The American people are stupid (part II)
My very first diary here are at the forvm was a discussion of oil prices,energy policy and the American public.
The American People are stupid
Here it is a few months down the road so I thought it was time for an update. Recent happenings.
Mexican oil production has peaked with total output declining 7.8% in the first quarter of this year.
Russian oil production appears to have peaked last year. Since Russia has been one of the largest sources of production increases over the last decade this is a big concern.
After years of saying that they could increase production to meet future world needs the Saudi's are now saying that it would be best to save some of their oil resources "for future generations". Translation -- we are not going to increase production.
Crude oil prices approached $120/barrel today and they are almost certainly going to go a lot higher. Energy is probably the single most important issue facing the US over the next couple of years but other than McCains silly proposal for a gas tax holiday (supported by Hillary as well) the topic is barely being discussed in the runup to this falls election. It sort of reminds me of a line from the movie Cool Hand Luke Some men you just can't reach. The US public still seems to be oblivious to the fact that the rules of the game have changed permanently. Eventually they'll figure it out but it looks like it's going to take quite a bit more pain before that happens.
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References -
But I believe the indications are that current petroleum prices are due more to commodity speculation than traditional supply or demand fluctuations. So it's a little premature, but perhaps telling, to declare Americans "stupid".
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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)Is that speculation accounts for around $15 of the price.
--More Wagster!
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| parent )from what I've read, if speculation is the cause of the high prices one would expect to see inventories increasing, yet they have not been doing so.
--I blame it all on the Internet
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| parent )built into the price so it would not be surprising to see short term fluctuations because of that. The long term pricing trends are being driven by an imbalance between supply and demand and that's just going to keep getting worse.
Bernard and the free market advocates are ignoring a very important point -- namely that we don't have a free market right now and in fact have been subsidizing and promoting oil consumption for a long time.
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| parent )but the bigger problem with the free market approach is that it's pretty ruthless in it's solutions - as we can see by the food riots around the world.
I don't think people understand that a society like ours depends on a whole bunch of foundational factors to be in place and working, and that the loss of cheap energy is striking at the very foundation of what we depend on. If that goes away, a lot of other things we take for granted go away too, and the free market solution can be brutal and have all kinds of ramifications that are being overlooked.
--I blame it all on the Internet
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| parent )and the free market solution can be brutal and have all kinds of ramifications that are being overlooked.
Societies will always come into balance with the available resources. How they come into balance can make a lot of difference to the people living in those societies though.
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| parent )Do you divine some element of commodity speculation as it applies to crude oil that isn't rooted in matching supply with demand?
--GW Bush, leading contender for worst President ever.
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| parent )It's probably easier to see the difference in something like gold, where there is a different effect of actual demand (aka usage) on price than from speculation (aka holding & trading).
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent )But basing you're decisions off what you wish to be true is not the way I prefer to go through life.
As for Americans being stupid -- yup that's what I think so you're snark doesn't bother me. Not all Americans but a clear majority. It has nothing to do with education level either. My anecdotal experience backed up by study after study shows that Americans have opinions on subjects without having the slightest knowedge of said subject. If you don't care about the subject that's fine but that's not the case. Most Americans care about gas prices but most of them don't know who their Congressional representative is or their Senators or the Speaker of the House.
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| parent )on the Internet.
As for Americans being stupid -- yup that's what I think so you're snark doesn't bother me.
"your"
----------------
*Actually, "Grammar". But the rule appears to apply in this case, too.
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| parent )as is political tensions in the ME, mostly due to the US presence. Do you see tensions in the ME decreasing over the next several years? I don't, and that's a large part of what's fueling the speculation.
--I blame it all on the Internet
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| parent )However, commodity speculation itself yields to market forces eventually. IOW, it has its own little supply and demand yins and yans. I've seen this pattern before with gold, silver, aluminum, iron, rubber, petroleum, etc., etc.
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent )global demand keeps rising and global production seems to be having problems increasing. Speculation aside, that doesn't seem to be a recipe for lower prices in the long run.
And weren't you the one who said we were facing peak everything?
--I blame it all on the Internet
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| parent )There is no identified energy source that will meet projected long-term needs; however, that doesn't mean that technology can't radically alter the variables in the need equation.
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent ).
--The other day I heard that ignorance and apathy are sweeping the country. I didn't know that, but I don't really care.
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| parent )...prices they create go where they will.
