Rising Oil Prices, Energy, oil investment

Rising Oil Prices

Written by Dan Watson Wednesday, 02 January 2008 21:39

$100 per barrel, should we be surprised? Of course not! Yes, I’m talking about oil, and the disintegration of Western economies, particularly that of the United States. There is little doubt that oil will exceed $100.00 per barrel in 2008 – if it is still tied to the dollar at that point – and that may only be a passing price as it goes even higher. This reality should surprise no one: it has been building since the Arab oil embargo of the 1970s and is continuing according to verse and chapter revealed during that crisis. Oil reserves are actually higher now than in the 70s but the global marketing of oil has changed – and the politics of oil are worse than ever for the USA.

The majority of oil reserves are located in unstable countries that are simply not friendly to the United States. Many of these countries are havens for terrorists who are actively trying to damage US interest and kill Americans. I could list them but you know the usual suspects and they don’t change. Recent increased production from Canadian Tar-Sands, will likely allow the US to import nearly all the oil we require from Canada and Mexico. It is possible that we might even extract oil from US sources in Alaska and the Gulf of Mexico but only if we have the common sense to overcome the radical environmentalist. So, if the future of oil sources looks good, why the unstoppable rise in the price of oil? One factor: oil has become a worldwide commodity for speculation – no different than pork bellies.

High rolling investors and some Middle Eastern governments, through third parties, are practicing oil speculation. It is a simple process where the investors buy oil, usually a large tanker, and hold it looking for the best price. Like it or not, this process is beyond the control of OPEC or any single government. This method of speculating really makes it impossible for sanctions against an oil producing country to be effective, since it becomes impossible to determine the origin of the oil.

Oil is a mess and the US is in no position to change the international market and it is past time to have a plan to end reliance on foreign oil.

Given the volatility, surely the United States of America has a cogent, well developed energy policy that will lead to energy independence. Short answer – NO!

The phrase “US Energy Policy” is an oxymoron and it might be comical if it were not so tragic. The best guess on the “real” US energy policy seems to be: let prices raise to the point it forces Americans to choose alternative sources of energy. The result of such a bonehead policy is recession, possibly leading to the next great depression. Imagine diesel costing $5.00 per gallon, the ripple effect throughout the greater economy will be devastating.

The US depends on transportation of goods across great distances and diesel, at $5.00 per gallon, would double freight costs. There are few items we buy that are not transported by truck and we do not have other viable options. Moreover, the petrochemical industry manufactures a vast array of products; especially plastics and these would escalate in price driving up the price of countless other products packaged in plastic. In short, relying on drastic price increases to persuade Americans to choose alternative sources for fuel will prove irresponsible and disastrous.

So, where do we go for energy? In some ways, I wish the answers were harder. At least if the solutions seemed impossible, then I could excuse the lack of leadership demonstrated by elected officials. However, it is not difficult to see straightforward solutions. Yes, I agree with the proponents of conservation, but it is impossible to conserve enough to even keep up with the growing population, so reality requires that we develop reliable domestic sources of energy.

Our energy use is broadly divided into:

Generating electricity,
Manufacturing and
Transportation.

Obviously, generating electricity from nuclear and coal power plants is our best option with the goal of being 100% nuclear. Manufacturing has evolved to more and more electric drive versus steam so generating electricity from non-oil sources will improve manufacturing also. Transportation is heavily dependent on oil for diesel, jet fuel and gasoline and the replacement technologies are a few decades away from changing this dependency.

Facing the reality of at least 20, maybe 30, years of depending on hydrocarbon fuels for transportation requires a plan to supply these fuels over that time without disrupting the economy or submitting to economic blackmail by our adversaries. The government is pushing ethanol as a gasoline supplement. This is simply an example of politics overriding science: corn-ethanol is an energy-negative product; that is, it takes more energy to produce than it creates. Moreover, ethanol blends reduce fuel economy by as much as 25%. (Brazil uses sugar cane based ethanol, which is energy positive and a success story.) Biodiesel is an effective product with performance characteristics virtually the same as petroleum diesel. But with current production levels estimated at 200,000,000 gallons (5,000,000 barrels) per year with a maximum capacity of 400,000,000 gallons (10,000,000 barrels) before affecting food production, it isn’t the answer either (the US uses 17,000,000 barrels of oil per DAY). Realistically, Biodiesel can achieve approximately 5% of the diesel demands of the US and that is a significant level but it leaves 95% to come from other sources.

We have a domestic source of fuel that can supply all our transportation fuel needs for the next 2000 years –coal. Coal can be converted economically to diesel, jet fuel and kerosene by the Fischer-Tropsch process (invented in 1920) for generating synthetic petroleum substitutes. Recent improvements developed by Rutgers and University of North Carolina have made this process economical and profitable as a substitute for petrodiesel, jet fuel and kerosene. It is incomprehensible that the US sits on a domestic source of fuel that has the capacity to supply virtually all transportation fuels and potentially end all oil imports and we are doing so little. In fact, the Senate specifically removed the Coal to Fuel program from the recent energy bill, citing global warming concerns.

Global warming is a distraction and is irrelevant to immediate energy needs. We have, by various estimates, 200,000,000 vehicles operating in the US today; of those, most heavy-duty vehicles are diesel powered. There are no expectations that the majority of the 200,000,000 vehicles will be converted to non-hydrocarbon fuels in any period less than 30 years, even if a program began today. With this in mind, the source of the hydrocarbon fuel is not a global warming issue (even if we allow the argument of human activity as the cause of global warming): hydrocarbon fuels will be the largest source of fuels for the next 30 to 50 years.

Importing 10 to 11 million barrels of oil per day rather than using domestic sources to become energy independent could be considered culpable negligence. We have the technology and the resources to be energy independent in 10 years; the missing ingredient is leadership. Our elected officials are either ignorant or incompetent; there is no other explanation. The very future of our nation is at stake and our government is asleep on watch.

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