Today I want to say a few words about energy use
and prices. There are many headlines about gasoline prices right now, as there
have been on occasion in the past. As in the past, there are just as many
political pronouncements and calls for political action of one type or another.
I want to ignore the political blather and look at data (always my thing).
-develop alternate fuels
-take economic action to stop gouging/inflation/etc by oil companies/arabs/'Them'
Solar holds great promise. It is currently prohibitively expensive. We have too little in the way of improvements in this technology. If there is any opportunity for governmental funding of research, this is it.
The calls for solutions take one of a couple of
forms-
-Drill more (the absolutely infamous 'drill baby
drill' routine)
-use less-develop alternate fuels
-take economic action to stop gouging/inflation/etc by oil companies/arabs/'Them'
How reasonable is any of this? The answer, to
anticipate the end, is not much.
Here are several sources about oil-
http://www.incrediblecharts.com/economy/gold_oil_ratio.php
http://www.gleasonreport.com (the oil report link
is on the main page, but if not it is the April 2010 issue)
http://www.indexmundi.com/energy.aspx
(this is one
of the most interesting sites I have found- packed with raw data)
Oil is a commodity. As such, its value can be
linked to other commodities, and is also subject to speculation fluctuation. In
1973, during the first 'oil crisis', the Shah of Iran was interviewed, as I
recall, on '60 Minutes'. During this interview he said there was plenty of oil.
The shortage was created by company and bank manipulation. This remark was
greeted by incredulity by the reporters. But the Shah was right. There was no
shortage of oil. There was a sudden loss of price indexing for it, leading to
acute price changes and unwillingness of companies to deal with the commodity.
Oil's price is very closely tied to the price of
gold. As long as the US dollar was on the gold standard, at 35.00 to the ounce,
oil prices were very stable. In 1971, Nixon took the US
In looking at the ratio of gold to oil prices,
there are certain times of unusual peaks, such as middle east wars. These
variations are in the main tied to abrupt decreases in supply or demand. At the
present time, gold buys about 17-18 barrels of oil. Oil is actually UNDER
priced historically. There is some speculation in gold at this time, but the
underlying issue remains. Oil is underpriced. To reach historical norms, oil
will need at approach 135.00 per barrel, which translates to a gas price of
about 4.25 for regular.
Attempts to regulate oil prices have been
disastrous. Take a look at the reference http://www.wtrg.com/prices.htm for a
discussion of this. The net effect of price controls was to decrease the
incentive to look for more oil. Oh, that was helpful.
I want to move away from the price part of oil as a
commodity to consider supply and demand. There are again a couple of
controlling realities. The world has always had only about 12-20 years of
proven recoverable reserves. There is an obvious reason for this. You don't go
looking for something you already have. Thus the alarmists who trumpet the
world has only 11 years supply of oil are embarrassing themselves. We have had
that supply for about 70 years.
That silly social and media claim does not change
overall production and consumption data, however. World demand is increasing
(stalled by the current recession) and production peaked in 2005. It
immediately follows that prices will rise unless we can increase production
and/or decrease demand. Here we run into numerous practical problems.
As a matter of environmental and financial policy,
drilling in the US US Alaska US US Iran US US
Efforts to reduce consumption have not been
effective. the CAFE rules for vehicles are a magnificent political sham,
allowing companies to claim spectacular fleet averages while in fact selling
fuel inefficient vehicles. The nature of the US
How about alternate energy sources? There has been
much made of biodiesel, and some of this is a good idea. It is interesting to
think that a bus can be run on recycled frying oil (finally a good use for
something out of the fast food industry). On the other hand, biofuels are a
spectacularly stupid idea. Growing switch grass or whatever product is water,
time and land intensive. Out of this mass of plants we are then to produce
alcohol and diesel fuel. This is as wasteful and desperate as the attempts to liquefy coal to produce oil
during WW2. The world is shorter of food than of oil. We would do well to
export food and pay for oil rather than wasting our time on 'growing diesel
fuel'.
Wind power is a reasonable option that is land
intensive and can only be done in certain places. Wind farms sound like a great
idea (quiet, non-polluting) until you see a large one in person. It is a
terrible eyesore, and very large. Nuclear power is a great way to make
electricity. It is efficient, and it is every bit as safe as the alternatives.
Spent fuel can be recycled, and the likelihood of an accident is incredibly
low. Nonetheless, exaggerated concern over radiation contamination of the
environment has stalled nuclear development in the US
Solar holds great promise. It is currently prohibitively expensive. We have too little in the way of improvements in this technology. If there is any opportunity for governmental funding of research, this is it.
Bottom line- alternate energy sources have been
stymied by environmental concerns, and are not going to be on line fast enough
to make a difference over the next 5-10 years. Taken together, the data are
bleak. Prices are likely to rise, supplies to remain stable, political
considerations and environmental concerns have limited alternatives and
supplies. What to do?
Like so many things, the solution to the energy
issue lies within ourselves. We are simultaneously heavy users of oil and
energy in general, while apparently being embarrassed by our use such that we
are unwilling to produce it. That is as ridiculous as a person who eats a lot
and is embarrassed by their weight making amends by not buying groceries but instead
eating out, all the while justifying it by claiming it keeps the kitchen clean.
We must, notionally, come to terms with our energy usage. Either fuel (so to
speak) our use by production or reduce consumption by alternate fuel
development and conservation measures.
Interestingly, it is the environmental lobby which
gets in the way of both. I wonder what this group wants. Globally reduced
energy use? Let's see them do it first, thank you. In the end, the
environmentalists can not be accommodated for both restriction of refining, oil
production and alternate fuel use. They leave only reduced consumption as a
choice. That may sound virtuous, but I want them to put their money where their
loud mouth is.
I believe we should do all the above. I favor a marked
relaxation on ocean drilling, the completion of the Keystone pipeline, and
further exploration and development in Alaska US actually produces the
most nuclear energy, more than France
In essence, until we can develop alternate fuels,
we are stuck with carbon forms, especially oil. While we need to develop
alternatives, we also need to increase our sources of oil through drilling,
piping and refining.
Ted
Nuclear energy is certainly less polluting than coal and gives more bang for the buck. Alternative forms of energy, as you point out, aren't efficient enough to make them worth while. Israel has done a great job with solar energy (in a land that - ironically - is in the Middle East yet has no oil reserves), especially in providing mechanisms for heating water through rooftop solar panels. Perhaps the U.S. has room for some improvement in this regard (though it is still just a drop in the energy bucket).
ReplyDeleteUntil there is strong financial incentive to spend less energy, it is hard to foresee Americans growing more efficient and less wasteful in living high technology, high oil consumption lives.
I hadn't been aware of how closely oil has been tied with gold until I read this blog; nor was I aware that relative to gold, oil is actually underpriced right now.
All in all, a difficult problem with no quick fix...
David Graham