Peak Oil News: Cheap gas until the election?

Monday, September 25, 2006

Cheap gas until the election?

Augusta Free Press

Recent hype can't disprove peak oil

By Erik Curren

I filled my tank with gas for $1.89 a gallon last week. Some station in your area might be even cheaper. But there's no question that the cost of gas is down across the country these days.

Then there's more good news for drivers: Earlier this month, Chevron and a couple other oil companies announced that they found a mammoth oil field deep under the Gulf of Mexico promising a domestic source of oil for years to come.

This summer, with gas at historic highs, it was easy to believe that America might be running out of cheap oil. The theory of peak oil started to spread. The theory says that world oil production is about to reach its highest possible level and then begin an unstoppable decline just as China and India start to compete with us for the remaining oil.

But oh, how soon we forget.

"Peak-oil theory is garbage as far as we're concerned," said Robert W. Esser, a director of Cambridge Energy Research Associates, in response to the discovery by Chevron and its partners, known as Jack No. 2. His group predicts that world oil and natural gas liquids capacity could expand by up to 25 percent by 2015.

If Esser is right, that's good news for big business. If there's anything that scares industry more than global warming, it's peak oil.

Fearing it would cut into their profits, the oil, coal, electric utility and auto industries have fought since the late '80s to postpone real action on global warming. This year, with America finally poised to take real action to reduce carbon-dioxide pollution, industry seems to have lost this battle. Yet, companies can still find consolation in opportunities to profit from fighting global warming, whether through genuine but limited solutions like hybrid cars or bogus ones like so-called clean coal.

But with peak oil, there seems to be very little upside for many industries. If oil is both as central to our economy today and as hard to replace as peak-oil analysts say, then the whole international trade system could be threatened. Cheap goods from China would no longer be cheap. Food shipped from California to the East Coast could skyrocket. Wal-Mart prices could start to look like those on Rodeo Drive.

If peak oil ever caught on with the public as global warming has done this year with Al Gore's film "An Inconvenient Truth" and Hurricane Katrina, then Americans would be left with an even more disturbing picture of the future.

Scientists have warned that we must stabilize our carbon emissions within a decade to avoid the worst effects of climate change.

But if we accept peak oil, then we'll see we don’t have the luxury of even a decade to transition to a lifestyle that uses much less energy. If we stick with business as usual and keep burning oil as fast as we can pump it or ship it in, we can expect decades of oil wars like Iraq, increasingly volatile energy prices and a level of economic hardship not seen since the Great Depression, according to peak-oil adherents.

If we accept peak oil, we'll see that we should have started yesterday to make the big changes needed to radically reduce our use of oil and electric power, for example:

1. Taking freight off of diesel trucks, one of the least efficient ways to move goods, and putting it on rail cars, one of the most efficient.

2. Stopping new highway construction and starting the reconstruction of passenger railroads.

3. Zoning out sprawling cul-de-sac suburbs with big-box stores you can only get to by driving and rows of McMansions that guzzle energy for heat and air conditioning.

4. Breaking up large factory farms, which suck down chemicals and ship food 1,500 miles from farm to plate, into small holdings that can be run by family farmers who grow only for their local area

This is a far cry from the kind of small actions being touted by many environmentalists to fight global warming, such as screwing in compact-fluorescent light bulbs or taking shorter showers.

Peak oil calls for big changes at the heart of the very same American way of life that Dick Cheney has said is non-negotiable.

Big business might go along with tinkering with energy use here and there to be more efficient. But the likes of Hewlett-Packard, Procter and Gamble and Nike will never go along with drastically curtailing global trade and the consumer lifestyle in favor of Americans buying less stuff made abroad by big corporations.

By the level of hype in the recent attacks against peak oil, it seems that big business is scared. Corporate flacks in the free-market blogosphere are all abuzz with the Jack No. 2 discovery and its promise of years more of cheap domestic oil.

"Suffice it to say that the new Gulf of Mexico discovery rivals that of Alaska's giant Prudhoe Bay oil field in 1968," writes infamous industry shill Alan Caruba, whose PR firm offers its services to chemical and pharmaceutical makers. Though only a bit player in the rogue's gallery of corporate front-men who tried to cast doubt on legitimate global warming science, Caruba's latest piece on peak oil has popped up on a variety of right-wing Web sites. There, he writes that the world may have up to 140 years of oil remaining, or at least enough to last until 2070.

Caruba concludes with a favorite "gotcha!" claim of peak-oil skeptics, namely, that predictions of peak oil have been wrong before, so they'll probably be wrong again.

"Meanwhile, it's worth remembering that predictions that the world was running out of oil date back to when it was discovered in 1874 in Pennsylvania," Caruba writes. Of course, any student of oil history knows that "Colonel" Edwin Drake found oil in Titusville, Penn., in 1859. But maybe Caruba means that the peak-oil Cassandras didn't come along until 15 years later.

In any event, a middle-school debate team could debunk such flawed reasoning. Even if predictions of oil depletion have been wrong before, they're bound to be right some time. What's different now is that leading petroleum geologists are seconding the prediction made by the dean of peak oil, geologist M. King Hubbert - who correctly predicted that U.S. domestic oil would peak in the early '70s - that world oil should peak in the next few years, if it hasn't done so already.

