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There's No Justification for Crude Oil Prices in the Stratosphere
thestreet.com ^ | BY David Meyers | 06/09/14 - 06:00 AM EDT | BY David Meyers

Posted on 06/09/2014 5:07:51 AM PDT by ckilmer

There's No Justification for Crude Oil Prices in the Stratosphere

NEW YORK (TheStreet) --Speculation for crude has been rampant over the past six months.  Despite the fact that we are merely one month and 0.03% away from making an all-time high in crude oil supplies, we're seeing WTI crude at $102.76. If the price was based purely on a supply/demand theory, we should be in the low $80s.

We've all heard market pundits mention the U.S. should repeal all the laws prohibiting the exportation of crude oil. What they don't mention is these laws have not prevented these companies from exporting all forms of refined products. We have doubled our exports of gasoline in the past five years. Despite this, people are paying about $4 per gallon at the pump. Regardless of what you feel about fracking, it has produced huge amounts of oil.

Recently, U.S. refineries decreased production to about 9.5 million barrels a day. Despite this decrease we saw an uptick in the surplus of gasoline by 0.2 million barrels. This shows us the demand is slightly down while prices continue to climb.

Why? Well there have been several reasons over the last six months to believe that crude may spike. Russia, a major producer, was playing a risky game of geopolitics with Ukraine and the rest of Europe. Things were tense and worries were high that the supply they gave Europe could be turned off. Libya, a very minor producer in the global landscape, had a revolt where rebels stormed the capital. They were already only running on a fraction of capacity. Iran, another major player, had been hit with major sanctions limiting its output.

 

 

For the most part, all of these political fears have been resolved. Putin appears to be playing nice, and is even telling Ukraine it has more time to pay its natural gas bills. Libya has calmed down to a whimper. Iran not only had been ignoring earlier sanctions, the U.S. gave it the green light to go ahead and produce as much as it wanted as long as it discontinued the nuclear program. T

This all has happened while Canada realized the oil sands in Alberta, in addition to not drying up, were yielding much more than originally thought. Just for this area alone Canada is realizing there will be an increase of 72,000 barrels a day than originally expected.

Due to the invention of fracking, U.S. production was up 14% in 2012 and 15% higher in 2013. Just since January of this year crude production is up roughly 12% again. North Dakota and Texas are responsible for the vast majority of this production, but it is only a matter of time until they find another hot spot somewhere in the U.S.

We are literally at the point where we are running out of storage room for our crude and companies are distilling it for export.

What's the point? There's no longer any excuse for us to be paying more than $3 per gallon at the pump. We're all for using cleaner energy and getting rid of crude, but in the meanwhile prices should be much lower.  The entire 25% difference would be going directly to GDP in the long run.

Speculators, wake up! With all the geopolitical issues resolving themselves... crude isn't worth $103 per barrel.


TOPICS: Business/Economy
KEYWORDS: energy; oil; oilprice
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1 posted on 06/09/2014 5:07:51 AM PDT by ckilmer
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To: ckilmer

Since demand keeps dropping.


2 posted on 06/09/2014 5:11:05 AM PDT by Jack Hydrazine (Pubbies = national collectivists; Dems = international collectivists; We need a second party!)
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To: thackney; Kennard; bestintxas

On the one hand its best for frackers to have oil at these prices. On the other other hand its nicer to pay 3.00 at the pump than 3.60 or so. On the third hand, I saw an article the other day about the majors saying they needed oil at about 120@barrel to do the arctic drilling and other speculative—big cost up front— drilling.


3 posted on 06/09/2014 5:11:38 AM PDT by ckilmer
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To: ckilmer
I don't understand calling stocks supplies. Nor do I find their description honest.


