Dear Oil Speculators
March 11th, 2008 at 12:10pm Mark Noonan
As you continually outbid each other for oil futures contracts, I wonder if any of you have considered the fact that global oil demand is declining, not rising?
Now, I’d like to say that once the oil futures market crashes - which it will, because you twits are bidding famine prices during an oil glut - that I will be sympathetic to you, but I won’t.
Entry Filed under: Economy
48 Comments
1. Michael | March 11th, 2008 at 12:26 pm
Guess that’s why they call it a market. Sometimes you win, sometimes you get squashed like a bug.
2. Arctic Fox | March 11th, 2008 at 12:40 pm
Sometimes I wonder if you fully read some of these articles before you post them and your own comments.
Yes the IEA has had to lower its forecasts, but OPEC and others thought that the IEA set its forecasts way too high to begin with. If they are correct, it should come as no surprise that - since the economy is in trouble - the IEA has had to reduce its forecasts.
But this doesn’t mean demand is dropping. A poorly put together forecast that turns out wrong and has to be redone doesn’t mean demand is dropping. In fact the article goes on to point out that China’s demand rose by 0.4 million barrels this year.
The ability to pay for the oil is the deciding factor here, not the demand. With oil hitting over $107 a barrel (source: BBC) those countries whose economies have slowed down increasingly can’t afford to pay the massive prices oil companies are demanding, thus, they don’t buy as much not because it’s not in demand, but because their pockets aren’t infinitely deep.
I’m with you in your prediction of a market crash, though, and in not being sympathetic. It will take a crash to teach those greedy oil moguls to moderate their prices.
3. Mark Noonan | March 11th, 2008 at 12:47 pm
AF,
Its not greedy oil moguls - its idiot speculators…people who are hoping to strike it rich in the oil futures market…remember, when a fool commits to paying $110 for April delivery, he’s actually hoping it will be $115, so he can make a massive profit. Eventually, however, this bubble will burst…there’s just not that much demand for oil, nor is there any global shortage of oil The reasonable price for a barrel of oil isn’t even 20% of the current futures price.
4. Bigfoot | March 11th, 2008 at 1:18 pm
It will take a crash to teach those greedy oil moguls to moderate their prices.
While it is quite easy to accuse the oil companies (or their moguls) of greed, remember that the price of crude is what they pay to those who those who supply them with oil, e.g., the governments or state oil industries of Saudi Arabia, Venezuela, Mexico, etc. Since the oil companies are driven by the motive to make profits (as the left often points out), their interests would be better served by lower crude prices, since this reduces their expenses.
On the other hand, we could instead allow our American oil companies to increase domestic production, such as by tapping the unused reserves offshore or even ANWR (which I’d hold in reserve), thus eliminating some of the need to buy crude from Saudi Arabia, Venezuela, Mexico, etc., with the beneficial side effect of decreasing overseas crude prices due to the increased supply. We could also allow the oil companies to increase their refining capacity, thus easing worries over when crude can become gasoline and other useful products.
But NOOOOOO!! We don’t DARE do that! After all, somewhere in Alaska, (gasp!) a caribou might die! Potential tourists will stay away afrom our gulf coast because they might have to (gasp!) look at an oil rig.
5. Retired Spook | March 11th, 2008 at 1:23 pm
I drove 31% fewer miles in 2007 than in 2005, which translates into a reduction in fuel consumption of about 245 gallons. If only 1% of the roughly 250 million passenger vehicles in the U.S. achieved similar savings, that amounts to 612.5 million gallons of fuel. I realize the equation is probably a lot more complicated than that, but it illustrates the point that, when dealing with a commodity over which we have no control, reasonable conservation efforts can have a significant impact. I didn’t change vehicles or my driving habits, I just planned and prioritized my travels better.
And I agree; when the speculation bubble bursts, it ain’t gonna be pretty.
6. Aaron | March 11th, 2008 at 1:55 pm
Your link purports to verify that world oil demand is declining. But if you read the link, it only says that oil demand is soft in the US. Meanwhile, in the EU, China, India, and Russia, oil demand is up.
And last fall, you were here saying that oil would drop below $40/bbl. I severely doubt that we are going to see oil falling much below $100 ever again - unless there is some world-wide economic collapse.
The total estimated reserves of untapped oil under US territory is put a tiny drop in the bucket as compared to world daily oil production. As a world commodity, the US therefore is in no position to affect oil prices on the supply side - no matter how much we dig up ANWAR and other possible oil reserves within US territory. However, we currently account for about 25% (although dropping) of world oil demand - thus, we can definitely impact oil prices on the demand side of the equation.
The solution therefore can never be found by more drilling - we just don’t have enough potential supply to ever affect world oil output. Investing in alternative energy and conservation technologies is the solution.
But first we have to get Exxon out of the White House.
7. Amanda | March 11th, 2008 at 1:56 pm
The first article you linked ends with this sentence:
“Oil demand was forecast to increase by 1.7 million barrels per day in 2008 or 2.0 percent from demand in 2007, which grew by 1.1 percent.”
The second article contains this sentence:
“The agency reduced its forecast for demand this year by 200,000 barrels a day to 87.6 million barrels a day. That lowers the annual growth rate to 1.9 percent, down from 2.3 percent in last month’s Oil Market Report.”
Which, either way you look at it, is still a growth in demand over 2007. There was a reduction in the projected growth, but still an overall increase in demand.
8. Ricorun | March 11th, 2008 at 2:02 pm
I wouldn’t stake my life on it, but doubt if there’s much of a bubble in oil prices at this point. And you will note the article cited in the topic doesn’t indicate that demand is declining, just that it might not rise as fast as previously estimated. Similar fluctuations occur in estimating supply trends too, although supply is more directly controllable than demand is. Thanks to OPEC. Because it is, I don’t think we’ll see much of the lower side of $100/bbl anytime soon — barring a very deep world-wide recession, that is. And I certainly hope no one wishes that just to bash a few libbies.
But the whole supply/demand equation does pose an interesting question… assuming that alternatives to oil come on line in such a way as to rapidly and deeply penetrate the transportation sector, the price of oil will very likely drop as the demand drops. The question is, would that qualify as a reason to bash libbies for being wrong about the price of oil staying high? Lol!
