Why is oil below $50 right now?

[Nbadan]

There is another force driving up gas prices. With the U.S. in record deficit territory, OPEC countries that deal in oil-for-dollars don't feel that they are getting equal value if they sold their oil for what used to be the optimal cost per barrel - about $28-$30. Since the dollar is worth less, prices go up, but you did get that nice tax cut.

[RandomGuy]

That's not what I was referring to. I was referring to things like shale extraction and coal liquefaction that start to become economical at that price point.

We have a LOT of coal, BTW.

Coal production follows the same production curve that oil does, and is still a finite resource that puts out MUCH more pollutants than oil.

The thing about shale extraction and all this other happy crap is that it takes a LOT of energy to get anything out of it, making it very inefficient. Renewables like wind are already close to being competative with coal in terms of cost per MW.

The best way to imagine the return on energy (ROE) is with this example:

You are on a deserted island and the only source of food is fruit that falls out of a group of trees in the middle of the island. Each fruit gives you 500 calories and it takes 10 calories to walk over there, pick it up, eat, and digest it. You need to eat 4 fruits not to starve to death and you use 40 calories to survive, leaving you a lot of time to work on a raft or build your house or whatever.

Now imagine the fruit on the ground is used up or rots. You now have to climb up the tree to get at the fruit. Say for the sake of simplicity that this takes 200 calories per fruit. You know have to eat 6.67 fruits to stay alive, and you have spent 1300+ calories to get your 2000 that you need to live.

It will be the same with the end of the "cheap" oil. Middle east oil gives a return of some 31 barrels of energy for every 1 barrel of energy spent pumping and processing it. One the return ratio starts dropping, as it will sooner than you might think, our energy requirements as a civilization will skyrocket, because we will have to rely on a lot of energy inefficient processes to get it. Fossil fuels will exhaust themselves very quickly.

[RandomGuy]

The other thing is that I saw a bit on Bloomberg that said that 10 year oil futures are $100 per barrel. This is an increase of 6.4% per year until then. That is waaay faster than the growth in demand, meaning that the market "thinks" that supply will not keep up. It won't. World-wide production will peak sometime in the next few years, best guesses that I have seen are in about 5-10 years, and OPEC production figures bear this out.

(begin edit--sorry, I hit the post button too quickly)
World-wide production of oil will be limited and declining while our energy needs increase dramatically.

TIME FOR THE BIG ECONOMICS 101 TEST:

If demand increases and at the same time supply decreases where does the price point go? (hint: not down)

We are nearing the end of oil's ability to meet our civilizations energy needs. It is sad that our short-sighted administration is doing nothing about it.

[RandomGuy]

For more on this coming problem, do a google search under the term "peak oil"
http://www.google.com/search?hl=en&q...=Google+Search

Quite a lot of it is a bit alarmist in my opinion, but the underlying problem is quite real.

I personally think that this will be the thing that drives us into space. The sun puts out more energy in 2 seconds than humanity has used in our whole history. It would be rather simple with off-the shelf technology to start cranking out power stations in orbit to supply a LOT of 100% renewable and reliable energy. I can elaborate on this if anybody is interested.

http://www.google.com/search?hl=en&l...es&btnG=Search

[Nbadan]

We are nearing the end of oil's ability to meet our civilizations energy needs. It is sad that our short-sighted administration is doing nothing about it.

Excellent analysis Random Guy. The longer it takes the U.S. to prepare for this inevitability, the more the pain will be in the long run. What gets me is that the Bush's have been in oil for decades, they have to see the coming trend lines. So why does the WH blindly continue persueing its band-aid approach to the problem, like allowing drilling in the most enviromentally sensative areas of ANWAR?

Where are the patriotic speech's from the WH pushing the use of alternative energy, energy conservation and fuel efficiency? Where is the energy plan from this administration that in the long-term reduces our Nation's demand for foreign oil, while at the same time promoting the research into alternative fuel and energy methods with more vigar? When is our society going to treat this inevitable calamity with the urgency it deserves to be treated with?

[Nbadan]

I personally think that this will be the thing that drives us into space. The sun puts out more energy in 2 seconds than humanity has used in our whole history. It would be rather simple with off-the shelf technology to start cranking out power stations in orbit to supply a LOT of 100% renewable and reliable energy. I can elaborate on this if anybody is interested.

Very interesting. I suppose the orbiting solar energy collection and storage problems would be relatively easy obstacles to get around, especially with nanotechnology, but how would we get the energy from orbit to space with maximum efficiency?

[RandomGuy]

Very interesting. I suppose the orbiting solar energy collection and storage problems would be relatively easy obstacles to get around, especially with nanotechnology, but how would we get the energy from orbit to space with maximum efficiency?

Actually there are off-the-shelf methods of doing it now. Very simple, elegant designs with almost no moving parts. They would basically be giant reflective arrays. Imagine a reflector with a surface area of 100 square miles focused on a generator that runs on the heat produced. Remember in space that solar power is 24 hours a day (no day/night cycle) and no clouds.

