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Page added on December 1, 2014
The Cheap Oil Curse
Remember “Peak Oil?” The world was running out of oil, 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 Third World sources.
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 over 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. But the new ozone regs are a baby step.
The fact is that markets price energy wrong. 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.
Robert Kuttner is co-editor of The American Prospect, a visiting professor at Brandeis University’s Heller School, and a senior Fellow at Demos. His latest book is Debtors’ Prison: The Politics of Austerity Versus Possibility.
28 Comments on "The Cheap Oil Curse"
dave thompson on Mon, 1st Dec 2014 10:40 am
Wow our worries of “peak oil” and the “argument” entailed are over.
Jerry McManus on Mon, 1st Dec 2014 12:33 pm
Talk about drinking the kool-aid. Parroting the same old cornucopian FUD, but wrapping it in a thin veneer of climate concern and getting it published in the HuffPo.
Is he really as stupid as he sounds? I have to wonder if this is a psy-op by the flat earth wingnuts designed specifically to get the mainstream greens to buy into the “peak oil is dead” meme.
Anyway, what ever happened to the shrill shouting about “peak demand” we heard in abundance just a few short months ago?
If price is a function of supply and demand, then is this sudden price deflation really due to a doubling of supply? Or is it more likely a collapse of demand?
Last time I looked at world supply, and oil is very much in global demand, the much ballyhooed American “shale revolution” barely registers as a blip.
Meanwhile conventional fields decline at about 6% per year, which if sustained as an exponential curve will result in that particular supply being reduced by half about every 12 years.
That’s one helluva demand destruction we have on our hands. Probably won’t be pretty either.
Westexasfanclub on Mon, 1st Dec 2014 1:10 pm
“World daily oil production has surged, from about 75 million barrels in 1999 when peak oil predictions were popular to over 90 million barrels today. Estimated reserves keep increasing as well.”
Wow that’s a lot! In these 15 years I was able to count an increase of optimistically 10 million barrels – the additional 5 millions are probably the famous all liquids cool aid?
And yes, reserves keep increasing. I have some nice hydrocarbon reserves on Titan and a bridge in Brooklyn!
Jerry McManus on Mon, 1st Dec 2014 1:29 pm
Holy crap! Gold is up over USD$50 today. Not sure where all this is heading, or who is doing the driving, but so far it is looking to be one wild ride.
Plantagenet on Mon, 1st Dec 2014 1:40 pm
One of the arguments that the world was at peak oil in 2005 was that the amount of oil produced didn’t increase no matter how high the price went.
Now we’ve got a situation that is 180° turned around from the oil market in 2005, i.e. the amount of oil being produced has been increasing even as the price of oil went lower.
Methinks the claims that the world hit peak oil in 2005 are wrong. Furthermore, we aren’t yet at peak oil even though another decade has gone by.
Speculawyer on Mon, 1st Dec 2014 3:05 pm
Plant . . . Around 2005 was apparently ‘peak CONVENTIONAL oil’. But in these days of tar sands, fracked tight oil, and deepwater oil . . . peak conventional oil doesn’t really mean anything other than the fact of $20/barrel oil is gone.
Westexasfanclub on Mon, 1st Dec 2014 3:34 pm
And here we go with Rockman’s POD:
Conventional oil peaked in 2005 and the world without US-fracking peaked around 2011.
Now the price of oil tumbles down and in case of an extended downturn fracking will inevitably be reduced – hence the world peak could be called within months.
Though this makes a minor difference considering that full steam fracking at 100 USD a barrel being predicted to peak in 2016 anyway…
And no, I don’t beliefe in milagros in Libya, Irak and Iran.
Plantagenet on Mon, 1st Dec 2014 3:41 pm
@Specu
Yes, of course conventional oil peaked 2005. But WORLD OIL PRODUCTION DID NOT PEAK IN 2005.
WORLD OIL PRODUCTION ALSO DID NOT PEAK IN 2006, 2007, 2008, 2009, 2010, 2011, 2012, and 2013.
Get it now?
Plantagenet on Mon, 1st Dec 2014 3:43 pm
Its certainly possible oil will finally peak in 2014 as Westexas suggests.
Lets see just how damaging this price collapse turns out to be.
westexas on Mon, 1st Dec 2014 3:54 pm
Of course, when they talk about price, they are talking about actual crude oil production (45 and lower API gravity crude oil).
But when they discuss volumes, they are talking about some combination of crude oil + condensate + NGL + bofuels.
