April 28th, 2008
High oil prices may be a permanent condition from here out; a fact that, as I previously mentioned, will come at a much higher cost than what most of us can imagine.
However, even with the current price of $120 dollars for a barrel of oil, we simply cannot get enough and, instead, continue marching straight towards the precipice that’s at the end of our “Long Emergency.”
As the NY Times reports, given oil prices, one would expect increased supply or diminished demand to bring things into balance, however:
[A]s prices flirt with $120 a barrel, many energy specialists are becoming worried that neither seems to be happening. Higher prices have done little to attract new production or to suppress global demand, and the resulting mismatch has sent oil prices spiraling upward.
“According to normal economic theory, and the history of oil, rising prices have two major effects,” said Fatih Birol, the chief economist at the International Energy Agency, which advises industrialized countries. “They reduce demand and they induce oil supplies. Not this time.”
A key reason that supply is not rising to meet demand is that producers outside of the OPEC cartel — countries like Russia, Mexico and Norway — have been showing troubling signs of sluggishness.
That’s right, the key phrase that one needs to pay close attention to comes at the end: swing oil producers cannot meet demand, due to troubling signs of sluggishness.
The article continues:
At the same time, oil consumption keeps expanding at a faster clip than production. Demand is forecast to increase this year by 1.2 million barrels a day, to 87.2 million barrels a day. In the United States, the world’s most oil-thirsty nation, consumption has actually fallen a bit because of the economic slowdown.
But that drop is being offset by growth in other countries. World consumption is projected to rise 35 percent, to around 115 million barrels a day, in the next two decades. Most of the growth will come from China, India and oil-producing countries in the Middle East, where retail fuel prices are subsidized, encouraging wasteful consumption.
That’s right, at present, it looks like we’re headed towards cliff: “sluggish” oil production and increased global demand. Remember, we’re talking about the world’s most precious commodity, which makes this a situation ripe for conflicts, er, wars on a global scale.
Peak oil?
Some regions are simply running out of reserves. Norway’s production has slumped by 25 percent since its peak in 2001. In Britain, oil production has plummeted 43 percent in eight years. The North Sea is now considered a dying oil basin. Alaska’s giant field at Prudhoe Bay has declined 65 percent since its peak 20 years ago.
[…]
[T]he case that has attracted the most attention is Mexico, the second-biggest exporter to the United States, which seems increasingly helpless to stem the collapse of its largest oil field, Cantarell. Last week, the country’s state-owned oil company, Pemex, said that production had fallen 300,000 barrels a day so far this year to 2.9 million barrels a day, a stunning drop from its peak production of 3.4 million in 2004.
[…]
Further clouding the picture, Saudi Arabia, the world’s top oil exporter, signaled last week that it might have trouble increasing its production.
As one would expect to read in such an objective and balanced article, solutions that are just over the horizon receive their proper due. The over the horizon solutions usually involve throwing more dollars at tech innovations, so that we can drill for more oil. However, as the article concludes, throwing more dollars at this may not be enough:
The International Energy Agency estimates that current investments will be insufficient to replace declining oil production, let alone increase overall output. The energy agency said it would take $5.4 trillion by 2030 to increase global output, a level of investment that is unlikely to be met. It said a crisis “involving an abrupt run-up in prices” could not be ruled out before 2015.
There you go, kiddies. A preview of upcoming events in The Long Emergency.
April 23rd, 2008
“If you give a damn, you should read this book.”
THE INDEPENDENT
For the past couple of weeks I’ve been reading The Long Emergency, by James Howard Kunstler, which has given me a darkly colored lens by which I now see our dependence on oil, our planet’s changing climate, and the heavy psychological and infrastructural investment we, humans, have made in our modern way of life. The point is, as the title of the book suggests, we’re already in a prolonged decline that the pubic doesn’t much appreciate, nor does it have the benefit of visionary leadership to confront head-on the steep challenge before us.
At any rate, thanks to Mr. Kunstler’s book I can now read something like this, and read in between the lines:
CIVITAVECCHIA, Italy — At a time when the world’s top climate experts agree that carbon emissions must be rapidly reduced to hold down global warming, Italy’s major electricity producer, Enel, is converting its massive power plant here from oil to coal, generally the dirtiest fuel on earth.
