Source: Reflections of a Rational Republican ©2011
“The beatings will continue until morale improves.”
— Unknown
Today I filled up my fuel-efficient Toyota with 11.24 gallons of fuel at $3.80 a gallon.
And it’s only February.
I shudder to imagine what prices will be by the time driving season begins in earnest this summer.
With unprecented economic growth in emerging markets and consistent demand from the developed world, demand for crude oil continues to be high.
The fear is that, in the near future, the world will reach peak oil production. In fact, it is possible that we may already be there. Peak oil does not imply the world will imminently run out of oil, but it does suggest that production will begin an inexorable decline.
Some time before that point, the forces of supply and demand will make oil much dearer than it has been over the last hundred years. The United States reached peak oil production in 1970. Despite all new discoveries on- and off-shore, the United States has never reached this high water mark since. Granted, certain envirionmental policies may have slowed down the ability of oil companies to extract oil in particular parts of the country like ANWR in Alaska. But even if the government allowed drilling there, the estimated 10 billion gallons in ANWR are barely enough to provide the United States with slightly more than a year’s worth of consumption.
Furthermore, big oil companies are exploring farther off-shore and into deeper waters in the continental shelf to find oil, because most, if not all, of the on-shore super-giant oil fields have already been discovered.
We probably will not know whether we have reached the peak until several years after the event. But there will be signs.
Over short time periods, oil can be a volatile commodity that has rapid price movements in response to geopolitical news and supply data. Over the long-term, however, it tends to be relatively stable as the forces of long-term supply rise to meet those of long-term demand.
From 1986 to 2000, the price of oil averaged around $31 per barrel in 2011 dollars and hovered between a fairly tight price range. This all changed beginning in 2001. From January 2001 to December 2005, the average monthy price of oil jumped to nearly $43. From January 2006 to December 2010, the average nearly doubled to almost $79 per barrel.
WTI Crude Oil Prices in 2011 dollars, Source: U.S. Energy Information Administration, U.S. Bureau of Labor Statistics
The fact that oil prices continue to trend toward higher averages is a concerning one and will, no doubt, continue to exert pressure on our fossil-fuel intensive economy.
Oil is a nonrenewable resource. Once it is gone, it is gone.
Reflections of a Rational Republican 
Peak oil theory is just that – a theory, first expounded by a Shell geologist. I suspect the oil companies are happy that we believe in this theory as it justifies higher prices – up to USD 375/bbl according to some economists.
Abiotic theory is also interesting – and gives us hope for the future.
In the meantime I have been successfully shorting the dollar.
Sean Patrick Hazlett ,
I am a big history buff. Peak oil theory goes back at least to the 1920s. This is an excerpt from an article in the New York times .
November 20, 1921
” While alcohol may not be used directly in the manufacture of textiles,automobiles or sugar, any chemist can draw a flow sheet to show its relation to some to some of the contributing industries. Furthermore, petroleum experts issued a warning at the last meeting of the American Chemical Society in Rochester ( April, 1921 ) in regard to the visible supply of liquid fuels. They pointed out that, in fifteen to twenty years, the rapidly diminishing supply of petroleum will compel the world to turn to some other source for liquid fuel. The only possible solution of the problem in this distressingly short time is alcohol. ”
I personally have followed the oil supply picture from the first oil shocks of the mid 1970s. The problem is not peak oil, or oil companies . The problem is political . We could get most of the oil we need in this country. We could make up the rest with the natural gas we are finding in this country . In other parts of the world they are converting a lot of their motor vehicles to compressed natural gas . Guess what, it works better than electric cars .
We have a lot of anarchists in America who use environmental laws to kill oil and gas production . There is so much oil and natural gas to be produced. Much of it is only now practical because of the new fracking techniques that the anarchists are trying to ban . The environmental issues are solvable. The political ones are only solvable when liberals are voted out of power.
Alan,
Thanks much for reading my blog.
“The problem is not peak oil, or oil companies . The problem is political . We could get most of the oil we need in this country. We could make up the rest with the natural gas we are finding in this country . In other parts of the world they are converting a lot of their motor vehicles to compressed natural gas . Guess what, it works better than electric cars.”
