Step Right Up And Be Amazed

It struck me today that our fearless leaders, would-be’s, and corporate giants seem to think we’re all a bunch of rubes gathered outside a carnival sideshow, leaning on the barker’s every word.

Urging Congress to lift its ban on offshore oil and gas drilling, our fearless leader, you know, President Bush, told lawmakers, “There is no excuse for delay“.

It got worse, “Families across the country are looking to Washington for a response.”  Gimme a break.

In response, House Democrats, in a news conference, propose nationalization of refineries, a way to better control the flow of oil supply. Stay tuned, this will be one hot potato.

One of our presidential wanna-be’s, Sen John McCain (R-AZ), has jumped on the bandwagon, even though he’s on record supporting the moratorium on drilling.  Flip-flop, what do we believe?

The Senator also proposed a gas tax holiday.  Woop.  Arizona made it clear the other day that it won’t happen here, and I doubt the idea will ever get off the ground.

Not only has McCain changed his tune, he’s asking for 45 new nuclear reactors by 2030, and pledged $2 billion a year in federal funds to “make clean coal a reality.”

You can bet that’ll get my vote; for Obama.

Florida’s Governor, Charlie Crist has gone on record, changing his position on offshore drilling.  Gas prices too high, we must do something now.

Drill Now?  How Long Will It Take To Get Some Relief?

Think about it for a minute.  There are approximatley 68 million acres of offshore waters under lease by oil companies at this moment, but none are under development.

Let’s say the oil companies decide to get busy and help us poor folks get out of the gas crunch.  By the time they set up new platforms, drill, recover and ship crude to refineries, my great-grandchildren will be voting.

How about that for a quick fix?

See my point?  It truly is a dog and pony show, smoke and mirrors, whatever, but let’s look further.

Big Oil’s Take On The Problem

In this case, “BIG OIL” is Chevron Corp, whose CEO David O’Reilly told CNN’s Wolf Blitzer that big oil isn’t to blame for high gas prices.

It’s a matter of supply and demand, that’s what we’ve been hearing all along, and it makes as much sense as anything.

Domestic production of crude, according to O’Reilly, has declined over the years, putting America further in debt to foreign oil producers.

Meanwhile, Chevron claims to be reinvesting it’s $18.7 billion profit from last year in new supplies.  He didn’t say what constituted “supplies.”

Saudi’s To Increase Production

The world’s leading producer of oil, Saudi Arabia, plans to increase production by 200,000 barrels a day through July.  That would bring production up to 9.7 million barrels a day.

The U.S. alone consumes an estimated 20 million barrels a day, roughly half of that amount is imported.  I doubt the 200,000 barrel increase in Saudi production will make a huge impact on the world’s thirst for oil, or bring relief to high prices in America.

The rest of the OPEC nations have decided not to make a committment until their meeting on Sept 9th.  History has shown they usually follow Saudi Arabia’s lead, but given the instability and tensions in that area, they may just take the money and enjoy.

Environmentalists Are Weakening

I read with great amusement this article in the LA Times, inferring that the environmental movement is now on the defensive.

It’s worth a read, still more of the same as listed above.

What I find most interesting, in this time of environmental awareness, is the call for more oil out of one side of the mouth, while the other side speaks boldly of developing alternative energy sources.

So there it is folks, step right up and get your ticket now, the only cost:  A gallon of gas for the greatest show on earth.

Welcome to the circus, are you having any fun, aren’t you glad you came?

CNN’S “Fueling America” site..interesting.

Image Credit:  http://www.jamestilley.com/

The reason that I am concerned is that I believe that high oil prices are hurting nearly everyone and the pain will increase as time goes on. The hands on the controls, however, are feeling no pain.

The Organization of Oil Exporting Countries (OPEC) is an internationally recognized cartel established in September, 1960 that holds well publicized meetings on a regular basis to discuss production allocations that are specifically designed to maintain a market price that members agree best meets their internal and external needs. Many of the country representatives to that meeting have spent lengthy careers thinking deeply about oil prices and how best to manage them to benefit the people who send them to the meetings and pay their generous salaries.

Oil market controllers have experienced a number of ups and downs and worked diligently to master the many price influencing tools at their disposal. Those tools may be a bit blunt, but they can be effective if wielded with skill by experienced manipulators. OPEC supplies about 40% of the total world’s oil and has an impact that is disproportionate even against that large total. Its decision are closely watched and often widely respected by large suppliers that are not members. All oil suppliers recognize that they have a very special commodity that responds to even tiny differences between daily supply and daily demand.

During the decades that I have been interested in energy as a study topic, I have heard or read hundreds of reports in oil industry trade publications that indicate the respect given to OPEC as a disciplined cartel that does all suppliers a service by keeping prices at profitable levels.

Though traders can store oil, the volume of daily consumption is so vast that even a 1% over supply situation can fill up storage areas in just a matter of months while a 1% deficit can result in significant shortages in some locations. Like a hot air balloon, there is a potential for a disastrous crash with an inexperienced or poorly coordinated crew, but there is also the potential for a very pleasant ride for those who know what they are doing.

