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23 comments on The Month of the Psychological Shock (Over Oil) in America?
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23 comments on The Month of the Psychological Shock (Over Oil) in America?
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“The only thing against this is that if oil is too scarce on the world market and expensive, it encourages people to conserve and look for alternatives. Saudi Arabia doesn't want Australia to stop using oil any more than Australia wants China to stop using coal, or the US wants Mexicans to stop eating corn, or Ghanans want the EU to stop drinking coffee. “ Posted by Kiashu
But maybe the exporters have finally realized that they have nothing to fear from “alternative energies.” If they are at or near Peak, the Saudis surely know that it will be absolutely impossible for wind and solar to be expanded on the enormous scale needed even to provide any substantial supply of electricity that still would be less than to-day’s output. I’m sure the Saudis are also aware of the general worthlessness of Ethanol and biofuels in general, and that most other technologies are either in the lab or extant only as a “demo”; thus, even under the most realistically optimistic scenarios several decades away from large scale commercial production. And other than biofuels, virtually all the alternative energies produce only electricity, which, while we will need all we can get, is not a liquid fuel especially convenient for transportation. So I think they realize that their oil will ALWAYS be in demand, and at ever higher prices; naturally they’d want to make the bonanza last as long as possible. And when supply gets REALLY tight, they can blame the producers of the alternative energies for failing to live up to whatever hype they have put out in their marketing campaigns.
Antoinetta III
I hope the Saudis and the Ibn Bush were smart enough to jack the price of oil up while there was still time to develop substitutes. It's really going to hurt if the reason prices are going up is because there really isn't any more oil.
Antoinetta III says,
"So I think they realize that their oil will ALWAYS be in demand, and at ever higher prices; naturally they’d want to make the bonanza last as long as possible."
Indeed oil will always be in demand, but how much oil? If we make the assumption that demand can go to 120 million barrels per day (and production can match that) by 2030 as the EIA of the U.S. Department of Energy and the NPC (National Petroleum Council) does, we must be assuming a massive increase in infrastructure in the oil E&P (Exploration and Production), refining and transporting sectors. Who is going to take the risk of footing that bill if they cannot be sure that the demand will indeed be there (remember, we are talking 22 years)? Recall that oil was pushed out of the electric power generation business in barely over a decade. It has been virtually pushed out of the home heating market in barely over that. Oil now has to rely on transportation demand to assure that it has a market, and if it can be pushed out of that market, or reduced to insignificance in the transportation sector, then the builders and investors of the giant infrastructure system built to increase production from 85 million barrels per day to 120 would potentially lose trillions (yes, trillions, using numbers provided by Matthew Simmons and others).
No one knows this better than the Saudi's, who are showing themselves not to be willing to make such a mammoth investment without some type of "demand assurance". They see batteries and plug hybrid technology racing ahead (I know technology is viewed as a joke by most TOD posters but the Saudi's take it seriously, after all, it made them what they are, a world power player), they see carbon limits being discussed and carbon taxes being proposed, and they see continents like Europe essentially declaring a quiet financial war on oil consumption.
In the meantime, the Americans are loathe to pay a bit extra per gallon to help fund the mammoth expenditure needed to raise oil production. All this is premised on the assumption that the oil is out there to produce, but really, it doesn't matter one way or the other if no one is willing to pay to produce it! Peak money long before peak oil...
For reference to Saudi public comments on the demand side issue, see the one key post I have written for TOD,
"A Tale of Two Speeches--OPEC's Demand Side Fear Is Very Real"
http://www.theoildrum.com/node/2978
RC
RC, I'm going on the assumption that we are at or near peak and that the reason investment in exploration and drilling is low is because it is unlikely there are any large finds left. Certainly no one wants to invest in a bunch of dry holes, in oil that cannot be produced because it does not exist, at least not in any large, easily accessible agglomeration.
And I don't think many people feel that any combination of "renewable" or alternative energies can scale up at a rate fast enough to at least keep up with the ongoing declines in overall production.
So I see the Saudis and the other exporters with declining production continually exporting less and less, but at ever higher prices. This is the first part of Westexas' breakdown, where the exporters will still see increasing income in spite of declining exports. Westexas suggests a point where their exports will decline that the cash flow will also, but I suspect that this will come quite late in the game, if it does at all.
Actually, I suspect that we will blunder along as we have, with oil prices swing up and down, but mostly up, with shortages and crises cropping up more and more frequently and working up the worldwide economic food chain. I can see this continuing for 2-7 years; at some point in this timeframe it will become clear that we are not only post-peak, but a critical mass of the investor/financial world will realize that the 200+ years of more or less continuous economic growth is over, forever. Markets will crash and a worldwide depression would ensue. Oil might go to $5 bucks a barrel, but at that point it won't matter, as $5 then would likely be the equivalent of $500 now. And in seven, or even ten years time, there is nothing that alternative energies, electric cars, hybrids, etc. will be able to do avert any of this.
If the Saudis are afraid of electric cars, battery tech, hybrids, etc., then they are afraid of shadows.
Antoinetta III
I would have agreed with you even a month or two ago, but I'm starting to believe the effects on aggrigate oil demand shown recently will help us pull through the next 5 or so years until real alternative tech really becomes competitive and available. Truck and SUV sales have been shreaded, the airlines can't seem to lay people off fast enough, vehicle miles are declining even as public transportation ridership is rising tremendously fast, while small cars and particulaherly hybrid sales have exploded. Also developing countries are finally reconsidering their fuel subsidies, which is just as encouraging as US demand destruction.