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The global nature of oil is becoming apparent
Posted by Heading Out on September 3, 2005 - 9:09pm
Marathon Oil Corp. on Saturday said it expected all seven of its oil refineries to be operating at capacity on Monday, after Hurricane Katrina closed one refinery and interfered with supplies to two others. The 245,000 barrel-per-day refinery at Garyville, Louisiana, the company's largest, was being reopened over the weekend, officials said. Of the eight refineries, belonging to various oil companies, knocked out by Katrina, the Garyville plant was the third largest.In bad news: concerns that the US need for European supplies will drag on for more than a month, are already being expressed
The head of the West's energy watchdog said in an interview on Saturday that Hurricane Katrina could spark a worldwide energy crisis if damage to U.S. refineries led to a big increase in U.S. purchases of European petrol.And $100 a barrel oil is no longer an unmentionable."If the crisis affects oil products then it's a worldwide crisis. No one should think this will be limited to the United States," Claude Mandil, head of the Paris-based International Energy Agency (IEA) told German daily Die Welt.
"They are already buying gasoline in Europe. If the refineries are damaged, that will only increase. Then this will become a worldwide crisis very quickly."
Mandil told the paper that high oil prices represented a risk for global economic growth and urged consumers to alter their behavior to save more energy and limit the fallout.
Poor countries were bound to suffer most from a recent surge in energy prices, which has been aggravated by Katrina and the shortages it has caused, he said.
Since the beginning of the year, crude oil prices have increased a whopping 60%. So far we have seen US consumers bear $40, $50, $60 and now even $70 oil with little impact on consumer spending. Yet it remains to be seen whether they will be able to withstand $80 or $100 oil. . . . . the average consumer will have a much more difficult time dealing with a price of $3 for a gallon of gasoline. . . . ..Unfortunately not every part of the country is graced with an efficient mass transit system such as NYC - many Americans have no alternative other than driving to work. According to the 2000 US census, 87.9% of Americans commute by car, van or truck. In fact, a Wall Street Journal poll of 4,000 people conducted on August 15 reported that 31% of respondents said they have already cut driving activities, 21% said they would cut driving when gas reaches $3-$4 a gallon while another 18% said that they wouldn't cut driving until gasoline prices hit $4-$5 a gallon.
The rule of thumb is that every $10 rise in oil will shave 0.4% off of GDP. . .
Meanwhile down in Argentina the Daily Times reports that
Argentina will not allow domestic gasoline prices to rise, President Nestor Kirchner said after oil companies in the country suggested it was time to end a price freeze due to soaring global oil prices..Kirchner said late on Friday that the government "will not accept under any circumstance" a hike in gasoline prices, according to the state news agency Telam.
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This is a cakewalk compared to what WILL HAPPEN if peak oil arrives and the entire world is caught unprepared. Right now the world is coming together to help us to respond to the crisis, but when happens when we are all fighting for a dwindling supply? Answer: Wars. Famine. Population reductions. Riots. Disease.
More and more it seems like that possibility isn't far off. I sincerely think that even if the 4 largest economies in the world remained stagnant, the crisis will only be delayed by a matter of months or years (at best). When the peak is coming is anybody's guess. But something is coming and more people are beginning to sense that more trouble is on the horizon.
We may have to hit $100 barrels of crude to reduce demand enough. Something is going to change before much longer though. I know that in the US, independently owned and operated truckers will not continue paying these prices for diesel. At best they won't keep going into areas where supplies may be short and/or price gouging may be taking place. With the current prices of diesel many are barely breaking even.
I don't think the crisis I really fear is here quite yet. At the same time I believe we have a volatile enough situation that things may get a lot worse than we suspect due to mere convergence of related factors. High gas prices, localized shortages, inflation, natural disasters, offline refineries, reduced domestic production, and a BIG DOSE of "herd mentality" may lead to this getting a lot worse before it gets better. Herd mentality is what I fear the most. Let's see how well people behave over this holiday weekend. If people rush out to fill up their gas tanks, we may see gas lines up and down the coasts by next week.
I really believe that this is a serious problem we face in our energy situation, the constant need for many people (including experts who should know better) to conceptually limit what can happen. Perhaps this is a defense mechanism--they don't want to think about the Big Evil Stuff that could take away their SUV, 71-degree AC setting, and insanely cheap airline tickets. (I know PO threatens much worse, but the people I'm takling about can't even conceive of impacts beyond the kind I just mentioned.)
