Oil prices
Borrowed from behind the Financial Times firewall:
Imagine a world in recession, where oil costs $50 per barrel. Which economies would be most affected? There are obvious losers. In Saudi Arabia, the largest oil producer, oil accounts for 90 per cent of exports, which in turn represents almost two-thirds of the economy’s output.
Indeed, members of the Organisation of the Petroleum Exporting Countries are more dependent on oil now than when prices fell sharply in 1985-86 and 1997-98. Exports plummeted in value after the Opec basket price fell from $27 a barrel to $13.50, and from $18.70 to $12.30, respectively. But in 1985 and 1997, oil exports were just 21 per cent of Opec’s gross domestic product, compared with 36 per cent now.
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Just two of the implications of the above that strike me are these:
First, if there is a recession and oil prices drop, then many, if not most, current Green Energy projects will no longer appear to be economically wise. What should be done? One possible answer is to mandate that oil prices stay at today's level, so that if producers drop prices, taxation would make up the difference. Obviously that would encourage OPEC to keep prices up, but from an environmental perspective that would be the goal, whether taxes or marketplace supply and demand sets the resulting price.
Second, dropping oil prices will produce even more tumult in the Middle East. This is hard to imagine, given the current situation. Yet more tumult is to fear, and whether the Administration has a plan to react to a recession and a drop in oil prices in 08 is hard to know.
Given that we can't prop up prices on our own, if the whole world is in recession, let's not think about why we should.
The good news is that low oil prices mean less consumption of oil. The bad news is they won't stay low, because at low prices we'll start using more again.
All the more reason to get a jump on the mess, push the alternatives, and buy some maneuvering room. If low prices bring down governments in OPEC, higher prices are sure to follow in short order.
Internal price supports are a hopeless goal; I can't imagine even a super-majority Democratic Congress doing that. But I can imagine Congress offering prizes, tax credits, and loan guarantees for shifting away from oil.
Now consider that shifting away from oil will lower price pressure, and we should expect a messy Middle East. But unlike our interventions, that will in fact replace the oil dictatorships. And the lack of interest in oil will take the fun out of the Great Game, letting those countries find their way without interference.
September 15, 2007 1:40 PM | Reply | Permalink
I think that the share of OPEC countries's GDP represented by oil exports went up because (1) the price of oil has gone up a lot in the last few years and (2) the non-oil sectors of most OPEC nations' economies haven't grown anywhere near as fast. This is just arithmetic, not an insight of any kind. The FT usually does better than that.
September 15, 2007 2:01 PM | Reply | Permalink
Why not say it as it is, including the actual costs to the energy products' price
would be the best plan.
Energy prices are a true situation of subsidy by the taxpayers of America.
We keep the prices low so the provider can sell more volume
of the items we need to consume less of.
Since the real costs are not directly associated with the product, but paid indirectly by us through taxes, a rational decision on consumption is not made.
This is intentional because the powerful oil cartels (include the US producers) would not make as much if its true cost were included and this drove alternative energy and efficient use of the energy we consume.
Our memories have not been reset yet. We understand the history of this war even if the media tries to control our reality and the administration hopes our memory can be corrupted or erased. The Administration went into this war to produce chaos in the Middle East.
Remember the article In the Washington Monthly Magazine by Josh Micah Marshal?
Talking about adding taxes to energy is but a straw man
for an argument intended to fail!
Talking about ending the taxpayer subsidies for oil companies profits
by adding these costs at the pump
is a plan to be attempted over time!
I would like to ask you this question.
As chairman of the Federal Communications Commission through many fights
about the use of regulated utilities using subsidies and preditory pricing
to dominate competitive markets, can't you recognize it here?
-----------------------------------------------
Today, are we searching for I deals or Ideals? -Thinking
September 15, 2007 4:02 PM | Reply | Permalink
In the Bush years the US dollar has dropped by about 60-70% vs. the Euro, the Aussie dollar, and it has dropped even more against gold, silver, copper etc.
The increased price of oil is to a great extent due to the shrinking value of the dollar. In a stagflationary economy the US may see recession and yet the price of oil in US dollars might not drop, it might even go up.
September 15, 2007 4:52 PM | Reply | Permalink
Since the U.S. is no longer the lone buyer, a US recession, or even slow growth, will not likely spark a global recession so oil prices will probably endure.
Here's a problem, though. Cheap oil has often helped the US shake economic doldrums. If our economy slows and oil prices stay high, that's an impediment to our own recovery. That's also a good reason not to use taxes to create a floor. Also, such taxes are regressive.
thosethingswesay.blogspot.com
September 15, 2007 4:59 PM | Reply | Permalink
Given that we can't prop up prices on our own, if the whole world is in recession, let's not think about why we should.
