Distorting the Energy Market

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The government is hurting our ability to develop new sources of energy; and both the Republicans and Democrats are to blame.

In the most general terms, Republicans support continued tax breaks and subsidies for the oil and gas industry, and Democrats support grants, subsidies, and tax breaks for such new forms of energy as wind and solar. Neither party has a good energy policy. Both are blocking the path of innovation.

To create a fossil fuel alternative we must find an energy source that is cheaper, easier, and better than fossil fuel. But when government is picking which alternatives are worth pursuing, in addition to funding traditional energy sources, our view of what energy sources may work out becomes clouded. As long as government provides subsidies and tax loopholes to oil and gas

companies, they will hold an advantage in the market. Not only does government intervention in this manner make fossil fuels a highly lucrative industry, thus attracting many bright businesspeople, engineers, and scientists, but it makes the introduction of alternatives more difficult, since potential new competitors find working in an unbalanced market nearly impossible. Even if there were an energy alternative that consumers would want, the alternative would not be able to seize enough market share to turn a profit, because the coalition of government and big oil cannot be challenged by a newcomer.

With few exceptions, people agree we need to move away from burning fossil fuels if we want to meet future energy needs with as little disturbance to existing ecosystems as possible or beyond what we might consider desirable. And because oil and gas receive government benefits, the conventional thinking goes, so too should alternative energy exploration, in order to “level the playing field.” But what the best alternative might be is still unclear. One reason why it is unclear is that government involvement clouds the picture.

Think of ethanol. For years, because of Iowa's importance in the presidential nomination process, ethanol was highly subsidized by the government. Now we discover that it was not a workable, standalone alternative to fossil fuels. Consider all the resources that were misallocated because of this pursuit. Private resources, such as time and expertise, were focused on making ethanol work — in order to procure government money. If there had been no government money in ethanol research, engineers and scientists in the energy industry would have had a greater incentive to look elsewhere for a good alternative. But when the government creates a market there is no need to look elsewhere. The only problem is that the government lacks anything like a good record as a venture capitalist.

If it is true that necessity is the mother of invention, then the government is stripping us of that necessity. What is necessary for every company to operate is money, and if it doesn’t have a strong need for money, because government is supplying all it needs and then some, its incentive for invention is stripped away. If we want to find the best energy source, both long-term and short-term, the government needs to stop trying to control which sources come to market, or stay in the market.The government needs to divest itself of all financial interests in the energy industry.




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From Russia, with Oil

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While the Obama administration continues to stifle fossil fuel production in the hope — the delusional dream, actually — of replacing it by wind, solar and biofuel, other nations continue to act rationally. In particular, Russia is working assiduously to become the world’s major energy supplier. A recent WSJ article illustrates this.

The story reports that Russia’s state oil company Rosneft (rhymes with “raw theft”) has cut a huge deal with Italian energy firm Eni to exploit oil fields in the Arctic. In exchange for access to the huge Russian Arctic fields, Eni will give Rosneft stakes in Eni’s projects in Africa, the Americas, and Europe.

Eni is getting a third share of a big pie, or more exactly, pies. The Fedynsky field (northwest of Murmansk) alone contains 19 billion barrels of oil. The total estimated recoverable reserves are about 36 billion barrels.

This deal is on top of an agreement that Russia signed last week with Exxon Mobil, which gives Rosneft a 30% share in development of fields in Canada, the Gulf of Mexico, and West Texas.

So Russia is wasting no time in developing the Arctic, while we block oil and gas drilling and funnel our state resources into solar projects that go bust. Thank God we have such enlightened leadership.




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Wait, Mock, and Squander

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In 2006, when gasoline was selling for about three dollars a gallon, an outraged Senator Obama assessed our dependence on foreign oil and proclaimed, “The time for excuses is over.” Today, as gasoline approaches four dollars a gallon, now-president Obama tells us to use less. After three years of profligate spending ($100 billion) on sources of alternative energy, total solar and wind power generates a whopping 0.45% of our electricity, and we are as dependent as ever on foreign oil. Without a single green success story to tout, Mr. Obama tritely blames oil companies, OPEC, the Middle East, speculators, Republicans, and George Bush, his go-to villain.

Evidently, there is still time for excuses.

