Peak Oil is You
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Page added on December 3, 2014
Low Oil Prices Are History’s Greatest Case of Market Failure
They price oil and gas based on current demand and supply, and not based on the costs to the planet in pollution, global climate change, sea level rise, and more.
Remember “Peak Oil?” The world was running out of oil, we were told: Prices would soon skyrocket, and we had better find other fuels.
Well, that argument didn’t work out so well for environmentalists, did it? As oil reserves and those of other carbon fuels became scarce and prices rose, the law of supply and demand kicked in. The industry invested the profits from those higher prices in new technologies, and the oil barons found even more destructive ways to extract oil and gas—by exploiting the muck from tar sands, inventing hydro-fracking, and despoiling sources in developing countries.
So now, oil is cheaper than it’s been in years, about $66 a barrel. Regular unleaded gasoline can be had for well under $3 a gallon.
One of the few things sustaining U.S. consumer purchasing power in the face of dismal wages is close to $100 billion saved in energy costs. OPEC’s pricing power has been broken, and the United States is about to surpass Saudi Arabia as the world’s largest oil producer.
Whoopee, energy self-sufficiency! Take that, enviro-pessimists.
World daily oil production has surged, from about 75 million barrels in 1999—when peak oil predictions were popular—to more than 90 million barrels today. Estimated reserves keep increasing, as well.
Conservative economists like to crow that projections based on current technologies are invariably too pessimistic. In 1990, environmentalist Paul Ehrlich lost a famous bet with economist Julian L. Simon, on whether prices of five rare commodities would rise or fall over a decade. Simon was right that high prices and technology would create substitutes, and prices duly fell.
By the same token, technology has allowed more sophisticated exploration of carbon fuels, and falling energy prices. All of which totally misses the larger point, namely that the market can’t competently price the environment.
Cheap oil, of course, is a curse. It promotes increased use of carbon fuels at a time when we should be investing massively in substitutes. And the apparent plenty of oil and gas takes the spine out of most politicians.
The smart money thinks it’s only a matter of time before President Obama (speaking of spine) caves on the Keystone Pipeline. After all, if Canada doesn’t pump all that crud in our direction, the Chinese are happy to take it. And there are those tens of thousands of jobs for the Gulf coast. They might as well go to Americans, right?
It’s true that a blowout of the pipeline somewhere along the route would be catastrophic, just as it’s true that the pipeline symbolizes everything wrong with the current energy path. But we could block that pipeline and still face catastrophic climate change.
Obama, to his credit, did belatedly allow the Environmental Protection Agency to tighten standards on health-destroying smog (ground-level ozone)—more than three years after the White House killed similar proposed regulations—in a craven suck-up to business after the Democrats’ 2010 mid-term defeat. Still the new ozone regs are but a baby step.
The fact is that markets price energy wrongly. They price oil and gas based on current demand and supply, and not based on the costs to the planet in pollution, global climate change, sea level rise, and more. This is, as Lord Nicholas Stern famously put it, history’s greatest case of market failure.
Recent events demonstrate the sheer radicalism of the necessary cure. Business as usual is just too convenient, too easy, and incremental change will not save the planet.
Sure, oil production will peak at some point. But by then the earth could be a very unpleasant place. Sorry, folks, but the argument that we are running out of oil just doesn’t cut it. If only things were that simple.
27 Comments on "Low Oil Prices Are History’s Greatest Case of Market Failure"
ghung on Wed, 3rd Dec 2014 2:30 pm
Maybe someone with a facebook account can log in at ‘prospect’ and call this dolt on his strawman argument that peak oil means “we are running out of oil”. Other than that, the argument that we’ve screwed the climate is pretty obvious to anyone with the courage to look at the data honestly. “Running out of oil” was never going to change that.
Apneaman on Wed, 3rd Dec 2014 3:18 pm
Can’t we get someone who at least has the debating skills of a high school graduate. These remedial kindergarten level strawman arguments are pathetic and boring.
bobinget on Wed, 3rd Dec 2014 3:26 pm
BY MarketWatch
Energy
10:38 PM ET 12/02/2014
By Mark DeCambrePickens: ‘You can’t imagine how many of these cycles I have seen and endured’
NEW YORK (MarketWatch) — Prominent oil investor and sometime-renewable-energy booster T. Boone Pickens predicted Tuesday that the plunging oil price would rebound to $100 a barrel in the next 12 to 18 months.