Over the next five years, Italy will increase its reliance on coal to 33 percent from 14 percent. Power generated by Enel from coal will rise to 50 percent.
And Italy is not alone in its return to coal. Driven by rising demand, record high oil and natural gas prices, concerns over energy security and an aversion to nuclear energy, European countries are expected to put into operation about 50 coal-fired plants over the next five years, plants that will be in use for the next five decades.
Read through lens by which I now digest items like the one quoted above, the matter of energy extraction becomes a lot more layered; and, in fact, the fundamental question becomes more pronounced, that is, How will we power the cities of tomorrow as we deplete our planet of the one reliable source of energy we’ve counted on for the past one hundred or so years?
The short-hand for summarizing the question, and the many challenging implications packed in it, is by labeling the problem simply “Peak Oil.” As I previously wrote, this is a subject that I’ve recently become interested in; which, I think, will serve me to digest the bits of information that chronicle our search for the next reliable energy source.
Moreover, as The Long Emergency details, the challenges will be enormous, especially given our heavy investment in our petroleum based infrastructure, which has allowed for “just in time supply chains,” for example, and the many comforts of modern living that we take for granted.
Clearly, I’m recommending that you read The Long Emergency. However, if you’d like to get a taste of the author and his material before adding the book to your Amazon shopping cart, here’s an interview with Mr. Kunstler:
April 12th, 2008
Peak Oil has become a recent interest of mine, along with thinking about how we’ll convert our petroleum based infrastructure into an alternative fuel platform. And, frankly, my powers of imagination have been strained and left wanting.
Many economists, especially free-market fundamentalists, ridicule the very notion that “Peak Oil” should ever be taken seriously. After all, free-market fundamentalists tell us, The Market will resolve the problem, given the magical powers Supply & Demand™ economics.
I don’t know if current oil prices are a symptom of larger forces at work (i.e., a tacit acknowledgement by the market of the fundamentals of Peak Oil), or if the current price of crude is due to isolated geopolitical events; however, as Paul Krugman joked, Peak oil is “a dismal theory that keeps getting more plausible.”
As a theory, though current events may portend as evidence of its relevance, if not its eminent existence, Peak Oil is nothing more than the “media’s new version of shark attacks,” according to the NY Times’ Freakonomics blog. And, true to free-market fundamentalists, we’re told not to worry our pretty little heads, because the magical powers Supply & Demand™ mechanics will fix everything:
One might think that doomsday proponents would be chastened by the long history of people of their ilk being wrong: Nostradamus, Malthus, Paul Ehrlich, etc. Clearly they are not.
What most of these doomsday scenarios have gotten wrong is the fundamental idea of economics: people respond to incentives. If the price of a good goes up, people demand less of it, the companies that make it figure out how to make more of it, and everyone tries to figure out how to produce substitutes for it. Add to that the march of technological innovation (like the green revolution, birth control, etc.). The end result: markets figure out how to deal with problems of supply and demand. [Emphasis added.]
I don’t doubt that market forces will come into play at some point, but that’s not the fundamental issue. At the heart of the matter is, What comes after oil and how do we push our way through the inertia that will keep us from acting (i.e., abandon the oil infrastructure that we’ve built since the industrial revolution)?
As I said, my imagination has been strained and left wanting.
In the meantime, I’ll wait to see how this 2005 wager turns out:
I don’t share Matthew Simmons’s angst, but I admire his style. He is that rare doomsayer who puts his money where his doom is.
After reading his prediction, quoted Sunday in the cover story of The New York Times Magazine, that oil prices will soar into the triple digits, I called to ask if he’d back his prophecy with cash. Without a second’s hesitation, he agreed to bet me $5,000.
[...]
Mr. Simmons said he favored a [simple] wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he’d bet that the price in 2010, when adjusted for inflation so it’s stated in 2005 dollars, would be at least $200 per barrel.
[...]
[T]he money [for the wager] is being put into escrow in a joint account; the winning side will collect $10,000 plus any accrued interest on Jan. 1, 2011.
As I write this, on April 12, 2008, the price of a barrel of oil is hovering at around $112.
LONDON: Commodity prices mainly rose this week, led by crude oil, which struck a record high above $112 a barrel on the back of falling American energy stockpiles and the weak US currency, analysts said.
