Here’s a letter (which I really wanted to be its original 900+word opinion piece but hey…) that the Explorer, my local paper, published today … you can see its printed form at the link here – (don’t bother I wouldn’t give much praise to the editing skillz)
We’ll see what kind of hubub it generates, not only from the topic or facts represented, but perhaps I’ll get caught in a tight spot over how it was edited 😦 pff.
Gasoline Price Realities
Energy is the most important topic this nation can currently discuss as there is great confusion about it; illustrated by the assumption that voting for a particular candidate in an election will have any noticeable effect at all on gasoline prices in the long term.
Domestic conventional oil production in the US peaked in 1970. We import around 50% of our oil, which is down from recent years not only because of demand but because of an unconventional oil and natural gas boom. The US is currently experiencing a boom in domestic oil production, yet gas prices remain high.
Oil and refined products are traded on a global market. The United States as of February 2012 was a net exporter of refined petroleum products, including gasoline. Abundant supplies of natural gas domestically mean we can refine oil cheaper than anyone in the world currently.
Domestic demand for gasoline is at a 15 year low, this should be a warning sign that a shift has occurred in the supply/demand paradigm as we know it; even at a low demand levels prices remain high. Domestic bottlenecks also leave some states with no option but to import gasoline leaving them more vulnerable to price spikes.
This means that as time goes on, choke points in the Middle East (such as the Straits of Hormuz, the largest at 17mbpd), exporters like Iraq and the decline of Saudi Arabian excess capacity (the ability to ramp up production at a moments notice) are becoming more and more important. Even domestic issues such as well blowouts and pipeline leaks will continue to have larger and larger impacts on gasoline prices domestically.
Proven technically recoverable reserves in the US including ANWR and the Bakken formation add up to 21 billion barrels. Compared to a relatively minor exporter such as Libya at around 46bb, or Iraq at an estimated 112 to 143bb.
The Bakken shale formation is “tight oil” Extracting and refining oil from “tight oil” deposits is highly dependant on oil prices and only becomes economically viable above a certain price, this is the period which we entered a little before 2008.
Oil shale in the Green River formation is even less of a prospect, yielding 10 gallons of oil for every ton of shale processed, don’t expect oil from here soon or cheap. Massive domestic Kerrogen deposits are not a business as usual enabler, worse still almost a waste of time and energy to develop because of such a low energy return.
Canada’s oil reserves, estimated at 179bb are now 95% oil/tar sands. By 2017 a rate of 3.4mbpd is estimated to be flowing from the Alberta tar sands. But to where? On to global markets, not directly to the US. We will, as we have been doing, have to compete with the world oil price, it doesn’t matter if the oil comes directly through our back yard.
China, even after having revised its growth estimates downward is still the largest energy market in the world. They are also building up their own Strategic Petroleum Reserve in anticipation of a conflict with Iran, one of their key export partners.
This is why gas prices are high, and will remain high regardless of who occupies the White House: Everyone in the world is competing for the same energy to ensure a smooth energy descent into a period of history marked by the distinct absence of abundant hydrocarbon energy.
The Joint Forces Command, Joint Operating Environment report 2010 states that Current world GDP growth rates will not be sustained without adding the equivalent of Saudi Arabia’s current energy production every seven years.
It is my strong opinion that if you have the ability, sell low mpg vehicles as in the coming years their value will only decline with gas prices wildly fluctuating.