Friday, March 31, 2006

Oil Prices Returning to the News

Now that winter is over, the price of oil is starting to climb again. We were lucky that the Northeast and the upper Midwest had a relatively mild winter so that plenty of natural gas and heating oil was available. Actually, we've been lucky for most of the last twenty-five years that the price of oil has been relatively low. Or unlucky, since we didn't properly use that time to develop alternative energy on a large scale.

Keep in mind that the US government and the voters are not the only ones at fault. The big oil corporations have seen the writing on the wall for more than a generation (longer if you count some early oil company geologists) and have done little in that time to come up with solutions other than more clever ways to pump oil. I give credit to the engineers who figure out ways to keep the oil flowing but I don't credit managers for failing their responsibilities to the future.

Here's the first part of an article on the oil situation by Kevin G. Hall of the Knight Ridder Newspapers:
Oil prices inched Thursday toward last summer's record high amid concerns of supply disruptions, and energy forecasters think that volatile geopolitics and declining oil production will keep prices up for years.

Oil reached $67.15 a barrel Thursday on the New York Mercantile Exchange, up 70 cents to a two-month high, amid concerns over disruptions in Nigerian oil production and a possible political showdown over the nuclear ambitions of Iran, the second-biggest exporter in the Organization of Petroleum Exporting Countries oil cartel.

Oil prices are approaching last year's all-time high of $70.85 a barrel, which came the day after Hurricane Katrina's landfall on the Gulf Coast, and U.S. consumers again are feeling the shock at the gas pump. AAA said Thursday that the nationwide average for a gallon of unleaded gas stood at $2.51, which is 36 cents higher than a year ago and 27 cents higher than a month ago, but well below last year's inflation-adjusted all-time high of $3.05 a gallon.

Global oil production is straining to keep pace with demand, which makes oil traders fear supply disruptions and bid up prices for assured future delivery. The balance between supply and demand will remain tight for several years, which is expected to keep fuel prices high, experts at the Energy Information Administration's annual outlook meeting predicted Monday.

Kevin Hall's article is as good a summary of the oil situation as I've seen outside places like The Oil Drum. In the United States, we have a growing number of problems, including the energy sector, that require an engaged Congress and an engaged President Bush, neither of whom are doing much for the average American nor much for our future. It does not help matters that Bush has so many friends in the oil business.

We need a national evaluation of the energy sector and where it is going; only Congress, which at the moment is dominated by complacent Republicans, might have a chance of pursuing such a study. If the Democrats win back some seats this fall, a major priority should be to pursue such a study. Among a host of questions, I would like to see one simple question pursued in such a study: what is the state of light sweet crude oil production throughout the world and what is its future over the next twenty years? Light sweet crude oil is generally the easiest oil to produce and gives the most energy back for the energy invested by the oil business. As oil companies begin to switch to heavier oil, it appears production of light sweet crude is no longer increasing like it once was. That could have major near-term implications for the future.

Oil demand is real but if the oil companies don't do something useful with their profits by way of developing alternative energy sources, a windfall tax would be in order so the money can be shifted to those who will develop alternative energy. As things now stand, the oil companies seem to be gearing more and more to developing expensive new oil technologies that will be big on pollution. A major return to the use of coal, as an example, (by using coal to make oil) is not a solution but simply a way to put off a huge set of growing problems.

I suspect the reality is that time is growing short. America needs solutions.

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