Another oil shock in 2010?

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Brent Crude price Aug 08 – Jan 09

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Posts on The Oil Drum and iStockAnalyst in the last couple of days point out something interesting.

From The Oil Drum’s post:

Nobuo Tanaka, the head of the International Energy Agency (IEA) said today…

Oil at near $40 a barrel has slowed investment in oil projects, he told Reuters, raising the possibility of a supply shortfall once demand resumes.

“The current price level has a negative impact on investment in new oilfields,” Tanaka said on the sidelines of the World Economic Forum in Davos.

“We are concerned about slowdown, slippage, cancellation of projects. When demand comes back, we may have a supply crunch,” He added.

And from a post on iStockAnalyst a few days earlier:

A massive slump in oil exploration spending pummeled Schlumberger Ltd. (SLB), the world’s largest oilfield services corporation, as profit fell 17% in the fourth quarter. But the company said curtailed spending could be setting the stage for a rebound in oil and gas prices as supplies dwindle.

Schlumberger is pulling back as a collapse in petroleum prices led to a sharp drop in exploration spending by its customers.

So the current low oil prices mean oil exploration and investment in new oilfields is being cut back. Because of the inelasticity of the demand and supply curves for oil, this means when the world economy (and demand for energy) starts to ramp up again we are in for another price shock, like the one we saw in 2008.

With the next shock though we will have depleted that much more of the world’s finite supply, and the lack of investment in exploration means that the next oil shock will require an even bigger global recession for the price to fall back down once more. How likely is that?

With respect to time frames, this recession has at least another year to run, I suspect, before demand starts back up again. So another oil shock in 2010?

Perfect! Just in time for the launch of many of the new battery electric, and plug-in hybrids by the mainstream motor manufacturers!


McCain-Palin – the oil industry’s dream ticket

Global Warming
Photo Credit Stijn Vogels

I don’t pretend to know a whole lot about American politics and generally avoid commenting for that reason however, the addition of Sarah Palin to the Republican party presidential campaign meant I had to say something!

Sarah Palin is less of a friend to the environment than George Bush. I know that may be difficult to believe but remember that Gov Palin is from the state of Alaska whose economy is tied in pretty closely with oil and gas.

Consider that Gov Palin, earlier this year, sued the Bush Administration over its decision to place the Polar Bear under the protection of the Endangered Species Act, claiming that climate models predicting the continued loss of sea ice – the main habitat of polar bears – are unreliable! This at a time when North Pole has become an island for the first time the last 125,000 years as climate change has made it possible to circumnavigate the Arctic ice cap.

Then there is her recent about-face on drilling. In her speech at the convention Gov Palin said

Our opponents say, again and again, that drilling will not solve all of America’s energy problems – as if we all didn’t know that already.

This seems to contradict completely her statement just last July that

I beg to disagree with any candidate who would say we can’t drill our way out of our problem

Just two weeks ago Gov Palin was calling for more off-shore drilling off Alaska’s coast. She characterized opponents as “manipulating politicians” and she also said that different

alternative-energy solutions are far from imminent and would require more than 10 years to develop

John McCain is at least as bad. He has been in the pocket of big oil for decades. Tom Friedman called him out a few weeks back for not showing up for a crucial vote on extending the investment tax credits for installing solar energy and the production tax credits for building wind turbines and other energy-efficiency systems. This was the 8th straight time he missed the vote. As Tom wrote:

Once, he was even in the Senate and wouldn’t leave his office to vote.

This is nothing new, as As the Center for American Progress reported in April:

In 2002 and 2005, there were votes in the Senate to require utilities nationwide to generate 10 percent or 20 percent of their electricity from renewable energy resources. Sen. McCain voted against renewable electricity every time.

* 2005: Voted against a renewable portfolio standard
* 2002: Voted against 20 percent requirement:
* 2002 (Vote 55): Voted to gut 10 percent requirement:
* 2002 (Vote 59): voted to gut 10 percent requirement:

In the same report they also note that:

On average, senators voting for big oil tax breaks and against incentives for renewable energy and efficiency in 2007 received $195,973 in campaign donations from the oil industry during this decade. In 2007 alone, Sen. McCain received $291,658 from the oil and gas industry.

[My emphasis]

Contrast these positions with Sen Obama’s aggressive, comprehensive, and achievable energy plan and if you have any interest in your future well being or the well being of the planet, it is pretty clear who the necessary choice for president is.