Shouldn’t the price of an item relate to the quantity of that item, and not the quantity of the item plus (partial) substitutes?
In my opinion, it’s quite likely that actual global crude oil production (from all sources, unconventional and conventional) virtually stopped increasing in 2005, while global natural gas production and associated liquids–condensate and NGL–have so far continued to increase.
GregT on Mon, 1st Dec 2014 4:40 pm
“But WORLD OIL PRODUCTION DID NOT PEAK IN 2005.”
Kind of a moot point if that extra production doesn’t contribute to continued economic growth.
The oil that matters to us peaked in or around 2005. The rest may as well be camel dung.
GregT on Mon, 1st Dec 2014 4:43 pm
“In my opinion, it’s quite likely that actual global crude oil production (from all sources, unconventional and conventional) virtually stopped increasing in 2005, while global natural gas production and associated liquids–condensate and NGL–have so far continued to increase.”
Thanks westexas,
I suspect the same. I would really like to see someone crunch the numbers. Short?
Plantagenet on Mon, 1st Dec 2014 4:52 pm
@GregT
???? Look like you don’t know the facts on world GDP economic growth. The world has indeed experienced GDP growth since 2005. Check it out:
2006 5.1 %
2007 5.2
2008 3.0
2009 -0.5
2010 5.3
2011 3.9
2012 3.2
2013 2.9
2014 3.6 (estimated based on data so far)
cheers!
marmico on Mon, 1st Dec 2014 4:59 pm
I got a great idea for JJ “change the goalposts” Brown. Why don’t you talk about quads instead of barrels.
So on a quad basis, U.S. petroleum consumption has risen 3% plus net imports since you voted for Reagan (well actually Larry Hagman on “Dallas”) 35 years ago.
Real U.S. GDP has risen 145% since 1980.
Tell me about U.S. quad petroleum production.
2014 will be the 12th consecutive year that Saudi Arabia net exported more than 7.1 mb/d.
Davy on Mon, 1st Dec 2014 5:13 pm
Planter, do you really think those numbers are valid, accurate, and realistic. Raw numbers do not tell a story. Raw numbers are for econ 101 academics to goal seek with. When you consider the trillions in debt, the bubble equity markets, huge industrial over capacity, huge excess retail capacity, and China’s ghost infrastructure just to name a few you get an entirely different picture. Things started to go very wrong around 2000 and since then we have been busy with gross domestic entropy. I refuse to stomach economic number anymore. They are for manipulation and corruption of TPTB. What does that leave us with but gut feelings. My gut tells me “wee’s goin down soon”.
marmico on Mon, 1st Dec 2014 5:34 pm
Davy-boy out in the doomstead tossing chicken feed is questioning planter’s data. I support planter’s data 100%.
Now Davy-boy subscribes to the Shadow Stats, Deep State, blah, blah Thunderdome etc. 🙂
You’ve been going down since Malthus, Davy-boy. It has been a 200 year old underperforming investment.
Davy on Mon, 1st Dec 2014 6:25 pm
Marm, this time is different and I am giving you fair warning. Get out of the market, sell the Jag, and trade in the high maintenance girlfriend for a Doomstead. Ride this bitch down with me and my doomed buddies.
marmico on Mon, 1st Dec 2014 6:46 pm
Listen, Davy-boy. You do your prep and home school your kids. I don’t have a problem with your choice.
Just be on guard that your choice may be wrong. I have met home schooled kids in my lifetime as a parent and there ain’t any Ph.Ds coming out of that experiment. I ain’t no genius but I would hope that your kids are. Take care of them.
GregT on Mon, 1st Dec 2014 6:46 pm
@Plant,
Another person that doesn’t understand how useless GDP numbers are.
I suppose that you would tell me everything was fine if those numbers were solely a result of the undertaking business? Weapons manufacturing? Insurance sales? Over the counter drugs? War?GDP numbers also add the negatives, and in no way determine the overall health of a society. This is yet one more example of how badly the economists have gotten it all wrong.
Robert Kennedy, University of Kansas, March 18, 1968
Even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction – purpose and dignity – that afflicts us all.
Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.
It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.
It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.
Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.
It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.
And it can tell us everything about America except why we are proud that we are Americans.
If this is true here at home, so it is true elsewhere in world.
