Back to the showAs you go further back in time, fewer links actually work. 


Paying For It

 

Source: EIA

It remains to be seen whether 'paying for it' also has political implications.*

*Post election postscript: one more surprise for Pete -- it didn't.


MISC ----

President Chavez's efforts to sell Venezuelan oil to China apparently work out. q.v. Course it's not clear how much he sold ...

Have anthropogenic aerosol emissions offset the effect of greenhouse gases on global warming? q.v. Not very likely, thinks Pete.

Bill Clinton awakes to discover he didn't do anything about energy. q.v. Never too late? (See Letters)

Once again time to worry about Venezuela? q.v.

Saudi central banker on whether to price oil in euros or dollars. q.v. He thinks it doesn't matter.

OK, Pete knows, everyone knows, the US sanctions against Iran are a farce. But how big a farce? q.v. Note that Radio Free Europe thinks the Halliburton move may represent another instance of rapprochement. q.v.

Martial law and elections for Iraq. q.v. So this is democracy...

Coherent background piece on petroleum (after the intro paragraphs). q.v.  Thanks to George Mogiljansky for pointing  it out.

Another good background analysis by a Harvard professor is also available q.v.  and worth reading, with thanks to Randy Udall for suggesting it.

Alleged Saudi role in funding Al-Qaeda. q.v.

The Wall Street Journal reported that the Saudis were in negotiations with India for a large oil supply contract.

Where will the hydrogen come from, how will it be stored, etc. q.v.

Possible major increase to Saudi reserves. q.v.

Let us now celebrate the clerk at Dominion Transmission who sent EIA the wrong file and therefore seems to have caused natural gas prices to jump up by a fifth the day before Thanksgiving. qv1 qv2 Since Pete was short gas at the time, it adds to his litany of sighs...

DOE completes testing of Daimler Chrysler's new electric commuter cars. q.v.  Operating characteristics: from 37 to 44 miles per charge; payloads from 526 to 886 pounds per vehicle; each vehicle required less than seven hours to fully charge using a standard household outlet. Each went between 5.4 and 5.9 miles per kilowatt-hour (kWh), which means that the fuel costs were less than two cents per mile (assumes 10 cents per kWh).  [editorial note: Pete originally made a  mathematical error on the relative cost of the new technology with  gasoline, kindly pointed out by Stephen Richards. This makes the new question: how could it only cost a fifth what gasoline power would cost?]

Renationalization of the Russian oil sector? q.v. Nothing like a good shell game.


 

Greenspan On Oil Price and Supply

Rumors to the contrary having repeatedly proved unfounded, the only Washington authority with views on oil that matter remains the Federal Reserve (and perhaps Vice President Cheney, although no one is sure about the latter).  Here are selections from Fed Chairman Greenspan's recent remarks on oil:

... Between 1990 and 2000, although spot crude oil prices ranged between $11 and $40 per barrel for WTI crude, distant futures exhibited little variation around $20 per barrel. The presumption was that temporary increases in demand or shortfalls of supply would lead producers, with sufficient time to seek, discover, drill, and lift oil, or expand reservoir recovery from existing fields, to raise output by enough to eventually cause prices to fall back to the presumed long-term marginal cost of extracting oil. Even an increasingly inhospitable and costly exploratory environment--an environment that reflects more than a century of draining the more immediately accessible sources of crude oil--did not seem to weigh significantly on distant price prospects.

Such long-term price tranquility has faded dramatically over the past four years. Prices for delivery in 2010 of light, low-sulphur crude rose to more than $35 per barrel when spot prices touched near $49 per barrel in late August. Rising geopolitical concerns about insecure reserves and the lack of investment to exploit them appear to be the key sources of upward pressure on distant future prices. However, the most recent runup in spot prices to nearly $55 per barrel, attributed largely to the destructive effects of Hurricane Ivan, left the price for delivery in 2010 barely above its August high. This suggests that part of the recent rise in spot prices is expected to wash out over the longer run.

Should future balances between supply and demand remain precarious, incentives for oil consumers in developed countries to decrease the oil intensity of their economies will doubtless continue. Presumably, similar developments will emerge in the large oil-consuming developing economies.

Elevated long-term oil futures prices, if sustained at current levels or higher, would no doubt alter the extent of, and manner in which, the world consumes oil. Much of the capital infrastructure of the United States and elsewhere was built in anticipation of lower real oil prices than currently prevail or are anticipated for the future. Unless oil prices fall back, some of the more oil-intensive parts of our capital stock would lose part of their competitive edge and presumably be displaced, as was the case following the price increases of the late 1970s. Those prices reduced the subsequent oil intensity of the U.S. economy by almost half. Much of the oil displacement occurred by 1985, within a few years of the peak in the real price of oil. Progress in reducing oil intensity has continued since then, but at a lessened pace. ...

... In summary, much of world oil supplies reside in potentially volatile areas of the world. Improving technology is reducing the energy intensity of industrial countries, and presumably recent oil price increases will accelerate the pace of displacement of energy-intensive production facilities. If history is any guide, oil will eventually be overtaken by less-costly alternatives well before conventional oil reserves run out. Indeed, oil displaced coal despite still vast untapped reserves of coal, and coal displaced wood without denuding our forest lands.

Innovation is already altering the power source of motor vehicles, and much research is directed at reducing gasoline requirements. At present, gasoline consumption in the United States alone accounts for 11 percent of world oil production. Moreover, new technologies to preserve existing conventional oil reserves and to stabilize oil prices will emerge in the years ahead. We will begin the transition to the next major sources of energy perhaps before midcentury as production from conventional oil reservoirs, according to central tendency scenarios of the Energy Information Administration, is projected to peak. In fact, the development and application of new sources of energy, especially nonconventional oil, is already in train. Nonetheless, it will take time. We, and the rest of the world, doubtless will have to live with the uncertainties of the oil markets for some time to come.

The full speech can be found here.


What Does EIA Know About the Future Anyway?

Not much, judging from the following graphs (first natural gas, then oil):

Source: Taken from Berkley National Laboratory, Overview of Alternative Fossil
Fuel Price and Carbon Regulation Scenarios
.
Suggested by Randy Udall.

First off, the charts above were apparently done last year, or at least they weren't fully updated.  So make the following mental correction: go to the end of the wavy red line, jump over a notch, and then head due north until you get near the top (i.e. gas is going for about $6.80 and oil for $54). Paint that mental line very red and throw in some exclamation points just to emphasize how extreme the current situation is.

Let's face it. No one got it close to right.*

*Pete must confess that he was at least breathing the same air as many of the EIA wizards were when some of the forecasts made in the 80s and early 90s were made, and may therefore bear some of the blame for not getting it right. As we all know, he never gets it right. And as he has always maintained, a lot of those EIA analysts are very smart and are as good as analysts come.  The analysts themselves would probably point out that a few intermediate spikes for a year or two are not that damning for a long term forecast. Note that the wizards of the futures pits didn't get it right even a few months out.  Who knows why the future is so squirrelly?


On the economics of producing hydrogen from nuclear plants. q.v.

On the idiocy of US regulations concerning Iran. q.v.  Who cares, given the farce recent European and Asian deals have made with the tidy little US scheme. Perhaps the point of the changes is to permit the innocuous exchange of books by the Library of Congress with their Iranian counterparts, first mentioned here several weeks ago. If so, may the rapprochement grow. But there's no reason to have such foolish regulations in the first place.

