This Week in Petroleum
Posted by Robert Rapier on May 19, 2007 - 11:16am
Introduction
If you follow the petroleum markets, or you just want to know what is going on in the world of energy, the weekly reports from the Energy Information Administration (EIA) are invaluable. Every Wednesday the EIA releases reports detailing information on petroleum and product inventory levels, imports, prices, refinery utilization, etc. For those who follow this information, the recent run-up in gasoline prices is not a surprise, as you would have seen it coming. The price increase is not driven – as certain politicians and consumer groups have indicated – by a renewed willingness on the part of oil companies to gouge consumers. On that topic, I quote Paul Sankey, of Deutsche Bank, in his Senate testimony on May 15th:
Anybody who blames record high US gasoline prices on "gouging" at the pump simply reveals their total ignorance of global oil supply and demand fundamentals. The real reason for high pump prices is the lack of global gasoline supply relative to demand. Just in the US, overall US refining capacity, at 17 million barrels per day (mb/d), is far below demand at 22 mb/d. In turn, pump prices are effectively set by import prices. With strong demand outside the US on the back of global economic growth and a weak dollar, the era of abundant US oil supply augmented by willing international sellers is dead.
But this essay is not about allegations of price gouging. I know people have strong opinions on both sides of the matter, and I will leave that debate for another day. This essay is intended to introduce you to an accessible, easy to understand tool that will help you more clearly understand the fundamentals that affect price and supply at the pump. In fact, it was largely the information in these reports that led me to start sounding warnings at the first of March that we had potential gasoline supply problems looming this summer.
The roots of the current situation go back to last winter. After record high prices, demand softened, autumn rolled around, and prices plunged. Consumers, having become accustomed to gasoline near $3/gal, were now looking at prices closer to $2/gal. This spurred record demand. When refineries started coming down for spring turnarounds, the gasoline drawdown was very steep due to such high demand (which you could see in the weekly reports), and prices were too slow to respond. So, now prices are trying to make up for lost ground.
The links you want to bookmark, if you want to be more informed about what’s happening in the world of energy, are:
This is the first report to come out. It is released at 10:30 a.m. EST each Wednesday. This is a text file that provides all of the important details, although without the graphics. But it is a link that I typically click into within 5 minutes of the release of the report each week.
The second link that I read every Wednesday is:
This is a comprehensive and graphical look at the trends and developments. The report is released at 1 p.m. EST, and is primarily written by EIA analyst Doug MacIntyre, who has been making himself available for answering questions following my blog postings on the weekly report.
TWIP 5-16-07
The focus of this week’s edition of This Week in Petroleum was the gasoline situation. Some excerpts:
Why are gasoline prices so high?
Gasoline inventories have recently been drawn down at a dramatic rate to bridge the gap between supply and demand (see Figure 4, in the Weekly Petroleum Status Report (WPSR)). Over 12 consecutive weeks during February, March, and April, total gasoline inventories declined by a cumulative total of more than 34 million barrels (15 percent). This is the sharpest decline in gasoline inventories over a consecutive 12-week period in EIA’s recorded historical data.
Is there an end in sight or will gasoline prices continue to rise all summer?
Although gasoline inventories are expected to remain lower than normal throughout the summer, high prices have encouraged more supply and inventories have increased slightly the last two weeks. Domestic gasoline production has increased by more than 500,000 barrels per day in the last three weeks and total gasoline imports (including blending components) during the week ending May 11, rose above 1.5 million barrels per day, making that week the fifth highest weekly import volume ever and the highest since last May. Should imports continue at such levels and more domestic refinery capacity come back online, supplies will improve and wholesale prices could come down. However, with gasoline inventories likely to remain low all summer, retail prices are expected to remain close to $3 per gallon during the entire summer season. Prices could rise again towards the end of summer if demand surges, as it often does, in late July and August.
Inventory Highlights
I had predicted that this week would see a build, but it would fall short of what we need to stay out of an unprecedented Memorial Day inventory situation. I was correct on both counts:
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 1.0 million barrels compared to the previous week. At 342.2 million barrels, U.S. crude oil inventories are just below the upper end of the average range for this time of year. Total motor gasoline inventories climbed by 1.7 million barrels last week, but remain well below the lower end of the average range. Distillate fuel inventories increased by 1.0 million barrels per day, and are at the upper end of the average range for this time of year.
We now have 2 weeks in which to gain (200.7-195.2), or 5.5 million barrels, else we set a record low for Memorial Day. So we will need to average 2.75 million barrels each of the next two weeks. Impossible? No. Unlikely? Yes. The significance? I have been kicking that around. We could get off with no real problems, other than higher prices. What these low inventory levels do is increase the level of risk in case of an emergency of some sort. If a hurricane shuts down major production, we could see gas outages and a very fast run-up in gasoline prices. Time will tell whether we luck out this summer. Best to keep your tanks topped off this summer, especially if you live in a hurricane prone area.
Pre-Release Information
The above section was written following the release of the report. The following section was written prior to the release, and details the hole we have dug.
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I will update this as soon as this week's report is released. But as I await the report, I wondered just how far we have to go to dig ourselves out of the hole we are currently in on gasoline inventories.
Last week's report showed gasoline stocks at 193.5 million barrels. Just eyeballing the gasoline inventory graph, the 5-year average for gasoline on Memorial Day - the traditional start of summer driving season - ranges from a low of 208 million barrels to a high of 218 million barrels. Counting last week's numbers, which will be reported in today's This Week in Petroleum (TWIP), we have 3 weeks to get back to the lower end of the range. That would require a weekly build of (208 - 193.5)/3, or 4.8 million barrels a week. Impossible?
No, but it looks unlikely. The largest weekly gain that was ever recorded happened the week of May 28th in 1993. The increase in gasoline stocks that week was 11.5 million barrels. That appears to be quite an anomaly, because the next highest May increase was in 1994 at 5.6 million barrels. If we only look at the data since 2000 – which would be more in line with the current supply/demand picture – the largest May gain occurred in 2001 at 4.3 million barrels.
So, in order to avoid going into the summer driving season below the lower end of the range, we would have to see 3 consecutive weekly gains that have not been seen this century - fueled by very strong import levels (or record-breaking demand destruction). So, again I go out on a little limb and say that we will enter summer driving season below the bottom of the average range.
If we have an uneventful summer, prices may not go too much higher. But in my opinion we will go through the summer about one gulf hurricane away from nationwide average gasoline prices rushing past $4/gallon. They could go much higher in the event of a major refinery disruption ala Hurricane Katrina. It is really hard to imagine where gasoline prices could top out given current inventory levels.
Going for a Record?
To put the matter in a bit more perspective, here are the Memorial Day gasoline inventory levels since 1990.
| Date | Vol (million bbl) |
|---|---|
| May 25, 1990 | 218.5 |
| May 31, 1991 | 215.7 |
| May 29, 1992 | 218.0 |
| May 28, 1993 | 229.9 |
| May 27, 1994 | 214.4 |
| May 26, 1995 | 210.0 |
| May 31, 1996 | 206.1 |
| May 30, 1997 | 200.7 |
| May 29, 1998 | 218.2 |
| May 28, 1999 | 223.0 |
| May 26, 2000 | 201.1 |
| May 25, 2001 | 208.0 |
| May 31, 2002 | 215.9 |
| May 30, 2003 | 207.3 |
| May 28, 2004 | 204.3 |
| May 27, 2005 | 216.7 |
| May 26, 2006 | 209.3 |
Table 1. End of May Gasoline Inventories since 1990
The lowest number on the list is 1997 at 200.7 million barrels. Even to reach that number, we would have to gain (200.7-193.5)/3, or 2.4 million barrels for the next 3 weeks (7.2 million barrels total). And while I think we are likely to see a gain in inventories this week as higher prices continue to bite into demand, we aren't likely to gain 7.2 million barrels over the next 3 weeks. So, again I go out on a limb and say we will hit Memorial Day with record low inventory levels.
How TWIP is Written
I recently asked Doug MacIntyre how he goes about writing TWIP. Here was his response:
Actually, I wish I knew sometimes. As a write this comment, it's Tuesday afternoon and I have NO idea what my hook or topic will be (although gasoline does seem to be an obvious choice, not every report can be on gasoline). Sometimes it is mostly written by Tuesday, but most of the time, not a word has been written until Wednesday morning, plus I have to wait until I write those pithy 4 paragraphs of text that gets released with the data at 10:30 am ET! Often, the issues that take the least amount of time seem to be the ones I like the best. Anyway, right now, I'm at a blank for what tomorrow's edition will be.
BTW, while I write the vast majority of them, I have some colleagues that pitch in every now and then, which I truly appreciate!
I told him he could always write about the blogger who had the amazing foresight months ago to start warning of potential record gasoline prices - based on his weekly reading of TWIP and the EIA statistics. :-) On a more serious note, I have suggested that he devote an upcoming version to the subject of imports: where they come from, how long it takes them to reach our shores, etc.
Further Reading
Following are some of the essays that I have published this year addressing gasoline inventories/prices.
Gouging is an Idiotic Explanation
This Week in Petroleum 3-28-07
This Week in Petroleum 4-11-07
This Week in Petroleum 4-18-07
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
Thanks for this.
This comment:
suggests that for the whole picture, we need world petroleum supply and demand figures. Are these around anywhere?
Peter.
Supply and demand information is available on the EIA site if you poke around. Start here:
http://www.eia.doe.gov/emeu/international/contents.html
Petrol prices in Australia (and in much of Asia) are determined with reference to the Singapore Refinery Price.
The Australian Insitute of Petroleum charts this on a weekly basis, and provides a detailed explanation of the factors influencing the pump prices:
http://www.aip.com.au/pricing/facts/Weekly_Petrol_Prices_Report.htm
Currently prices in Australia are approaching the $1.40 per litre high that was set last year, although crude is still under $70 and the Australian dollar is up 10% since then. This is due to the increased divergence between crude prices and refined "gasoline" prices in the Asian market as the graphs show.
I don't expect anyone in the northern hemisphere to care much about Aussie petrol prices, but since the USA is now importing 5 million barrels per day of refined gasoline, and much of the growth in demand for gasoline is coming out of Asia, I imagine a few people might be interested in tracking this crucial Asian benchmark.
If we are to believe in things we cannot see or touch, how do we tell the true belief from the false belief?
What are the gasoline taxes in Australia ?
See chart at bottom of this page
Excise $A0.38 per litre then GST of 10% on (wholesale +excise)
So at May13 Tax $A.49 /litre on $A1.30/ litre retail (the light blue part of chart)
Although prices at the bowser have been climbing, the level of petrol excise has been falling in real terms since 2001 when it was cut to 38 cents a litre and was no longer indexed to inflation.
http://www.smh.com.au/news/business/petrol-taxes-too-low-say-economists/...
the USA is not importing 5 MMBD of gasoline. More like 1-15 MMBD. Total demand is only 9-10 MMBD and we do have 17 MMBD of refining capacity...
Also be very wary of S'pore price indexes. When I was trading in those markets there was very little fixed price business for the marker journalists to hand their hats on. Almost everything was Platts + or Argus -. Then some shady character would do on small piece of fixed price business just to move the print. All that means is from day to day the number cna be squirrelly so look at say monthly averages.
Xburb posted the following link on Drumbeats: http://fpc.state.gov/documents/organization/33168.pdf
Figure 2 in the above report gives us 185 mb of gasoline as the level at which we start seeing spot shortages. Let's define this as Minimum Operating Level (MOL). We currently have 195 mb, and we have already had reports of isolated spot shortages.
My guesstimate is, based on the 185 number, that the non-West Coast Minimum Operating Level (MOL) is about 160 mb, while current non-West Coast gasoline inventories are about 167 mb. So, based on the foregoing, the non-West Coast has less than one day's supply above MOL.
Thanks for your great posts, Robert! The only thing you didn't mention is that we have a minimum requirement for 185 million barrels in the system just to keep the pipelines running and process equipment primed, so our real inventories are much smaller than 200,000,000 barrels-really a two or three day supply.
I'm sure this keypost will draw your usual group of snipers and conspiracy theorists. I'd like to state in advance that I've always found your posts accurate and painfully honest,that you seek the truth and to make it available.
The only thing you didn't mention is that we have a minimum requirement for 185 million barrels in the system just to keep the pipelines running and process equipment primed, so our real inventories are much smaller than 200,000,000 barrels-really a two or three day supply.
The reason is that this is essentially brand new information to me. Obviously there is a minimum level that has to be in the pipelines, tanks, etc., but I did not know it was so high. A couple of comments that Paul Sankey made in his Senate testimony now sound fairly likely:
One of the things I love best about TOD is how quickly various information is diseminated to everyone here, and how we can all react and change our views. This data really seems to be showing Jeffrey's Export Land hypothesis is kicking in. It shows the true frailty of our system, and, IMO proves peak oil has happened. It may just be for geopolitical reasons, but the declines in Saudi production and Nigerian shut-ins make it unlikely that we will see the 88 mmbopd level that you predict in the next couple of years.
I really hope I'm wrong about this-the world needs the room so that the message can be spread. I sure hope this is just a temporary glitch, but when everybody is already running flat-out and barely keeping up any minor incident is magnified. Its terrifying !
Robert - I looked for that quote, about a 1970's style crisis, in the Senate pdf you linked to earlier in the article, but couldn't find it. Is it from another document (or am I just blind?)
Reason I ask is that I'd like to use it as a reference for telling others of the hairiness of the edge on which we are walking. - thanks
See the 2nd paragraph under executive summary in the PDF link.
Thanks Robert... turns out I am blind!
That statement to me sounds more ominous than what is being reported in the MSM... it just seems to have been totally overlooked by the newswires, blogs, and everything I read.
How did the Senate committee react to that testimony? It certainly poured cold water on the rants of some politicians.
I am watching the webcast right now:
Senate Energy Hearing Webcast
The hearing doesn't start until about the 22 minute mark. For the first 21 minutes there's nothing. I am interested to see how they reacted, but I just started watching it.
Sankey knows his stuff. If you want all the issues clearly laid out, he knows and understands the industry and the history. I am at the 53 minute mark right now, and he has been the most impressive speaker so far. Even if he is a Brit. :-) But they tend to be quite direct in their speech, and he told them that they need to keep in mind that Europe pays double the cost of the U.S. for gasoline.
I am really looking forward to the Q&A.
