The Wall Street Journal's Environmental Capital blog is a must-read. But what exactly were they thinking with this column:
So you think you're being virtuous by trading in the SUV for, say, a Prius? What if, instead, you're really sticking the next guy in line with higher pump prices?
Yes, The WSJ is revoking the law of supply and demand. Less demand translates into higher pump prices! How is this possible, you ask?
In the debate over why oil prices are so high, and where they're going from here, there's an intriguing idea making the rounds: The West's sudden urge to kick the oil habit may run the risk of making oil even pricier in coming years.
The logic goes like this: Despite all the talk of "peak oil," big producers in OPEC, and Russia and Mexico could tap 8 million to 10 million barrels per day of new oil -- if they got the right market signals. That new supply would be enough to meet the world's oil demand in the next decade, buying time to gradually shift over to a less oil-intensive economy without the whiplash oil-price volatility of recent months.
What? "If they got the right market signals"? So, $130 a barrel is not the right market signal? We're to believe that OPEC, Russia, and Mexico are withholding oil that could provide them revenues exceeding $1 billion a day at current prices? I lack sufficient question marks for this post. But it gets better:
The rub, according to this theory, is those market signals. Though oil-consuming nations worry about security of supply, oil-producing nations worry about security of demand. If OPEC and other big producers were sure that expensive, long-term investments in new production capacity would find willing takers, they would pony up to pump the extra oil. But with all the talk in the West about curbing oil demand, the theory goes, oil producers are thinking twice about investing in new capacity.
Yes, "with all the talk in the West about curbing oil demand." Talk. Talk. Talk. I'm sure that OPEC and Russia are crying all the way to the bank and taking out prescriptions for Xanax worrying about how much people in the West are talking about curbing demand.
The WSJ leans on some Dutch report for this analysis:
This argument is laid out in a recent report [PDF] from a Dutch energy think tank, the Clingendael International Energy Program. "Asking producing countries to take on the full risk of any possible (but unlikely [Note to Dutch -- Duh!!!!!]) over-supply is not fair, and is also not in the long-term interest of the consumer countries," the report says.
The report argues that oil-consuming nations need to ease oil producers through the transition to a "post-hydrocarbon" economy -- not threaten one immediately. Otherwise, the report warns, declining production and increasing demand are going to create a nightmare decade with wild price swings and ever-more expensive oil -- and geopolitical tensions between the haves and the wants.
I kid you not. Saudi Arabia, which is in fact already making about $1 billion a day from oil, needs Americans -- who will pay some $1 trillion for oil this year -- to "ease" them through this obviously painful transition.
So let me get this straight. If we don't make a transition to a post-hydrocarbon economy, then obviously we are going to keep paying exorbitant prices for oil. But if we do, we are also going to pay exorbitant prices for oil anyway. Wow, we are really screwed. But if so, doesn't it make a little more sense to reduce our oil consumption sharply, so even when energy prices soar, our energy bills don't?
Of course, that raises the big question: Is a smooth transition to a less-consumptive society what OPEC and other big producers really want? Or do they want oil at $200 a barrel?
My head has almost exploded.
The really bizarre thing about this article is that The WSJ itself wrote back ($ub. req'd) in October "OPEC's Lever Loses Its Pull on Oil." As I wrote back then, "We cannot be far from $100+ oil." Duh! Nobody is withholding large amounts of oil from the market.
The absurdity of this analysis was not lost on The WSJ commenters, one of whom wonders, "What if famines in Africa are making wheat more expensive for Americans?"
As for me, I will continue to drive my Prius. If that tiny reduction in demand means my readers have to pay higher and higher prices for gasoline, well, I guess that is just evidence of my selfishness. I should have bought a Hummer.
This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.
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Comments
View as Flat
Sean Casten Posted 9:06 am
01 Aug 2008
The WSJ does this more than any other respected paper out there. How the same editorial board can allow solidly researched articles and utter crap to both pass through unscathed to get printed on their masthead never ceases to confuse.
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Wolverine Posted 10:12 am
01 Aug 2008
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Sam Wells Posted 10:58 am
01 Aug 2008
The second was that small car producers like Tata (sp) of India and other companies were going to flood the market with very cheap cars that were extremely fuel efficient.
My only beef with the article is that Joe and WSJ think that markets are rational and really react to such "market signals" in a normal manner. That make me laugh, like people really think oil and gas trades on supply and demand. Nowadays trading is done with Internet rumors - get with it, pilgrims! -sammie
Onward through the fog
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Colin Wright Posted 1:18 pm
01 Aug 2008
Meanwhile the rest of the media can afford to be more biased. Their job is to filter the news and "manufacture consent". They take their leads (and leaks) from the politicians (such as cheerleading the country into war). Thus you're more likely to read about peak oil in the WSJ than the NYT.