Anyway, I came across an in-depth study of “energy productivity” — i.e., the level of output we achieve from the energy we consume. What they found is there are myriad ways to improve energy productivity that have positive returns on investment. In other words, they don’t just not hurt economically, they make money in the long run. Needless to say, they also reduce all kinds of emissions, because you can’t emit from that which you don’t use. That makes it a no-brainer. But what was surprising to me is how easy it is to achieve in most cases, and how much of a reduction in emissions better attention to energy productivity could account for. The numbers are HUGE! This is the study. And this is its take-home message:
With an average internal rate of return of 17 percent, such investments would generate energy savings ramping up to $900 billion annually by 2020. Energy productivity is also the most cost-effective way to reduce global emissions of greenhouse gases (GHG). Capturing the energy productivity opportunity could deliver up to half of the abatement of global GHG required to cap the long-term concentration of GHG in the atmosphere to 450-550 parts per million—a level experts say will be necessary to prevent the mean temperature from increasing by more than two degrees centigrade. Moreover, the opportunities to boost energy productivity use existing technologies that pay for themselves and therefore free up resources for investment or consumption elsewhere. (emphasis mine).
An average internal rate of return of 17 percent. That’s incredible. Companies spend piles of money on experts to tell them how to optimize production efficiency, worker efficiency, and so on. And gains of 1 or 2% are considered big deals. And they are, because better efficiency is essentially all profit (minus the experts’ salaries). But those numbers pale in comparison to what could be saved by improving their energy efficiency. One tends to assume that market forces alone ensure that production relative to demand operates at near optimal efficiency (at least that’s what the libertarian purists want you to believe). This study blows a big, wide hole in that assumption. Clearly, greater concentration on energy efficiency is something that has been woefully overlooked, but which can have a significant and immediate impact on the bottom line even if GW didn’t figure into the equation in any way whatsoever. The fact that it does is a bonus.
I also came across a case study report (http://www1 eere energy gov/industry/saveenergynow/pdfs/42136.pdf — replace the spaces with periods) where the DOE helped a Chrysler vehicle assembly plant analyze their energy use. Once the plant implemented the recommended changes they ended up saving $627,000 per year on their energy bill, reduced their usage of natural gas by 70,000 MMBtu, and paid back the cost of the changes in two months. Two months!! Incredible.
9. Kahn | March 11th, 2008 at 2:03 pm
Aaron, OR maybe Democrats could stop blocking wind, nuclear, and hydro-electric electricity? I know your side wants to limit oil usage because of Global Warming. But OUR side wants to replace it for these very economic reasons.
I don’t think corn and sugar are the answer. They may help with independence, but they do still pollute.
Join us.
Tell your leadership to overthrow Ted Kennedy’s windmill legislation
Tell your leadership that we need more atomic energy plants. The French models look good. Lets build some.
Tell your leadership to consider another hydro-electric project somewhere, anywhere.
Help us ween off of oil. We both want it. I offer three alternatives. What have you got (seriously)?
10. Ricorun | March 11th, 2008 at 2:04 pm
I wouldn’t stake my life on it, but doubt if there’s much of a bubble in oil prices at this point. And you will note the article cited in the topic doesn’t indicate that demand is declining, just that it might not rise as fast as previously estimated. Similar fluctuations occur in estimating supply trends too, although supply is more directly controllable than demand is. Because it is, I don’t think we’ll see much of the lower side of $100/bbl anytime soon — barring a very deep world-wide recession, that is. And I certainly hope no one wishes that just to bash a few libbies.
But the whole supply/demand equation does pose an interesting question… assuming that alternatives to oil come on line in such a way as to rapidly and deeply penetrate the transportation sector, the price of oil will very likely drop as the demand drops. The question is, would that qualify as a reason to bash libbies for being wrong about the price of oil staying high?
Anyway, I came across an in-depth study of “energy productivity” — i.e., the level of output we achieve from the energy we consume. What they found is there are myriad ways to improve energy productivity that have positive returns on investment. In other words, they don’t just not hurt economically, they make you money in the long run. Needless to say, they also reduce all kinds of emissions, because you avoid burning anything in the first place. That makes it a no-brainer. But what was surprising to me is how easy it is to achieve in most cases, and how much of a reduction in emissions better attention to energy productivity could account for. The numbers are HUGE! This is the study. And this is its take-home message:
With an average internal rate of return of 17 percent, such investments would generate energy savings ramping up to $900 billion annually by 2020. Energy productivity is also the most cost-effective way to reduce global emissions of greenhouse gases (GHG). Capturing the energy productivity opportunity could deliver up to half of the abatement of global GHG required to cap the long-term concentration of GHG in the atmosphere to 450-550 parts per million—a level experts say will be necessary to prevent the mean temperature from increasing by more than two degrees centigrade. Moreover, the opportunities to boost energy productivity use existing technologies that pay for themselves and therefore free up resources for investment or consumption elsewhere. (emphasis mine).
An average internal rate of return of 17 percent. That’s incredible. Companies spend piles of money on experts to tell them how to optimize production efficiency, worker efficiency, and so on. And gains of 1 or 2% are considered big deals. And they are, because better efficiency is essentially all profit (minus the experts’ salaries). But those numbers pale in comparison to what they could save by improving their energy efficiency. One tends to assume that market forces alone ensure that production relative to demand operates at near optimal efficiency (at least that’s what the libertarian purists want you to believe). This study blows a big, wide hole in that assumption. Clearly, greater concentration on energy efficiency is something that has been woefully overlooked, but which can have a significant and immediate impact on the bottom line even if GW didn’t figure into the equation in any way whatsoever. The fact that it does is a bonus.
I also came across a case study report (www1 eere energy gov/industry/saveenergynow/pdfs/42136.pdf — replace the spaces with periods) where the DOE helped a Chrysler vehicle assembly plant analyze their energy use. Once the plant implemented the recommended changes they ended up saving $627,000 per year on their energy bill, reduced their usage of natural gas by 70,000 MMBtu, and paid back the cost of the changes in two months. Two months!! Incredible.
