Skip to comments.Oil's Slippery Slope (Several signs point to fossil fuel going the way of the dinosaur)
Posted on 02/28/2006 9:15:59 AM PST by SirLinksalot
|Oil's Slippery Slope
DAYS AFTER HURRICANE KATRINA struck the Gulf Coast and sent energy prices skyrocketing, I called the top in oil1. A month later, just after Hurricane Rita hit, I called the top in natural gas2.
I stand by both calls. Last month, crude oil tried to rally back to the post-Katrina highs, but failed without even penetrating the $70/barrel level. For an essential commodity that we're supposedly running out of, this is pretty poor performance. Natural gas did trade higher last December than when I made my top call, but by only about 6% but since then it's lost more than half its value. That's a downright crash.
Yet, even though oil and natural gas have come off their posthurricane highs, it seems there's as much public anxiety as ever about energy. And energy stocks continue to capture the imagination of momentum investors. I say sell 'em.
The public anxiety about energy is misplaced. But it's strong enough to have motivated President Bush to take the extraordinary step of declaring in his recent State of the Union address that America is "addicted to oil, which is often imported from unstable parts of the world." Bush went on to propose that we cut our consumption of Middle East oil by 75%.
Sounds impossible, doesn't it? You probably think that America couldn't possibly do without Middle East oil and the idea that we even try conjures up all kinds of awful images of a stagnant economy and do-without lifestyles.
But think again. Today, about 80% of our oil comes from North America from Canada, Mexico, or right here in the U.S. of A. Less than 15% of our oil comes from the Middle East. So when Bush is talking about cutting 75% from that one source, he's really only talking about cutting less than 10% from total oil consumption.
And that doesn't mean cutting energy consumption. It could just mean substituting nonoil sources for a small fraction of our energy needs moving from oil to coal, gas, nuclear, or any number of new technologies that may become feasible in the future.
Even if it did mean sheer conservation rather than swapping one form of energy for another that doesn't have to be as bad as you think. Little by little, without our quite realizing it, oil is becoming easier and easier to do without every day.
Consider the technology future of electric automobiles. No, not the Buck Rogers monstrosities that you have to plug into a wall outlet for 24 hours before they can grudgingly take you just five miles before they need to be charged again. I'm talking about fast and powerful cars and SUVs whose electric motors are powered by onboard generators that use yes! gasoline made from yes! oil.
Such a next-generation hybrid would obviously not eliminate the need for gasoline or the oil from which gasoline is distilled. But it would use far less oil than today's pure-gasoline cars. Why? Because today an enormous fraction of the weight of the typical car is its mechanical drivetrain, the sole function of which is to convert the up-and-down motion of gasoline-fired pistons into rotary motion and transmit that motion to the car's wheels. In the future, the drivetrain will just be a set of wires that transmit current from the gasoline-fired engine to the electric motors that independently power each of the car's four wheels. A car that doesn't have to drag tons of drivetrain around will get a lot better gas mileage.
Already the world's most powerful rail locomotives and earth-moving equipment work exactly like this, so this is no fantasy. Cars with electric drivetrains will be on the road within a decade. That will put a huge dent in oil imports, because transportation makes up by far the majority of oil consumption in this country.
One criticism of this view that I often hear is that it's not enough to think about cutting oil consumption from today's levels. We have to keep the objective of rapid economic growth in mind and be prepared to use less oil in the future even when the U.S. economy is much larger than it is today.
True enough. But it turns out that most of our economic growth has relatively little to do with oil. As the economy has surged in the last quarter century, by far the fastest growing form of energy consumption has been electricity. And at this point, very little of America's electric generating capacity has anything to do with oil. The nonoil alternatives for generating electricity are cheap, abundant and clean.
We have many thousands of years' worth of coal reserves right here in America, and the technology already exists for burning it to generate electricity without serious air-pollution consequences. Yes, last month there were two tragic events that raised the issue of coal-mining safety. But these appear to be blips in a long-term safety record that is nothing less than astonishingly good, considering what's involved.
And we have the capacity to use plentiful uranium to generate electricity at nuclear power plants. The rest of the world has embraced this power source, but the U.S. remains squeamish about it. Anytime we wish to find our courage, it is a resource we can easily use.