Of course, this blog article is nuts: if oil prices drop too low due to conservation, OPEC would just shut the spigots til prices rose again.
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amazingdrx Posted 2:11 pm
01 Aug 2008
This is exactly the kind of insanity that airs daily on foxnews. Murdoch recently fired a bunch of people who wouldn't cooperate with his "eccentric" point of view.
Maybe he hired a few who have the mental problem he and most of foxnews folk have? Just a guess.
Reduce demand, OPEC will cut supply. Leave demand high and OPEC will relax, expand
production, and oil will go down?
How about leaving the ME alone? Would that lower prices? how about re-regulating insider manipulated oil furues markets?
How about never ever reading or refering to the WSJ again, because it's controlled by Murdoch the mad. Then pray for Rupert to go to that big mental hospital in the sky? Would that lower oil prices?
I've got it! How about realizing mass delusional media is fake, pretend it's a puppet show? Then proceed to discuss our collective problems and solutions based on facts instead.
I bet that will stabilize oil prices and eventually eliminate the use of oil.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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amazingdrx Posted 2:25 pm
01 Aug 2008
Switch to the terms corporate feudalism, corporatism, and the divine right of capital. It better describes the system that is destroying the planet.
That nazi stuff suffers from an overused and antiquated frame of reference. It's just not worth the trouble.
It costs nothing to apologize and change course.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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perk Posted 2:40 pm
01 Aug 2008
Just like this post for climateprogress.org, nothing more than something to get your attention for reasons known to the authors.
Yes, sometimes even content here fits the definition ( see http://en.wikipedia.org/wiki/Troll_(Internet) ) of "trolls".
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Jon Rynn Posted 3:01 pm
01 Aug 2008
The argument Romm made fun of, however, makes me think that no matter how obvious it is that the Earth has limits, as for instance in oil, a lot of people will take comfort in some other, impossible to falsify theories (I'm not talking about you, amazin', I think we just have different focuses (focii?)).
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amazingdrx Posted 3:18 pm
01 Aug 2008
I only believe there is no limit on happiness, fullfilment, and enlightenment. Appreciation of the symbiotic position of one's own self, makes limits part of the ecstasy of living. Aum.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Delay And Deny Posted 4:12 pm
01 Aug 2008
Go hydrogen. New MIT process makes it easy and cheap to generate with wind and solar.
Hybrid owners are polluting the planet with excess technology.
This is how the hybrid will be remembered:
http://www.8trackheaven.com/Images/pumps.jpg
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Wolverine Posted 4:46 pm
01 Aug 2008
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Jonas Posted 1:49 am
02 Aug 2008
This logic was also expressed in last year's IEA Energy Outlook, which focused heavily on the fact that OPEC is postponing investments in new capacity.
So it's not a new theory, and a very logical one, at that; rather basic investment economics.
To the point: the West is not merely talking, it is implementing things: the EU has a 10% biofuel for transport target and 20% renewable electricity target; the US has a 20% liquid biofuel target.
Biofuels have seen massive investments, as have electric cars and the renewables needed to power them: biomass, wind and some solar.
This sudden outburst of policies and investments into a post-oil epoch, is worrying OPEC.
As it costs billions and several years of time to invest in new oil capacity, they are not going to put up this money as long as the large consumers are not giving the right long term signals.
It wouldn't surprise me if, because of this, oil producing countries will begin investing in renewables themselves, instead of in new oil capacity.
There are already some signals indicating this trend: several Arab states are buying up millions of hectares of farm land for biomass production. Others are investing heavily in solar and wind. Several double digit billion dollar green cities are being planned in the desert.
These are not toys.
Arabs are investors like everyone else. If there's a threat of a serious demand disruption in the future, then they won't invest in new oil capacity. 101 investment economics.
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Jonas Posted 1:57 am
02 Aug 2008
If we keep giving this signal, OPEC will continue to postpone investments in new capacity; the oil price will keep increasing; prompting an all out rush towards post-oil mobility.
The end result will be the destruction of OPEC and a better, cleaner planet.
With the right policies and consumer behavior, we can bring about this transition faster than OPEC anticipates. Because it is already frightened to death over our current action, which remains fairly prudent.
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stopgreenpath Posted 2:08 am
02 Aug 2008
Renewable energy financial resources are, sadly, tiny and finite, at this point, so we are faced, as so often the "underdog" is, with a zero sum game. It's either Pickens who gets our money, to build an OPEC style monopoly on wind/natural gas, or it's US who get our money, to put PV, thermal and microwind on our own properties. Feed in tariffs (good ones, not net metering and not baloney "market referent" ones that rely on externalizing 90% of costs); subsidies; incentives; loans - WE need these for ourselves.
