In the dark over oil and gas : LUSENET : TB2K spinoff uncensored : One Thread

From the Houston Business Journal

In the dark over oil and gas

Modern politicians are missing the boat when it comes to energy

Michael J. Economides and Ronald E. Oligney Special To Houston Business Journal

The latest 700,000-barrels-per-day production increase announced by the Organization of Petroleum Exporting Countries has had exactly the expected effect on the price of oil -- none.

The price continues to pivot around $32 per barrel, as it did before the OPEC meeting. Gasoline prices in the United States have surged, yet OPEC has been blamed only cursorily for that.

On July 4th Saudi Arabia made a unilateral announcement that stunned everybody, including every other OPEC member. They will increase production by an additional 500,000 barrels per day. The results of this increase on the price of oil are likely to be small and perhaps counter-productive. It is difficult to predict how more militant OPEC members will react.

Market forces do not seem to be invoked in the national discourse. Instead, the political left suggests price gouging by the oil companies; environmental regulations and taxes are blamed by the right.

Once again, things in the realm of energy that should be obvious to politicians, pundits and even common consumers seem to cause surprise. If their surprise is genuine, it is confounding to us.

OPEC's ability to manipulate the market has been eroding for many years, and after a last gasp in 1999, their excess production capacity is now practically nil, having fallen from a high of al-most 20 million barrels per day 15 years ago.

A substantial increase in production will now require an unprecedented infusion of capital in the petroleum industry. Yet, this investment is hindered dramatically by recent history -- the oil price collapse of just a year ago and the myopic cost-cutting by "old economy" managers. It should not be surprising that the price is where it is. It is sim-ply market reaction.

Two highly opposing poles of the political and economic spectrum have painted a common but highly misleading picture of petroleum supply. Using OPEC as the prop and with the multinational companies thrown in for good measure, dime-a-dozen energy analysts with very little knowledge about the physics of production talk about "opening the taps" and "pumping more," constantly implying the proverbial underground tank full of oil. This is supposed to assure the public that somehow oil is readily and ef-fortlessly forthcoming if only the producers get their act together.

At the other pole, anti-everything ideologues imply a deliberate shortage... OPEC and companies are hoarding supplies. Even more perverse, some are not so private in their gloating. Higher oil prices may mean the onset of the era of renewables -- solar, wind and biomass. Nasty oil companies, the mentality goes, which bring a myriad of social ills, international exploitation and suppression (and cause global warming to boot) may soon get their comeuppance.

None of this explains the other recent great run-up in energy prices -- that of natural gas. Natural gas prices have trebled over the past year and are now at record levels. They may eventually have the impact of $60 oil.

In fact, the situation in both forms of petroleum, oil and natural gas, is now so tentative -- the supply and demand is so near equilibrium and the cushions have grown so thin -- that any one of 100 minor events may cause prices to soar to previously unthinkable levels. This could be a coup or a presidential death in an OPEC country, a hurricane in the Caribbean, an accident, or more likely, a couple of days of cold weather next winter.

We have become very naked indeed in the energy scene.

And yet the national politicians have come up short in both articulating the issues and, more seriously, providing a leadership for their resolution:

The importance of energy in the national welfare has never really been the central theme that it deserves. A United States and world with energy shortages is a scary and highly dangerous notion. The wealth of modern nations is inextricably connected to affordable energy abundance.

No prominent politician has unambiguously informed the public that hydrocarbons (oil, gas and coal) account for about 90 percent of the world energy mix, and that renewables account for just 0.5 percent.

Nor has any politician stated the obvious: There are no real alternatives to hydrocarbons in the foreseeable future. The market share of oil and gas over the next 20 years is likely to increase by at least 5 percent, this while the total energy consumption continues to forge ahead unabated to perhaps 50 percent higher than today.

Calls for repeal of gasoline taxes from one end of the political spectrum, and demands for investigation of "price fixing" from the other, amounts to nothing more than pandering to consumers. This will have little or no impact on energy supply. It may cause quite a lot of harm.

Far more important is the fact that we still have massive resources of hydrocarbons within the U.S. jurisdiction that are likely to be prodigiously prolific. They happen to be under thousands of feet of water.

The ongoing and highly beneficial transition to from oil to natural gas as the primary fuel of the U.S. economy will certainly go through some growing pains. Is the nation prepared for them? Will the political leadership have the resolve to stay the course?

What's the plan, man?

Michael J. Economides is a professor at University of Houston School of Engineering, where Ronald E. Oligney is director of engineering research development. Together they published "The Color of Oil" earlier this year.

-- Cave Man (, July 10, 2000


Cave Man,

This won't sit well with cpr.

-- J (Y2J@home.comm), July 10, 2000.

Very little appears to sit well with cpr...

-- I'm Here, I'm There (I'm Everywhere@so.beware), July 10, 2000.

> this while the total energy consumption continues to forge ahead unabated to perhaps 50 percent higher than today. <

This is not a bad article but the author probably knows very little about exploration, reserves, and the ubiquitous depletion curve.

-- Will (, July 10, 2000.

Moderation questions? read the FAQ