Could Gas Prices Go South?
No new prehistoric zooplankton and algae are dying. That’s the best part of the peak oil argument. Oil prices currently hover around a $90 a barrel- and have shown a slight decline- because many people believe we’re getting to the bottom of this keg, while serving more customers than ever. That line of reasoning ignores the back room where there could very well be a stash that can keep this party going.
Oil doesn’t have to be $90 a barrel. That’s the short-term price, based on supply that’s more or less fixed for five years into the future. Looking at the long term is tougher, for both peak-oil Chicken Littles and the Hummer sales force. In other words, any price that goes up, can also come down.
If your two-year-old wants more fries, McDonalds will sell you more fries. They don’t have to find new fields in which to plant new potatoes, then harvest, chop and fry. If they did, and you asked for more, they’d ask what you’d pay. You and the other parents with kids screaming for more fries could bid the cost up to $100 bag.
According to the International Energy Agency, the world is pumping out about 85 million barrels of oil a day. The world wants about 86 million barrels. That inequality forces up the price. Traders literally bid on futures, pushing it skyward. But, the more a barrel is worth, the more oil suppliers want to supply. And, the more a barrel costs, the less consumers are inclined to buy. All of which can– and should– pull prices back down.
Ironically, given how fast oil can propel a Gallardo or a Gulfstream, the world of gooey, gunky oil goes slow. Once significantly motivated to reach for higher fruit, it can take years for energy companies to pick it. Oil from shale, tar sands, deep Gulf of Mexico waters or the Arctic is ready and waiting; it’s just not easily accessible. It takes time and money to gear up. None of the tough stuff was considered profitable for $15 or $20 a barrel. When oil gets above $30 they wake up the engineers. When it nears $100, all sorts of new production possibilities arise.
Unless you’re The Organization of the Petroleum Exporting Countries. OPEC can probably increase production tomorrow afternoon. They talk about it all the time, because while they’re making tons of money now, they don’t want their gravy train to, you know, end up like America's passenger trains.
In 1981, while oil traded at $39.50 a barrel (roughly equivalent to $100 today), Saudi oil minister Sheik Yamani warned, “If we force Western governments into finding alternative sources of energy, they will. This will take them no more than seven to ten years.” Yeah, and that’s before global warming had it’s own Oscar and hybrids were bred for Merlot.
High gas prices can also enhance– if not trigger– an economic downturn, which fuels decreases in demand for oil, again forcing a return to a more palatable equilibrium. “Prices may move substantially lower if the economy keeps worsening and OPEC continues to boost production,” Rick Mueller, Director of Oil Practice at Energy Security Analysis Inc., told Bloomberg News recently. “There could be a series of large inventory builds as demand slips. Prices could easily fall into the $70s if this occurs.”
The price could drop even lower. Ethanol flows now, with new development techniques on the horizon and subsidies on the books. Energy from natural gas, nuclear and conservation increases each quarter.
Not that we’ll ever see $10 barrels again. While supply CAN climb, the world’s demand for oil IS climbing. It goes up by around a million barrels per day, every year. The US is the biggest pig at the trough, but China and India slurp up more and more each year.
Jeroen van der Veer, Chief Executive of Royal Dutch Shell (the world’s second largest oil company), told his staff in late January that output of conventional oil and gas was close to peaking. He wrote: "After 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."
British Petroleum (the world’s third largest oil company) Special Economic Advisor Peter Davies agrees in part. But Davies believes demand is going to reel in production. Reporting to Parliament in January: “BP has proven the world has oil reserves of 1.2 trillion barrels, enough to sustain current output for 40 years.” Davies thinks the globe can crank out 100 million barrels per day, covering demand and pressuring price.
Put another way, enough ancient plant matter died to get us to 2050. We’ll need more sustainable energy after that, regardless of whether or not you believe humans spit in the winds of climate change. Sure, oil consumption will eventually be extinct, but in the near future gas may stop taking such a big chop out of your paycheck.