While the president gripes, we wait. We wait for the clean energy marvels discharged from his subsidized pipeline of foreordained technologies — although none are what we want or can afford. The demand for electric vehicles remains near zero, despite a $7,500 tax credit, which the president, oblivious to market signals, increased to $10,000. Another splash from the pipeline is the $50 light bulb, winner of a $10 million Energy Department prize for being, as Secretary Steven Chu said, “affordable for American families.”Mr. Obama's latest panacea is algae — although the wait time for algae-based fuels ranges from very long to infinite. Meanwhile, the impatient among us can buy hisconventional biofuels (as sold to the Navy last December) for $26.75 a gallon.

Mr. Obama proudly announced that Detroit is on track to build cars averaging nearly 55 mpg by 2025. So if we wait 13 years, and gasoline prices do not rise, we'll be able to drive almost twice as far — in frail, sluggish 2025 Obamamobiles. If we wait 50 years, perhaps technological advances in solar panels and windmills will produce similar payoffs for our utility bills.

In bold defiance of the laws of supply and demand, President Obama insists that offshore drilling and projects such as the Keystone XL pipeline will have little, if any, affect on fuel prices. Calls to increase supply are cynically mocked. Unable to explain the economics of his assertions, he artfully shifts to political derision, "'Drill-Drill-Drill' is not a plan, it's a bumper sticker. It’s not a strategy to solve our energy challenge. That’s a strategy to get politicians through an election."

In bold defiance of the laws of supply and demand, President Obama insists that offshore drilling and projects such as the Keystone XL pipeline will have little, if any, affect on fuel prices.

To be fair, every president since Richard Nixon has promised to end our dependence on foreign oil. These people did little to achieve the goal, but they had the good sense to say even less about their failure. Obama, however, aggressively tries to convince us that his energy policy — three years of bad bets on green energy and abject neglect of everything else — is working. He boasts that “under my administration, America is producing more oil today than at any time in the last eight years.”

It was none of his doing. The production increase is the result of leases issued during the Bush administration and, more significantly, exploration on state and private land. There, thanks to entrepreneurs and the technologies developed at their expense, oil and natural gas production has increased dramatically. In the lands and waters that the president controls, oil and gas production has decreased by roughly 30 to 45%. President Obama's silence regarding the success of production on state and private property, coupled with his earnest and purposeful curtailment of production on federal property, reveals his deep contempt of capitalism and fossil fuels and the wealth they create.

Nowhere is this more evident than in North Dakota, where private developers on private land have tripled oil production over the last five years. The state has had seven consecutive tax cuts. Now, given an unemployment rate of 3.5%, burger flippers make $18 an hour and thousands of $60,000 to $80,000 a year oil industry jobs wait to be filled. But instead of seeing wealth creation in North Dakota that is extensible nationally, Obama chose only to see eight dead birds that were found near the oil fields, and now seeks to stifle the growing prosperity with a lawsuit filed by the US attorney for North Dakota.

Each year, windmills from California to New York swat as many as 250,000 birds to their deaths. An estimated 70 golden eagles, as well as almost 10,000 other birds, are killed annually by the wind turbines at Altamont Pass, near Oakland, California. But no legal action has been taken. This is a political statement profoundly mocking the oil industry. President Obama is telling oil companies that he will sacrifice our very eagles (to repeat, 70 a year by the Altamont Pass bird-o-matic alone) to choke off the supply of the companies' products.

As he mocks, he squanders. He considers our 20 billion barrel reserve of recoverable oil as a fixed asset to be stingily guarded for political purposes. He seesdrilling rigs and gas stations as festering pockmarks on our national landscape, so he tells us that to reduce fuel prices we must use less. But the 20 billion barrels arepolitically recoverable oil. We possess over 1.45 trillion barrels that are technically recoverable with existing technology. We have enough oil and gas to last hundreds of years. According to a 2011 Congressional Research Service (CRS) report, "the United States’ combined recoverable natural gas, oil and coal endowment is the largest on Earth . . . larger than Saudi Arabia, China and Canada, combined."

What civilization ever advanced, what economy ever prospered, by using less energy?