I just watched Senator Wyden from Oregon, and he left me with a very unfavorable impression. He kept asking why the oil companies weren't reinvesting their profits, and Sankey kept saying that they were. Wyden must have repeated this 3 or 4 times, and then he closed with it. He wasn't interested in Sankey's view, he just wanted to assert that profits aren't being reinvested.
That's my first and only impression of him, but I think he is probably pretty typical. They don't actually want to listen to what you have to say.
wyden's mind is already made up. His famous report which postulated that oilcos were shutting down refineries in some planned way to drive up prices was riddled with mistakes. He strikes me as the sort that decides what the answer should be and then searches for whatever data bolsters the pre conceived notion.
Anyone who looks at the data hard understands that refining capacity has grown by about a third from 1990. The bad news is that demand grew faster and imports are much less available due to spec changes and overall world demand growing. Those European, South American and AG export refineries now have other markets looking for product. Of course refiners didn't invest in excess capacity in the 90's. their margins were already poor due to excess investment worldwide in the 80's. Time to pay the piper until the herd all rushes to add capacity in the next 5 years.
I finished watching the web cast and wrote up my impressions:
http://i-r-squared.blogspot.com/2007/05/comments-on-senate-hearing-on-ga...
Wyatt wasn't the only one who put his meager knowledge on display. Check this out:
Senator Menendez: Over the past few years, it seems that bracing for the onslaught of record high prices at the gas pump has become as common as planning for the summer vacation. And we see prices rise and fall, we understand the concept of a changing supply and demand chain, that's not foreign to us, but when we see no singular event, no visible cause for the increase in prices, consumers scratch their heads and try to figure out what's happening. This is the 3rd year in a row in which consumers are facing gasoline prices above the $3/gallon mark. Yet there's no devastating hurricane this year; there's no single event at a refinery or in an OPEC country that explains why, in the first half of May, consumers are already experiencing sticker shock. Mr. Sankey, when you say there is no price manipulation through the whole supply chain, then why do prices seem to spike during times of greatest motorist activities such as the summer, and Memorial Day weekend? Now, I am sure that demand is part of the answer, but it seems that we find that it is in these time periods that the prices spike. Is that just convenience, that it just conveniently happens that way? Is it just a pure coincidence?
Now remember, this is a guy who says he understands all about supply and demand, and now is asking if it's a coincidence that prices rise at the times of highest demand. If I had been a witness, it would have been hard for me to hide my disbelief at this question from another esteemed member of the Senate who happens to be formulating energy policy.
I think he is trying to insinuate that their is enough refining capacity and its being held back. The wording seems poor since I suspect he did not want to give the chance for a rebuttal of the underlying assumption he is trying to sneak in. If you heard this statement it does a good just of sneaking in this concept. So it probably sounds like pretty decent doublespeak to the average American.
Given that this stupidity is coming from a fairly powerful person in the US anyone that does not expect a witch hunt or big oil hunt in the near future is probably mistaken. And technically we really are not suffering direct peak oil effects yet just some temporary refining issues can you imagine the ton when real shortages become possible. We still have two more years before demand and supply diverge enough to make peak a significant factor.
I spoke too soon. . .
My daughter and son-in law are leaving next week on a road trip from Dallas to Oregon, where my daughter will be doing a six week internship program. I told them that, IMO, it was unlikely that they would see empty gas stations on the way out. However, I wasn't sure about the return trip (they may be flying back if one of them gets a job out there).
In any case, I then went to get the mail, and I stopped to fill up the Toyota. No gasoline at the first station I went to in North Dallas. Empty. Nada. None.
Lots of gas here in Oregon at @3.40 on the coast to @ 3.30 around Portland. We used to have a large differential between the coast and inland of 25-35 cents, which has now mostly evaporated. In fact, on one recent trip to Portland from the coast, gas was cheaper on the coast. I expect to see 4s in the dollar position on price signs by July at the latest.
Four $$$$ a gallon gasoline is here! Just three blocks down the street from where I sit typing this, (in San Francisco) there is a Shell gas-station. I walked by it the other day, and saw that Regular was priced at $4.33/gal. There was a mid-grade gasoline at $4.43/gal and something called V-test priced at $4.53. Diesel was around $3.85, if I recall correctly. But just across the street, there is a Chevron station, and here the prices across the board were about 65-70 cents a gallon cheaper. I’m wondering at this huge price difference, and why the Shell station would expect to get ANY business.
Antoinetta III
Yeah, there was an article linked in an earlier Drumbeat about the owner who raised the price over $4 to make a political statement/protest against Shell. We got to 3.99 9/10 for premium last summer here on the coast.
I filled everything up just in case and Chevron 91 octane at the American owned station was 3.25, 87 octane car gas was 3.05
The only unusual thing was several individual pumps out of service. Looking at other stations they also seemed to have several pumps out of service, but otherwise were selling gas just fine. No lines, lots of activity, almost like they are trying to control the rate at which they sell it.
According to my brother, there are many stations in Northwest Arkansas (Fayetteville area) that are out of gasoline. He suggested I fill up my cars before I drive up there to assist him with a project, because it was unlikely I'd be able to do so up there.
And you know... It's only going to get worse.
So most of the 200 million barrels is actually pipeline water volume, which really shouldn't be counted?
I think we are going to find out exactly how much reserves we have this summer.
Its not water, its gasoline. But its impossible to get it all out without constantly refilling and pumping from tanks. Lots of the crude inventory is the same-it needs to be in the system so that the equipment works properly, these are constant chemical processes.At least that's my understanding, but I'm in oil and gas exploration, not refining or marketing.so I'm not an expert.
I should have properly said "pipeline inventory." I'm more used to gas pipelines, gas as in nitrogen or methane.
to put it this way - you know when there are air-pockets in your waterpipe systems at home, after the plumber is gone ....
It is hissing at you ! I assume this will apply for oil as well .... all this hissing
it's kinda hard to believe that refiners didn't see this coming to some extent. if it is their job to keep up with demand... all you have to do is look to auto sales by category, and understand that demand is not slowing down. gas guzzling forever, the american way.
so , is the question really that they decided it's a lot easier to import gasoline then build another refinery extension.( or do they , in their heart of hearts, believe in peak oil limitations?)
Steve:IMO, if you are wondering whether oil refinery corporations top execs are aware of global oil depletion, forget what they say- watch where they spend (or don't spend) the money. It is not just refiners- companies like XOM are not spending the money on exploration they would be if they actually believed their PR (probably because the money they have spent in this area in the last 5 years has not been a wise use for the capital).
steverino, with Clean Air regulations its a lot easier to add on to an existing refinery than to build new ones. And, some refiners probably do believe in Peak Oil-Robert works as a chemical engineer and has been predicting this price run-up for months. BP and Chevron have both been implying Peak Oil in their advertisements. The real question is why the MSM won't report these issues-if you listen to NBC, Fox or CNN the message seems to be the supply is infinite and anyone who says different is crazy, foolish and un-American.
Why doesn't the MSM report it? They are utterly incapable of subtly, especially the news outlets you mentioned. They can't just give a sober, well-thought-out analysis for which the logical viewer reaction would be to call their congressmen and insist on higher fuel economies or get their car tuned up, or even start shopping for one that gets better than 15 miles to the gallon.
Instead the TV would have a big exploding graphic saying "Driving Doomsday"(T), and some interviewee would come on and say something rational and the anchor would translate it as: "So, you're saying people could be stranded all over the country this summer, unable to buy gasoline??? Right??" and then the anchor would make some stupid punny joke which would be the last thing the viewers would hear as they ran out the door to go fill up the one point two cars per driving household member and then guess what? We would have a massive shortage and everyone smart enough not to watch those idiots on TV would also panic.
For once I think the "news" people in question are behaving with some care to the bad effect they have on society. They are not informative and they know it. They can only inflame. That's all they know how to do. Their silence to me shows that they are fully aware of it, too.
I thought that the local news media (TV, radio & print) in New Orleans were well above what I saw elsewhere and on the national level.
Post-Katrina they have outdone themselves ! Best is Channel 6 in a half hour add-on from 10:30 PM to 11 PM. 5 minute "Hot Seat" where TOUGH questions are asked (if longer than 5 minutes *NO ONE* would agree to the interview !) Mental Health Monday, Race Relations Tuesday, FEMA Friday. So little fluff (OK Mardi Gras Day), so much information and REAL discussions ! NBC runs a small bureau out of their studios and they contribute stuff that did not make the cut for national news.
It can happen !
Best Hopes for REAL News,
Alan
Refiners probably did see some of this coming.
But you have to understand the prior 20 years to put this in context. Refiners went nuts on capacity expansion in the late 70's and early 80s. Then crude price jumped up due to the Iranian revolution, CAFE standards were implemented, and other conservation efforts came into play. The demand curve dropped and went sideways for a decade or so. In this period, refiners got hammered. They had real trouble getting capital to do much more than meet the environmental rule changes coming at them -- both on emissions and on clean fuels. Anyone asking for money to add capacity, except debottlenecking as part of a clean fuels project, was laughed out of the boardroom.
If you look back, the Majors dumped refineries to smaller companies because they didn't want to pony up the capital in the "loser" end of the business. Think Exxon selling Bayway to Tosco or Chevron Pt. Arthur to whoever it was. Many smaller refiners just shut when their exemptions to the clean air/fuels regs finally ran out. The API and other trade groups were quite vocal that refining would not be profitable unless the excess capacity was allowed to wither relative to demand.
We still refine far more crude than in 1990, but it's just not enough to meet the crazy demand from the SUV nation.
But you can also go look in the OG&J and see a bunch of projects in the pipe to add refining capacity around the globe. Probably will be built just in time for a new round of CAFE std increases to make them moot.
How did refining ever get to be the "loser end of the business"? They do have a monopsony, after all. Twenty five years ago oilcos as a group had to have made a decision to make most of their money on the crude end.
easy.
Saudis build 3/4 export refineries. Venz built 4 huge units. The Norwegians built a huge export refinery. The Italians built a bunch of export refineries in Sicily and Sardinia etc etc.
Add to that a price shock and European policy to keep transportation fuels high priced via taxes and you ended up with an enormous overhang in refining capacity worldwide from roughly 1983 to 2000. I could rent space in fairly complex refineries in the Med for something like $8-10/MT of crude which is on the order of $1.3/bbl + a fuel/loss allowance that was reasonable. That was barely enough to keep the lights on but at least let the refiner spread his fixed costs over more bbls. US refiners are making 10X that amount now and more.
And there was no monopoly. The largest share of US gasoline market was about 8-10% before the mergers started.
This is a rather US centric discussion: In a supply constrained world there might not be enough crude available for import into the US.
If Saudi Arabia is peaking a logical move for ARAMOCO would be to move up the value chain: Sell products instead of crude. Isn´t Total investing in a huge refinery project in Saudi Arabia ? Isn´t production of bulk chemicals moving to the middle east ?
Fuel prices are going up in the UK as well:
Unleaded at a nine month high
http://news.bbc.co.uk/1/hi/business/6669399.stm
I just looked it up, and the UK is by far the largest supplier of gasoline imports into the U.S. The higher prices here have certainly pulled more imports this direction, which explains why prices are going up all over.
Can the UK afford to ship those supplies?
What is the current UK stock situation?
Does anybody know if there are UK statistics, like the EIA ones, that detail UK stocks.
BTW, I notice a difference between the UK idea of a ‘free market economy’ ...
demand and supply balanced by adjusting the price
and the US version ...
supply > demand ... price falls ... great news
demand > supply ... price gouging ... illegal!
Different meanings ... two nations divided by a common language!
Xeroid.
DelusionaL these americans, no?
"What do you mean I'm broke(?) I still have checks"
I wish it was funnier than it really is...
Different meanings ... two nations divided by a common language!
The difference in attitude about the oil industry between the UK and the US is stunning. Reminds me of when I lived in Germany, and tried to explain Creationism to my boss. He really thought I was pulling his leg.
The UK became a net importer of crude in 2006.
The same will happen in 2007, and kick in with a vengeance in 2008.
Almost 80% of the price of a liter of petrol (yes I know, 'petrol' is so quaint)is actually tax and duty and then Value Added Tax (VAT) is added on and so becomes a tax on a tax. The fuel duty is an escalator - it is always set higher than the rate of inflation. It was suspended for a while after the farmers and truckers BROUGHT THE ENTIRE UK TO A STANDSTILL AND TO THE POINT WHERE FOOD WAS DISSAPPEARING OF THE SHELVES IN 2000 OVER THE RATCHETING PRICE OF DIESEL
Yes, thats right, almost to a standstill.
The great thing about heavily taxed gas is, that in an emergency, the government has a built in choice and can temporarily (at least) suspend the escalator or even reduce or fix the tarrif. This will not solve the problem, but it enables a rational period of choice where , for example , suspension or reduction in tax and duty BUYS TIME.
Any such suspension would probably go hand in hand with rationing, except for emergency services, and the forces.
Such rationale would go down well with the Brits. Ultimately our sense of fair-play trumps unshackled freedom to buy.
The USA is crippled by a lack of gas tax: The increase in price is immediately felt at the gas station and in the pocket. Unfortunately, the time to introduce an escalation tax was in the 90's. Now you have not got one, you cannot reduce it and look good... YOU CANNOT BUY TIME
And without rationing, it hits the poorest hardest and first
The Texas decision to can the tax is in fact rational - in the absence of any basic understanding of Peak Oil, but the tax is so feeble that, in a matter of weeks, the mitigation will be completely swamped by the rising price of the raw material. The tax will be gone, and re-introduction will be an act of suicide for the politicos who thought they were helping.
You have no wiggle room in the States. The price shock is rigid and uncushioned by potential tax suspension. Europe and the UK at least has a tax that, under emergency circumstances, can at least be modulated. (I suppose), at least for a while, perhaps long enough to educate the public that this is a permanent state of affairs and bring in conservation measures etc. IN OTHER WORDS - BUY TIME
Back to the UK. Do we have enough gasoline? That largely depends on You in the US. If we start supplying you because of a bidding war, then our price goes up and it then becomes economically sensible (in a free trade , free market context) to sell it here.
Then there are hard choices.
Do we and others help the States from a situation which could tank the US and European economies, crash markets, destroy wealth?
Or does UKGov step in, restrict flows, ration, etc to stop its own population from chucking it out?
Days of hard choices are coming very quickly now. We are fast approaching a crisis and are OUT OF TIME.
