A better chart.
Posted on 06/19/2008 10:16:13 AM PDT by TheNewPatriot
I'm not sure "blame" is a word I want to throw around on this one.
The major problem is that the rest of the world wants to live the way we do, but the energy to do so is now far more expensive than when we built the society, economy, and economic and physical infrastructure we have inherited.
And that given the present modes of energy production we don't "own" much of the easily produced and relatively inexpensive energy available, so we have to buy it from a powerful cartel most members of which increasingly wish us ill.
As a result, living as we have in the past keeps getting more expensive as others try to emulate our success, and we find ourselves in a position were it is becoming increasingly difficult to afford to live in the style to which we have become accustomed.
And one is to "blame" exactly for that, or we all are.
It's hard to talk about this in large part because many of the people who started the conversation object to that style on aesthetic or moral grounds, have been pretty self-righteous about it, and are especially insufferable because they had some of the facts unfashionably right.
So the problem is how to move forward without having the feeling we are "surrendering" to people we don't respect or like.
However a society we *are* going to be changing our patterns of energy use and production - either medium fast as it becomes increasingly impractical to live as we have in the past, or very quickly if there is a major and prolonged interruption in even a few percent of the world oil supply (which could happen in a number of ways).
I would.
The major problem is that the rest of the world wants to live the way we do, but the energy to do so is now far more expensive than when we built the society, economy, and economic and physical infrastructure we have inherited.
It's far more expensive than it was three years ago.
...And that given the present modes of energy production we don't "own" much of the easily produced and relatively inexpensive energy available,...
Not true. We sit on reserves in the U.S. that outstrip what the Saudis have. Congress has prevented drilling for it, building new refineries and puts up extensive hoops to jump through to do either.
It's hard to talk about this in large part because many of the people who started the conversation object to that style on aesthetic or moral grounds, have been pretty self-righteous about it, and are especially insufferable because they had some of the facts unfashionably right.
I don't have the slightest idea what you are talking about here.
So the problem is how to move forward without having the feeling we are "surrendering" to people we don't respect or like.
If you mean Congress that would make sense. Open up exploration and drilling. Approve new refineries. Eliminate the red tape and enviro-bureaucratic rigamarole.
Still no specifics on those *real* solutions. Have compassion for your fellow man and let us in on them.
If you are talking liquid petroleum – the stuff you can “drill” for, that’s just not the case - the US has between 2.5-3.0% of the worlds proven reserves, Saudi Arabia has around 25%.
One implication of this is that even if “drill America first” (IMO a dubious proposition from a long-term strategic standpoint ) we cannot produce more than a small fraction of even our current consumption – look at that second chart I posted above, double the projected ANWR production to include oil for the Gulf Coast (BTW expensive to produce) and you can see that even maximizing domestic production we are still faced with importing increasing amounts of oil as US demand rises – that domestic production of liquid petroleum can’t even come close to closing the gap.
Now, if you are talking oil shale deposits, that’s different - then the US has lots of (expensive) oil. However oil extracted from shale costs between $45-90 a barrel production cost (compared to around $15 for the Saudi fields), it can’t itself be refined directly to gasoline (though you can produce diesel) and it requires tremendous amounts of water (itself a limited resource in the areas with oil shale) to extract with current production methods on a commercial scale.
You also need to keep in mind that even if we bring these sources on line the oil produced will sell at world market price, not production cost - unless, that is, we nationalize the oil companies and force them to sell oil at below market price – exactly the sorts of subsidy of consumer energy use that is currently screwing up the economies of much of Asia and South America – and somehow I don’t think we will have many takers for that here on FR).
That’s just the math of oil supply and demand in a world where demand is increasingly going to be outstripping supply at anything resembling 20th Century prices.
As for solutions,a good start would be:
1. For voters to demand that politicians stop lying to them about:
1a. Domestic production. It’s no accident you did not realize that domestic production of liquid petroleum can’t fill the gap or even substantially bring down worldwide market prices. Most of our political leaders are acting – in defiance of logic and the facts - as though it could, and many other opinion makers do the same out of ignorance, fear, malice or because they are bought. (Just yesterday I heard Michael Savage grossly misstate the size of our liquid petroleum reserves in relation to the rest of the world.)
