Oil, Oil Everywhere

The Wall Street Journal Opinion Journal ^ | Sunday, January 30, 2005 12:01 a.m. EST | PETER HUBER AND MARK MILLS

[Woodworker]

The price of oil remains high only because the cost of oil remains so low. We remain dependent on oil from the Mideast not because the planet is running out of buried hydrocarbons, but because extracting oil from the deserts of the Persian Gulf is so easy and cheap that it's risky to invest capital to extract somewhat more stubborn oil from far larger deposits in Alberta.

The market price of oil is indeed hovering up around $50 a barrel on the spot market. But getting oil to the surface currently costs under $5 a barrel in Saudi Arabia, with the global average cost certainly under $15. And with technology already well in hand, the cost of sucking oil out of the planet we occupy simply will not rise above roughly $30 a barrel for the next 100 years at least.

The cost of oil comes down to the cost of finding, and then lifting or extracting. First, you have to decide where to dig. Exploration costs currently run under $3 per barrel in much of the Mideast, and below $7 for oil hidden deep under the ocean. But these costs have been falling, not rising, because imaging technology that lets geologists peer through miles of water and rock improves faster than supplies recede. Many lower-grade deposits require no new looking at all.

[Woodworker]

As in everything, the key is economics. Just as the USA could swing the world oil price up or down in the 1940's and 1950's, today the Saudi's have the same relative position.

[An Old Marine]

the Saudi's have the same relative position

But only because we allow them to. The $5 to $8 billion investment to develop the Alberta reserves is chump change. With but the minimum incentives on the part of the already wildly manipluated tax code it'd be no big deal to make Suadi Arabia once again as irrelevant as it shurely deserves to be.

This, however, presupposes the neutralization of the enviromental Nazis.

[HoustonCurmudgeon]

This, however, presupposes the neutralization of the enviromental Nazis.

.... and there is the problem. Dealing with Canada on when, where and how you can drill and produce is a huge problem. It is made worse when an American company tries it.

[Willie Green]

Hubbert's Peak, the Iraq War, and the Economy Crisis

[An Old Marine]

True. However having done considerable business up there I can tell you that ALberta is the "Texas" of Canada in amny ways. Many Albertans want outta Canada even more than the most radical of the Quebecers.

If Quebec ever goes Alberta will follow within a year.

[HoustonCurmudgeon]

I have lived and worked in Alberta and understand how they feel. The problem however is with their national government and I don't see Alberta pulling out anytime soon.

[cornelis]

As in everything, the key is economics.

This article does a good job pointing out that the key to understanding the market price of oil is political.

[cornelis]

Demand for oil grows daily in China and India, where good government is finally taking root, while much of the earth's most accessible oil lies under land controlled by feudal theocracies, kleptocrats, and fanatics.

China is a wildcard

[William Terrell]

[YOUGOTIT]

The only reason oil is $50 a barrel is the futures market being manipulated by the left-wing super rich in their desire to hurt the American people.

[Woodworker]

Ah well, money is the mother's milk of politics...

[cornelis]

It is best, as the article does, to distinguish between good and bad politics. Aristotle is helpful here: happiness is an end, money is not.

[defenderSD]

Good article here that counters some of the extremely hawkish books that predict "$100 per barrel oil within ten to twenty years." It does, however, look like demand growth is going to soak up essentially all of Saudis' excess production capacity within 3-5 years. After that nobody will have the ability to boost production enough to collapse market pricing. So investments made today in production of oil from tar sands are going to pay off and I think you'll see more investment in that area and in conventional oil drilling.

There's also a lot of potential to increase energy efficiency in the transportation sector. Energy was cheap all through the 90's so there wasn't much effort made to make cars, trucks and buses more efficient. But that's all changing very rapidly. I was reading about this Dutch company that has revolutionized electric motor drive and produces these very quiet and efficient electric buses. Look for those buses to go into use for short hauls at ski resorts and college campuses and then move into the mainstream. Hybrid engines are coming on fast in the auto industry too with 40% gains in mileage.

[Gritty]

The only reason oil is $50 a barrel is the futures market being manipulated by the left-wing super rich in their desire to hurt the American people

If there were an adequate supply, they could not drive the price upwards. It would plummet. Speculation and price-fixing aloane cannot levitate this market. It is simply too big. They would never be able to hold this price if there were more oil pouring out of the ground - and especially American ground.

I blame our environmentalist wackos and politicians, not the speculators. We have oil here for the taking and we have simply locked it up, preferring to go nationally bankrupt rather than risk a few (a very few) arctic terns and our environmental fantasies.

[valkyrieanne]

If Quebec ever goes Alberta will follow within a year.

Can we have Alberta? Can we, can we, pleeeze?

[farmfriend]

Rights, farms, environment ping.
Let me know if you wish to be added or removed from this list.
I don't get offended if you want to be removed.

[SierraWasp]

"I blame our environmentalist wackos and politicians, not the speculators."

And of course, you'd be precisely correct in doing so!!!

[o_zarkman44]

Much of the economic cost of exploration and production is complying with some excessive environmental regulations.
I heard a couple days ago that Phillips 66 was getting fined a huge sum of millions of dollars because of clean air violations. I know this has little to do with the cost of pumping oil, but it is part of the trickle down economics environmental regulations pose.
Probably in the Mid East, a lot less attention is placed on environmental stuff, hence, the lower cost of production and exploration.

[Major_Risktaker]

The only reason oil is $50 a barrel is the futures market being manipulated by the left-wing super rich in their desire to hurt the American people.

I hope you really don't believe what you typed because it's not true.