Posted on 01/27/2006 5:23:10 PM PST by LouAvul
DAVOS, Switzerland (FORTUNE) - Be afraid. Be very afraid.
That's the message from two of the world's most successful investors on the topic of high oil prices. One of them, Hermitage Capital's Bill Browder, has outlined six scenarios that could take oil up to a downright terrifying $262 a barrel.
The other, billionaire investor George Soros, wouldn't make any specific predictions about prices. But as a legendary commodities player, it's worth paying heed to the words of the man who once took on the Bank of England -- and won. "I'm very worried about the supply-demand balance, which is very tight," Soros says.
"U.S. power and influence has declined precipitously because of Iraq and the war on terror and that creates an incentive for anyone who wants to make trouble to go ahead and make it." As an example, Soros pointed to the regime in Iran, which is heading towards a confrontation with the West over its nuclear power program and doesn't show any signs of compromising. "Iran is on a collision course and I have a difficulty seeing how such a collision can be avoided," he says.
Another emboldened troublemaker is Russian president Vladimir Putin, Soros said, citing Putin's recent decision to briefly shut the supply of natural gas to Ukraine. The only bit of optimism Soros could offer was that the next 12 months would be most dangerous in terms of any price shocks, because beginning in 2007 he predicts new oil supplies will come online.
(Excerpt) Read more at money.cnn.com ...
The manufacturing would and should not be on oil energy
Manufacturing depends on transportation of raw materials, finished products and a labor workforce that drives automobiles. Plastics use a lot of petroleum as feedstock.
Can you honestly believe that are current payment of $200 billion to unstable oil-owning Governments is a good thing?
No, Which is why we need to shut down the eviromentalist lobby that keeps us from our own resouces.
But of course an oil tariff is the #1 way to encourage and incentivize domestic production.
No, it is not.
Shale oil *requires* an oil tariff to be a practical long-term solution because its cost of development will not be incurred up-front unless there is clearly a price point that can sustain it.
Then you have not be following this market. It requires no such thing. Shell believes they have the process economical to produce oil in the $20's per barrel. The same claims were made of the tar sands and artifical price lifts were not required.
Don't know about that - it doesn't sound like a responsible policy to me.
oops, perspicuously=precipitously, bad grab from spell checker.
It takes a sustained market, with future profits virtually assured before the development capital will fall into place, and then, it takes years to do the construction and infrastructure modifications necessary to make it happen.
Replacing the 55+% of our petroleum we import with other fuels will not happen overnight.
Joe, you are correct, and we do not need to replace all imported oil to get the political and economic benefits of domestic supplies. We just need the threat of marginal domestic production. If you look at the way energy markets react when it looks like ANWR exploration will pass the Congress you can see just how fragile the control of foreign suppliers are.
I say follow through and maximize domestic production. Build nukes. I'm not in favor of any proposal that chokes US economic growth or tilts the playing field more infavor of our global competitors. Or add friction to the energy markets.
"Wingtip spoilers increase fuel efficiency 3% between 24-26,000 feet."
"Opps -- the port engine just ingested a bird".
"Look OPEC gets stronger if we raise prices of oil."
The world price of oil is *not* raised by demand-curtailing tariffs.
" the easiest way to do that is through taxes. the way to screw opec is through increases in domestic production."
Yes, domestic production. yet you can't seem to grasp that the one sure way to do that is to put tariffs on oil imports so that the domestic supply has a greater incentive for production. The is economics 101 - if we want energy independence, discourage oil dependency actions through taxes.
"We need to drive prices down not up. Reduce the regulations. Build nukes. Explore, explore, explore"
I agree that we need to drive ENERGY prices down as a whole.
But the way to do that would be to (a) tax oil imports and (b) use the funds raised to help encourage domestic energy production, for example nuclear power plants, drilling, etc.
America could actually be an energy exporter in a post-oil-world. (Electricty to Canada and Mexico).
"I have to say that if you want prices higher and US tax payers subsidizing the world you have found an ideal tool. A tariff helps opec. because world prices will go up."
Actually what would destroy OPEC's pricing power for about 20 years would be an end to increased demand for oil.
An oil
Also, it is simply wrong to say the *world* prices would go up. Taxing the oil imports would reduce demand, which in turn would reduce prices.
"US consumers will pay the bills." Overall, it would be higher bill, but the money would stay in the US, reducing our trade and budget deficits. By encouraging domestic energy, it would give incentives for American jobs.
This is old-fashioned protectionism. I normally oppose it, but in this case you have an industry that is now 70% imported; it's the kind of industry where protectionism actually works.
Retail gasoline prices in Europe are considerably higher than in the US (currently $6/gal), precisely because the Europeans tax gasoline and such heavily. Why do you think you see so many motor scooters on the streets of Rome, and so few SUV's? It's not just the narrow streets.
