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Pay No Attention to the Price of Oil...

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…or to the man behind the curtain. Or the energy monster under our bed. Today, OPEC president Chakib Khelil warned that oil prices would stay above $100 for the remainder of 2008 based on:

“speculation, geopolitical tensions, particularly due to the Iranian nuclear affair and the crisis between Venezuela and ExxonMobil,” APS reported. The world economy could get some help with the arrival of a new U.S. president, and possibly a new economic policy, “and with this new situation it is very probable that the dollar will start to recover and thus permit a readjustment of the (oil) market,” Khelil said.

Oh, really. So $107/barrel oil has nothing to do with the imbalance in supply vs. demand. It has nothing to do with our conspicuous consumption, nor the voracious appetites of parts of the world such as China and India, where people in large numbers are getting access to affordable automobiles for the first time. It has nothing to do with the essentially flat level of world oil production, which has remained at 84-85 million barrels per day since about 2005.

As the head of OPEC, Khelil is saying what the head of any waning cartel must say: “there are no supply worries, this is just a spike in price. Go back to your lives and your big cars and keep paying us more money.”

And apparently, despite the drain on their wallets, people are listening to him.

What $107 oil means is far more than $4.00/gallon gasoline. It means more expensive goods, not the least of which being food. It means further pressure on airlines which are already stretched to the breaking point. It means a reorganization of commuting patterns as people realize they can no longer afford to drive as far to that subsistence job. It means they have less money in their wallets to buy everything else except their food and energy. The ripple effects are vast, including downturns in travel, tourism, and every level in an economy already reeling from the twin shocks of the mortgage crisis and dollar devaluation. It is a vicious cycle that can only end in one of two ways: massive inflation to wipe out deficits, or some courage, sanity and a serious push toward renewable and sustainable methods at every level of American life. At this point, even if we do our best, we still might not avoid substantial disruption.

But Khelil would have us believe that we should simply tighten our belts and wait for easier oil in 2009. I say BULLSHIT!!!

What’s it going to take for Americans to understand: OPEC is not our friend. They are the crack dealer on the other side of the tracks. When their product risks becoming scarce or unaffordable, they have to go into full scale damage control. Part of that strategy involves this kind of deceptive P.R. sleight of hand–where they insist the exorbitant prices are the result of anything but the economic fundamentals.

Let’s start by examining the claims: That the Iranian nuclear crisis has caused high oil prices. How much sense does that make? That crisis was essentially over several months ago as the Bush administration acknowledged Iran had abandoned its weapons grade program in 2003. So it affects today’s price of oil how?? O.K. so it must be Chavez’ little dustup involving $12 billion with Exxon. You heard that right. We’re supposed to believe that something involving money equivalent to about 10 days worth of U.S. oil imports will affect the world price of oil for the next year and beyond. All right, then the weak dollar. Well we know a weak dollar (that has been trading at an all time low of over $1.50 to the Euro) can cause high commodities prices–Khelil admitted as much. But the dollar’s predicted recovery in 2009 creates more oil how? None of it adds up.

Essentially OPEC has gotten away with this song-and-dance routine because Americans don’t want to face the awful truth that they just might have to stop driving their dualie 3/4 ton crew-cab pickups loaded with ATVs at 90 mph down the road. On my recent trip around the country, where I drove 2,800 miles in my Prius loaded with gear on about 60 gallons of gas, I was passed more times than I could count by such grotesquely overwrought vehicles screaming past me like banshees–thumbing their noses at both high prices and any remote grasp of climate issues.

If these clueless freaks end up losing their vehicles and homes because of the crashing economy, in some ways they have only themselves to blame. But we’re all in this together, and we need to start letting the price signals focus our minds on the real problem.

As my friend Lou Grinzo over at The Cost of Energy says often, OPEC should actually cut production further. This would cause prices to rise even faster, and make their little diversionary routine harder to carry off. But they won’t do that. They know they can only push their black tar addicts so far before we say “ENOUGH” and learn to make our own fuel.

Fortunately, many American companies are starting to do just that. But it’s not anywhere near fast enough to prevent a meltdown.