Another manifestation of this same mindset is the way some mainstreamers dismiss any talk about a PO impact by saying, "Oh, they'll have to come up with something." I had one of these conversations a few weeks ago, and instead of giving up, which is what I normally do in the face of that level of ignorance, said, "NO, 'they' don't have to do anything--there are no guarantees." The look of utter incomprehension I got from the person was priceless. She had instantly decided I was a nutjob and not worth listening to.
Sigh...
One thing though...it will be madness if we continue the throwaway society for much longer....things built need to last because the cost of replacing them could be so much greater in the future. This point really pisses me off because the microturbines on sale right now have only a 20 year guaranteed life...we need century long lifespans. Does anyone think (or is it obvious) that the 19th century form of capitalism focussed a lot more on competing on quality but now things have changed and we're producing a lot more throwaway, lasts a day crap? I can't seem to get a videoplayer that can last a year and cars seem a lot more fragile in every way than previously. Bah humbug.
Some people will be able to telecommute or carpool. They might have to either move closer to work or change jobs. You might start to see a lot more motorcycles on the road.
For people living way out in the boondocks, you may be right about someone having to live in the city during the week. Maybe a studio apartment - a hotel would be too expensive. Heck even a 2-bedroom apartment and a roommate would work.
In the end, these are all short-term coping mechanisms.
I got an email from someone at work this week pointing people at gasbuddy.com. This is from the guy who drives the Navigator, and his commute is only 5 miles or so. Yeah, be my guest - go and try and find your cheap gas.
I've noticed more motorcycles and scooters. I used to ride a moped, then a small motorbike. Even before cell phones, enough auto drivers didn't notice me that I sold the motorbike.
On the other hand outside of the use of semiconductors and better materials there really isn't anything in new car engines that wasn't used in WWII airplane engines. B-17s had turbochargers and B-29s had electronic fuel injection. All airplane engines used aluminum alloys while many cars are still stuck in the iron age. Hemi heads and 4 valve cylinders were racing around Indy back in the 30s. Duesenbergs had double overhead cams when most cars were still using flatheads. Automatic transmission are mechaniclly the same as those developed in the 30s and used by Sherman tanks in WWII. The only mechanical innovation since the 50s is the Wankel.
I'm skeptical that we will be able to ramp up refining production given the breakdown of regional physical infrastructure (freight movement, passanger movement, water, sewerage, electricity, etc.), as well as basic community infrastructure such as housing for workers, health care, basic retail (e.g., grocery stores), etc. It's hard for me to see how any industrial facility operates at 100% under these conditions. They may have to look at constructing temporary housing and dining facilities for workers before they have the manpower to crank up production--a task that will be daunting under all of the conditions outlined above. If those workers have displaced families to take care of, then matters are all the more complicated.
Regardless, it is also very hard for me to see how we get Gulf crude production back up to previous levels within 2 years. That makes a previously bad situation worse, no matter how you slice it. The SPR can only carry us so far. Without any spare capacity from overseas, we're still in a pickle to say the least.
Even as the NY Times was going to press with this happy article Thanks to Guards, Iraq Oil Pipeline Is Up and Running, On and Off saying we learn that Bomb blast halts exports through Iraqi pipeline. (This was noted on a previous thread).Also, we see that Iraq exports are down in August -- "Iraq exported between 1.46 to 1.47 million barrels a day of crude oil in August, down around 130,000 b/d from July, an oil official said Thursday" (see here).
cue the muhajadeen
N.O. as the central front in the war on terror? You might think so based on the number of troops that are arriving and the talk of federal marshall law, but I won't go there. ; )
Isn't this called Fourth Generation Warfare?
Unfortunately the only thing that is going to force people to confront the problem is high oil prices. There will always be stories in the news about a pipeline here, or a new oilfield there. The problem is that most people are innumerate, so if you tell them that an oilfield has a billion barrels, it sounds like such an inconceivably large number that they would never even suspect that on paper the world could suck such an oilfield dry in a matter of weeks.
People say that price is very inelastic, and in the short term this is true to an extent. Prices go up, and people suck it up and pay the price. Replacing a car is a big deal for most people, but if prices stay high long enough, it will ultimately happen.
charlie C.
NY Times via the International Herald Tribune (no reg required)
http://www.iht.com/articles/2005/09/04/business/oil.php
snip:
From Aug. 26, when platforms were evacuated in anticipation of the storm, until Friday, the total amount of lost oil production was 8.7 million barrels, or about 1.3 million barrels a day.
That is not much compared with what was lost during the Arab oil embargo after the 1973 war between Egypt and Israel. Then, an embargo on oil shipments to the United States led to a shortage of about five million barrels a day at its worst point, in December 1973.
mw: True, but the embargo did not also cut a) refinery capacity, b) nat gas production, c) critical infrastructure, d) displace US based employees, e) put a big load on the military, at home, and at a time when f) the military is occupied elsewhere in foreign adventures, and...
despite the ratio of oil to GDP $$ having gone down, the reality is we are more dependent on oil than ever before and, what's really new this time, is our dependency on natural gas is as history highs.
