Skip to comments.What if we don't run out of oil?
Posted on 11/15/2005 7:05:19 AM PST by Dan Evans
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It's interesting, though, to watch the posts on this site, as time goes by. I've been basically saying the same thing about this since the 90's. You can't assume that things won't change, and you'd better prepare for the possibility that they will.
When gas prices were less than $2 a gallon, the Freepers were ridiculing anyone who dared to suggest that we ought to worry about this. Then the price went up to $3 a gallon, and they were talking about throwing the GOP out because of the hardship of gas prices, and suggesting that we needed to do something about the high oil company profits, even that the oil companies must be colluding. I thought I was reading posts at the DU, it was so pathetic. Now the price goes back down, and we're right back where we started--no problem, no worry, be happy.
Why do I get the uncomfortable feeling that this is going to start all over again very shortly?
The auto companies had years to prepare for this, they did nothing. Now they are going bust. It's the same thing with the economy as a whole. People don't do anything to prepare, and then blame someone else when things go badly.
Look at Social Security. Look at Medicare. I'm not sure why we bother to discuss this stuff at all. It's not going to change anything.
Not the way I remember it. The Arab embargo was about 1973. Carter and Nixon installed price controls. Reagan removed them. Read Wikipedia:
From Wikipedia, the free encyclopedia.
"The 1979 (or second) energy crisis occurred in the wake of the Iranian Revolution. In the wake of protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979, allowing Ayatollah Khomeini to gain control. The protests shattered the Iranian oil sector.
"While the new regime resumed oil exports, it was inconsistent and at a lower volume, driving up prices. Saudi Arabia and other OPEC nations increased production to offset the decline, and the total loss in production was just about 4%. However, a widespread panic resulted, driving the price far higher than would be expected under normal circumstances.
"In the United States, the Carter administration instituted price controls. This resulted in long lines appearing at the gas stations as they had six years earlier. As the average vehicle of the time consumed between 2-3 liters of gas an hour while idling, it was estimated at the time that Americans wasted up to 150,000 barrels of oil per day idling their engines in the lines at gas stations.
"During the period, many people believed the oil shortages were artificially created by the oil companies to drive up prices, rather than created by natural factors beyond any human control or influence. Further, while in a market economy, shortages would be expected to drive up prices, causing a contraction in demand, of themselves they would be unlikely to result in lines at the gas pump but for artificial regulations and price controls. Many politicians proposed gas rationing, such as the Governor of Maryland, who proposed odd-even rationing (only people with an odd-numbered license plate could purchase gas on an odd-numbered day). This did not last long.
"President Jimmy Carter made symbolic efforts to encourage energy conservation, such as wearing a sweater and urging citizens not to turn up their thermostats, and installing solar power panels on the roof of the White House and a wood stove in the living quarters. However, his successor Ronald Reagan ordered the solar panels removed and the wood stove was dismantled. Carter made a speech arguing the oil crisis was "the moral equivalent of war." More importantly, Carter, as part of his administration's efforts at deregulation, proposed removing price controls that had been imposed in the administration of Richard Nixon during the 1973 energy crisis. Congress agreed to remove price controls in phases; they were finally dismantled in 1981 under Ronald Reagan.
I have an idea. Instead of getting the government to finance new energy production why don't you and your friends invest in alternative energy companies? That way we bypass the middleman.
I own some energy stocks. I put my money where my mouth is, and it's been very profitable. That doesn't mean, though, that I think we can dismiss the problem of declining oil reserves as a nonissue. China is now the world's number two oil consumer, whereas they were previously a blip on the monitor. And they are still growing like mad. Both China and Russia are planning to build vast numbers of automobiles over the next several years. The bicycle is out in China.
All of this is going to hurt us in the pocketbook. There is going to have to be a lot of suffering before we finally do what needs to be done to solve this problem.
I'm not going to simply wait for someone else to do something. I'm doing my share now, and I am going to encourage others to do the same. You won't find me telling people that this is no big deal. That doesn't accomplish anything. It just makes the problem worse.
No, because not all of their product costs them the same. They can have a lot of different contracts for oil. Some are long-term and some on the spot market. The costs vary wildly. Not only that, but the costs of refining different grades of oil vary. So they could make a profit selling a little bit of gas but not a lot more.
During the 70's price controls on most things were in vogue I asked a friend who was smarter and wiser than I was why there were so many empty shelves at the supermarket. He very patiently explained the effect of price controls on the market and how price controls demand so that supply always meets demand. If you try to mandate a lower cost, you will have gas lines or rationing.
They know what they are doing, and they'd be the first to tell you that there is a problem.