But what really scares me is that I get no impression from either side of the pond that 90% of the populace has a clue that the problem is more fundamental than 'racketeering or gouging'. And this is Top down.
I was hoping for a couple more years before this kicked in.
If you are of a praying disposition, then get on your knees now and pray for a weak hurricane season.
Buying time is now the name of the game. Any attempts at mitigation will depend entirely upon buying time and the only way now to buy time is massive conservation and reduction in use of transport fuels.
I don't know what I should hope for.
A few days ago on TOD we learned from systems modeling that the sooner we run low on the resources and can't continue growth the less likely we will face a massive, uncontrolled die off.
Shouldn't we be celebrating the arrival of scarcity?
No, not fast, uncontrolled, unmanageable scarcity.
We need a controlled descent.
Like the end of of the British Empire,(1946 - 1974) it is now about managing decline.
When the Brit Empire folded up shop the Yanks were there to pick up the slack. In a friendly sort of way. Who picks up slack now, and how friendly shall it be?
I think this time around there won’t be anyone to “pick up the slack”; in a post peak age of economic and systemic contraction and a growing retreat from globalization, the era of large “empires” is likely over.
Antoinetta III
There is a deep part of Chinese culture that sees China's rightful place as the Center of the Universe.
*IF* they do not over reach, they can have quite an "Empire".
They learned something from earlier Americans. It is useful to be thought of as the "nice guys". In much of Africa, that is precisely what they are doing. Establishing a popular image as the "nice guys". Pays off later.
Best Hopes for more USA "Nice Guy" image,
alan
Bingo ML! All your markers are in line. A tax now and you will be able to read at night, by the light of our burning cities. Who do you want to target anyway? The poor shmuck who can barely afford to drive to work or the bastard flying down the highway in his 8 cyl. SUV at 85mph with all his various "pleasure craft"(jet-ski, bass boat, cabin cruiser, RV etc) in tow? Most gas in this country is wasted by such vehicles so limit the amount they can have.
Off topic a slight bit here, reading through Matt Simmons pdf file presentation at the Investment Adviser Association 2007 Annual Conference Austin, Texas
April 26, 2007
Of Note; Ghawar is officially classed as "in decline" you can view it Here on page 9
imho- probably due to intentive investigaion from TOD members, Anecdotal evidence suggests so...
On this note, gas prices just jumped .10 cents per liter here in my town in south western ontario canada.
OCB
I think the current situation in the US highlights that the one industry that is the most sensitive to peak oil is the oil industry itself. To use two extremes as and example.
1.) Nigerians cutting into gasoline pipelines to get at gasoline that is in short supply. Often these explode but of course the pipeline must be shutdown to be repaired. Leading to shortages where ever the gasoline was supposed to go.
2.) West Texas has introduced the concept of a bidding war and that we are either in or fast approaching the time that time.
What we collectively as a group have failed to realize is that prices are set on the margin its what the highest bidder is willing to pay that drives prices on the open market the ramifications of this as we seem to have past peak seem to be a lot harsher than most realize. Because of human factors price will decouple from the market minimum to the upside with associated swings since its fear driven. Next the oil market is really two markets the price for crude and the price for products developed from crude oil. The product mix and prices are in competition for a percentage of the barrel of crude.
We need to look at the pricing of several products made from crude to understand this complex interplay.
For example the price of Asphalt has it seems decoupled from the price of crude dropping rapidly. Occam's razor indicates that refineries are getting heavy sour crudes that they cannot effectively process leading to higher asphalt production.
http://www.acaf.org/asphalt_price_index.htm
This says to me that the current situation is caused by the peak in light sweet crude that is well past not overall peak oil. We are just now entering the situation where supplies of light sweet are low enough that problems are happening.
It will be another year or two before overall peak effects are felt. This is important I think. The complexity and problems of refining heavy sour and implications for yields are important yet we hear nothing from the refining industry about why they are having problem now. The lack of information is incredible.
As far as the oil industry goes I have no problem blaming them for the current situation including refiners they have dropped the ball in a big way. US gasoline demand has been rising steadily for almost 30 years its trivial to look at capacity and do even very conservative growth projections and see that we would hit this point. If the refining industry had been actively lobbying congress for waivers to expand capacity or build a new plant subsided if needed I would agree that its not their fault. Instead they did nothing to avert this crises in refining capacity or even warn Congress. Next the refiners act like the only place they can build refineries is in the US yet the rest of the oil industry routinely builds complex facilities all over the world in the harshest of conditions. Numerous sites are possible in the Caribbean, Mexico, South America or elsewhere. The rest of the petrochemical industry has not had a problem moving offshore to evade environmental restrictions so everyone but the refineries seems to have dealt with environmental issues by moving production to ensure supplies. So I don't buy the arguments made by refiners since they have effectively done nothing to prevent a situation that has been obvious for over 30 years.
They should be dragged on the carpet and be held accountable and heads should roll. The electric industry as a counterpoint is very vocal about the situation with electric grids and is getting eminent domain rights to upgrade the electric grid.
Finally outside of the bidding war situation the point is the interaction of peak oil and the oil industry is complex and current events with just the peak of light sweet indicate e that unless the industry takes peak oil seriously it will end badly. The wild reserve claims made by the ME countries and claims about technology saving the day given the chance made by the oil industry along with the fear of a repeat of the 1990's had deadlocked the industry. The end result is investment is not sufficient the fully develop our current known capacity. This will probably get worse.
For example although though I have no problem blaming the refining industry for being incredibly short sighted at the expense of the American people I also don't see a major investment in refining capacity as prudent if we are indeed at our near peak so the make the best decision we need to understand exactly where we are with oil production so transparency is a must. Without it above ground factors will probably seriously damage the oil industry leading to a viscous positive feed back loop that can make the world post peak a very unpleasant place.
So across the board I see a industry ruled by both fear and greed and propaganda and this does not bode well for our future. We have asked for accountability from the Middle East I suggest we start in our own back yard.
Like Tyson Slocum, you are wrong:
http://i-r-squared.blogspot.com/2007/04/tyson-slocum-is-wrong.html
Could they have built more capacity? Well, I will put the same question to you that I put to pubsky yesterday. It's 5 years ago. Your margins suck. Business is poor. So do you pour money into new capacity? On what basis?
Hindsight is always 20-20. Their crystal ball is a little better than yours, but it isn't perfect or this industry wouldn't be cyclical. You are building capacity for 5-10 years from now. So, another question: Do you expand your refinery now? Will demand be higher in 5 years? See, it's not as easy to predict as to second-guess. You might want to take a look at Sankey's testimony to get a complete picture of how we came to be where we are.
Does not matter sorry. The rate of increase in demand has been obvious for years. The agriculture industry has no problem getting fat subsidies from the federal government. If a critical industry such as refining needed subsidies they should have asked. Demand is obvious. Your telling me that the refining industry is not capable of lobbying congress?
Sorry every other big industry in America has succesfully gotten what ever they needed from congress. To claim that the refining industry which produces gasoline vital for the American Way Of Life cannot both warn congress of impending problems and get what ever support needed to avert gasoline shortages makes no sense. The billion you mention are chicken feed at this level. Maybe 30-40 billion would have raised some questions but destroying our economy over 3-4 billion dollars in investment is a crime I'm sorry.
Again I have no mercy on the the refining industry and hope that they are deeply and seriously investigated their is no reason for this situation. No single industry should endanger the American economy because they are scared to invest a few billion dollars. This is ridiculous and unacceptable.
The rate of increase in demand has been obvious for years.
Did you put your money where your mouth is? Did you buy oil futures, since this increase was so obvious? I agree that looking back it is obvious. You didn't tell me what it looks like looking forward.
Your telling me that the refining industry is not capable of lobbying congress?
Right, because oil company subsidies are always popular with congress.
No single industry should endanger the American economy because they are scared to invest a few billion dollars. This is ridiculous and unacceptable.
Clearly you did not click on the link. I think the hundreds of billions of dollars that have been invested in the past few years qualify as more than a few. Don't you? And don't you think peak oil is upon us? Why would you be investing in refineries if peak oil is year? What do you think will happen to prices then? Will that also be "ridiculous and unacceptable"?
Robert: What you are getting is just a preview of the uninformed blanket rage the American public is going to unleash as the gasoline soother is taken away. Should be interesting.
:)
Yes I'm playing devils advocate here. My opinion is that refiners are indeed aware of at least short term supply constraints with oil. You don't have to believe in peak to see that global oil supplies will not increase significantly in the short term peak or no peak. So overall I don't think now is a good time to build a refinery just on supply issues alone. So overall I think the industry has been competent its not their fault that oil is constrained. If you do global growth in demand vs oil its easy to see that the US will not be able to grow its demand without significantly higher gasoline prices and its only after this has settled out that you should consider a new refinery if your prudent.
You are dealing with fungible resources in both oil and gasoline so deciding where and when to increase refining capacity needs serious thought. At the present two things would need to be true. First the American demand would need to stay strong at a new higher price point and we would need to see more crude coming online.
But I'm still troubled by the lack of transparency between the oil industry and the people as many note their is a huge amount of distrust of big oil. The fact that the oil companies are not being totally honest and aggressively explaining the current situation is not helpful.
Memmel: Good point. IMHO, the public stance that most of the large oil companies have taken- "we will find the necessary oil-don't worry" has been rightly interpreted as "we guarantee to supply the necessary quantities". In reality, they had no business making these guarantees which they will not be able to live up to and pressure will be put on politicians to somehow "fix the problem".
Thus my contention that they two biggest threats to the US Oil & Gas industry are ExxonMobil and CERA.
If we have the trillions and trillions of barrels of remaining oil reserves that ExxonMobil and CERA claims we have, it's actually a semi-logical conclusion to assume a price conspiracy.
BTW, since 5/05, the cumulative shortfall between what we have refined at the 5/05 rate and what we have actually refined is on the order of 450 mb (crude + condensate, EIA). I would think that this had to have had an effect on product prices.
First the American demand would need to stay strong at a new higher price point and we would need to see more crude coming online.
The problem that you fail to appreciate would be driven home if you just tell me what demand is going to be 5-10 years from now. It's going to take that long, if I make the decision today, to get that capacity installed. So, tell me what demand will be so we know how much to expand capacity. Then you will recognize the dilemma of accurately forecasting demand years in advance.
The refining industry has not been sitting around on their hands. They have made substantial capacity upgrades and hundreds of billions in investments. That it wouldn't be enough was not predictable. There is some responsibility here to be laid at the feet of insatiable consumers, as well as the fact that imports haven't been strong due to the weak dollar.
Robert I don't personally disagree with you. But I'm not the one that needs to be convinced. Historically when nations face strain they resort to nationalism that becomes increasingly virulent misdirected and dangerous. Nationalism will not stop in Venezuela America is not immune and in fact in my opinion its the greatest threat we face since it is insidious. I guess my only point is I think your high enough in your company to give your bosses fair warning of the potential for a nationalistic backlash against oil companies. You have a freight train heading right at you in my opinion and its the American public voting with their pocket book and underneath is this rising specter of nationalism that should concern everyone. Since your now in Europe the factional nature of the EU will probably help it avoid this danger assuming it does not fall apart so sometimes divisions are good. The sad thing of course is that as usual any reaction will aggravate the problem.
It is the goal of both the administration (lamely) and congress to reduce demand over the next 5 years. We shall see if that happens but I wouldn't be betting on continued high demand if I had to put a few billion dollars where my mouth is. And ethanol, unfortunately, will take up some of this demand. Of course, we will be paying for it twice, once at the pump, and once at the supermarket. We are already paying for it. On the price labels, there should be a new feature, how much of this product has been raised due to corn shortages.
Actually, there is a lot of responsibility, possibly most of the responsibility. You only have to look at the millions of trucks and SUVs rolling on the roads to see that the American public has made poor purchasing decisions. There was ALWAYS a choice to buy smaller automobiles. And... there was USUALLY a choice to live closer to one's needs.
But we chose not to.
Yes and No, The price signals have not been there for a long time and congress in thier wisdom gave a 100% this year tax credit for vechiles with over 7,600 GVW ( read hummers, large SUV's, trucks) So all bussines incl.realestate agents, where image is important, were given this "benefit" to help support Detroit and the only vechiles without substantial global competition.
So look also at Detroit's PAC money and realize this was a group effort. The politicians set this up big time.
SUV purchases became popular in the '90s as a distinguishing move away from the minivan(which is actually still an efficient people mover, todays "crossovers" get similar mileage) and as a response to the lowest oil prices in decades. Is it any wonder people made those choices? The administration at the time did nothing to convince people otherwise despite their pretensions. As for Bush, he barely can make time for the aotomakers.
http://www.msnbc.msn.com/id/15716219/
“Again I have no mercy on the the refining industry and hope that they are deeply and seriously investigated their is no reason for this situation. No single industry should endanger the American economy because they are scared to invest a few billion dollars.” Posted by Memmel
To me at least, its pretty clear that the oil and refining industries are aware of Peak Oil, and are also aware that we are essentially there now. Presumably, the lack of any truly substantial discoveries in spite of hundreds of billions invested brings the reality of Peak Oil into sharp clarity for the industry. Refining capacity may be squeezed tight now, but the industry must realize that this is as tight as it will ever get, and that within a few years at most, the pressure will gradually abate as worldwide production goes off the edge of the Undulating Plateau at the top of Hubbert’s Peak. And a few years after that, we will all be pining for the days when oil was so plentiful that the refineries could barely handle it all.
Antoinetta III
Sorry need to moderate a bit. That was written from the perspective of joe six pack bitching about gasoline. My own conclusion is actually the same but the reasoning is different . I'll give one example Nigeria.
Here we have continued problems with outages from attacks. But the oil companies and the American people refuse to do the right thing and condemn Nigeria until it equalizes the distribution of oil wealth. Recently we have seen pictures of hundreds of people roasted alive stealing gasoline yet we continue to drive our SUV's. So my condemnation extends to both the oil companies and the American public that has allowed itself to become addicted to oil. If we had been fair and more important ensured that the oil wealth was fairly distributed and oil used wisely we could have readily had oil for thousands of years of use and its sell could have helped many needy people. The utter greed of both the producers and consumers is the real problem. The investigation you mention needs to continue to cast a glaring spotlight on the wasteful life style lead by the same people that are ready to blame the oil companies.
