Random Energy Thoughts

I was listening to the Marketplace business news show last night on NPR (even if you're not that business-oriented, it's very newsworthy--and well written with a slight bit of snark--and puts things into perspective so that even an economics-major dropout like myself can understand it), and they had a few interesting thoughts on reporting the President's signing of the energy bill yesterday:

Kai Ryssdahl: There is a feeling you get when you've seen something before. It happened this August the 8th in the oil market, yet another record high close--$63.94 a barrel. That was our deja vu moment. Tom Klosa (sp?) had a different one. He's the chief oil analyst with the Oil Price Information Service. Tom Klosa: It reminds me of what happened when we had the Internet stock bubble, the notion that these high prices don't have consequences. These prices will have consequences, sometimes you don't see the consequences in the here and now, but we'll be paying for this somewhere down the road in terms of economic growth, economic activity, or even a recession. --- Scott Tong: Critics call the energy bill a "baby push" toward alternative sources compared to the incentives for fossil fuel suppliers. Economist Phil Verleger says the real way to wean us off oil is to make it more painful to buy it. Verleger: Energy economists, scientists, others who look to the problem have talked about the need to reduce energy use rapidly. There was no economy fuel standards, there was no attempt to address the price of gasoline. Tong: The bill does offer some help as far as the price of natural gas. It make it easier for companies to import and transport it in the short term. And in the longer run, some are still hopeful for alternative energy--not because of the feds but because of the marketplace. Chris Flavin heads the non-profit World Watch Institute: Flavin: The use of oil and coal is growing at less than 2 percent a year. The use of wind power and solar energy is growing at 25 or 30 percent a year. That's basically the way we ended up with computers and cell phones. Tong: For now, though, renewable energy makes up just 1 percent of the market.

Again, another pointer to the fact that BushCo is doing nothing effective to give a push the alternative/renewable energy field. Yes, there are subsidies/tax breaks in there for wind and ethanol and biodiesel, but nothing matching the amount given to Big Oil:

The energy bill that passed the House on July 28, 2005 and the Senate on July 29, 2005 includes at least $4 billion in subsidies and tax breaks for the oil industry. At the same time, this new energy law allows Big Oil to plunder the federal treasury by paying even less in taxes and royalties for publicly-owned resources. The final energy policy also weakens environmental protections while doing nothing to reduce America’s dependence on oil or relieve consumers at the pump. Finally, the bill allows ExxonMobil and other oil companies to trample on states’ rights when it comes to siting dangerous Liquefied Natural Gas (LNG) facilities and pipelines. [...] Between April and June 2005, BP recorded profits of $5 billion; ConocoPhillips earned $3.1 billion in profits for the same time period. U.S. oil and gas producer Kerr-McGee Corp. reported that its second-quarter earnings more than tripled from a year ago. ExxonMobil’s second quarter profits of almost $8 billion shattered records, giving the company more than $15 billion in profits in the first half of 2005 alone. This is on top of the company’s record $24 billion in profits in 2004. Does this sound like an industry that needs government subsidies?

Speaking of the recession angle from the Marketplace report, here's Jerome a Paris, a diarist for the Daily Kos and European Tribune blogs who concentrates on economics and energy policy, providing another post in his occasional "Countdown to 100$ Oil" postings. First, responding to reports yesterday of a combination of terror warnings, accidents, and lack of spare capacity

What this underlines once more is how tight the supply is - both on the production front, and on the refining side. There is barely enough oil produced, and barely enough capacity to crank out the gasoline we burn with such abandon. Any disruption anywhere now has an impact on prices, whether it is unscheduled maintenance on a refinery, a hurricane hitting the Gulf of Mexico, a strike in Nigeria or in Norway, a terrorist threat in Saudi Arabia. So far, the disruptions in recent months have been relatively minor, which explains why oil prices have only jumbed by a few percentage points each time, but bigger disruptions have happened with regularity in the past, with an impact on overall production that the current market would be unable to cope with. Any of the Venzeuela conflict, the Nigeria strife or the Norway strike in 2002-03 (not to mention the drop linked to the Iraq war) would take out of the market more than the current spare capacity, optimistically estimated at 1.5 mb/d - the same 1.5 mb/d that Saudi Arabia has been promising us for the past two years and which have never appeared.

And then adds more ammunition to "R" word fears:

Gasoline prices increased by 25% in one year, and demand ... increased. When I wrote that demand was not very reactive to prices, I was not joking. What kind of price increase will be required to actually see demand reduction? Something somewhat bigger than 25%, it appears. And WE WILL REQUIRE DEMAND REDUCTION for demand and supply to match. A reminder, from the National Commission on Energy Policy, published a few weeks ago: In a scenario confronted by the bipartisan panel of intelligence, military, and energy experts, a series of events over several months - unrest in Nigeria, an attack on an Alaskan oil facility, and the emergency evacuation of foreign nationals from Saudi Arabia - drives the price of oil to over $150 per barrel. These events lower expected employment levels by more than 2 million jobs, embolden countries that are major oil producers and consumers to pressure the U.S. on key foreign policy concerns, and cause a variety of other significant economic and security challenges. The scenario removed only 3.5 million barrels of oil from a global market of more than 83 million barrels [per day, sic], resulting in the following consequences: Gasoline prices of $5.74 per gallon; Global oil price of $161 per barrel; Heating oil prices of $5.14 per gallon; Fall of gross domestic product for two consecutive quarters; Drop in consumer confidence by 30 percent; Spike in the consumer price index to 12.6 percent; Ballooning of the current accounts deficit to $1.087 trillion; Decline of 28 percent in the S&P 500; Aggressive pressure on the U.S. from China to end arm sales to Taiwan, and; Demands from Saudi Arabia for changes to U.S. policy regarding the Mid-East peace process. So, to cope with a 4% drop in supply, a tripling of the oil price is necessary, in what was by necessity an optimistic scenario. Do you still want to bet against 100$ oil before year end?