Posted on 07/23/2007 2:25:59 PM PDT by redwill
Technology to draw oil from rock in Rocky Mountain states and other unconventional sources is getting another look from companies and the government as the demand for energy increases and supply tightens, especially in the United States.
(Excerpt) Read more at upi.com ...
There is apparently another way to run out of oil than to suck the wells dry. You could get bombed to crap in a war.
If the shale oil process produces at $20, then it is profitable as long as oil on the open market is above that.
That may make it a lower-profit supply, but profitable nonetheless. Government guarantees to purchase 2 billion barrels a year from shale for the next 20 years at $30 barrel would be a good use of government money from an energy security perspective.
If market prices stayed above $30, it wouldn’t cost the government a dime because the producers would sell on the open market rather than take the government’s $30. But domestic production would be guaranteed a profit in case OPEC tried to manipulate market prices for pumped crude lower to squeeze them out. It would effectively eliminate the risk to capital investment that developing the shale oil will require.
You may have me confused with Goldman-Sachs. Not even Peak Easy Oil Theory contends the price will rise indefinitely.
Gov’t subsidy won’t work that way. Besides that, nobody would build that much plant for zero profit when there is oil to be pumped at decent profit.
Now, yes we are. Like many other commodities, oil is fungible. However, if we were to ratchet up the production from shale, to produce sufficient quantities whereby world-wide oil production far exceeded the demand, prices would drop like a rock. At that point, the US should cut all purchases from ME countries.
A price guarantee isn’t the same as a subsidy. The only way for it to end up as a subsidy is for the market price of oil to fall below $30.
Compared to the $78 today, that would be worth it just in lower pump prices to Americans, not to mention the added energy security.
Where can oil be pumped and delivered to refineries today by American companies for $5 ? Their balance sheets do not show a 90% gross profit margin. They don’t even show the 50% gross profit margin that the $30 oil from shale price guarantee I suggested would provide.
Canada is extracting oil from their sand, and their “Environazis” have allowed it under the condition that the land be returned to a natural state, not left trashed and useless. If our oil companies would guarantee to me, a tree hugger, who knows I do not own this world, but my Father the Creator does, that they would clean up their mess, and plant new trees or grass or whatever, then go ahead. But I’ll be watching! Or my grandkids:)
Unless you don’t own the oil, some sheik or someone named Hugo does.
My mistake, you're right. You just said that "the oil industry won’t be able to meet demand over the next two decades". I assumed this was a prediction of a price rise. Guess not? Or, are you just saying that you think, while the price will rise, it will never rise enough to make harvesting shale for oil profitable? If not, why not?
These extrapolations always fail for three very good reasons:
1) They never take into account how humans will react;
2) They cannot take into account new inventions;
3) They are outside of the effects of unintended consequences like the economic catastrophe that resulted from government policy decisions prior to the Great Depression.
A simple analogy would be this: A person prone to such thinking must never, ever be allowed to sit on the flight deck of an airplane because he will extrapolate the climb-out after takeoff to be a sure sign the aircraft is headed for outer space, and during the final approach to land, the extrapolation of the flight path always ends up striking the ground at a fatal angle well short of the runway.
I think your position is becoming clearer to me. It sounds like, in your mind, potential investors are faced with a choice of the following type: (1) spend that next marginal dollar on Pumping Oil and make X% profit, or (2) spend that next marginal dollar on Processing Oil From Shale and only make Y% profit (Y being less than X).
If that's the choice, then yes I agree no one would choose (2) over (1).
I don't think that picture really resembles the actual choice faced by investors however.
At current prices, there is no "cheap" oil. The cost of oil is what you have to pay for it or what you can produce it for, whichever is less. For whatever reason, the low cost oil sources are not increasing production to meet world demand. Price soars. That means people can make a profit by producing oil at $30 a barrel and selling it at $78. If $30 is the best there is for large scale production, that is what will happen (as long as the government butts out). If $35 is the best there is, that is what will happen. That will continue until the price falls to make the most expensive method in production just barely profitable.
You arrgument is based on the fallacy that anyone can go out and pump $15 a barrel oil. Manifestly, that is not true. Either it's not there at larger production rates or the folks who own it are not inclined to produce it. Either way, that means higher cost production will be profitable.
bookmarked
The oil industry report covers only the next two decades. Engineering design is generally for 20 years since present worth is nearly the same for 20 years as for 100 years or for all eternity.
This doesn't make sense economically. We buy from the Middle East because it's the lowest cost oil. How could we be strenghtened by having to use domestically produced oil that costs more than thiers ?
Paying twice as much for the same unit of energy, while the Chinese and rest of the world pay less for the same unit; weakens us, drives even more of our industry overseas, and generally makes us poorer, and thus weaker.
Of course, ours doesn't have to cost more, getting rid of a lot of stupid environmental regulations could help make it cheaper. I read recently that 45% of the cost of natural gas is due to regualtions.
We are costing towards big trouble in the middle east: In a decade we will think nothing of using nukes and chembio weapons against entire cites just to survive as a nation: We are fighting an enemy who is absolutely bent on world conquest even at terrible sacrifices to them selves.
Energy independence is not ultimately about economics but a defense issue. We don’t need to end oil imports just establish enough domestic energy resources that we can limp along in the case of an oil embargo or radically elevated oil costs.
And oil is not going to be inexpensive forever anyway. Resources are finite, demand is growing. The market will ultimately drive us towards alternatives anyway we just need to give it a push.
Two assumptions to your arguement that I think are invalid: 1. that defense issues are somehow independent of econmoic issues. They aren’t. Higher prices weaken us defensively, 2. that resources are finite and demand is always increasing, so they will run out. That assumption is also invalid. It’s not borne out by the history of the use of any resource. It’s arrogant to assume that you can guide markets, and hasn’t worked yet. Check out the history of coal use in Great Britian.
Two points:
1. I never said that economic and defense issues were unrelated. I believe, however, that we are too vulnerable to an unstable world oil supply and need enough of a cushion of domestic oil, coal, nuke, and alternative energy resources to allow the country to limp along until military action can restore the situation in case of full scale war. The German military and economy was strangled to death by lack of fuel in 1944-45. We can’t count on oil from Russia, the ME, or Hugo Chevez.
2. I agree that a lot of the “peak oil” talk is as alarmist as Al Gore’s global warming hysteria but there is ultimately only so much oil. As I already said: The market will eventually solve the problem anyway by adapting other fuels as they become economically feasible due to higher oil prices or technical advances. I just think we need to be doing everything possible to make certain the US is the leader and not the follower in this trend. The so-called “environmentalists” seem determined to tie our hands.
3. Guiding the market? How is the government not micromanaging the energy market now at the behest of the extreme left? We won’t drill in ANWAR, or build nuclear plants, dams, or coal fired power plants for largely bogus environmental and safety concerns not because they don’t make economic sense. And as long as OPEC works to manipulate oil prices to its own benefit there is no free market in oil anyway...
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