Use less? We should use more. What civilization ever advanced, what economy ever prospered, by using less energy? With our reserves, and such newly developed technologies as steam flooding, hydrofracking, and horizontal drilling, America could become the world's predominant supplier. Obama's mantra, "We can’t just drill our way to lower gas prices," is ignorant folly, no matter how many times repeated. That America's energy supply is too paltry to affect price is supreme fiction; that Obama promotes such a myth is supreme impudence.

US consumption is not one of the reasons energy prices are high. Considering our vast domestic reserves, prices would plummet if the US increased production to meet the country's demands. In fact, since price is a function of expected future supply and demand,it would begin to drop merely upon news of our intention to increase supply. Crude oil hit $147 a barrel and gasoline sold for $4.11 a gallon in July 2008, when President Bush announced he would lift the ban on offshore drilling. In less than a month, oil prices were below $120 a barrel. Within six months, oil was $37 a barrel, and gasoline was $1.61 a gallon.

President Obama knows this well — and he knows its converse. His restrictive energy policy reversed the 2008 trend and resulted in the doubling of prices during his term. And since speculators believe he will continue to squander fossil fuel assets, prices will continue to increase. What the president doesn't seem to know very well is the enormous national wealth lost to his feckless policies: losses in employment, personal income, tax revenue (federal, state, and local), debt reduction, retirement fund value, global competitiveness, and immunity to Middle East turmoil andnational security annoyances from the likes of Russia, Iran, and Venezuela (to name a few).

Incredibly, President Obama chooses to squander resources, inanely attempting to restructure our economy and way of life in preparation for a green fantasy worldin which pock marks are crowded out by tidy, quasi-public charging stations and biofuel dispensers supported by a vast system of government subsidized solar, wind, and algae farms. And, to help him achieve his fantasy, he doesn't think we'll mind paying $40,000 to $100,000 and more for Obamamobiles, $50 for light bulbs, $26 a gallon for algaehol, and "skyrocketing" prices for utilities.

The president's energy campaign, not that of his opponents, is a "strategy to get through an election." He believes that "Drill-Drill-Drill" is a bumper sticker, but that Wait-Mock-Squander is sound policy based on smart projections of industry and technology decades ahead. To him, a future of clean energy and green jobs sounds even better, politically, than ObamaCare. But ObamaCare now costs $1.7 trillion, only two years after Obama projected a cost of $927 billion. Still, with his failure at prognosticating exceeded only by his failure at crony-capitalism, he bets our economy on a future driven by starkly unproven technologies. He can describe the vague green future only by means of deceitful, juvenile mockery of the prosperous past. And he expects that voters will accept, on the face of his trite nostrums, the idea that our immense reserves, the largest in the world, are of little future value. One has to admire the audacity: Obama dares to risk being the president who sent us trudging patiently down the road to national weakness and economic decline, a shiny, extortionate toll road — with a multi-trillion dollar "fuel of the past" bonanza lying just beneath its pavement.

Obama might pull it off, as he did the election of 2008. If so, the pockmarks will begin to be replaced by sprawling rashes of grotesque and witless energy "arrays." Idled oil fields will become hidden relics of our environmentally despicable past, places of interest only to historians and tourists, who will find them by following the eagles seeking refuge from Obama's wind farms.

#39;s predominant supplier. Obama




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Arctic Warming

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The Arctic region is beginning to get hot — but not for anything having to do with “global warming.” No, international tensions are increasing, because of the increasing international demand for fossil fuels.

As Alan Dowd of the Fraser Institute notes in a recent piece, the Arctic is attracting rapidly growing geostrategic attention.

The place is amazingly rich in fossil fuels. The US Geological Survey puts total Arctic oil reserves at 90 billion barrels of oil, or about 13% of estimated undiscovered reserves worldwide, and 1,670 trillion cubic feet of natural gas, or about 30% of the world’s undiscovered gas.

Those are just the conventionally available fuels. God alone knows how much unconventional fossil fuel energy (shale oil and gas, methane hydrates, and so on) lies beneath that frigid sea.

These resources are becoming more and more commercially attractive, for several reasons. First, the Green Regime in Washington has worked to strangle our own domestic production, hoping to shift America to dependence on so-called green energy (wind, solar, and biofuels). Second, Middle East production is increasingly expensive. Finally, as formerly poor countries such as India and China become ever more industrialized, their consumption of fossil fuels is growing. The Energy Information Agency projects a 20% increased in world oil usage over the next 18 years.

