Since Weir brought it up in the comments I decided to post my thoughts on this rather than just commenting back to him.
I have long held the contrary opinion that gas in this country does not cost too much; it actually costs way too little. Honestly, $10 a gallon would make me pretty happy. And I'm not just saying that because we own a hybrid (even at 45 MPG, $10/gallon would put a real healthy dent in our pocketbook). The reason is that it will take that amount of hardship for this country to finally get itself off its oil addiction. By the way you may want to mark this date down because the term "oil addiction" was popularized by President Bush and this may be one of the only times you'll catch me agreeing with him. The bottom line is that whatever your feelings on global warming are, there is a finite amount of oil left in the world and thus it seems to make sense to realize sooner rather than later that we need to switch to some form of sustainable, renewable resource for our power needs. But people are creatures of habit, and our post-WWII suburban migration has left us particularly dependent on our gas guzzlers, so this is not a change that most people are willing to make easy.
So now, as gas prices have been rising to new highs, we have seen the predictable political football getting thrown around. It seems that everybody has a plan for "helping" middle america shrug off the increasing burden of high fuel costs. Whether it's grass roots e-mails calling for boycotts of certain companies or a convoluted nation-wide economic solution, they all have one thing in common: they are temporary (at best) and ultimately they are all bogus. That's because the oil situation we find ourselves in right now follows some of the simplest economics of all; aggregate supply is going down every day and demand is increasing every day. Hence, each barrell of oil should sell for slightly more than the previous barrell of oil did, and this should continue to be true all the way through the last barrell of oil that will ever be sold.
It therefore follows logically that the single best course of action that this or any country can take is to immediately begin to reduce their oil use immediately and do whatever necessary to develop sufficient alternative resources.
Now, with all that being said I am going to go contrarian again and say that I am 100% in favor of opening up Alaska for drilling.
OK, maybe that's not true. Let's say instead that I'm 90% in favor of opening up Alaska for drilling because there are some important caveats that I need to add. The first is that the purpose of Alaskan oil wouldn't be to supplement or replace our current oil supply. I don't know for sure the accuracy of the oil taking 15 years to be usable, but it certainly would take multiple years before we ever saw anything and by that point if we have not already significantly decreased our dependence on oil the little bit from Alaska is not going to do anything more than stop the bleeding for a couple months. So why am I saying we should drill for it? As I said before, the current economic situation is such that each barrell of oil should sell for progressively more and more. Hence, we have a veritable diamond mine underneath our feet and I believe that it would be foolish to waste it. However, this is where the second caveat comes in. Believe it or not, it is actually possible to extract oil from a wilderness area with very minimal disruption to the environment. It typically doesn't happen because it's obviously a lot more expensive and most oil companies are only interested in doing the bare minimum mandated by the margins of the law. In fact, I probably wouldn't have even believed the statement I just made before I read Collapse by Jared Diamond. He is the Pulitzer-Prize winning author of Guns, Germs, and Steel and is also a staunch conservationist. He visited the drilling sites of a major oil company (I am pretty sure it was either Chevron or Shell but I'm not positive) and said it was remarkable how little had been changed. You would never even know you were on a drilling site. And when they are done drilling, they will dismantle all the equipment and replant native vegetation over the area. Drilling oil is not like clear-cutting a forest. The ecosystem doesn't depend on the petroleum for anything and really could care less if it's there or not.
So, basically I am saying that within the confines of the scenario I have laid out (where we are drilling basically as speculation instead of consumption and that extreme care is taken to minimize environmental destruction) I submit that given that oil is only getting more and more valuable I don't see a compelling reason to not drill for it.
But I'm sure Weir will let me know . . .
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19 comments:
There are some things I agree with here, and probably some things I don't, but lets see...
I tried (for 5 minutes) to find an online source to support my previous statement that new prospecting/drilling/refining would take 15 years to market. Couldn't find one. Then again, I didn't really look very hard.
I hate to cite a wiki article, but I'm lazy. According to that the US consumes 20 million barrels/day and the mean estimate as to availability in ANWR is 7.7 billion. So, if the US were to run 100% off ANWR oil we would currently last for a whopping total of 385 days. One year and change.
That just doesn't seem like much to me, even with little or no risk to the environment.
Now, reducing our need to somewhere close to our domestic output would put drilling for profit on the board, and that is something I can get behind.
The real scary problem is: What happens in 10 years when the Chinese and the Indians start driving cars at the same rate as Americans? Frightening.
(And on a side note: you want an example of absolute political pandering? It has been shown that a 'Gas Tax Holiday' has absolutely NO support in congress. Now, I don't know how this would get repealed (as it seemscertain governmental officials can do whatever they want with no voting) but it seems to me that with no way to get a bill through congress that both Senators Clinton and McCain are feeding voters a huge pile of bullshit. "Hey, Indiana! Vote for me and I promise to do something that has ZERO chance of ever getting done!" Does she really thing Hoosiers are so dumb? Oh wait....)