The most energy efficient way to build them is to use materials from near-earth asteroids. Processing these giang chunks of metal would be the same basic process that generates the power, and could actually be done with the waste heat from the satellites.

Energy would be beamed by microwave to the surface of the Earth. No, not the microwaves that cook food, but rather microwaves with a frequency that renders them harmless.

[RandomGuy]

Very interesting. I suppose the orbiting solar energy collection and storage problems would be relatively easy obstacles to get around, especially with nanotechnology, but how would we get the energy from orbit to space with maximum efficiency?

For more reading on this try this page of links on solar satellites for starters:

http://www.permanent.com/p-sps.htm


Here is another good site for space stuff, but the relevant one is the paper called "Architecture options for space solar power"
http://www.ssi.org/papers.html

[MannyIsGod]

Forget national energy policy, it all starts in your backyard.

CPS wants to build their coal plant when studies have shown that promotion of conservation can save as much power as that plant would prodocue, but the political will to take steps torwards conservation is not in place.

And what about making new office buildings more self sufficent with solar cells as a requirement of the building code?

[JoeChalupa]

I just noticed that Tetco went back up to $2.09 a gallon this morning!!

So I drove down the road and filled up at Diamond for $1.89 a gallon.

[RandomGuy]

Forget national energy policy, it all starts in your backyard.

CPS wants to build their coal plant when studies have shown that promotion of conservation can save as much power as that plant would prodocue, but the political will to take steps torwards conservation is not in place.

And what about making new office buildings more self sufficent with solar cells as a requirement of the building code?

Yuppers. There is a great deal we can do to use energy more efficient, and market forces will drive a big push to do just that.

BUT

Conservation will only get you so far. Solar panels on the surface of the earth will NOT provide all the energy a building needs without a massive increase in efficiency (far beyond current projected technological developments). We still will be faced with spiraling energy costs.

[scott]

Still time to invest in the human crude project.

[mookie2001]

Energy would be beamed by microwave to the surface of the Earth. No, not the microwaves that cook food, but rather microwaves with a frequency that renders them harmless.

like cell phones? all microwaves are harmful

[RandomGuy]

like cell phones? all microwaves are harmful

I'm not saying you want to camp out on the receiving antenna array, but it is possible to set the frequency so that it doesn't resonate with water.

We get most of our electricity from coal (worldwide that is) now. Coal plants are already located far from city centers anyways. This kind of power has the benefit of not producing ANY greenhouse gases, sulfer emmissions, or soot whatsoever.

The ONLY environmental impact would be from the occasional rocket launches needed to service the infrastructure. Most of the real maintenance work and industrial processes would be in orbit, so no air/water pollution on the surface of our planet at all.

Economists like to talk about "hidden costs" of producing things. One of the hidden costs of using coal for energy is pollution. The "hidden cost" of nuclear is the potential for meltdown, or that something bad happens to the waste or fuel used.

The real cost of electricity isn't the price you pay for each kilowatt of coal power, it is that price, plus all the costs in reduced human health down the way. The same goes for just about any good or service provided. It was cheaper money-wise to use lead in gasoline to help lubricate car engines until you looked into the human health costs of increased lead contamination anyplace you have a lot of cars (i.e. all american cities).

If only one out of every hundred american workers had to take ONE extra day off due to illness per year, the cost to our enconomy would be BILLIONS worth of lost productivity.

[Nbadan]

[Nbadan]

Scott's human crude project is looking pretty good about now...

$100 per barrel in 3 years?

One of the world's leading energy analysts on Monday called for an independent assessment of global oil reserves because he believed that Middle Eastern countries may have far less than officially stated and that oil prices could double to more than US$100 a barrel within three years, triggering economic collapse.

Matthew Simmons, an adviser to US President George W. Bush and chairman of the Wall Street energy investment company Simmons, said that "peak oil" -- when global oil production rises to its highest point before falling irreversibly -- was rapidly approaching even as demand was increasing.

"This is a new era," Simmons told a conference of oil industry analysts, government officials and academics in Edinburgh. "There is a big chance that Saudi Arabia actually peaked production in 1981. We have no reliable data. Our data collection system for oil is rubbish. I suspect that if we had, we would find that we are over-producing in most of our major fields and that we should be throttling back. We may have passed that point."

Simmons told the meeting that it was inevitable that the price of oil would soar above US$100 as supplies failed to meet demand.

more....Web News Wire

[Nbadan]

Let's do some math...Since W took office, gas prices have gone from about $1.28 per gallon to about the $2.00 per gallon today, and the price per barrel of oil has gone up from an average of $26 in 2001 to around $50 per barrel today

FINANCIAL INFORMATION
(In thousands, except per share data)


For the Quarter For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000

<snip>

AVERAGE OIL PRICE PER
BARREL
United States $25.49 $29.15 $26.13 $26.83
Canada 19.92 22.91 20.35 21.88
Australia 24.77 33.32 26.27 29.98
Egypt 24.60 30.17 25.75 27.74
Total 24.15 29.11 25.01 26.86

I don't know how to properly space/format this, but it says average oil price (US) was $26.13 for the nine months ending September 30, 2001. Now it's bouncing around $50. +

note: this is a financial from one company, but I am assuming it is roughly close to industry standards for pricing. So, I could be wrong high or low.