This is leading inexorably to friction among nations that have claims in the Arctic: the United States, Canada, Russia, and Norway (together, to a lesser extent, with Sweden and Finland). And it is no surprise the form that this increasing tension is taking: Russia, under the Putin Regime, is pushing to control the lion’s share of the region’s energy wealth.

Russia’s intentions are easy to read from its actions. A 2007 Russian expedition planted the Russian flag on the North Pole. Its leader boasted, “The Arctic is ours!” A year later, a Russian general said that his country was planning to train troops to engage in combat in the region, noting cheekily that “wars these days are won and lost before they are launched.” A year after that, Russia announced that it was opening a string of bases along its northern tier. And last year, it announced plans to deploy 10,000 troops in the region to “defend its Arctic claims.”

And there has been a dramatic increase in Russian bomber interceptions by Canadian and American fighters (up from eight between 1999 and 2006 to 45 between 2007 and 2010). All this is evidence that Putin wasn’t joking when he recently said, “Russia intends without a doubt to expand its presence in the Arctic. We are open to dialogue, but naturally, the defense of our geopolitical interests will be hard and consistent.”

In reaction, both the Bush and the Obama administrations have reaffirmed our national security interests in the region. The US keeps 20,000 troops in Alaska and is conducting “Northern Edge” exercises meant to train our forces in defending the Arctic and keeping the waterways open.

Canada is also concerned. It is constructing new military bases in its Northern Territories and is training troops. The Canadian military has conducted joint exercises with the American and Danish military. A few years ago, Norway conducted Arctic maneuvers with 12 other nations, as did Sweden on its own a year later. Now Finland, Norway, and Sweden together are developing a “Nordic security partnership.” And Denmark is beefing up its military forces in Greenland (its legal territory). The pacifist nations appear to be uniting over this matter.

Such happy high jinks! Notice that these countries aren’t fighting over solar panels, wind turbines, or switchgrass farms. No, they’re fighting over fossil fuels. But, then, people don’t argue over what has no value.

The place is amazingly rich in fossil fuels. The US Geological Survey puts total Arctic oil reserves at 90 billion barrels of oil, or about 13% of estimated undiscovered reserves worldwide, and 1,670 trillion cubic feet of natural gas, or about 30% of the world




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End the Green Nightmare

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There is currently a maelstrom of news about costly failures in the so-called green energy industry. Of course, solar power is prominently featured, and the Solyndra fiasco is only one of the scandals. Rapidly rising to public consciousness is another crony capitalist solar company, SunPower, which looks like it too will go bust and cost the American taxpayer a fortune. Also in this club of losers are solar companies such as First Solar and Abengoa, both again the recipients of taxpayer dollars, thanks to the current administration’s rigid environmentalist ideological mindset.

But not to be overlooked are disappointments in the other segments of the green energy industry. Corn-based ethanol has proven to be such a wasteful boondoggle that even Al Gore has rethought his support of it. And wind power has come in for a good deal of scrutiny. Why, even geothermal companies are proving questionable. A recent report of three on the biggest such companies — Nevada Geothermal Power, Raser Technologies, and U.S. Geothermal — shows that they are all in financial difficulty or are just not profitable. All are recipients all of taxpayer loans or loan guarantees.

This has left the proponents of green power trying desperately to explain away its dismal failure — both here and abroad — to prove itself commercially viable without massive governmental subsidization, and without the corruption that governmental subsidies typically bring. But while we are witnessing the bursting of the Great Green Energy Bubble, we are also witnessing a renaissance of fossil fuels — the very fuels that Malthusian prophets of doom have for decades claimed are “running out.”

This renaissance has been caused by a technological revolution that is transforming oil and gas drilling. Because of it, oil and gas are far more plentiful here and in countries outside the Middle East and other hostile neighborhoods, such as Russia and Venezuela. I am thinking especially of two technologies, fracking and horizontal drilling. The rebirth of fossil fuel production was unimaginable a few years ago. It is completely beyond the ken of the Greens who constitute the Obama Regime, people who never anticipate revolutions that are not run from above, by them, but instead originate in the distributed intelligence of regular (read: creative) people.