11. js | March 11th, 2008 at 2:10 pm
Billions of barrels of oil lie miles below the Gulf of Mexico
http://www.news.cornell.edu/Chronicle/03/4.3.03/ACS-Cathles.html
12. Just Another Taxpayer | March 11th, 2008 at 2:20 pm
Deleted - mindless insults making the blog appear an unfriendly place to visit.
13. Ricorun | March 11th, 2008 at 2:26 pm
Kahn: Tell your leadership to overthrow Ted Kennedy?s windmill legislation
Ummm… they already have. Final approval is expected in mid-April. Independent of that though, go ahead and rationalize the Cape Wind project on an economic basis, rather than an anti-Kennedy basis. The thing is expensive. Depending upon your viewpoint, it might be too expensive or it might not. Either way, what’s your argument?
14. Ricorun | March 11th, 2008 at 2:35 pm
js: Billions of barrels of oil lie miles below the Gulf of Mexico
So does trillions of BTUs of heat. Of course, it’s equally true that there are trillions of BTUs of heat miles below virtually every land mass on earth. And it’s cheaper to drill if you start on land. So why not harvest the heat instead?
Okay, this is kind of a trick question, but not a trivial one. So I’m curious what your answer will be.
15. IndaVa | March 11th, 2008 at 2:48 pm
Kahn,
The Republicans blocked the last oil drilling bill for Alaska. Just FYI…
16. Casper | March 11th, 2008 at 3:07 pm
Kahn,
If you want to see wind farms, come to Wyoming. We have them popping up all over the place. Of course, Ted Kennedy doesn’t live here.
17. southerner | March 11th, 2008 at 3:48 pm
Mark,
You really are priceless. You think that oil demand is “declining” because the current downturn (caused by Bush’s insane ‘free money’ credit policies) is going to slow global economies this year. If you knew anything about economics Mark you would know that oil is in what is known as a secular bull market. That means that real demand for the product is slated to increase massively over the coming years. Ever heard of China, India or the far east in general? They’re kind of busy with modernizing their economies over there and oil is a big part of that picture.
Your confusion here is similar to your mistaking weather for climate in your global warming posts. Short term decreased demand does not mean a darned thing to speculators who are betting on futures and trying to predict where the price of oil will be in a year’s time or more. For these guys Bush’s fist thumping about Iran and refusal to take the possibility of attacking Iran off the table is adding at least $10 - $20 to the price of a barrel of oil. The fact that Bush has also failed to impose any MPG minimums on Detroit has also helped fuel the ongoing demand, so has the general instability caused by Iraq.
As for Venezuela, Bush’s administration immediately recognized the government of Pedro Carmona during the 2002 coup attempt which briefly overthrew Chávez (the DEMOCRATICALLY elected head of the country). Since then Chavez has (understandably in my opinion) been rabidly anti-American. All of this adds up to a situation where oil is hovering around $110 a barrel while it averaged $23 per barrel during the Clinton years.
In one of your posts above you refer to oil speculators as “idiots” who are making “bets” about oil. Do you even know what the purpose of a futures market is? It’s to allow companies and entire industries to hedge their future expenses by booking-in commodities such as oil at specified prices so that they can protect themselves against future price fluctuations. If this market did not exist then the price of your airline ticket and gas at the pump would be at least 20% higher. But of course this entire market is made up of “idiots” who are just making “bets ” in your opinion
Bush has been very bad for this nation on a macro economic level but he has maintained the illusion of a somewhat healthy economy by presiding over a credit boom. In reality though the big winners from Bush’s presidency have been his old friends the oil companies, they LOVE having oil trade at $110 per barrel and will happily watch it ride all the way up to $150 over the next twelve months. Exon Mobil posted the largest profit ($40 BILLION) of any corporation in the history of the planet last year Mark, yup, the president has been VERY good to his friends:
http://www.washingtonpost.com/wp-dyn/content/article/2007/02/01/AR2007020100714.html
18. js | March 11th, 2008 at 4:15 pm
13. Ricorun
It really get useless to speculate about non existent technology.
The Chinese are funding Cuban enterprises to drill in the Gulf.
We already have oil there. New fields under development are reported capable of 400k barrels per day for the next 20 + years conservatively. It can be substantially expanded and literally replace our dependence on foreign oil. They project that there is more oil under the Gulf than there is in Saudi Arabia. We just have to go get it.
19. southerner | March 11th, 2008 at 4:21 pm
Js, Since you don’t seem to be able to get it let me explain it to you. What Ricorun is trying to tell you is that removing the oil from the gulf of mexico is not economically viable, even at the current prices. Maybe when we get to $250 a barrel it will start to look good.
Believe me, history will not be kind to Bush on this issue, the fact that he did not invest in any meaningful way in alternative energy sources or even promote energy conservation measures while staring this threat full in the face during his presidencies is just another of his massive failures.
20. Kahn | March 11th, 2008 at 4:28 pm
Rico - if thats true, cool. I wasn’t actually making an argument that I was aware of. I was asking people to come together to solve a common problem. Is that concept so foreign to you?
IndaVa- oh really? What was the vote?
Casper - yes. But the Kennedy law made it much harder to get projects approved by requiring extensive additional studies and approvals. If what Rico says is true - good.
Now, on to nuclear and hydro-electricity. To my knowledge no new hydro electric projects have been proposed in decades. Why not? With water scarcity and energy costs it seems like building a new reservoir and getting free power would be appealing?
As far as nuclear goes. Whereas our old plants are all unique, France has chosen one standard design for all its plants. This seems to be a good and robust design. Though I must admit I’m no expert. We should just adopt this type of plant. That way, we’ll be marching towards a standard.
The big problem, of course is waste. We built a big empty facility at Yucca Mountan. Whats up with that? Why can’t we use it and what needs to be done?
21. Michael | March 11th, 2008 at 6:02 pm
I always thought the real speculators were in the options market. There’s not much difference between option trading and going to the tables in Vegas.
22. Leo Pusateri | March 11th, 2008 at 6:11 pm
And replace it with Occidental Petroleum?
23. js | March 11th, 2008 at 6:26 pm
18. southerner | March 11th, 2008 at 4:21 pm
Js, Since you don’t seem to be able to get it let me explain it to you. What Ricorun is trying to tell you is that removing the oil from the gulf of mexico is not economically viable,
———-
Sure. And Clinton was a good President.
