Replies to This Discussion

Permalink Reply by jim weyland on July 13, 2014 at 4:31

fwiw, its my understanding that up until a little over a year ago, even the saudis were still pricing their gulf coast bound cargoes under wti price terms.

having spent a couple of years in the army, i'd say the dod is pretty much up on its game. shoot, they're only about a year behind the sauds. and, that makes them both only two to three years behind the world oil marketplace learning curve.

• ▶ Reply

Permalink Reply by Steve P on July 13, 2014 at 10:49

Interesting article.  Having spent much of my career dealing with government contracting and accounting methods, this doesn't surprise me too much although I had never thought about the fuel purchase practices of DoD..  while it might sense for the Pentagon to hedge the price of fuel purchases, hedging is nearly always a risky business practice and career government bureaucrats, including uniformed officers, aren't prone to take on things like this.  If the hedging worked, no one would ever know about it outside of some small cadre of management at the Pentagon, and if it didn't work, they would have Congressional Hearings for the next 3 years and endless articles on the front pages of all of the national newspapers.  It would require leadership and direction from the true upper management of the Pentagon - the political appointees - to push something like this through the system.  And for nearly all of them, this would be far outside of their skill set - very far.  

But I do like the idea of tapping, one way or another, production from federal lands, including off-shore leases, as a type of hedge.  40 years ago the La. Mineral Board introduced  a "take or pay" provision in the royalties on mineral leases on state-owned minerals.  The idea was to take the royalties "in-kind" and ship the gas through the intrastate gas pipelines to La-based industries that were being "curtailed" so we could ship our gas to the Northeast and Midwest for "higher use."   

If the Pentagon could figure out how to take advantage of federal-owned mineral reserves, that might help.  No Wall Street or K Street (lobbyists in DC) involvement.  Let's see, 2 years to refine the idea inside the Pentagon, 2 years to negotiate the arrangement with Interior, 3 years for official "rule making" through the Federal Register and administrative law process for both agencies, and 2 years to implement.

• ▶ Reply