So I actually have little mercy for the oil companies but on the same hand the disdain extends to the gluttonous American lifestyle. A deep soul searching is needed it can start with the oil companies but it better end with Americans facing the truth of what they have done. So what important is for Americans to realize that it is their lifestyle choices that are the ultimate root for our current problems. I happen to think the destruction or nationalization of the major oil companies will happen regardless and considering the costs of extraction post peak its not clear that a for profit company is better than a subsidized national oil company. At least with a national company you have no one to blame expect your elected representatives. So post peak a power down using revenue that would have been profits for oil companies to built alternatives makes nationalization of oil resources sensible. Since the mandate would be in the hands of the people it the will of the people themselves that will determine the course of a country post peak. I cannot see this not happening regardless of the track record of the private companies power down is beyond money its about survival.
So overall the reasoning is different and I hope saner :)although the outcome is the same.
The question is will Americans change. If it was up to me.
I'd dismantle the big oil companies immediately and nationalize them and at the same time ruthlessly cut exports from nations that do not have excellent human rights records this includes Iraq right now. And I'd pressure other countries to do the same. What ever oil is pumped from these countries from now on out better be spent preparing them for post peak. Then a very hefty gas tax and car tax will be invested into alternative transport. The highway taxes will be revoked and all roads privatized and turned into toll roads but with a hefty tax that is again used to subsidize moving off of oil. Solving global warming would be included via subsidizing real alternative energies. This include heavy tariffs on countries that are not using clean energy and converting like China. Once we have chosen this path the pressure for others to follow should be harsh this will avert the tragedy of the common effects while we still have resources.
So the solution is quick and painful and in place in a few years nothing changes except laws and this pain now will ensure that we transition off oil quickly. If you consider the alternatives this is really not a harsh proposal.
Does this matter, or is it just a 'drop in the barrel'? Several California refineries investing big in retrofitting for heavy and sour:
http://www.mercurynews.com/search/ci_5860970
**
I'm lookin' California, but feeling Minnesota...
Robert you missed the part where he said
"(: Yes I am playing devil's advocate here"
...and a very passionate advocate too. But I caught the undercurrent of sarcasm, had to stop & think "Man this doesn't sound like Memmel"
Note, though, that he didn't say that until well into the debate. Perhaps about halfway through the debate, he decided that some of what he was saying was in fact inaccurate, so he switched to the devil's advocate position. Or maybe he was in fact playing DA from the beginning. Of course if this was stated right away, I don't spend nearly as much effort debunking him.
Actually, the oil industry (in the West) is one of the most heavily regulated industries. It cannot over report reserves. The Securities and Exchange Comission see to that.
Look what a hit Shell took when it over reported.
Frankly, it is time to stop bashing the oil industry in the West.
1. It delivers the drug YOU want.
2. It is highly regulated , both upstream and down stream.
3. It kept going through a veil of tears of 17/20 years of recession.
4. People and companies have risked their shirts on exploration wells and new technology to keep the show on the road.
You want an ulcer? Spend 25 years looking for the black stuff.
You want wealth, riches and idleness?
Try internet pornography, selling class A drugs or the legal profession. Doesnt matter which, though I suppose that when you can get a Masters in Internet Porn, you would have the same professional credibility as a Lawyer or a Real Estate Agent, or a drug pusher.
For certain, the money has been elsewhere these last 20 years.
Some of us wonder why we just dont let the hoi poloi just freeze to death in the dark.
Electricity is a right yes? It just comes out of the doo hickey in the wall right?
My old man was an Engineer in the UK Nationalised Electricity Generation system.(CEGB) Man and Boy. Lucky for him, his time came up at the same time as the system was 'improved', 'commercialised', 'made efficient'.
Or , in other words, sold off to hucksters
He took the package.
He said: ' Now watch. The first thing they will do is run it as a just in time system and take out the 25% overcapacity that you need when you get a 50 year winter.
They will go for gas (they did). They will cut capacity (they did).'
He said: ' I dont pity you, it will work for a couple of decades, but I pity your kids.'...
You dont need an MBA from Harvard to work it out.
If I were a US refining executive contemplating a new refinery i would have the following issues..
1) How long would it take and how much would i have to spend to get through the regulatory hurdles.
2) I would be investing capital which would be in direct competition to my existing assets.
3) I need higher refining margins to increase my profits to fund my e+p activity. All the cheap easy stuff has been found so I have to go the more environmentally and politically challenging environments to find new reserves. Building a new refinery would crimp my ability to spend by reducing margins.
4) If I did build a new refinery I would have to import the crude from abroad thus further increasing my reliance on foreign crude. Do I really want to do that.
Let market forces work. In order to secure supplies of gasoline from abroad the US needs high prices to open the arbitrage. The high prices will eventually destroy demand whilst at the same time fund hitherto marginal production.
I just want to add that the argument made as to why we don't have the refining capacity we need for limitless growth is not a very good one in my opinion. No critical industry should ever let the situation reach this point and if needed they can will and should work with the government to ensure that they do not fail. If the refining industry had done this and the government refused then we know who is accountable. The lack of aggressive action on their part to makes them culpable.
Next the reason why is more troublesome since it indicates that the refining industry at some level does not believe it is worthwhile to lobby congress to expand to meet growth projections. This means that they don't at some level believe that extensive and expensive new refining capacity is needed with our without a government handout. Thus the refinery bottle neck is seen is temporary not because we will get more capacity soon but simply because its not needed since we won't have the oil to refine. You don't build out several huge new expensive refineries if they are going to be idle in a few years. You do of course upgrade refineries to deal with increasingly heavy sour oil.
So without any information looking from the outside in I see no problem with the current course of action taken by refiners if they are peak oil aware but the problem is that if so then they know and worse the government knows. Yet the people do not. So we have a choice either a critical large industry is incapable of lobbying which I doubt, or they are peak oil aware and so is the government and they are taking what are reasonable actions in the light of peak oil. Without informing the American people. Thats the problem.
So either a vital industry is run by bumbling idiots or we have a bit of a conspiracy problem. Either way the refiners need to be brought under harsh scrutiny immediately.
Next the reason why is more troublesome since it indicates that the refining industry at some level does not believe it is worthwhile to lobby congress to expand to meet growth projections.
Take your fingers out of your ears and listen to me. Refining capacity has expanded by 2 million bpd in the past 10 years. That is the equivalent of 10 good-sized refineries. Hundreds of billions have been invested. We are currently producing all time record amounts of gasoline. Yet demand has been even stronger. What part of any of this is failing to sink in? My own company has invested 100% of profits back into the business over the past 3-4 years. What more do you want?
You also fail to appreciate the impact of imports. The weak dollar makes imports dry up. Yet we count on imports. Think about this. If oil imports dried up tomorrow, are you going to blame U.S. oil producers for not being able to fill that hole?
See my above post. Someone has to take the side of the general lazy dumb American in this argument :) Since your work in the oil industry I think you can see the power of the backlash that the oil industry is facing. It won't be pretty. I've argued in the past that I felt that we probably will see most of the large oil companies nationalized in one way or another in the near future. I'd be surprised if they exist as profitable companies in five years. As I said in my other post I don't think that the refining industry had done anything wrong but it does not prevent them from becoming a scapegoat. Either we need to accept that oil and gasoline supplies will be constrained for a number of years and transparency is desperately needed to see if we really have reached a global peak or the oil industry can expect a backlash that will be strong vicious inappropriate and dangerous for the future of big oil. My comments are probably weak compared to how the average dumb voting American will respond. The sad thing is that this knee jerk reaction will probably ensure even worse issues as the oil industry becomes concerned about government take over so its pretty much a self fulling prophecy that once the American public launches a witch hunt against big oil we will see it nationalized and get even lower productivity than we have today. I cannot see the oil industry continuing to make large investments in the face of potential takeover by the government. So dammed if you do and dammed if you don't.
Claims of plenty of oil with gasoline at 4-6 dollars a gallon are not going to work. And your right the slide of the dollar has a big effect on this so its not just oil but the whole financial pyramid scheme thats happened esp over the last 5 years. We have a lot of problems and you can be sure that the response of the American public will not help.
The only way out is the truth whatever that is and not just from the world oil industry. Its time to start explaining to the American people that we are now in a frying pan or you can be certain that we will end up in the fire.
"So damned if you do and damned if you don't."
I'm inclined to agree with this. In his Senate testimony Paul Sankey included this statement in his reasons why refinery utilization has been so low:
I don't think we should for a moment underestimate the fear that will have been instilled in senior oil company executives when it became clear that Congress would be requiring senior BP executives to account for lapses in minimum safety and maintenance standards in one of their refineries.
I was CEO of a UK company for 11 years and even though during that period the legislation on corporate manslaughter was somewhat of a grey area, I was always cognizant of the fact that I could ultimately be held accountable for the actions of management lower down the chain. Since then UK law has been strengthened so that courts can focus on the working practices of an organisation and not just on the negligence of any particular individual.
I would bet any money that since the BP incident, senior management of oil/refinery cos will be doing their utmost to ensure that they cannot be held personally accountable for accidents at refineries, which in turn means being increasingly cautious about potential safety issues and also making sure all the paperwork is absolutely spotless.
We have no idea how much this will have impacted refinery utilization over the past few months, but let's be clear: if utilization had been just 1% higher over the past 10 weeks then there would be an extra 6 million barrels in the tanks, and things wouldn't look so bleak (okay, prices might may not have risen so much, but you get the point).
I'm not sure my contempt for politicians can go much lower. Right now they're accusing the refineries of gouging by artificially holding utilization down, but if those same refineries pulled all the stops out and ran at 100%, on the very next accident the politicos would be baying for corporate blood (and so would all the lawyers behind them).
Robert's defence of the oil companies is entirely correct. And memmel's points regarding the public and political response to this mess is also entirely correct. In the end society gets what it deserves - and what society is going to get over the next decade isn't going to be pleasant to witness.
And obvious question that the oil industry needs to ask is what can it do over the next few years. Lobbying for rational power down may sound crazy now but from a big picture point of view a for profit organization dedicated redeveloping itself away from oil would be a powerful and respected company post peak. The story we hear is that none of the ice box manufactures managed to survive the advent of the refrigerator I wonder if one of the oil companies will see the future and reinvent itself as a clean energy provider. If so I suspect that they could do a excellent job.
For example the technology used for oil platforms is well suited for off shore wind farms. I suspect oil companies are as much electric companies as oil since they have to provide electric power to remote places. Geothermal esp ammonia absorption can be used to translate the heat found at depths commonly drilled for oil too high grade power. So ammonia evaporation geothermal is possible practically everywhere using the same technology as oil well drilling. Wave power is also interesting. The pipeline routes could easily be used for HVDC lines. The petrochemical product side can just as easily convert to bio-feedstocks. The political good will would be enormous. Or they can go the way of the ice box salesman.
Surprisingly, many of the younger eng/ geos in the oil industry have sussed this.
Get them off campus, and they are pretty much concerned and want the company(s) they work for to become Energy Companies.
Makes sense.
Oil Cos have a huge talent bank of 6th Sigma Engineers.
Wouldnt take much to get them trained up on nukes, alts, wind, wave and tidal.
Lets be honest: The oil cos are just about the last serious talent bank of hands-on engineers in this western industial civilisation.
The delivery system is designed for Hydrocarbons, but the actual product is energy.
Should not take much to switch it around.
Better than the admission of defeat expressed in share buy-backs.
Robert, whats really scary is that Mike Emmel is pretty well informed. But I'd like to take issue that the refining lobby has done nothing. They've just been incredibly ineffective and wrong-headed.
Any clear review of the Bush-Cheney bunch shows they were put in power with donations from the oil patch. Cheney is still refusing to release the names of the people on his Energy Taskforce. They've gutted the clean air laws, and refiners can now "rebuild" while not installing new clean air equipment on grandfathered refineries.
Exxon-Mobil has funded the whores at CERA, and the "global warming isn't proven "fake experts. But they neglected the peak. Its wrong-headedness at its worst. They let their flacks at API make endless Cornucopian projections of supply and demand.
And this is a crazy situation. We need responsible people to tell everyone to cut down, conservation is our only answer.
Mike, you're wrong too to exclusively blame the refiners. There are plenty of places to spread the blame, starting with our government of the nuts, for the sluts, and by the willfully ignorant. The NIMBY Californians who won't allow offshore drilling because of a blow-out 30 years ago. The flat-earthers in Florida and on the East Coast who can't seem to realise that they can't see an offshore rig or a windfarm located more than 10 miles offshore.
Blame doesn't do any good. We need action!
I have to reply to all my posts :) Its not my personal argument that I'm making I'm trying to be a proxy for the American public. I felt that showing the stupidity that will result is important. As I like to point out often peak oil is a social issue. Business as usual will ensure that all the wrong choices will be made over the next few years in response to peak oil.
Now I also am pretty well convinced that quite a few believers in peak/constrained oil exist in places of power in our governments and industries and have chosen to make policy decisions based on a belief in peak/constrained oil without informing the American people. I simply do not believe that the government or the major participants in the oil industry seriously believe bountiful oil is on its way. The only problem is I don't agree with the responses and I don't agree with not making constrained or peak oil a public problem.
So in short we are facing either a short term 5-10 year period of tight oil supplies or we are facing peak oil. Either way a aggressive national campaign to control oil usage is needed now with the full support of the oil industry and government. Instead we have SUV and McMansions.
At least part of the problem is "religion" - not the going to church kind; but the fact that the "economic growth is good" mantra has assumed religious proportions. To even suggest that continued growth should stop; or worse, we should consider managed contraction is nothing short of heresy.
So much depends on growth, for instance, peoples pensions depend on growth. But PO means not only that growth is going to stop, but we are going to see contraction. What is worse, but obvious, is that this process will start soon; and we have absolutely no choice in the matter.
So you can have individuals who personally understand PO, but are constrained from acting on it in their professional and personal lives because the subject is essentially taboo. That is why there is no action on PO, even if people personally understand it. If Bush got up one day and said "Folks, we have reached PO" - What would his next sentence be?
Memmel
A couple of points to the arguments you have been making. Have you considered that the skilled workforce to do the refinery work you complain of has not been there? The majors happen to have been spreading their workforce and their contractors on refineries and other oil facilities very thinly all around the globe.
Secondly I don't think nationalisation of oil companies will occurr, because the moment the congress moves in that direction or imposing crippling taxes they will relocate offshore where most of their operations are anyhow.