You probably believe all them lies….
The truth is, we cant afford not to, and just leave it out there for the Chinese and Hugo Chavez….
24. Eric T | March 11th, 2008 at 6:29 pm
I got oil in the 401K, but also got a pick-up truck that I gotta fill-up everyday.
The Free Market allows anyone who wants to buy crude oil futures to buy them.
Think about it, can ANYONE go out and buy a full auto machine gun. No, !!! you have to pay the taxstamp, have a Form 4, or C+R license depending on your state. Can anyone buy nuclear warheads because it is a free market?
Why should just anyone be able to buy crude futures? If everyone and their mom go out and buy them and hold them, it will push up the price. What is the average Joe going to do with crude oil anyway? A refinery needs crude oil, a distributor would buy wholesale gasoline futures contracts. Crude Futures control the price. Should Wall St. traders control our countries Energy Prices, and turn gas prices into some kind of casino game??? They want to run up stocks, OK, but Energy prices are different. It effects everyone. I got a $938 gas bill for heating my home. Come on, where does it end? Add that to democrats going apesh%@ with property taxes, 32% interest credit cards. high gasoline prices, ect.. All the while wages not rising.
What we need to really look at is: Do these crude oil contracts really need to be available to everyone, These foreign investors and foreign banks (that we allow to buy up our banks and businesses) could very well be waging economic warfare by buying up futures, refusing to sell them and running up the price to the point where our economy folds up and collapses, like the Soviet Union did.
Could it be?…. democrats, trying to drive up the price to discourage folks from voting Republican this fall.
High Energy prices (78 per barrel) when a Hurricane destroyed the Plantation and Colonial Pipelines and destroyed BP’s Thunderhorse platform. But (108 per barrel) because the sky is blue and OPEC justifies it because we have a weak dollar????
We need an Oil Minister like OPEC has, to crack open the reserves when needed, give out drilling leases, integrate coal to oil technology, ethanol, biomass, biofuels and keep the prices low.
You want a good economy, 80 cents a gallon for fuel. And people will have some money to spend and grow other sectors of the market besides energy.
You want everybody broke, losing there homes, unable to feed the family healthy food. You can have that, by letting Foreign investment bankers, and everybody else looking to make tons of money, to meddle with OUR energy prices.
Government’s primary job is to protect it’s people. If we let these retards inflate the price to $150 a barrel, then OPEC manufactures a crisis drives it to $ 225. Then some refineries explode $300. We might as well start sell off states to Saudi Arabia and Iran, UAE, ect…
If it gets to that point, sell California, most of the bad legislation originates there.
25. Gaijin | March 11th, 2008 at 7:48 pm
Eric T,
Are you advocating anti-free market principles? Regulation? In case you didn’t know, it’s not just on Wall St that oil is traded. It is traded in every major country. Furthermore, it has almost always been traded in dollars since the 1970’s. This essentially gives the US a blank check book as every country needs dollars to buy oil. Thus, they are never going to send them back to the FED. This is causing huge amounts of inflation in the Gulf States. If they decided to drop the Petro Dollar, the US Dollar and thus the economy will fall drastically.
The two main reasons oil prices are up: 1) Bush has destroyed the value of the dollar 2) Bush’s Middle East adventures.
The national average for gas was $1.23/ gallon in early 2003, i.e. before the war.
Bigfoot,
“Since the oil companies are driven by the motive to make profits (as the left often points out),their interests would be better served by lower crude prices, since this reduces their expenses.”
Better go back to Econ 101. As I am sure you will remember, despite trying desperately not to, back in the Clinton years, oil was about $25-30 a barrel and gas 99 cents/ gallon. Now according to your theroy, under these lower oil prices, the oil companies should have been having their Golden Days.
Yet, with the higher oil prices of late, Exxon has posted the biggest profit by any corporation in history, $40 BILLION. Could you please explain this contradiction, as I cannot understand your logic.
Kahn,
As I am sure you are aware, there are only some many places where a hydro electric dam can be constructed. Most of these site have already been tapped. What future sites do you recommend we use next?
You are right that corn and sugar are not the answer. If we used all US corn production for ethanol, it would only supply 7% of US cars. This is a give away to the farming/corn lobby that will not end our dependence on oil and will hurt the poor, the world over, with higher food costs. This idea should be scrapped altogether.
Three things the goverment could do now to increase energy independence:
1) Increase the CAFE standards to 40 mpg by 2016. No more exceptions for ‘light trucks,’ SUVs, etc
2) Manditory Recyling. Only 50% of cans are recycled, not to mention all the other trash. There is a massive amount of energy to be saved here, in addition to the landfill space.
3) Change the building codes to more of a Norweigen model. Their buildings are much more energy efficent. They use solar panels, wind turbines, recycle garbage, etc. Allow tax incentives to companies and home owners who use these technologies.
Peace, Gaijin
26. plainjane | March 11th, 2008 at 8:00 pm
Deleted - off topic.
27. southerner | March 11th, 2008 at 8:18 pm
Gaijin,
You’re trying to explain macro economics to people like Eric T who think -
Do you really think there’s any hope of explaining the significance of unremitted petrodollars to these people? They live in a world of paranoid poorly informed make believe.
One thing I will adress to you though Gaijin since you seem to be well informed about this topic. Are you aware that Iran recently opened its own oil bourse, and guess what? They ain’t trading oil in dollars. They’ve been planning to do this for years and finally got it together to open the bourse in February.
Think there just might be some connection between this and all the sabre-rattling against Iran? After all, Saddam demanded payment for Iraq’s oil (under the oil for food program) in Euros a couple of years before the war and there’s a lot of people who think that was a large factor in the neocon’s decision to go invade. Funnily enough, when the coalition authority came to power in Iraq one of the very first orders given was that all payments for Iraqi oil must henceforth be remitted in US dollars. A very bad deal for the Iraqis themselves since the dollar has tanked against the Euro since 2003. But hey, that’s just one more way Iraq got screwed by us.