I partly agree, partly disagree. Liberals have definitely stood in the way of oil companies. There are areas in this country that still have plenty of oil (e.g., ANWR) as well as offshore, that liberals have made it very difficult to exploit. That said, the United States hit its peak production in the early 1970s, so peak oil is a real phenomenon. At some point the world will hit a peak after which, demand will be forced to meet a lower supply. We may have reached peak oil several years ago, we might not reach it for 15 years, but given the behavior of oil prices, we are close.
As you say, natural gas is one of several solutions to reducing our oil addiction. It was scarce in 2008, but now, companies are starting to find more deposits in the United States and prices have dropped by nearly 60% from their 2008 highs. Again, though, natural gas is also a non-renewable resource. The countries that have the largest natural gas reserves in the world are Russia, Iran, and Qatar. Once we run down our natural gas supply — whether it be in 30 or 100 years, these countries could become our suppliers. Not an exciting prospect from my perspective.
To your point on compressed natural gas — you are right. It does work better than electric cars and if those using electric cars live near a coal-fired power plant, natural gas powered vehicles may actually be better for the environment. Even Nancy Pelosi supports natural gas-powered vehicles, though she publicly stated on Meet the Press that she supported them because they weren’t fossil fuels (she was wrong, obviously).
The reason I am trying to write more about environmentalism and clean energy is that many on the right discount everything liberals support. This leaves liberals in charge of the debate. America can then only choose between the left’s solution and the far left’s solution. Conservatives need a better way. They need policies that most efficiently reduce our reliance on foreign oil without destroying our economy in the process. Hopefully they can make a little money in the process as well. 😉
As you say, most of these issues have solutions. Even global warming. Liberals advocate a carbon tax that would cost very roughly between $75-100B a year and this solution would only help reduce the additional carbon dioxide added to the atmosphere each year. However, $2 billion could buy a fleet of planes that could drop sulfur dioxide into the atmosphere each year and actually reduce global temperatures. Why don’t we hear about these solutions? Because many on the right deny that the earth’s temperature is increasing and many on the left are only supporting painful and ineffective ways of solving the problem rather minding costs and taking advantage of innovation.
Sean Patrick Hazlett ,
I found your blog off of Ben Hoffman’s blog. I find your discussions with him amusing because I used to have them until he kicked me off of his site . I don’t have the time for my own blog, so I “troll” other folk’s blogs . I am one of those on the right you mentioned who discount everything the left says. I am as far right as Ho****n is left except that I don’t post things I don’t believe in .
I believe that with Liberals it is not about saving the environment. Hey I’m about saving the environment. I kayak, hunt, and hike the great outdoors of eastern Pennsylvania . I don’t want to see it ruined . The Liberals are Anarchists because all of their solutions do not work . Large scale wind and solar has to be permanently subsidized. It diverts money out of productive areas into industries that are cronies of Liberal politicians . It causes economic disaster directly related to the scale it is deployed . I can back this up with examples . The shining one being Spain, which while it had a housing collapse like us, a lot of it’s trouble is that it went further onto the green economy yellow brick road than anyone else.
I have fought these battles with Liberals on boards for years . I read a lot, so I believe I am informed . I find most Liberals to be misinformed at best, and at worst to be so filled with hatred that winning is more important than the truth .
I am also a big global warming denier and would love to debate you on it, but I am very long. I have no doubt that your sulfur dioxide plan could work except for two factors. I question whether you could get planes big enough to a high enough altitude. Also the quantity of sulfur dioxide needed is enormous . I base this on MT Pinatubo which threw up millions of tons of sulfur dioxide in June of 1991 and did temporarily cool the Earth .
Lastly I say it is not needed . In Pa. we all want to shoot our groundhog because the early spring he predicted has not happened .
Ben is fun! He served as part of the inspiration for my latest video blog about the Vast Right Wing Conspiracy.
I got the aircraft idea from an article in The Economist a few months back. The bottom line is that if I am right about global warming (and I am willing to admit that I could be wrong), humanity still has more time than most liberals think and can employ solutions that companies have already explored and assigned costs to.
If I am wrong about it, we didn’t impose a massive tax on our economy via taxing carbon.
To your point on Spain, Germany is the other example and they are doing much better than we are (though this has a lot more to do with lower relative homeownership in Germany than anything else — i.e., they largely missed the effects of the housing bubble.)