FERC approves the largest ever LNG import facility. q.v. Why is FERC approving the monster for Louisiana, when gas demand is in the northeast?  Is FERC is trying to bailout the pipelines too? Or is it just that the south is lax about inherently dangerous projects?

Norway outdoes the rest of Europe, promising 90% renewable electricity by 2010. q.v.  The interesting part is that it produces 99% today (hydropower), according to EIA. q.v.

EIA's guide to Chad and Cameroon. q.v.

Residential energy calculator. q.v.

Samuel Bodman nominated as secretary of energy. q.v. Mr. Bodman was formerly with Commerce and Treasury.

Marc Rich rolls the US government yet again. q.v.  Sigh. How free markets really work when there's no one to regulate the game...

Rumsfeld and Wolfowitz's shameful legacy. q.v. (slow to load)

Green as you want to pay to be: EIA's take on green energy pricing. q.v. Someone is making money from it, but is net  useful green power being produced?

 

 


So Much for the Price Band

Sour note?

Source: EIA

Of course, Pete's a bit late in noticing that the band can't play, and he has perhaps been a tad too unctuous in continuing to thank the Saudis for their sterling work in keeping prices reasonable.  It may even be that the avalanche of votes Saudi largesse was supposed to send the president's way has gotten lost somewhere.


Pete and Paris

Pete's just back from Paris where he was exposed to the consciousness realignment characteristic of the intellectual riff raff of the 5th and 6th arrondissments: the one that transforms the former certainties learned from, say, Fox news into so much hysterical blather and idiocy. Although it was a short visit, he was even exposed to Norman Mailer's analysis of what is, was, and will be wrong with the US, thanks to the local TV, which serves up such fare on a regular basis.*  It would be fair to say that the neo-con movement and its policy progeny have yet to be fully appreciated by the Parisians (and vice versa), which everybody already knows, so he didn't learn much. 

He also had plenty of time to sit in the cafés and contemplate his own manifest errors as an energy know-it-all, while reading of oil spiking ever higher, the dollar sliding lower, and the sorry tale of his own government's further misadventures in the Middle East.  Fortunately, like most of the rest of those inside the beltway, getting it right has never been Pete's strength, so why start now? He returns determined to keep the site going a while longer...

*In fairness to Mailer, he probably also covered what shall have been wrong, but Pete isn't good at translating the more complex verb tenses.


The Cost of Natural Gas Continues to Increase

Source: EIA


The Petroleum Industry as Energy Industry

Source: EIA

The key players in the oil and gas business used to think it was a good idea to own a substantial share of all energy assets.  No longer.  Since the domestic uranium industry is essentially moribund, it's hard to compare, but the coal industry has been doing incredibly well as participation by the oil and gas industry declined.


Oil As A Political Asset

The Bush administration is preparing a series of special loans of Strategic Petroleum Reserve oil, ostensibly to compensate refiners that lost supplies because of the weather, but in all events with the intent of lowering the price of oil just before the election. q.v.  This is just what President Bush promised not to do.  On the other hand, it is just what Kerry said needed to be done, so Kerry presumably can't complain too much with out reawakening the chorus of flip-flopper epithets. 

But it sets a disgraceful precedent, reminiscent of the the bad old days when the oil entitlements program was rigged to dump cheap oil in certain congressional districts. The political class should keep its hacks away from the strategic reserve, and be content with foisting them on the formerly professional and apolitical CIA.


Natural Gas Reserves Grow Again

According to the "advance summary" of EIA's just released report on oil and gas reserves at the end of 2003 q.v.,  natural gas reserves continued to get larger.  Here is the relevant section from the report:

So why the sudden panic to import LNG? 

The reserves referred to in the report are not esoteric, hard to get at types of natural gas.  The reserves measure conventional accumulations of economically recoverable gas that are already known and just waiting to get drilled and hooked up. Pete spent a lot of time warning about the inadequacy of natural gas reserves to support 30 years of load at 35 Tcf per year, and was right about that.  But this doesn't mean the US has to introduce a far more sinister type of energy dependence just to get to the point when the pipeline from the north slope of Alaska finally gets hooked up. All that's required is to stop new gas use for electricity production at the margin.  And the market may already have done that.


Pete's Quick Guide to Why Too Much Coal Is Used to Generate Electricity

Source: EIA

When will the true costs of burning coal to generate electricity be charged?* Apparently never, if the US political class has anything to say about it, but those costs are building up year in and year out just the same.

*Several readers have expressed understandable confusion about what Pete meant by this. The real costs are what economists call the externalities of coal such as the cost to the planet from global warming, which will be very real. In other words, it may only cost a few bucks or less for an independent power producer to buy a ton of the commodity in order to produce electricity, but the real cost in terms of the long-term consequences of greater atmospheric concentrations of CO2 can be really expensive, but these costs are borne by all rather than the independent power producer. One way to resolve these concerns would be to impose a substantial carbon tax, to bring the commodity charge and the externalities charge up to a much higher level, but this is not exactly a popular political idea. It would also have the effect of encouraging nuclear power, another of Pete's politically unpopular lost causes, since nukes have little in the way of global warming costs.


Does Exxon Do Enough?

Exxon is a superb international oil company.  It is well-managed, quite efficient despite its size, full of capable personnel, and one of the largest and most profitable companies in the world. It consistently replaces the reserves it produces, and only plays in the largest, most challenging parts of the exploration business, where each bet is enormous, the risks truly daunting, and the logistical difficulties are very real. Time and again, it succeeds admirably.*

But look beneath the surface at its finances, specifically its cash flow:

CASH FLOW FOR PERIOD ENDING 31-Dec-03 31-Dec-02 31-Dec-01
Net Income (all data in thousands) 21,510,000   11,460,000   15,320,000  
 
Operating Activities, Cash Flows Provided By or Used In
Depreciation 9,047,000   8,310,000   7,944,000  
Adjustments To Net Income 344,000   1,053,000   1,601,000  
Changes In Accounts Receivables (1,286,000) (305,000) 3,062,000  
Changes In Liabilities 1,130,000   365,000   (5,103,000)
Changes In Inventories (100,000) 353,000   154,000  
Changes In Other Operating Activities (2,147,000) 32,000   (89,000)
Total Cash Flow From Operating Activities 28,498,000   21,268,000   22,889,000  
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures (12,859,000) (11,437,000) (9,989,000)
Investments (273,000) (1,114,000) 700,000  
Other Cashflows from Investing Activities 2,290,000   2,793,000   1,078,000  
Total Cash Flows From Investing Activities (10,842,000) (9,758,000) (8,211,000)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid (6,945,000) (6,386,000) (6,448,000)
Sale Purchase of Stock (5,694,000) (4,660,000) (5,821,000)
Net Borrowings (2,124,000) (307,000) (2,772,000)
Other Cash Flows from Financing Activities -   -   -  
Total Cash Flows From Financing Activities (14,763,000) (11,353,000) (15,041,000)
Effect Of Exchange Rate Changes 504,000   525,000   (170,000)
Change In Cash and Cash Equivalents $3,397,000   $682,000   ($533,000)
 
Source: Yahoo Finance

The problem is that Exxon is quite content, year after year, to see itself as a cash cow.  It may make what seems like very large capital expenditures ($12.8 billion in 2003), but it also gives back to shareholders almost that much ($12.6 billion in 2003) in the form of dividends and repurchases of its own stock. It could be financing double what it spends now for energy production and development from its own funds, without having to borrow anything, but it doesn't.  Of course, it has an enviable record of increasing dividends, and its stock has been a consistent winner for decades.  But it could be spending all or most of the extraordinary cash flow from operations on what it actually does best of all, producing more oil and natural gas. It would be nice if Exxon weren't satisfied with the status quo and began to really push itself to find an even larger share of the extraordinarily large amounts of oil the world will soon require.

