Posts Tagged ‘Geopolitics

22
Aug
08

Oil Geopolitics – Metrics

EIA recently released their short term outlook on global oil. I know, I know, this means that the current administration does have the capacity to understand the geopolitical climate, the ability to generate meaningful information that could be very useful in, say, governing the country…. Anyways, given my rant on the worth of quantified data, I thought it appropriate to share some stats:

Continue reading ‘Oil Geopolitics – Metrics’

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20
Aug
08

Oil Geopolitics

I’ve long put off endeavoring to tackle the current state of oil geopolitics, in all its ugliness.

To begin: Geological vs. Geopolitical peak oil.  While the division is undoubtedly real, it is plainly a waste of time to dwell on. Folks like Paul Roberts have for years warned of the looming consequences. However, he has met with harsh opposition from energy experts. Roberts may be wrong in his assertion that the actual amounts of oil are dwindling, and his opposition likely correct in that the actual amount of oil yet to be harvested is huge… who cares… Given political trends toward nationalization of oil in countries holding the greatest amount of reserves, like Iran and Venezuela, Roberts’ conclusions become much more legitimate than the purely academic differentiation between geological and geopolitical oil. What difference does it really make if there are 0 or infinite barrels of oil owned by the Venezuelan government?

Zaki Yamani, former oil minister of Saudi Arabia, accurately stated:

“The Stone Age did not end for lack of stones, and the Oil Age will not end for lack of oil.”

Indeed, it is high time that both sides forfeit this meaningless debate.

On the other end of the spectrum than peak oil is the argument that oil futures markets are to blame for the looming crisis. Partially as a response to the peak oil claims, this theory holds that the amount of oil yet to be had (geologically or geopolitically) matters little. Rather, investors in futures markets are primarily responsible for the price of gas at the pump.

For those of you unfamiliar with how the whole “futures” thing works: All commodities — anything from corn to gold — are traded in futures markets by traders who never intend to see the product (in this case oil).  The traders set the price based on their perception of the future value of the given commodity. Several factors will play into their predictions: Basic supply / demand predictions, political atmosphere, etc. More specifically, the political climate is restricting oil companies’ capacity to explore and drill for new oil – driving down supply NOTE: not an actual lack of oil. Meanwhile, demand is dramatically increasing with growth from places like China and India. The prospects for new processing plants are also very dim and environmental and other concerns are prohibiting exploration in places with known reserves (Alaska, etc.) Finally, the lack of an alternative energy source with the potential to compete with oil contributes to its’ increased perceived value

But what can be taken away from this? Futures markets play a hand in all commodities markets, and I find it hard to believe that they have disproportionately distorted oil prices. While many of the assertions of this last argument are legitimate, the claim that government, or even industry can do much to change things is flawed – especially in the near term and especially in the US.

This leads me to the whole offshore drilling thing – perhaps the most incredibly flawed argument in the bunch.  A great response to this stupidity is here. The argument goes: Restrictions to offshore oil drilling are directly responsible for high gas prices at the pump.  Not surprisingly, the McCain camp is at the forefront of this lunacy. McCain argues that, to combat high prices, we should start drilling along the US coast – he was flown to an oil rig off the coast of Louisiana to give his pitch..

Jointly owned by Chevron and Exxon Mobil, the rig represents an environmental risk great enough that the US coast guard has set up a “safety zone” around its perimeter to prevent accidents.

What is clear is that offshore drilling will have absolutely no effect on pump prices for years, and very little even then.  As Bob Herbert of the NY Times demonstrates:

Assuming that everything over all those years goes all right, it is estimated that an additional 200,000 barrels of oil a day would come from the additional offshore drilling. That’s a tiny share of the world’s daily output of 85 million or so barrels.

So given all the misinformation circulating, some originating in  the campaigns of both McCain and Obama, and now including Pelosi – what is really happening? Firstly, I look to the oil companies – who are highly interested in things like Liquid Natural Gas, renewable energies, and yes – offshore drilling. While their profits have been staggering, they certainly cannot sustain those numbers. Perhaps this is what is behind T. Boone Pickens, the oilman who plans to invest billions in wind power to free up LNG for a huge new LNG fueled car industry (?)

It is all very complicated and quite frustrating really. At risk of hypocrisy, I’ll say that it’s rather useless to follow the actions of government, industry, or otherwise. Consumption is the true nightmare here. Is the most logical plan of action to find another source of energy to sustain current (rising) levels of energy use? We can do better…