WE WON'T CHANGE UNTIL WE HAVE TO
$5 Gas: The Pain Before the Gain
I doubt $5 gas will make us open our last precious places to fossil fuel drilling and is, in fact, more likely to foreshadow the demise of the internal combustion engine.By Bill Schneider, 6-19-08
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We’re all feeling Pump Pain, and who among us doesn’t think that $5 gas is around the corner? I’m writing as fast as I can, in fact, so I can get this column posted before I have to fill up my pickup truck again, if I can afford it.
And thinking that perhaps $5 gas is just what we need.
Gasoline prices have been rapidly increasing for years, but we really haven’t changed--not much, at least. Only months ago, we were buying Tundras and Hummers and massive RVs (Repossession-bound Vehicle) to pull our SUV (Suddenly Unwanted Vehicle) across the country--and saying that if we can afford this, who cares how much gas costs. As recently as March, we drove many millions of miles more than we did in March 2007.
With those who are getting down to their last $10 million, I suppose the price of gas will never matter. For most of us, though, even $4 gas gives us some real pain, but is it enough to change our behavior?
I’ve always had the suspicion that those folks in charge of oil prices (we can argue for years on who it is) had the research to know what our tipping point was--i.e. how much and how fast they could push prices up and not cause a lessening of demand. They obviously know that if they raise the price from $3.50 to $4 and then let it go down to $3.75, we’ll be relieved because prices went down--and hit the road with renewed vigor.
This time might be different. It almost seems like Big Oil (or hedge funds, OPEC, commodity speculators, or whoever is in charge) has messed up and let prices go up too much, too fast. Even OPEC insists that based on real market conditions, the cost of crude should be around $70 per barrel, not twice that. That tells me somebody might have lost control.
Especially when I hear the talking heads from ExxonMobil and Saudi Arabia on the financial channels worrying about the “demand structure crumbling.”
To this concern, I must ask, doesn’t this need to happen?
The longer gas prices stay in the stratosphere, the more pressure we feel to allow oil companies to drill in the last wild places like the Rocky Mountain Front and the Wyoming Range--and the Arctic National Wildlife Refuge, of course, which our lame duck leader has been touting again of late.
Or maybe those in control have finally pushed us past our tipping point on purpose to get the green light to drill everywhere? If so, I say, bad strategy. I seriously doubt $5 gas will make us open our last precious places to fossil fuel drilling and is, in fact, more likely to foreshadow the demise of the internal combustion engine.
Hopefully, we’re wise enough to realize drilling the last undrilled places only delays for a few years or months the inevitable need to change behavior. It seems so much better to change now instead of after everything is drilled.
Here in the New West, I wonder how high gas prices need to go before people start moving in or near the city limits and stop spending $500 per month driving to work. Or for city councils to do their part to stop urban sprawl by prioritizing policies making cities more pedestrian-, bicycle- and pet-friendly. Or make true commitments to public transit.
Nationally, how high do we go before Congress passes legislation to require better fuel efficiency, change current laws that prevent electric cars from going over 25 mph on highways, give more incentive to non-fossil fuel technology, and a hundred more such laws we ought to have?
We all know what we need to do, the changes we need to make to slim down our part of the “demand structure,” so no use repeating it again. But will we do it? Seeing $5 gas on the pump seems like something that might help us join the long-overdue revolution. Instead of complaining, let’s welcome it and consider it the big pain before the big gain.
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Comments
Goldman Sachs is one of the main speculators and market makers. Little or no heat is coming their way, rather we hear nonsense like windfall profits tax that will not add one drop of new production or lower prices by one cent. In fact this would be gas on the fire. Check out Goldman Sachs at Wiki and at OpenSecrets.org and which party they are greasing. It is no surprise to me that party is pushing the WPT over a thorough examination of the market mechanisms.
Bill, it's not just the cost at the pump that is alarming, but the cost that will roll into our food and almost every aspect of our lives that either uses oil as a fuel source or as raw material for other products. Now add in the cost from crop failures from Midwest flooding. The cost at the pump is only the tip of the iceberg headed our way.