Hillary Clinton from Sunday on This Week, responding to a question asking if she could name one economist who thought her gas tax plan was a good idea:
"I'm not going to put my lot in with economists. Because I know if we did it right; if we actually did it right; if we had a preident who used all the tools of the presidency we would design it in such a way that it would be implemented effectively."
Wow. I will actually give her the benefit of the doubt here and assume that this is just nonsensical political doublespeak she used to buy herself time to transition into talking about something else. Because otherwise, what she's basically saying is "I don't care what the facts are; I can change the facts by really wanting them to be different."
Either that or she truly believes that economists are some form of voodoo witch doctors.
I never heard the second part of that quote. I thought the first part was rediculous enough, but then she says:
"if we had a preident who used all the tools of the presidency we would design it in such a way that it would be implemented effectively."
Who the fuck does she think she is? She is calling for a gas tax holiday for SUMMER 2008. There is only one person who will be president during that time. 'If we had a president...' WTF? YOU won't be the president you pandering little bitch, neither will Obama or McCain. It will be Bush.
For most of this campaign I've politely disagreed with Senator Clinton, but the last week I just want to ring her neck. It is rediculous the shit that has been coming out of her mouth.
And for christ sakes, when you are president you won't listen to your experts? We've had 7 years of someone doing whatever the hell he wants, facts be damned.
It all ties back into this whole 'elitist' crap. People need to realize that there are other people who are smarter than them. If there is a economic problem, you get together a panel of economic experts. Military. Health. Science.
Take advice from people smarter than you.
Hmmm. We pay to little for gas - This statement on its face is absolutely true... then I started researching this "fact".
The US Does pay less than most country's, and this should be so. Most other countries, at least the ones with higher gas prices, do not produce and refine their oil/gasoline. We do produce 20% of the oil we consume, and therefore we should be paying less per gallon than Sweden pays.
Expansion of drilling and refining SHOULD lower our at the pump prices even further. The oil off the coast of Florida; The oil in ANWR; The oil under the football field at beverly hills high school. These all could increase our domestic production so that we could offset as much as 45% of our domestic use.
Economic viability of drilling in area 1002 of ANWR - The USGS published a report in 2005 (the most recent I have been able to locate) that stated that at market prices of $30 per barrel, it is economically viable to drill for even just 70% of the oil. Think how econically viable it will be at $120 per barrel! This doesn't even factor in the addition of liquid and other natural gasses.
As far as taking ten years to get the oil flowing, it states in the report that "wildcat" drilling "...it could take perhaps a decade...". But wildcatting is a term that means drilling in an area not known to be productive. The USGS is pretty sure this area is productive, and has gone so far as to put out a report saying so. I don't think this qualifies as wildcat drilling.
And as far as $10 at the pump; This would be an absolute disaster to our economy. I'd even go so far as to say that would be akin to the fall of the Roman Empire. Famine would spread across not just the US, but the globe, as prices for food would increase drastically.
Hillary would be ecstatic.
That said, I am completely in favor of expansion of efforts to find new oil and new ways to drill for it as well as economically viable alternatives to oil (even some not so economically viable alternatives). But understand that our dependance on fossil fuels will not end with hybrid, electric, hydrogen, or air powered cars. Every bottle of Aquafina was once a ray of sunshine that gave life to algae that died and fell to the bottom of the ocean and after millenia became that black gold that Jed found while shootin' up some food.
We will always need oil.
Mike
http://pubs.usgs.gov/of/2005/1217/pdf/2005-1217.pdf
http://www.hoover.org/research/factsonpolicy/facts/11867321.html
http://money.cnn.com/pf/features/lists/global_gasprices/
Fall of the Roman Empire?!?!?! Famine?!?!? Honestly, is it just impossible for a Republican to disagree with something without invoking apocalyptic consequences?
Perhaps it escaped your attention that the gas price list you provided was last updated in March of 2005. Here's the current one, from the same site:
http://money.cnn.com/2008/05/01/news/international/usgas_price/?postversion=2008050109
Much of Europe is already at or near $8/gallon, and I don't see any signs of the 4 horseman riding over the horizon.
Yes, I understand that an instantaneous 250% increase in gas prices would have a very bad impact on the US economy. But $10 is not at all far fetched, and we will be there soon (for sure by 2015) unless we massively subsudize it. 10 years ago gas was $1/gallon and no one would have believe it would go up 400%; 10 years from now no one will be able to believe that we were complaining about $4/gallon gas.