Unfortunately, the basket under an oil fed hot air balloon is not very large and the number of people who benefit from an oil price balloon that never comes back to earth will be rather small. I see few prospects, however, that those of us left on earth will be invited to share in the benefits of the ride any time soon. It is way too much fun for the people in the basket to collect massive quantities of money from the rest of us who seemingly have no means of forcing that balloon to return to earth.

Recently, an oil minister from an OPEC member told the world that his country saw no reason to increase supplies since demand destruction was already working to put supply and demand into balance and a Russian oil and gas executive gleefully predicted that oil prices would reach $250 per barrel in 2009.

At my own water cooler, the objection that I get to my line of thinking is that oil prices experienced a collapse during the mid 1980s and remained low for about 15 years. They tell me that proves that a period of high prices will almost inevitably be followed by a period of low prices caused by the combination of new supplies encouraged by high prices and reduced demand caused by a reaction to the high prices. Their interpretation of oil price history is that the conservation efforts install a long term change in consumer habits. Apparently they think that OPEC recognizes this and will reduce prices in time to avoid a long term loss of market share.

The difficulty that I have in accepting this interpretation is that low energy prices through the 1980s and 1990s were driven not by a reduction in demand, but by a relentless increase in the available supply of useful energy. Most of the new supply came into the market from sources outside of OPEC.

Total energy use did not fall after the oil shocks of the 1970s, but the annual rate of increase slowed. Total supply actually increased substantially as new production areas like the North Slope of Alaska and the North Sea came on line at the same time as new nuclear power plants added the energy equivalent of 12 million barrels of oil per day to the world supply.

Today there are no major production areas that are beginning operation and there are not any massive new nuclear plant programs with plants ready to connect to the grid. The time delays required under current laws are going to make it difficult to change supply rapidly enough to make much difference for at least a few years.

We are in for a long slog of high prices - unless the world’s political leadership takes action to enable massive new supplies to reach the market more quickly than is currently predicted. Jawboning might just work, but it is a long shot. It just might be that the balloon will remain aloft for a long time without popping or even leaking very much.

Photo credit:Hot Air Balloon - used under Creative Commons license from aoife mac

Related Posts:
Three Hidden Costs of High Oil Prices
T. Boone Pickens Says Peak Oil Reached, Plans World’s Largest Wind Farm
The Big Oil Company Scam

How much does business-as-usual cost? This morning, Green Car Congress reported that the US is projected to pay $440 billion for imported petroleum in 2008:

The increase to the estimated $440 billion for 2008 is based on an average $90 per barrel crude oil price for the year. In 2002, before the current bull market for oil began, US oil imports cost less than $103 billion. The preliminary figures for last year came to some $327 billion.

With little prospect for cheaper gas prices in the future, any decrease in the US export bill will have to come from a reduction in petroleum usage.

Which brings to mind two important questions:

1. What percentage of our Gross Domestic Product will the US have to export before things start to change dramatically?
2. Where is all this money going, anyway?

Wired Magazine’s Autopia blog posted a partial answer to the first question last week ($3 Gas–No, $4 Gas–Will Change U.S. Driving Habits. Really.):

In the past six weeks, gas consumption has dropped by 1.1%. That’s the most sustained drop in 16 years, except for the period following Hurricane Katrina, according to the “Wall Street Journal.” And if prices reach $4, as many economists predict, an estimated 65 percent of American car owners report they will dramatically change their driving behavior, according to a study commissioned by the Automotive Aftermarket Industry Association.

As for the second question, this list from the Energy Information Administration may be helpful. Here are the top 5 countries we import oil from (and export oil money to):

1. Canada
2. Mexico
3. Saudi Arabia
4. Venezuela
5. Nigeria

Forty percent of our total oil imports come from OPEC countries, which means that in 2008 we should be exporting $177 billion to countries that hate the US or actively fund terrorism (more on this later).

But hey, at least there’s a lot of love for our Northern neighbors, eh?

Related Posts:
U.S. Gasoline Still Among World’s Cheapest
6 Ways To Find And Use Biodiesel Anywhere
The Growing Need for Fuel Substitution, Efficiency, and Conservation

Sources:
EIA: U.S. Imports by Country of Origin
GreenCarCongress (Mar. 9, 08): Projection: US to Pay $440B for Imported Petroleum in 2008

Photo Credit

We’re nowhere out of the woods as far as oil prices are concerned, and you can read all about it in the EIA’s release.

My thanks for Jo-Jo-Loo on Flickr for the image.

Editor's note: This week, Ecotality's Bill Hobbs points to an interesting new development: Algeria, a member of OPEC, has plans for exporting solar power. This post was originally published on June 20, 2007.

A member of OPEC jumps into the solar energy business? Gotta be from The Onion, right? Wrong. Algeria, which earns $1 billion every week exporting oil, is developing a plan to generate solar power for both export and domestic use, reports Reuters.

Algeria plans to make use of its hot southern desert to develop solar power for export and domestic consumption, the Opec member country said on Monday. The scheme is due to be completed by 2015 in Africa’s second-largest country, where most of the 33 million people live in the northern coastal strip. Temperatures in the desert south are high. “Algeria has a huge sunny area with big potential to be exploited. It has also financial and human resources. It lacks nothing. We can compete with other countries,” Energy and Mines Minister Chakib Khelil said.