How many "Big Energy Hijacking" stories do we have to read to shake off the Stockholm Syndrome and bolt while the door is open? You think it will stay open forever? We gotta push hard for this now, why not???
the greenest energy is that which you needn't ever produce.
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Jon Rynn Posted 2:12 am
02 Aug 2008
But in the dreams of most of the world, oil is limitless, so we get these convoluted explanations, even from respected think tanks, when the obvious explanation is simply that the world is starting to run out of oil
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Russ Posted 2:23 am
02 Aug 2008
This logic was also expressed in last year's IEA Energy Outlook, which focused heavily on the fact that OPEC is postponing investments in new capacity.
So it's not a new theory, and a very logical one, at that; rather basic investment economics.
This is simply an amen chorus aping the Saudi party line that they could ramp up production to 12, 15, 20, 25mpd at will, but that there's always some Western political factor which renders this unneccessary or imprudent.
The truth is that Saudi production is at or near its peak. They claim they're going to be at 10mpd by the end of the year? We'll see, but even if they can do that, it'll probably be only for a short time, and just cause their subsequent descent to be all the more steep.
The WSJ and everyone else who keep trying to foster the myth that oil production is limited by nothing but above-ground factors are simply desperately trying to keep the fossil-fuel party going to the bitter dead end, and prevent any beyond-fossil fuel initiatives being taken until it's too late.
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Jonas Posted 6:55 am
02 Aug 2008
This is simply an amen chorus aping the Saudi party line that they could ramp up production to 12, 15, 20, 25mpd at will, but that there's always some Western political factor which renders this unneccessary or imprudent.
First off: OPEC sells oil to the West. Ask George Bush.
Secondly: there are teratonnes of untapped hydrocarbons out there. The point is that not all of them are equally easy to recover. Exploring and exploiting new oil is more expensive than before and keeps getting more expensive.
This is precisely the reason why OPEC is troubled: the longer they wait with investing in these more difficult resources, the sooner oil prices reach catastrophic levels (because demand keeps growin), prompting a wholesale switch to non-oil mobility. Once this switch is set in motion, oil prices will drop and decouple themselves from our economies - the legendary inelasticity of oil demand will disappear, and OPEC can no longer hijack the West.
And these low prices will consequently make it impossible to exploit the difficult oil resources - because these need huge investments.
But if they invest today in these difficult reserves, they lose a lot of money, without having the guarantee that anyone will buy the oil, because by the time these new facilities come online - it takes up to 15 years to organise a new flow of oil from well head to new refinery - , the switch to non-oil mobility may already be in full motion.
If you want to call this dynamic Peak Oil, fine with me.
There's no contradiction with what I said.
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amazingdrx Posted 8:28 am
02 Aug 2008
Do they realize they would be better off keeping oil around 100 bucks per barrel in order to discourage oil and GHG free transportation? And preserve their market.
I think the Saudis are mainly interested in revenge against the great satan. They are as crazy as our oil men, bush and cheney.
Reason? It doesn't go along with fundamentalist religious based corporate feudalism. They believe in the divine right of capotal, god speaks through bush, as he told the amish group. The oil billionaires believe that a divine power gave them their power. It is one in their pleasure addled brains.
Plugin hybrids must terrify cheney and the Saudi billionaires equally. Let's put the scare to them and mass pridice 100+ mpg oil mob killers. Hehehey. That's a last laugh we could all enjoy, no matter the political prediliction.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Russ Posted 8:30 am
02 Aug 2008
Yes, and the point is, since 2005 they've been pumping and selling just about all they can. All they're doing now is pumping the margin of spare capacity they had. There's little or no more capacity to be exploited beyond that, at any level of investment.
That's why for some years now, even while they claim they could pump lots more, they've demurred no matter how much America begged (until this most recent time), saying there's more than enough oil in the market already, and blaming any shortages on an alleged lack of American refinery capacity, or on generalized American "mismanagement" (that was last winter), and now we have the topper:
they couuuuuuuuld pump any desired amount well into the 22nd century [which is when Aramco insanely claims the Peak will finally come], but gosh darn it, because those hippies keep talking about hybrids, they just can't see taking the risk of investing what, if their claims are true, would have god knows how astronomical an EROI. Probably $millions on the dollar.
Anyone can see how crazy this is, how patently fraudulent.
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amazingdrx Posted 8:39 am
02 Aug 2008
Saudis, keep your oil, we'll keep our cash, food, technology, real estate, and souls.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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usandthem Posted 6:43 am
04 Aug 2008
Why not ask why!?
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usandthem Posted 6:55 am
04 Aug 2008
Why not ask why!?
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sherrieh Posted 11:52 am
04 Aug 2008
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