I read somewhere (and don't feel like looking it up) that drilling in Alaska will never be economically viable w/o the government subsidizing it. The cost per barrel is controlled by the cartel. If we tried to add more supply into the market to offset the increased cost, they would drop the price per barrel to a point that drilling in Alaska would be cost prohibitive. When we stopped, they would raise the price back up. They would do the same if we introduced a new fossil fuel or some other alternative fuel. Yes, their supply will some day run out, but not in their life time. They have us by the balls until the oil is gone.
Balld, I'm not sure what article you're referring to but it sounds like it's a few years old because that used to be the conventional thinking. A lot has changed though. Rather than be concerned with keeping oil prices up, OPEC is starting to (and will only be progressively moreso) concerned with making sure it can meet increasing demand. At this point it is extremely unlikely that they would bother with any economic strong arm tactics to keep us from generating more oil. That would be akin to Wal-Mart cutting all their prices in half in response to one mom and pop store opening up 20 miles away from one of their stores. Our oil represents such a small amount in relation to the global supply that we wouldn't even dent the price. Hence OPEC will leave the price where it is and not care that for a brief amount of time there will be some "competition".
And you mention oil not running out in their lifetime. Unless you're talking about people over 50, don't be so sure. You've now given me my next spin-off blog topic: how much oil is left in the world?
You're right. I thought I had complete and up to date data. However, I believe everything I said still holds true. And furthermore, it says in the same article you pointed out that the US dollar is weaker, and the Euro is much stronger. The European prices reflected are in US dollars, so therefore, the relative price is a lot closer. This doesn't factor in average income either.
And as far as gasoline being $1.00 per gallon in the 90's, yes it was cheaper, but there are a lot of factors which led to this. The US produced a much higher percentage of it's own oil (see my main point again) and China's oil consumption was less than half of what it is now. China also produced nearly all of it's consumed oil until 1994, and it wasn't until about 2001 that it really started consuming the rest of the worlds supply, driving up the prices. Oh, and weren't there some other factors in 2001 that might have caused a bit of a jump in oil prices???
Anyway, I still maintain that increasing our production through drilling in ANWR and EVERY WHERE WE CAN will stave off economic disaster (or at the least, economic distress).
And so far as my apocolyptic statements about gas prices doubling: Gas prices double; the cost of goods that rely on gas for production/transportation doubles; food prices double; the cost of getting to work doubles; the cost to heat a home doubles; the number of people relying on food/transporation/housing remains the same or increases. I don't see how you can dismiss this as rhetoric. I don't think this is the conservative party line on what's possible in the near future if gas prices double, and I'm surprised that a former republican with a fairly extensive education can make such a statement.
An intersting article on the subject: http://www2.nysun.com/article/75363
I wasn't saying your statement was the conservative party line, I was saying that you were catastrophisizing the situation in a way that the right wing likes to do a lot (i.e. a vote for a Democrat is a vote for Al Qaeda). Saying that a doubling of gas prices would have a significant negative impact on the domestic economy is accurate; saying it would cause worldwide famine is fear-mongering.
Here is where your logic is flawed. If Intel doubles the price of its processors tomorrow, does the cost of buying a computer double? No, because the processor is just one component of the computer. Yes, the price would increase but certainly there is not a 1 to 1 ratio at work. So, yes, the cost of food and goods increases but will come nowhere near doubling. Cost of heating your home? Most people have gas or electric heat, which has little to do with the price of oil. On transportation, your argument also ignores substitute goods. Sure, people still need to get to work but do they need to drive their 9 mpg SUV to and from? At $10/gallon, suddenly public transportation looks more appealing, or even just downgrading to a 4 cylinder car (or, yes, a hybrid for those that can afford it).
The point is that you don't achieve a cultural and economic shift without pain. And this shift will be tremendously painful, but it is absolutely necessary. Obviously, the best way is to undertake this shift now while oil is still relatively affordable, but unfortunately it is just now starting to get any kind of traction with the US public. And unfortunately most of the calls are still for the government to make gas cheaper, which is exactly the wrong reaction.
Hey, I'm not making the oil run out and I'm not making it more expensive. Supply and demand is taking care of that. My statement about the price of oil is merely there to indicate the price level at which I think people will finally start to realize that we need to get off oil permanently. If we can do that at $4 gallon, or $5, or $3 then that's even better. Hell, if we came up with a comprehensive plan to eliminate oil from our infrastructure over the next 30 years I would even be in favor of a government subsidy that makes gas $1/gallon again to get us there.
Mike, I can see where you are coming from, I just think that you are overestimating the consequences akin to the way survivalists built bunkers in preparation for Y2K.
RE: John responding to Balld: OPEC uses strong arm tactics every day. They have no problem keeping up with demand and in fact don't give a damn about demand. We just begged them to increase production of crude and they basically told us to piss off. They don't control the market by raising and lowering prices, they control the price by raising and lowering production output.