Well first we will need all the local refinery capacity we have and then some over the next few years especially as crude gets sour and heavier. So offshore is in addition too what we have. I suspect a lot of the environmental rules made recently will be bypassed when people get sticker shock at the pump.
Next with peak oil its not clear the additional refining capacity will actually make a big difference I'm not sure we actually need it. We need complex heavy sour refineries but the difference between refining capacity world wide and the amount of oil available is actually fairly small right not mainly caused by problems at existing refineries. I'd have to guess that if we had all our refineries operating as normal now we would be facing oil shortages. Next year if you consider the decline in exports plus additional capacity coming online we should have excess capacity. If we had not had the problems with refineries and had refilled the SPR we would be facing strained oil supplies now. Put it this way we refined more oil in 2005 and 2006 then this year so two years ago we had enough refinery capacity to handle more oil then we have now so nameplate capacity cannot be a huge issue. We are having temporary problems.
Finally why not nationalize the oil companies ? This would mean the consumer is only paying the cost of oil production and maybe a bit more for exploration but if we are faced with very high costs for the remaining oil why not simply ignore it and pump what we have for the cheapest possible price ? Nationalization is now the norm in the oil industry so it more a issue of why not. The same reason that exporting countries nationalized their oil resources applies to the US.
Thank you for mentioning Cheney's Energy Taskforce. I expect to hear a lot more about the secret decisions of the Secret Taskforce. No doubt evil skulldugery and wicked manipulation afoot. Secretly.
Could there be a better setup for those who wish to believe it's all a game and the usual bastards are screwing the public?
Myself I suspect they just wasted their time talking about golf or maybe working on electing more wingnut Republicans.
It was the ultimate PR for the smallminded and suspicious. And still the secret is kept.
And despite that, Robert, we have 17 mbpd refining capacity and 22 mbpd demand. What has been added in the last 10 years is good but what are the expansion plans going forward? If oil companies reject a "peak now" or "near peak" hypothesis then they are left with the position that both production and demand will rise. Are they going to make the additional investments? Are there plans? Are projects already underway?
Compiling a list of projects underway as well as planned projects might be one way to show that the industry is trying to respond.
It really looks to me as though the US could expand capacity by 2-3 mbpd easily even if demand falls by a huge 10%. Anything showing that this gap is being addressed is good. It doesn't help us this summer, but it will help us a few summers down the road... assuming we're not at peak and production is going to rise. ;)
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
On the senate testimony, they said that 2 million bpd of announced expansions are in the pipeline. I have been looking for a list.
There actually looks to be quite a bit of refinery expansion capacity planned, as per IEA Medium Term Energy Outlook Feb 2007:
And this surprises you? in the US?
If you read some of Cheney's speeches they knew this almost 10 years ago. It is a matter of public record, so the blame lays squarely on the people. They know they are being led around by their dick, but instead of doing something about it they go and watch Oprah or American Idol. Maybe one day they wake up, but I'm not counting on it, they are much more likely to riot then to think.
I think you are being to tough on average americans.
1) The price signals have not been there. I think people vote and think with thier pocket book, even the dumb ones. If we had better(accurate?) (higher?) pricing this would not be the issue it is today.
2) CERA and XOM have both came out with something like "PO is BS" in the last year. Who do you trust? They have come through in the past have they not? They just want huge paychecks right? This isn't anything serious(like PO) but greedy oil co.'s right?
3)We have seen price run ups in the past and then ample supplies to follow, so have been conditioned to mistrust the cry-wolf of comming energy problems.
4) If Cheney knew this was a problem then congress is alot at fault here in thier stupid 7,600# vechile accelerated tax benefit and low milage standards. I called my accountant 3 weeks ago and the tax credit is still there, if I buy a fuel saving whatever I must depreciate it slowly but a gas hog 100% this year baby! Congress pandered to UAW and Detroit and screwed up any plans for long term security of the US and thier own jobs. This is amazingly short sighted. Add fuel standards- WTF? ? ? IF THEY KNEW THEY SURE DIDN'T DO A DAMN THING TO FIX IT. Made it worse imho.
Given all the false price signals, corporate and gov. complicity in this I find it hard to blame (completely) average americans. I find it very easy with all the mis-information that joe sixpack thinks he is getting screwed.
I agree this could easily turn into riots. I think WT has stumbled on a post peak oportunity for someone. Open a lime green volvo dealership so these oil guys can travel safely.
Maybe so, but every day I look around and all I can do is shake my head, to some extent including my own children.
1) So? how come I saw it coming years ago and I'm not half as educated as some here.
2)3)4) Who do you trust? No one, especially not the government or anyone that has a horse in the race.
I admit it takes a sense of humor to deal with it.
1) yes this has been coming since @ 1972. In my effort to warn others I get a look of (are you seriously off your rocker?). There are too many interests what want to party on, and I look like an old granny.
So yes we should have saw this coming. I think we are collectively lulled into a sleepwalk. We haven't had a hard financial crisis that sets peoples attitudes for life in a conservative mode. We will get one shortly.
Humor agreed, do you ever think you are that woman in the 1st Terminator movie who has glimpsed the future and everyone thinks you are a nut job? I do.
I'm consistently surprised by how widespread is the
belief that there has been no investment in refining
capacity in the US for X or Y number of years. There
might not have been any brand new refineries built, but
there has been constant and consistent investment
in upgrades and expansions which translate directly to
increased capacity throughout that time. It is true that
there are innumerable hoops to jump through to build a
new facility- and few if none of these hoops are such a
factor when it comes to improving an existing refinery.
Look at the capacities of existing refineries and the
total installed capacity in the US over the past 20 years.
theres a lot more now than there was 20, 25 years ago.
While the ownership of the refining infrastructure in the
US has become much more concentrated and the business has
much greater ability to throttle production to keep profits
at a comfortable level, there also were a number of very lean years for the business where profits were scant and many smaller refiners went under in the 90s.
People can easily identify with the simple explanation 'price gouging' without having to understand the complex dynamics of a global business, but , well, it's not that
simple.
Yes-
In 1986 and 1998, when the oil industry was trying to tell the public that it was "vital" for national interests, nobody believed then.
But gasoline was 0.98/gal.
In the process, over 1/2 million jobs were lost.
FF
The process of strategic planning. is not aimed at some unique point in time 5 years away or 7 years away. It is a continuum which projects forward say 50 years, 10 years, 5 years, 1 year and then adapts to events as they happen.. The adaptive nature of the process means that one does not have to be accurate for each individual year in the future: one has a general strategic plan that one adjusts as circumstances evolve. On this basis the US oil companies have collectively failed the US economy. There is now insufficient refinery capacity in the US and insufficient exploration and the foreign US oil assets , like Iraq, are not performing. US oil companies have failed to warn either the people or government that huge problems were about to hit. They are so guilty that they should be nationalised, Chavez style, with minimum compensation.
For example the price of Asphalt has it seems decoupled from the price of crude dropping rapidly. Occam's razor indicates that refineries are getting heavy sour crudes that they cannot effectively process leading to higher asphalt production.
I work for a state DOT, and asphalt supply and price issues have come to the forefront in the past 18 months. And at Industry/DOT meetings, representatives of the oil companies informed us that about 10 years ago a trend started of installing cokers on refineries (a several year process requiring ~$1 Billion), which can take the heavy portion and instead of producing asphalt, produce 70% into gasoline, and 30% into coke (a product used by the steel industry). In the past couple and over the next couple of years, numerous cokers are coming online to essentially remove asphalt from the market in exchange for the far greater profits from gasoline production. Therefore, asphalt which used to have little to no profit margin, is now directly competing with gasoline as far as price. Asphalt is still a little cheaper than gasoline, but should now track directly with gasoline prices (when looked at on a yearly basis due to the paving season which unfortunately corresponds to peak driving season)
This leads to another question regarding oil companies taking advantage of the short supply, if "coking" asphalt into gasoline has gained popularity, and the process removes asphalt from the market entirely from those growing number of facilities, then why have the stocks of Asphalt suddenly grown this year? (EIA Data) Are they not utilizing the cokers (cracking asphalt to gasoline) in order to fuel the shortage fire? Or are the remaining refineries without cokers processing that much more heavy crude, hence yielding so much asphalt? Anyhow, just thought I would toss out my knowledge of the Asphalt industry. Here is a link to New York Asphalt Price Adjustment. https://www.nysdot.gov/portal/page/portal/main/business-center/contracto...
This leads to another question regarding oil companies taking advantage of the short supply, if "coking" asphalt into gasoline has gained popularity, and the process removes asphalt from the market entirely from those growing number of facilities, then why have the stocks of Asphalt suddenly grown this year?
I would have to know more about where asphalt supplies have grown. If there is a large coker down at a large refinery, that could affect asphalt supplies for a very large region.
Your argument is correct; the economics of installing cokers has been highly favorable for years. But, that is starting to change as the asphalt market is being squeezed and prices are rising. Now, you don't have nearly the delta as before between asphalt and gasoline, and at times it may make sense to make asphalt. I know at my former refinery we talked about this a lot, and were constantly looking at the economics of producing asphalt versus running it through the coker. But running it through the coker always won out (but it has been a lot closer lately than it used to be).
Perhaps the answer is in the setup to the original question
I've seen a few articles about DOT budget problems roll by. If the amount of asphalt being produced is the same, but stretched budgets are causing less asphalt to be purchased, the supply should rise. It's plausible anyway.
Thanks !
A while back I said that Asphalt and Bunker fuel prices might actually rise above gasoline as they compete for the same barrel. I was derided for this statement. Your saying equal pricing which is close the reason I say above is because of political pressure for gasoline over other products leading to a inflated price.
And yes the disconnect between Asphalt and crude/gasoline prices right now is unprecedented and seems to indicate that we are indeed running heavier grades than the refineries are designed to handle this was unexpected by I think everyone I know I was surprised. But I guess its obvious that the refinery upgrades are not going as planned.
My position is we know when TSHTF by watching Asphalt prices. Once the refinery upgrades to handle heavy high sulfur oils are done this year next year the asphalt prices will reverse and track to and I contend above gasoline. At that point the party is over and real shortages of crude will become a issue not to mention building roads will effectively stop. This pricing pressure will have a huge effect on our economy hitting all the sectors that depend on formerly cheap oil by products. Overall I expect this to have a larger real economic impact than the price of gasoline itself.
Hello Memmel & R-squared,
IMO, we should encourage the cost of asphalt to go skyhigh so that road repair becomes unaffordable, and installing new roads becomes prohibitive. We will need the coke to make steel for RR & TOD [go Allen Drake!], bicycles & wheelbarrows, and hopefully mini-trains and spiderwebriding for railPHEVS, railbikes, and railbarrows with PHEW* assist on steep grades.
*PHEW Personal High Efficiency Worker
Wild & Crazy Speculation ahead!
Although I am no fan of golfing, and I wish Tiger Woods would lead the charge into plowing them up into vege-gardens: it does have an interesting PHEW available for sale now that could be quickly postPeak adopted to aid car-free grocery shopping:
http://www.onegolfcart.com/gold.htm
I wish I was an inventive engineer, but maybe some other TODer could make a fortune and help optimize our decline by bringing this to widespread postPeak use.
Take the robocaddy design and adopt it into a robo-grocery cart. PostPeak imagine my essentially car-free Asphalt Wonderland in the blazing summer heat: Even on a bicycle it will be tough to get the ice cream or other frozen goods, milk and packaged meats, etc, safely home before the heat defrosts it. A Robo-grocery cart that has a well-insulated cooler section for keeping these goods safely chilled would prove very beneficial from a food safety standpoint, and would reduce the home refrigerator load to recool these goods.
The parent with toddlers or kids would then have free hands to safely control an infant stroller, or hold the childrens hands while crossing the street as the robocart safely ferried the heavy goods home. It should be designed so that it can be safely driven into RR cars and mass-transit cars too.
Of course, if spiderweb tracks were everywhere: a steel-wheeled robocart would be even more useful and more energy-efficient. Such is life.
If one goes into certain poorer neighborhoods: what I see happening now is people are walking to the grocery store, shopping, then pushing the grocery cart home [wobbly wheels and all]. Next the grocery cart is abandoned, so the grocery stores have to hire small truckers to retrieve these costly items. I think robocarts are a better idea.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Hi Bob. I was in Jamaica for a couple of weeks once and at places like bus terminals (I use the word 'terminal' loosely because it's really a mad disorganized mash of busses looking for riders) there was almost always some guy (PHEW) hauling around an insulated bucket selling ice cream cones. It's really amazing how inventive people are. If you get a chance, visit some '3rd world' countries and see how lot's of your ideas are probably realities there.
Your argument re resid is silly. There are still plenty of of topping units out there capable of making great wodges of resid but unable to make that much gasoline. You won't see resid over gasoline.
Topping crude is cheap and easy. Coking/cracking units are expensive!
We will see.
Coking and cracking units may be expensive but when all you have is heavy sour expensive crude to refine you will be coking and cracking most of the oil which means effectively no side products. Thus my argument. I think asphalt and bunker fuel will become scarce and expensive commodities within the next 18 months.
Crazy maybe, wrong don't think so. Time will tell. Although if/when I'm right and this does start to happen it means we only have maybe a year or two at most before I think serious post peak issues happen. So if you do see this you know its time to get very serious about post peak plans. I'm actually watching the asphalt market like a hawk because its not as political as the gasoline market and thus better reflects reality along of course with bunker fuel prices. Political maneuvering has can and will be used to secure gasoline supplies.
your ignorance of how these systems work (or shall we call it the devils advocate position) is in proportion to the number of words you've added to this thread.
Heavy sour = resid in great quantities. Sure, you can either break it up to make trans fuels, but if the price of asphalt or bunker fuel is over gasoline what idiot would do that?
Also asphalt is a very thin seasonal market. If highway repair demand exceeds instantaneous supply you could get price spikes to silly levels for a short period but that is hardlly indicative of anything large scale.
Tar sands are asphalt so a major new and expensive source for hydrocarbon fuels is the very material your suggesting we will continue to in effect throw away.
I don't think so. Next the coke itself is not recycled yet but it can certainly be run through the same CTL like processes suggested for coal. This is just Fischer-Tropsch and syngas production. So and additional syngas unit can readily reclaim all the coke for conversion to liquid fuels. In short their is no intrinsic reason that a refinery cannot convert all the input oil int the liquid hydrocarbon fraction of their choice and excess C02 given additional water. Natural Gas just makes the process more efficient since it acts as a value add hydrogen source reduced carbon source.
