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Energy

Milkshakes Are Harder To Come By: Why Oil Costs Over $120 Per Barrel

cross-posted to DailyKos and jack and jill politics

For just over a year, I've been digging deeper and deeper into the world's energy situation and have oscillated between certainty that 90 percent of us are going to die and cautious optimism about an opportunity to improve the structure of our society.

Among the big "issues" in this political season (to the extent that we even remember those), energy, climate and food are at the top of my list.

With oil prices having grown by a factor of six since 2000 and showing no sign of let up, I will increasingly post about what's going on in an attempt to share what I've learned and direct our frustration accurately and productively.

My daily must-visit site is The Oil Drum, and yesterday, they posted the single most important article explaining what's up with oil prices. The entire post is worth reading and has real perty charts and some technical detail.

I'm summarizing it below for those with less time.

1. New production is not able to offset growth in oil consumption, production declines from existing fields and the ability of oil-producing countries to tap into spare capacity

From The Oil Drum:

The Oil Drum: production and pricing
Every year a large number of new oil fields are brought on line. However, this does not directly translate to growth in supplies since amongst other things the production decline in existing fields needs to be replaced first: new annual production capacity = consumption growth + annual decline + spare capacity growth

The above leads to a supply vs. demand situation in which supply cannot keep up. Demand globally is growing. Many existing oil fields are past their peak production, meaning they produce less and less as it becomes more difficult to get the oil out. Finally, contrary to popular opinion, OPEC isn't simply holding out on us. They cannot turn the spigot on any higher, cause they're running at max output.

Basically, more people want milkshakes and it's harder to suck that milkshake out of the cup (h/t There Will Be Blood).

2. The new resources we're getting from natural gas, ethanol, tar sands, etc have lower energy content than the sweet sweet crude oil we're used to. One barrel of ethanol has the energy content of only 0.61 barrels of crude oil

As the easy oil has been sucked out of the ground, we've found it more economically viable to squeeze liquid fuels from other sources like biofuels and the tar sands of Canada.

Wired ran a great piece within the past few years comparing the prices necessary to generate an economic return on these unconventional sources. It basically said, "when oil reaches $x per barrel, it makes economic sense to squeeze tasty oil out of canada's rocks or squirrel farts or whatever."

What these economic return arguments miss is the energy return on energy invested (EROI). At some point, you're spending a barrel of energy to get a barrel of energy, and you're looking kinda stupid. No milkshake for you.

When you hear folks get all excited about tar sands and polar this and that, just remember how much energy it takes to get oil out of a deeper well or squeeze oil out of a rock (about the same amount of energy it takes to get an informed idea into a cable news broadcast).

3. Even if oil producing nations aren't yet producing less, they are exporting less.

As oil producing countries develop and pursue that American dream of leaving no car left behind, they use up more of their own oil. When everybody starts moving to the city and industrializing, mad oil is needed for building, road construction, plastic bottles and other benefits of modern living.

Governments in these countries often heavily subsidize the price of oil to keep their people happy. We've done an indirect version of this in America by having the government pay for roads, licensing systems and other necessary infrastructure for the car. However, countries like Russia actually subsidize the price directly at the pump, driving domestic demand even higher.

Less oil in the export market drives up the price for those of us dependent on importing oil's tasty goodness. We really really want that milkshake and are willing to do lots to get it. I'm not saying we'd generate trumped up reasons to invade a nation with big oil reserves. I'm just saying milkshakes and freedom are very very important and sometimes worth fighting for.

The rest of The Oil Drum's article explains why other explanations you've heard for oil's high price -- speculators, political instability, currency -- are not nearly as powerful a force as the basic supply and demand invisible hand currently backhanding us toward ever higher prices.

It closes:

We are now in the early stages of a full blown energy crisis that was predictable if not wholly avoidable. Politicians are awaking to the crisis now that escalating energy costs make its existence plain to see. It is highly unlikely that politicians will now grasp the gravity of the situation that the OECD and rest of the world faces and the responses will likely be ineffectual and too little too late. The principal reason for current high oil price is the proximity of a peak in global oil production. Politicians must understand this and then grasp that natural gas and coal supplies will follow oil down by mid century. Reducing taxes on energy consumption right now is the wrong thing to do. Taxation structure needs to be adjusted to oblige energy producing companies to re-invest wind fall profits in alternative energy sources on a truly massive scale. Energy efficiency should be the guiding beacon of all policy decisions and this must apply equally to energy production and energy consumption.

