As U.S. retail gasoline prices once again near $4.00 a gallon, does this pose a threat to the economy and President Obama’s prospects for re-election? My answer is no.
EDIT - I originally wrote this post thinking that Prof. Hamilton was looking at a broader question: Can an economy learn to live with increasingly high oil prices? After looking again at his article again, I realize that he is talking about a narrow question: Using the figures he was looking at (average gasoline prices across all grades), prices were for the week of Sept. 17 near $4 a gallon, as they had been several times in the past, as they bounced up and down.
In that context, what he says is far closer to right than what my analysis of the broader question of whether an economy can learn to live with increasingly high oil prices, below, would suggest. There is a difference, because gasoline prices are not too closely tied to oil prices in short term fluctuations, and because the issue is likely to be as much one of consumer sentiment as anything else, as long as the issue is simply one of gasoline prices in a not-too-wide range. But I think there are some longer-term, more general issues we should be concerned about.
Posted by Rembrandt on October 6, 2012 - 5:14am
Tags: automobile, consumers, consumption, corporate average fuel economy, economic adjustment, economic effects, economic growth, efficiency, oil demand, oil prices, supply, thresholds [list all tags]
This is a guest post by James Hamilton, Professor of Economics at the University of California, well known for work on the relationship between oil prices and economic growth. The article originally appeared on his blog EconBrowser.
As U.S. retail gasoline prices once again near $4.00 a gallon, does this pose a threat to the economy and President Obama's prospects for re-election? My answer is no.
The graph below plots average U.S. gasoline prices, adjusted for inflation, over the last decade. This is now the fourth time we've been near the $4 threshold. It first happened in June 2008, again in May 2011, and again in April of this year. In fact, on each of those previous 3 occasions the average U.S. retail price of gasoline was higher than it is today.
Figure 1. Monthly real gasoline price, Jan 2002 to Sep 2012. Data source: monthly gasoline price from EIA, with value for September representing the weekly September 17 value. Expressed in units of August 2012 dollars by multiplying by ratio of August CPI (from FRED) to that of the reported month.
This is a guest post by Bill White. Bill is a Researcher/Writer, the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects (OFC).
Photo courtesy of ConocoPhillips
Liquefied natural gas is an odorless, colorless, non-toxic, non-corrosive and non-flammable form of methane. As fuels go, it's pretty cool.
Actually, LNG is colder than Antarctica on winter solstice. Methane is chilled to about minus 260 degrees fahrenheit — a temperature that transforms it from a vapor to a liquid, compressing its volume 600 times to make it more economical to store for later use or to ship long distances from countries endowed with natural gas to those starved for the fuel.
That's the broad story of LNG — a case of Adam Smith capitalism at work.
The theme of these posts over the past eighteen months is to look at the leading producer nations that provide crude oil to the world, and to see if it is realistic to anticipate significant increases in their production. Posts have now looked at North America, Russia, Saudi Arabia and China based on the original list of rankings produced by the EIA in 2009. And, as I noted before beginning the China posts, the interesting question at the moment relates to a) how much oil Iran is currently producing and b) how much, realistically, can it be expected to produce?
These are not questions with the same answer, since the current sanctions imposed on the country have clearly already had an impact on the amount of oil that is being exported from Iran. Nevertheless, the volumes produced have fallen below those now achieved by China, and for that reason China was given priority when it came to the order of writing these posts. But back at the beginning of 2011, there was no doubt that Iran was one of the top 5 producers, particularly if one combines the USA and Canada into the new “politically correct” term of North America as a way of dodging questions on long-term US production levels.
If one looks at the latest September OPEC Monthly Oil Market Report (MOMR), for example, there is now a gap of 1 mbd between the official production claims, which are shown below, and the reports from other sources, which follow.
Figure 1. OPEC production reports, from the originating country (OPEC September MOMR)
Figure 2. OPEC production reports, as provided by secondary sources (OPEC September MOMR)
This is part I of a guest post by Jean Laherrère, long term contributor to The Oil Drum. Jean worked 37 years for TOTAL on exploration and production of oil and gas, and since his retirement has worked tirelessly to analyse the world's oil & gas data and developments.
Leonardo Maugeri is an economist who worked for ENI since 1994, where he is currently on a sabbatical leave. He is also a senior fellow at Harvard University. In October 2009 he wrote an article in Scientific American entitled "Squeezing More Oil From the Ground: Amid warnings of a possible "peak oil," advanced technologies offer ways to extract every last possible drop”, which is now found with another title: “Another Century of Oil? Getting More from Current Reserves”. At the time, I wrote some comments on The Oil Drum in response: “Comments on Squeezing more oil from the ground by L. Maugeri Scientific American October 2009”
Recently, Maugeri published a new working paper, "Oil the Next Revolution: The uprecedented usurge of oil production capacity and what it means for the world". I again disagree with L. Maugeri’s stance that oil production capacity is surging, because production capacity data is completely unreliable, based on guesses and not on real measurements. Only oil production data should be used for forecasting purposes; his forecast on non conventional oil is also flawed. L. Maugeri has a poor understanding of the accuracy of oil data and his statements are in my view political and not scientific. His paper does not deserve to be on the website of Harvard University, a centre for science.
Below the fold are my comments on Maugeri's Oil Revolution discussion paper.
Posted by Rune Likvern on September 25, 2012 - 6:27am
Tags: baker hughes, bakken, breakeven price for shale oil, brigham, eagle ford, eur, marathon, north dakota, nymex oil futures, oil prices, rockman, sanish, shale oil, spe, statoil, the red queen, three forks, usgs, whitting oil and gas corporation, wti [list all tags]
In this post I present the results from an in-depth time series analysis from wells producing crude oil (and small volumes of natural gas) from the Bakken - Bakken, Sanish, Three Forks and Bakken/Three Forks Pools - formation in North Dakota. The analysis uses actual production data from the North Dakota Industrial Commission as of July 2012 from what was found to be a representative selection of wells from operating companies and areas.