Currently about a third of what you pay at the pump is fed/state/local gas tax. I'm suggesting shifting the tax to being applied exclusively on imported oil, and eliminate the curent gasoline tax (among other things)
What is your source for nonsense on Peak Oil? Thanks
No, it's what's known as an "original Constitutionalist"
When the Founders set up the Constitution, they did not give the feds authority to tax income. Instead, the primary source of tax revenue was set up to be from taxes on imports.
The big reasons included
If you add "and I am going to accept because they told me so" then you have captured most of the difference between your position and mine.
Look at the recent Shell and Kuwait [Burgan field] downward revisions and then tell me again that "these are the lower bounds." By the way, Burgan is an excellent example as it is a field that a lot is know about. It is also one of those fields where reserves were written up big time during the OPEC quota wars. The only thing that I can think of that detracts from Burgan as the perfect example is the damage that may have been done at the end of the 1st Gulf War. Still, the Kuwaitis have had 15 years to do a reevaluation and have waited until now.
"Not with 10 million barrels of capacity in a few years coming on stream."
New capacity has to come on stream to offset depletion decline curves. Tell me what the net gain is. If the ten million is the net, tell me what the decline curve is being assumed. CERA, a well respected organization has of late been projecting net gains that never seem to happen. Projects get delayed. Oil fields decline.
In regard to your comments Matt Simmons' theories about potential production collapses, if you are reading Michael Lynch and his cohorts, I urge you to do so critically. Lynch is a smart guy but appears to have an axe to grind [as does Simmons.] As I have repeatedly noted, Simmons is very adamant that he is not certain that Ghawar is about to collapse or that the middle east has only a small fraction of claimed reserves. He calls out for transparency.
Since we are mostly debating whether peak oil is now or in thirty years, why not get on with nukes and other things that clearly make sense now regardless? I suspect that you and I are in agreement on that point. Where we differ is the degree of skepticism I have toward Governments in general [IEA and USGS] and Arab Governments in particular.
One last thing. Reconsider the example of Kern River / Midway-Sunset. Factor those sorts of production curves into the fraction of remaining reserves representing heavy, and ultra heavy crudes. Then recognize that in situ recovery of tar sands and / or oil shales will present even larger obstacles to rapid extraction.
"I've got to tell you, I think you are nuts if you think this would help us. Making the US pay ~25% more than foreign markets do for oil would destroy our economy."
First, most other OECD nations have *higher* taxes on oil than we do - if you ever have bought gasoline in Europe you'll notice this.
Second, oil prices ramped up in the past 2 years by more than the amount I advocate, and the economy grew, not shrank. Oil is 1.5% of our economy, 1% of which is purely imported. Oil is our biggest, #1 cause of our large trade deficit, and is a big problem. increasing such a cost is marginal to the economy, but will make a positive difference in our trade balances.
Third, this is not about paying more in total energy costs, but via the import fee encouraging domestic production, energy efficiency and alternatives. All three activities will increase US economy, add jobs, etc.
So the claims that this would hurt our economy are unsound.
Taking $50 billion via oil import fees and rebating/reducing other taxes, like payroll, etc. would be a win/win for our economy.
"Can you honestly believe that are current payment of $200 billion to unstable oil-owning Governments is a good thing?" -- "No, Which is why we need to shut down the eviromentalist lobby that keeps us from our own resouces."
I agree. Let's get at our own resources. But environmentalists alway claim that we need to do more on energy efficiency, and then stop what we need to do on production. Ahem, we need BOTH. So defang their arguments by doing ALL of the things needed, not just one or two: Encourage higher MPG cars; drill in ANWR, offshore and govt lands; get nuclear power used more widely; pursue alternative fuels and EVs (eg plug-in hybrid electrics that can get equiv of 100mpg by using electricity as source of power); and get us off imported oil by discouraging it (the only way is via taxation).
An oil import fee should be viewed as one arrow in a quiver of solutions. It should not be seen as opposed to domestic production but a mechanism to make sure domestic production and energy efficiency are properly incentivized. Changing prices people pay is the one sure way to change waht and how we buy.
BTW, I've read the claims by Shell which are that shale oil is practical above $30/barrel. I also have pointed out that oil could one day be below $30/barrel again. Will Shell make the $5 billion investment in shale oil with that possibility hanging over their heads? An oil import tariff would indeed make it a less risky investment, and incentivize the movement to porduction there.
By Ben Lieberman
December 20, 2005
Drilling for oil in Alaska's Arctic National Wildlife Refuge (ANWR) makes so much sense, it's no wonder opponents must twist the facts to make it controversial. Yesterday, at last, common sense prevailed when the House passed by 308-106 a bill to authorize development of ANWR.