If we can’t get “straight talk” about even the obvious (to anyone who does a bit of research) problems and solutions, it’s hopeless to try to have a discussion about our longer term prospects in a wider context.
1b The precarious state of global petroleum production and distribution.
While we spend our time worrying about terrorist attacks, there are many plausible scenarios in which world oil production and/or distribution is disrupted of a periods of weeks to years - many of which would have a far greater disruptive effect on the economy than even a terrorist nuke in Washington or Chicago.
More recent estimates say it would be viable at $20 bbl. The water isn't an issue either. Reservoirs for holding and reusing the water would be used. It would require much less water per unit of energy than bio-fuels. Market prices come down when more supply enters the market. In fact even the threat of bringing more oil on the market brings prices down.
Still nothing specifics on that *real* solution. A solution is not a change in political rhetoric it's real world application.
1a. Domestic production. It’s no accident you did not realize that domestic production of liquid petroleum can’t fill the gap or even substantially bring down worldwide market prices. Most of our political leaders are acting – in defiance of logic and the facts - as though it could,...
I don't know where you are hearing that, other than Michael Savage, because that is the opposite of what politicians and the MSM are saying.
(And, BTW, I think shale oil production should be aggressively pursued as a "strategic reserve" issue, I'm just skeptical about both large-scale practicality and cost.)
However even assuming you could ramp up production to 3 million BPD (the Rand Corp.'s high production scenario 30 years out) it's estimated that oil prices would decline by only 3-5% - this is just another example of the fact that the US cannot drill or retort it's way out of the world oil supply/demand curve.
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I'm starting to get the impression that what you want to hear is that there is some "technical" solution to our having to ride that curve - some solution that makes it possible to conduct business more or less as usual.
What I'm saying is that there is no such solution - that it's going to be prohibitively expensive to operate the sort of transportation economy we do at present, and that the best way to handle that transition is for the government to set high but predictably increasing cost levels for consumer energy supplies - for example as a 5 year rolling average - and then let the market and individual preferences sort out the optimum responses.
People would not be very happy with that, but the alternative is trying to make rational decisions in a highly unpredictable cost environment, which is even worse.
But first, of course, you have to get past the assumption that there is some easy (or even possible) technical, ecconomic or political fix available to US politicians that annul the reality of tightening worldwide energy supplies.
I guess we’re up the creek without a paddle then because no one is going to buy your solution.
For example, consider inflation in advanced economies.
Prior to the Friedman / Volker era the idea that central bankers would set monetary policy with the overriding goal of controlling inflation was highly controversial and even anathema to many on both the left and right (for different reasons, of course).
A few years of double digit inflation sobered people up in a hurry – individuals and businesses can’t make rational decisions when the trend line for a major factor is highly unpredictable within very wide bounds.
Since then the mantra of Western central bankers has been “control inflation at any cost”. The parameters they set, the means they use and even the ability to use these means effectively under extreme conditions all remain controversial. But one thing everyone understands is that they will not allow cost-push inflation into a strong positive feedback loop, even if that means substantial periods of low or even negative growth, as long as they have effective means to control it.
And IMO, this approach – control broad parameters and let the market sort out the rest – is far preferable to more intrusive measures (wage-price controls, for example) and I think most people here agree.
We could easily see a similar situation with regard to energy supplies – a few more years of unpredictable price shocks – especially if they are coupled with supply shocks - and the idea of price and supply stabilization is going to seem a lot more attractive.
And again, the idea of setting board parameters such as high but predictable prices set on a rolling average basis and letting the market sort it out (“Given that I know gas will be $8 a gallon five years from now, would I rather buy a smaller, lighter and less safe vehicle and keep my 90 mile round trip commute, or would I rather buy a larger, heaver and lower mileage vehicle and look for a job closer to home?”) - are a lot more attractive (and friendly to individual choice) than for example setting higher mileage standards or taxing gas-guzzlers" or subsidizing consumer energy use at below-market prices (as is done in much of Asia and South America.)
The key here is to understand that we will be facing price shocks – and likely supply shocks – in any case.
The question is the extent to which we want their predictability to be driven entirely by outside actors and circumstances beyond out control, or whether we want them to occur in a more predictable manner that allows individuals and business to make decisions with a much higher likelihood they will turn out to have been correct.
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