Thursday, October 27, 2005

There's plenty of oil. So what?

Rantissmo has a diary up on proclaiming that all the hullaballoo about running out of oil is utter nonsense--not citing any facts or figures from any sources, of course. More proof that Republican policy is entirely faith-based. Incidentally, this diary made the recommended list, which is why I bother with commenting on it here. Notice that I'm not questioning whether he's right, I'm merely pointing out that he doesn't cite anything as proof for his statements.

But the whole point is that the quantity of oil in the ground is only half the battle, even if we weren't running out of oil that can be inexpensively extracted (which the diarist concedes is a possibility). The whole point of the author--and of many of the comments attached to the diary--is the standard refrain that the free market as arranged by the laws of supply and demand will dictate oil prices. But guess what the author forgot to mention entirely? DEMAND.

The Department of Energy forecasts that oil consumption will grow by 1.9% annually through 2025, reaching an astounding 118 million barrels per day in 20 years. For the record, that's 5 billion gallons a day. Consistency in oil prices would only be obtained by an increase in supply commensurate with demand. While the Department of Energy estimates that OPEC and non-OPEC countries will be able to increase output to match demand at a rate that would keep average oil prices around $51 per barrel, the following paragraph from the IAGS condensation quoted above should provide some pause:

But the EIA, by its own admission, has no mechanism to conduct reliable, independent reserve data analysis. Like other agencies it relies on data provided by petroleum ministries of oil producing countries, which are often deliberately exaggerated, and on data provided by oil companies. As the recent Royal Dutch/Shell scandal showed, reserve data by major companies may be overstated. On March 18, the company slashed its reserve estimate by 21%.

So even if we assume that the EIA estimates about demand are correct, and that foreign governments and oil companies (in whose best interests it usually isn't to tell the whole truth) are entirely honest about the state of their reserves, production, and refining capacity, oil prices would still hover close a non-inflation-adjusted price that not too long ago was seen as a harbinger of bad news for the world economy. And this does not count political or meteorological upheavals, or even the possibility that OPEC countries are operating at close to peak extraction capacity. Nor does it include the possibility of collusion among large oil corporations to fix prices at something more favorable to the industry--because for these companies, no profit is too much profit.

So even broken down into the most basic issues of supply and demand, it's obvious that the volatile nature of the "free market of oil" will almost certainly not produce results that are inherently favorable to the consumer. But on top of that, there are two other undeniable factors:

1) There is such a thing as maximum production capacity, even with unlimited supply.
2) Assuming that the world economy continues to grow, there will be a time when demand significantly outstrips supply, even at maximum supply capacity.
3) Oil supply is definitely limited, and will become more expensive on average to extract as cheaper sources are exhausted.

So much for free-market economics--I haven't even gotten into the larger issues of adverse health effects of burning fossil fuels, or the damage from global warming, or any other such issue.

And the final question: why are these people going out of their way to defend the status quo when Exxon makes $10 billion in one quarter and the consumer gets squeezed at the pump? They're normal people too. Are they masochistic?

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