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Peak nationalism
The Economist
Oil keeps getting more expensive-but not because it is running out
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…It would be natural to assume that ever increasing price reflects ever greater scarcity. And so it does, in a sense. Booming bits of the world, such as China, India and the Middle East have seen demand for oil grow with their economies. Meanwhile, Western oil firms, in particular, are struggling to produce any more of the stuff than they did two or three years ago. That has left little spare production capacity and, in America at least, dwindling stocks. Every time a tempest brews in the Gulf of Mexico or dark clouds appear on the political horizon in the Middle East, jittery markets have pushed prices higher. This week, it was a cold snap in America and turmoil in Nigeria that helped the price reach three figures.
No wonder, then, that the phrase “peak oil” has been gaining ground even faster than the oil price. With each extra dollar, the conviction grows that the planet has been wrung dry and will never be able to satisfy the thirst of a busy world.
Geography, not geology
Yet the fact that not enough oil is coming out of the ground does not mean not enough of it is there. There are many other explanations …
None of that will help consumers or governments. The economic toll of expensive oil is just as high whether geology or politics is to blame-and the best response is just the same. Policy should encourage energy efficiency and support research into alternative fuels. Governments seeking to shield their citizens with subsidies or price caps should instead expose them to the full cost to foster frugality. All this will be hard and unpopular. But politicians might console themselves with the thought that even the most recalcitrant petro-regime is more malleable than the brute realities of geology.
(3 January 2008)
Oil and the Dollar
Wall Street Journal
Oil prices finally hit $100 a barrel this week, albeit briefly, but breaking through that symbolic barrier is ominous and higher gasoline prices are sure to follow. Supply disruptions in various places and surging demand in China and India are part of the explanation for this decade’s upward trend in oil prices. But perhaps the biggest factor has been largely overlooked: the decline in the value of the dollar.
…We aren’t saying that supply problems and an increase in relative demand haven’t played a role in oil’s rise. Cambridge Energy Research Associates estimates that “aggregate supply disruptions” reduced oil supply by almost two million barrels a day in late 2007, which isn’t helping prices. But the high price of oil is not a vindication of theorists who say we are confronting “peak oil.”
A report issued this summer by the National Petroleum Council and energy experts across the spectrum concluded that “the world is not running out of energy resources,” though it conceded that “there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources.” Daniel Yergin of Cambridge Energy notes that in the energy markets “most of these risks are above ground, not below ground.” By that he’s referring to the tendency of politicians to intervene in the energy markets in any number of harmful ways. We’d offer barriers to drilling in Alaska and on the Continental Shelf as Exhibit A and B in this country.
(4 January 2008)
Behind a paywall. By searching for the article at Google News, you can see the full text. -BA
Perspectives on US$100 oil
Peter Foster, Financial Post (Canada)
The trading of oil — briefly — at US$100 a barrel on Wednesday inevitably brought forth much thumbsucking about symbolism and psychology and tipping points. Even The Wall Street Journal suggested that the (single) trade was “heard round the world.” But what, exactly, was the message?
There is no particular significance in a price of US$100, since it is as much a reflection of weakness in the U.S. dollar as it is of the balance of supply and demand. In real terms, the price is still below that reached in 1980 (which equates to almost US$103). If anything, reactions to reaching the alleged “magic number” serve to remind us of the human tendency to numerological mysticism, particularly around numbers with zeros. (Remember Y2K?)
This is not to suggest that a high oil price does not have major economic and geopolitical ramifications. The danger is that policy responses may –as ever –prove counterproductive.
Indeed, US$100 oil seemed to bring forth reactions similar to those of a full moon. It rattled the cages both of the economically challenged Jeremiahs of peak oil theory, and of politicians all the way from Democratic populists to conservatives obsessed with oil independence, and who seem to have forgotten the lessons of Jimmy Carter.
(4 January 2008)
Economy and Geopolitics Decide Where Oil Goes Next
Clifford Krauss, New York Times
NOW that the price of crude oil has crossed the $100-a-barrel threshold, and then retreated slightly, what direction will it take now?
Many experts say it will go up, then down, and then maybe up again. That, anyway, has been the pattern of the last several years of volatile prices.
The arguments for even higher oil prices are well known. The economies of China and India are booming and hungry for energy.