Most people think of the U.S. nuclear power industry as moribund, ever since the mishap at Three Mile Island in 1979. But the reality is that America's use of nuclear power has done nothing but grow. Today, 20% of America's electricity comes from nuclear, about twice the amount in the 1970s even though no new plants have been built in decades.
How? Because we've gotten better and better at using the plants we already have. We now have so much confidence in their safety that they require much less down time than they used to. Using the plants we already have more fully has turned nuclear into America's stealth energy giant. And the perfect safety record that made it possible means we should be building more plants today to meet the growth needs of the future.
For investors, here's what it means. We're not running out of oil. Instead, oil is going out of style. In my opinion, investing in the big integrated oil companies amounts to swimming against the tide of history. I wouldn't do it.
Natural gas has an important future in home heating, electricity generation, and even in transportation. Prices have crashed, but the stocks of natural-gas companies haven't really come down all that much. I think gas prices have further to fall, and the stock prices even more so.
The sweet spot for energy investing is coal and nuclear. Don't be afraid of being politically correct. These energy sources won't trash the environment. And if it makes you feel any better, you'll be able to afford to plant a few trees with all the money you'll make on these stocks.
Where are they headed tomorrow, next week, or next month? That's a gamble. But in my view it's a certainty that oil is the past, and nuclear and coal are the future. If you are a long-term investor, that's where you should be placing your bets.
Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors. 3.
bttt for later read.
--great article--go nukes and coal!--
A DONALD LUSKIN TRUTH SQUAD might be a better suggestion, for this writer is almost begging to be taken out to the woodshed...
If we are forced by envirowackoes or the farm mafia to use some pie-in-the-sky pipe dream like wind power, ethanol or hydrogen, we are screwed.
Already the world's most powerful rail locomotives and earth-moving equipment work exactly like this
Yes. They do. But the comparison isn't very solid. Those machines do what they do very well: deliver extremely high power at extremely low speeds. Personal transport operates under a different set of defning parameters.
I also have to marvel at the fact that, although only 15% of our oil comes from the Middle East, every time some bedouin belches in that part of the world, gas hits the stratosphere.
---yep--think what a few drill rigs in the promising areas of the Commiefornia and Florida coasts, along with groundbreaking for a few refineries would do to the psychology of the oil markets--
The latest Dem ..flimflam .. Halliburton has the
contract to build all the wooden barrels that the
oil is sted in...in New Orleans? Jake
In other words, it takes us roughly half as much energy to produce a dollar of GDP today than it did in 1973.
And energy efficiency has been increasing at its most rapid rate ever in 1995.
Oh, you are just not playing fair using truth, logic and statistics! You must be one of those evil Republicans that hate the environment!!!!
Sorry. I HATE IT when I do that...
Not when it takes 40% more energy to produce a gallon of ethanol than it contains.
The ONLY reason ethanol can compete with gasoline is because the gas taxes are waived for ethanol.
I just finished the February Discover magazine. Worth a read. You'll see why on the cover.
An unattributed quote: "The United States today wrings twice as much work from each barrel of oil as it did in 1975. With even more advanced technologies, we can double oil efficiency all over again at a cost averaging $12 a barrel. We can replace all the rest of our oil needs with advanced biofuels and saved natural gas at a cost averaging $18 a barrel."
Why drill-and-burn when conservation+technology are better for the environment, the economy, and national security?
Ethanol/Alcohol requires land, labor and capital to create.
Growing crops for this means that the resources used cannot be applied to growing something else.
Everything considered its a relatively expensive substitute for gasoline or diesel. And to substitute a significant proportion of US gasoline/diesel consumption with it would require a very large acreage devoted to the appropriate crops.
That's not at all what the Peak Oil theory says. There is a decade to go.
Now, investing in uranium sounds like a fine idea, but where are the public corporations that mine uranium?
At the prices you suggest, those improvements will happen without a gun to our heads or a threat to our economic survival as a nation.
Luskin is absolutely right. Oil will still be needed in the futre, but not so much for fuel. It will be needed for lubricants and synthetics (plastics).
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