*In the interests of disclosure, note that Pete has a direct or indirect holding in XOM, and while he suspects it is a bit pricey at these levels, he still thinks Exxon a core holding in almost any portfolio.  Incidentally, while Pete chides Exxon, much the same point could be made about BP, RD, and Chevron.


Prince Bandar, the Saudis, and All That

However reluctant many Americans may be to admit it, a vote of thanks is owed the Saudis for taking decisive action to bring down oil prices by increasing production yet again.  Unfortunately, the words accompanying the action reveal that Prince Bandar, the Saudi ambassador to the US, has become something of a bumpkin who has stayed on a bit too long.  He asserted that the action was intended to influence the result of the coming American election in President Bush's favor.  Americans of both political parties should quite rightly deplore any such ludicrous attempt to meddle in US internal affairs. The Kerry team, should it win, would be quite right to reevaluate future US/Saudi relations on that basis alone.*  Whichever way the election turns out, the Saudis need to consider whether another post might not be more appropriate for Prince Bandar. Yes he did a good job for a long time, but that time is now over; he needs to be taught that the Saudi supply response had the effect, and was therefore presumably intended, to prevent further damage to all industrial economies, upon whom the kingdom continues to depend for almost all its revenue.  If Saudi Arabia ever wishes to play a position in world affairs consistent with its economic importance, it would do well to find a spokesman capable of grasping how maladroit remarks of this kind seem to the rest of us.

*Pete's well-aware that US - Saudi relations are one of the big unspoken, behind the scenes issues of the current political campaign, and whether or not Prince Bandar continues to speak for the kingdom, Senator Kerry is not likely to be pro-Saudi q.v., especially in light of what he knows about BCCI and how Mr. Bush got his money q.v.  On the other hand, Prince Bandar's remarks were objectionable per se, and need to be rectified no matter who wins.


Long-Term Petroleum Supply Elasticity

You might have supposed that record oil prices would elicit a record supply response from the domestic industry trying to take advantage of higher prices, as happened back in the 1980s. But, no, pretty much the entire domestic industry seems to have given up on increasing net domestic oil supply some time ago.  From 2000 onward the domestic industry has enjoyed the benefit of vastly higher oil revenues without bothering to try to stage an oil supply response. However, the domestic industry has made, and continues to make, a major effort with natural gas.

Source: WTRG Economics


Background - Natural Gas from the Gulf

Federal Offshore Gulf of Mexico Proved Reserves  
  1998 1999 2000 2001 2002
Dry Natural Gas
(billion cubic feet)
26,422 25,451 26,172 26,456 24,689
  Depth Less Than 200 Meters
18,997 17,918 17,666 15,513 14,423
  Depth Greater Than 200 Meters
7,425 7,533 8,506 10,943 10,266
  Percentage from Depth Greater Than 200 Meters
28.1 29.6 32.5 41.4 41.6

Source: EIA. For more detailed information from the MMS, click here

Note that gas reserves from the Gulf are only 13% of total natural gas reserves. Contrary to what you'd expect from recent gas prices, total US natural gas reserves haven't been dwindling in recent years; they've been growing. Still, the bulk of future reserves additions are expected from certain regions in the Rockies rather than the Gulf.


Visible Demand

The picture, a composite of dozens of shots from the defense meteorological  satellite program, shows vividly where energy is used at night all over the world. Click on the picture for an enlargement.

Energy demand, bigtime ...

Source: NASA


Mr. Kerry's Energy Policy

The Kerry-Edwards energy policy has been published. q.v. Here are the main points, with a few comments:

The US does need someone to encourage the domestic industry to produce the type of cars that will be needed as the era of cheap oil ends.  Once again the domestic industry has been caught without the right mix of reliable, cost-effective hybrids.  So the Kerry policy is on the right track in trying to change the characteristics of the auto fleet, but the transition will cost a whole lot more than $20 billion to finance. The policy is off-base in trying to change the fuel mix burned by that fleet. The reason why ethanol/biodiesel needs subsidies in the first place is largely that it is a net energy loser: more energy is used to make it than gets consumed in burning it.  Just like the marketing maven who was selling widgets for less than they cost to make, you can't make it back on volume. In any event, why rush to have food prices set by demand for gasoline? It has never made sense to support big time ethanol and it won't in the future. Hydrogen as a replacement fuel for the internal combustion engine is fraught with problems that have yet to be overcome. Methanol is another matter and could be used, but it doesn't get a mention ....

While Pete's all in favor of federal pre-emption of fuel standards, he knows of no reason to suppose that retrofitting any mix of available energy efficiency improvements will reduce energy bills of schools and other institutions by 25%.  The easy improvements have all been done over the last quarter century. Similarly federal energy consumption has been looked at by everybody for at least the last quarter century and there is no reason to suppose it can be materially reduced at all, unless jet fighter pilots aren't going to be trained in actual planes, etc. Someone could do us all a big favor by stopping the postal service form using natural gas as truck fuel, but that's a fairly minor matter. There is also no reason to think that any of the other suggestions would make any material difference in the level of energy prices, although Pete wished the FTC had been a whole lot more proactive back when Exxon was allowed to merge with Mobil and BP with Amoco. But that's water under the bridge now.

By all means, diversify away. Unfortunately, bringing in LNG from all over is diversifying from secure sources to insecure ones. But bringing gas down from Alaska is good, as is drilling the deep gulf. But note how geographically specific the policy is -- sort of suspicious if you know that the only available large gas pools that otherwise haven't been drilled, or scheduled for drilling, are off the eastern gulf. Also keep in mind: there's no such thing as clean coal and there is absolutely no prospect of getting 20% of US electricity from solar and wind*, so anything that purports to be able to do either is hokum, especially tax credit trading schemes. Pete doesn't know whether Kerry is right about Yucca mountain, but finds the language on the merits of nuclear power surprisingly encouraging.

Ken Ainsworth of Continental Resources in Enid, Oklahoma writes, "...There probably won't be much natural gas coming from the deep water Gulf of Mexico. The geochemists who study such things tell me the pressure-temperature regime at which hydrocarbons were generated there will predominantly result in oil, as opposed to natural gas. Not that oil is necessarily a bad thing, but an energy strategy which assumes that said province will be a significant source of natural gas starts with flawed premises.  As an aside, a colleague went to a conference in Denver last week in which several industry analysts have concluded that, if access issues are resolved, the Rocky Mountain province will surpass the gulf as a source of natural gas within about five years." 