4 posted on 06/09/2014 5:14:03 AM PDT by thackney (life is fragile, handle with prayer)
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To: Jack Hydrazine
Image and video hosting by TinyPic

Image and video hosting by TinyPic

5 posted on 06/09/2014 5:17:14 AM PDT by thackney (life is fragile, handle with prayer)
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To: ckilmer; thackney
I'm no investor nor do I understand the whole gas/oil industry, but I've entertained the same thought/question for about 6 months

We get reports here in FR about how much oil we're producing and how we are rapidly approaching the world's largest producer/refiner and yet .. we have gasoline pushing 4 dollars.

I have the same question ...

why ?

6 posted on 06/09/2014 5:17:19 AM PDT by knarf (I say things that are true .. I have no proof .. but they're true.)
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To: knarf
An old oil trader I knew explained it thus:

Pigs get fat.
Hogs get slaughtered.

7 posted on 06/09/2014 5:22:19 AM PDT by Eric in the Ozarks (Rip it out by the roots.)
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To: knarf

See the chart posted above. Global consumption is climbing. We still continue to import significant amounts of oil, not much less than we produce ourselves.

Our production has been climbing due to the relatively high prices. Otherwise we would not see the climb in production and more of our dollars would be going to OPEC rather than staying in the US.


8 posted on 06/09/2014 5:22:54 AM PDT by thackney (life is fragile, handle with prayer)
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To: ckilmer

Actually there is a great excuse, perhaps the greatest ever.

The Democrats must be defeated, trashed, destroyed in November.

To give them the advantage of lower gas prices would be counter productive, even tragic.

American business has decided that the end to the Obama tyranny can be forced by concerted action. American business has taken all it will take and is using the weapons at hand to fight back.

The high gas prices are the answer to the question. “Do we depose the President by coup d’état or by using our business capabilities to destroy him?”


9 posted on 06/09/2014 5:23:13 AM PDT by bert ((K.E. N.P. N.C. +12 ..... History is a process, not an event)
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To: knarf

“why ?”

This all makes a lot more sense if you look at it from the other direction.

Thanks to years of deficit spending and money printing the US fiat dollar is now worth only 1/3 of a gallon of gas, or 1/1200 of an ounce of gold. If this country doesn’t change course immediately I would expect the US dollar to shortly be worth only 1/10th of a gallon of gas or 1/5000th of an ounce of gold, or perhaps far less.


10 posted on 06/09/2014 5:26:26 AM PDT by Junk Silver
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To: knarf

Why? Because we are paying based on world supply/demand, regardless of local supply/demand.

Forget OPEC, we are being reamed by our own oil industry.

Never mind the fact that it is cheaper drill/refine/sell it here, as opposed to shipping it across the world. You are paying the world price.


11 posted on 06/09/2014 5:27:31 AM PDT by Beagle8U (Unions are an Affirmative Action program for Slackers! .)
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To: Junk Silver

12 posted on 06/09/2014 5:28:23 AM PDT by thackney (life is fragile, handle with prayer)
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To: ckilmer

Russia


13 posted on 06/09/2014 5:28:55 AM PDT by AppyPappy
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To: Beagle8U

You think it is cheaper to produce from our tight shale formations than the massive flow from Saudi’s Ghawar?


14 posted on 06/09/2014 5:29:51 AM PDT by thackney (life is fragile, handle with prayer)
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To: Junk Silver

Bullseye!


15 posted on 06/09/2014 5:30:37 AM PDT by tgusa (gun control: deep breath, sight alignment, squeeze the trigger .......)
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To: thackney

Subtract the terrorism and shipping, yes.


16 posted on 06/09/2014 5:31:23 AM PDT by Beagle8U (Unions are an Affirmative Action program for Slackers! .)
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To: Beagle8U

Nope.


17 posted on 06/09/2014 5:31:56 AM PDT by thackney (life is fragile, handle with prayer)
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To: knarf

More people around the world are using oil and the refined products from that oil.

Millions more Chinese, Russians, Indians, etc. own cars than they did just a few years ago and they are willing to pay the price to drive them.

China has also been stockpiling.