Pickens also said he expects the Organization of the Petroleum Exporting Countries will eventually move to slash oil production, possibly in the first half of 2015.
“They didn’t say they wouldn’t cut, but OPEC will have to cut, and that is what’s going to happen. The Saudis are the ones that make the cut. They can take $70 oil and take it out 10 years — they have the cash reserves that allow them to do that. But they can’t do that to the rest of OPEC,” Pickens said.
The 86-year-old Pickens, who chairs the energy hedge fund BP Capital Management, offered his forecast in an interview on CNBC’s “Mad Money” with Jim Cramer late Tuesday.
Oil price prognostication has become a new parlor game on Wall Street and in shale-oil pockets across the U.S. Pickens, in backing his own call, alluded to his roughly 50-year tenure in the oil industry, saying: “You can’t imagine how many of these cycles I have seen and endured.”
Pickens’s call came as oil swooned from its worst drubbing in years, hitting five-year lows after OPEC decided to keep its production quota unchanged late last week.
London-traded January Brent crude oil was off nearly 3% Tuesday at $70.54, while West Texas Intermediate (CLF5) was down by about the same percentage at $66.88 on the New York Mercantile Exchange.
Nymex crude last traded around $100 dollar a barrel on July 25, when it settled at $102.09, while Brent last closed at $100 on Sept. 5, according to FactSet. Predictions for oil have been all over the map. Some dire forecasters, like oil entrepreneur Murra Edwards, see oil prices hitting a $30-barrel nadir, while others are predicting oil will average around $80 a barrel
Where Pickens’s view differs from many analysts is his call that Saudi Arabia, the producer holding the most sway among the 12-member OPEC bloc, weill be willing to cut oil output significantly. Many have viewed OPEC’s decision to stand pat on its output as an attempt to apply pressure on U.S. shale-oil producers. And as oil prices continue to deflate, shale producers — which tend to use a lot of debt to finance their hydraulic fracturing and oil drilling operations — may be buffeted. Read: These U.S. oil producers have the most to lose.
Any move to reduce output by the Saudi producers, however, would also risk their market share.
-Mark DeCambre; 415-439-6400; AskNewswires@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
Plantagenet on Wed, 3rd Dec 2014 3:46 pm
I’m with T Boone Pickens. The Saudis can’t hold down the market price of oil forever. The price of oil will eventually go up….and then more up….and then go even upper.
Davy on Wed, 3rd Dec 2014 3:51 pm
Planter this time is different because the economy is heading for a recession minimum. You don’t have price pressures when demand is tanking. “T” is trying to sell something as usual and you are buying.
Plantagenet on Wed, 3rd Dec 2014 4:06 pm
You may well be right Daver. But I think we’ll get the recession after the oil price jumps back up. After all, 10 if the last 11 recessions were triggered by spikes in oil prices.
See: http://oilprice.com/Energy/Oil-Prices/How-High-Oil-Prices-Lead-to-Recession.html
rockman on Wed, 3rd Dec 2014 5:24 pm
“They can take $70 oil and take it out 10 years — they have the cash reserves that allow them to do that. But they can’t do that to the rest of OPEC,” Pickens said.”.
Interesting: the KSA can deal with a lower oil price but will cut production to help their OPEC brothers. Apparently for 18 years between 1986 and 2004 the KSA didn’t feel such an obligation: by not cutting production the KSA kept oil prices below $40/bbl. So east for some to let such seemingly benign words slip out: “The KSA can take $70 oil”. Let’s but the actual monetary aspect to those same words and see how it sounds:” The KSA can take a $100+ BILLION reduction in income over the next 12 months.
If we are heading into another demand killing global recession that will could hold oil prices down and would loose the KSA hundreds of $BILLION in revenue (revenue that supplies 75+% of their income): the KSA would allow this to happen if they had the means to prevent it? It’s as if some folks think the KSA is sitting on an endless pile of cash, has other significant revenue sources and doesn’t have population total dependent on gov’t largesse to survive.