* To see how impossible it would to be to get 20%of the nation's electricity from solar and wind, consider the graph which depicts how much alternative fuel was used in 2003 out of all fuel consumption (not just electricity consumption).  All renewable energy is only 6% of total energy consumption and almost all of that is either biomass or hydroelectric. The 1% and 2% values for solar and wind refer to their percentages of renewable energy, not total energy. They are way, way too miniscule to hang your hat on if you are a sensible candidate. 

Pete totally agrees.

Overall, the Kerry-Edwards energy plan is a whole lot better than expected. There are even some very positive parts like tougher CAFE standards .... Unfortunately, it won't come close to achieving its stated objectives, but at least it is a start.


Uncle Sam's Role in Providing Fossil Fuels

Source: EIA

... grows ever larger. Oil and natural gas are trading at record prices; the oil patch is in clover.  So why is uncle so far in the hole? After all, if you owned the royalty interest in 2 of every 5 barrels of oil produced by the world's third largest energy operation, shouldn't you be sitting pretty? So why did uncle collect less than $8.5 billion in royalties  q.v. in 2001, the most recent year for which official statistics are available?  Take oil for instance. Total domestic crude production in 2001 was 2.9 billion barrels. Since the share of oil production from federal lands is actually somewhat less than shown in the chart, 34% instead of 38%, multiply the domestic oil production total by that percentage to arrive at the 1 billion barrels available for royalty interest. Since the government only received $2.4 billion in oil royalties, the per barrel amount works out to just $2.40, or only about 10% of the average domestic crude oil price for the year. Why should federal royalty income should work out at less than the one-eighth overriding royalty common in the industry is not clear. 


OPEC's View of The Future

Here is OPEC's collective thinking on what lies ahead.  The except is taken from a speech given by Dr. Maizar Rahman, Acting for the Secretary General of OPEC, in Malaysia in June of 2004:

"Projections from OPEC’s World Energy Model see world oil demand rising from 77 million barrels a day in 2002 to 115 mb/d in 2025 — an annual average growth rate of 1.7 per cent.

            The fastest growth will occur in Asia (in this analysis, Asia excludes the Middle East and OECD countries). Our figures show annual average growth of 3.1 per cent in South-East Asia, 4.4 per cent in China and an exceptional 5.5 per cent in South Asia during this period.

            However, this rapid growth in Asia and China is not matched by production. On the contrary, oil production in Asia, including China, actually falls, marginally, from 5.7 mb/d in 2002 to 5.6 mb/d in 2025. Asia, therefore, will benefit increasingly from supplies from outside the region.

            Our projections show an 18 per cent rise in world oil output from non-OPEC countries in 2002–25, mainly from Russia, the Caspian and Africa. But this is still around 30 percentage points less than the projected growth in demand. Therefore, there will be a substantial rise in the call on OPEC oil in the opening decades of the 21st century. We see this doubling, from 29 mb/d in 2002 to 58 mb/d in 2025.

            Our Member Countries have sufficient reserves to cope with the rising demand. Our proven crude oil reserves total nearly 850 billion barrels, which is almost 80 per cent of the world total, and these should be sufficient to see us well into the second half of the 21st century. What is more, OPEC’s reserves are low-cost and highly accessible." ...

 

..."Let me conclude with one general comment. The world cannot afford to behave irresponsibly and squander its finite petroleum reserves. OPEC and non-OPEC producers are, in effect, custodians of these God-given minerals and we have a duty to ensure that they are exploited in a responsible manner, to the benefit of the global community, today and in the years ahead. We are doing everything we can, in OPEC, to abide by this mandate."

While no one would fault Dr. Rahman for his concluding remark, one might wonder if the US could say it was abiding by that mandate or anything even close.


Europe Reports Progress on Greenhouse Emissions

Unlike the US, which promised to make progress and was then forced to take it back when emissions went the other way, Europe has actually been doing something about reducing greenhouse gas emissions. The European Environmental Agency reports that "overall emissions fell slightly in 2002 after two years of increase, taking the EU a small step closer to its target of an 8% reduction between 1990 and 2008-2012." q.v.*  Judging from the following chart, which is from the US government not the EEA, the world has a long way to go.

Trends in atmospheric concentrations and anthropogenic emissions of carbon dioxide.

*Of course it would be nice if the authors of the EEA report provided some context indicating how close Europe may be to achieving the stated goal. In the US greenhouse emissions, while increasing, actually remained below 2000 levels because of the recession, but remained about 12% above 1990 levels.


No One Is Catching On: Nukes Are Getting Better and Better

Nuclear capacity should have doubled instead of coal and natural gas.  Once again the market has proved myopic and wasted a fortune on the wrong things.

Source: EIA

Time to start feeling guilty about not building a whole lot more of them, because existing nukes are maxed out.*  Too bad the capital markets put it all on natural gas just before natural gas became untenable as a long term source to fire new electricity generating capacity.  So it goes sometimes....

*but also see this.


Exxon's View of the World (4)

The more you use the richer you'll be, and vice versa (?!):

 

Because the richer you get the more you drive:

But eventually you reach a saturation point in per capita vehicle usage and wait while everyone else catches up:

Fortunately and for reasons not entirely clear, what constitutes vehicle saturation differs by culture and/or region. Asian saturation points seem to work out a lot lower than most of the rest of the world. But if the estimated saturation points are wrong, and China, for instance, wants the saturation point of South Korea, that difference alone works out to 12 million b/d in 2050.

As usual, Pete has done a miserable job paraphrasing what Exxon has to say and suggests you read the piece for yourself at their site. q.v. Anyone interested in energy policy will find it well worth thinking about.

Source for all figures: Exxon web site


US Coal 1973 - 2003

Source: EIA Units: Million Short Tons


Siting 'em nukes: readers may be interested in what's been going on way up north in the Sourdough Mining Co. restaurant. q.v. (Do Pete and his readers know everything, or what!)

Senator Domenici calls for ideas on how to restrain natural gas demand. (!!??!) q.v. (see letters below)

Yet another Exxon presentation on the future. q.v.

Red Cross accuses the United States of torture and prisoner abuse. q.v. (NY Times)

Random history: King Saud Meets JFK, Feb. 1962. q.v.

Who funds the  effort to convince Americans that climate change is not a problem? q.v.  Pete doubts that it could be that simple or obvious. On the other hand,  Exxon's had a weird view of the climate change problem for a long time.

"Americans can now be obligated to comply with legally-binding regulations that are unknown to them, and that indeed they are forbidden to know." q.v.

BNP and the Iraq Oil-for-Food program. q.v.

Russian natural resources minister warns of known oil reserve depletion by 2015. q.v.

Who will benefit from the impending revival of nuclear power in the US? Possibly, Areva q.v., the only complete player in the front-end of the nuclear fuel cycle.

Exxon announced that in the third quarter "...the company increased its share repurchase program by $1 billion per quarter to $2.5 billion per quarter net of any anti-dilution purchases. Dividend increases of 9 percent and 8 percent, respectively, over the last two years have continued the company's record of paying a dividend every year for more than 100 years with increases for the past 22 straight years." See, Does Exxon Do Enough? below.

If you enjoy articles that make the short hairs on the back of your neck stand up, try this. q.v.

More information on the extent of Saudi reserves (pdf files, one, a presentation on Saudi reservoir information; two, a transcript of Feb 24 conference where Simmons paper was presented). qv1, qv2.