Remember... decades ago NG was burned off as a "waste product". Its now the fastest rising energy source by new utilization, period.
http://www.wnyc.org/stream/ram.py?file=/bl/bl083005c.mp3
Clint
Another difference is that people expect the effects of Katrina to be temporary. In a few weeks or months all the refineries will be back on line and most of the oil production will be restored. With Peak Oil, as awareness spreads people will understand that oil is getting harder and more expensive to produce, so they won't expect prices to fall. People respond differently to temporary high prices than to permanent ones.
I don't know when Peak Oil will happen or how the scenario will play out, but I don't think Katrina is a good model for the situation.
What's more likely to happen is a series of lurches up and down, as daily / monthly / annual oil production comes in at, under, or above the needs of the day. We've seen over the past two years what a relatively tight supply/demand balance does to price. No one would argue that the rise over this time has been "gradual".
As the gap between supply and demand tightens, prices will find higher highs at which the "new normal" will be formed. This has already happened, and unless the trend reverses, there is no reason to believe it will not continue, not unless one has data showing a solid surplus developing in the future.
When the "peak" arrives -- when growth in demand is such that supply can't catch up this month, next month or next year -- prices will have been rising very quickly. We'll know in hindsight for certain, when our unclear and unauditable output statistics finally can't be fudged further and show declines world wide, on balance, in production.
Prices and the nature of the rise do suggest we could be nearing a peak. Keeping in mind that there are myriad players in crude oil markets but that the majority stakeholders are the large producers and consumers of oil, one can only surmise that a significant fear of ever rising prices grips the market. Terrorism is a spot event and does not explain a fear of ever rising prices, however a fear of less future supply than future demand most certainly does.
Peak Oil is very likely analogous to the right hand side mirrors found on most vehicles - the sticker on that side announces "Warning: objects may be closer than they appear."
I have been thinking about this and I believe that we may be better off with a shock well before the peak than gradually rising prices. The reason is that if we have gradually increasing prices, people will adjust but will not take drastic action until we are at the peak when it will be too late and our options are severely limited. However, an early shock with a recession could delay the peak, force efficiency and conservation changes and possibly lower the annual rate of demand increase. Of course one could say we had such a warning in 1973/79 and we squandered the opportunity. If Katrina is such a shock, it may be the silver lining on the cloud.
I think the big question is how long the pain lasts. A shock now, with sustained pressure thereafter, might lead to the best long-term adaptation. Even if an easing occurred, the government could keep the presssure on prices long-term. Nobody would have the stomach for it, though.
My scenario for the worst-case long-term result: a moderate-term shock (say a year or less) followed by relief (somewhat lower prices, no really apparent problems with supply). People will cut back short-term, then revert to the old ways as soon as possible. When the real crash comes, they will assume it's another temporary disuption and act accordingly. Then we'll have no changes in infrastructure, behavior or attitiudes before the peak.
A lot of the changes needed to reduce consumption have really long lead times. 69mpg Smart cars are great, but it will take at least 15 years for the US auto fleet to be replaced under good economic conditions. Unless the shock is sustained, we'll all think and act short-term. As you point out, we've blown the opportunity to be responsible on more than one occasion in the past.
But unless the recession turns into a depression, the only effect will be a slowing in demand growth, not a reduction in demand.
1979 3105.6 record year
1980 2974.7 down versus previous year
1981 2870.8 down
1982 2776.8 down
1983 2760.4 down
1984 2811.8 first up year since 1979
1985 2800.1 down again
1986 2888.6 growth resumes until 1990
1990 3139.4 new record year
1991 3135.5 down trivially
1992 3168.6 up
1993 3141.5 down
1994 3204.4 new record year
Worldwide consumption has been up to a new record level every year since 1993 until today. Whether oil demand is just tempered, or actually reduced, depends on how big the shock is, and the circumstances under which it occurs.
Really we're talking a bunch of "what if's". We don't know WHEN to expect the peak, although there is a lot of fear that it's already here or VERY close. If it comes out of the blue, it could be catastrophic no doubt. Yet doomsday predictions have a long track history of being wrong.
My nightmare scenario is that we'll enter into a long period of social upheaval, wars, and economic problems. That isn't the only possible scenario though. Nobody can say with 100% certainty that we won't have enough finds down the road to get us by just long enough to switch to a more sustainable way of life. Forewarned is forearmed.