Gas Price Realities

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.

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5 thoughts on “Gas Price Realities

  1. Hey! That’s a really good summary of the situation…at least from a supply point of view. I still worry this won’t protect us from global warming: what about coal? I get the impression there’s plenty of it around – switching to electric cars powered by coal-fired power stations doesn’t seem any better in the long run.

    Although it might seem almost sensible to wish for the increase in oil prices to happen sooner than later (the quicker we switch the less bad things will be in the long run)… my biggest concern is the huge numbers of people in the developing world who spend most of their incomes on food: Most people live in cities (subsistence farming’s in decline as a proportion of the population). So all the billions of poor living in slums around the world depend on cheap oil for their food to be grown and transported to them. When the oil price jumps we get food crises… how can oil prices remain high enough to encourage alternative sources (to be online before the oil runs out), while low enough to avoid massive food insecurity? (just wondering… :P).

    Nice blog 🙂

  2. Peak oil won’t hinder GW unfortunately, of course because we’re feeling effects now from emissions from when we where kids, but the effects of peak oil on the oil industry mean that much dirtier stuff gets extracted. 10 gallons of oil from a Ton of Kerrogen processed ? The environmental effects and the water demands are most likely HORRIFIC, same kind of situation for tar sands.

    As we chase down the last sips of oil, once put so eloquently in a commet somewhere “like a drunk sucking spilt beer from the carpet” the negative side effects and the energy return get worse and worse.

    Taking the long view though, a few hundred years from now peak oil will be one of the factors which will alleviate environmental stress such as warming because population density is likely to decrease along with decreasing energy density in daily life. I don’t think population will collapse violently, but a steady decline will probably occur over many years.

    The social strife which will effect this decline may indeed come from famine, and not just in the developing world. As you’ve correctly identified, modern agricultural infrastructure is essentially a machine for turning fossil fuel Calories into food Calories. Food is a refined fuel.

    Every segment of the globe is likely to see some sort of food shortage as oil and refined products become prohibitively expensive. Something like 50-60% of the US population engaged in farming before some sort of industrialization crept into life, now the figure is something like 2-3%

    Yes in the late 19th and early 20th century the population was smaller and yes crop yields have increased a hundred fold today, but what is that based on ? a finite source of fuel which we employ in all the physical work and most of the chemicals that make such yields possible.

    Coal actually won’t be that far behind oil in its decline; there are rumors China is looking to buy US coal at some point, however uneconomical it is now it may be a reality we contend with. Not only will coal supply dwindle, but the industrial oil fueled machine which extracts it will struggle to deliver it economically. The same is true of probably most extractive industries, including silicon and lithium and copper mines.
    (Although there are electrically powered coal mines and earth movers)

    The short answer is, there is no way to ensure that oil prices will remain in the sweet spot that encourages transition, but doesn’t hurt great numbers of people either at the dinner table or in the pocket book. There is no progress without pain, especially with a commodity like oil which is tightly woven into our everyday lives and is practically the lifeblood of all modern economies.

    Thank you for reading :D:D:D:D:D

    I checked the most recent paper and no replies where published, doesn’t surprise me at all. People are not even ready to hear the words “you should probably sell that SUV” let alone “you should probably be trying to grow 50% of your own food”

  3. A couple of interesting studies on EVs and emissions:

    http://www.transportation.anl.gov/pdfs/TA/559.pdf <- has a page on US Grid mix, broken down by sector, a fair amount of nat gas (a whole other can of worms) and a small amount of nuclear. This study actually deals with plug in hybrids and not straight EVs unfortunately.

    http://images.pluginamerica.org/EmissionsSummary.pdf <- has some neat looking and reassuring numbers from the Argonne Natnl. Labs GREET analysis of fuel paths and emissions … of course its from Plug In America 🙂

    I am under the general impression that it all depends on what kind of EV it is, of course each one's efficiency will vary (watt hours per mile) and as with conventional automobiles weight and aerodynamics are a huge factor where massive improvement is possible. Driveline, battery, body panel and running gear weight are all areas manufacturers and DIY'ers can improve.

    What becomes even more interesting and also horrifically complex is the associated emissions tails of every source of energy used to power an automobile. Solar has massive inputs from extractive industries; silver, copper, aluminum and silicon. But each panel will produce power at 80% for 25+ years and "offsets" its production emissions between 1-3 years.

    Oil and coal both have associated extractive emissions tails, and then emissions when they are burned to produce power. Gasoline being burned in a 20% efficient engine, coal being burned and having power captured by a turbine which is 30-35% efficient and then being transmitted across a grid at another 5% loss.

    To bring simplicity … or possibly more complex questions … to the argument, 1 gallon of gasoline has an energy equivalent of about 33kwh of energy, (along with whatever kwh equiv to extract and refine, including 7-12kwh of electricity)

    The average battery pack on an EV is between 20-28kwh. The energy density at the vehicle is less but its efficiency is greater, what varies and where the problems are is getting the energy in that pack and the associated manufacturing emissions of the pack itself.

    Of course the problem with this analogy is that you'll never get 28kwh out of the battery and 33kwh out of the gasoline 😉

    that was a lot of rambling ..

  4. Someone replied 🙂

    “Mr. Hymers was very correct in the April 11 Explorer that U.S. gasoline prices are dependent upon worldwide supply and demand of crude oil. But, the big point he missed was how U.S. production of crude oil can affect U.S. prices separate from the rest of the world. If our oil companies were allowed to expand production so that we dramatically reduced our percentage of imported oil, our U.S dollar would be a lot stronger, which in turn would lower the U.S. price of gasoline relative to the rest of the world. Since we import a tremendous amount of oil from Canada, an alternative solution would be to talk Canada into adopting the U.S. dollar as their currency.” – Randy Park

    …. and I shot back a reply, which probably won’t get published.

    I can’t thank Randy Park enough for reading my letter and engaging in a discussion about energy. It seems though he may have missed the point of my letter cataloging that the US is currently enjoying a domestic oil production boom in times of high gas prices and future prospects are not likely to keep pace with demand.

    Without some sort of law barring domestic oil companies selling oil and refined products on the international market there is no way to stop domestic oil reserves leaving the country; Although it’s a quaint thought, oil companies won’t choose patriotism over profits unless forced.

    Offshore oil reserves in the US are sometimes touted as those requiring more exploration and development. Not a bad idea, but don’t be fooled by oil industry rhetoric. Unrestricted leases containing a potential (surveyed, not proven recoverable) 85bn barrels are currently held and are not being developed. The reason oil company lobbyists want you to believe they need more leases, so they can leave them idle, is that their stock price is heavily dictated by their potential reserves.

    Offshore reserves currently being explored in the Atlantic and Pacific are much smaller than those in the Gulf of Mexico, meaning they are less profitable to develop, requiring more rigs and all associated costs.

    There is no magic panacea for rising energy prices, the supply side of the equation is becoming harder to squeeze, the demand side is where the major work will be done in the coming years, with or without our action.

  5. Who do people believe … the guy that’s telling you how bad things could possibly get, or the short reply offering such a simple solution its a wonder it hasn’t been thought of or enacted. …… for a bloody reason of course.

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