I think this doesn't quite hit Reed's point. If the idea is to protect emerging green energy technology by ensuring that there remains an economic incentive to pursue them, by ensuring that U.S. oil prices remain high, it's sufficient to do so at the national level, since citizens will still have an economic interest in new non-petroleum technologies.
I assume, at least, that this is right - that prices within the U.S. (e.g.) could be maintained despite lower prices across borders (funny thought that) - in other words that market pressures wouldn't erode prices, a black market wouldn't emerge, etc. I don't have the expertise to back up that assumption.
Of course, I cannot imagine a world in which there was the political will in the U.S. for artificially high oil prices.
September 15, 2007 5:23 PM | Reply | Permalink
I skipped to your last point,, in my comment. I think the obvious is hopeless, and "internal support" was my phrase for what couldn't be achieved. So I emphasize positive-feedback mechanisms like tax credits and prizes.
September 15, 2007 7:40 PM | Reply | Permalink
"First, if there is a recession and oil prices drop, then many, if not most, current Green Energy projects will no longer appear to be economically wise"
lol. Most current green energy projects aren't economically wise at current levels. At $100/barrel they make more sense, but at $80 most are simply not viable.
However, this is not the point. You are confusing the current cost of energy with the expected cost of energy in the near to medium future. Also, the current cost of projects is not the future cost of projects, because as technology and expertise increase, the cost of construction goes down. As a result, you will find many thousands of people attempting to strike it rich in the field now. The price of energy would have to go down substantially for this expectation of high future energy prices to go away.
September 16, 2007 6:46 AM | Reply | Permalink
How would "green sources" compare if we dropped every single subsidy to the oil industry, and also priced it as a dwindling resource? Maybe even figured in the costs of clean up from the pollution it generates? IOW: The ACTUAL, TRUE cost of oil as energy.
Wouldn't oil prices look a lot more like oil prices in Europe?
Wouldn't "green sources" look a lot more viable, if we looked at the ACTUAL, TRUE, and FUTURE costs of oil as an energy source?
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September 16, 2007 7:19 AM | Reply | Permalink
Very good point about future costs. Depending on a mined fuel means depending on something that has to become scarce, eventually.
But there are plenty of profitable-now projects underway, from the obvious wind turbines to large solar-thermal installations. And investing in a non-fossil energy source means planning on a source with declining costs, instead of increasing costs.
There is no reason not to move now to owning the "means of production" of energy, at home, at each business, and in some central locations.
Oil is almost exclusively used in the transport sector, but that is only because of its convenience for that job. Using sun and wind to either make alcohol or to charge batteries or ultra-capacitors in vehicles is not a future technology, it is only a future market. The same could have been said about rail travel, before the transcontinental railroad was built.
September 16, 2007 7:22 AM | Reply | Permalink
Lets not forget, that not too long ago the United States led the world in alternate energy sources, namely solar and wind.
The Oil companies bought up the most promising technology and sat on it. The result is now Germany is ahead of us in wind, and Japan in solar.
Way to go, United States.
Kind of reminds me of the Beta/VHS debacle.
CSPAN junkies visit http://spannerbackup.ipbhost.com
September 16, 2007 7:27 AM | Reply | Permalink
God forbid America doing something crazy like having the government invest in and subsidize green technologies. Honestly, how the hell America got where it is today is beyond me.
September 16, 2007 8:36 AM | Reply | Permalink
Reagan.
September 16, 2007 9:19 AM | Reply | Permalink
As long as we end the free ride that coal gets in not paying for the damage it does, and the future of natural gas supplies remains uncertain, then the main Green Energy projects ... installation of Wind power in places like the Dakotas, western Ohio, offshore in the Atlantic, Concentrated Thermal solar power installations in the desert Southwest.
For research and development, we need to fund the R&D activity and to get over "infant industry" costs of renewable energy, we need a national renewable energy portfolio standard, but neither of those would be rendered ineffective by a temporary drop to what was once considered high price oil.
In any event, since the next US recession will not necessarily spark a synchronized global downturn ... the Chinese, for instance, can weather a US recession ... ... and the European economy is not likely to be dragged down by a US recession either ... this is likely not an issue we will have to fret about.
September 16, 2007 9:53 AM | Reply | Permalink
It's been bothering me that I first took the FT lede the wrong way. I thought it was going to go on with a piece about the paradox of high oil prices in a recession---silly me, $50 is a depressed price. Let's see, when was oil last at that depressing value? How about one Friedman Unit ago, at surge start?
Oil on the spot market was averaging in the low $20s/bbl when Bush took office. Forgive me for not worrying about Saudi Arabia's cash flow.
September 16, 2007 10:17 AM | Reply | Permalink
Oh really?