According to GM, If the nine largest US cities replaced their transit fleets—totaling 13,000 buses—with GM's hybrid buses, the cities would save 40 million gallons of fuel each year—a greater savings than 500,000 small hybrid vehicles. q.v.  It would also be nice to get so many other city buses off natural gas, thinks Pete.  Who was the short-sighted bureaucrat who thought that would be a good idea?

How much has the war in Iraq cost? q.v.

President Chavez of Venezuela is off in China trying to sell some oil q.v., which shouldn't be too hard. The only problem is that 85% of Venezuela's output already goes to the US, so there can't be that much more to sell, can there?  Maybe President Bush can get us a good deal on some of that orimulsion if the Chinese walk off with the good stuff.

For readers interested in the state of play in climate change modeling, an interesting exchange of letters from the Industrial Physicist. q.v.

Assessment by MMS on extent of hurricane damage. q.v.

Additional detail on the extent of Saudi reserves from Saudi sources. q.v.

EIA report on new natural gas pipeline and storage capacity. q.v.

Storing hydrogen is not that easy ... q.v. 

GM's view of hybrid cars. q.v.

Is ethanol environmentally friendly? qv1 qv2 More interestingly, thinks Pete, what will happen to the MTBE phase out while ethanol producers begin to install thermal oxidizers to bring VOC emissions down 95%, aside from adding to the net energy losses.

MIT study on the future of nuclear power q.v.


Dear John Kerry

By now someone will have told you that your repeated promises to produce energy independence are ludicrous, and that your reliance on Clinton's former energy svengali is ill-advised.  There is no prospect of energy independence, nor of returning greenhouse emissions to 1990 levels. Any claim of having a policy to do either can be dismissed as snake oil, and, apart from a few Democratic staffers, the whole world knows it. The battle is elsewhere. If you are serious about doing something to control energy dependence,  take a look at what is about to happen with natural gas. 

Source: Center for LNG

Natural gas imports have so far been limited to dependence on Canada, which is not a bad thing. It is about to be opened up to all of the unsavory, unstable spots in the world that you claim are not worth spilling blood for.  Before you go much further, ask your advisors what your options would be when a few of the new LNG suppliers decide to cut off supplies, or otherwise get seriously flakey, in the dead of winter a few years down the road.  LNG is dangerous, not because of the physical dangers inherent in transporting it, although these are worth understanding, but because the dependence it creates can potentially be much more damaging to national security than dependence on imported crude oil, vaguely analogous to crack and cocaine.

The nation's industrial sector is still reeling from the ugly surprise of learning that the domestic gas industry had been misleading everyone with false claims about what it could provide in the future.  But look at the list above: that's panic made visible. The situation is not that bad, and the market needs a clear signal that it would be unwise to commit so much capital toward the wrong thing.  Instead, you need to get control over the situation by (a) investigating what was going on with natural gas reserve reporting and drilling; (b) requiring that all large users of natural gas for electricity generation have installed dual fire capability, (c) using existing natural gas storage reservoirs on federal lands as the start of a strategic natural gas reserve to be paid for by an LNG import fee; and (c) formally reexamining whether electricity decontrol is working as intended. 


"A New Grand Strategy for U.S. and Arab Relations" q.v.

Signs of the times: the head of the UN called the US war in Iraq illegal and no one in the US noticed.

Who controls US policy toward Saudi Arabia? According to the former US ambassador,  Robert Jordan q.v., the principals are Assistant Secretary of State for Near Eastern Affairs, Bill Burns,   Condoleezza Rice, and her deputy Steve Hadley. Curious, no? Especially when Pete and everyone else thought it was really James Baker, Mr. Jordan's employer.

What the Fed should do to respond to the damage caused by higher oil prices (by P.A. McCully of Pimco). q.v.

How the US economy looks from Jeddah. q.v. Funny, looks like that to Pete too.

A few EIA analysts take on Hubbert and the peak. qv1 qv2 "...Thus, if the USGS mean resource estimate proves to be correct, if 2 percent production growth continues until peak production is reached, and if production then declines at an R/P ratio of 10, world conventional crude oil production would be expected to peak in 2037 at a volume of 53.2 billion barrels per year."  So now you know. What, me worry?

BP's experience with Thunder Horse in the deep gulf. q.v.

Just in case your international radar screen has been looking a bit blank, EIA has put together a guide of international stuff to worry about. q.v.

FTC on petroleum industry competition. q.v. 

Ah, plus ça change ..., the threat of $100 oil is back q.v.

Stuff to worry about: 1) grain stocks q.v.  2) Saudi water flood techniques used to boost Ghawar production qv1, qv2 Actually, Pete doesn't worry too much about the latter because ignorance is bliss. On the other hand, and not to interrupt anyone's war on terrorism or anything, but perhaps it would be nice if the US asked the Saudi's what is really going on.  The Saudis have tried to reassure everyone (see below), but the question doesn't seem to go away and oil prices just don't seem to want to fall the way Pete thinks they should.

But ...

EIA's view of Saudi Arabia as an oil province. q.v. EIA quotes the Oil and Gas Journal figure of 260 billion bbls of proved reserves, but suggests ultimately recoverable oil may be almost 1 trillion bbls and reasserts that daily production could be as much as 22.5 million bbls per day by 2025. 

USGS's view of Saudi Arabia, Kuwait, Iraq, etc. as oil provinces. q.v.

Congressional Research Service on: weird history of congressional relations with the Palestinians (see page 8 ff); US-Israeli relations; US payments to Israel; Shias and Sunnis; & Wahhabis. What a long strange trip it's been.

Pete remembers well the night federal debt crossed $2 trillion. It just crossed $7 trillion. q.v. Pete has looked around a bit but is not quite sure where the additional $5 trillion went, since life seems pretty much the same. However, he is acutely unenthusiastic about having to pay it back. Perhaps terrorists took it.


US Greenhouse Gas Emissions Continue to Increase

It turns out that 2003 was another bad year for climate change policy. By EIA's reckoning q.v.,  CO2 emissions increased by 0.9% while energy demand only increased 0.6%.  Decreased natural gas use brought on by higher prices resulted in greater reliance on coal and petroleum, which in turn means more CO2 emissions than for natural gas, and a colder winter were factors in the year over year increase.


Energy Imports Keep On Growing

Note: Data are in Quads, Source: EIA


Background: Relationship Between World Oil Reserves and Production(2)

Source for both: BPMap of proved oil reserves at end 2003

The world's not running out of oil any time soon. The chart above shows how many years it would take to use up current reserves at current rates of production. Even if another drop of oil is never discovered, there's enough to run the world for quite a while (technically, current reserves wouldn't last as long as 40 years because existing supply declines about 5% annually and replacing that loss would also have to be made up from the same reserves; nor does the ratio capture the effects of growth in demand).  Even with these qualifications, there's no need for anyone to expect the end of oil anytime soon.

The trouble is the mismatch between where the reserves are and where the demand is -- and that reduces only to a logistics problem of the kind the world oil industry is already very good at solving, so long as the oil nations in the Middle East keep the trade on an economic and not a political basis.

For purposes of comparing with part 1 below, BP includes as reserves an estimate of Canadian oil sands 'under active development' as a proxy for proved reserves.


