The Obama administration’s rejection of the Keystone pipeline was predictably stupid and will do little to protect the environment other than by slightly increasing world oil prices. Opponents made it clear that they didn’t care about the negligible environmental impacts of the pipeline; they just wanted to “keep the tar sands in the soil.”
The existence of tar sands refutes the frequent assertion that oil is going to become fantastically expensive in the near future. The Alberta tar sands are estimated to be the second-largest petroleum deposit in the world, but are ignored by those who want “peak oil,” who focus only on the liquid oil that has historically been our main source of petroleum. Extracting liquid oil costs less than extracting tar-sands oil, but since extraction costs form only a fraction of the cost of gasoline, access to tar-sands oil is going to keep gasoline affordable for a long time.
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Michael Levi, an energy expert with the Council on Foreign Relations, claims to refute “five myths about the Keystone pipeline,” but only four of them are myths. Two refuted environmental myths were that the pipeline would have caused catastrophic climate change and that it would “set back the green economy” (after Solandra it isn’t clear that there is a green economy, unless by “green” they mean government subsidies). Two refuted myths from pipeline supporters were that the pipeline would reduce U.S. dependence on Mideast oil and that it would create hundreds of thousands of jobs (turns out the numbers were in job-years).
The myth that was not a myth was that, without the pipeline, Canada would sell the oil to China, to which the writer answers “so what?” In other words, this “myth” is true. The so-what is that, as a result, world energy costs will be higher. That’s not a tragedy, but it is stupidity.
Sandy Teal:
You just don’t get it do you?
This little pipeline is hardly going to cure peak oil, which is a worldwide logisitic problem of being unable to sustain endless exponential growth in a finite world.
The market is certainly happy to supply you all the oil you want at very high prices. Its just that with really high prices, you will suddenly discover you don’t want so much oil.
This pipeline being built would hurt the US because it would enable export of syncrude from the oil sands, thus ending the glut of crude in Cushing, OK, and raising domestic spot market oil prices. The US economy does not want all the oil that it could refine today at existing refineries because the price is too high. This is why around 1 million barrles capacity is being closed down and around 2 million barrels capacity is being re-exported. The economy is speaking very clearly that it does not want $3-4 gasoline, even though all the oil you could possibly want is available at that price.
It also doesn’t matter that we MIGHT be able to raise world production 10-20-30% or more in a technical sense, because the cost do extract that energy is more than the market will pay, and the rate of return in energy on the enrgy expended in the extraction and bringing to market is a negative return – no point burning 3 barrels of oil in hand to extract 2 out of the ground.
Crude oil production has been flat for 8 years while prices have quadrupled. Economically, that 2% annual growth the world was enjoying has been replaced with a price increase of 25-50 cents per gallon in order to destroy the 2% demand increase.
But by all means, keep your head buried firmly in the sand.
I think you get it, Andrew.
The free market system sends a huge amount of information through the economy by “price.” A thousand planners with a thousand monkeys each couldn’t duplicate the information transmitted by price.
As I said, the peak oil argument is as compelling as it was when it was made 40 years ago, and if you can do it with a straight face, they will continue to be very logical in the next 40 years. I, however, will sleep without worry.
The free market system sends a huge amount of information through the economy…
My, we are getting a lot of alien visitors here! Welcome to our planet, friend! We call this place “Earthâ€. You must be thirsty after your long voyage! Try some of our government-supplied water! Forgive our air – we try to keep it clean but are thwarted by vested interests, but we have private oxygen bars!
DS
Sandy Teal:
40 years ago, US crude production peaked at 9.6 million barrels per day. Its down to 5.6 million barrels per day now.
All the denial in the world and all the “drill baby drill” chants will never restore that missing 4 million barrels of production, or provide for a resumption in production growth from that point that we saw from 1860 to 1970. You can’t suck out of the ground what is no longer there.
The economic price signals of the price increasing an order of magnitude since 1970 are the market’s way of sorting out the best uses for the geologically limited amount of domestic oil that remains.
Andrew, the latest Nature has a paper on the price volatility as a result of peak oil, outlined here:
DS
Dan:
The biggest problem is not even really high prices, but the EROEI = Energy Returned On Energy Invested. When you could drill 60 ft. down in Oil City or Beaumont or Baku and hit a gusher, the rate was close to 100:1 or more. Its now more like 20:1 or 10:1 or less and dropping, and that is assuming that new wells like in deepwater Gulf of Mexico like Thunder Horse and Mad Dog actually return their promised reserves, which they aren’t, because their peak flow never matched expectations, while their flow depletion rate and water cut increase rate has exceeded expectations. This is also related to the NPV calculations oil companies undertake to determine whether to drill. I.e., should I spend $10 million to get $5 million of oil out – obviously not going to happen vs. should I spend $10 million to get $100 million out – yes!
I would argue that if we actually had something resembling a clear market with market signals, a price on carbon and other externalities, prices would be closer to reality and tar sands would still pencil out, albeit at a much lower output scale as their dirty processes add too much carbon to the atmosphere.
DS
The President of the United States, addressing the Nation,
T H I R T Y – F I V E Y E A R S A G O
The oil and natural gas we rely on for 75 percent of our energy are running out. In spite of increased effort, domestic production has been dropping steadily at about six percent a year. Imports have doubled in the last five years. Our nation’s independence of economic and political action is becoming increasingly constrained. Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil that it can produce.
The world now uses about 60 million barrels of oil a day and demand increases each year about five percent. This means that just to stay even we need the production of a new Texas every year, an Alaskan North Slope every nine months, or a new Saudi Arabia every three years. Obviously, this cannot continue.
Sandy Teal:
Thank you.
Guess what? The profound changes were made. We made massive cuts to our consumption of oil in the period 1978 to 1986 through the elimination of inefficient and surplus industrial plant, more efficient cars and airplanes, conversion from oil to gas heat, conversion from oil fired to coal or gas fired electricity, etc. The reduction in demand caused a collapse in prices. This permitted us to use the surplus of supply created to fuel another 30 years of economic growth until we again hit our limit.
So what is next? We need a new round of profound changes, especially now that we have reduced the consumption of distillate, jet fuel, and residual fuel oil so much to keep increasing gasoline consumption. The profoundest change to make is weaning ourself from gasoline for personal transportation to the extent possible.
So did the Government planner programs in the 1970s with huge subsidies for solar and alternative energy make a difference? Any difference at all?
Or did in an increase in oil price send a huge amount of information through the economy?
And what did 40 years of Peak Oil mania accomplish that the oil price didn’t accomplish, besides conspiracy theories, mania, and terrible tax policy?
Sandy Teal said: As I said, the peak oil argument is as compelling as it was when it was made 40 years ago, and if you can do it with a straight face, they will continue to be very logical in the next 40 years. I, however, will sleep without worry.
THWM: Peak oil isn’t the end of oil, it’s the end of cheap oil.
Dan said: I would argue that if we actually had something resembling a clear market with market signals, a price on carbon and other externalities, prices would be closer to reality and tar sands would still pencil out, albeit at a much lower output scale as their dirty processes add too much carbon to the atmosphere.
THWM: Though lobbying by O’Toole and the Koch brothers, prevents clearing pricing and better market mechanisms from existing.