More about the Iranian oil bourse here:
http://en.wikipedia.org/wiki/Iranian_Oil_Bourse
28. Eric T | March 11th, 2008 at 8:35 pm
Gaijin- Ethanol is a great idea, one of the best things Bush ever put out, with cellouse ethanol it can be pulled out of grass, food prices will not be affected as much. They can make ethanol out of cow sh@#, garbage, just about anything. How many times were farmers paid not to grow things. I’d rather give cash to an American farmer, than an some Arabic countries state run oil company that sponsors terrorism and straps bombs on kids and sends them into grocery stores to kill innocent people.
Norway has their gasoline priced at about $8.50 a gallon. Not the right direction.
Cafe standards for trucks, gimme a break. You going to pull a boat, camper, load of firewood, lumber, or construction materials up a hill, with some putt-putt 4cylinder motor.
Recycling is cool, I agree with you on that.
I used to haul crushed cars, high steel prices created alot of recycling, aluminum, copper were at highs not to long ago. The folks in the ghetto were stealing siding off homes and copper plumbing and wire. Our state has a .10 cent deposit on pop, beer cans, It actually works good, you’ll see people sifting thru trash cans for empties.
Yes, I’m a protectionist, I’m not a free market principles guy. I don’t think OPEC state run oil companies, Chavez, the Chi-coms are either, We are paying them to buy up our country. Hopefully we’ll sell them New York, and the real Blue States first.
29. Ricorun | March 11th, 2008 at 9:01 pm
Kahn: I was asking people to come together to solve a common problem. Is that concept so foreign to you?
Me? You’re kidding, right? Assuming you’re not, go ahead and answer the question I asked you in comment #12: Depending upon your viewpoint, it [Cape Wind] might be too expensive or it might not. Either way, what’s your argument?
Now, on to nuclear. And there the question is largely the same. As this article indicates, a nuclear plant isn’t cheap. In this case the Florida plants discussed the estimated cost is $17 billion (including power lines to hook up to the grid) for a total capacity of 2,200 MW. Assuming no cost overruns (and the article mentions examples of that happening), that works out to $7727/kW. That’s pretty pricey. And in order to pay for it the government plans to subsidize some of it, and raise the electrical bills of all consumers by an average of 3-4% for 10 years, while the plant is getting built.
But construction cost is only one variable that has to be considered before you decide if it makes sense or not. And all of them have to be compared to those of alternative options. But the common assumption that “nuclear power is cheap” isn’t exactly true. It’s true that operating costs are low, but nothing else about them are. And of the more than 100 nuclear plants currently in operation in the US, not one of them has been built without government subsidies. In other words, the free market alone has yet to pay for a single nuclear plant. And it isn’t likely to happen anytime soon. Maybe someday. Who knows.
Gaijin already posed the central question with regard to hydroelectric: where? It would be great if you could find someplace. But my understanding is there aren’t too many rivers left (if any) with a high enough flow rate to make it practical. Some companies are trying to develop in-current turbines (basically a high-tech equivalent of a water wheel), but so far they haven’t panned out very well.
As an interesting side note though, Dasein alerted me to a proposal just south of where I live to use hydroelectric as an energy storage (load-leveling) technique: they want to pump water uphill during off-peak hours so they can use it during peak hours. It turns out there is at least one other such project already in use — somewhere around Lake Castaic, CA.
30. Eric T | March 11th, 2008 at 9:06 pm
Southerner-
What you quoted in #27, I was just joking when I threw that out there, but the crude price soaring, sending the dollar into the toilet, and the Hard Times it is creating for working folks is not a joke. Trucking, tourism, alot of businesses will fold up and close their doors for good with these energy prices flying put of control.
31. southerner | March 11th, 2008 at 9:08 pm
Eric,
As well as being a protectionist you are also dirt ignorant about how commodity markets work. As has already been explained to you, oil is sold on a global market, it’s impossible for the US to control its price by restricting the number of ‘licenses’ to oil speculators or whatever. Our choice is pretty simple - if we want to buy it we’ve got to pay the going rate, otherwise we can choose not to buy it. Kapish?
32. Ricorun | March 11th, 2008 at 9:30 pm
Eric T: I’d rather give cash to an American farmer, than an some Arabic countries state run oil company that sponsors terrorism and straps bombs on kids and sends them into grocery stores to kill innocent people.
Gosh, put that way maybe it isn’t so bad to pay a heavy premium for ethanol. You do realize that’s what it will take to make ethanol out of cow sh@#, garbage, or just about anything else, right? At least for the forseeable future — and assuming someone figures out a way to scale up a process that can actually do what you say. There certainly are a lot of folks trying.
I don’t think ethanol is a good choice though. It’s energy density is fairly low and because it’s corrosive and water soluble it can’t be transported through the existing infrastructure. Butanol would be better. More complex hydrocarbons (biopetroleum) would be even better. And I suspect that by the time a cellulosic process manages to come on-line, the end product is likely to be something other than ethanol.
33. js | March 11th, 2008 at 10:11 pm
The real truth is this.
We have come to believe that we need oil. This serves the purpose of those who have all the money. As long as we refrain from dedicating ourselves from using alternative sources of power, we will always be like heroin addicts, addicted to oil.
Its not the governments duty to change us, its out duty to change the government, and we can onlly do it with actions, and not words.
34. Kahn | March 11th, 2008 at 11:45 pm
OK Rico, on Cape Wind: I don’t know. What I do know is that in an effort to stop it, Kennedy created and rammed through a law that severely restricted EVERY wind project in the country.
You say Congress has already fixed it, next month. Think about that for a second. Apply the theory of linear timelines to it. In my universe, time progresses on a single axis from the past to the future that I can only ride in one direction. Just saying, since you got snooty.
As to your nuclear power math. You left out the - per time unit part. How often would the plant provide 2,200 MW? Every year? Every week? Every hour, you get it - I know. The cost of a major capital asset like that would be spread over years.
Nuclear power in my area has helped keep electricity prices low for decades. And, in fact it IS decades since the last plant in the US was built decades ago.
But one thing, and here I agree with you. We should scrap the custom plant concept and build standardized cookie cutter plants. That should help cut down design, testing, building, training, and operations costs. Spare parts inventories would be smaller and standardized. One school could train people for every plant. Works and inspectors could walk into any plant and know where things are and how they worked.
