Insight and inspiration in turbulent times.
Add the loss of all or a major portion of Libyan oil production for an unknown period and the likely more-than-forecasted increase in Chinese demand, to the possibility that the Saudis will never produce much more than 10 million b/d, and the world is in for some real problems. To avoid shortages, the price of oil will be moving significantly higher.
-Revolutions could rob Opec of its ability to manipulate supply
-IEA sees oil price danger, ready to use stockpiles
-Saudi Denial Not What it Seems
-Judge Tells Government to Resume Permits for Drilling
-Gulf spill’s effects ‘may not be seen for a decade’
Maybe western leaders are afraid that, having seen what it is like when a people dictate to their government what it should do for them, rather than the reverse, we might start to take our own rights back, wholesale.
As elsewhere in the region, the main foreign powers involved — France, Spain, and the US — don’t seem to care much as long as the oil and gas flows, the country implements World Bank/IMF structural adjustment programs to modernize the oil industry to increase output, and their ‘strategic interests’ are protected. As long as these things happen, the country can go to hell in a hand basket – as it has. None of them have lifted a finger in protest to government practices and corruption.
Libya is one of the smaller oil exporters in OPEC. They were producing 1.65 million barrels per day in 2010 (through October) according to EIA data. However, the very serious political upheaval in this North African country poses a genuine threat to that production.
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The standard economic assumption is that, as a resource becomes scarce, prices will rise until some other resource that can fill the same need becomes cheaper by comparison. What really happens, when there is no ready substitute, can perhaps best be explained with the help of a little recent history and an old children’s story.
Consider the first 15 minutes after the Titanic hit the iceberg versus the last 15 minutes before the ship sank. In the first 15 minutes, only a handful of people knew that ship would sink, but that did not mean that the ship was not sinking. In the last 15 minutes, it was readily apparent to everyone that the ship was sinking, but by then it was far too late to try to get to a lifeboat.
Oil prices are going through the roof today, and gasoline prices at the pump will follow, as we get the first regime-rattling news in a major oil-producing state. What’s happening is that the sketchy news out of Libya makes the country look like it’s on fire – Col. Muammar Qaddafi may be spending his last days in power. And even though no oil supplies have been disrupted, traders are engaging in some casino behavior and bidding up prices to new two-year highs.
Fred Upton been much in the news of late as chairman of the Committee on Energy and Commerce of the U.S. House of Representatives. He told us as recently as April 24, 2009 that “climate change is a serious problem that necessitates serious solutions.” But now that he has finally gotten a little power, he has contracted selective science disorder.
Brent crude surged to $104 this week as anti-government protests spread to Libya and Bahrain, prompting a violent reaction from the authorities in both countries. 24 protesters are reported killed in Libya, and in Bahrain 4 have been killed and hundreds injured. Unlike Libya, Bahrain is not a significant oil producer, but there are fears that instability there could spread to its neighbour Saudi Arabia…
We often hear statements suggesting that by ramping up shale gas production, the US can raise total natural gas production and solve many of its energy problems, including adding quite a number of natural gas vehicles, and replacing a large share of coal fired electricity generation. While there is the possibility that shale gas will allow US natural gas supplies to increase for a few years (or even 10 or 15 years), natural gas is only about one-fourth of US fossil fuel use, so it would be very difficult to ramp it up enough to meet all of these needs.