18 posted on 06/09/2014 5:38:34 AM PDT by IMR 4350
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To: bert
To give them the advantage of lower gas prices would be counter productive, even tragic.

If you think the election of a Republican in 2016 would result in significantly lower gas prices then you're fooling yourself.

19 posted on 06/09/2014 5:39:10 AM PDT by DoodleDawg
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To: thackney
Thank you!

This is a much better way to compare commodity prices.

$USD is like pricing in Charmin these days (except for Venezuela).

20 posted on 06/09/2014 5:49:03 AM PDT by Aevery_Freeman (Historians will refer to this administration as "The Half-Black Plague.")
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To: bert

Actually there is a great excuse, perhaps the greatest ever.

The Democrats must be defeated, trashed, destroyed in November.
................
You probably have the right take on the article writers politics. The guy wants lower oil prices to benefit dems.


21 posted on 06/09/2014 5:55:40 AM PDT by ckilmer
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To: Jack Hydrazine

Since demand keeps dropping.
............
Its overseas demand that drives prices.


22 posted on 06/09/2014 5:56:59 AM PDT by ckilmer
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To: knarf
"why?"

As others have pointed out, it is a global market and the price of oil is largely driven by demand for gasoline.

Demand for gasoline in the US peaked, has fallen, and will continue to fall because of the rising CAFE standards.

OTOH, around the world, there is a rise in income, increasing middle class, reductions in poverty. More and more people buying cars and the gasoline to fuel their cars.

So the price of oil and price of gasoline is being driven by consumers in China and other Asian nations, and consumers in Mexico, Brazil, and Latin America.

US exports of gasoline and diesel are at record levels, the most since WW2.

It is legal for US oil producers to export oil only to Canada and Mexico. Mexico doesn't need US oil, but we are exporting record amounts of oil to Canada because The eastern Canadian refiners are set up for the sweet light Brent crude oil and they want the sweet light shale oil produced in the US(Bakken-Eagle Ford) to replace the Brent crude.

As you probably have noticed, US oil producers are agitating, for Obama, Congress, or both to relax oil exports regulations to allow them to export oil to nations other than Canada/Mexico.

And the refiners are agitating to get the Keystone pipeline completed to get more of the Alberta heavy crude down to the refiners on the gulf coast.

Rather than thinking of the US in terms of importing and exporting oil, refined product, natural gas, energy. Think of the US as a Trader of these products.

Traders, whatever they are trading, always benefit monetarily more than the producers and consumers.

23 posted on 06/09/2014 6:28:33 AM PDT by Ben Ficklin
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To: Ben Ficklin

Why don’t we see refineries being built nearer to the oil fields to reduce the cost of transportation of the product??


24 posted on 06/09/2014 6:51:31 AM PDT by elpadre (AfganistaMr Obama said the goal was to "disrupt, dismantle and defeat al-hereQaeda" and its allies.)
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To: ckilmer

“..The guy wants lower oil prices to benefit dems...”

OK I am not well versed in oil politics - that’s a given.
However, the way I see it lower costs at the pumps benefits all Americans - from the over the road truckers, air lines, manufacturers, etc. to my greatest daily expense - the price I pay for gasoline.


25 posted on 06/09/2014 6:57:21 AM PDT by elpadre (AfganistaMr Obama said the goal was to "disrupt, dismantle and defeat al-hereQaeda" and its allies.)
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To: Ben Ficklin

Light distillates are the fastest-growing refined product category

http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy-2013/review-by-energy-type/oil/oil-product-consumption.html


26 posted on 06/09/2014 7:19:25 AM PDT by thackney (life is fragile, handle with prayer)
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To: elpadre

Because it is cheaper to move crude oil the distance than to build new refineries, tear down old refineries, then build new product pipelines and other transportation for gasoline, diesel, jet fuel, heavy fuel oil, chemicals feedstocks, sulfur, petroleum coke, and all the other products that come out of a refinery.