The Labor Cost of Oil

Various correspondents have suggested other approaches to deflating the nominal cost of oil to arrive at a 'real' figure.  Among the best is the suggestion made by John Mauel of Alberta to use the labor value of oil. That is, use the number of hours of after-tax work the median worker would have to put in to buy a standard unit of oil.  Since an after-tax data series couldn't be found, a gross figure for the average US production worker's hourly compensation was used.  The values in the chart represent what percent of a barrel of WTI crude an hour of work would have bought in January of each year.

Gone are the halcyon days of yore when an hour of work could have bought a barrel of oil, but the political situation for Mr. Bush's re-election in 2004 is not as grim as it was for Jimmy Carter in 1980.

Karl Marx's analysis of Palmerston. q.v. 


Shell's Chairman: Get Scared

Which is worse: terrorism or global warming? Global warming, of course.  The chairman of Shell is starting to get scared. q.v.


Background: Relationship Between World Oil Reserves and Production(1)

Source: EIA


In Over Our Heads?

Source: Steve Roach Weekly Commentary, Mogran Stanley

Back in the days when adults were in charge, or probity reigned, or something, US households managed to get by with debt loads equal to less than half of annual GDP. No longer. Household debt levels have grown far faster than GDP, with the ratio between the two now north of 85%, suggesting that the burden of debt service will rise quickly when interest rates start rising.  When that happens the extent to which households are over extended will become clear.  What's interesting is the return to favor of adjustable rate mortgages, which are really a bet that one's income and consequent ability to service debt will increase more rapidly than interest rates and inflation.  It may be a bet worth taking for a while when rates are falling or when starting out in a career, but it becomes a bold bet over the life of the typical mortgage for the typical person when rates are about to increase.  Nearly half of new mortgage holders were willing to make that bet when crude oil was cheap and rates were falling; interestingly, roughly the same proportion have been willing to make it with crude at record levels, rates about to rise, and real incomes more or less flat.


EIA on Short-Term Natural Gas Prices

With 95% confidence intervals looking like Bollinger bands on steroids, it's clear that the government doesn't really know what is going on with natural gas: there's a 95% chance either that the future is going to be disastrous for gas consumers or that happy days are coming back. Take your pick. Pete's opinion is that gas, like crude, is overpriced.

[Pete apologizes for displaying the wrong graph for the past two weeks. Tch, tch.]


Vehicle Sales Per Capita and Future Price Spikes

OK, the current crude oil price spike shows at least some signs of abating, and lets assume that Pete got it wrong in the bit about spikes being followed by recessions.  Now imagine the situation five years down the road, when China once again has the pedal to the metal and is growing fast.  According to the State Department, it became the second largest consumer of primary energy in the world in 2003, surpassing Japan. q.v. It needs to sprout generating stations at a flat out rate to come close to keeping even with electricity demand.  But the point is that it is mostly a coal economy. It is already the world's third largest energy producer and coal is the bulk of what it produces.

Unlike the US and many other big economies, it is not an automobile economy. That is going to change, not in the sense that the government is going to promote auto sales but in the inevitable sense that everyone in Japan, Europe, and the US understands: modern life almost requires recourse to private transportation modes and the car is the one that works best.  So it seems likely that there will be a significant spike in car sales for both China and India, which is going to get ever larger as motor vehicle sales per capita begin to approach something like their industrialized counterparts.

 

Source: EIA

But how can that happen if oil supplies are as tight as they are at the moment? It can't. The market mechanism has to force a lot of petroleum demand off the road in the rest of the world to even begin to give the hard-working, still-evolving middle classes of China and India a chance to do what the rest of the first world gets to do. Or someone better come up with a dozen more Saudi Arabias.


Second Warning on Oil Prices

It's basically pretty simple: they shade in the pink recession areas after an oil price spike.  So how much longer until its time to shade?

Watch out!

Yes, yes, you like everyone else think the economy is in fine shape: growing rapidly, jobs picking up, etc. But watch out-- there isn't enough oil available short term to support a sustained growth spurt.  As we've learned time and again, record oil prices can be very effective in slowing down aggregate growth.*

*When asked why he didn't use real instead of nominal oil prices, Pete looked vaguely alarmed and offered the following, "I can't convince you that $40 oil is expensive? Yes it is less expensive in 'real' terms than it was in 1980, say, but it is a really complex question.  It's complicated because arriving at a 'real' price measure is complicated and I no longer have much faith in the accuracy of many of the usual standard federal price deflators. For instance, suppose we use the gold price of oil to deflate nominal to real.  In 1980 gold sold for $800 / oz. Today it sells for half that. So in those terms, the real gold price of oil is twice what it was back then. Even if I grant your point, and we choose to make all of the spikes on the left side of the chart much higher than those on the right side, isn't there still reason to be concerned that my point may be correct? Also keep in mind that the spike on the far right that has me worried hasn't necessarily stopped growing ...." 


EIA's World Outlook

A few key points lifted from the preview version of the report (q.v.) :


Just a reminder ....Petroleum Paradoxes

As the price of oil heads toward record levels, the cost of finding it remains relatively low.

With the physical distribution of oil reserves centered in the Arab world, the world's largest petroleum importer has gone to unparalleled lengths to outrage all Arabs.


The Chairman Speaks: Clear the Way for Natural Gas Imports

With the energy bill last seen tiptoeing off to that portion of the netherworld reserved for the unlovable and half-baked,  and Secretary Abraham off seeding the Michigan political fields with hydrogen projects q.v., it falls to Chairman Greenspan* to pronounce on energy:

Having done so well with an unlimited oil imports policy, let's do the same with natural gas.  So what if we've already imported most of Canada's available natural gas supply; so what if it takes something like three units of gas to make one unit of delivered LNG.** The political system is broken, Exxon is willing to bring it to us, and we obviously are going to need it.  What choice do we have?

*Long time readers will recall Pete's odd conviction that the Federal Reserve is the only Washington institution with any useful authority over energy, Dick Cheney and other notable oil men notwithstanding.  **As always, the original q.v. is better than Pete's haphazard excerpts.  *** Here Pete relies on distant memories -- attempts to confirm the abysmal net energy ratio of LNG with modern sources were unavailing. As to the choice issue, must Pete belabor the obvious with a quick lesson on rhetorical questions? Or would that be too self-referentially obvious? OK, what about that one? etc.


Remaining Saudi Reserves

Have no fear, a whole lot remains:

Two Saudi Aramco experts have provided some insight about the real situation in a new report. q.v.


Our Story So Far

Plagued by inept leadership for some decades, the United States political system finds itself in a difficult situation: the leadership group has proved either unable to understand or unwilling to respond to the national security implications of diminishing domestic fossil fuel supplies, while the cost of getting through each transitory episode of energy imbalance grows ever greater in terms of the dark magic remedy the central bank must use to revive the patient.  The democratic institutions that worked so well during the first two centuries of sustained economic growth now seem to have been stymied by the electorate's unwillingness to provide either political party with the mandate required to initiate effective remedial action.  However, as neither political party has offered a program of effective remedial action, it comes as no surprise that there have been no mandates.  

The inescapable conclusion is that US energy policy has been and remains not to choose, not to act -- to let imports grow unchecked and to accept whatever consequences may follow.  Quite understandably, the people would prefer not to begin the extensive rearrangement of American society they suspect is implied by the one or two possible courses that offer some relief to the long term situation.  And, being a democracy, the political leadership dare not impose it.  

