Tag: Petroleum

The Best of Lee: Peak Oil

You remember peak oil? Um, yeah:

Oil depletion studies commonly focus on the supply of conventional petroleum without as much attention to the other side of the equation, which is petroleum demand. In this study, we examine the trends affecting demand for conventional oil in the future to see under what conditions “peak demand” for oil might arise. We find that historical trends in oil use lead to a peak in demand for oil by well before mid-century. If concerted effort is made to shift to oil alternatives and promote efficiency, a demand decline may arise even sooner.

Note that this study isn’t talking about windmills and solar panels in particular. It is accounting for the explosion (no pun intended) of “unconventional liquids”, natural gas and biofuels. And they basically believe that conventional oil demand will peak by the 2030’s and then begin to fall off.

In short, our demand for oil is going to peak long before the supply does.

I had a whole post ready for this and then I remembered that the late great Lee wrote it for me five years ago, when he crushed the scares about Peak Oil. I’ll quote at length. Enjoy the brilliance.

In the late 1970s my cousin, who was at the time in her late teens or early 20s, came to visit my family in Australia. My father, as most of you know, was in the oil business, specifically the drilling aspect. He knew all there was to know about getting oil out of the ground. My cousin, a good soul, expressed great concern that “within ten years” the world’s supply of oil would be depleted, and regaled him with the horror stories of global doom that would accompany this eventuality. My father listened to her, then patiently explained how she had no idea what she was talking about, that her head had been filled full of mush by leftist professors, and the idea that the world would ever “run out” of oil is absurd. Remember, this was thirty years ago that we were “ten years” away from running out of oil. Oddly enough, we’re still now “ten years” away from running out of oil.

You would not believe the number of times I had this conversation with liberal coworkers in California, all of whom believed the peak oil nonsense. It’s a means by which left-leaning people scare other people into supporting environmentalist causes. We heard exactly the same thing in the 1970s about population explosion, how by the turn of the century there would be global starvation due to overpopulation. Oddly enough, not only did this never come to pass, but the exact opposite is true—in the aggregate, people the world over are better fed and living longer lives than at any time in their past.

People just think that one day there’s going to be a huge empty sucking sound coming out of the ground, like what happens when you get to the bottom of a milkshake. People who think this have no grasp of economics or a fundamental grasp of how oil markets work. This isn’t really anyone’s fault, these are specific areas of expertise, and it only makes sense that most people wouldn’t understand them. That being said, the fact that there’s a global consensus about something which most of the globe doesn’t understand thus makes the consensus argument completely worthless.

The difficult argument is to explain to people, calmly and rationally, the situation with oil. The easy thing to do is terrify people into thinking that, just like sucking on a milkshake, one day we’re just going to run out. As I’ve said before, technological advances will make oil obsolete long before we ever actually run out of it. If oil were actually in any danger of running out any time soon it would be $500,000 a barrel instead of $100. (That’s freshman economics, folks. Everyone should understand that.)

We need to develop clean technologies. We need electric cars. We need to be concerned with global warming and the environment. These are all legitimate, and you will find no bigger proponent of finding solutions to these problems than me. But what I refuse to do is buy into the Chicken Little syndrome whereby I wail and screech about how the world is going to end if I don’t support a particular political proposition. Kyoto was a stupid idea when it was first proposed during the Clinton administration, and there’s a reason it was voted down 95-0 in the Senate. (That’s right, liberals, not one member of the Democrats voted in favor of it.) But opposing bad legislation does not equal a desire to ignore the problem, it’s a disagreement about the means. And, given the total, utter, abject failure of Kyoto since its ratification the United States seems eerily prescient with its rejection.

Oil will never run out. Ever. There is too much money to be made in the technology industry for the world to keep relying solely on oil. We don’t need nightmares, we don’t need screaming histrionics, we don’t need end of the world scenarios. What we need are smart people taking the problem seriously, and finding workable, reasonable solutions to transition the world from a petroleum economy into the next generation.

In case you’re wondering, the current score is something like Lee 525, hysterical ignorant liberals 0.

Speculating About Oil

Gasoline prices have reached absurd levels. In my town – which is not exactly the most expensive market – the price today was $3.83 per gallon. This is kind of odd since we are not yet in the summer travel season and the global economy, while improving, is not exactly on fire. So what is driving it? As with all thing, the Left has their ready-made answer: eeeeevil speculators. But Ezra Klein has put up a great piece demonstrating why he’s one of the few liberals I take seriously, pointing that speculation is sometimes a good thing:

In essence, says energy analyst Stephen Schork, a lot of oil speculation works like insurance. Countries and companies that need oil are willing to pay a “risk premium” now in order to ensure that they’ll have oil at a reasonable price in the future, even if shortages erupt. Schork adds that oil speculators are typically piggybacking on fundamentals — like the fact that global supplies are tight.

Exactly. I’m reminded of the bitching after the last stock market bubble about evil short sellers. Short sellers are critical to the proper functioning of a market, injecting skepticism and concern about popular investments, keeping a lid on prices. In the case of the dotcom bubble and the real estate bubble, they were the only thing keeping the train from going completely off the tracks.

