ebb and flow ... The price of conspiracy theories
  from: Offshore Engineer
  by: Michael J Economides
  Friday, June 20, 2008

It would be more amusing had I not been personally involved. Three years ago I was a lone voice outrageously predicting $100 oil, berated on many occasions on national TV by those predicting $50 or even less. The tapes are still available.

Now, $100 seems conservative, and others have jumped on that number by the carload; even the Opec president has just said that oil may climb to $200. This, by the way, is the same organization that four years ago was insisting that the ‘official’ price was between $24 and $28, while we were paying $50. Clearly they hoodwinked us.

Oil is at $130 with no end in sight because of two simple but unsavory facts.We in the United States and Europe have earned the right and the luxury to be ridiculous and oil producing countries, knowing this, have become militants, in what arguably can be called energy imperialism.

First a disclaimer, in itself silly though one I have to make. This article is not paid for by Big Oil. Second, I have a simple belief: energy and its abundance is perhaps the most important commodity in modern life, bar none, and any energy shortages will plunge the world into an economic tailspin the like we have never experienced before. If one does not believe this, then there is no need to read further.

Of world energy demand, 87% is met by fossil fuels, oil, gas and coal. This fraction has not changed much since the 1970s and the first ‘energy crisis’, while energy demand has more than doubled. By almost everybody’s estimates, by the year 2030, total world demand will increase by 50% and oil, gas and coal will still meet 87% of it. The reason we use fossil fuels is not because of some evil conspiracy.We use them because they are the easiest, most flexible, most reliable and most efficient forms of energy. Biofuels, as done today, cause a negative energy balance not even considering their impact on food prices. I have no aversion to wind or solar. I love the sun; I am Greek. But they are eminently unreliable and, even at their best, without government subsidies, they make $200, even $2000 oil, still attractive. It is that simple.

But here is how the West is ridiculous; and it would have been funny had we not run the danger of committing societal harakiri. We have let environmentalism of the most outrageous variety put on a tie and become mainstream, dominate the covers of national newsmagazines and, predictably as of late, earn Oscars, Emmys and Nobels. There has been no real alternative to fossil fuels for decades and any transition will be long and painful. Nothing will happen overnight. The West will continue to be a fossil fuel dependent economy for the foreseeable future.

To boot, the US imports now almost 70% of its 21 million barrels per day of oil demand. Hugo Chavez, Vladimir Putin and Mahmoud Ahmedinajed have noticed.

So what do we do now? We are not allowed to drill in proven offshore or Arctic resources and where we can drill ‘it takes more than an act of Congress’. At any given time, our oil and gas reserves are perhaps 40% less than they could have been in practically any other country because of environmental compliance. Ask almost any American which country provides more oil to the United States and the answer would be Saudi Arabia, Canada or Mexico. The correct answer is of course the United States, by far.

In a margin business where one half of one percent of over or under supply can cause havoc on the oil price, drilling in the ANWR would make a heck of difference both really and symbolically. It takes 800 permits to build a new refinery. Is it surprising that none has been built in over 30 years?

Big Oil is of course blamed by many, headed by national politicians. The truth is that oil companies have very little impact on current oil prices and their influence is waning compared with energy militant countries that own the reserves. Instead of being protected Big Oil is maligned by politicians and a gullible public.

A simple question: suppose that the energy industry is nationalized and the ExxonMobils of the world are taken over by national governments. Does anybody believe that gasoline prices would be lower? OE

Michael J Economides is a professor at the Cullen College of Engineering, University of Houston, and editor-in-chief of the Energy Tribune. The views expressed in this column do not necessarily reflect OE’s position.

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