I always though the two big problems with nuclear power were safety in operation and the safety of long term waste storage. I think you missed the mark on your cost/benefit calculations. But those other two problems are still real.Apparently, these French reactors are pretty safe. Though I could be wrong. The waste is reprocessed and some is used again. But eventually we need a big safe hole in the ground to put it in.
Speculating now, I’ll bet that people who oppose Cape Wind do the same thing you did with you nuclear power plant cost/benefit calculations. I’ve been into some of the Cape Cod anti-Cape Wind web sites. They are crude. I must admit though that I haven’t done the math. (but I do know how to do the math, friendly point?)
35. Kahn | March 12th, 2008 at 12:01 am
I don’t understand why liberals are trying to pick a fight on this. In Al Gore’s book he advocates higher oil prices to FORCE change. This is part of his anti-Global Wasrming plan.
OK, so I don’t buy into that. But I’m OK with weening off oil for security and economic reasons. Since this is a defined path for anti-Global warming warriors, I’m perplexed at the hostility. We want the same things for different reasons. Actually, some of you I bet even see the economical and security reasons. So?
Do you want to keep it partisan and never get anything done? Or do you want to solve Americas problems. Because this hostility does not look like a “new way” to do things to me.
36. Gaijin | March 12th, 2008 at 12:51 am
Kahn,
You definitely seem to have the right mind set. It will take a bi-partisan effort to overcome our addiction to oil. You have presented an interesting case for nuclear power. It has many pros and cons and makes people very nervous when it is in their backyard. Kennedy’s attempt to end the wind project was aweful, no doubt about it.
Southerner,
I know, but I keep trying.
Eric T,
First off, Ethanol was not Bush’s idea. Secondly, cellouse ethanol is not what is being produced at present. Mainly corn, i.e. edible food, is being used. It’s not cost effective and it drives up corn prices. Look at the tortilla crisis in Mexico, famine in Africa or just go down to the local super market and look at the price of cereals, milk, meats along with a host of other foods, they have all increased substanially in the past couple of years.
Once again, if you take all the US corn and turn it into ethanol, you will only be able to power 7% of American cars. It will never work. Not to mention as more forest are converted to farm land, it actually increases CO2. If we are going to use the cellouse method, it’s worth a shot, but turning food into fuel is not the way to go.
I never said anything about following Norway’s example of $8.50 gas. I was speaking of their building codes. Their buildings use much less energy than ours, hence lowering their dependence on foreign energy. They also have a higher standard of living than the average American, but that is a different topic.
“Cafe standards for trucks, gimme a break. You going to pull a boat, camper, load of firewood, lumber, or construction materials up a hill, with some putt-putt 4cylinder motor”
We can reach a 40 mpg standard and still have enough horse power to haul all of those things. Do you think if 20 years ago I would have told you a Japanese company would produce a car that would get almost 70 mpg, would you have believed that?
The Honda Accord Hybrid actually has more horse power than the gas only model. We put a man on the moon. You’re telling me that we can’t have a truck get 40 mpg and still have enough torque to haul a bass boat? Really? In the country that invented Nuclear Energy and the air plane?
The reason why Ford and Cheverolet are on the verge of going bankrupt is because they kept producing the same SUVs with their 13 mpg standard while the Japanese were investing in the technology of the future. Today, Toyota is the biggest, most powerful car maker on the planet…they also have the best selling Hybrid…hmm…
Peace, Gaijin
37. Ricorun | March 12th, 2008 at 9:57 am
Kahn: You say Congress has already fixed it, next month.
No, what I’m saying is that the attempt to put in a rider to the Coast Guard appropriations bill that would have given governors the power to veto wind farms off their shores was defeated. Nonetheless, every public works project (not just wind farms) has to go through an approval process. That’s what should be wrapped up next month for Cape Wind. And as I understand it, Kennedy has no say anymore.
As for nuclear, the point I was trying to make is that they require government subsidies, tax breaks, and/or some other form of financial assistance to be built. A lot of people cringe at that concept, interpreting it as government intrusion into the free market. And it is. The notion of adopting a mandatory nation-wide “cookie cutter” design would be another level of government control. Likewise, decisions on waste storage also require government involvement. So if one is a big fan of the unfettered free market, nuclear isn’t a good choice. Neither is Cape Wind. Neither would almost any other form of alernative energy. Not right now anyway.
The point I was leading you to (you personally this time, and hopefully others) is that government intervention DOES make sense sometimes. Government is able to provide a more coherent vision and a much longer time line than individual industries or individual companies ever could. In industry, if the likelihood of getting a return on your investment in two or three or five years tops is low, then the investment won’t be made. Thus, if one wants to achieve a goal over a longer term, then government usually does need to get involved. Likewise, your “cookie cutter” design probably would enhance the progression to economy of scale. But at the same time it obviously prevents individual municipalities from making their own decisions.
People especially cringe at the idea of a carbon tax — again, because it’s an intrusion into the free market. But that’s essentially what the proposed surcharge on consumers in Florida amounts to. They’ll be paying for years for their nuclear plants before they ever see a single watt. But apparently you’re fine with that. And to that I say… good for you! I think it’s appropriate to consider such measures to stimulate the development of a broad spectrum of alternative energy sources. Generally speaking (assuming it is done right, in other words) I think it is properly considered an investment, not a penalty. A lot of renewable technologies have the potential to become cheaper than coal, once they get high enough up on the S-curve of economy of scale. But to get there they’re going to need government help. And a carbon tax — or a carbon auction system — is arguably the least susceptible to special interests and least intrusive way to do it.
As a general concept, I have nothing against nuclear. I think it makes sense sometimes in some locations. But I think other options (or a mix of options) are more attractive in other locations. Either way the evidence suggests that the biggest dent can be made most cost-effectively by greater attention to improving energy productivity. But there are elements of that which will also appear to some to be intrusive. For example, say your utility company is required to put a new meter on your house that would turn off your air conditioner when there is a high threat that a blackout will occur if they don’t. And you have no control over it on such occasions. Is that okay with you? Either way your air conditioner will shut down. But with the new meter everything else in your house will continue to operate. In a blackout they won’t.