Oil is going away–permanently. In the meantime, it’s going to get a LOT more expensive. If you’re thinking about buying a car, don’t plan on even $4.00 gas in five years. It will probably be double that. I’m looking at the current $3.50 a gallon price very much like I looked at the $0.35 price when I was growing up. That coincided with the U.S. peak of oil production in about 1971. By 1981, ten years after U.S. peak, gas was $1.40 a gallon. You see where this is going?

We are now at or near world peak oil. So I don’t think I’m out on a limb at all when I say $14.00/gallon gasoline is entirely possible by 2018 or 2020. That’s petro-gas, of course. And that’s assuming no mitigation measures. By then, there will no-doubt be dozens of companies making all forms of synthetic fuels which should help moderate prices. The financial incentives will be enormous. And a lot of us will be driving electric cars.

But that assumes we’ve got an economy left to make the trillion-dollar investments necessary to fund replacing all our cars, and building thousands of biofuel plants around the nation. And that the transport sector hasn’t already been wrecked. This is a crisis. The sky is not falling, but we are getting an unmistakable signal that serious change is mandatory. The sooner we all realize that and take steps to make the transition, the less pain and suffering we will all have to endure in the process.

Let’s tell the liars of OPEC exactly where they can stick their oil!


Comments (16 comments)

Rusty Anchor / March 10th, 2008, 11:25 am / #1

Nice post, Blacksun. What’s your take on biofuels? From what I’ve read, they cause more harm than good (deforestation to grow crops, for instance.)

BlackSun / March 10th, 2008, 2:17 pm / #2

Rusty,

Food-crop biofuels are a problem. They require fertilzers and lots of water and raise the specter of taking food out of some starving babies’ mouth to make ethanol to power SUVs and RVs.

But fortunately food-based fuels such as corn ethanol (previous article) aren’t the only viable biofuels. Cellulose based ethanol can use crop and wood waste or non-irrigated prairie plants like switchgrass as feedstock.

Then there’s algae-based biofuel, and finally there’s direct microbial conversion to petroleum such as that being developed by LS9.

First generation biofuels are in many cases worse for the environment than just burning petroleum. But they have the net-positive effect of priming the investment and infrastructure pump for second and third generation products which will actually dramatically improve the situation.

Don’t give up on biofuels! The only other alternative for transportation is electricity, and right now that means burning a lot of coal.

We will need every method at our disposal to fix this problem.

Alex / March 11th, 2008, 1:18 am / #3

Biofuels are a partial solution to the problem, but at this current date they’re unreasonable to convert all of society over to. Even using switch grass and algae the margins will probably be very slim in terms of the amount of resources used to obtain the cellulose for processing versus the amount of resources gained.

Personally, I’m seeing cheap solar as making the most progress on the alternative energy front, Konarka technologies is already printing solar panels with an inkjet printer type system at fairly low cost. It is here, it just needs to be adopted.

Where biofuels and hydrogen would come in would be as high-density portable energy, vital for most vehicular purposes.

Lastly, nuclear shouldn’t be written off. The waste disposal problem of fission power is understood and can be safely taken care of for the duration of it’s radioactivity (unlike the isotopes released into the atmosphere unchecked by burning coal), and fusion, which has dramatically fewer radioactive materials to dispose of, is approaching practical use.

Aaron Kinney / March 11th, 2008, 9:35 am / #4

Ben Bernanke: “We will just print more money to pay for it! Yes, we will print our way out of this mess! Ain’t no economic calamity that creating more cash out of thin air won’t solve!”

Joe Sixpack: “Hey! Why does a sixpack of beer now cost $345.95!?!?!?”

Aaron Kinney / March 11th, 2008, 9:38 am / #5

You know I just had a thought, Sean.

If oil is a fossil fuel, and it is composed primarily of ancient animal juice, then doesnt that disprove genesis?

I mean, the amount of oil known to have been consumed plus the oil known to exist couldnt have all been produced by only 6000 years worth of biological creatures roaming the earth, could it?

You couldnt fit even 1/10,000,000,000th of that oil or its equivalent in volume into Noah’s Ark. Not by a long shot.