We are also witnessing a renaissance of fossil fuels — the very fuels that Malthusian prophets of doom have for decades claimed are “running out.”

Start with fracking. It has certainly made some energy companies rich. For, example, Noble Energy has just paid a whopping $3.4 billion for a half-interest in the Marcellus Shale holdings of Consol Energy. Together they plan to develop a huge chunk of Pennsylvania and West Virginia (663,000 acres). Even after selling off half its holdings, Consol still expects to extract a massive 350 billion cubic feet of gas.

What is fascinating is that Conrol Energy is a Pennsylvania-based coal company — you know, one of those, well, fossils of the fossil fuel industry. It is nicely positioning itself for the inevitable shutting down of coal-fired power plants under the relentless pressure of the EPA. Consol and Noble are just two of the flood of companies moving in to develop the Marcellus Shale formation.

Fracking is also rewarding key players in the industry. Marcus Rowland, the CEO of the small but important player, Frac Tech International, earned a tidy $24.4 million last year. His compensation made him the highest paid CEO of any publicly-traded energy company. He is paid more than the CEO of IBM.

Frac Tech is beating many other energy companies by providing hydraulic fracturing services for big energy companies such as Chesapeake Energy and ExxonMobil. It brought in nearly $1.3 billion in revenues. In the world of fracking, only Halliburton and Schlumberger are bigger.

There is a very recent report about the development of a shale field of truly stupefying proportions. The Utica Shale deposit is an enormous geological formation stretching from Quebec to Kentucky. It may be an even more fertile source for oil and gas than the Marcellus Shale field. Ohio state geologists — a neutral source, please note — estimate that Ohio’s share of this field holds upwards of 15 trillion cubic feet of natural gas and 5.5 billion barrels of recoverable oil (or roughly a third of the production of America’s largest oil reserve, Alaska’s Prudhoe Bay).

Then there is brilliant article discussing one of the unsung creative geniuses of American industry, Harold Hamm. In a week dominated by paeans to the fallen Steve Jobs — who rightly deserved recognition for his amazing success in making Apple what it is — it was nice to see a piece on the remarkable Mr. Hamm.

Far from welcoming the renaissance of the American fossil fuel industry and the jobs it would provide, the Obama Regime has fought it tooth and nail.

Hamm is the founder and CEO of Continental Resources. He rose from humble origins — the thirteenth child of Oklahoma sharecroppers — to become thirty-third on the current Forbes list of wealthy Americans. Yes, Virginia, there is a Horatio Alger. Hamm is almost certainly going to rise to a much higher place on the list, given how much oil he owns.

He made his early success as a wildcatter with a keen sense of where oil could be found. But his greatest contribution was his early employment and improvement of a second innovative fossil fuel technology, a method called horizontal drilling. This is a technique whereby the drilling company drills downward (up to two miles deep), then drills outward, horizontally. This technology has — as dramatically as fracking — allowed energy companies to exploit petroleum and gas reserves hitherto not commercially viable.

Hamm is the discoverer of the famous Bakken oil field that extends from Montana to North Dakota. So fertile has this field proven that it has helped put America back in third place in the world in oil production. He estimates the reserves in Bakken alone at 24 billion barrels — which if true is double our currently proven national reserves. Continental has seen its proven reserves go from 118 million barrels in 2000 to 421 million barrels this year.

One might expect that the Obama Administration would be delighted at the prospects of America’s becoming energy independent — and potentially millions of American blue-collar workers getting high-paying jobs.

But one would be wrong.

Far from welcoming the renaissance of the American fossil fuel industry, the Obama Regime has fought it tooth and nail. It is attacking shale oil and gas with every tool at its disposal. Its Department of the Interior has undertaken a jihad against them. It has locked away from exploration and development vast new areas of the Midwest and has waged a war against conventional offshore drilling. It is now doing its best to stop the new technological drilling, even in lands that have been drilled conventionally before.

The Green Regime’s SEC has entered the fray, demanding that companies like Continental follow new Sarbanes-Oxley requirements about reporting royalty and production figures, meaning that CEOs like Hamm face jail time if some low-level operator misreports production from a field.