38. Eric T | March 12th, 2008 at 12:52 pm
Gaijin-
Bush mandated a 10% ethanol cut in gasoline a few years back. To replace the ether cut. It pollutes the air less than the ether did. Ethanol is renewable, oil is not. I like ethanol better than electric or hydrogen for automobiles, because I haul fuel. We haul ethanol around all the time, it is work, we haul it to the oil companies to blend with the gasoline.
They currently have tariffs on Brazilian ethanol. We could lower the price by eliminating the tariffs.
You ever see an accident with them little putt-putt cars. It is ugly. You wanna squeeze a big family in them, I wouldn’t, if you do, go for it. Those little cars ride awful, you feel every bump in the road.
The key is lower energy costs. not small cars.
Southerner- 78 dollars a barrel after Katrina, 108 today for no reason. There are things that can be done to knock down the price. Raising interest rates. releasing oil out of the reserves, Funding coal to oil technology. Restricting buying and selling futures. Dropping sanctions on Iran. ect…ect.. If they let Wall St traders and Opec set prices, it is going to continue to climb with breakneck speed and push the dollar down further, destroy smaller businesses that can’t handle the inflation, and really hurt the poor and working class.
Someone trying to feed a family makin $8.00 an hour can’t run out and buy a Prius, You can tell them they need to go get an education and learn market principles, but it don’t put food on the table. Do you think people will vote for a guy that will look the other way as good paying jobs are flying out of the country and energy costs are murderously high? Government is there to jump in when sh%@ starts getting funky. Things ain’t gonna run smooth on $200 a barrel oil. China is talking about raising interest rates to cool inflation, maybe we need to follow their lead.
Hopefully McCain beign more of a centerist, will not be afraid to jump in and crack open the reserves and do whatever he can to push down energy costs. I like the social conservative part of the republican party. I don’t agree with everything the Wall St republicans like, sorry brothers.
39. JS | March 12th, 2008 at 2:48 pm
They lower rates, and the $$ devalues. Shrinks the deficit. If China raises thiers, it could start a trade war. Lots of reasons to borrow from the US for low rates though. Keeps the cash flowing, but that hits the grid when the $$ devalues too fast like it is with these oil prices skyrocketing.
Food is increasing faster than any time in history. Thats what its doing, people will cant buy food next.
40. Ricorun | March 12th, 2008 at 2:57 pm
Okay, one more post and then I’ll leave it. I just came across this article, which discusses developments in the “clean energy” (i.e., low carbon) market in 2007 and expected trends in 2008 and beyond. Here are a few highlights:
Cleanenergy indices outpaced the broader markets in 2007. For example, the NASDAQ® Clean Edge® U.S. Liquid Series index (co-developed by Clean Edge and NASDAQ) was up 66.67 percent last year, compared with 3.53 percent for the S&P 500 index and 9.81 percent for the NASDAQ Composite index.
Hmmm…. 66.7% vs. 3.5 and 9.8% (most clean energy stocks trade on NASDAQ, by the way). Do you think that’s a glitch, or is it likely to continue? My guess is the latter. In fact, I’d say it’s a no-brainer. Definitely check out clean tech mutuals.
Solar photovoltaics (including modules, system components, and installation) will grow from a $20.3 billion industry in 2007 to $74 billion by 2017. Annual installations were just shy of 3 GW worldwide, up nearly 500 percent from just four years earlier.
They mentioned trends in other technologies as well, but this one is an eye-popper — a nearly four-fold increase in the market in a decade. But there have been many developments in the PV market lately that suggest they’re ready to become more than just a niche player. IMO, these projections may turn out to be very conservative.
Parts of Europe, such as France, generate more than half of their power from nuclear,
but since the beginning of the decade the EU has added 47,000 MW of new wind energy compared with just 9,600 MW of coal and only 1,200 MW of nuclear, according to Platts PowerVision and the European Wind Energy Association. Perhaps even more telling, 2007 saw net capacity additions of 8,504 MW for wind, whereas both coal and nuclear saw net capacity reductions, of 750 MW and 1,203 MW, respectively.
Even in China, which currently gets around 80 percent of its electricity from coal, the move toward renewables is palpable. The government has plans on the drawing board for 120 GW of new renewables by 2020—more than ten percent of total projected energy demand—three times its plans for new nuclear power.
China is getting very serious about clean energy. It might not be an entirely fair comparison but their gov’t is investing far more heavily in clean tech than ours is.
Putting aside carbon constraints, pollution, and other environmental issues, looking at pure costs alone paints a very compelling picture for emerging renewables. The average upfront capital costs for a 1 GW nuclear plant currently range between $2 and $6 billion [the article I referenced in a previous comment estimates the cost of the plants proposed in Florida at 7.7 billion per GW]. Compare this to 1 GW of geothermal and wind power at less than $2 billion and 1 GW of solar [PV, not thermal] at between $5 and $10 billion, and the move towards renewables makes economic sense.
Geothermal is the only clean-energy resource besides hydroelectric that provides baseload power 24 hours a day, and with average plant uptime of 98 percent, it does so even more reliably than nuclear or coal-fired power plants, both of which require
more downtime for maintenance. With average geothermal electricity rates between 4-7 cents per kilowatt-hour, it’s no surprise that California’s three large investor-owned utilities—PG&E, Southern California Edison, and San Diego Gas & Electric—have announced new geothermal contracts in the past 12 months. [snip] With recent improvements in drilling technology, geothermal plants can now be built and operated at costs comparable to coal-fired plants – but with zero fuel cost. [snip] Enhanced geothermal entails drilling far deeper than conventional systems to reach so-called “hot dry rocks” present throughout the planet, not just in volcanic zones. “If we could crack the code on this, it’s a big breakthrough and the scale-up could be rapid,” says Dan Reicher, Google’s director of climate and energy.