Then pray tell how come biomass and geothermal both exceed wind and solar in energy production?
It is a curiosity that the U.S. is the world's largest producer of electricity from geothermal while development funds and developers are mostly foreign and the U.S. does very little to encourage development and even does much to discourage such development. A small Icelandic bank, Glitner, that proposes spending as much as $40B on geothermal energy in the U.S. admits that permitting can take as long as 10 years. Meanwhile poor countries from Nicaragua to the Philippines (2nd largest producer) to Kenya vigorously push development of geothermal while George Bush threatens a veto of Jerry McNerney's bill to encourage geothermal development should Congress vote for it.
Both wind and solar are intermittent sources of energy. They can supplement but never replace baseload power. Geothermal is the ultimate baseload power producer.
Best, Terry
September 16, 2007 6:14 PM | Reply | Permalink
We could use more detail with that assertion. I'm willing to accept a possibility of true geothermal yielding a lot of power, but the price is non-trivial and the centralized production entails transmission losses.
Geoexchange for homes is sort of free energy, in being both a heat source for winter and a good heat sink in summer, with the benefit that it is easiest in the areas that lack lots of sun.
As to intermittency, storage of energy in one form or another is essential, and expanding storage capacity in even grid systems would make the supply more robust and less brittle. Grid experts are hoping for more battery cars, sitting online as plugins, since they could serve as a buffer.
Storage makes eveything easier. We're spoiled by easily stored liquids, and they'll always be useful, but when the suplly is electric and the use is electric, the storage should keep it that way.
September 16, 2007 6:48 PM | Reply | Permalink
~
Yet more tumult is to fear?
Next!
~OGD~
September 16, 2007 7:00 PM | Reply | Permalink
I hear Canada's hurrying to catch up converting this into this.
September 16, 2007 7:04 PM | Reply | Permalink
What's so new about that? Canada's been doing it for years.
Some folks have to get out more often.
~OGD~
September 16, 2007 7:07 PM | Reply | Permalink
Your "true geothermal" presumably excludes direct use for heating and cooling though others think heated waters from the earth, in particular, are geothermal.
Cost of current geothermal power projects is quite competitive.
You might want to note that the Glitnir bank's analysis gives short shrift to Colorado while a recent report by that state's geologists thinks the potential is among the best.
Estimates of the potential of the Salton Sea have a wild range. Some give it the potential to provide the entire state of California with all its electricity needs.
Texas recently held an auction of old oil and gas wells with geothermal potential.
The Finger Lakes region of my New York has a KGRA (Known Geothermal Resource Area) that has been known for decades with no development at all until very recently and that only very preliminary.
I am sure you are aware of MIT's study that suggested hot dry rock geothermal development has vast potential. Nothing really new there.
Sure but a more serious impediment is constructing the power lines to the power plants. Regulatory delays and objections are daunting.
Transmission losses haven't stopped geothermal power producers from shopping their projected output over considerable distances.
The ignorance and obfuscation in regard to geothermal power and even geothermal heating and cooling in this country is difficult to understand. You can bet your life it wasn't George Bush who installed a geothermal heat pump in his home in Crawford, Texas.
Best, Terry
September 16, 2007 8:36 PM | Reply | Permalink
You might pray to the Good Lord that he share with mortals his method of storing His thunderbolts. Until then we have little but batteries and some inefficient mechanisms.
I think San Diego Gas and Electric was one of the pioneers in building dams into which it pumped water at night and generated power during the day. I suspect there was some considerable loss of power and not everybody, particularly fish, loves dams.
Biomass is also baseload of course.
Best, Terry
September 16, 2007 8:44 PM | Reply | Permalink
Thanks for the additional info.
One geothermal use I found intriguing is being considered by LA. It would be to pump sewage sludge into unused oil fields with appropriate underground temperatures, roughly 100 F. In this environment, bacteria would yield methane (and capturable CO2).
But I am unhappy with your dismissal of the rather obvious availability and ease of collection for solar and wind power, as well as expecting no improvement in methods for storing electrical power. While hydroelectric installations have been doung this for the last century, only recently has the need been felt for large non-hydro systems.
Even the derided lead-acid battery can be economic if one merely bought power at night to use during the day. Including the conversion losses, the rate differential allows the cheap nighttime power to pay for the battery system in a year or so. (This lowers carbon cost since the night power is made more efficiently.)
The lithium-ion battery is only just now moving into large-scale applications, like cars. And for applications where space is not at a premium, the flow battery is the likely winner. It is in use in a 750 Kwh setup on King Island, Tasmania.
A flow battery system about the size of two refrigerators could run an average house for a week. No need to pray to God for answers.
September 17, 2007 6:12 AM | Reply | Permalink