Rusty Anchor / March 11th, 2008, 11:27 am / #6

Aaron, I had a similar thought once. I was driving my car, and it seemed like my new tank of gas gave my car more power. I decided that maybe I had a little bit of Jesus in my gas tank!

Christians will claim that His foreskin is the only part of Him that didn’t blast off into heaven, but I think his petrified remains just might be part of a barrel of premium crude oil (Premium crude? An oxymoron?)

Blacksun, switch grass sounds like a good idea, but can you get high off it? If gas hits $8/gallon, I’m going to have to stop my recreational inhalation, also known as “huffing.” I like the gas high best, but at those prices, I’ll have to switch to model airplane glue. It gives me a headache, but it’s cheaper. :)

Peter / March 11th, 2008, 8:54 pm / #7

We are now at or near world peak oil.

According to a CIA study that was in 2005.

Biofuels are the complete nonsense – and we will – and are – finding that out when desperately needed areas for food crop consumption are used for fuel – with high prices for all food products.
Remember the tortilla riots in mexico – it will get worse, not only there.
Biofuels are worse than useless – according to some calculations (be so nice and google “efficiency of biofuels”) they produce almost a -10% in output vs. input. The most optimistic studies speak of a slight positive output/input.

Maybe grasses might work…but there still is again – transportation from areas less fertile and maybe out of the infrastructure picture at the time, and the whole processing involved, which again,, uses power.

I am convinced that the move will be back to an acricultural production necessaryly less intensive, using again organic fertilizers, and closer to the market. Forget the travesty of hauling veggies from California to the Okanagan valley in BC; the californian artificially watered v egetable and fruit production will not longer be viable – not due to oil, but water in the most part.

BlackSun / March 11th, 2008, 11:24 pm / #8

Aaron,

I’d say you’ve got a point about Genesis. Not much time for petroleum generation. ;-)

Peter,

You’re right we’ve got a water problem. But what you are saying about biofuels is not entirely correct. It is true for CORN ethanol, but as I said above, and as has been confirmed by this story:

As corn-to-ethanol dominates the Nebraska landscape, researchers at the University of Nebraska-Lincoln are paving the way for the next generation of biofuels switchgrass.

New switchgrass research from UNL has found that the on-farm cost of producing switchgrass for cellulosic ethanol averages about $60 per ton.

The study which contracted 10 farmers in Nebraska, North Dakota and South Dakota to commercially grow switchgrass for five years, starting in 2000 and 2001 gives a real-life look to farmers interested in growing and contracting switchgrass, said Richard Perrin, the UNL agricultural economist who was the primary economic analyst for this study.

“This is the most comprehensive study to date on assessing the economic costs of producing switchgrass biomass in commercial fields,” he said.

In January, UNL researchers released a study that showed switchgrass grown for biofuel production produced 540 percent more energy than needed to grow, harvest and process it into cellulosic ethanol. [emphasis added]

That research, which resulted from a five-year study involving fields on farms in three states, highlights the prairie grass’s potential as a biomass fuel source that yields significantly more energy than is consumed in production and conversion into cellulosic ethanol.

According to Ken Vogel, a U.S. Department of Agriculture-Agricultural Research Service geneticist in UNL’s agronomy and horticulture department, the study examined the net energy output, greenhouse gas emissions, biomass yields, agricultural inputs and estimated cellulosic ethanol production from switchgrass grown and managed for biomass fuel.

The study also found greenhouse gas emissions from cellulosic ethanol made from switchgrass were 94 percent lower than estimated greenhouse gas emissions from gasoline production.

“This clearly demonstrates that switchgrass is not only energy-efficient, but can be used in a renewable biofuel economy to reduce reliance on fossil fuels, reduce greenhouse gas emissions and enhance rural economies,” Vogel said.

You know, we better hope they’re right. Because if the naysayers are correct about biofuels, then we’re pretty much going to starve. Non-industrial farming methods can only support about 1-2 billion people. So we’re going to need an alternative fuel source if we want to avoid catastrophe. And long before that, lack of fuel would crush the economy.

