Bloomberg argues that “supply alone is [not] behind the plunge in crude prices to $50 a barrel.” Instead, demand for motor fuel has slacked off due to lack of growth in driving combined with more fuel-efficient cars and more competitive electric cars.
The electric cars argument is specious, as too few of them have been sold to have much of an impact. The lack of growth in driving has already begun to turn around. Bloomberg itself demolishes the argument that supply isn’t the major factor with its very next story, which reports that Saudi Arabia greatly stepped up oil production in March, partly to meet the country’s “growing domestic requirements” and partly, no doubt, to hurt American or possibly Russian producers.
There is no doubt that cars are becoming more fuel efficient, but that is offset by the huge increase in cars sold in China, where auto sales have exceeded those in the United States since 2009. Besides, gasoline only accounts for about 19 gallons of product from a 42-gallon barrel of oil. Some of the rest goes to Diesel fuel, but most goes into other products for which demand is not likely to decline.
The peak oil debate a decade ago demonstrated how little most people comprehend the oil industry and world oil supplies. Here is my crude (pun intended) understanding.
Oil is found in the earth in many different forms and extracting them costs different amounts. To oversimplify, there is liquid oil like Saudi Arabia’s, which only costs about $10 a barrel to pump out of the ground. Various other liquid oils cost a little more until we reach tar sand oils, such as those in Alberta and Venezuela, which cost about $40 a barrel. Venezuela and Alberta together have about 3 trillion barrels of this oil.
Again married men generico levitra on line donssite.com are spending equally if not more. Divorces are also seen to take place these days because levitra 20 mg http://www.donssite.com/steertech/Steertech-Service.htm of sexual problem. This levitra australia is available in an online store to save a lot of money and get the order received at the doorstep. order cheap levitra http://www.donssite.com/levitra-2998 Make sure that the pharmacy you are dealing with displays the stamp from PharmacyChecker.com on its website. The most expensive oil is shale oil, which is basically rock that must be heated to remove the oil. This costs about $100 to $120 a barrel and the United States alone probably has close to a couple of trillion barrels of this kind of oil. Before we get to that, however, we have hydraulic fracturing, or fracking, which costs around $60 to $80 a barrel.
Oil prices are determined by a global market, and when prices rise enough, different kinds of oil come on line. So far, prices have never been high enough long enough to justify major investments in shale oil. But there is so much shale oil that oil prices are not likely to rise above $120 a barrel for any sustained period of time during this century (not counting inflation).
Given other supplies of oil, I suspect that the world price for oil will be about $60 to $80 a barrel for many decades. Wikipedia says that extraction of oil at current rates from current proven reserves will last 64 years–and it’s not including shale oil in those calculations.
For the next several decades, then, any large deviations from this $60 to $80 price are political, either because some suppliers (like the Saudis) step up production to hurt others or because war, sanctions, or other actions shut off some supplies. EPA requirements that oil formulas differ from state to state can also influence local prices because a small change in refinery supply in one state can’t be made up for by supplies from other states.
Oil prices of $100 a barrel roughly translate to gasoline prices of $4 a gallon; $75 a barrel is about $3 a gallon; $50 a barrel is about $2 a gallon; and so forth. Thus, in the absence of political interference, gasoline prices should be around $3 a gallon for the next several decades. After that, we may turn to shale oils, pushing gas prices up to $4 or so a gallon. Gas prices are not likely to reach a sustained rate of $5 a gallon any time this century–again, assuming minimal political interference.
The Antiplanner doesn’t care how people power their cars, but I do oppose government restrictions that deliberately make oil more expensive in an effort to discourage driving. The oil industry has a healthy future ahead of it, and any investors who sell oil short based on Bloomberg’s rantings is likely to be disappointed.
“But there is so much shale oil that oil prices are not likely to rise above $120 a barrel for any sustained period of time during this century (not counting inflation).”
Better count for inflation and a currency crisis. Speaking of, petrodollars are being dumped at a frenzied pace. Will American economic hegemony sputter to a halt in the near future? If so, all the AP’s prognostication about oil prices (particularly when priced in USD) may be for naught.
Coal can also be turned into oil. Sasol does this in S Africa, google “Sasol coal to oil”. Price has to be reliably over $60 (some say $80) per barrel for 30 years to pay off the plant costs. There are hundreds of years of coal available so peak oil has never been realistic.
The problem is CO2 production. Therefore limit CO2 emission to the atmosphere. This may be done by sequestration for example, not keep US oil in the ground then import the oil from Saudi Arabia.
I will advance a cruder, simpler explanation of world oil supplies. The earth beneath us is full of hydrocarbons filling a range of compounds from natural gas to coal. What they cost to extract is a funtion of the viscosity of the hydrocarbon, the porosity of the surrounding rock and volume of the hydrocarbon per unit squared in the rock. All hydrocabons can be extracted, at some price, depending on technology, means of transportation, proximity to markets, legal and regulatory factors.
How much shale oil is actually recoverable is probably very small, particularly in the Mountain West since there is virtually no available water that isn’t already accounted for.
I suppose water could be diverted from the Upper Snake River to supply water for exploiting the Green River shale formation in Utah and Colorado, but good luck with the politics in Wyoming, Idaho, Washington and Oregon.
In other words, supply curves slope upward.
Bloomberg argues that “supply alone is [not] behind the plunge in crude prices to $50 a barrel.”
They may be right. It might only account for about 95 to 98 percent of the drop.
People should be happy that there is a long term, extractable supply of dependable energy. Instead, planners are trying to hide their disappointment with prognostications about how impossibly expensive it will be to use any of those reserves. I know this will sort of derail their plans to turn all of us into solar and wind powered new soviet men, but look on the bright side planners; you’re wrong again!
The takeaway is that environmentalists have been predicting oil would run out in twenty years for the last sixty years, but still those same people are viewed as credible. Planners just have to plan and project, and any straight line will eventually cause problems. Most planner theories were sci fi stories in the 60s and 70s, and know that thought is “academic”.
Jardinero1’s comment is a great one. Technology will keep making extraction cheaper, and if prices rise than water and other constraints aren’t a problem. You can’t plan this stuff, but planners keep thinking they can. Thankfully the modern Nostradamus predictions of the future still are not taken too seriously.
There is an interstate compact that prohibits the export of Great Lakes basis water. Otherwise, cities like Columbus and Indianapolis could their supply problems.
The main things that seem to be missing in these sort of discussions that are pertinent:
a) We never know the future.
b) Human brains are the resource; not the physical thing in the ground.
c) Things will be around into the future as long as they’ve already been around.
”
interstate compact that prohibits the export of Great Lakes basis water
”
~rmsykes
It’s a compact, not one of the 10 commandments. It’s not clear how well it could hold up over time. It could change.
IMHO what makes the compact possible is that the need for it isn’t high enough. To make it economical, you’d have to move huge volumes of water. Even then, it’s still very expensive.
For example, I remember in high school they talked about how environmentalists and good politicians defeated moving water from Lake Superior to Wyoming for the Powder River Basin coal fields. Now that I’m older, I’ve learned that’s just the victors writing their own history. The need for that water was never high enough to justify it’s expense. They found better ways of mining the coal that didn’t require as much water. And, most importantly, they found that unit trains of coal were less expensive than a huge slurry pipeline.
Hey, let’s just enact a compact that oil can’t leave a basin and see how fast LA and NYC and DC move to wipe out compacts. The thing about the free market is that demand ends up finding supply, even at a higher cost. Only politics can stop it.