27 posted on 06/09/2014 7:22:36 AM PDT by thackney (life is fragile, handle with prayer)
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To: elpadre
Refined product has to be transported also, except after refining, many different products have to be transported.

Oil is converted to different grades of gasoline, diesel, kerosene, jet fuel, solvents, heating oil, precursors for synthetic chemicals/plastics, paint, ink, tar for roads and roofs, shingles, petroleum coke which is burned to produce electricity, condoms & combs, to name a few.

28 posted on 06/09/2014 7:27:57 AM PDT by Ben Ficklin
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To: elpadre
Why don’t we see refineries being built nearer to the oil fields to reduce the cost of transportation of the product??

NIMBY. Have you ever smelled the effluent that a refinery produces?

29 posted on 06/09/2014 7:29:09 AM PDT by DeFault User
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To: DeFault User

The modern refineries typically release cooling water cleaner than the water they take in, if they have any release at all.


30 posted on 06/09/2014 7:37:29 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

I was mainly referring to the smell.


31 posted on 06/09/2014 7:46:36 AM PDT by DeFault User
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To: Junk Silver

My Grocery bill agrees with your analysis.


32 posted on 06/09/2014 7:54:29 AM PDT by crusher2013
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To: ckilmer
In a honest market with actual competitors, supply and demand will rule.
In a contrived, connived, artificially price fixed market you get what we got now.
Kick in our corrupt government, its' involvement and the consumer is screwed even worse.
33 posted on 06/09/2014 7:56:39 AM PDT by The Cajun (tea party!!!, Sarah Palin, Mark Levin, Ted Cruz, Mike Lee, Louie Gohmert......Nuff said.)
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To: The Cajun

News update says oil is surging, up today more than $1, above $104/bbl.


34 posted on 06/09/2014 8:05:18 AM PDT by citizen (There is always free government cheese in the mouse trap.....https://twitter.com/kracker0)
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To: thackney

“The modern refineries typically release cooling water cleaner than the water they take in, if they have any release at all.”

Nope.

Industrial cooling tower water systems constantly release a percentage of the circulated water as purge. The purge controls the build up of contaminants in the closed system.

That’s exactly what you do to your car glycol cooling system. The “purge” is intermittent every thousands or miles or number of years, recommended by the manufacturer. Draining, flushing and replacing with fresh 50% glycol fill.

Some plants use potable water for cooling tower systems. No way that the cooling water will come out cleaner. IOW, good for human consumption as the same potable water used to fill cooling systems.

http://www.ecy.wa.gov/programs/air/pdfs/cooling3.pdf

Once-through cooling water systems such as river water and seawater are different animals.


35 posted on 06/09/2014 8:16:52 AM PDT by melancholy
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To: melancholy

I’ve seen several refineries and Chem plants that had to significantly clean the canal, river etc before the water can be used in the plant. The resulting release water is often cleaner than the original intake.


36 posted on 06/09/2014 9:21:09 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

“I’ve seen several refineries and Chem plants that had to significantly clean the canal, river etc before the water can be used in the plant.”

Yes. Using multiple filters to remove mud, dirt and what have you to protect the cooling water system equipment from deposits, plugging, etc.

“The resulting release water is often cleaner than the original intake.”

No. Only “clearer” water. The back flush of filters using same river water is pumped back in the river. IOW, you saw the clearer water but not the back flush carrying what was in it in the first place because of a different exit point into the river downstream the first one.

Assuming not adding any chemicals to a one through cooling system, the effluent temperature shouldn’t exceed certain temperature according to regulation and may have to be cooled before pumping back to the river.


37 posted on 06/09/2014 9:48:12 AM PDT by melancholy
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To: elpadre

However, the way I see it lower costs at the pumps benefits all Americans -
.............
I don’t disagree.


38 posted on 06/09/2014 10:33:38 AM PDT by ckilmer
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To: melancholy

No, I mean skimmers and separators on the intakes. I’m not talking about a visual measurement.