Many of the links in this post were found via Joe Romm’s supremely informative ClimateProgress site.


How much do oil prices have to rise before we decide to get off oil?

Frog in boiling water
Photo Credit cactusbones

Last year the world was in shock when oil hit $80 per barrel.

Less than a year later, the media has been celebrating the fact that oil prices have dropped to below $110 per barrel.

Four years ago oil was just over $30 per barrel!

With the exception of a couple of spikes, oil prices have been inching up every year since Dec 2001.

Oil price increase

Oil price increase

It is only when petroleum prices go above certain milestones like $3 per gallon or $4 per gallon that people start to sit up and take notice but even this would appear to be a short-term effect. How well do you remember the $3 per gallon shock?

Just how much do oil prices have to rise before we decide to get off oil for once and for all? How high does it need to go before we realise the water is boiling and we need to develop competitive, reliable alternatives?


Tom Friedman: So Is The World Flat Or Not?

Sonoma County Hot Air Balloon Classic.
Creative Commons License photo credit: _e.t

We recently lauded the NY Times’ Thomas Friedman for arguing that oil is like an addiction and needs a minimum price floor to ensure current investments in greentech are sustainable. But there is a problem with Friedman (or perhaps with us)- his rhetoric is so effective that often you’re blinded to inconsistencies in his positions.

My issue, basically is that Mr Friedman can’t maintain his position that globalisation is an end-game, underpinned by cheap transport, in the face of current oil price realities. I have been known to say that the problem with The World is Flat is the same as the problem with The End Of History. Both works were in some sense absolutely correct, but were out of-date as soon as they were written. Spiking oil prices are putting paid to the World is Flat (when gas is expensive transportation and logistics get surprisingly bumpy) just as 9/11 pumped up, then smashed the End of History’s Neoconsensus.

In a sense these works are the opposite of Science Fiction; they are history books. Rather than find aspects of the future in the present, and extrapolate them with imagination to create a vision of the future (its just not evenly distributed), Friedman and Fukayama are masters of describing a point in time, and how we got there. Indeed with titles like The World is Flat and The End is History we would be surprised if either writer were really inspired to work out what happens next. For that we need visionaries like Al Gore.

I’d love to hear more from Friedman about the implications of his newly found love of higher oil prices.


Peak oil is here – now what are you going to do about it?

Congressman Roscoe Bartlett [R] in the video above addresses the US congress on the liklihood that we have hit peak oil.

Congressman Bartlett has been banging this drum since 2005 but he received an unlikely ally in the International Energy Agency yesterday! The IEA is not known for being alarmist and is typically extremely conservative in these matters however yesterday’s Medium-Term Oil Market Report from the IEA contained some interesting nuggets which suggest that they are coming around to the “Peak Oil is here now”, way of thinking.

Nobuo Tanaka, Executive Director of the International Energy Agency speaking at a press conference at the World Petroleum Congress, emphasized that market fundamentals were the main underlying factor behind high oil prices. “OPEC production is at record highs and non-OPEC producers are working at full throttle, but stocks show no unusual build. These factors demonstrate that it is mainly fundamentals pushing up the price,” he added.

In other words, no build up of stocks means it is a simple case of supply and demand, not speculators, which is causing the current price increase.

This is not good news.

The report goes on:

Over 3.5 mb/d of new production will be needed each year just to hold global production steady. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream — to assure that the market is adequately supplied,” stated Mr. Tanaka.

But figures for new production have been falling year-on-year, never mind increasing 3.5mb/d.

Ok, so if we say peak oil has arrived and we are never again going to see a barrel of oil go below $120 per barrel (in fact it will trend ever upwards over time), just what are you going to do now that you have that information?

Will you start an efficiency drive in your company? Remember your financial accounting – saved overhead goes straight to the bottom line!

Will you buy a hybrid car? Will you install solar/wind generation capacity at your place of work/home? Will you go vegetarian?

We are headed into challenging times but for people and companies who make the right choices, there is, as ever, money to be made!


High oil prices are a good thing!

Houston Smartypants Car
Creative Commons License photo credit: Lori Greig

I wrote a post a couple of weeks back saying that the sooner oil reaches $200 per barrel, the better. Unsurprisingly, it generated a bit of comment!