We're talking about 10 billion barrels of domestic oil in an area where there has been a proven track record for environmentally responsible drilling. Yet a host of tall tales from environmental activists and like-minded journalists has made it a tough fight in Washington.
snip
Prudhoe Bay has produced more than 10 billion barrels of oil since the 1970s, which has been transported through the Alaska pipeline to the domestic market in the Lower 48 states. That drilling also was done with decades-old technology and methods far less environmentally sensitive than ANWR would require.
Yes, we disagree on one basic point: There is a heck of a lot of oil out there, and the estimates of 2-3 trillion are not optimistic at all, indeed may be proven conservative over time.
Damage on one field is ignoring that new fields are opening up now and in next few years, Caspian, GOM, etc.
"If the ten million is the net, ..." Yes, it is the net.
The increases are net increases. eg see:
http://www.cera.com/news/details/print/1,2317,7453,00.html
"Since we are mostly debating whether peak oil is now or in thirty years, why not get on with nukes and other things that clearly make sense now regardless?"
I have said so myself. I beleive we need 400 nuclear power plants in USA, to both mitigate global warming and help us achieve energy independence. That plus much more.
U.S. Geological Survey - 1980. In 1980, the U.S. Geological Survey estimated the Coastal Plain could contain up to 17 billion barrels of oil and 34 trillion cubic feet of natural gas.
U.S. Department of Interior - 1987. After several years of surface geological investigations, aeromagnetic surveys, and two winter seismic surveys (in 1983-84 and 1984-85), the U.S. Department of Interior (DOI), in its April, 1987 report on the oil and gas potential of the Coastal Plain, estimated that there are billions of barrels of oil to be discovered in the area. DOI estimates that "in-place resources" range from 4.8 billion to 29.4 billion barrels of oil. Recoverable oil estimates ranges from 600 million barrels at the low end to 9.2 billion barrels at the high end. They also reported identifying 26 separate oil and gas prospects in the Coastal Plain that could each contain "super giant" fields (500 million barrels or more).
In 1996 the North Slope oil fields produced about 1.5 million barrels of oil per day, or approximately 25 percent of the U.S. domestic production.
Jobs To Be Created Between 250,000 and 735,000 ANWR jobs are estimated to be created by development of the Coastal Plain.
Economic Impact Between 1977 and 2004, North Slope oil field development and production activity contributed over $50 billion to the nations economy, directly impacting each state in the union.
America's Best Chance for a Major Discovery The Coastal Plain of ANWR is America's best possibility for the discovery of another giant "Prudhoe Bay-sized" oil and gas discovery in North America. U.S. Department of Interior estimates range from 9 to 16 billion barrels of recoverable oil.
Alaskans Support More than 75% of Alaskans favor exploration and production in ANWR. The Inupiat Eskimos who live in and near ANWR support onshore oil development on the Coastal Plain.
Administration Taps NPRA for 2 Billion Barrels of Oil Pombo praises move, questions logic in leaving ANWR’s 10.4 billion barrels untouched
Washington, DC- House Resources Committee Chairman Richard W. Pombo (R-CA) commended the Administration’s decision yesterday to open nearly 400,000 acres in the National Petroleum Reserve-Alaska (NPRA) for oil leasing and development. But Pombo also pointed out that production in just 2,000 acres of the Arctic National Wildlife Refuge (ANWR) would produce more than five times the amount of oil.
snip
“The Administration is opening nearly 400,000 acres to access 2 billion barrels of oil. Yet some in Congress continue to thwart the House and Senate majorities who support opening just 2,000 acres of ANWR to access 10.4 billion barrels of oil. What is wrong with this picture?
http://resourcescommittee.house.gov/Press/releases/2006/0112npra.htm
I noted when I posted the damage that was done to Burgan as I felt that some background was necessary for the sake of intellectual honesty. I also asked the question why it had taken Kuwait 15 years to assess the reserves of that field?
The reserves of the second largest oil field get wacked by 50 percent fifteen years after an exogenous event -- with no revisions in the interim. You don't think that this is significant?
I repeat my premise from the last post: You seem to be willing to believe what Governments [IEA / USGS and OPEC] are telling you at face value.
Burgan was less of a mystery than Ghawar. If for the sake of argument Ghawar is entering a terminal phase, we are going to need a large part of CERA's 10 million to offset what they project to be only a couple of percent per year from existing Saudi production. In addition, CERAs recent track record at forecasting production has not been stellar.
BTW, I would very much appreciate your comments on what you believe occurs to production when a highly productive [high porosity & high permiability] reservoir producing light to medium grade oil using almost exclusively Maximum Reservoir Contact wells and undergoing massive water injection starts to water out.
I also have problems with the location of these vast undiscovered reserves. The IEA charts show Arctic, Deep Water and Ultra Deep as separate categories. Is there something out there that is remote enough and big enough to represent several Saudi Arabias ... or are these prognosticators projecting hundreds of thousands of small finds ... or something in between? This is not a rhetorical question and IMO has significant bearing on whether the IEA is performing useful analysis or engaging in some sort of fantasy.
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