Anyway, I think, aside from my views on energy and global warming, you will find me as a fairly standard, conservative.
Also on energy, I tend to believe in employing the full gamut of solutions to solve the problem (i.e., more nuclear energy, more drilling, less oil from the Middle East).
Thanks for following and I look forward to continuing our conversation. I too, am from the Mid-Atlantic region, Delaware to be precise, so we probably have a lot in common.
Have a great weekend!
Sean Patrick Hazlett ,
Germany is rich. It can afford to stupid on wind and solar. Even they are running up against the limits of how much you can connect varying generating sources like wind and solar to varying demand grids.
Germany is dependent on Russian natural gas. All of the solar and wind toys they deploy will not change that .
Look up Spain for yourself. It is a basket case . Yea it’s complicated, but the green promise of prosperity is a bad joke to them . Their green subsidies have really done them in . You cannot drain money from productive areas and redirect them to non productive areas without ruining your country .
“Germany is dependent on Russian natural gas. All of the solar and wind toys they deploy will not change that.”
Actually, it will. It will reduce their dependence on Russian natural gas because both wind and solar are substitutes (albeit not very efficient or perfect ones) for natural gas peaking plants. It will never replace it, of course, but it will help reduce the amount of natural gas the Germans import from Russia.
To your point, Germany’s dependence on Russian natural gas pipelines was certainly a driver in getting them to adopt solar and wind as direct substitutes (i.e., solar and wind was more about national security than cost). That said, once a country gets to about 20% of power generation from wind and/or solar, it reaches its limit because that country can only use these two energy sources for peak power.
No argument on Spain. However, Spain’s problems are not due only to its green subsidies, but also to Europe’s general sensibilities of spending way too much on expensive social welfare programs.
I’m for a host of solutions that include more drilling, more wind, more solar, more nuclear, cleaner coal, and more natural gas. I’m just tired of enriching the bad guys.
Sean Patrick Hazlett ,
I would not be against wind and solar if they actually worked . I find the technology interesting . When I retire I would love to build my own wind turbine . I am fascinated by vertical axis models Darrieus and Savonius types . I’d like to store the energy by either lifting weights by way of a gear reducer or running an air compressor. That is more efficient than charging batteries. Releasing the energy would be as simple as allowing a falling weight to drive a mechanism like in the old clocks . Or using the stored compressed air to run a generator .
I still disagree about Germany. Their wind and solar capacity is far more about pacifying the green crowd than reducing their Russian gas bill. They be better off using all that money they throw away on solar and wind, to build gas storage capacity or to open up pipelines to other suppliers .
“I still disagree about Germany. Their wind and solar capacity is far more about pacifying the green crowd than reducing their Russian gas bill. They be better off using all that money they throw away on solar and wind, to build gas storage capacity or to open up pipelines to other suppliers.”
Maybe. It is hard to quantify which effect is the dominant one: energy security concerns or the green movement.
My understanding is that the Germans have been trying to support an alternative pipeline through Turkey to circumvent the Russian monopoly, which has been difficult because Russia does its best to discourage other countries from allowing the pipelines to run through their countries. Alas, more petro politics.
Anyway, I’d love to put solar panels on my house. But alas, I am a capitalist at heart and the prices have not fallen enough yet to justify the investment. Maybe someday. 😉
Sean Patrick Hazlett ,
” I’d love to put solar panels on my house. ”
I am a total skeptic. I remember the 1970s and 80s. Solar panels went on in the 70s and were disconnected but stayed on the houses in the 80s . Eye sores .
My view is that solar can be used for small isolated jobs, but not integrated into your main power systems. I used to have the little solar lights until they went bad . Never did throw sufficient light to justify the cost, but that concept of letting green do specific jobs, where the variability of out put is not critical, is what I favor . When you get into storage battery systems and trying to run 110 V home wiring, it gets way too complicated and expensive.
If I were in that industry I would push for stand alone applications. Keep it separate. Again the little yard lights illustrate that concept . I’d love to see a stand alone solar air conditioner . Keep it on DC voltage . The sun is shining brightest in the hottest weather . Use it as a supplement to regular air conditioning to reduce total power use . It wouldn’t work at night, but so what, or use a battery for that .
I like the concept in that ‘ my solar back up commercial ‘ . I just do not believe it works .