Without a healthy economy and happy people, NOTHING else is possible as the survival instinct kicks in. Sometimes the focus is wrongly directed to "If" rather than "How." "How" opens up a world of possibilities while considering necessary safeguards. Alternatives to dino fuel just aren't here yet. Even wind, solar, etc. can't begin to fulfill the growing need for electric on a consistent sustainable basis at a price people are willing to pay. The new wind farm being built just south of Ethridge is an example. The transmission lines are going to Canada. This keeps the expensive cost out of the state ratepayers base. In my opinion, we need real solutions and a macro analysis. Just looking at the spinning numbers on the pump won't cut it.
But would the cure slow the economy more than high gas prices?
Some of you may remember the 1973 oil embargo when some OPEC nations said oil in the ground is better than paper money. It is unfair to blame investors for moving their wealth from devaluing American dollars into oil commodities that are more likely to retain or increase in value? If you want to reprimand speculators then turn your anger toward the Federal Reserve and the US Trade Deficit. The devaluation of the dollar is the reason gas prices have increased so rapidly.
THE LONG TERM FIX IS END FOREIGN WARS AND DRILL FOR DOMESTIC OIL
A rapidly devaluing dollar, aggravated by the cost of the War in Iraq, contributes to recent rapid increases in the price of gas. And if the trillion plus dollars the US spent fighting that war had been invested in a Manhattan like project to produce oil from known reserves in the Gulf of Mexico, the Continental shelf and synthetic diesel/gas from America’s abundant coal fields, gas would be $2 a gallon or less.
And reducing trade deficits keeps jobs in America. Every billion of trade deficit costs 13,000 jobs. $400 billion for oil last year: do the math.
Plus declaring American energy independence is the neighborly thing to do. It would place downward pressure on world oil prices by making more OPEC oil available for the UK, France, Japan, Turkey, etc.
Call Congress and demand domestic production in this decade.
http://www.house.gov/house/MemberWWW_by_State.shtml
Here is a link to a map of approved leases for drilling in the Gulf of Mexico (note: large pdf file):
http://www.gomr.mms.gov/homepg/lsesale/Visual1.pdf
Note that the black dots represent active drilling platforms while the green squares are the regions that have approved leases.
As for drilling in Alaska, why have the oil companies refused to exploit the resources in Point Thompson but are willing to sue the state for trying to reclaim those leases?
http://www.wtopnews.com/?nid=104&sid=1402840
"Exxon Mobil, BP PLC and Chevron purchased leases 31 years ago allowing them to drill at Point Thomson. However, they have not produced any oil or gas from the tracts.
The lack of activity prompted the state to try to reclaim the leases in late 2006 and give other companies the opportunity to move forward with development at Point Thomson."
For more on this topic, check out this dKos diary:
http://www.dailykos.com/storyonly/2008/6/15/185128/086
We need a sense of urgency about developing alternative fuels along with easy profits for the energy companies and we'll have alternative fuels by tomorow morning.Companies are going to do what's right for the stock holders. If you make water more profitable than oil, oil companies will sell water.
If we give huge tax incentives for "actual" development and implementation of alternative souces of energy we may see some results.
That's right out of the party talking points that want to bring us no new production, higher prices at the pump through a windfall profits tax, ala Jimmy Carter, and create roadblocks not only for production but increasing refining capacity.
A strategy that has as its goal real gain would go for those areas that have the greatest chance for a win. That's what the Chinese are doing 60 miles off the Florida coast on behalf of Cuba. We can't drill there but the Chinese are. Doesn't make sense to me when foreign nations are accessing the very area we claim is too sensitive to drill. Since there is no sure bet on a drill, those decisions have to be result driven. In the North Sea over 70 dry holes were drilled before the large field between Scotland and Norway was found. But they kept at it because of the geological potential from the science. Lots of factors go into a drilling decision. Gouging the consumer is not high on the list, in my opinion. Such claims are political nonsense that distract from attention to the market makers, the price setters, like Goldman Sachs.
