At current pricing structures, $200/barrel works out to about $5.30/gallon or regular unleaded at the pump.

I'm going to hammer at this one last time because it is really imperative that people begin to change their mindsets about oil and energy. There will be no going back to cheap gas, ever.

The good news is, we humans are very adaptable creatures; it is how we got where we are. But to adapt we have to recognize that our environment has changed.

The International Energy Agency is the energy planning and statistics agency for the OECD organization of industrialized countries, of which the United States is a member. In today's Financial Times (the British equivalent of the Wall Street Journal) the IEA warns of tightening oil supplies:

quote:

The oil market will remain tight during the next five years as production from non-Opec countries stalls and demand growth remains relatively strong, the western countries’ energy watchdog warned on Tuesday.

The International Energy Agency’s warning is the starkest sign yet that even record oil prices above $140 a barrel have not yet not done enough to balance demand growth from countries such as China with sluggish supply increases.

The IEA said that annual non-Opec growth would slow to 0.5 per cent between 2008 and 2013, against demand growth of 1.6 per cent per year. The mismatch means the world economy would be more reliant on Opec, the oil cartel, and oil prices are likely to remain at record levels, analysts said.
...
The fast decline of fields – especially in the North Sea and Mexico where production is shrinking by more than 20 per cent each year – means that 14.8m of the 16m barrels of new supply from non-Opec countries over the next five years will go to making up for losses from old fields producing less and less each year.

But Opec is also struggling, with project delays impacting its ability to add new capacity. The IEA substantially downgraded its expectations for Opec crude capacity from 2008-2013, cutting earlier forecasts by 1.2m b/d.

Over at the Oil Drum Europe community blog, the very well-connected Jerome a Paris writes:

quote:

I have been told by a reliable source that the IEA has been forbidden by the US administration from updating their absurdly cornucopian oil supply and demand scenarios until the report that comes out late this year (after the election); that report, which will publish the result of a "bottom-up" analysis (ie a summary of all existing oil fields, their production and/or prospects) is expected to show that oil production is unlikely to reach the levels that so many have blithely assumed - notably on the basis of previous optimistic IEA reports. The IEA, which was deeply unhappy about the current lies to was supposed to present and support, has been leaking word of the expected content of that new report for many weeks now, including an increasingly alarmist tone in its official reports, such as today's Medium Term Market Outlook.

Both articles are worth a full read.

I had a brief e-mail exchange this morning with someone who sent me The Truth About ANWR, A Heritage Foundation plea to drill in the Alaska National Wildlife Refuge.

Even if we stipulated that ANWR can be exploited in an environmentally acceptable way, what's the point? Leave the oil in the ground, our grandkids will need it.

If we started exploitation now, we would manage to pretty much pump ANWR dry in our own lifetimes. My own back-of-the-envelope calculations based on having argued this issue for literally the last 20 years are thus:

5-8 years to bring it on-line.
Proven reserves of about 8 billion barrels (bbl), perhaps 11 billion if marginally productive fields are included.
Peak production of about 1.5 million bbl/day ( 18% of national demand)
US oil demand is about 8.2 million bbl/day in 2007
Once production has started ANWR will reach "peak" (50% pumped out, the rest harder and more expensive to get) in about 14 years. In about 19 years it would be essentially, "dry," producing less than 20% of peak production or about 300,000 bbl/day.

So, start production now, 2008. Oil comes on-line as "cheap" domestic production about 2016. Fields peak out around 2030 (My oldest child will be 32, my youngest 28) and will be pretty much finished by 2039, the year I turn 74.

So what's the point really? Titanic. Deck chairs.

I think this will be one of my last posts of doom-and-gloom. My attitude is fast becoming one that says, if people can't overcome their preconceptions and wishful thinking enough to come to grips with the... inconvenient truths of the situation then the Devil take the hindmost. I'm tire of trying to educate people. The markets are going to do that for us.

Time to move on to solutions. Two no-brainers:
1. If you own a vehicle that gets less than 25 MPG highway either mothball it if it is something useful like a pickup truck or van or sell it/trade it in while you can. In another year or two you won't be able to give them away and you are going to be supporting a bleeding financial sore.
2. Drive better. Just changing the way you drive any vehicle can get you better mileage. On my trip to Des Moines last weekend, I was able to get my Matrix which is rated at 35MPG highway into the low 40's by just using the cruise control and keeping my speed to about 65 as opposed to the 70 limit.