So converting Asphalt with a complex mining process is profitable now so it must be profitable to convert any of the heavy tars that where where by products in the past to gasoline/diesel now. When CTL like production becomes reasonable additional FT/syngas production from the coke becomes feasible. In both cases the costs are lower at the refinery than in the field since your not paying the extraction costs.
I assume that refiners will reinvest and build out the complex refining capability to do these conversions over the next few years and strong profits make it feasible.
This improved ability to convert now expensive oil into the most desired products is the biggest efficiency gain possible your talking about at least a 10-20% higher conversion ratio technically its 100% minus what was lost to C02 and gained from NG. In short given enough money refinery gains from more complex refining process can and I assume will ensure that we get more and more gasoline/diesel per barrel over the next few years.
This of course comes at the expense initially of the asphalt and bunker fuel market and later the coke market and fuel oil market etc. All the previously discounted products produced from oil thus these products will have to compete directly with gasoline in the near future. The reasoning for a higher price is political not purely economic its easier to under supply the asphalt market and send prices over gasoline than it is to have gasoline shortages. This impure market is the reason behind a price inversion not just a competitive price.
Its just redox chemistry and we can make anything for a price. This does mean that we may see gasoline prices moderate for a few more years until we have maximized the efficiency of our refineries. I can't see it taking more than 2-3 years at most to convert our refineries to effectively pure synthetic chemical plants. By moderate I mean less than $10 a gallon. Later on I'd assume they will begin to accept plant organic matter in via syngas capabilities. Esp at refineries located near a water route from the Mississippi river. I think its cost effective to move organic material down the Mississippi to be refined.
This could even include coal.
The end result is asphalt will not be cheap :)
One more thing and additional aspect is that the high sulfur crudes make a pretty good source of sulphuric acid. This can be used as a drying and charing agent for wet natural organic matter converting it to a low grade coal. So you can use the sulfur in a semi catalytic method to integrate wast natural organic materials into the refinery process. The sulfur can be used in a lot of ways I'm just saying that mixing concentrated sulphuric acid with wet organic material result in a tarry/coal like material. The evolved sulfur dioxide can be recycled. This leads into integration of nitric acid and fertilizer production at a combined facility. Basically once refineries become complex it makes sense to leverage the synthetic pathways to create a unified basic chemical synthesis plant. I think expensive crude will make these plants feasible not that they did not make sense before IMHO.
your position remains ridiculous. I'm not arguing that ashphalt will be cheap, only that it will remain cheaper than gasoline (except for perhaps brief price spikes if the market gets fouled up in a high demand period). Ditto bunker fule.
As long as there is crude, and especially since the last tranches of crude are heavy sours, you can make asphalt and bunker fuel with little effort/expense. A cheap atmos crude unit is about all you need. What idiot would run his coker full if he could sell all the feed (bunker or asphalt) for more than the product?
SP,
I'd like to touch base. What's your email address?
BKelly,
geothermal4u@yahoo.com
Hi Robert
This is a good point. Is there a source of information somewhere which sets out historical data for the mix of crudes?
Part of the problem with the general public is that there is a huge amount of distrust of the oil industry, and some of this distrust is well deserved.
We recall the mess that Enron created - here there were artificial shortages in California that drove up electricity prices. The general concept of an artificial shortage is one that the public is already familiar with.
Secondly, there are bits of information out there (I hesitate to call them rumors - there are memos from oil companies) that detail deliberate attempts to reduce refinery capacity in the past:
http://www.consumerwatchdog.org/energy/fs/
Now clearly the argument can be made that this is in response to overinvestment in the past which caused refineries to lose money for a period, but this isn't how the public sees it.
This thread reminds me of one of the best long running threads at www.peakoil.com .
Every week Pup55 posts the new EIA data and weekly charts are updated that are very helpful to getting a grasp on the inventory data.
Here is the link:
http://www.peakoil.com/post464162.html#464162
I've asked them if they would post some of their charts here which are very helpful in getting a grasp of the situation we're in.
Chuck
http://www.consumerwatchdog.org/energy/fs/
Dude, you did not just link to the FTCR. They have not a technical person on staff, and are not remotely competent. I could do a weekly column on them. I practically have:
http://i-r-squared.blogspot.com/search/label/FTCR
As I told someone else this week, that group is more out of touch with reality than any other consumer group I have ever seen. I love they way they issue their own news releases every week in which they refer to themselves in the 3rd person. I think I am going to start doing that.
I understand, but the general public sees this kind of thing, and becomes convinced that the problems we have now are all artificial. I see these comments all over the place these days - you can argue with people until they are blue in the face, but they have already made up their minds and are thirsty for blood (meaning I suppose the blood of oil company executives).
This then leads to the problem that since the problem is perceived as temporary, some part of the general public refuses to adapt.
Ok great now we have Deutsche bank, backing up the oil companies, how surprising! Gee don't we remember in California 2000 when all the electricity financial analysts were saying how there was no generation capacity and generators were blacking out parts of the state in the middle of December at less than half peak capacity. Remember how once the generators' records were made public it showed they were taking capacity off-line all over the place with "unscheduled maintenances"
So when someone writes an article about gasoline prices and buries this fact "more domestic refinery capacity come back online" -- that all the low inventories have been overwhelmingly caused by refineries being off-line, they really shouldnt be listened to, right?
And there's no real argument about anything unless the oil companies are forced to open their maintenance records. Or you can just listen to the employees tell you how monopoly companies have no real power and of course are just looking out for all of us.
There's one of my main trolls. Where are the other 3?
hah writings not worth a troll robert, good to you get this out when the WSJ has piece on the record profits of the refineries
Its interesting how a blog that started to question one of the fundamental operations of the oil companies, repeatedly gives space to uncritical dogma on other issues.
Two ways to allocate a scarce resource: (1) Via price or (2) By force (rationing). Take your pick.
For anyone "surprised" at what is going on, I suggest that you watch "End of Suburbia" again, or for the first time if you have not seen it, and pay close attention to how they predicted that the effects of Peak Oil (or for Robert's benefit, close proximity to Peak Oil) would first be noticed by Americans.
Which has a better chance of the desired effect?
Assuming that by "price" you mean "tax".
"Taxes" are a method that goverments use to increase revenue not limit use.
"Ration" means to portion out from a set quantity
To many a gas tax will be viewed as a "sin tax" in which case it may fail in generating revenue as well.
http://www.acton.org/publicat/occasionalpapers/sintax.html
I believe in the axiom "Tax what you want less of, Subsidize what you want more of."
I am VERY much in favor of extremely high gas taxes. However, I would like to minimize the pain to the degree possible.
Thus, my proposal to raise gas taxes for by a penny every 10 days (with quarterly inflation adjustments to the tax) for 25 years.
Not much pain at the pump at first, but everyone with any foresight will start scrambling in anticipation. There will be some time to adjust use, buy a bicycle, move closer to work and even build streetcar, light rail and subway systems.
The first $1/gallon should go to mitigation (building more Urban Rail mainly) and the rest rebated.
I would approve of removing sales taxes from bicycles as food and medicine are currently exempt.
Minimum wage earners (and most <$10/hour) will likely not have the luxury of their very own car post-Peak Oil. Mass transit and bicycles will be the norm (as it was in New Orleans pre-Katrina and is returning).
Better to prepare for a known (steeply rising taxes) than an unknown (next months and next years oil & gasoline prices).
Best Hopes for Low Wage Earners,
alan
Who gets the money? You seem to think that some good will come of this. Has Ray Nagin served you so admirably? On the eve of Katrina, he stood before the cameras wringing his hands saying "This is the Storm we've always feared" while a fleet of school buses stood at the ready to take the ones without to safety. They too became added to the rusting piles of junk, while the victims of the Storm, doomed by the negligence, arrogance and peculiar invulnerability of some of our elected officials, drowned in their homes. Because of his "fear".
And to hell with the rest! ?
Rising prices are coming, are here! There's no time to adjust! People are living on the edge right now!
An added tax, as you propose, will bury the "low wage earners" since most of the nation has no alternative to transportation but the auto.
And what about the other half?
The one that deals with Winter?
Ever try pedaling though two feet of snow?
Or is your answer the same as Reagan's "Move to where the jobs(warm temps) are"?
If Lovelock is right you'll be moving this way first.
Just curious, what are your plans should a hurricane strike N.O.? Hop a train?
Correction. Better to prepare for a known (budgeted amount of fuel via a rational rationing system) than an unknown (the neurosis of a constantly added and repealed fuel tax).
Best Hopes for not being so parochial in ones outlook!
(PPAAH(Piss Poor Attempt At Humor) Warning!)
Maybe thats too much to ask seeings how Nawleens is the home of the Parishes. :-)
hah writings not worth a troll robert
Yet here you are, nonetheless.
Nobody is suggesting that oil companies are not profiting from this. Certainly they will. They will report another quarter of very high earnings. But you constantly sling out charges of manipulation, etc. with nothing to back that up. Do you know how many investigations have been conducted on this issue in the past 30 years? I have a list. It is amazing to see the amount of taxpayer money that has been thrown at this gouging issue, and time after time, investigation after investigation, the oil companies are exonerated. But I know, it's just a big conspiracy.
Now, I said I wasn't going to get into a gouging debate. If you want to discuss TWIP, feel free to hang around.
Since the oil companies hold the keys to the kingdom, it is entirely prudent they be watched and regulated.
Some of them are still filling the public square with utter bulls**t about peak oil to keep demand as high as possible. They're giving millions to right-wing stink tanks to spread misinformation about global warming -- once again to keep demand as high as possible.
As a Californian, I still don't forget Shell's attempt to reduce its refining capacity by closing their Bakersfield refinery. The state forced them to sell it instead. Flying J bought it and are making a killing selling 65,000 gallons per day.
So, until the day comes when we're forced to nationalize oil production/refining, they must be watched, regulated and kept on the up-and-up as much as possible.
The term "Wyatt's Torch" comes to mind.
Err... 68,000 barrels per day.
I think that when TS really HTF, there won't be any moderate governance. Either there will be a left-wing nationalization of the oil industry which will take over their properties, or there will be a right-wing takover, where the board of directors of the oil companies will be named by the party or the military (for national security reasons) and the stock and bonds of those companies will remain in private hands.
I don't know if you were referring to Atlas Shrugged when you mentioned Wyatt's Torch, but it is a chilling read in the context of peak oil!
For every barrel of oil they use to make gasoline, refiners are pocketing more than $30 in profit before taxes and other expenses.
I see the same point raised in the economiist article in todays drumbeat:
The difference between the price of the crude oil refineries buy, and that of the petrol they sell, has risen above $30 per barrel
The "other expenses" mentioned in passing must be trivial things like wages and salaries of the employees, maintainence and replacement of equipment etc.
Well Golly Gee that about 18 cents a gallon for 90 days!!!!
Well...
You have a choice dont you:
Buy the product
Dont buy the product.
Simple.
Oh sorry, forgive me.
You guzzle 2 litres for each one of mine.
Sorry.
I forgot it was your god-given right to do so...
It really is going to get very messy.
Best hopes that the US Dollar is still convertable for oil in 2008-2009
Dorme Bien
Business Week has posted a new article - Pumping Cash, Not Oil
Planner: Typical US "financial" media nonsense. Not once in the entire article does the author address the probability that XOM is not going out to get the oil because the oil is not there to be got (and they are quite aware of this reality).
Yeah, but they put out propaganda saying the peak is nowhere in sight.
They deserve what they're getting.
As I noted up the thread, IMO, ExxonMobil and CERA are the two biggest threats facing the US Oil & Gas industry.
I wonder if I should propose another PBS Peak Oil Debate featuring yours truly versus ExxonMobil and Michael Lynch, one year later?
Go for it, Jeffrey!Try Amy Goodman at Democracy Now too.
FYI, any TOD reader who is curious ...
http://www.frtv.org/show,103.html
http://www.frtv.net/show,104.html
McCuistion seems to have loaded the panel with cornucopians, 3 to 1 against WT. :^)
On the oil front, I agree. I think they are being irresponsible. But crude is piling up right now. So, jump on them over their oil claims, but this gasoline situation has nothing to do with peak oil denial.
OECD Commercial Crude Oil Stocks, Days of Supply (Actual and Projected):
http://www.eia.doe.gov/emeu/steo/pub/gifs/Slide25.gif
US crude oil inventories are okay, relative to recent years (but not relative to what the industry had prior to the SPR), but OECD stocks are different--not a promising trend.
Also, the cumulative shortfall between what the world would have refined at the 5/05 rate and what we actually refined, in round numbers is on the order of half of billion barrels of crude oil + condensate (EIA). I would think that this had to have had a negative impact on product inventories.
Well at least in Canada, Harper acknowledges:
Yahoo News Canada
Business Week has posted a new article
Over the past few years, oil companies have spent increasing amounts of money on diminishing discoveries. I have seen the statistics somewhere, but the amount spent per new barrel of discovery has skyrocketed.
And I never understood the thinking that stock buybacks are a bad thing. If I think my company is grossly undervalued, then it increases shareholder value for me to repurchase stock. If the market doesn't see the value of the company that I know is there, I can always take matters into my own hands with a stock buyback.
Stock buybacks also keep stock prices up so the CEO's stock options are worth more money, and the treasury shares can be voted by the company to stuff the compensation commitee. Personally, I'd rather see increased dividends so I decide how I want to spend my money, which would also increase stock prices, only I'd have more $$$.
Stock buybacks help the shareholder as well. He can always sell a few shares and get good money. Even if he doesn't sell any shares, the shares brought back are canceled and the company can pay larger dividends per share to the remaining shareholders.
The Business Week article has an interesting chart:
Although buying back your stock may be correct from the perspective of maximizing shareholder value, it sends a signal that your prospects for future business expansion are limited. If ExxonMobil had another super-giant field it wanted to develop, it would be issuing new stock to finance the project. Instead, it is doing the opposite.
Is Business Week suggesting that the infallible market in it's infinite wisdom to optimally allocate good for all participants is somehow failing?
Surely they are joking!
what about natural gas? We can save lots of Natural gas and heating oil by using volcanic magma for heating.