My hope with $5 gas is that it will be painful enough that we have no choice but to launch a real alternative energy program to replace oil. I'm betting that the technology to wean our society largely off oil can get us out of this mess (which is a combination of economic and environmental), but our current political system prevents progress toward the big push it will take. Perhaps $5+ gas will give us the badly needed kick.
Do you have any evidence that the Chinese are drilling off the coast of Cuba? I keep hearing about this supposed drilling and seeing statements from folks like Sen. Mel Martinez (R-Fla) who deny that it is occurring.
I don't know about windfall profits tax, how about the regular-old taxes that oil companies have been successfully avoiding with their BFFs running the Executive Branch?
Then there's the overhead of going to war to secure the best oil fields for our companies. That's expensive. As is letting speculators run your "open markets" for their personal benefit. The California electricity debacle was bad enough, now looks like a warm-up act for the Greet Fleecing.
Seems inevitable that we will go nuts drilling wherever we can, sooner or later. Whether or not the current speculative bubble coincides with Peak Oil, we have just about made it to the mountain top, and the forces of limited supply and inelastic demand are bound to be duking it out for the rest of our lives.
As for the Chinese Communists extracting Communist oil from Cuba right under Jeb Bush's nose... well, simply stated, there is no doubt that Richard B. Cheney can not be trusted to honestly recite a grocery list.
We live in interesting times, no doubt about it.
Tom asks about the taxes oil companies pay. Here is the answer for Exxon Mobil: seekingalpha.com/article/63131-exxon-s-2007-tax-bill-30-billion?
$30 billion adds up to quite a few pennies.
Alternatives are already out there. Honda has a hydrogen fuel cell car that gets the equivalent of 72 mpg and has a top speed of 100 (I believe). Hydrogen is the most abundant thing in the universe. We need a national priority to get fuel stations set up and develop more and better vehicles of this nature.
We can solve this problem; or we can be cowards, drill every last drop of oil while destroying our natural heritage, and let our kids and grandkids worry about it. The choice is ours.
I am concerned about fear driving bad decisions when people panic. History has many such examples.
The Guardian, a publication by the Australian Communist Party has an interesting take on things. Like BenDoubleCrossed they point to interest rate hikes and attacking the market speculation. See: http://www.cpa.org.au/garchve08/1370oil.html
from the article:
>>>>>>>>>>>>>>>>>
As far as speculation, there is ample evidence that the system is being manipulated. According to MarketWatch:
"Speculative activity in commodity markets has grown ‘enormously’ over the past several years, the Homeland Security and Governmental Affairs Committee said in a news release. It pointed out that in five years, from 2003 to 2008, investment in the index funds tied to commodities has grown by 20-fold — to $260 billion from $13 billion."
And here’s a revealing clip from the testimony of Michael W Masters of Masters Capital Management, LLC, who addressed the issue of "Commodities Speculation" before the Committee on Homeland Security and Governmental Affairs last week:
"Today, Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase. In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China.
"According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels. Over the same five-year period, Index Speculators demand for petroleum futures has increased by 848 million barrels. The increase in demand from Index speculators is almost equal to the increase in demand from China.
"Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.
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Someone once told me inflation was too much money chasing too few of goods. And water finds its own level. So the issue with oil in a world market is that too many dollars (many not in American hands) chasing oil in hedge fund bets will do both things: raise the price of oil and lower the value of the dollar. It takes more dollars to by oil, and by that measure taken throughout the whole of the economy, raises the prices of everything if only due to increased transportation costs. We are facing inflation, and we are facing increased costs. The dollar is going to weaken further. And oil will increase in price.