Davy on Wed, 3rd Dec 2014 5:27 pm
Planter I am just going under the latest doomer assumption that “this time is different”. This is likely another doom cry wolf situation. There are so many false wolf sightings by dooms. Yet, I just see some profound instabilities that I and others feel are at a level of danger. I hope I am wrong because I am not ready for economic trouble. I need a few more years to get my cattle operation where I want it to be but I can’t shrink from reality either.
Plantagenet on Wed, 3rd Dec 2014 6:12 pm
Roger that, Daver.
Good luck with your cattle operation.
westexas on Wed, 3rd Dec 2014 7:19 pm
As usual, when they talk about price, they talk about the price of crude oil (45 or lower API gravity crude oil), but when they talk about volume, they talk about crude oil + condensate + NGL + biofuels.
Apneaman on Wed, 3rd Dec 2014 10:50 pm
Davy, your more prepared than most and most importantly, your prepared physiologically and many of your comments tell me you understand that good local relations are more valuable than all the guns and gold in the world.
Newfie on Wed, 3rd Dec 2014 11:04 pm
The undulating plateau is very bumpy !
Davy on Thu, 4th Dec 2014 4:39 am
Appnea, I detect the same with you. You have not elaborated much on your prep work but I can tell you are psychologically there. I also believe Canada a great location for the coming long crisis. Canada appears positioned well for AGW.
GregT on Thu, 4th Dec 2014 9:57 am
Davy,
At this point it would appear that AGW is no longer the worst of our worries. 2 degrees C, or more, is most likely already baked into the cake. We now face the likelihood of a runaway greenhouse event, and these lower oil prices are only making matters that much worse. If, or when, we do reach a tipping point, location will be of little help. It will be game over for the human race. It is believed by some in our scientific communities, that the methane bomb alone could raise global mean temperatures by as much as 10 degrees C in as little as a decade.
I believe that our predicament is far worse than most people realize.
Davy on Thu, 4th Dec 2014 10:16 am
Yea, Greg, you have my agreement. My thoughts are on the fact we are screwed but what is the time value of AGW? I feel the worst of AGW may be 20 years out. Economic collapse could be 3-5-10.
It then becomes a human value question. Do we care about significant deaths sooner or later. Do we have a value for our extinction? Some people could give a shit if humans go extinct. Most people are concerned with their current wellbeing. Economic collapse will feel like an extinction event in slow motion.
My view is BAU will have to run its course. Dangerous AGW is baked in with or without BAU. The immediate concern is collapse of BAU. Since we likely have no hope of mitigating AGW let’s focus on mitigating economic collapse. I don’t see a way to determine which is more significant because we don’t know when either will occur. An economic collapse with large loss of life seems more near term but that is nothing more than a hunch.
GregT on Thu, 4th Dec 2014 10:24 am
Davy,
The longer BAU is allowed to continue, the greater the likelihood of extremely dire consequences. There still isn’t a day that goes by, that I don’t hear multiple times throughout the media, the key indicator of our more than likely demise. GROWTH. It is our greed that will ultimately do us in, and rather than fight for human sustainability, we are fighting for more of what got us into this mess to begin with.
Davy on Thu, 4th Dec 2014 11:38 am
Greg, I agree but we are going to have to play God and place a value on life. BAU demise will bring on a bottleneck. AGW mitigation will bring on BAU’s demise. AGW mitigation by extension brings on a bottleneck. This is the inconvenient truth of AGW mitigation.
Effective AGW mitigation is the end of BAU. Even half hearted AGW mitigation will destroy BAU. The question is will BAU’s death be enough to mitigate AGW.
We see BAU’ demise as likely sooner than later. Timing is the key for a significant amount of population. Do we condemn significant population to early death with the thought we may avoid extinction with rapid AGW mitigation? That is a moral and a value decision.
What is wrong is the greenies saying we can have both complexity and AGW mitigation i.e. a renewable society with no loss of life. Brutal questions I have no answer for nor any right to make if I did.
Northwest Resident on Thu, 4th Dec 2014 11:53 am
“That is a moral and a value decision.”
