We're not at peak oil yet

I subscribe to peak lite, the idea that rising demand for petroleum products will outstrip supply increases, before actual peak production hits.  At any rate, for those thinking we'd hit the downslope, 2008 was the peak production year (and had the peak production month) for world petroleum supply.  There's always next year!

Smart: the Obama that was

Obama has come out in favor of releasing some oil from the Strategic Petroleum Reserve to help reduce gas prices.  This is a bad idea because it's 1) short-term "fix"; 2) a political and not strategic use of the reserve; 3) counter to the principle of conservation and energy independence. 

There's an even better reason not to discuss it:

“We're arguing over a gimmick that would save you half a tank of gas over the course of the entire summer so that everyone in Washington can pat themselves on the back and say they did something,” said Obama. 

That was his comment about a federal gas tax holiday for the summer.  It's true here, too.

Why end oil dependence - in 10 words or less

Triple Pundit asks its readers to weigh in - why should we become oil independent?

No need to
Nation build when
We don't need oil

Why this blog misses the point on energy prices

If you read this piece, you're left with the impression that Democrats may be clinging to policies that keep energy prices high and that they're endangering their environmental message as people pay more attention to their pocketbook.  (Note: who has a pocketbook, anyway?  Gotta love the media for the inane metaphors for America's tough problems). 

The implicit message is that energy prices could be lower, if only we did something else. 

Wrong.

Energy prices are going up.  Period.  Oil is becoming more scarce relative to demand.  Same for coal, natural gas, etc.  Demand keeps rising (it's a world market, and the Chinese and Indians want to drive, too).  So even if we drilled our brains out, we're not going to be able to put enough oil on the market to drive prices down.

Renewable energy will prove cheaper in the long run, because fossil fuel price inflation will soon pass the cost of renewables (and has, in several markets).  And because many renewables are fuel-free (solar, wind), they won't become more expensive over time (though new wind turbines and solar panels can become more expensive, since they're made of metals and other materials that are also on the world market). 

So, America, listen up: THE ERA OF CHEAP ENERGY IS OVER.  Anyone who says differently is selling something.

A plan for our energy future?

Support for drilling offshore, in the Arctic, and just about everywhere has been rising along with gas prices.  Some enterprising cost-conscious folks have even launched an internet petition drive to encourage more drilling to increase supply and lower prices - a move I'd describe as "drill here, drill now, pay later."

Because, first of all, with the number of oil consumers increasing daily in China and India, there's no supply of oil large enough to bring prices back to $20 a barrel.  The supply/demand effect works both ways and more oil -> cheaper oil -> greater demand. 

And second, increasing oil supply to lower prices (which will increase consumption) ignores all the shitty environmental effects we've been trying to avoid, from wrecking the Arctic landscape to adding to the global warming problem. 

And of course, we're not going to see any of that new oil in the next 10 years, anyway, so if folks are looking for immediate relief, they're out of luck.  Sorry.

Oil: on the other hand, we're not producing as much

Congress is holding hearings on oil speculation, the process where big institutions and individuals bet on the price of oil via the futures market. The issue, of course, is the sharp spike in oil prices in the past year. My previous post links to Paul Krugman's argument, that speculation is not a big factor.

On the other hand, a lot of folks are pointing fingers at the recent deregulation of oil commodity trading, at the end of the Clinton administration:

Several changes over the past decade have relaxed the agency's oversight of commodities markets. The Commodity Futures Modernization Act of 2000 (CFMA) allowed energy commodities for the first time to be traded on deregulated "exempt commercial markets," meaning exchanges exempt from CFTC or any other U.S. government oversight. This law was a departure from the Commodity Exchange Act of 1936, which had confined commodities trading to CFTC-regulated exchanges.

I'll let you decide for yourself. Here's a chart I threw together with oil prices ($/barrel, normalized for the falling value of the dollar v. the Euro), oil stocks (days supply in OECD countries), and the supply margin (world oil supply minus demand). All oil price, supply, and demand data is from the EIA. The dollar-Euro exchange rate is from FXHistory.

The supply margin has decreased in the past four years. But is it enough to have driven the price up over double in 12 months?

Oil market - speculative nonsense?

Economist and NY Times columnist Paul Krugman has been tackling the issue of high oil prices and he soundly debunks the notion of speculator-driven oil prices.

Any effect [of speculation] on the spot market has to be indirect: someone who actually has oil to sell decides to sell a futures contract to Joe Shmoe, and holds oil off the market so he can honor that contract when it comes due; this is worth doing if the futures price is sufficiently above the current price to more than make up for the storage and interest costs.

As I’ve tried to point out, there just isn’t any evidence from the inventory data that this is happening. (emphasis mine)

So there's no hoarding. And to boot, spot prices (what people actually are paying for oil based on supply and demand) have been higher than futures prices. In other words, it's supply and demand.

High oil prices explained - 1 chart

In addition to an excoriation of the ridiculous pagentry over oil prices on Capitol Hill, R-Squared provides the chart that explains it all. When world supply is lower than demand, prices go up. (R-Squared credits Optimist for this chart)

Food for thought (not biofuels)

You've probably heard about how biofuels are causing world hunger. Well, world hunger's sadly been around for a lot longer than biofuels, and agricultural economist Daryll Ray tries to provide some perspective:

Even if no corn were to be used for ethanol production, over 800 million people around the world would suffer from malnutrition...when corn prices were below $2.00 per bushel [they're now close to $6.00], 800 million people were still food insecure and the US subsidies that enabled prices to remain at those levels were being blamed for impoverishing farmers in the rest of the world.