I read an article on how they were proposing drilling for magma near volcanoes, mainly on the west coast, and then puting it into pipelines for distrubution to various cities. Magma could be delivered by trucks to homes and installed into a magma chamber retrofitted into the existing heating system. They claimed that only 10 lbs would last most homes all winter.
I think this would work in cars also. We could use the magma to created superheated steam to power the car.
THis would save most of our Natural gas for fertilizer.
Um, you aren't serious are you?
nah, I reckon not. got me.
Sure he is. Dodge already sells the "Magma".
You have often commented on the odd link between gasoline and oil prices. I wonder if we are not getting in further trouble now due to this artificial, psychological equivalence with which we view the two. Specifically, I wonder if the large oil inventories and availability of the SPR aren't lulling many in govt and the business sector into a false sense of security, e.g., "we can open up the SPR in an emergency." In fact, of course, it would do no good at all in the face of gasoline shortages if imports and/or refinery output can't match demand. We don't have any fallback position in the case of gas shortages other than exploding prices cutting demand in some potentially very destructive ways.
Adam Rybczynski
What about OPEC?
AdamRybczynski.blogspot.com
Now you know what Robert thinks, maybe you'd like to know what the betting market thinks? Here is a link to futures market prices for reformulated gasoline, essentially wholesale prices for delivery in the specified months:
http://quotes.ino.com/exchanges/?r=NYMEX_RB
Jun 2007 2.4077
Jul 2007 2.3112
Aug 2007 2.2542
Sep 2007 2.1862
Oct 2007 2.0207
Nov 2007 1.9412
Dec 2007 1.9022
You have to add about 60 cents to these prices to get retail prices. Basically the "betting line" is that prices will drop below $3 by mid summer and continue to fall through the end of the year.
If you think the markets are wrong: good news, you can make some money betting against them. If you're sure the markets are wrong: better news, you can make a lot of money betting that way too using margin accounts and options. People who know the markets are wrong are very, very lucky! They live in a world where money is free for the taking. I wish I could convince myself of such a fantasy.
I am watching Senate testimony right now, and most of the witnesses think the same - prices down by mid-summer. By mid-summer, we might be OK. These prices are definitely going to attract some imports. But I have been saying that we were likely to hit record prices as a result of the inventory situation, and even got into a little debate with the EIA on that point. Guess who won that argument? I watched every week as the EIA kept bumping up their price forecast.
But, I am just not sure how quickly imports will respond, and how much of a dampening effect the weak dollar will have. The next 2 or 3 weeks are going to be critical. But the record prices that I forecast have already been reached. And I am further forecasting that we will definitely hit Memorial Day below the 5 year average, and not only that we will be at an all time record low inventory for Memorial Day. Following that, it all hinges on imports and hurricanes.
I'm wondering if the imports will come at any price. Past a point other countries won't export and endure shortages at home. I suspect that it will be a very close call this year and I don't actually expect all the needed imports to show up so no price drop. I think we will see 4 dollar gas going into September and god knows what if their is a hurricane. It would be nice to see if someone can show how we are going to get all the gasoline imports we need this year. I don't see it happening. To me the key point that most people miss is the UK is now a net oil importer this changes the equation this summer how is not clear but it can't be good.
This is the key reason I think we will see 4 dollar gas and see it hold into the early fall. Coupled with the sliding dollar of course which cannot be ignored.
But note if we skim through this summer then next summer will be worse and sooner or later we will have more hurricane damage. The summer of 2007 won't look all that bad soon.
The UK can be a net crude importer and still export gasoline. Gasoline is a byproduct at the margin to diesel production. Diesel demand is far higher in Europe than in the US.
Gasoline markets tend to see the highest price BEFORE the peak season. The market is driven by both speculative optimism (buy high, sell higher) and general fear of selling short in case the other guy is right. The biggest mogas makers, teh oilcos, will never sell short. They have no incentive to sell down markets and a management style that discourages that sort of speculation anyway. (you get 10X the shit for getting it wrong as credit for getting it right -- been there, done that).
So spring = build up for summer period == is often the peak of the mogas crack. Once we're in summer season and stocks stay nominal, specs start to take their profits and prices moderate.
Also with cracks this high for this long, every refiner in the world with a bit of excess capacity will be trying to figure out how to squeeze out a bit more US grade mogas or blend components. It will come.
Quickest ways to knock a big chunk off these cracks:
1) remove the requirement to add ethanol. Make it optional
2) Eliminate some of the boutique blends and go to a national standard for cleaner gas (with usual heat related northern/southern grades)
3) Jack up gasoline taxes to cut back demand. Give consumers a rebate in other areas to stay tax neutral if you must.
4) Institute immediate rise in CAFE standards such that Hummers and the like are history.
I think we are in the 1979-80 period at the moment. By the 1983-6 equivalent gasoline cracks will be back down.
Mathematically, the world (regarding conventional crude oil reserves) is at the same stage of depletion that the Lower 48 as at in the early Seventies--at the start of a long term decline in crude oil production.
Unfortunately, from the point of view of importers, a gradual decline in production will almost certainly appear to be a crash.
Halfin,
Perhaps you recall the numerous comments you had regarding my net export predictions/warnings.
I just compared the net exports by the top 10 net oil exporters for 2005, versus 2006 (same countries, EIA data, Total Liquids).
On an annual basis, the net exports by the Top 10 were down 3.25%. On a month to month basis, 12/05 to 12/06, net exports by the Top 10 are probably down about by about 6%.
As I warned in January, 2006, net exports by all three of the top net oil exporters were down year over year, from 2005 to 2006.
In regard to the gasoline markets, what did the futures market, in January, 2007 predict that the price would be in May, 2007?
In January, you could buy gasoline for May delivery in the $1.60 to $1.70 range in most of the month, corresponding to a retail price of about $2.25. Clearly people who did so are very happy today! And of course, speculators did extremely well on their gasoline bets.
So exactly what are you predicting gas prices to be, four months from now in September? The markets put their numbers down in black and white. And not only that, they give a money back guarantee if they're wrong. Will you make the same offer?
Name your figure, the one for which you think there's a 50% chance it'll be higher than that and a 50% chance it'll be lower. Pick a number such that you'd be equally comfortable betting at even odds that gas will be higher or lower than that. I'll pick a side and bet with you, giving you 3 to 2 odds in your favor. How's that for a fair deal?
I am interested in your offer, but I am not sure exactly what the deal is. If I bet that June price will be above $1.00, are you going to bet that the price will be lower than mine?
Why not make it simpler, e.g whether the actual will be above or below current futures.
Well, the idea was, 1: you pick the price; 2: I pick the side (bet it would be higher or lower); 3: you get favorable 3:2 odds (like, I win $100 if I'm right, you win $150 if you're right).
I really kind of meant it for WT specifically because I figured he'd pick a high price like $4.00 a gallon, and then I could bet low and offset that with a long position in the markets, so I would win either way. If somebody were to predict near the market price of around $2.85 a gallon then my strategy wouldn't work.
So the market failed to predict the $3 plus retail price we are currently seeing.
In regard to bets, I am betting on finding "leftover" small, but profitable fields in West Central Texas.
butt according to matt simmons they are wrong. 90% chance of gas rationing according to him. So how much will they go up when that happens. I think I should put in 10k and see what happens. How much could I make?? maybe 500k?
Cmon guys, on the big scheme you are so funny. How about quitting the circus "whose making most money, got the biggest., most growth" and slowly moving into serious stuff, that moves the world and you towards sustainability?
Go for regional investments in bio farms in a nice valley where you grew up or something. Lend your money to some bio startup farmers and ask max.2-3 % return in interest per year.
Thats true change. Start small, and slowly shift your line of work the next 5 years... thats power to do that. And the women love it too...
Good luck in growing your spiritualites guys.
PS doesnt matter if you were right or wrong with the summer prices this year in twenty years, btw.
I invest in a variety of hydroelectric utilities and merchant power providers that are expanding their power production.
Best Hopes for Renewable Power,
Alan
Hmm, in that one paragraph you've lumped together quite a lot of assumptions, which I don't think hold. Markets are probably really good at betting long-term trends, but are fooled as anyone by discontinuities. There is also the assumption that markets collectively arrive at the "correct" outcome, in fact they arrive at a consensus, but they have information no better than anyone else, and if the data is poor then the consensus opinion will be poor too. Traders do not need to be correct to make a profit, they just have to be better than the guy next to them.
There is also the question of risk. The question of whether people back their opinion with money depends on their preferred risk exposure. Most people prefer to take a low risk route to earning money (i.e. a regular job), rather than take a higher risk route even if it has higher potential rewards.
If scientists were fired for publishing a bad paper, would we get better science? I would argue no. We would just end up with scientists selected from the pool of people willing to take risks, rather than the scientists with the best ideas.
There is also the assumption underlying certain economic principles that people are rational agents, and apply the theory equally. That seems to ignore a large body of research that shows people are far from always rational, and driven by many things unrelated to reason! Economic theory also apparently ignores real world effects, like the effects of competition, price wars, cartels etc.
For example, Hotelling does not work in practice because investors do not have an infinite time frame to make money. They want to make money now, or at least before they retire. Therefore stockpiling resources to sell after you are dead is not a practical option, even if the resource becomes incredibly valuable.
So there are many reasons why the ability of the markets is limited, and why the futures prices are not necessarily a good predictor.
The futures markets are actually pretty poor at long term projections as well. You could have bought 2007 WTI back in 1998 for $20 ish.
as for most people not being willing to take on risk I thingk that was the point. Most people that TALK with great authority seem to be far less sure when they have to put their money on the line.
"US policy-makers must stop attempting to re-create a 20th century of abundant and cheap US gasoline, it is as dead as the geology that leaves no more cheap US oil."
When statements like this are made in the US Senate, not behind closed doors, but publically, it is admission that the crisis is so grave that it can be hidden no longer. Oil Depletion has moved from secret committee to public debate.
I wonder if it would be logistically possible, feasible, and reasonable to institute a pseudo-rationing plan like the one in Iran. In other words, people would have Smart cards where up to a certain quota gasoline costs a certain price. Any additional gasoline would cost 20-30% more and the more you use the more it would cost. This would not punish low-income people who need gas to commute short distances for essential purposes. It would punish people with 100 mile round-trip commutes and discourage exurbanization (at least without mass transit as an option). Also, there can be exceptions for commercial/emergency vehicle/etc purposes.
The most obvious problem with this plan, of course, is that it is completely antithetical to the American capitalist economic system, and therefore any such energy bill would be "dead on arrival." But I think it is something to consider...
Any thoughts on this idea?
It's difficult and certainly will piss plenty of people off.
I think the best alternative is longer term actual efficiency improvements pushed strongly by direct consumer incentives and taxation: feebates, taxing low-efficiency vehicles (NOT normalized for mass!) and paying it back to high-efficiency vehicles. This needs to be substantial, e.g. $3000 or so.
This is better than a gas tax politically because raising gas taxes right now feels like a punishment that few people can do much about. Psychologically it's a matter of control: it's well known that animals (including homo sapiens) get the most stressed when they are subjected to arbitrary punishments without having any means of alleviating it. Right now, people's homes and jobs are so critical to their financial stability that these are very difficult to change for the sake of higher fuel prices.
However, when people buy a new car (and only the richest fraction of people typically buy new cars) they have many choices. Pushing them to adopt higher efficiency right at this moment will work better than the very indirect and manipulable CAFE standards. CAFE standards are just punishments to auto manufacturers who have little instrinsic motivation to like them, and I propose eliminating them with the fee-bate in place.
However, an externally administered feebate would mean that the auto manufacturers would be highly motivated to meet this shift in consumer demand.
If the feebate were sufficiently robust then it would enable less wealthy people, the worst hit by high fuel taxes, to afford to quickly dispose of their inefficient trucks/SUVs and buy an economy car---with big rebate---for most dailiy driving. E.g. a $13K car - $3000 feebate could swing the balance for somebody who was already thinking about switching. Frankly, cheap econodiesels widely and rapidly deployed would do more to lower private fuel consumption than any other measure other than mass cant-afford-to-leave-the-house unemployment.
Also the the feebate should be relative to the current or likely next year's sold fleet so that it will automatically ratchet up over time with the distribution of vehicles sold and efficiency. Every year there would be an automatic push to continuously upgrade the efficiency and the market would allocate the technology and distribution, unlike CAFE which requires vexatious legislative agreement.
I disagree I think its time to seriously piss a lot of people off. We need to be jacking taxes up to the levels seen in Europe asap. The time for worrying about pissing people off is long past.
Agreed, $.25 a month or fiscal quarter increase. Time to force adaptation.
I wrote my article this week on this topic, because I was tired of the email chain letters about boycotting gasoline on a certain day. I used some of Robert's analysis and the EIA's data & hopefully came up with something the non-TOD-reading layman can understand. See: There's a Hole in the Bucket
--Chris
Energy consultant, writer, blogger www.getreallist.com
Use of Gas Efficient Vehicles or Diesel Cars
The average passenger vehicle in 2005 got 22.4 mpg in the US(DOT).
http://www.bts.gov/publications/national_transportation_statistics/2005/...
My 2002 Honda Civic burned 40 mpg/hwy. If the US switches to gas efficient vehicles it might cut our oil imports by a third and increase spare refinery capacity.
The US lagged Europe in the use of fuel efficient models. European passenger vehicles were reported to average 47 mpg. Another article reported half the Europeans drove diesel cars. A Honda diesel was reported to get 68 MPG.
http://bznotes.wordpress.com/2007/04/26/diesel-honda-car-that-gets-628-mpg/
Robert R.
"Best to keep your tanks topped off this summer, especially if you live in a hurricane prone area."
There are over 200 million motor vehicles in the USA. In a time of crises or fear of gas shortage, if every car topped up by only 1 gallon that could draw 200 million gallons or roughly 5 million barrels of gasoline/diesel out of the system, virtually overnight (or some other logical combination, say 1/4 of the fleet topped up by 5 gallons each = 250 million gallons). Have you factored this into your thinking on the resiliency of US supply?
He doesn't have to worry about that. Most people are not going to do it. I just told folks at my office the same thing today and all but one ignored me. That's fine. I'll wave at them alongside the highway as they sit stranded while a hurricane comes roaring in across the gulf.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Hahahaha, great response. Mind if I use it? And I don't even live near an ocean. I'm thinking more of getting to my lifeboat when the blackout hits.