With regard to the last sentence, drilling was just completed on a production well at the Habanero site in Australia. An injector well was completed a few months ago. Open loop tests, showing a connection and adequate flow rates between the two wells have been successful thus far, and closed loop tests are scheduled to start next month. If that goes well, there are no “big breakthroughs” left for enhanced geothermal systems (EGS). And already there are plans to drill an injection well to convert a typical, but no longer productive well site in the Geysers area near Santa Rosa, CA, into an EGS. EGE, plus new dual cycle technology that allows geothermal plants to operate at lower temperatures, should open up large areas of the western US to geothermal technology at costs that could easily come in under coal. Geothermal is not a “non-existent technology”, as js suggested.
Finally, this one is for Eric T: hybrid big rigs (www treehugger com/files/2007/03/hybrid_truck_un.php — replace the spaces with periods): “The goal for the T270 hybrid is to improve fuel economy by 30% in start-and-stop applications, such as utility trucks and pick-up and delivery.”
Kenworth isn’t the only big rig manufacturer going hybrid, either.
41. Eric T | March 12th, 2008 at 3:35 pm
Ricorun- good post!
Most Rigs get about 5-7mpg, at $4.16 for a gallon of diesel. Any break thru in fuel savings will add up fast. The fuel price inflation gets passed on to the customers. Trucks deliver just about everything. To add on to what you said about solar and wind energy. The coal that isn’t used by power plants going green. Can be turned into oil using an old WW2 technique the Germans developed called (Fisher-Troph) They add hydrogen to the coal and it turns to oil. It makes real good jet fuel. Royal Shell uses this process in some areas.
42. Casper | March 12th, 2008 at 3:40 pm
Ricorun,
Just wanted you to know that while I don’t always comment on your posts, I do read them. Some of the articles you have come up with, I have passed on to some of our science teachers. Good stuff. Thanks
43. Justin | March 12th, 2008 at 4:18 pm
Two years ago, I remember a post by you, Mark Noonan, saying that it was time to get out of oil. That was when oil was what, $60 a barrel? Your indicator was that tankers upon tankers were lined up at the coast lines.
I hope people don’t actually read this site stock tips.
44. Ricorun | March 12th, 2008 at 8:24 pm
Eric T: The coal that isn’t used by power plants going green. Can be turned into oil using an old WW2 technique the Germans developed called (Fisher-Troph) They add hydrogen to the coal and it turns to oil. It makes real good jet fuel. Royal Shell uses this process in some areas.
The general process is called gassification. And on a purely chemical basis it works quite efficiently with relatively few emissions (under ideal conditions anyway). You can break and re-form chemical bonds, and with the proper catalysts (or enzymes — e.g., Coscata, Inc.) you can eventually produce any product you want — different kinds of alcohols, methane, or even different kinds of hydrocarbons. The problem is that gassification is not very energy-efficient. Thus, if your intent is to maximize the energy input/output part of the equation, you might as well just burn coal directly. Gassification only makes sense if your intent is to convert coal to a liquid fuel. And that only makes economic sense if you don’t already have liquid fuels available — like, say, petroleum. Even tar sand extraction makes more economic sense. However, gassification has a smaller land use footprint, and it doesn’t require water resources. So there’s that. The bottom line is, coal to liquid gassification only makes economic sense if oil prices are really high. And it will never make sense if your intent is to curb carbon emissions. Neither will tar sand extraction — assuming neither employs some form of carbon capture and/or sequestration. And as “non-existent technologies” go, carbon sequestration rates way up on that scale. Right now anyway.
All that being said, the very same gassification process can be applied to converting biomass to liquid fuels. And that goes back to your “cow sh@#, garbage, just about anything” comment in #29, in the sense that the same considerations apply as apply to coal gassification. But the advantage is that the process is driven not by coal but by waste streams that have to be dealt with in one way or another. So one might as well turn them into something useful. And as such it becomes more of an energy productivity type of question. Additionally, if it turns out that the input stock fixes more carbon in the soil than is ultimately released through the rest of the life (production and use) cycle, then in balance it is carbon positive. That’s unlikely. But even so there is a very high likelihood that it is at least less carbon negative than coal.
Casper: Ricorun, Just wanted you to know that while I don’t always comment on your posts, I do read them. Some of the articles you have come up with, I have passed on to some of our science teachers. Good stuff. Thanks
And thank you! I have plenty more. The future of energy is something that has really piqued my interest.
45. J P P | March 12th, 2008 at 9:14 pm
“Wednesday’s EIA report offered more evidence demand is falling: Gasoline consumption fell 0.7 percent last week compared to the same week last year. Normally, gas consumption grows about 1.5 percent year-over-year, just to keep pace with population growth”
“The importance of dollar weakness to crude prices is reflected in the fact that oil’s latest record came the same day the Energy Department’s Energy Information Administration said crude supplies jumped by 6.2 million barrels last week, more than three times the 1.6 million barrel forecast of analysts surveyed by Dow Jones Newswires. The EIA also reported that gasoline supplies rose by 1.7 million barrels last week, well above the expected 300,000 barrel increase, and distillate supplies dropped by 1.2 million barrels, less than the expected 2 million barrel decline.”
“Product demand remains quite weak,” said Tim Evans, an analyst at Citigroup Inc., in a research note. “This was another set of consistently bearish data.”
“Yet negative supply and demand fundamentals don’t seem to matter to oil investors as long as the dollar keeps falling.”
46. Ricorun | March 12th, 2008 at 9:57 pm
JPP, how would you interpret the data you just presented?
It sounds like much ado about nothing to me. To me, short term fluctuations do not a trend make. But if you see a trend, it appears consistent with what I said in an earlier post: “I don’t think we’ll see much of the lower side of $100/bbl anytime soon — barring a very deep world-wide recession, that is.”
I’m assuming that’s not something you’re hoping for, right?
47. Casper | March 12th, 2008 at 10:06 pm
Rico,
What I find interesting is that just about everything you bring up as options, Wyoming has. Geothermo, we have it . Wind we have it (the one thing I really don’t like about our state. Did I mention the wind blows a LOT?).
Nuclear, we have huge uranium deposits. Oil, gas, coal, we have it. Sunlight, we have it. No matter which way we turn, Wyoming is going to benefit.
Housing prices are going up and unemployment is way down. It is an interesting place to live.
48. Ricorun | March 13th, 2008 at 10:24 am
Casper, it does indeed appear that Wyoming is well situated no matter what choices are made in the energy realm.