So what about the new oil in the Gulf of Mexico?

"Knowledgeable geologists and petroleum engineers began to question all the euphoria," wrote veteran energy reporter Tom Whipple a few days after the announcement. Whipple explained that the Jack No. 2 find was actually a test conducted not on a single mammoth field, but in a small deposit likely part of an oil zone hundreds of miles wide on the deep ocean floor. The area, called the Lower Tertiary, has seen much fruitless exploration in the past. But even if the latest discovery matches up to expectations, extracting oil from 20,000 feet under the sea may be prohibitively difficult and expensive.

"Assuming that producing oil from the Lower Tertiary turns out to be economically and technically feasible," Whipple wrote, "will new production from the region have anything to do with delaying peak oil? The answer is an emphatic NO." Any oil from new finds in the Gulf of Mexico will take five years or more to come online. And by then, it would likely just be a drop in the bucket of America's projected oil consumption.

So why, then, have gas prices been coming down? And will they stay down?

"The Republicans are in a bad situation, even soccer moms know this. The best chance they have now is lower gas prices," says Michael Kane, energy affairs editor at From the Wilderness Publications, which publishes a daily e-mail newsletter on world energy and political news (www.fromthewilderness.com).

"When it comes to heating oil and natural gas, your bill may go up, but you pay what you pay for it. The price is not on billboards around the country. But people shop comparatively for gasoline. It's a real billboard sticker. Cheap gas is about the only push that the Republicans have right now, given that their backs are against the wall in Iraq."

Every year in the month of September gas prices usually go down a bit anyway. Demand declines after the summer driving season and before the winter heating season arrives. Yet this year, not only did prices see a bigger percentage decline than in previous years, but oil stocks held by refiners and wholesalers are bigger than they've been in previous Septembers as well.

"Following what the storage numbers say, each week the amount of oil and gas reserves is going up," says Kane. "The people who are involved at the refineries know the market, they know the cycles and they know that they don't need that much gas. By flooding the market when you know that demand is low, and then on top of that when the economy is slow, you know that there's even less demand."

Even though supplies are high and prices are falling, refineries have continued to run at higher than 90 percent capacity in recent weeks.

Kane concedes that the industry could be trying to stockpile fuel supplies in case demand rises later in the fall. But he says there's just as good a chance that industry management is glutting the market to bring prices down now before the congressional elections in November. He also claims that the Jack No. 2 discovery occurred some time ago, but that Chevron and its partners decided to save the announcement for just before the election.

Kane even wonders if the alleged terrorist plot uncovered in London in August was more or less a hoax by President Bush's allies in the British government, a pretext to reduce demand for air travel, and thus to cut demand for jet fuel, which would also bring down the price of oil in advance of the U.S. midterm elections.

Most oil executives, Kane says, are Republicans, and they feel that the GOP will protect their interests on Capitol Hill better than Democrats would. Yet, Kane does not see an organized conspiracy to manipulate voters before the election. "I doubt there was even one phone call," he says.

"We're seeing a coordinated campaign, but it's not a conspiracy. It's just everybody knowing what benefits them. It's a question of all the parts of the machine turning in the same direction at the same time."

Kane is not sure whether gas prices will go back up after November, but he does think prices will be more volatile, swinging up and down in unpredictable bumps that will jar consumers' nerves and create uncertainty in the economy.

It's a pretty safe bet that today's low gas prices are not here to stay. So fill up now while it's still cheap, because we're not likely to see $1.89 gas again for a long time.

Drivers might think that sounds like pretty bad news. But if the public ever comes to accept that peak oil is coming soon, then Americans will realize that low gas prices are really very bad news.

If America is addicted to oil as President Bush has said, then to kick our addiction we'll need to cut our oil use. Instead of feverishly drilling so we can continue to drive with abandon, we should radically reduce our energy use while finding clean alternatives to oil for the energy we'll still need.

One thing that free-market types have correct is that high prices tend to decrease demand and cause businesses and consumers to seek alternatives. That's why gas at $10 a gallon may actually be the best news for America in the long-term. It will put us on a crash energy diet that we should've started a long time ago.


3 Comments:

At 3:56 AM, September 27, 2006, Anonymous metal said...

useful information blog,very good content.

 
At 8:14 AM, September 28, 2006, Blogger NeoLotus said...

You may want to look at this article and add it into the mix before you ascribe everything to political cynicism. This does not mean the timing of the Goldman Sachs Commodity Index "tweak" isn't connected to the election cycle, just that there is more to it than mere chicanery.

 
At 5:20 PM, September 28, 2006, Anonymous Alan Caruba said...

You are free to believe in the global warming hoax. You are even free to dispute what I write, but the Earth is not "warming" in any significant or dramatic fashion and not one single climatologist will said that it is. Those with a political agenda, however, will. My agenda is to explore the reality of how much exists in known oil reserves and it is surely enough for an estimated 140 years use at present consumption rates. And more oil is being found all the time. Now, if the U.S. would just let Big Oil extract it, the price of gasoline would remain the same or lower, but so far your own government has been the problem.

 

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