It could be argued that given the policy impasse the US political system has instead decided to fight wars of conquest where the prize is petroleum.  If the resources of the Caucuses were spoils of the Cold War, the invasion of Iraq, however tenuous legally, and the capture of the second largest oil reserves on the planet, appears to most of the world as a self-evident resource grab. The same invader army is positioned within easy reach of Saudi Arabia, the world's largest collection of oil reserves, while the American policy of the past half century calling for accommodation with the Wahabi ideology in exchange for oil, however unpleasant that accommodation may sometimes be, appears to be undergoing quick dismantlement. It thus appears that the future strategy of the world's largest industrial democracy is to insist the past be as much like the future as possible, even though the global oil balance has forever changed, and even if remaining stationary means fighting a succession of wars of conquest to get the oil required to realize that vision.

If this were true it would be ominous indeed, and the rest of the world would quite rightly begin to lose faith in the leadership provided by the United States. But it is not true. There are technically feasible, economically doable solutions to the domestic fossil fuels problem that will both work, avoid unacceptably high social costs, and side-step unacceptable geopolitical risks. The question is why these pro-nuclear policies are largely unknown to the American electorate. Democracy requires informed decision-makers, and it is obvious that the current political system has refused to reveal either the seriousness of the problem nor the feasible ways out.  Whether the problem is well-meaning charlatans or ill-informed boobs is often hard to decide, but the situation is not as bleak as it seems because either can be swept aside by resolute insistence that the truth will out.


Pete's Self-Explanatory Guide to the Zen-Like Absence of a US Energy Policy

Each year, Pete runs a piece with this title and laments the obvious ...


Kerry Canute

Canute was the legendary 11th century British king who had his throne planted at waters edge, commanded the tides not to rise, and got wet.* There are some forces that are worth understanding before one dares think they can be mastered. Senator Kerry would do well to learn a thing or two about oil before he offers poorly researched panaceas for extremely complex problems. Even the US president can't jawbone the oil price for more than a few days.**  A cursory glance at Kerry's energy policy q.v. shows just how superficially he has thought about the problem.  It is artfully worded, of course, so implied commitments to energy independence disappear when read carefully, and promises to generate 20% of energy from renewables soon turn into goals rather than statements of how life would differ under a Kerry presidency. His energy policy should be something more than the rope-a-dope that could have been churned out by the x-bar Democratic staffer in his/her sleep.*** 

Pete's thinking of offering a free lunch to the reader who comes up with the best estimate of the number of windmills required to generate 20 percent of US energy requirements (keeping in mind that about 1% of 1% of just electricity is generated by wind and solar at present).  And desert of choice for the least quixotic position paper explaining what those half million workers will be doing when not tilting.****

*Some maintain he was attempting to cure flattering courtiers of their belief that he could control the tides. For a good explanation, click here.  **President Bush has belatedly decided to prove he can jawbone with the best and is reportedly trying to pressure OPEC. q.v. Since he's foresworn threatening to turn the SPR spigots on, he's probably threatening to unleash Spencer Abraham with all those slides he took on his last trip to Riyadh. As the Saudis said all along, oil prices are going to fall, and the fall has already started. ***As noted elsewhere, Pete agrees with some of it, but not most of it. On the other hand, he certainly doesn't think the current administration has done anything useful for energy policy. **** We have a winner:  2,968,750 windmills, submitted by Timothy Willard


Homage to Senator Byrd

Coming back from a recent road trip, Pete decided to cross West Virginia rather than go around it, as either common sense or the interstate highway system would have had him do. The problem is mountains, hundreds of miles of them, connected, if at all, by ancient two-lane roads with unending twists and turns. So it came as something of a surprise when he happened upon a beautiful, empty stretch of super-highway named for the senator beginning in the middle of nowhere and running to somewhere else in the middle of nowhere.  It went on for ten miles or so and then stopped.  Almost no one else was using it.  Several valleys later, it started again, ran for another ten miles and stopped again.  The plan was to connect up all the segments, and many of the intervening valleys were beginning to sprout 130 foot tall cement pylons so they could be bridged.  The work was an engineering triumph: huge cuts through the tops of mountains; vast quantities rock used to fill up valleys; no expense spared to even out, almost level, road grades.  The only problem is that Virginia, the adjoining state, appears uninterested in completing the final 40 miles or so needed to make it go somewhere useful.

Who would have funded a useless tribute superhighway that plows through West Virginia on its way nowhere? Uncle Sam, using money supplied by the Belgian dentist. West Virginia long ago realized that senate power turned on seniority and adopted the wise strategy of keeping the same senators around for as long as possible. Byrd, 'dean of the senate,' has as much seniority as any of his colleagues and more than enough experience on Appropriations to get his constituents anything they need, or want, or would have wanted if it had occurred to them to ask.  And so he gets them all that and then some. But when it comes time to pay back the $7 trillion federal debt, keep Senator Byrd in mind.

Incidentally, Pete was also surprised to come across the pictured wind farm high in the mountains, but not surprised at all when it turned out that all of the high voltage electricity lines snaking down the sides of the mountain were for the gigantic coal-fired power plant a few miles further down the road.  It's worth noting that the power plant was using some serious scrubbers and the waste gas fell into the picturesque category.  It's also worth noting that just the curing of the cement in Senator Byrd's highway produced far more CO2 than will ever be saved by the local wind farm, so it will never offset even a fraction of the CO2 spewed by the coal plant.  So it goes sometimes ...


Carbon Dioxide Concentration Continues Inexorable Rise

New CO2 records were set in 2003, and the rate of increase appears to be increasing. q.v.

Climate change policy at work ...

Source: NOAA


Froth

The Federal Reserve having decided that only a gigantic, prolonged dose of free money would lift the US from its recession, it should come as no surprise that bubbles are starting to expand. Of most concern is the apparent bubble in housing prices.

Source: The Office of Federal Housing Enterprise Oversight

Pete lives in the suburbs of Washington, DC.  According to the local tax authorities, his pile of bricks has doubled in worth in the past three years, even though he's a little confused about what value his pile of bricks has been adding to the economy when he wasn't looking.  Sure is going to be another fine mess when the Fed decides that money has some value again and that bubble bursts.*

*If anything, the situation may be even worse in Britain. q.v.


Is Drilling ANWR Worth It?

EIA has published its most recent evaluation of how much new oil and gas production would result from drilling the Artic National Wildlife Refuge. q.v. Nothing much has changed. Depending upon the ultimate size of the resource, it would likely come on line in 2013, with production peaks in 2024 of somewhere between 0.6 and 1.5 million barrels per day, with the mean coming in at about 0.9.  Given the overwhelming amount of oil that must be found to keep the world functioning in that time frame, ANWR doesn't seem like much.  The issue has bitterly divided the parties and is one of several reasons why there is no energy bill for yet another year.

We're going to need every color band we can get ...