I will keep blogging about energy, the problems we face and the opportunities before us. I'm working on a site to aggregate some of my favorite sources. In the meantime, check out this primer on peak oil, and become a regular visitor over at The Oil Drum.

We're going to see increasingly hysterical coverage of energy over the next year, and I want to make sure folks have a source for informed coverage and analysis.

Let's Talk About McClinton's Terrible Gas Tax "Idea"

cross-posted to jack and jill politics It's a given around these parts that Hillary Clinton is full of excrement and John McCain wouldn't know sound economic policy unless it made a personal attack against his family then asked him to campaign for it in the next election cycle. Still, something has been rubbing me the wrong way about how both of these people are calling for taxes on gasoline to be waived this summer, you know, to ease the burden on the American consumer. Call me crazy, but it seems like the last thing we need to do is encourage more use of fossil fuels up in here. It's getting a little hot. I've been happy to discover that my brain does, in fact, work, and that I'm not alone. Jonathan Alter of Newsweek
Hillary Clinton has now joined John McCain in proposing the most irresponsible policy idea of the year—an idea that actually could aid the terrorists. What's worse, both of them know that suspending the federal gas tax this summer is a terrible pander, and yet they're pushing it anyway for crass political advantage. Clinton and McCain have learned a destructive lesson from the Bush era: as Bill Clinton said in 2002, it's better politically to be "strong and wrong" than thoughtful and right. The goal is to depict Barack Obama as an out-of-touch elitist. By any means necessary. I could highlight a long debate among economists on suspending the gas tax, but there is no debate. Not one respectable economist—and not one environmentalist or foreign policy expert—supports the idea, unless they are official members of the Clinton or McCain campaigns (and even some of them privately oppose it). To relieve suffering at the pump, send another rebate check or provide tax credits or something else, but not this.
And Thomas Friedman of the Times
It is great to see that we finally have some national unity on energy policy. Unfortunately, the unifying idea is so ridiculous, so unworthy of the people aspiring to lead our nation, it takes your breath away. Hillary Clinton has decided to line up with John McCain in pushing to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for this summer’s travel season. This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country. When the summer is over, we will have increased our debt to China, increased our transfer of wealth to Saudi Arabia and increased our contribution to global warming for our kids to inherit. No, no, no, we’ll just get the money by taxing Big Oil, says Mrs. Clinton. Even if you could do that, what a terrible way to spend precious tax dollars — burning it up on the way to the beach rather than on innovation? The McCain-Clinton gas holiday proposal is a perfect example of what energy expert Peter Schwartz of Global Business Network describes as the true American energy policy today: “Maximize demand, minimize supply and buy the rest from the people who hate us the most.” Good for Barack Obama for resisting this shameful pandering
You hear that? Obama is not pandering, and this is an issue that actually matters. This is policy. This is meat and potatoes. This is war and peace and pollution in our cities and lungs. McCain is so caught up in his crooked pander he can't find the keys to the Straight Talk Express much less operate the gas guzzling terrormobile. Ms. Hillary, poor thing, is willing to wield any weapon against Obama, even if that thing is the most ass backwards energy policy possible. Solutions for America, my ass. It's nice to see that a lifetime of "experience" has taught these two clowns how to trade our very lives and security for a few political points. Next. Update: my people I apologize. I failed to leave you with something to do. Please head over to Hillary Clinton's website, and John McCain's. Ask them a few questions. Feel free to use or edit the following: For Hillary: Dear Senator Clinton, you have rightly acknowledged America's energy challenge and the need to invest in green energies. Given your stated positions, why do you support a gas tax holiday which encourages the use of fossil fuels and rewards the very oil companies you criticize? Please change your position on this critical issue. For McCain: Dear Senator McCain, having served in the military, you know what it means to defend this country which is why your support of a gas tax holiday confuses me. By encouraging oil consumption, you'd be rewarding the regimes of nations hostile to our national security, making us even more beholden to terrorists. Please help keep America safe and reduce our dependence on foreign oil this summer driving season.