--The ultimate result of shielding man from the effects of folly is to people the world with fools. -Herbert Spencer
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| parent )well designed policies could help speed research, development and implementation of alternatives. The "pure free market" approach may have some nasty ways of solving things - ways that would even be bad for Bernard Guerrero.
--I blame it all on the Internet
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| parent )I guarantee you'll look back on those words in five years with a rueful smile.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )http://money.cnn.com/pf/features/lists/global_gasprices/
If Brazilians can afford to pay $3.12 and the British can afford to pay $5.79, then I'm sure Americans can afford $4 or $5 per gallon as well.
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)Pump that sucker up and we achieve 3 things:
A) Pre-build corrections into the market since the price is gonna just keep going up anyways -- might as well frontload some of the pain -- this is MUCH better than subsidizing alternatives IMO because it lets the market pick the alternative through pricing pressure
B) Create a safety valve where if the prices hit an inflection point and start to skyrocket, we can at least back off the tax for a while to relieve pressure while people switch completely off of gas
C) A whole boatload of revenue to fund new nuclear starts (as in today, it'll be 20 years till their online), basic research, subsidies for solar/wind/tidal/etc
D) We can do countervailing tax breaks on the low and middle brackets so we don't put everyone in the poor house while still pushing the market away from gasoline -- rich people pay some tax at those brackets too so they're not getting hosed, just compensated for the amount of gas they buy. If they blow 100 gallons on their weekend yacht trips, that's their problem.. they should sail anyways, the posers.
Is there any reason to be against this besides "It's political suicide"? Why can't people get behind this and see that it's the most market based way to avoid some very likely future pain?
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)is the term the economists use, I believe. Money now is worth more than money later. There are a variety of rational reasons why that is the case, the main one being that no one can predict the future with much certainty -- the dire predictions of futurists are not necessarily correct.
I happen to think they probably are correct, and I'd like to see an increase in the gas tax. But it's not going to happen. McCain and Clinton have both proposed a temporary abolition of gas taxes this summer.
--The other day I heard that ignorance and apathy are sweeping the country. I didn't know that, but I don't really care.
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| parent )Name the news outlet which would conceivably give serious coverage to energy proposals.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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)in your earlier diary, this isn't as much of a crisis as you're making it out to be. The fact that we're all still using gas fueled cars isn't a sign of obliviousness - it's a sign that even at $3.50/gallon, an internal combustion powered car is still cost effective compared to the alternatives. Likewise for our choices for electric power generation.
You are correct that the price will continue to rise and the supply will eventually decrease, but if it's spread out over 10-20 years, that's plenty of time to adapt.
And in any case, if you think our oil consumption is a problem, letting prices rise is the most "natural" solution.
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)of a global switch from abundant, cheap energy to expensive energy. If as HankP guesstimates crude oil has about a 10:1 energy "profit", and if it's true that no alternative energy source does much better than break even, then we are probably looking at a historic constriction and really ugly Malthusian collapse until we are once again living within our means.
The 20th century was defined by an explosion of available energy driving the growth of industry & the development of nations -- the 21st looks likely to be defined by a fairly radical reduction in available energy, the end of a Turneresque frontier of expanding capabilities. Energy available per-capita, per-industry etc. is going to contract. We're living way beyond our means & have been for most of a century.
What could replace oil? Nuclear power on an energy grid won't do it (global uranium's even tighter than global petroleum). Hydrogen? Solar? Cold fusion?
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )to adapt, and not only in finding new energy sources. We can also adapt to significantly more expensive energy, given time. Even within the US the price of things even more fundamental than energy - labor and housing - varies by a factor of two from region to region, and people deal with it.
Lumping in nuclear with cold fusion doesn't seem reasonable. There has been a big spike in uranium prices but given the time scale ($40 to $7 to $113 over a short period of time accordining to Wikipedia) it's certainly not due to some "peak uranium" effect. There are apparently lots of closed mines that can be reopened when the price is right.
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| parent )as I mentioned here, we'd need to increase world production by a factor of 40 to replace oil. If you were looking at replacing 25% of oil usage, you'd still need to increase U production by a factor of ten. That's a big deal, not a trivial problem in any way of looking at it.
--I blame it all on the Internet
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| parent )but if it's spread out over 10-20 years, that's plenty of time to adapt.
20 years yes. 10 years is marginal. If it happens over 5 years things will get very unpleasant.
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| parent )that can't be denied. But a sharp cutoff on that time scale would have to be due to politics/war, not depletion of oil fields. There's a *lot* more than 5 years worth in the ground by any statistic I've seen.
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| parent )I had forgotten about that other diary.