But the speculation deal will come home to roost when interest wanes in further pursuit of that last barrel of oil. People, individuals, will drop out of the oil use market, demand will drop. That will happen. The other more important thing to know is that traders trade. If the market stops, comes to a standstill, peaks out in terms of demand, not production, cutting production will not do the job because oil is a traded commodity. The traders trade. They make their money on the transactional costs. Vigorish. Just like when the roller coaster hits the peak, and slows before it seems to fall off into space, so will the oil market. There are always people with long positions, and people with short positions. The traders will set it up for the short sellers to make money trading, and the market will plummet. That is the future. A barrel of oil will lose value at a faster rate than it gained value. But there is a bottom to that market, and before you take the Crown Victoria off the blocks, and re-wheel it, the bottom will come, and the slow upward track will begin a new, and the next high will be higher than the last. But the speculators will have been taken down a notch, and it will be a long time before that market comes around again. Some of that "too much money" will have disappeared into thin air, and balance will have come into the market once again.
The long term oil deal is that it is a finite resource, of indeterminate quantity, that will be supplanted by another energy source. You have to remember that the richest people in America at one time lived and worked in New Bedford, on Martha's Vineyard, and mostly on the high seas. They were the whalers, and the world was lit with whale oil lamps. The Oil Cartel was a bunch of Quaker whaling men and their lonely wives with a penchant for self indulgence. Drake in Pennsylvania put them out of business. And the Rockefellers et al changed the energy world. The Pew Trusts, all from Sun Oil, being the endless money pump for all things environmental today, is probably not how old man Pew would have thought his trust should be spent. And if it were not for Armand Hammer of Occidental Petroleum having Al Gore Sr. under his influence and charity, Jr. would most likely be covering NASCAR for a West Tennessee weekly newspaper. Oil has done more than propel people and freight. It has made careers and way too many politicians. Bush and Gore are products of oil. Both of them.
Hydrogen is the most abundant element we have, but how can a good ole boy make a go at it usin' common atoms? I guess it will have to be the patented process that makes the next moguls of energy. The hydrogen speculators will be there and you can count on that.
It is silly to say that having adequate fuel will prevent further research into alternatives. Entrepreneurs are going to work on new innovations as long as there is money to be made. Jumping thru the hoops imposed by self appointed environmentalists that have forced more and more restrictions may be the thing that prevents it. Imagine the money that goes into finding a site for a wind energy farm, doing all fo the necessary work to get it going, then find that self appointed environmental "watchdogs" can stop you in your tracks, if they don't like the site. Wind farms work only where the wind blows irregardless of the view. Oils is where the dinosaurs died irregardless of pretty or not pretty.
Environmental groups are taking in billions, how much of their money is going into research for the perfect fuel instead of lawsuits against those who fail to develop what is considered perfect.
http://www.youtube.com:80/watch?v=ZPch2k63uj4
That aside, I am going to take issue with Bill saying 5 bucks is a good thing. Not at a 35 percent plus annual gain rate. Not in an energy economy.
We all recognize that oil...coal...uranium...whale goo...hydro...EVERY energy source is finite. Some are renewable but finite in the capture/release rate. They all have a cost of extraction and utilization. They all have "low-hanging fruit" reservoirs and other "hard to get" reserves.
There is further the question of energy efficiency. We're finding out that ethanol so far is a rather pathetic way to create new energy, it's basically a shift more than an additive effort. There is also efficiency in consumption. I'm all for it, as long as the energy saved justifies spending the cash.
Underlying energy, and its forms, and the uses to which the various forms can be applied, is the reality that energy availability is the key to modernity. Period. I guess perhaps there are people who recognize this and deliberately demand that the world demodernize.
They then choose to exploit the too-many who simply have no clue. It sounds green, they support it, or it sounds brown and they oppose. And irrationality follows, and the markets go nuts, and times get tough.
One of the things it's important to differentiate in discussing energy issues is the source of the energy, vs. the medium. Corn-derived ethanol seems to be a losing proposition; sugarcane (and switchgrass?) derived ethanol appears to be a winning proposition, for Brazil at least.