Larry from Canada,
Your good! That is one of the great overlooked factors, and people are already starting to stock up on fuel ahead of Memorial Day, not because of fear of shortages or lines but in the hopes of beating what they are expecting will be a big price spike.
This was a HUGE factor in the1970's energy crisis. It acts as a giant rolling storage tank, and here's the really interesting part: SUV's and in particular large pickups used for towing (motorhomes and boats) have some BIG tanks. The on highway capacity now is certainly much greater than it was a few decades ago.
A friend of mine said he was going to go ahead and top everything he had up to beat the price....consisting of a PT Cruiser, a GMC 1 ton duelie truck (saddle tanks) a boat, and a Monte Carlo and S10 pick up driven by family (!)
Need we say more....(by the way, he guesses the total fuel bill will go over $300)
Roger Conner Jr
Remember, we are are only one cubic mile from freedom
Someone up in the thread said they topped up "just in case". (This is what panic buyers always say, they are not panicing, merely being prudent). I wonder how much of this precautionary buying happens as prices rise, and how much that raises prices. This could explain why demand stays high as prices rise.
Topping off in times of crisis is easy to prevent: The government just has to instate a legal minimum purchase of lets say 50 US$ at your local gas station.
Yeah, but at current prices, I need to be at 1/8 tank or so before it would take 50$ worth of fuel to fill my car.
What would the penalty be if you bought less than the required minimum amount? What if it was just 50 cents less than the minimum....
Unfair to those who are doing the right thing and driving small, fuel efficient cars. I couldn't fit $50 worth of gas into my tank.
Yet.
Have you factored this into your thinking on the resiliency of US supply?
As GreyZone pointed out, I don't have to worry about that. This is my free unsolicited advice to those who will read it and heed it. I am telling my extended family the same - don't let the tank run down too low because if we have a blip in the system it won't take long before we could see gas lines and stations running out.
Odds are, this is not going to happen. I don't like to seem alarmist. I expect that these prices are going to start attracting imports. But, I do expect they won't be enough in the short term to prevent going into summer with record low inventories, so the risk will be greatest right at the start of driving season. After that, we have to see what happens with imports.
I still can't figure out how the practice of "topping off" your tank would make any difference. Let's say my gas tank is 20 gallons, and that, co-incidentally, my regular driving routine causes me to use just about 20 gallons a week. So I drive my car until its running on fumes and tank up once a week, or drop in the gas station every day and top off my tank with two or three gallons; either way, I’m still consuming the same 20 gallons a week.
Antoinetta III
For regular daily driving it doesn't make much difference but it does ensure that you have some gas in case spot shortages appear. If the shortage is sufficiently brief, then your half tank might carry you over the gap but if you were empty, you'd be walking, on public transportation, or stranded. So it's a minor hassle to avoid a potentially small inconvenience.
But along the gulf coast it becomes even more important. If a hurricane forms and heads for landfall, people immediately move to fill up. If the market is too tight, this could cause shortages just as you need gasoline to evacuate. So while topping off may be a minor point to others, near the hurricane coasts it is a necessity if you expect to be able to evacuate successfully. In this case it is a minor hassle to avoid a potentially life threatening situation.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Your tank used to average 10 gallons "before". Now it averages 17.5 gallons of mobile storage.
Average over 100s of millions of vehicles and "it adds up".
Also, friend commutes in a Yaris (~40 mpg) but owns a towing pickup (~1,500 miles/year for his 55 acres in AR). It was half full and he topped it off to serve as an immobile gas storage tank for his Yaris if problesm develop. Now asted fuel hauling around the extra storage.
Best Hopes,
Alan
“Your tank used to average 10 gallons "before". Now it averages 17.5 gallons of mobile storage.” Posted by AlanfromBigEasy
I still don’t get it. I’m still only burning the same 20 gallons a week; if I “top off”, I’m buying gasoline in smaller increments, but I’m still buying the same 20 gallons a week. I don’t see that it makes any difference if the unburned gasoline is stored in my topped-off auto-tank, or is in the underground tanks at the gas-station. I could see how, if some sort of scare arose and everyone started topping off at the same time, that this would cause an initial dint in supplies, but at the time everyone had burned the amount of gasoline that their tank holds, this increase in the level of demand would have levelled off.
Antoinetta III
If some sort of scare arose and everyone started topping off at the same time, that this would cause an initial dint in supplies...
Yes, those few gallons/car would empty the filling stations and cause a panic i.e long lines whenever a new delivery was made.
New Orleans was able to empty the service stations in a day (even with new deliveries all day long from nearby refineries) as people "topped off their tanks" before evacuating.
Those "abundant supplies" at each and every filling station depend upon a constant demand. A modest uptick in demand and the stations empty.
Alan
Larry, he was talking about only TOD readers, which would only be about 50-100,000 gallons...;)
And maybe a few at the Wall Street Journal:
http://blogs.wsj.com/energy/2007/05/18/blog-roll-gasoline-scarcity/
:-)
And this is the exact same problem with mitigation generally - it is not happening. Oh, a few people are doing things. A few cities are doing a few small things. But serious mitigation? Not a bit of it in sight above the individual level except for a handful of small towns or small cities. Even the tide in Europe has changed somewhat towards more right-wing governments which are going to place their faith in infinite growth, the market, and exponentially growing oil supplies.
I really do wish that the advice of people like Robert, Alan, Jeffrey, etc., would be heeded on a national or international level, but it won't.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
I think some individual consumers are doing their bit - sales of SUVs are way down. The problem is that if you sell your SUV, then someone else drives it. You essentially have to compare against the vehicles that are coming off the road and headed to the junkyard.
The people simply don't want to hear a message about getting by with less. They want to hear messages about some magic technology that is going to save our bacon instead, and the media is largely at fault for running uncritical stories of one sort or another.
It is going to have to get a lot worse before people get the message...
Well said.
When does creative financing become hoarding?
The recent runup in energy prices has created more inventive thinking and proposals than I have heard at anytime since the 1970's. People are scratching their chins, trying to come up with some inventive ways to have their cake and eat it too.
Now of course, if they would take the time to stop in here at TOD they would learn that the consensus of opinion here is that they can neither have their cake OR eat it, but that won't stop folks from trying to think of some way to beat the system.
One of the creative ideas I have heard recently is the idea of fuel Unions, organized very much like a credit union, only for fuel instead of money.
The idea is that either an arrangement is made with a fuel distributer, or a piece of property is purchased by a group of shareholders, on which is stored fuel. The group would then have debit cards to withdraw fuel as needed, and the fuel could be prepurchased at a set price, or purchased on "spot" at the going rate of the day, depending on how far in advance the shareholder could afford, or wanted to plan ahead. The fuel would be purchased by the board of directers of the fuel union, and all cantracts, management, and day to day operations overseen by the directors, who would be elected each year by the shareholders.
The advantage of course is to have a supply of fuel in storage that would be purchased on a counter demand or counter seasonal basis.
For example, right now Diesel is cheap. But we all know that when the distillate market for heating oil heats up (pun intended, not a great one, I know! :-), that Diesel fuel prices will rise. Right now, prices are low, supply is ample, so why not purchase Diesel in bulk to ride through the winter months. Diesel, if handled and treated for seasonal storage, should be easily able to not suffer for a 4 to 6 month period. Likewise gasoline, and even more storable is LPG for fleet, taxi, truck and home heating use. Gasoline would be purchased in the off season (winter) for use in the spring and summer high demand season. One could picture a type of consortium of understanding between unions in the 100 largest markets, so that if a member of any one union is away from home, he/she could buy fuel on the road at the pre-arranged price on the pre-arranged basis (a bit like ATM card for fuel)
This brings up an interesting question: Exactly how expensive is storage? The wide open rural areas of America have plenty of room, and cities are full of direlict and abandoned industrial property, rail yard, and old warehouse space. When driving on the interstate, one sees many old abandoned tanks and tank farms of various types, so at one time, there must have been a great deal more storage in the country for various fuels and materials than today, before the age of JIT.
Of course, the justification for JIT is profit. A case could be made that what we are now seeing as an emergency (that being no gasoline stocks to weather an emergency or disruption) is now just part of the JIT process, that is, it's lean, profitable, but far more risky.
But in the end, the JIT system when applied to energy simply moves the risk to the customer. The axiom could be stated as "If we cut it close and barely make it every year, we make money for ourselves (the refiners) and our shareholders. If we miss and run out, you the customer pay. For us, it's win-win. For you the customer, it's buyer beware, you better be ready for anything."
The advantage of a fuel union type of arrangement would be that the owners of the fuel ARE the shareholders. There is no need for exterior shareholders to have to answer to for extreme "leanness" but at very high risk. This again is comparable to financial credit unions, who can cover the costs, and then roll any other return from interest income or invested funds back to the shareholders who are also the depositers.
What would be the reaction of the refiners if such a system started to catch on in major markets? My guess is that it would be exactly the same as the banks reaction to credit unions, in that they would try to get lobbyists and legislators to throw blocks in front of the formation of such unions, and keep them from being born anyway they could.
Call me a cynic.
Roger Conner Jr.
Remember, we are only one cubic mile from freedom
A fuel co-op such as you suggest exists in, I believe, Madison, Wisconsin, and has for years. They apparently have roughly half a dozen stations around the city and families can fill up with fuel that is in their account. They fill their account by buying on the spot market. I'm sorry that I cannot further express the details as it has been a while since I read about them but there is already at least one such co-op in existence and I would be surprised if it was the only such one.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Or, do what I did.
Buy a 500 gallon diesel tank and put it in the yard.
When the tank is low and prices are acceptable (like this week), call up the bulk fuel delivery guy and have him bring out 300 gallons. (The pump price had gone up to 3.15, but I still got it for 3.07).
I could do the same thing with gasoline, but it doesn't store as well. I would rather replace my gasoline vehicle with a diesel, but I haven't found one I want.
I know it seems like gasoline prices are really high now. In reality, the total cost for gasoline is much higher than we know. Check out this video on Youtube to see what I mean:
Hidden Costs of Imported Oil - Need Country Choice At Pump
http://www.youtube.com/watch?v=95e0wsSorLM
Somehow, our gasoline marketplace in the United States has evolved to allow the Multinational Gasoline Marketers (MGM's) to not differentiate the gasoline molecules they peddle at the gas pump. Consequently, the consumer pays the same for gasoline whether the molecules originated in Oklahoma, Texas, or North Dakota or the Middle East. The problem is, the molecules that originated in the Middle East cost Americans indirectly in many ways. The MGM's do not pay these costs and their bottom lines benefit from perpetuating the myth that gasoline is low cost. The MGM's have created a pretty good gig for themselves. The American taxpayers are subsidizing the oil that is imported from the Middle East via a variety of hidden costs and they do not even realize it.
If the hidden costs were factored into the price, demand would drop, domestic production would increase, alternative energy would increase, conservation would increase, public transportaiton would increase, etc. Lots of good stuff.
Lets put country labels on the gas pumps. Let the consumers know where their gas molecules are coming from - just like every other product that is imported.
I find this video incredibly deceiving.
It pretends to be blind to the real problem: American DEMAND.
Americans want cheap liquid fuels, and oil companies deliver it. Yet this video pretends that we can tar these same companies with all the BLAME.
The hypocrisy is thick.
The last "solution" -- the pretense that we can segregate and label a mixture of different molecules -- is a cruel joke.
The purpose of the video is to spark dialog. Thanks for your comments - the video is working.
American demand for gasoline is high because consumers think the price for gasoline is low. As you stated, the oil companies deliver cheap liquid fuels. But, as shown in the video, there are hidden costs that the consumers do not associate with the price of gasoline at the pump.
For example, if you factor in the $200 billion plus the US spends annually on the military in the Middle East to secure the oil trade routes, the total, real cost of gasoline is very high. If this real cost was balanced as a tariff on imported oil from the Middle East, consumers would see the real, total cost at the pump. If the hidden costs were factored in, demand and consumption would drop.
Differentiation of gas at the pump would reward supplies from places like Canada, Russia, domestic sources, etc.
Segregating and labeling mixtures of different molecules is not a cruel joke. Consider that the electric utilities successfully keep track of virtuous renewable energy electrons in their transmission lines to comply RPS (renewable portfolio standards) mandated by various states. By the miracle of modern accounting, it would be a snap for gasoline marketers to label their pumps with different blends. For example, instead of an "E" like they use for Ethanol, maybe they could use a "T" for Terrorist :>). If they sold a T50 blend, that would mean that on average, 50% of their supply came from the Middle East. Seriously, I don't know how they would do it exactly but I know they can. The California legislature is scheming at this minute to keep track of the carbon footprint of various crude oil streams and have them accounted for with different penalties at the gas pump! If we can penalize the gasoline molecules for their carbon footprint, I am sure we can penalize them for the hidden costs shown in the video.
Everyone else, please watch the video and join in on the dialog.
Hidden Costs of Imported Oil - Need Country Choice At Pump
http://www.youtube.com/watch?v=95e0wsSorLM
You presume that most Americans give a damm. They don't.
Besides, there is no alternative production. Every drop produced by ANYONE will be consumed. Consumer choice means ZERO, zilch, nada.
Let the 100% Venezuelan oil (Citgo) be one cent/gallon more expensive than a mix of Saudi, Iraqi and Libyan oil, then the "T" oil will sell more.
I use 6 gallons/month. I do not care where that 6 gallons comes from. I am being far more patriotic by suing less than some commuter that uses 50 gallons/month from any source.
Simply a bad idea.
For something that could make a difference,
http://www.lightrailnow.org/features/f_lrt_2006-05a.htm
http://www.lightrailnow.org/features/f_lrt_2007-04a.htm
Best Hopes fro Good Plans,
Alan
Thank you for your thoughtful comments. A couple of points:
1. I think Americans would give a damn if they had more information about the gasoline they were consuming. "Blood diamonds" for example.
2. The MGM's (multinational gasoline marketers) are taking advantage of all US taxpayers like you and me. Their supply lines from the Middle East are protected by the US military at no cost to them but at enormous cost to the US taxpayer. This serves to keep the apparent (false) cost of gasoline lower than it should be at the pump. Consequently, people choose to keep driving their cars and voting no for light rail systems on the ballot. If the cost of gasoline had all of the hidden costs factored in, lightrail would get more attention. What do you think the price of gasoline would be if we privatized security in the Middle East and made the oil companies pay for it?