I really think a combination of wind, solar, biomass and nuclear will get us through this transition. But every one of those has severe drawbacks, and we’re going to have to get used to doing without the easy convenience of cheap liquid fuel. Time to pay the piper.

Cristy / March 12th, 2008, 12:26 am / #9

A point about biofuels that hasn’t been brought up-they still pollute a lot. I know that they reduce oil dependency, but they will only continue problems with Global Climate Change.

By the way, I have been saying for years that OPEC is illegal in the US because it violates the Sherman Antitrust Act which states “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal” and “every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony “. There you have it, OPEC is full of felons.

BlackSun / March 12th, 2008, 8:32 am / #10

Cristy,

While it’s true that burning biofuels releases carbon and other pollutants, it’s not true that it’s just as bad as burning petroleum. In fact, biofuels have the potential to be completely carbon neutral.

With petroleum, the carbon that’s released has been underground for millions of years. With biofuels, the carbon came from the atmosphere in the first place during the plant growth. When burned, biofuels just put the carbon back in the atmosphere where it already was. They don’t make the situation worse. Also, they often burn much cleaner in terms of other pollutants besides CO2.

Since OPEC is an international non-governmental organization and only affects member states, it doesn’t actually operate within the US.

Having said that, cartels are generally self-defeating, because since they try to hold down production in many cases they provide members with a built-in incentive to cheat. OPEC will become increasingly irrelevant as member’s capacity to export their oil dries up. They will all be producing flat-out anyway. Their mendacity at this point seems to be chiefly directed at keeping their customers from developing oil alternatives for as long as possible to keep the prices as high as possible.

Kanaio / March 17th, 2008, 12:36 am / #11

Great article Sean. There are a lot of happy Prius drivers out where I live in the land of $4.00 dollar a gallon gas. Have you checked out the BMW Hydrogen 7?

Tommy / March 18th, 2008, 4:21 pm / #12

The one potential upside to the rising price of gasoline is that it could alternate fuel sources more profitable.

Tommy / March 18th, 2008, 4:34 pm / #13

Sorry, had to cut the comments above short.

Unfortunately, because of the number of vehicles in this country that run on gasoline, we are pretty much locked into it for the foreseeable future. In the near term, we need to mandate increased fuel efficiency in new automobiles. Maybe some kind of tax can be levied on buyers of vehicles like Hummers and other gas guzzlers and the proceeds used to help fund public transportation initiatives.

There are a host of options that are available to us. But even under the best case scenarios, it would take years before we would achieve a situation where our use of fossil fuels would noticeably decline. Regardless though, we are going to have to get started.

Tommy / March 18th, 2008, 8:33 pm / #14

OT, I see that Tom Stelene got booted from Planet Atheism.

BlackSun / March 19th, 2008, 10:54 pm / #15

The one potential upside to the rising price of gasoline is that it could alternate fuel sources more profitable.

Agreed!

Unfortunately, because of the number of vehicles in this country that run on gasoline, we are pretty much locked into it for the foreseeable future.

At least 6 manufacturers will be selling electric cars by 2010–not the least of which is the Chevy Volt.

I agree we should tax the hell out of carbon based fuels. A $100/ton price on carbon would add $1.00/gallon to gasoline. It’s the least we can do. Then the government should disburse the proceeds of the tax to low-income drivers. That way, it’s not regressive, it’s revenue-neutral and encourages conservation.

Good riddance to Tom Stelene. He was a rabid climate change denier, and far from rational about it.

Black Sun Journal » Chakib Khelil Extends Double-Talk on Oil Prices / July 6th, 2008, 9:29 pm / #16

[…] It’s hard to fathom OPEC president Chakib Khelil’s (previous article) duplicitous and outrageous statements about the oil markets. On the one hand, OPEC is a cartel benefiting from prices that have roughly doubled in the past year. But if you believe their rhetoric, they’re suffering from a chronic lack of money to invest in production, (yeah, right) and they’re fretting about the threat of people switching to alternative fuels. (Fat chance in the near-term–global biofuel production is less than 5 percent). In addition to the typical scapegoats of a weak dollar (partially to blame) and speculation (slightly to blame), Khelil now has added "bioethanol production" as a culprit in the oil-price runup. […]

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