Tuesday, March 04, 2008
A brief note on oil
Yesterday, the price of a barrel of oil traded above its previous inflation-adjusted record set back during the twilight of the Carter administration. At more than $102, my oft-repeated prediction that oil would hit $60/barrel before it hits $140 is looking a lot shakier than it did earlier in the winter. Nevertheless, on the basis of no actual knowledge or ability to predict the commodities markets, I am sticking with my guess. The optimist in me believes that the huge gains in Asian demand can be met by conservation in the United States (American gasoline consumption has actually declined for the first time since the Gulf War) and new production. Supply may also become more robust than pessimists predict. Today's WSJ has a fascinating column arguing that new technology will permit global production of 100 million barrels/day for the next 100 years.
6 Comments:
By 
Charlottesvillain, at
Tue Mar 04, 09:36:00 AM:
Interesting article. I'd certainly be intersted in hearing more about the techology and its costs. Cost and efficiency of extraction are the key to whether or not things hum along as they has been.
Regarding our wager on the price of oil, I would say you'll have a better chance of being right if we stop burning so much oil trying to create alcohol, surely among the most counter productive enterprises since governments began subsidizing such things.
By 
, at
Tue Mar 04, 09:55:00 AM:
and at $200 a barrel it will be well worth exploring those new technologies. and another 100 years of being dependent on middle eastern oil...woo hoo...i can think of nothing more beneficial to the u.s.
By jj mollo, at
Tue Mar 04, 12:43:00 PM:
High prices are good for us. They encourage conservation and the development of alternative energy both of which foster energy independence. New technologies for extracting will be good for us as well since we have so many depleted fields. It will increase the value of US reserves. The problem is that prices can come down dramatically which will crush any nascent efforts to replace oil in our economy. The trick is to keep the prices high. We could buy oil for reserves in order to prop up the price. (I don't know where we could keep it.) We could take out the Iranian oil infrastructure. (Call it the Barbara Ann strategy.) A better trick would be to keep the prices high in such a way that some of the profits are diverted into our own economy. Gasoline taxes and mandatory ethanol percentages will do that.
I hadn't heard about making ethanol from oil. That complicates things, but higher oil prices would certainly encourage cheaper ways to make ethanol.
By Charlottesvillain, at
Tue Mar 04, 01:16:00 PM:
JJ,
Ethanol is not derived from oil, but petroleum in its many forms is used in prodigeous amounts to fertilize, harvest, and transport the corn. If you look at the inputs required throughout the whole chain, it becomes obvious pretty quickly that it is a misguided scam that will not solve the problem, and will lead to others (shortages of grain being a major one).
I agree with you that high gas prices are a must, and it is a shame our politicians don't have the stones to bump up the gas tax to encourage alternatives. No, watch for them to start bashing big oil again as the price settles in over $100 a barrel.
By the way, energy independence for the USA is fantasy at anything like current usage rates. There is no currently conceivable alternative, or combination of alternatives, that can plug the gap. At some point it may be forced upon us, but that will necessitate some rather drastic changes in the American lifestyle. Som would argue those are overdue, but you won't find a politician on the left or right willing to say so publicly.
By , at
Tue Mar 04, 01:48:00 PM:
I wonder how much of slowing US gas demand is due to the horrible winter we have expeerienced? Will demand pick up as weather improves?
By jj mollo, at
Thu Mar 06, 12:52:00 AM:
It will be forced on us. Sooner or later. So we need to plan for it now. Problem is that the Democrats don't have the nerve and the Republicans don't really believe it's necessary. Bush thinks all we need to do is kiss up to the Saudis. We need nukes! I believe nuclear power (Liquid Sodium Metal Fast Breeder Reactor (LMFBR)) is the way to go. ASAP in big numbers. These things eat up most of the nasty byproducts and are much more efficient. It will also allow us to profitably reprocess everyone else's used fuel, providing a market to help suction up all the loose nuclear material.
If we were to do everything we need to do, starting now, I really do think we could attain at least ME independence in energy. Ethanol and natural gas can be had from Brazil and Russia. High prices will make cellulosic ethanol feasible. Solar prices will come down as new technologies and economies of scale kick in. But it all depends on the price signal.