Ironically, the feds never apply Sarbanes-Oxley to themselves. If Obama or any of his administration misreports taxpayer liabilities, say, for solar industry loans, nobody faces any consequences.

In addition, the Regime is pushing de facto tax increases for the oil and gas industry, by ending various tax credits the oil industry has long enjoyed. This — coming from an administration lavish in its subsidies to minor and expensive energy sources such as solar, wind, geothermal, and ethanol — is from the point of view of physical science simply bizarre.

Finally, the Green Dream Team has brought its Justice Department into the jihad. It recently brought charges against seven oil companies in North Dakota for killing 28 birds. Continental has been accused of killing — one bird! But this is not a minor matter: the executives face six months in jail if convicted. (Note: The same Justice Department has never even once pursued any American wind power company, even though American wind power facilities kill on the order of half a million birds a year.)

But even as the Regime wages its jihad against domestic fossil fuel industries, other countries are moving ahead with the new fossil fuel technologies. As I noted in an earlier piece, Israel has set about using fracking to free itself from reliance on foreign sources of oil, which would mean changing the balance of power in the Middle East. Israel is using fracking to exploit some major fields, the most recent being a field (named “Leviathan”) which holds 16 trillion cubic feet of natural gas, or about a century’s worth of gas at Israel’s current usage. This field is only part of the massive Levant Basin shale field, which holds upwards of 122 trillion cubic feet of natural gas, or about eight centuries’ worth.

More recently, a small energy player in the UK has announced that the Bowland Shale field, in northwest England, contains an estimated 200 trillion cubic feet of natural gas. This estimate (by Cuadrilla Resources) means that this one shale field contains enough natural gas for two-thirds of a century of the UK’s needs at present levels. And that is only one field.

The British boom is being echoed elsewhere in Europe, where other countries are also turning to fracked gas — except France, which has outlawed shale gas exploration altogether, one suspects to protect its nuclear industry from competition. But Poland, for instance, has an estimated 187 trillion cubic feet of shale gas. This is geopolitically game-changing, considering that Poland now has to import its natural gas from neighboring Russia, a country that historically has kept trying to incorporate Poland into its empire.

Note the extremism of Banks’ demand: don’t even explore, much less try to use, resources until they are proven, to her ilk, to be perfectly safe—something that will never happen.

This discovery in the UK comes just in time to stop its increasing dependence on natural gas from the Middle East and Norway. But — naturally — the British energy suppliers are facing the same kneejerk environmentalist opposition that Hamm and other American suppliers do. Soi-disant environmentalists in Britain are roused in furious opposition. Jenny Banks, the “energy policy officer” for the environmentalist group WWF (World Wildlife Fund) demands, “The government should at the very least halt shale gas exploration in Britain until more research can be undertaken on both the climate-change impacts and contamination risks associated with shale gas.” Note the extremism of her demand: don’t even explore, much less try to use, resources until they are proven, to her ilk, to be perfectly safe—something that will never happen.

What explains this visceral hostility to a product the human race desperately needs, and the pushing of forms of energy that have proven time and again to be commercial losers?

The answer is that much of the environmentalist movement consists of two groups: neo-socialists, and neo-Romantic pagans. The former profess a love of the ecosystem but are really animated by a hatred of capitalism. These are the people who never uttered a peep about environmental degradation when the Soviet Empire was cheerfully despoiling the ecosystem, but who now wax furious at the thought that a capitalist — a capitalist — should even explore for oil. Should Vladimir Putin or Hugo Chavez start using fracking, why, instantly, fracking would be fine.

The second group, even more bizarre, is populated by those I have characterized elsewhere as self-loathing hominids, i.e., people who are ideologically misanthropic. They view their own species as vile and disgusting, literally a blight upon the planet. The thing they fear most is precisely the discovery of inexhaustible, inexpensive energy. They fear it because such energy would allow the human race to flourish, and these self-loathing hominids do not want the human race to flourish. To them, rats and roaches are wonderful, but children are not.

You simply can’t please these worshipers of Thanatos.

But the rest of us should rejoice in the renaissance of fossil fuels. Unlike the green energy sources that have done so pathetically little to help humanity, it holds the promise of inexpensive energy on which our continued prosperity depends.




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