Since current law does not even allow for study into what may or may not be in ANWR, telling us that the projections say there's barely anything there is irrelevant. FIRST we have to lift the ban on studying the area, and exploring the area, unobtrusively; THEN we can speculate as to how long it will last us. The honest truth is that the reason we don't know how much is there is because CONGRESS passed legislation that doesn't allow it!

saw it coming...parted ways with Lexus rx300...loved the ride,but 17.5 mpg was not going to cut it... wound up in a used Toyota Rav4,am getting 29 mpg...the early Ravs,from `97-2000 or so are the ones with good numbers.

Unfortunately, most people do not have the option of trading off their vehicle at the present time. Most people are in a cycle where they buy the vehicle on time and cannot purchase a new one until the old one is paid off. Drilling in ANWAR will give people the time to transition to developing technologies that will not be available or cost effective for 10 -15 years. If ANWAR runs out in 30 years, I would hope we would not need it anymore by then, but in the meantime, be practical.

The US Geological Survey in the late 80's surveyed the coastal area where exploitation would be the most likely.

http://pubs.usgs.gov/fs/fs-0028-01/fs-0028-01.htm

That is where the 8-11 billion bbl estimates everyone uses comes from.

Earlier this year the Bush Administration (yes, this Bush Administration!) had the Energy Information Administration release a report on ANWR which states:

quote:

The opening of the ANWR 1002 Area to oil and natural gas development is projected to increase domestic crude oil production starting in 2018. In the mean ANWR oil resource case, additional oil production resulting from the opening of ANWR reaches 780,000 barrels per day in 2027 and then declines to 710,000 barrels per day in 2030. In the low and high ANWR oil resource cases, additional oil production resulting from the opening of ANWR peaks in 2028 at 510,000 and 1.45 million barrels per day, respectively. Between 2018 and 2030, cumulative additional oil production is 2.6 billion barrels for the mean oil resource case, while the low and high resource cases project a cumulative additional oil production of 1.9 and 4.3 billion barrels, respectively.

Additional oil production resulting from the opening of ANWR would be only a small portion of total world oil production, and would likely be offset in part by somewhat lower production outside the United States. The opening of ANWR is projected to have its largest oil price reduction impacts as follows: a reduction in low-sulfur, light crude oil prices of $0.41 per barrel (2006 dollars) in 2026 for the low oil resource case, $0.75 per barrel in 2025 for the mean oil resource case, and $1.44 per barrel in 2027 for the high oil resource case, relative to the reference case.

I hadn't heard of my report. Looks like nothing has changed in 20 years.

One again, releasing the hounds in ANWR will do NOTHING for oil prices for ten years. See the following graph from the International Energy Agency (referenced in the first post):


The red dotted line is the observed world production supply of oil and liquid natural gas. The dark blue and successive colors are the year-by-year estimates of world production supply based on estimates of new or unexploited fields coming on line. As you can see no matter what we do global oil supply will probably peak around 2012.

This is due to the fact that the super major oil fields that have been supplying our needs for the last 40 years have peaked themselves. This includes most of the Saudi fields, the North Sea, Alaska, etc.

Even if we begin despoiling the Alaska wilderness and the deep ocean today, no one has a single inkling that there exist anywhere any further discoveries of any comparable size. The only super majors left that are largely pre-peak are in Russia.

Cleve, you have my sympathy. But, rest assured us car buffs will have lots of sexy electric roadsters to play with. You've seen the Chevy Volt? GM has pretty much bet the farm on this plug-in hybrid changing the game in the car industry and saving the company. [ulr=http://www.theatlantic.com/doc/200807/general-motors]Good article in the Atlantic[/url].

well, we saw it coming too; we bought a 2001 prius when they first became available in late 2000. It has served us well.

I love a sweet ride too! but it sits in the garage most of the time as my wife rides the bus to work and I have a home office. A $60 fill usually lasts more than two weeks, even at $5 a gallon it doesn't make much sense to trade just to get 8 or 9 more mpg's

I traded off my de Ville for a Toyota Avalon. I haven't taken a real trip yet, but hopefully will see an increase in mileage. I know I gave up some luxury and comfort, but so far have been happy with the Avalon. I think the days of driving big cars are over for most of us that don't have our own oil well!

quote:

One again, releasing the hounds in ANWR will do NOTHING for oil prices for ten years. See the following graph from the International Energy Agency (referenced in the first post):

That is not entirely true...

Markets are basically driven by four factors - supply and demand are two, but also greed and fear. Remember the last time that the price of gas was above $4.00/gal? It was the afternoon of Sept. 11, 2001. Why? Supply or demand had not changed one iota - but the perception of the possibility of a change was enough to change the price point dramatically.

Open up drilling and watch the price fall...

quote:

Originally posted by Suprtek:
That is not entirely true...