39 posted on 06/09/2014 10:36:39 AM PDT by thackney (life is fragile, handle with prayer)
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To: elpadre

Just a guess but you could move crude in one pipeline but you would have to build dozens of pipes to carry the various distillates.


40 posted on 06/09/2014 11:14:11 AM PDT by dangerdoc
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To: thackney

“No, I mean skimmers and separators on the intakes. I’m not talking about a visual measurement.”

Whatever quality of water goes into the plant cooling system comes out more polluted because of equipment leaks...nothing is a 100%.

You can’t see this with the naked eye.

The reject of the separators, skimmers and filters GO BACK INTO THE RIVER OR CANAL.

End result:

The quality of water upstream separating equipment = the quality of water downstream effluent out of the plant + the quality of back wash water from the separating equipment + tiny (hopefully) chemical leakage under allowable limits.

The above is a simple Material Balance in general. Other things like effluent temperature that could affect the River Eco System, exaggerated by the wild EPA, is a different story that’s not discussed here.

The above is the nuts and bolts. Where you look at or measure the quality of water all depends on the point in the River or the canal.


41 posted on 06/09/2014 11:14:38 AM PDT by melancholy
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To: melancholy

The reject of the separators, skimmers and filters GO BACK INTO THE RIVER OR CANAL.

- - - -

Your assumption is false. It is feed into the process and waste streams of the plant. Just as our storm water inside the plant boundaries.


42 posted on 06/09/2014 11:29:14 AM PDT by thackney (life is fragile, handle with prayer)
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To: dangerdoc

My only thought was:

having spent many years in the aluminum business we knew the ideal was to have alumina plants (where bauxite is reduced to alumina) as close to the bauxite mines as possible - smelters too, however they require massive quantities of electric power, so finding cheaper sources such as hydroelectric dams was needed.


43 posted on 06/09/2014 11:30:44 AM PDT by elpadre (AfganistaMr Obama said the goal was to "disrupt, dismantle and defeat al-hereQaeda" and its allies.)
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To: thackney

I think I’m going to use your own language to answer you.

Your statement in #30, “The modern refineries typically release cooling water cleaner than the water they take in, if they have any release at all.”

is totally FALSE and ......

Now you posted:

“”The reject of the separators, skimmers and filters GO BACK INTO THE RIVER OR CANAL.””

- - - -

“Your assumption is false.”

Here is my answer that you “missed” in my #35:

“”The back flush of filters using same river water is pumped back in the river. IOW, you saw the clearer water but not the back flush carrying what was in it in the first place because of a different exit point into the river downstream the first one.””

The OPERATIVE WORD IS “DOWNSTREAM!” Get it? Maybe further explanation about plant design is needed below.

You wrote:

“It is feed into the process and waste streams of the plant. Just as our storm water inside the plant boundaries.”

There’s a waste treatment plant inside the plant boundary. It’s sized for the maximum flow rate of plant waste effluent PLUS a safety factor. It’s NOT designed to handle the river water intake reject for many reasons.

The reject from the river water filters back wash, which is NOT contaminated, is pumped DOWNSTREAM (yeah, it’s that crazy word again) the waste treatment plant, IOW, IT BYPASSES the waste treatment plant inside the main plant boundary. It could be connected to the main plant effluent (cleaned up process waste) pipe and into the river at a specified minimum distance DOWNSTREAM the river water intake, or is run independently back to the river depending on pipe runs and cost.

Conclusion:

- my assumption was NOT an assumption. It’s simple engineering.

- it wasn’t false.

You should have read my post(s) thoroughly before jumping to the wrong conclusion or judgement.

Have a good day.


44 posted on 06/09/2014 12:50:16 PM PDT by melancholy
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To: melancholy

It’s NOT designed to handle the river water intake reject for many reasons.

- - - - -

That is not true for the chem plants and refineries I have dealt with water in Freeport and the greater Houston area.