Link

If gas prices sour to $100 per barrel...

$4.00 per gallon.

[RandomGuy]

Scott's human crude project is looking pretty good about now...

$100 per barrel in 3 years?



more....Web News Wire

I think some of that is a bit too pessimistic. Libya and Russia still have large reserves that they are just beginning to tap into. After new investment in Libya rejuvinates their production capacity that will help relieve some supply pressure. Libya's oil is of the highest grade as well, so that is a big plus as well.

(edited spelling mistake)
(begin afterthought edit)
This is not to say that I think oil will not get more expensive faster than most would like. I think that depletion is happening a lot faster than OPEC wants to admit.

[scott]

Good shot we hit $60 crude this month.

Just a hunch.

[scott]

Dan, I think $100 is well beyond a sort of glass ceiling on prices that cause global economic collapse and thus a collapse of global demand. I think $65 may be right around the upper bounds of a temporary e. $55 is probably hovering around the point where it seriously endangers global economic health.

[The Ressurrected One]

Dan, I think $100 is well beyond a sort of glass ceiling on prices that cause global economic collapse and thus a collapse of global demand. I think $65 may be right around the upper bounds of a temporary e. $55 is probably hovering around the point where it seriously endangers global economic health.

Hey, scott, did you hear the Saudi Prince today?

150 billion barrels of known reserves, 100-200 more under the sand. They can pump 11 million barrels a day max. I did the math...

That's 141 years of oil...just from Saudi Arabia. Or 114, I forget...and my calculator is back at the office. Still, it's a damn long time to perfect an alternative.

He basically agrees with many on this board, it's our refining capability that is the hold up.

[scott]

Your calculator might also be out of batteries.

250 b / 11 mm / 365 = 62 years if you assume a constant 11 mmbpd. Even then, you are leaving out the other half of the equation. Global demand is already around 84 mmbpd. Assuming constant demand (unrealistic), that only leaves 8 years of supply in Saudi. End of Year 2003 Reserve Estimates range from 1,050 to 1,277 billion bbls (http://www.eia.doe.gov/emeu/international/reserves.html). At 84 mmbpd, that is only 40 years of supply. Of course, that is stretched out a little bit because we are discovering oil, just not as fast as we are depleting it.

Regardless, you can't assume a constant production either. Oil production curves have an inverted "U" shape with a definite peak. US production peaked in the late 70s. Once non-US production peaks, then you are looking at a real problem.

But obviously, the constraint is refining capacity. Myself and the other posters on this board have been discussing such for quite some time now, at least a year if not longer. Oil has an interesting dynamic because the number that the public watches (prompt WTI price) is for a good that the public has no immediate use for. A barrel of crude oil does Joe Blow absolutely no good, unless he wants to burn it for heat in his furnace (not a very efficient use). The demand for oil has an upper bound, and supply of product has a lower bound - which is refining capacity. To get a real understanding of the supply demand dynamic in the oil industry you have too look at product demand (end use demand, varying from product to product) and feedstock supply (crude oil coming out of the ground) and then be able to understand the transformation process and how the two play off each other. All this, of course, is easier said than done.

[RandomGuy]

Dan, I think $100 is well beyond a sort of glass ceiling on prices that cause global economic collapse and thus a collapse of global demand. I think $65 may be right around the upper bounds of a temporary e. $55 is probably hovering around the point where it seriously endangers global economic health.

I was watching Bloomberg TV the other day and they had an analyst on that gave his best guess as to the price of oil in two to three years at about $63/bbl, well in line with a price increase of about 6.4% per year.

[RandomGuy]

Hey, scott, did you hear the Saudi Prince today?

150 billion barrels of known reserves, 100-200 more under the sand. They can pump 11 million barrels a day max. I did the math...

That's 141 years of oil...just from Saudi Arabia. Or 114, I forget...and my calculator is back at the office. Still, it's a damn long time to perfect an alternative.

He basically agrees with many on this board, it's our refining capability that is the hold up.

There was indeed a bit of a e in oil prices recently that the Saudis and Bush were very quick to try and quash a bit of the speculative, panic-y edge to the run-up. Their reassurance was successful in stemming the temporary e, but will do little for the long term trend.

Refining capacity is indeed a bottleneck, as no new refineries have been built in the US due to the massive environmental cost of such a thing. Last I remember reading somewhere, the US imports about 11% of it's yearly consumption of gasoline.

BUT

The Saudis are building more refineries, so they will either sell us the oil or the refined products.

[Gerryatrics]

So how do we make all these problems disappear? Simple... Nuke China. China is driving up the demand for oil at an insane rate, and supply is having trouble keeping up. Just nuke a few of China's largest cities and bam!, 99 cent a gallon gas. Food for thought.