As is pointed out by Exxon (below) the world needs to come up with something like 8 or 9 new Saudi Arabias between now and the earliest time ANWR could come on-line, and ANWR isn't even a sizeable fraction of one Saudi Arabia. So why bother, given our warm, fuzzy feelings about displaced caribou, etc?  The answer is this: given the relationship between economic growth and energy consumption, and the fact that there isn't enough known marginal oil/gas capacity available to be brought on line only a few years out, not drilling ANWR is very likely going to impose a very heavy penalty on the growth-dependent US economy.  At the moment, the world economy is using all but a few percent of available capacity, and it is not even clear that whatever physical surplus capacity exists theoretically exists in fact, because the governments that own that capacity prohibit it from being used in all but the most dire emergencies.  So the world economy is approaching the practical limits imposed by its resource base, with corresponding upward price pressure as the current market is making very obvious. Each marginal increment of new supply is going to be much more significant in the future than it ever was in the past.  It is nearly impossible to imagine how the world petroleum industry is going to come up with 8 or 9 new Saudi Arabias between now and when ANWR could become a reality. But there is no doubt that the economy will need the contribution to marginal supply to be made by ANWR far and away more then than it needs it now. And it needs it now.


Exxon's View of the World (3)*

Pete's paraphrase: you think you want a hydrogen-based transportation economy? A hydrogen-powered car is going to cost you big-time.

Getting out of the age of oil is going to be expensive ...

But don't worry, you aren't going to be driving one anyway:We don't think you should hold your breath for that hydrogen car President Bush keeps telling you about....

What are we doing about greenhouse gases? We recognize that "... although scientific evidence remains inconclusive, the potential impacts of greenhouse gas emissions on society and ecosystems may prove to be significant. To address these risks we have for many years taken actions to improve efficiency and reduce in our operations and in customer use of our products. We are also working with the scientific and business communities to undertake research to create economically competitive and affordable future options to reduce long-term global emissions. ... We are fully aware of the broad public and official interest in this topic ..."

*See the caveat to the first part of the series, below.  It is better to read the Exxon original than Pete's paraphrase. 


Bandied About

Over the line for 69 daysFor some months now the world oil price has been wandering north of where OPEC said it would allow it to go. It crossed the upper $28 / bbl. band on December 2, 2003, and the reference basket of OPEC crudes has traded above that level more or less ever since.  Not only has no action been taken in the form of increased production, OPEC has moved to further cut production in anticipation of the seasonal decline that would normally be expected fairly soon.  With the threatened possibility of Venezuela cutting off supplies to the US, the situation is beginning to look quite difficult, and the stock markets are responding accordingly.

One problem is there's not much excess capacity available to use to provide relief, according to EIA. q.v. It won't be easy to move into full worldwide economic recovery with only about 1.6 - 2.1 million barrels of surplus capacity available over the foreseeable future. On the other hand, new production from the Caspian is due soon, and there'll be plenty of capacity available if the key economies slip back into recession.  That doesn't seem likely, but the oil price has held at levels that proved problematic in the past. In any event, the political price to be paid by the administration could become expensive unless the US economy produces some more jobs soon. q.v.  Projected record national summer gasoline prices in excess of $1.80 / gallon are not going to help. q.v.


Exxon's View of the World (2)*

Staying in the oil and gas era is going to get very expensive ...ExxonMobil tends to think of the energy situation as a finance problem.  According to Pete's paraphrase, it goes something like this: the US government says there are 3 trillion barrels of oil equivalents in the world, or 4.3 if you count unconventional hydrocarbons as the International Energy Agency does.  One trillion have been found and produced. So shortages are not a problem; there's plenty left to find. 

Demand is growing, say about 2% a year, while existing fields are declining about 5% a year, meaning the oil industry writ large will have to supply 180 million barrels of oil equivalents per day in 2020. Since the world used about 125 million barrels a day in 2003 of oil and gas equivalents, by 2015** someone has to find another 100 million barrels of oil equivalents per day (taking into account the effects of depletion), or another 80% of current production, in 13 years.  Now how much is that going to cost? 

Here Exxon becomes a bit fuzzy. It uses IEA figures to guess that annual oil and gas investment currently costs $200 billion annually and notes that this is the more than the annual GDP of Norway.  At this point, Exxon skips to its own investment experience and never revisits the aggregate investment topic. Therefore it never says what the analysis implies, that funding just the new oil and gas the world will require means that nearly a Norway of new investment must be diverted into the oil sector every year above and beyond the Norway that's being spent there now.  But what if the next 100 million barrels of oil equivalent cost more than the current 125 million, as one might expect?  Even more Norways. Tall order, thinks Pete.

*See the caveat to the first part of the series, below. Exxon already explained the basis of its depletion calculation to Policy Pete readers. See Exxon Replies in the archive.

**For reasons not clear, Exxon forecasts some values to 2020 and others to 2015.


Cul de Sac from Hell

The mere fact that the chairman of the federal reserve tried to warn the markets about the potential for problems with Freddie Mac and Sallie Mae, the quasi-governmental corporations who buy up and repackage all the residential mortgage paper, is news in itself. Now everyone understands that if and when Mrs. Millions can no longer pay her mortgage on time, the issue of just how quasi the two entities really are is going to come to the fore very quickly, and with very scary consequences.  Either their paper is backed by the full faith and credit of the federal government, or it isn't.  If it isn't (and technically it isn't), both entities are such huge players in the financial markets that the house of cards may start tottering more than a bit, so their paper will soon have to be guaranteed by the government, whether anyone likes it or not.  

The issue then arises, does it make sense from any point of view to continue the land use policies that produced the lovely and/or hellish subdivision pictured above? True, each of the homeowners has signed up for 30 years of rectitude and employment to work off their mortgages, much to the stability of the US political system and in fulfillment of its much trumpeted goal of single family home ownership. But notice the number of cars parked before each house during the middle of the day. And while you can't tell from what's shown, accept that the only way in or out, the only way to bring in food or anything else, is by car.  The nearest grocery store is several miles away, and the nearest public transportation is nearly as far. (The neighborhood shown exists in the outer southern suburbs of Washington, DC. Readers not familiar with life in the American suburbs should know that this picture could have been from almost anywhere in the US.)  

This time, when gas hit the $1.70 level, it didn't quickly back away, it held.  And there is every reason to suppose the price of gasoline is going to be a problem for some time.  With Venezuelan imports threatened, unusually low inventories, and OPEC cutting back, at least a few of the homeowners are going to feel the pinch, added to their already record levels of revolving debt and personal bankruptcy. The homeowners may or may not come to regret their SUV's and choice of distant neighborhood, but it seems likely that Freddie Mac and Fannie Mae are going to start noticing at some point.  That point may not be imminent, but will take a long, long time for the inefficient, poorly conceived portion of the nation's housing stock to be replaced.


Exxon's View of the World (1)

You farm state senators think you like ethanol? You better think about how much your constituents like food (Pete's reading of the graphic, and not necessarily Exxon's)

Here begins an multi-part look at what ExxonMobil has been thinking that excerpts a few of the more interesting graphics from a recent report. Mobil, back when it was an independent entity, was always ready to flood the editorial pages with artfully worded ads/policy statements, but Exxon has tended to be a bit more circumspect. It was good at finding and selling oil, not talking about it.  But the company has just released an interesting public statement of what they see coming, A Report on Energy Trends, Greenhouse Gas Emissions & Alternative Energy q.v.  The order of excerpts chosen by Pete is more than a bit random, and is often missing the accompanying text that Exxon uses to explain them.  The original is well worth reading, and presents a different view of the world from Pete's normal fare.