There's nothing better than "people are stupid/the government should rescue them" diaries to make me feel good about my positions.
--Envy was once considered to be one of the deadly sins before it became one of the most admired virtues under its new name, social justice. --Thomas Sowell
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| parent )Certainly not me. This is a democracy you know. We get the government we choose.
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| parent )(Well put, sir, on all counts.)
--The ultimate result of shielding man from the effects of folly is to people the world with fools. -Herbert Spencer
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| parent )Right now between crude oil and refined products we import about 15 million barrels of petroleum products per day. At a cost of $120/barrel that's 1.8 billion dollars per day. By the time that price goes up to $200/barrel we'll be sending 1 trillion dollars a year overseas. Keep that up for a few years and OPEC will own the US.
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| parent )I trade USO and the refiners and oilfield services groups on a regular basis, so the approach to $120 has not exactly been a surprise (though I'm thinking of a short, here.)
"By the time that price goes up to $200/barrel we'll be sending 1 trillion dollars a year overseas. Keep that up for a few years and OPEC will own the US."
Unlikely on multiple counts. You presuppose that crude at $120+ will not destroy demand, when it's already clear that it's doing so. You presuppose that crude at $120+ will not result in substitution and R&D towards same, when it's already doing so. You presuppose that $120+ crude won't result in inflationary pressure that makes that $1 trillion smaller in real terms, but it's doing so. You also assume that there isn't a bubble-effect going on as hedgies push more money into commodities every time the dollar gets weaker, but this is most assuredly the case.
--The ultimate result of shielding man from the effects of folly is to people the world with fools. -Herbert Spencer
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| parent )There hasn't been any to speak of yet. In fact in the Opec countries demand is increasing at a healthy clip. There's a feedback loop operating where increasing oil revenues raises the per capita income which leads to more domestic consumption with less available for export. Or are you referring to the slowdown in the growth of oil consumption in the rest of the world? That has less to do with demand destruction than with the fact that production has been flat for several years now. Of course there are scenarios where we would see real global demand destruction -- a recession or depression would do the trick but that's not a solution that people are likely to be really happy with.
As for substition and R and D -- yes that's happening. What matters is the how long it takes compared to the pressure on supply that we are seeing now.
You presuppose that $120+ crude won't result in inflationary pressure that makes that $1 trillion smaller in real terms, but it's doing so
In case you hadn't noticed oil prices have gone up a lot faster than inflation over the last few years.
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| parent )Give it time and you'll get it elsewhere, as well.
--The ultimate result of shielding man from the effects of folly is to people the world with fools. -Herbert Spencer
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| parent )Not much demand destruction to speak of so far. From your link
U.S. Energy Information Administration (EIA) is predicting gas consumption will actually fall 0.3% this year
We'll probably see more demand destruction in the US and Western Europe but that's going to be offset by the growth in consumption in the oil exporting countries. They're swimming in petrodollars and their governments subsidize fuel costs. The results are predictable. High single digit to double digit annual percentage increases in consumption.
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| parent )End of the day, they don't make stuff if we don't buy stuff, 'cause their domestic middle-classes are still itty-bitty. So demand destruction is happening in the U.S. (just compare that 0.3% drop to what growth has looked like recently) and will start up elsewhere shortly. The only subsidies that matter in terms of being coupled with real demand are in China and India, and those are unsustainable in a slowing growth scenario.
But hey, you bet your way, I'll bet mine. We'll see who's right soon enough, eh?
--The ultimate result of shielding man from the effects of folly is to people the world with fools. -Herbert Spencer
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| parent )End of the day, they don't make stuff if we don't buy stuff,
The Opec countries making stuff is irrelevant. They can buy cars using petrodollars. Saudia Arabia for instance is experiencing about 10% year over year growth in internal oil consumption. Given their current usage of roughly 2 million barrels per day that is a 200,000 bpd increase. US consumption would have to decline by 1% a year to compensate just for Saudi increases. And that's just one OPEC country. As long as world oil production remains flat (and it has for a couple of years now) the amount available to the non OPEC nations is going to keep decreasing every year due to increasing internal consumption in the OPEC nations.
But hey, you bet your way, I'll bet mine. We'll see who's right soon enough, eh?
Works for me.
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| parent )unfortunately, it will solve it by running the price of oil up until other forms of energy become viable.
... Oh, you say there are no other forms of energy that can take the place of oil? Well, I guess the market will fix that problem too, by reducing economic activity and wealth to match the available energy.