That's what I think that "PC" is; an expression of intolerance to any deviation from dogma. The thought control of Orwell comes to mind. I have always considered being conservative as having minimum standards of behavior, like a building code, rather than any particular fashion of behavior. OTOH, the left are into fashion and lifestyle, as you mention, and not standards, which explains their hypocrisy. They are compelled to need a government that provides a "libertine" society for their psychopathologies. As do Striesand and Nader.
If oil ever reaches $10 a gallon, the Chinese economy will stall and begin retrenching rapidly. They need cheap oil to raise the standard of living for their 1bn+ people.
There is a difference between worrying about something and knowing what to do about it. Most of our problems are not caused by a lack of technology but by political forces.
For example, the problem of gasoline price volatility could be solved by simply carrying greater inventories of gasoline and selling them when there is a shortage and price starts to rise.
However, this could land you in jail if some politicians accusing you of hoarding and price gouging. The very threat from rabble-rousers like Bill O'Reilly and grandstanding politicians has a big effect on the market.
China has a lot of coal. If they do the same coal gassification it looks like America will be doing, they will have all the fuel they need for a long time. It won't do their economy any good any more than it will ours, but they will be able to keep going.
I think some oil companies (like BP) are paying lip service to the alternative energy types with their stupid, condescending ads, but I doubt if they are sincere. Anyway I hope not.
My grandfather was VP of Distribution for the East Coast for a large oil company during the 'oil crises' of the 70s. He told me on many occasions that there was never a lack of oil in those times.
The problems that he faced were with gas transportation. Namely, how to get the different formulas of gas that are mandated by different local governments to where they needed to be. For instance, there would a huge supply of Formula X gas in Texas, but it needed to be in New York City. Supply has the appearance of being short, demand goes up, price goes up and we have a 'crisis'.
The issues that he faced then, as we are facing now, are largely the making of the environment lobby, and poorly informed politicians. One of the previous posts hit it out of the park when they said that having pols set energy policy was foolish, as they are equally likely to listen to Barbara Striesand, as they are to an informed scientist.
I agree with you on O'Reilly. Besides the fact that he is clueless when it comes to this problem, he's blatantly dishonest. The increase in the price of oil is not because the oil companies are colluding. It's simple supply and demand, and he knows it. But like every politician on a power trip, he wants to be able to brag about how he got something done, and if it involves price controls, he can demogogue that.
The price will go up gradually and consumption will decrease and alternative energy sources will become more attractive. This will not be an on or off situation.
It's more than lip service. The major manufacturer of solar cells is an oil company. The oil corporations will be right there as we convert to other, more expensive energy.
I guarantee you they are sincere. However, they also realize how far down the road it is. You can't sell technology that does not yet exist.
One interesting fact is that the chemical industry is also being touched by this. It's not just energy. How do you produce all the chemicals that we need without oil?
It turns out that there is a big push in the chemical industry right now to build what they call the "biomass refinery." They are going to try to produce chemicals from biomass. DuPont is one of the leaders in this effort.
It's not as far fetched as it might seem. With genetics, etc., becoming a more doable thing, there are a lot of opportunities to advance this technology that were previously not available.
But it's still decades off, so here's hoping that the oil doesn't run out too fast. The Russians and Iranians have a lot more oil than we have. He who has the last billion barrels of oil will rule the world.
I am convinced that one of the main reasons for our recent strategic advances into Central Asia is to check any potential Chinese threat to these oil-rich countries.
"I'm worried about what happens if we do run out.
Me too. But the mass of people prefer to keep their eyes closed."
You folks need something else to worry about. Innovation in energy is not unlike innovation elsewhere. We will not run out because other energy sources will be substituted for oil as oil gets more expensive. Relax.
No question. The strategic moves are getting bigger.
Solar cells are for satellites. The last I heard, it costs more to make a solar cell that to buy the energy to make it.
The "Peak Oil" hypothesis does not say we will "run out of oil" in the foreseeable future. It simply says that new discoveries will at some discrete point in time fail to match consumption increases, resulting in a more or less permanent acceleration in the increase of the price.
Actually, nothing could be further from the truth. My dad was an investigator for the Federal Trade Commission during the "oil embargo" of the 80s. He was assigned to find out what was really going on and what he discovered will shock you. He found oil storage tanks full to over flowing while people waited in long lines to buy their 10 gallons of gas. He discovered oil tankers loaded to the gunwales with oil parked just over the horizon where they couldn't be seen, because there was no place to put the oil.
Draw your own conclusions.
We've already got the permanent acceleration, though. You don't need to wait until the production begins to decline.
20 years later and it is still $5 a watt. The solar cells were supposed to be getting cheaper, like 5 cents a watt or something. Wouldn't be hard to choose to cover the house with those and have the power grid buy your excess electricity.
That reminds me of Julian Simon's bet with Paul Ehrlich in 1980. Ehrlich had been going on and on about how overpopulation was causing us to run out of resources. Simon bet Ehrlich that most commodities would drop in price not rise and challenged him to pick five items that he thought would become scarcer. Simon won the bet.