Like a General commanding his army in war. Does he send a battalion of men to certain death in order to win the war and save many more lives in the long run than were lost by sending the battalion to certain death? Or does the General’s inability to make that hard decision cause him to waiver and do nothing, resulting in a lost war and the deaths of uncountable more lives in the long run than would have been lost by making the hard decision up front.
We, unfortunately, are in the exact same situation.
Do we act now, making the hard decisions, resulting in great loss of life but (hopefully) preserving our environment and sufficient resources to foster long term survival for humanity?
Or do we fail to act now, let things just wind down on their own, burning every last drop of available fossil fuel, desperately clinging on to the levels of comfort we have become accustomed to during the brief but rapidly fading Age Of Oil, thereby most assuredly dooming or at least severely harming long term human survivability?
It is a moral decision and a brutal one. One point of view is that it would be immoral to NOT act now to put an end to BAU, and that the actual brutality would be in doing nothing, just letting the deathly scourge of BAU drag us into the dark ages, only worse.
If I was the General, I know what I would do.
GregT on Thu, 4th Dec 2014 12:16 pm
There is an answer Davy. Planned de-growth, and a steady state economy. Unfortunately, this is not a possibility within the constructs of our current capitalistic and fiat based monetary systems. If we hope to avoid a population die-off, we need to re-think our relationship with our host planet, as well as our relationships with our fellow human beings. We need to collapse the current system and re-boot from the ground up with a completely different set of values.
It should be clear by now that what we are currently doing is leading us down the path to our own destruction. If ‘we the people’ are not able to take back control of the system, and we allow TPTB to continue to lead us down the current path of greed and over-consumption, not only will there be a mass die off, we will face our own extinction.
The corruption has risen to the top. Our western societies are no longer based on the same principles that made our countries great. I would like to believe that collectively we have the ability to promote positive change, but sadly I see nothing but a shit-storm of biblical proportions brewing on the horizon.
Northwest Resident on Thu, 4th Dec 2014 12:32 pm
“I see nothing but a shit-storm of biblical proportions brewing on the horizon.”
Given human nature and past performance, the most likely scenario is that we will soon be seeking shelter from that shit-storm of biblical proportions.
Vested interests combined with human ability for self-deception tends to prevent proactive solutions. We are, historically, a reactive species — giving rise to the famous saying “when the going gets tough, the tough get going”. We’d be much better off if our motto was “when the tough see tough times approaching, they make the tough decisions to prevent those tough times.” But we don’t, and we won’t, so break out the umbrellas and waders — we’re going to need them when the shit-storm hits.
bobinget on Thu, 4th Dec 2014 12:40 pm
Davy expresses many of our opinions on AGW.
Mine certainly.
The conundrum is why haven’t stock markets reacted more positively? Do potential buyers believe a nearly adequate oil supply predicts financial collapse?
(some here say as much)
Do we need actual shortages in a time of ‘just-in-time deliveries’ before proper value is put on oil?
I took today’s EIA report as bullish. Consumption has been rising steadily for three weeks 100,000
Bpd a week to 20 million Bp/d. If that’s not a positive (if one looks at employment numbers as positive) what is?
All oil export nations are hurting. Fact.
How much longer will absurdly low oil prices be tolerated as entire economies on verge of collapse.
WW 1 stated because a single individual took the life of a minor royal. (not really but lets just say it anyway)
Today, tens of thousands are perishing in the name
of religious intolerance spurred by greed for ‘crude’ power.
I maintain KSA, Russia, are leading the world into yet another conflagration ‘royals’ themselves believe they are safe from because of oil. These MEN have lost any sense of proportion. In the annals of criminality they should simply be called amoral. Religious pretenders are often acutely aware of this charge so they double down hoping to eliminate opposition disproportionally exacerbating the violence cycle..
GregT on Thu, 4th Dec 2014 1:13 pm
Bob,
How do you see Russia as leading us down this road? Please elaborate, because all I see is Russia responding to pressures being imposed on her from the west.
bobinget on Thu, 4th Dec 2014 2:25 pm
Russia in that enigma inside the smallest doll.
