Oil

Wednesday, June 06, 2007
Let's talk about oil. It's black and ugly. And cheap.

Which seems an odd statement, because the price of gasoline is now at an all-time high after inflation has been accounted for. Partly that represents a temporary setback in refinery utilization. But the elephant in the gasoline living room is that we don't want those ugly refineries anywhere near our house any more. Nor near our neighbor's house nor even in the same state. In fact, this side of the mountains is probably much too close. So we haven't built a refinery in this country in 30 years, and the price of gasoline spikes every time a screw goes missing. Shock.

But, even at today's prices, oil gives us more energy bang for our buck than anything else we can come up with. Which is why we keep buying it, why demand keeps going up. While poets and artists demand that Scientists wave their magic wand and produce new cars running on hydrogen, back in the real world there's nothing better than stinky toxic gasoline.

Oil—follow the money. Because it's almost always the best choice for the consumer, demand stays high and continues to grow, no matter what the price. " The U.S. Energy Information Administration forecasts that total world demand for petroleum will reach 118 million barrels a day in 2030, up from 83 million barrels a day in 2004." But on the supply side, we seem to have peaked. The non-OPEC countries seem unable to produce any more; many former big producers such as the US and Mexico seem to be clearly headed for decline during the next 30 years.

Growing demand and limited supply mean only one thing: higher prices. Don't expect this painful market truth to be blurted out by demagoguing pols any time soon. We'll first see endless rounds of "oil policies" and "windfall profit taxes" which will cause—exactly as it did in the Seventies—long gas lines and plenty of misery. Unfortunately, when people don't choose to face the unpleasant facts they are often forced to face the horrific ones.

9 comments:

Skookumchuk said...

So we haven't built a refinery in this country in 30 years, and the price of gasoline spikes every time a screw goes missing.

But not the rest of the world.

And certainly Canada has plans, given that their oil sands are becoming increasingly attractive.

In the US there is some expansion of existing facilities and some minor projects but nothing new and big on either coast. However, we should see some new building in the Gulf and much more on the Canadian Prairies.

It would be interesting to draw a map of present and future North American refining capacity.

Rick Ballard said...

"Historically, estimates of world oil reserves have generally trended upward (Figure 38) [3]. As of January 1,2007, proved world oil reserves, as reported by Oil&Gas Journal,7 were estimated at 1,317 billion barrels—24 billion barrels (about 2 percent) higher than the estimatefor 2006 [4] Table 3). In addition to growth in remaining oil reserves, production from conventional crude oil and
condensate reserves, natural gas plant liquids, Canadian oil sands, and Venezuelan ultra-heavy oil during 2006 were estimated to be 30 billion barrels. Taken together, the reserve increases and production imply that 54 billion barrels of reserve discoveries and growth occurred during 2006, or an increase of about 4 percent."


That's from IEO2007 Report, just not the part that The Street chose to emphasize.

Who knows, perhaps reserves and production will peak tomorrow. The growth rate in consumption necessary to move from 83MBD today to 118MBD in 2030 is 1.6% so consumption sure hasn't peaked.

The writer of the article is being more than a bit disingenous when he writes "because oil production in non-OPEC countries will be flat in the period and falling in such current big suppliers as Mexico and Venezuela, according to the agency." without mentioning that both countries production will be falling due to their governments actions rather than to market forces or lack of reserves.

Rick Ballard said...

Skook,

What we need are ten new refineries powered by brand spanking new pebble bed reactors. In fact, that ought to be a condition of the permitting process - want a refinery? Build a pebble bed.

Skookumchuk said...

In some happier alternative universe, maybe. Not to worry. The South Africans and the Chinese will teach us how in 20 years or so.

He said grumpily.

Actually, you never know. I'm hoping the Plains will become the energy center of the continent.

MeaninglessHotAir said...

Rick,

I don't necessarily agree with the cited writer about supply. The truth is, we don't know about supply. What I find interesting is the demand side, the fact that demand continues to rise in the teeth of prices which are higher than a cat's back. I don't see any abatement in demand, and this is very different behavior from last time around.

On the supply side, there is reason to be pessimistic. I am extremely skeptical that there will be new supplies found to match the increasing demand being generated in China and India alone. There simply don't appear any large unexplored new sources to be opened up, the way the North Sea and Alaska opened up in the Seventies.

Also, if limits in supply in both Venezuela and Mexico are due to political problems (which is surely partially the case)-- what difference does it really make? Is there any reason to suspect that a political cause will be reversed merely because it is political, in either case? I don't see it.

Finally, I don't see any reason to believe that actions of the Democrats will be anything but limiting to the supply side.

MeaninglessHotAir said...

Skook,

If the plains do become the new energy center, there is a high probability that the two coasts will vote to "nationalize" that energy center through a simple act of tyranny of the majority, thereby rendering the industry both profitless and under the control of our "enlightened" elites.

Skookumchuk said...

That is a danger.

Rick Ballard said...

MHA,

Barring an elephant being found, we may well be within just a few years of peak oil. That doesn't alter the fact that oil prices can't behave in a 'rational' free market manner due to political factors that go beyond the cartel interference.

Given the location of most of the oil, that's not a bad thing. The faster that alternatives become economically feasible, the faster substitution will occur.

Skookumchuk said...

We could accelerate the process of substitution if the political will were present. Nuclear for electricity, a combination of domestic petroleum, oil sands, liquified coal, biodiesel and cellulosic ethanol for vehicle fuels. All that is missing is the will. Someday we will have it.