seismic activity.”  

 What do you think? 

Energy production and distribution is a needlessly confrontational issue in the U.S.  We and the world thirst for more energy sources.  We will someday perfect solar, wind, water, and other renewable energy sources.  However, until “someday” arrives, we must capitalize on the providential gifts given us by geography and geology.