That's a good question. I suspect that high prices aren't the only thing that can cause a lower demand. Probably people got sick of waiting in line and they found other things to do -- like staying home instead of going to the movies.
I cannot fathom why people have such a problem with this. Isn't it logical that oil companies are going to be reluctant to sell their product at a loss? Sure, they might have access to a limited supply of cheap crude with long term contracts. But what would be their incentive to buy more expensive oil on the spot market so that the supply equals the demand?
Price controls are either mischievous or they are unnecessary. If the controlled price is above the market price it has no effect. If it is below the market price it creates shortages.
I thought the Earth's core was made up of iron and maybe nickel as well. When did the thinking on the core's composition change?
Of course I can't prove my theory is correct - although it makes sense from first principles i.e. that if you cap prices you disincentive suppliers.
But - your amazement at two branches of government working at cross purposes - surely this has happened more times than either of us can count. I have absolutely no doubt that you could have one branch of government impelmenting price controls while another branch is investigating market disruptions.
In any case if my explanation isn't the correct one then how else to explain your father's observation?
Bingo. It amazes me how many potential ulcers await development on account of so much worrying by some people...much ado about nothing. Hi Tech will save the day.
We spend more money on bottled water than gas. I go to the carry out & pick up about 16 oz of water for about $1.19. That would make that water about $9.52/gallon (if I'm doing my math right)!
orived = proved
Your points are all good ones and far be it from me to say which explanation is the correct one - few points however.
1. Correct me if I'm wrong but the strategic petroleum reserve wasn't created until later on - I want to say around the time of the first Gulf war.
2. The argument that if the oil companies were reluctant to sell *any* of their product at artificially low prices then therefore they would be reluctant to sell *all* of their product at artificially low prices just doesn't make any sense to me. They have to calculate the marginal costs and marginal benefits for each unit of product that they either sell or hold back and (at least in theory) wherever their marginal utility is maximized, then that's how much they would sell. Marginal costs would have to include political costs and political calculations as well as purely financial ones. And all of this assumes perfect wisdom on the part of the oil execs who can't be acting in *complete* collusion. Rarely in business do you see perfect wisdom, perfect collusion, or all or none solutions. That argument for me, that if the prices were artifically low that no oil would be sold just seems absurd.
3. No matter how well the FTC was run at that time, two branches of the government working at cross purposes still seems perfectly reasonable to me. I don't even know that it was the FTC that imposed the Nixonian wage and price controls or some other agency (a litttle research would resolve that problem I'm sure).
4. It could be that there is some truth to both of our conclusions - it's not clear to me that they are really that mutually exclusive - the wage and price controls could have been a factor in the oil company's behavior just as your contention that they were trying to gin up a sense of crisis and make OPEC a political pinata.
Great discussion - seems like there has not been enough of this sort of thing on FR lately.
Kuwait has 10% of proven worlds oil reserves. They just announced that their largest field is now pumping only 1.7, down from 2.0 million barrels a day. The field is rapidly running down.
Chevron announced last year that their proven reserves where 20% overstated.
The hand writing is on the wall..
The FTC did not impose Nixon's wage and price controls, that was all Tricky Dicky.
I'd like to see the bottled water barons hauled before Congress to justify their outrageous price gouging.
Yes. I guess you mean price supports, which are the reverse of price controls. They are usually in effect at the wholesale level. Sugar, milk, corn have price supports.
Just as bad. If any industry were to do something like this on their own, they would go to jail.
There are meteorites that contain some percentage of carbon and hydrogen and so it would be surprising if the earth's core had none. It wouldn't take very much at all to account for the oil deposits since the crust is a tiny fraction of the earth's mass.
I really think it is a stretch to make that assumption. I would not be at all surprised that these people would be completely bewildered that price controls would cause a shortage.
You don't understand. They don't "jack up" prices because they can, they do it because they have to. There is only one correct price. If the price is too high, they can't sell all of their product. If it is too low, they there is a shortage -- gas lines.
What oil companies can do, and what all companies do, is adjust the production to maximize profit. Produce too little or too much and profit falls. It's tricky because competitors are doing the same, demand changes, customer habits change, oil supplies vary, etc. And they have to do this while a hostile government is looking over their shoulder ready to jump on them if they perceive any "gouging".
No. They could make a profit by selling some gasoline at the controlled price but not a lot. The more gas they produce, the more it costs them per gallon to make it. Why? Because:
1) Some crude costs more than others. Long term contracts may cost less than the spot market price.
2) Refining costs more if you have to pay people overtime.
3) Some crude costs more to refine than other types. If you limit production you can save costs.
4) Some refineries are more efficient. If they can shut down the inefficient ones they save costs.