At some point people will realize that some rational forethought and planning is preferable to a blind faith in markets. Don't expect it to happen soon or be pretty when it does happen, though.
--I blame it all on the Internet
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)Except for a few niches (e.g. jet fuel) there are plenty of alternatives, given some time to adapt. Our whole gasoline based transportation system, filling stations in every town included, came on line in about 10 years from 1910-1920. And yes, it happened mainly through markets.
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| parent )remembering that we currently use 80 million barrels per day worldwide. Also remember that the cost of replacements depends on the cost of energy for smelting, chemical extraction and processing, transport, etc., so as oil gets more expensive the replacements get more expensive too. Also remember that oil has approximately a 5 to 10:1 ratio of energy obtained to energy used for extraction and processing.
From what I could find, it appears that the US produced about 1.2 million barrels per day in 1920, compared to the current 20 million. Of course that was the easiest and cheapest oil to extract, too.
The fact is, there is no substitute for cheap oil. Most of the world's infrastructure and economy is based on it. We will use every available source of energy, but the transition will still be painful.
--I blame it all on the Internet
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| parent )There's a *lot* of it in the ground. As in, at least a couple of centuries' worth. And turning coal into gasoline is a process that's been known since the 1920's.
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| parent )went to presentation today by someone in grid/generation capacity planning. Apparently the consensus is that we could go up to 20% wind/solar without any improvements in energy storage.
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| parent )For electric generation, nuclear until improved energy storage methods make solar/wind/tidal feasible.
For vehicles in the short term - live with expensive gas. For 10 years out, ethanol supplementing the gas supply (yes I know abets AGW, and that the energy ratio is much less than with gasoline, and that to help at all the processing of raw crops into ethanol has to be powered by something other than oil - which it can be. The Brazilians somehow manage to break even.) For the long term, pure electric or hydrogen combined with changing commuting habits.
You're right that none of this will be as cheap as oil has been. But the methods mentioned above are close enough to being economical that they are already in limited use.
BTW the example about 1910-1920 wasn't intended to be about cheap oil production, just to show that we could switch to hydrogen stations in place of gas stations in a similar amount of time if necessary.
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| parent )I'm running out the door, so I'll try to expand more on this later, but the numbers don't add up.
To replace the energy from oil, the world would need about 8000 nuclear plants. Each nuclear plant uses ~25 tons/yr of enriched uranium. Therefore we would need ~ 200000 tons of enriched U per year to fuel these reactors. There is a conversion factor of 1 ton enriched U ~= 8 tons raw U. Therefore we would need 1600000 tons per year of raw U. Current annual production is ~40000 tons per year.
I keep saying it, but people don't believe me - the numbers involved are huge, and people throw out solutions without calculating what it would actually take to replace oil. It's not simple, it's not cheap, it will involve serious problems and unbelievable amounts of money and resources just to replace what we're currently using.
--I blame it all on the Internet
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| parent )Please send me an email before you start in on your explanation. I believe you have my contact info.
I've been working on the first in a series of diaries that is meant to lay out the basics of non-transportation energy use in the US and the hows and whys of the way the current system works.
--For having lived long, I have experienced many instances of being obliged, by better information or fuller consideration, to change opinions, even on important subjects, which I once thought right but found to be otherwise - B. Franklin
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| parent )Brazilian ethanol comes from cane rather than corn. Also, it would take the US a while to build up a hydroelectric infrastructure similar to the one that powers Brazil (89% of the national power production in 2000). Also, Brazil has 2 nuclear plants and is building a third.
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| parent )First, we could grow more cane in the US if necessary. Second, there's nothing wrong with importing it, or at least nothing wrong that doesn't also apply to importing oil. Fortunately we haven't screwed up relations with cane growing countries as badly as we have the Middle East.
The more serious problem with ethanol is that the energy ratio HankP talks about is much worse, but then ethanol shouldn't be considered a primary source of energy; it's a converted form that happens to be useful for existing engines.
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| parent )Mr. Username
We're already tapping most of our easily accessed Hydro potential. Part of the constraint is that the rivers have to be used for other things as well. Flood management is a huge concern in the western US and a big part of the reason the dams were set up in the first place.
--For having lived long, I have experienced many instances of being obliged, by better information or fuller consideration, to change opinions, even on important subjects, which I once thought right but found to be otherwise - B. Franklin
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| parent )I agree with your thesis though that the market will have to sort it out. Governments simply do not have the co-ordinated planning processes (unless there is a war on) that private companies do.
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| parent )