Greg of course is right Russia like every other nation is responding to so many pressures.
Because Russia’s income unlike most developed countries income is disproportionally dependent on oil and gas exports:http://www.eia.gov/todayinenergy/detail.cfm?id=17231 (68% this summer)
It’s leaderships job to maximize return.
Russia’s foreign policy up to this minute is steadfast in its support of the Assad’s Syrian regime.
Saudi Arabia has different reasons but is as committed to the overthrow of Assad. Russia has partnered with China, Iran both logical partners
in the oil bidness. It’s my belief the Saudis also covet China’s oil imports which at this point, have no limits. Iran and Saudi Arabia are in conflict not only over potential oil customers but volatile religious differences.
Let’s recap; KSA and Russia along with other allies, engaged in a deadly proxy war. IMO, V. Putin has rattled KSA so the Kingdom is losing control probably because of policy differences we may never hear about. SA population is growing at 2%
while Russia is showing negative pop growth.
That 2% pop growth will in no time consume a greater proportion of Saudi oil exports.
Of course both Russia and SA are responsible for not industrializing at greater rates. It’s too late for SA except in value added refining exports.
Because Saudis are allergic to work, further burdens are placed on consumption by ‘guest workers’.
V. Putin is nothing if not a pragmatist. Retaking Crimea and endeavoring in Ukraine say it all.. Putin sees weakness and he will go for jugulars no matter how many innocents get in the way. (support for Assad proves as much)
Putin sees as do most of us the fatal weakness in Saudi rulership. Putin is striking at SA heartland,
OPEC. With his Allie Iran President Putin intends to control oil prices as KSA implodes.
Will the Obama Administration stand by and watch as the ‘old’ OPEC collapses? Yes I believe there isn’t much Obama can do about a 2% Saudi COMPOUNDING population.
Because the Syrian ‘civil’ war has now metastasized to at least eleven countries, we need to blame someone. I pick Putin who, without regard for plights of millions continues to support the bloody dictator Assad he believes in Russia’s greater interests.
Davy on Thu, 4th Dec 2014 2:43 pm
Bob & Greg, we are back to the great game of a century ago. Civilians are cannon fodder. Do you think the average Russian, American, or any other powers civilians care about these games?NO.
Humans seem to never learn. We are hard wired for a different dimension. That dimension is pre-AG man. Knowledge, technology, and complexity are a dimension we have proven we are not capable of handling. The end game is near for BAU with such distortions of our human nature. Hang on folks because the fun has just begun.
GregT on Thu, 4th Dec 2014 3:34 pm
But Bob,
The side of the Syrian ‘civil war’ that has metastasized is the side that Assad has been fighting and the West has been supporting. Do you not find that suspect given the last decade of destabilization in the ME by the ‘West’?
The overthrow of the democratically elected government in Ukraine was fomented by DC and the US state department. This was clearly in violation of the Budapest Memorandum. Russia had an agreement to station troops in Crimea, and if not for Russian support of the Crimean referendum, civil war would have erupted in Crimea as well. Russia stopped a bloodbath in Crimea, but still the west continues to disregard the basic human rights of Eastern Ukrainians to self determination.
Whether you wish to accept it or not, the ‘West’ is either directly responsible, or at the very least complicit in forcing Russia’s hand. I find this to be extremely irresponsible of the current US administration, or those running the show behind the scenes. MAD is not something that we should be playing games with and we should have learned our lessons about a long time ago.
We are entering an age of contraction, and with it global insecurity. IMHO cooperation is a much better tact going forward, than continuing to play the game of global domination.
Davy on Thu, 4th Dec 2014 6:59 pm
Now Greg, you are not being balanced because the story of these issues between Russia and the west is not that simple. Russia is no angel to begin with not now not in the past.
I am willing to lean in the direction of Russia with all things considered giving them some justification especially in Ukraine.
Syria is a different animal. Assad blew it early on with violent responses to demonstrations. Besides Russia has been supporting a nasty regime for decades. If it were not for that support things could have been different.
GregT on Thu, 4th Dec 2014 7:28 pm
I have no horse in this race Davy. I’m calling it as I see it. Nothing more.