Speculation may not be as noble a pursuit as building expensive inflammable electric cars that no one wants or blowing hundred of millions on solar tech. But it is a critical part of functioning markets. And speculation, as Ezra notes, goes both ways.

By contrast, in the natural gas market, speculators are actually pushing prices down to decade-low levels. “That’s because the fundamentals in that market are the polar opposite,” Schork says.

You don’t hear anyone bitching about that because natural gas prices are irrelevant the belief that we are somehow entitled to cheap oil and if we aren’t getting it, it’s because of some evil Republican plot.

Or a Democratic one. Cato, perhaps feeling the need to tweak the Kochs in their legal fight, defends Obama from the charge that he is responsible for oil prices:

despite the popular perception of President Obama as anti-oil, domestic oil production is increasing for the first time since the Johnson administration. Alas, little of this has to do with the president. Prices increased from $22 in 2002 to just under $100 a barrel average in 2008 and supply has responded. President Obama is no more responsible for production increases than other presidents were responsible for production declines.

The liberals who loved to blame Bush for every oil price spike have been eerily silent on Obama’s culpability. But while I’d love to blame him, US production is up by a couple of million barrels a day. This is not his doing, of course: it’s the long slow response to the last price spike. While Obama has done everything he can to stand in the way, even he cannot control the market forces that are demanding and getting more oil.

And in the end, it is those market forces that are making my eyes pop out of my head at the pump, not some conspiracy. There’s no one factor driving this: it’s a mixture. World demand is up — not a lot, but enough. US demand is up. North Sea production is down. The oil we are getting is increasingly expensive to pull out off the ground — almost all the low-hanging fruit has been burned. Arab Spring spooked the markets, especially when Libya briefly halted production. Iran’s threat to close the Strait of Hormuz is that latest wrinkle, but that’s just another factor.

Some solutions have been proposed, but their impact would be minimal. Oil costs what it costs. More drilling won’t pay off for years and, because of the expense of future sites, won’t be that cheap. We should do it, but let’s not pretend it will drop oil to $16 a barrel. Better fuel efficiency standards and more cars running on electricity or gas might help in the long run, but efficiency is usually just matched by increased demand. Opening the Strategic Petroleum Reserve would help a little, but not much. And frankly I don’t think this has risen to the “break SPR glass in case of emergency” level yet. Cracking down on speculating, even if it were possible, would do nothing. It might even make the prices shocks worse.

In the end, we have to do what we always do: ride it out. We really don’t need a grand plan for remaking the Universe. Americans are already responding as they have in the past: driving less, driving smaller cars and conserving. Just today, te WSJ noted that the non-hybrid version of the Volt — the 40 mpg Cruze — is selling way better than the Volt itself, proving once again that consumers aren’t nearly as stupid as politicians.

But no President, Congressman or Senator is going to come out and say: “The oil market is tightening; deal with it.” Much easier to blame shadowy speculators and rapacious oil interests. I’d say it’s an election year but, with this crowd, it’s always an election year.

(Unrelated Note: You know, I am continually amazed at the tags tagaroo comes up with for my posts. “Crack spread” is one of its recommendations. I don’t even want to know what that means.)

Perspective…

This WSJ on Canada’s Oil sands producing a plethora of jobs deals real well with the difference between us and them when you get information like this:

Yet Canada has outperformed the U.S. since then. In 2010, according to the International Monetary Fund, Canada grew at 3.2% versus 2.9% in the U.S. In 2011, the IMF estimates Canada will grow at 2.9%; unemployment is now 7.3%. The IMF’s U.S. growth forecast is 2.5% this year, and U.S. unemployment is 9.1%.

But something else cought my eye in this article which I found far more damning. I will bold the relevant part:

Alberta’s oil and gas industry supports more than 271,000 direct jobs and hundreds of thousands of indirect jobs in sectors such as construction, manufacturing and financial services. The province has an unemployment rate of 5.6%. There are also some 960 American companies involved in Alberta energy, supplying equipment and technology, among other things. As an example, Mr. Liepert says, “dozens of Caterpillar tractors, made in Illinois and Michigan and costing $5 million a piece” work the oil sands. He says the region is on track to create more than 400,000 direct American jobs by 2035. The Bakken region of North Dakota, where private land ownership gives drillers relief from federal obstructionism, shares a similar, if smaller, story. Oil production there is booming, and North Dakota unemployment is 3.3%.

Let that sink in: wherever the Feds and their watermellon regulators have not been allowed to come in to pick the winners & losers, the economy has been doing beyond fine. Contrast the employment numbers for ND with those of California, then the oil industry there with the winners our own WH picked – Solyndra for example – and you should get a feel of why we need a lot less government “help” than we currently have.

Please spare me the “evil capitalist corporations will kill Gaia” stories. These people have to breathe the same air, drink the same water, and live in the mess they would create, and the last 2 decades have all but made sure that the corporations that succeed are the ones that actually keep that in mind. Don’t wait for the LSM to put out any of this information, though. They are too busy kissing O’s ass.