KixStart on Feb 13, 2008
Phil Ressler wrote: ... many things, quite a bit of it wrong. Just to hit a few things that struck me as particularly entertaining... First, Phil, your remarks on methane indicate that you didn't read the IPCC report and have no real clue as to the current state of thinking on AGW theory. The fact is, methane is considered. It would be very hard to read the IPCC report or most of the literature with any kind of intent to develop understanding without coming across SOME discussion of methane. Consequently, Phil, my respect for you, never very high, has dropped to precisely zilch. In fact, Phil's tack here, to claim that so-and-so isn't considered, so the report is crap, is often the case in "the debate"... but usually the yahoos objecting that so-and-so wasn't considered aren't quite as glib as Phil. I have yet, in fact, to read remarks from some yahoo to the effect effect that so-and-so was ignored, then look in the report and find that said yahoo was right, that so-and-so was not considered. With one exception... cosmic rays, which Phil thoughtfully included, somewhere up there. I'm not sure that cosmic rays are in the IPCC report or much of the other literature. And I'm not going to look. See, the problem with cosmic rays is that there's no developed theory of Cosmic Ray Warming, no mechanism proposed, let alone understood or tested, no amount of squinting at the data persuades anyone that there's any relationship at all, there's just one or two astronomers-cum-atmospheric scientists who believe in it and none of the rest of us would have heard of is except that the American Enterprise Institute or some such similar outfit was able to seize on this and use it to swat at considered AGW theory. "Hey! No Cosmic Ray Warming Theory! Your Report Is Crap!" (*) However, a few guys will eventually find a way to disprove the Cosmic Ray Warming Theory, or, possible work it into the model waaaay to far to the wrong side of the decimal point for it to have any meaning at all... ...at which time AEI will discover some other scientists who have discovered the Pixie Dust Warming Theory... And we'll be back to Square One. (**) CO2 and Man's "scant" contribution. One must admire Phil for his ability to pick catchy words. And ignore the data. Our "scant" contribution is 25% of the CO2 in the atmosphere. And that's not our respiration, that's shit that we dug up and burned. "Scant..." OK... here's "scant..." You put 3 tablespoons of Folger's crystals and a scant dusting of chili powder into boiling water to make a cup of coffee that's just a bit zesty. However, what we have in atmospheric CO2 is 3 tablespoons of Folger's and 1 tablespoon of chili powder in the water. I invite TTAC readers to try that recipe and let me know how it is. When we get to policy, Phil goes with the One-Size-Fits-All Condemnation. NONE of use are serious because SOME of us are crazy. Well, not even crazy, they just favor policy initiatives that strike Phil as being of marginal utility. Phil should get out and meet more greenies. One of the founders of Greenpeace favors additional nuclear power. The band should be playing, "The World Turned Upside Down," as at Yorktown. But I guess that guy isn't in Phil's Rolodex. I'm not particularly opposed to nukes myself, but they do carry big risks and I would like to see adequate safeguards. Do you know who doesn't like nukes? I mean, besides whoever you've picked to live next to it? Power companies! Surprised? Don't be. Power companies don't like big capital projects and there aren't too many capital projects that are bigger than nukes. What's a nuke today? $10 billion? More? That's a crapload of bonds. It's a craplod of interest before you get the first watt out. Phil also mentioned CO2 sequestering... "extant and evolving." I've read about this, off and on and it's in demo-mode somewhere in Norway or some such place. Here's the part I like... sequestering the CO2 takes 40% of the power generated by the plant. I don't know of anyone who's proposing this can be improved much in the near term. I mean, look at it... you've got a crapload of reeeeally hot gas going up a pipe and you want to liquefy it? You don't have to be a rocket scientist to know that's going to require some sort of energy. You can do it but it makes your power 60% more costly. Seems like such a waste. However, SPV prices are poised to hit $1/peak watt, which has long been thought to be the Holy Grail of SPV pricing. That's the price where it's competitive with other forms of generation. Windmills can now deliver power for $.05/KWH, competitive with everything but fully amortized nukes and hydro. And, solar and wind power come on line fast. If you can get 2/10, net 30 on your SPV installation, you can hold the check until AFTER the first watt is delivered. No interest fees until it's working for you. As for the personal car, mobility might be one of the keys to wealth creation but there's more than one way to get mobility. The Japanese work overtime to keep people out of their cars and still, somehow, have a high level of economic activity. If the car goes into decline and we replace it with an infrastructure that is supported by public transit, I won't miss commuting at all. And it's wonderful to wax all poetic about wealth creation and the third world but they live a lot closer to the land than we do... changes in the environment are going to fall disproportionately on them. And we're the ones operating the big burners. We have the principal responsibility. (*) I am exaggerating a little... Cosmic Rays are actually being studied but the mechanism and effects are 100% speculation. (**) However, here, I am not exaggerating at all. The AEI or someone like them will propose ever more ridiculous objections, not to advance anything but to stall.