The reference in the title to the Red Queen from “Through the Looking-Glass” by the English author Charles Lutwidge Dodgson (perhaps better known as his pseudonym Lewis Carrol) who was also a mathematician and logician, is deliberate to create associations with the Red Queen’s statement "It takes all the running you can do, to keep in the same place".
After presenting, discussing and concluding the results from the study presented in this post, the reference to the Red Queen was found to be an apt analogy to describe why technology and/or price cannot overcome the inevitable fact that field size and well productivity declines in most plays, whether in shale or any other plays. Put in a different way: shale plays do not get a pass on the laws of physics or the history of play and basin developments.The potential and technology for extraction (production) of shale/tight oil has been around for several decades.
There is every reason to embrace the recent additions of shale oil (from Bakken, Eagle Ford and other plays). These additions will help ease the present tight global oil supply situation and thus slow down the growth in oil prices.
Figure 01: The illustration above is from “Through the Looking-Glass”. At the top of the hill, the Red Queen begins to run, faster and faster. Alice runs after the Red Queen, but is further perplexed to find that neither one seems to be moving. When they stop running, they are in exactly the same place. Alice remarks on this, to which the Red Queen responds: "Now, here, you see, it takes all the running you can do to keep in the same place".
Continued below the fold.
Although energy policy has not been a significant issue in the current political debate over who should be the next president of the United States, this has not been a particularly good month for that future. In August, the Alaskan pipeline pumped an average of 399 kbd from the North Slope. As winter approaches, that number needs to be above 350 kbd to ensure that there are no solids built-up within the pipe, and each year the numbers fall a little closer to that limit.
Just this past week, Shell announced that they will not complete any wells in the Chuchki Sea this year, but will only partially drill a number of wells, and leave completion until next year. This despite the fact that the Arctic ice acreage fell to the lowest level in 33 years, the time over which these measurements have been made. Further, over in Russia, the promised development of the Shtokman field, postponed several times in the past, has again been put back on the shelf. The arrival of increasing quantities of shale gas, and the loss of the market to China have reduced the need for these supplies in the short term. At the same time, the Russian government is again seeking support from Western companies for developments in East Siberia and offshore. They are apparently still courting BP.
Overall, US crude production has stabilized, following the impacts of Hurricane Isaac, but is not following the steadily upward production path that folks such as Wood Mackenzie anticipated. That would require that the curve continue upward at a gain of around 0.5 mbd/year, which would be around the overall average for the gain this past year, but as a continuing slope, passing through the current apparent plateau.
Posted by Euan Mearns on September 21, 2012 - 12:07pm
Topic: Alternative energy
Tags: efficiency, electricity, energy, energy storage, home-solutions, measurement, personal energy and tagged batteries, photovoltaics, solar power [list all tags]
This is a guest post by Tom Murphy. Tom is an associate professor of physics at the University of California, San Diego. This post originally appeared on Tom's blog Do the Math.
A short while back, I described my standalone (off-grid) urban photovoltaic (PV) energy system. At the time, I promised a follow-up piece evaluating the realized efficiency of the system. What was I thinking? The resulting analysis is a lot of work! But it was good for me, and hopefully it will be useful to some of you lot as well. I’ll go ahead and give you the final answer: 62%. So you could peel away now and risk using this number out of context, or you could come with me into the rabbit hole…
Posted by Heading Out on September 20, 2012 - 4:45am
Tags: carbon sequestration, chemical plants, china, coal production, mongolia, peabody, rail transportation [list all tags]
In this run-up to the election, the American energy future seems to have faded into the quiet background. Gone are the concerns of past years, as both parties seem to have bought into the idea that the nation is well on track toward a much reduced need to import oil. Wood Mackenzie is forecasting that tight oil production will rise from 1.5 mbd this year to 4.1 mbd in 2020, with the Bakken producing 1.3 mbd, the Eagle Ford 1.3 mbd, the Permian plays (Bone Spring, Avalon, Wolfcamp and Cline) will produce 440 kbd, and the Niobrara should be good for 90 kbd. With the decline in production from the impact of Isaac in the Gulf not yet over, it is not yet clear whether the plateau in US production that was starting to form will continue, or whether the gains in production that these projections require will continue.
But there are some signs that these projections are, shall we say, a little ambitious. Well costs are now running in the $9 - $11.2 million range and, to sustain production, in these formations where wells have a high annual decline rate, increasing numbers must be drilled each year to offset that decline, and the poorer quality of newer wells. But declining rig counts and other concerns are for the future, and if no one coughs too loudly we can pretend that everything remains fine until we get past November.
China does not have that luxury, since the country, having set its people on an upwardly mobile quality of life path, must continue to provide the power that such a ladder requires. As I noted last time, the potential gains from the increased use of natural gas have been noted. Actions have already been taken to make sure that future supplies will meet anticipated needs and work has begun to tap the gas shales of the country.
But despite those efforts, the underlying strength of the Chinese power industry comes from coal.
In 2007 Chinese coal production contained more energy than total Middle Eastern oil production. The rapid growth of coal demand after 2001 created supply strains and bottlenecks that raise questions about sustainability.
In 2010, China produced almost half of the world’s coal tonnage.
China produced some 4.52 billion tonnes in 2011 and some 45% of that was shipped from the mine to the customer by rail. As demand continues to grow those volumes will also increase.
The 4th Annual Biophysical Economics Conference will be held October 26-28 at the University of Vermont in Burlington, Vermont. The conference will include 2 days of seminars, workshops, and break-out discussions, followed by a Sunday field trip. Registration is available at this site.