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. |
Seedcake for animal feed, fiber for paperproducts & fabric, reside for fuel etc.
Most stuff per acre.
As the former oil minister for Saudi Arabia , Zaki Yamani, said, "the stone age didn't end because we ran out of stones". The oil age will end as technologies to increase efficiency, and new enegry sources, increase. Even a marginal drop in US consumption will have a major impact on the price of oil. This current price explosion could be big oil's last big bang. They could slowly start "dying on the vine" over the next 20 years.
Why were you mixing nitro with ethanol and not with gasoline?
bump
Of course, nobody mixes nitro with gas!
It's not nitro glicerine, it's nitromethane.
Engines don't run too well on dynamite!
There have been impressive real energy efficiency gains since 1973. However, the change from an industrial to an information economy has also boosted the BTU/GDP ratios. A lot of the energy-consuming manufacturing has been out-sourced to other countries, while low-energy-consumption services have grown.
Most of the "switch grass" data I have seen makes Pie in the Sky assumptions based on a few 1 acre test plots and makes wild assumptions about some magic enzyme that will exist someday to make it all work.
Somebody please show me a pilot plant that makes more than 1000 gallons of ethanol/day from switch grass that actually has energy input only double the estimated claims made switch grass proponents and I will invest $5000 tomorrow.
The nitro is what makes the alcohol burn. Running pure alcohol, even if you pumbed the 2 gallons it took for a 1/4 you didn't go any faster than with gas.
Great column.
It echoes my own thinking so completely, I'd wish I'd written it myself.
You forgot about Kudzu.
That's the big picture here. Someone posted the chart of energy efficiency ... doubled since 1973. And it will double again in the next 30 years, if trends continue. And there is no reason for them not to; just looking at a switch from conventional ICE-based cars to hybrid-style drivetrains, as Luskin notes, will give you a 40%-100% fuel efficiency gain.
As we 'run out' of cheap oil and/or it gets harder to find, we will adapt to alternatives. The Peak Oil fearmongering that civilization will colapse are nonsense... we'll adjust. I dont mind at all seeing a future of 400 nuke plants feeding electricity to power EVs and high-efficiency alt fueled cars.
I'm afraid they do. Notrous oxide injected into the intake manifold of a gasoline engine will generally increase horsepower by up to 50% or so. A top fuel dragster, on the other hand will generally produce up to 250% more horsepower on nitromethane than it will on straight gasoline, not the 10% you recall.
Actually, the use of corn as an ethanol reagent does not diminish its viability as a livestock food. Since corn is grown predominantly as livestock feed today, using it for ethanol doubles the usefulness of the land.
Think of it this way: livestock feeders want corn for the protein; ethanol producers want it for the starches and sugars. The former remain when the latter are gone.
You're twisting my statements!
I've never mentioned nitrous oxide which has nothing to do with nitromethane and the never said that nitro/alcohol only added 10% to horsepower.
Argonne Labs took on this question, here is what they say:
http://www.anl.gov/Media_Center/News/2005/news050823.html
I simply meant that the hybrid diesel-electrics described in the article are not the best examples to compare to personal transportation. They are heavy-lift, variable load vehicles to which low-end torque is the most important consideration. For a personal vehicle, many other considerations come into play, including the esthetics.
True, although much of the gain was from better insulation of houses and buildings, and much improved fuel-efficiency for cars.
Information technology also has contributed greatly. (Remember when you had to physically send letters? Go shopping to compare prices? Buy a newspaper to get your news?)
Nitrous oxide and methane mixed become nitromethane.
We seem to agree on the real efficiency gains.
Real efficiency gains reduce total world demand for energy. Improvements to the U.S. BTU/GDP ratio due to outsourcing energy intensive manufacturing do not change the total world demand for energy. This is an important distinction when trying to project the price of e.g. oil, or the number of years supply in reserve. Increased consumption in China played a large part in the recent price increases.
>>Argonne Labs took on this question, here is what they say:
Sponsered, interestingly enough by the National Corn Growers Association.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.