Phil Ressler on Feb 13, 2008The fact is, methane is considered. It would be very hard to read the IPCC report or most of the literature with any kind of intent to develop understanding without coming across SOME discussion of methane. I made no reference to the IPCC with respect to methane. My point is that in most policy responses proposed for addressing alleged anthropogenic global warming, methane reduction is seldom included, yet any methane reduced has about 7X the greenhouse leverage of equivalent volume carbon reduction. Seems like it ought to be included in policy proposals. With one exception… cosmic rays, which Phil thoughtfully included, somewhere up there. I’m not sure that cosmic rays are in the IPCC report or much of the other literature. My recollection is that cosmic rays are mentioned in the IPCC report, but again, the IPCC isn't the point of discussion in my post you are referring to, and I've not made much of that possible factor. See, the problem with cosmic rays is that there’s no developed theory of Cosmic Ray Warming, no mechanism proposed, let alone understood or tested, no amount of squinting at the data persuades anyone that there’s any relationship at all, there’s just one or two astronomers-cum-atmospheric scientists who believe in it and none of the rest of us would have heard of is except that the American Enterprise Institute or some such similar outfit was able to seize on this and use it to swat at considered AGW theory. “Hey! No Cosmic Ray Warming Theory! Your Report Is Crap!” My inclusion of cosmic rays in a list of additional climate inputs was both incidental and in response to a prior poster raising this as a distraction. I went on to focus my response on solar irradiance variability, which is well understood and increasingly documented. But the fact that only a small population of astronomers draw a connection between cosmic ray inputs and climate change does not by itself invalidate their postulate. You've done this before -- position science as a popularity contest. Most of us know better. Cosmic ray influences are an open question. Our “scant” contribution is 25% of the CO2 in the atmosphere. This claim is based on the theory that our relatively small CO2 contribution is cumulative and somehow natural contributors are not; and further that the planet's carbon assimilation capability is fixed. Vast natural contributors, which dwarf man's carbon contribution, vary too. Phil should get out and meet more greenies. One of the founders of Greenpeace favors additional nuclear power. The band should be playing, “The World Turned Upside Down,” as at Yorktown. But I guess that guy isn’t in Phil’s Rolodex. Good for him. When the green movement is actively and loudly backing nuclear power I'll consider them on board. The prevailing green position is deprivation and rollback, not advancement, as well as preference for utopia over hard practical choices. When I see greens picketing new coal plant construction with signs and chants demanding a nuke instead, I'll know their thinking has changed. Phil also mentioned CO2 sequestering… “extant and evolving.” I’ve read about this, off and on and it’s in demo-mode somewhere in Norway or some such place. Here’s the part I like… sequestering the CO2 takes 40% of the power generated by the plant. I don’t know of anyone who’s proposing this can be improved much in the near term. I mean, look at it… you’ve got a crapload of reeeeally hot gas going up a pipe and you want to liquefy it? You don’t have to be a rocket scientist to know that’s going to require some sort of energy. You can do it but it makes your power 60% more costly. Seems like such a waste. If you believe CO2 release from human-instigated combustion must be curtailed, then the energy required for sequestering is simply a cost that will decline. The energy-intensive nature of sequestering techniques is a start. As with every other new technical development, deployment will speed improvements. The state of the art today is not the limit of what will be. The point is, either you are serious about carbon reduction or you're not. If you truly believe we have an emergency, then fixed-location power generation carbon sequestering is the fast track to addressing your alarm. You overlooked the fact that a succession of my posts on this repeatedly point out that carbon reduction can be achieved with a mix of sequestering and transfer of fossil-based generation to non-fossil alternatives including large scale solar farming, mass adoption of rooftop solar, wind, etc. The key point is that alpha leverage is not in attacking the automobile. Replacing the entire US automotive fleet with vehicles matching Prius-like efficiency would save only about 1/4th the carbon contribution that can be achieved through coal plant non-fossil substitution or sequestering. If you believe climate change is anthropogenic, then get your public policy response in line with means for real progress. As for the personal car, mobility might be one of the keys to wealth creation but there’s more than one way to get mobility. The Japanese work overtime to keep people out of their cars and still, somehow, have a high level of economic activity. If the car goes into decline and we replace it with an infrastructure that is supported by public transit, I won’t miss commuting at all. Japan has more than 100mm people occupying a land space about the size of California. We don't, and won't, have comparable population density. And while Japan has high GDP, domestically its people do not have concomitant participation in their aggregate wealth, nor American-style portability of opportunity. The matrixed nature of the American economy is part of its adaptive advantage, and that includes the fluidity of a population able to readily change jobs, network, collaborate in a freely portable manner. Public transit will never equal private transportation in this respect in a distributed society. For the average Japanese person, American-style flexibility and opportunity is a marvel. And it’s wonderful to wax all poetic about wealth creation and the third world but they live a lot closer to the land than we do… changes in the environment are going to fall disproportionately on them. Yes....if they stay poor. Economic expansion and further dispersed technical development enabled by spreading wealth creation are the only practical mitigators to environmental adversity regardless what's instigated it. I'm not sure what your intent was with the prior post. Consequently, Phil, my respect for you, never very high, has dropped to precisely zilch. Somehow I'm unperturbed. Perhaps this development is actually an achievement. Phil
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