…“Predicting oil prices continually demonstrates the perils of prophecy, because oil prices are the derivative of what happens in the global economy and global geopolitics,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. Mr. Yergin said he could foresee oil prices surging as high as $150 in the next few years or falling as low as $40.
John Richels, president of the Devon Energy Corporation, an international oil and gas company based in Oklahoma City, said $150 a barrel was possible, but so was $55. “We have to make investments based on our outlook over a long period of time,” he said. “It is tough.”
Central to the question of where oil prices will go is the effect of high prices on the consumption and development of alternative fuels.
…So why are oil prices going up now? The military situation in Iraq is arguably improving, and Iraqi oil exports are beginning to flow again. Tensions with Iran have eased a bit. There are forecasts for a mild late winter in the United States, which should help bolster oil and gasoline inventories going into the spring and summer driving season.
…“There is still a lot of demand that is outside of the United States,” Mr. Richels said. “There is increasing oil consumption, particularly in the developing nations, and oil is getting more difficult to find.”
(4 January 2008)
The New York Times manages to write an article about oil prices without mentioning peak oil. Still, there is hope. The article ends with the statement that “oil is getting more difficult to find.” Now why would that be? -BA
$100 oil might not hit China severely
China Daily
The rising price of crude oil will not have as serious an impact on the Chinese economy as it seems, analysts said.
The oil price for the first time hit $100 a barrel in New York on Wednesday, thanks to what analysts called the deepening fears about the weakness of the US dollar and strong speculative buying.
… Asian Development Bank’s Zhuang, however, said the overall impact of high oil prices on China may not be very serious, although it may bring more pressure on inflation and corporate profits.
“China’s energy use structure remains largely unchanged, with coal being its main source of energy,” Zhuang said.
Agreed Wang Qing, saying the impact would probably be “moderate and quite manageable” because of China’s low dependence on oil as a source of energy.
Coal accounts for about 70 percent of the country’s total energy consumption and the nation has over 1 trillion ton of coal reserves, about 320 billion tons of which can be extracted immediately, according to official figures. This can meet domestic demand for at least 100 years, analyst said.
Wang said the government would subsidize the refiners as oil prices remain high, which will make up for a large part of the gross domestic product losses.
Analysts said the speculative buying of oil is the major force behind the current oil price spurt and it will not last very long.
(4 January 2008)
Related from People’s Daily Online: Thoughts on uncontrollable runaway oil price.
Peak oil theories
Financial Times
As millenarian prophecies go, “the peak is nigh” might not carry the same doom-packing punch as a promised “end”. Except, that is, in oil circles.
Applying [peak oil theory] globally, however, is fraught with problems. Mr Hubbert’s own forecasts of where global oil output would be at the turn of the millenium were wildly inaccurate. One problem is inadequate data. Modelling the mature US oil industry – with its huge sample size of more than half a million producing wells and many more inactive ones – is comparatively easy. In contrast, Saudi Arabia has only 2,000 producing wells and large unexplored areas.
Even if theorists could get a fix on how much oil is in the ground – and estimates vary wildly – the proportion that can actually be pumped to the surface changes over time, chiefly because of improving technology. Since 1980, this has risen, on average, from about a fifth to more than one-third, effectively boosting reserves. Today’s high oil prices also make previously uneconomic oil deposits – such as oil sands – viable and dampen consumption.
Oil output is not determined by geology alone. Far from it – “above-ground” factors such as the Opec cartel arguably have a bigger impact. Indeed, geopolitics – feeding price volatility – and the threat of climate change provide enough reasons to reduce our overwhelming dependence on oil for transportation. If the noise generated by the peak oil debate adds to the sense of urgency in addressing this, it will serve some useful purpose.
(2 January 2007)
Criticism from David Strahan.
The Financial Times is one of the best of the business-oriented newspapers. However they tend to rely on industry analysis and conventional wisdom, rather than doing their own digging. In the case of peak oil, this leads them into silly editorials such as this one. If one is going to talk about the “noise” of the peak oil debate, one had better do one’s own research first, rather than rely on industry talking points (which are rapidly becoming obsolete).
The Wall Street Journal and New York Times in the past few weeks have shown signs of waking up from their enchanted sleep about oil supplies. Perhaps the Financial Times is too.
(If you have trouble getting to the original article, try going through Google News. -BA
