One feature of this year’s ASPO conference that I most enjoyed was the contradiction amongst presentations. Marcio Mello gave an animated talk on Sunday night about the pre-salt formations off the coast of Brazil quoting that there are upwards of 500 billion barrels of oil available, an extravagant estimate that peak oilers are unused to hearing. Monday morning two talks on natural gas were juxtaposed in tone and content, one claiming that natural gas is the “American Treasure” and the other claiming that shale gas is marginally profitable, let alone a “treasure.”

Contradiction in this kind of academic setting magnifies the awareness of all involved by broadening the scope of the discussion.

Feature Article
Raukas, A., Punning, J., 2009, Environmental Problems in the Estonian oil shale industry, Volume 2, 2009, page 723 – 728

The Energy Journal Roundup is a monthly post listing citations and abstracts from some of the peer-reviewed literature published in various energy journals around the world.

Feature Article
Aguilera, R.F., 2009, Oil Supply in Central and South America, Energy Policy, Vol. 37, is. 8, pp. 2916

The Energy Journal Roundup is a monthly post reviewing the peer-reviewed literature published in various energy journals from around the world.

Why are gasoline prices so low? And why do they continue to drop? The recent drop in oil prices has truly been extra-ordinary. Gasoline prices are down almost as spectacularly, and the price of diesel is down is well. If we look at the graph, it doesn't look at all like anything we have seen before. What is happening, and where is this headed?

Figure 1 - EIA Graph of West Texas Intermediate (WTI) Crude Oil Prices, through 12/2/2008

I am becoming more and more convinced that the drop in gasoline prices has a huge amount to do with all of our credit problems (which in turn are related to limits on the oil supply). These credit problems are causing more and more defaults on debt and more and more bankruptcies. These defaults and bankruptcies have a double impact on oil prices--partly from reduced demand, and partly from distressed sellers disposing of futures contracts at low prices, because they are easy assets to sell.

We often hear that "soon" oil prices will hit a bottom, and start shooting back up again. I am less and less certain that this will be the case. Instead, I am concerned that we may on a relentless path to a point far below the point where energy companies can expect to have any chance of making money. We may be on a path toward more and more bankruptcies and defaults of all types--energy companies, owners of commercial real estate, homeowners, financial institutions, auto makers, airlines, and many more. If this is the case, there will be a huge strain on governments, and some may find it necessary to default on their debt.

In order to ultimately get past this crisis, it may be necessary for governments to establish new currencies in which debt is severely limited, and at the same time unwind the debt in the existing currency. I expect that a huge amount of derivatives of all types will need to disappear as well, so that financial assets start bearing a close relationship to physical resources.