GregT on Mon, 1st Dec 2014 7:09 pm
Davy,
Stay the course. It doesn’t take a PHD to understand where we are headed, heck it doesn’t even take an IQ over 100. My son graduated from university last year with a degree in electrical engineering. He is the only one that he knows of from his class that actually found a job in the field. Thanks to someone with connections. 🙂
The rest of his buddies are working minimum wage jobs, or unemployed, struggling to pay off huge debt loads for the next 20 years.
The days of knowing a whole lot about a little, are coming to an end. But you already knew that.
Davy on Mon, 1st Dec 2014 7:17 pm
Greg, my daughter graduated with a law degree in Madrid Spain. She is working for an attorney there for almost nothing to get experience. She is a good looking girl and speaks 4 languages. She is ready to move to the States. She loves Madrid but she wants a paying job more than a nice climate, great food, and wonderful night life.
steve on Mon, 1st Dec 2014 8:51 pm
Greg,….electrical engineering? Really? What a waste of time…I have worked with a lot of electrical engineering guys and when the shtf all they are good for is getting coffee….hell most of them don’t even know how to bend conduit…but think they can waltz in and figure things out; when it is not on a computer they are pretty dumb….just saying…maybe junior is a genius but I am afraid it is time to get down to brass tacks..I have a business degree worked for a fortune 500 company but I saw back in 1992 we were heading for a crash….I have since worked as a chef,landscaper, carpenter.,,,log home builder…an electrician….book smart kids are a dime a dozen and will be cheaper in the future!!!
GregT on Mon, 1st Dec 2014 10:28 pm
Steve,
You know nothing about my son, obviously.
Apneaman on Mon, 1st Dec 2014 11:24 pm
Davy, your right. We have been in contraction since 2000. Some people get their pay cheque and conclude that since they have money the economy must be fine. These are the same science tards who think cold weather cancels AGW.
marmico, I guess the world should just take the few kids you met as the definitive word on home schooling. Sounds very scientific. I have only know two home schooled kids and they seemed normal, but what do I know. I have noticed that almost every single one of those kids on the long running ESPN televised Scripps National spelling bee are home schooled and many of their parents have Phd’s. Maybe it depends on the parents and if they use a text book as opposed to “The Book”.
westexas on Tue, 2nd Dec 2014 5:01 am
Greg,
Following is a chart showing normalized global Gas, NGL and Crude + Condensate (C+C) production for 2002 to 2012 (2005 = 100%):
http://i1095.photobucket.com/albums/i475/westexas/Slide1_zps45f11d98.jpg
C+C remained at 103% of 2005 production for 2013, although it will probably be up to 104% in 2014. They key, and unknown, number is the ratio of Condensate to C+C production.
In any case, condensate is a byproduct of natural gas production, and it’s very likely that global condensate production (especially with the huge increase in US condensate production) is up by 20% to 30%, relative to 2005.
Rounding off to two significant figures, global C+C production rose from 74 mbpd in 2005 to 76 mbpd in 2013, and I suspect that rising condensate production accounted for virtually all of this increase.
westexas on Tue, 2nd Dec 2014 5:18 am
Here are some interesting numbers.
Texas C+C production (EIA) was 2.5 mbpd in 2013, which was about 3% of global C+C in 2013.
The Texas RRC shows that Texas condensate production increased by 0.25 mbpd from 2005 to 2013.
So, Texas accounted for 3% of global C+C production in 2013, but just the increase in Texas condensate production from 2005 to 2013 accounted for one-eighth of the increase in global C+C production from 2005 to 2013.
Davy on Tue, 2nd Dec 2014 6:29 am
Greg, I don’t often mention people that are out of line except the board propaganda bitches. Steve, was out of line dragging family he does not know into the equation. Steve has some good contributions but that was poor. I also admit to my sins because I talk too much and anyone talking too much will end up with their foot in their mouth.
Davy on Tue, 2nd Dec 2014 6:34 am
Appnea, my boys go to a small town Catholic school. I have the boys every other weekend on the farm and spend a few days with them in their small town during the month. I home school my boys when I have them on the farm. I am teaching them sustainability with the garden, wood heat, animals and many other diverse subjects related to the land and nature. I wish I could home school but it is not in the cards. I think home schooling is great for the first years up until maybe 3rd or 4th grade. Then the social interaction skills are important. I also think religious training is good as long as eventually they are told to seek out their own faith. Marm and I just banter and poke fun. Marm is actually a good guy and useful to this site. Dooms need a devil’s advocate just as the corns need some doom stink.