Markets are basically driven by four factors - supply and demand are two, but also greed and fear. Remember the last time that the price of gas was above $4.00/gal? It was the afternoon of Sept. 11, 2001. Why? Supply or demand had not changed one iota - but the perception of the possibility of a change was enough to change the price point dramatically.

Open up drilling and watch the price fall...

While your premise is true in general, it fails specifically on oil markets. The oil market are not driven by consumers it is driven by professional oil traders (speculators!! gasp!). The Spetember 11 analogy is false... EVERYONE was spooked and unsure of the future. Would there be more attacks?

But, opening ANWR and/or the deep sea would do nothing in the short term for oil prices. These people can do math as well as I can and they are, as you say greedy. They'll see that starting exploitation there will do nothing for supply for eight years and therefore will give them little reason to hop off the gravy train.

And of course the fact that when those reserves come online they will be merely replacing lost production and not adding net oil production.

And if we had this conversation in 2001 when the Democrats blocked drilling in ANWAR the same "logic" would have been given but we would have been talking about gas rising to unheard of prices like $3.00 a gallon.
To do nothing except run around yelling "the sky is falling" is inane. We need to use all resources available to make the coming difficult transition more managable. We are not talking about bringing down the price of oil, rather we are trying to control the amount it is rising.

quote:

Originally posted by cman:

quote:

Originally posted by Suprtek:
That is not entirely true...

Markets are basically driven by four factors - supply and demand are two, but also greed and fear. Remember the last time that the price of gas was above $4.00/gal? It was the afternoon of Sept. 11, 2001. Why? Supply or demand had not changed one iota - but the perception of the possibility of a change was enough to change the price point dramatically.

Open up drilling and watch the price fall...

While your premise is true in general, it fails specifically on oil markets. The oil market are not driven by consumers it is driven by professional oil traders (speculators!! gasp!). The Spetember 11 analogy is false... EVERYONE was spooked and unsure of the future. Would there be more attacks?

But, opening ANWR and/or the deep sea would do nothing in the short term for oil prices. These people can do math as well as I can and they are, as you say greedy. They'll see that starting exploitation there will do nothing for supply for eight years and therefore will give them little reason to hop off the gravy train.

And of course the fact that when those reserves come online they will be merely replacing lost production and not adding net oil production.

We'll have to agree to disagree.

If I'm looking at trading commodities and I know that there is a finite supply - my price point is X. If I know that the supply will change - albeit at some point in the future, my price point becomes X - (a variable relative to supply at the future date).

Real estate prices in Manhattan are very expensive. What do you think would happen to that price point if the New York government seriously started discussing opening Central Park for development?

On a side note, if fossil fuel production has already peaked - and we are now in a supply-side decline - why the concern about man-made global warming?

quote:

Originally posted by cman:

2. Drive better. Just changing the way you drive any vehicle can get you better mileage. On my trip to Des Moines last weekend, I was able to get my Matrix which is rated at 35MPG highway into the low 40's by just using the cruise control and keeping my speed to about 65 as opposed to the 70 limit.

Economically speaking, you were handed your a$$ here....

Google Clinton to Des Moines - 198 miles

Extra time at 65 vs. 70 MPH approx 15 minutes

35 vs. 40 MPG at $4.00/gallon equals a savings of approximately $2.80

Multiply that times 4 to get your hourly rate - comes to about $11.20. So, if your time is worth more than that number per hour - hammer down.

ASTANA, Kazakhstan, July 2, 2008 (UPI) -- "The strained relationship with energy-rich Kazakhstan and world oil giants overshadows the renewed international interest in the country's vast reserves. Analysts consider Kazakhstan's Kashagan oil field in the northern Caspian Sea to be the largest outside of the Gulf region with an expected 13 billion barrels worth of recoverable oil. The date for exploitation of this field, however, experienced delays over technical and political issues, pushing the operational deadline from 2005 to 2013, The Financial Times said Wednesday. Kashagan could bring as much as 1.5 million barrels of crude to the market per day, but Italian energy firm Eni, which is charged with operating the field, said hydrogen sulfide and high pressure created unexpected delays in extraction. Furthermore, a row between Kazakhstan and international oil firms over shares and pricing mechanisms resulted in a decision by the Kazakh government to revoke the Eni deal once the field comes online. Kazakhstan moved recently to expand its pipeline capacity in lieu of the potential reserves, however, and the increased estimates regarding the natural resources in the Caspian region put Kazakhstan at the center of the new world energy market, the Times said."

http://www.upi.com/Energy_Resources/2008/07/02/Tensions.../UPI-34001215029476/

He’s been an oilman his whole life.
Not that any of the online professors here will give any credence to one of the most successful businessmen in the history of the oil industry, but here is his take on the issue.
Pay attention for the line “we cannot drill our way out of this mess”.