RE: Back to Mike: I'm surprised you don't take a more 'right'-thinking approach to this and just say: "Eh, the market economy and the ingenuity of the American people will solve the problem." Maybe the future of food production doesn't rely on ways to make fuel cheaper so I can buy my corn from Iowa, but falling back to an earlier time, and a more family-farm type system where I buy my groceries from a more local source to cut down cost.
Hippies have been shopping at local farmer's markets ffor years for both cost and freshness benefits. Sometimes we need to look to the past for future solutions. The era of the big farm could be coming to a close.
I tell you what WILL be coming to a close: buying fruits and vegetables out of season that have been grown in the southern hemisphere. Pretty soon, if you want grapefruit you'll have to wait for it to be in season locally.
John, you don't just get to make up words.
Catastrophisizing? I don't think so.
I like the idea though.
Hey, if Stephen Colbert can have "truthiness" then I can have "catastrophisizing".
Of course, my earlier attempts to get the word "fantasmagastical" injected into the vernacular was, alas, unsuccessful.
BTW, even though half of them are mine I believe this is a new record for number of comments.
Perhaps I misunderstood your statement. I thought you were saying $10/gallon would be a GOOD thing for our (and the world's) economy. Using that as a basis for argument, I absolutely disagree, and do feel that my logic is on target.
Now, not to get too far from the initial discussion, the comparison of Intel processors as an analog to gasoline is flawed. Had you used something more along the lines of gold, copper, or aluminum, as a comparison as they are raw materials rather than finished goods, you would have a better analogy. Also, since there is competition in place for the processor market (AMD, Motorola, Etc.) your argument is further moot.
And Weir, having said that I was arguing against $10/gal. being beneficial, I DO believe that the market will correct. As competition and cheaper transportation come on line prices will drop (hopefully). Furthermore, I think governmental intervention is a terrible thing. The government has CAUSED the situation we're in now. On one hand they are subsidising lower fuel prices by fluctuating the strategic reserves and giving tax breaks to oil companies, and on the other they are limiting competition and production. This mixed message screws with the market, and it's the byproduct of politics and the desire of politicians to look like they're actually doing something. I may be in the minority here, but most days I would prefer the government do nothing, that way they can't screw anything up. Removing restrictions on oil companies and encouraging consumers to restrict their use of oil through incentives rather than punitive measures, and letting the market do what the market does best, is the way to go with this.
Now once this happens, I think John has a perfectly valid point that people still need to get off oil as a way of life. I just don't think we'll see it in our lifetime that we're completely off oil. 150 years of dependence doesn't turn around in a decade or two. Just today, try to do something in your life that doesn't involve oil. I doubt you can.
and for the record, I like catastrophisizing. I think it's fun to say.
OK, whether or not you like the analogy the main point is that doubling the cost of a component doesn't double the price of the finished good.
To clarify, I do think that $10/gallon would be seriously detrimental to the U.S. economy short-term but I think it would be a net positive if it gets us towards the long-term goal of getting off of oil quicker. Since I know you love my analogies so much, we'll try this one. The Iraq War is certainly costing us right now, but if we succeed in establishing a stable democracy in that part of the world it will be a net positive long-term. Now, whether or not we're achieving that is a discussion for another day. . .
I might have to counter this serious conversation with some serious rediculousness on my blog.
The problem with any analogy is that in this case (gas) that the primary function is itself. Now, you can talk about petroleum products like plastic and things like that, but in the end the big problem isn't with the cost of water bottles, but with the cost of gas.
Now yes, if you want to make fuel cost a function of the cost of any other good (transportation) you can KIND OF make that argument, but even in your intel comparison, the cost of chips should go up as a function of transportation as well.
If you can decipher what my inital point was, you are a better person than I, because I have no idea anymore.
HAHAHA! Then my job here is done!
As much as I would like to give Delaney a drilling from Alaska on his position about drilling in Alaska...I agree with him.
I have selfish reasons. I live in Alaska and my state government is almost totally dependant on oil royalty payments to keep the schools open, cops employed, streets maintained, etc.
As you may know, all Alaska residents get a share of state oil revenues. Last year, it was about 1200 dollars per person. Permanent Fund Dividend checks are going to keep climbing from here on out.
Also, we have a pretty impressive alternative energy program coming together here. 50 to 100 million dollars in oil tax money each year, starting this year, are going into an endowment to build interest, and the interest is spun off each year to fund capital projects, building windmills, hydropower, geothermal generators, natural gas extraction, and more.
So it's the oil industry that will, indirectly, pay for the technologies that replace it. That seems appropriate.
Nationwide, increasingly oil supplies, or even the possibility of increasing oil supplies, would help the market get itself under control. Otherwise, the market will continue to respond to news about new threats to supply, from Nigeria, Venezuela, Iraq, Saudi, and other places where evildoers like to blow things up.
John, I enjoy the blog.
Tim
a friend of Delaney now in Galena, Alaska
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