The reject is NOT returned to the river. Their permits will NOT allow it. It may not make sense, as that is where it came from, but the EPA forces these major industries to make the water source cleaner than it currently exists by being forced to remove contaminants if they want to use it.


45 posted on 06/10/2014 4:32:10 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

“Their permits will NOT allow it. It may not make sense, as that is where it came from, but the EPA forces these major industries to make the water source cleaner than it currently exists by being forced to remove contaminants if they want to use it.”

Permits must have “evolved.”

“Contaminants” that are captured by filtration are not dissolved chemicals. They are silt, small pebbles, leaves, etc. And whatever passes through the intake pumps’ screens, supposedly.

The EPA is quite dumb to have the process plant’s waste effluent stream “diluted” by relatively clean river water. The probes on the effluent pipe would measure less chemical pollutants’ PPM or percentages than the real numbers in the treated stream without the extra load of clean water, especially if the back wash is relatively constant as in the 24/7 plants.

That’s what I have to say on the subject.


46 posted on 06/10/2014 11:15:42 AM PDT by melancholy
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To: melancholy

I didn’t say it made logic sense, it was based upon government permits.

Rotating screens or the like in the water were acceptable. Once it was taken into the the plants piping, any discharge, from any source, had a higher quality of the discharge than the original source of water.

These were places like on the Houston Ship Channel, the massive Freeport petrochem complex, Beaumont. They were all areas that in the past had very bad pollution in the water source. It surely was as you said, permits evolved over time.

I rarely work with that type of process of the plant. But they do need power for pumps, instrumentation, P&ID reviews; that is how I get involved. Strangely, I spent the morning with the City of Houston on helping to get an enlarged water intake from a canal out in Mont Belvieu. That facility has intake only, no outlets back to the water source.


47 posted on 06/10/2014 12:32:25 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

“I didn’t say it made logic sense,”

For the record, I didn’t say that you said that. Hence, permits “evolved.”

Just to make sure there’s no misunderstanding.

I used to do all those things from start to finish. I enjoyed drawing the PFDs and the P&IDs on CADD, a no no to my boss! I was too damn expensive to do that, but I managed to conspire with CADD managers...it saved me a lot of time on back-checking, supervision, esthetics, etc.

I delegated the garbage we were talking about because I hated it and it reminded me of exactly that; garbage!

I had to deal with waste personally, I mean, no delegation, when I dealt with live virus’ kill systems and had to make absolutely sure it’s dead through redundant systems. No cutting corners by clients or “it’s all right, it’ll work” attitude, NONE!


48 posted on 06/10/2014 1:22:27 PM PDT by melancholy
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To: melancholy
I understand what you are saying. I didn't think we were arguing at this point, just sharing past experience.

I enjoyed drawing the PFDs and the P&IDs on CADD, a no no to my boss!

An ongoing discussion my boss and I have. Not for piping but rather electrical/control systems. But I am a lousy checker of my own work when we are running fast.

49 posted on 06/10/2014 1:29:18 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

“I am a lousy checker of my own work when we are running fast.”

Nothing better than a fresh set of “experienced” eyes. We are not infallible.

I designed all kinds of plants. An important part of my job was to coordinate with all engineering disciplines. That included Architects when pharmaceutical or biochemical plants were involved.

Many moons ago, I insisted on our construction leads and/or outside construction contractor’s leads to attend the HAZOP meetings and final review of the P&IDs to incorporate relevant comments and “Issue For Construction.

I was also available for consultation on construction problems where pipe routing was required up to plant commissioning and start up.

It was a pleasure with some and a disaster with others whom I couldn’t explain my “absolutely not” meant just that!

Many issues were resolved amicably, however, some were resolved when I had to talk to their bosses or if it rarely “process” didn’t get it’s way, mainly because of personality conflict, my boss ORDERED theirs! :-)

Ah, well, it all worked out successfully at the end.


50 posted on 06/10/2014 2:15:28 PM PDT by melancholy
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