So I was mighty chuffed to read Thomas Friedman’s superb Op-Ed in the New York Times yesterday where he made a very similar argument.

Thomas said:

there is no short-term fix for gasoline prices. Prices are what they are as a result of rising global oil demand from India, China and a rapidly growing Middle East on top of our own increasing consumption, a shortage of “sweet” crude that is used for the diesel fuel that Europe is highly dependent upon and our own neglect of effective energy policy for 30 years.

Cynical ideas, like the McCain-Clinton summertime gas-tax holiday, would only make the problem worse, and reckless initiatives like the Chrysler-Dodge-Jeep offer to subsidize gasoline for three years for people who buy its gas guzzlers are the moral equivalent of tobacco companies offering discounted cigarettes to teenagers.

I like the discounted cigarettes to teenagers analogy but it doesn’t go far enough. You give discounted cigarettes to teenagers, you kill them. You give discounted petrol/gas and you kill the planet. In effect, with its massive subsidies for oil companies (subsidies for oil companies? who thought that was a good idea?), this is what the United States administration has been doing for decades. But we digress.

He goes on to quote the arguments of energy economist Philip Verleger Jr. who wants a “price floor” – a guaranteed minimum price below which gas will not go:

$4 a gallon for regular unleaded, which is still half the going rate in Europe today. Washington would declare that it would never let the price fall below that level. If it does, it would increase the federal gasoline tax on a monthly basis to make up the difference between the pump price and the market price.

To ease the burden on the less well-off, “anyone earning under $80,000 a year would be compensated with a reduction in the payroll taxes,” said Verleger. Or, he suggested, the government could use the gasoline tax to buy back gas guzzlers from the public and “crush them.”

But the message going forward to every car buyer and carmaker would be this: The price of gasoline is never going back down. Therefore, if you buy a big gas guzzler today, you are locking yourself into perpetually high gasoline bills. You are buying a pig that will eat you out of house and home. At the same time, if you, a manufacturer, continue building fleets of nonhybrid gas guzzlers, you are condemning yourself, your employees and shareholders to oblivion.

With the current high prices for gas/petrol in Europe and the US, the message is starting to get through. Te demand for hybrid cars is growing daily as Thomas noted when he went to buy a new one:

I was visiting my local Toyota dealer in Bethesda, Md., last week to trade in one hybrid car for another. There is now a two-month wait to buy a Prius, which gets close to 50 miles per gallon. The dealer told me I was lucky. My hybrid was going up in value every day, so I didn’t have to worry about waiting a while for my new car. But if it were not a hybrid, he said, he would deduct each day $200 from the trade-in price for every $1-a-barrel increase in the OPEC price of crude oil. When I saw the rows and rows of unsold S.U.V.’s parked in his lot, I understood why.

The absolute worst thing which could happen now would be for oil prices to drop again. Companies who had invested heavily in renewables would potentially go out of business and fuel efficiency would no longer be a primary concern for car buyers.

No, high oil prices are a good thing. Nothing will move us off the carbon economy as effectively as a strong financial incentive.


The sooner oil hits $200 per barrel, the better!

Four bucks a gallon
Creative Commons License photo credit: johnmarkos

Back in 2004 the government’s worst case scenarios had oil reaching $26 per barrel by 2025. This afternoon oil reached $125.98, the fifth day this week we had a record high price for oil. And we are not even halfway through 2008 yet.

Goldman Sachs recently pronounced that oil may soon reach $200 per barrel. I hope they are right. In fact the sooner the better, to my mind!

Why do I say that?
We need to get off our dependence on carbon as an energy source. The CO2 given off by burning oil for energy is poisoning the planet and wiping out animal and plant species at a hitherto unprecedented rate.

We have known this for quite some time now. Scientists were discussing Global Warming and climate change up to 40 years ago. The reason we have done very little to move off oil is that the alternatives were always too expensive. This also meant that raising money for research into renewable power sources was difficult and so alternative energy sources remained high cost.

However, now with oil at $126 per barrel and rising, renewables are starting to look very attractive. Suddenly money is pouring into companies who are trying to research and commercialize Green energy. This is a good thing! This will only continue as long as it is perceived to be profitable. In other words, as long as oil is expensive.

The worst thing that could happen right now for the future of the planet is if oil prices dropped. Roll on $200 per barrel, I say.