Ray also notes that during the last world food crisis in the 1970s, we blamed cattle for the food shortages in the developing world, since getting energy from meat requires much more grain than just eating grains.

So corn to ethanol may not be the best environmental or nutritional solution to high oil prices or global warming, but it's not the source of malnutrition.

Oil consumption mirrors economic growth

In a post on Peak Lite, Robert Rapier has an interesting chart showing how economic growth tends to be mirrored by an increase in per capita oil consumption. Makes you wonder what will happen in the coming years with $100 per barrel oil.

The oil update: plateau

The Energy Blog has a nice, short piece on what the oil pundits are calling "Peak Lite." A time period where world demand outstrips increasing supply (but before total supply peaks), this period (circa now) will last until the end of 2009 or so before supplies start falling and we really start paying for oil.

How bad will it be? Check out the right axis on this chart, showing projected world oil prices. We're currently at $76/barrel.

Oil prices have nowhere but up to go

The U.S. Senate might have just passed increased fuel economy standards (35mpg by 2020), but with world oil demand increasing at twice the rate of 2006, it's going to take a lot more than more Honda Civics on the road.

Oil companies: Can they (and should they) go green?

With many fossil fuel corporations touting their green side, it's noteworthy that Exxon Mobil, the world's largest oil company has little to say on alternative energy. In fact, they are better known for funding global warming deniers than warming up to biofuels or wind turbines.

A CNN Money article notes that this may make a lot of financial sense, especially for a company known for outstripping all its competitors on return on the dollar. Exxon specializes in oil and they're the best in the game.

It may be good from another perspective, as well. I just borrowed Who Killed The Electric Car from my dad and he mentioned that some of the most promising battery technologies developed 20 years ago were bought up by oil companies and essentially buried (I haven't watched the film yet).

Are we better off when fossil fuel companies change their paradigm to invest in alternative energy, or is it wiser to keep their carbon mitts off of any promising technological fixes for a society addicted to oil?

Bank error in their favor - oil and gas companies get a $10 billion windfall?

If the United States is ever to successfully wean itself from foreign oil and promote the development of alternative energy, then giving the oil and gas industry bonus subsidies is probably the wrong idea.

This Washington Post story notes that a major omission in oil and gas leases negotiated in 1998-99 left out a price cap on royalty exemptions, allowing companies to avoid royalty payments as prices have spiked significantly in recent years. The royalty exemption helps promote domestic energy development by giving a subsidy (in the form of a royalty exemption) when energy prices are low. In theory, this helps companies continue exploration and development on U.S.-leased land as prices fall.

So far, the omission of a price cap from the leases has cost the government over $1 billion, with a projected cost of $10 billion over the life of the leases.

So what can be done? One House proposal seeks to force companies to renegotiate leases or pay conservation fees. The Bush administration would give the companies 5 to 10-year, no-bid lease extensions for companies that come to the negotiating table. Two prominent Democratic Senators, Feistein (CA) and Bingaman (NM) are supporting a similar incentive process.

I lead toward the first option, since it aims to "fix the glitch." However, since I'm not a contract lawyer, I have no idea if it would be a bad faith move for the government to force companies to renegotiate the leases, since the contracts were signed as is.

Any lawyers out there want to take a stab?

Peak Oil: Exhibit A

The folks studying peak oil issues at The Oil Drum have a fantastic chart posted regarding Saudi Arabia's oil production. Despite record high prices during the past two years and a history of helping to soften price spikes with increased production, Saudi oil production has fallen steadily.

It may be the "smoking gun" that the Saudis have reached their oil production peak - quite a concern given that they represent 1/8th of world supply.

Nine cogent reasons that oil prices are high

Hint: none of them are oil company price gouging.

Let's fight fire with gasoline!

Oops! Members of Congress are belatedly realizing that when gas prices get high, citizens no longer ignore the massive tax breaks for companies making record profits.

In the typical scurry for scapegoats when faced with a tough policy decision, both Democrats and Republicans are looking to revoke massive tax cuts given to the oil and gas industry in the most recent energy bill.

So what? We'll get some of that cash back to pay down the debt or shoot some Iraqis.

Or, instead of saving the cash, let's just spend it. It's an election year, so we'll give every American a $100 gas rebate from the federal government.

Whoa! As exciting as $100 is, let's look at the original point of energy policy - a secure, stable supply of fuel for the American economy. How do these policies measure up:
1. Tax breaks for oil companies making record profits: D-. True, greater supply would help reduce prices, but a number of scientists and geologists argue that increasing supply any further isn't even possible.
2. Taking back the tax breaks for tax cuts: F. When supplies are tight enough to drive prices this high, giving people more gas money doesn't send the right message.

Instead, Congress needs to develop an energy policy that addresses the root issue: oil supplies may have peaked and we have to shift to policies that shrink demand. For example, increasing CAFE standards to raise fuel economy, creating tax breaks for fuel efficient cars (but NOT hybrid SUVs), or a bigger gas tax.