A few candidates mumbled platitudes about energy, environment and economy, but no one had an answer. (The price of oil then was $56/barrel and gas around $2.25/gallon.) Less than two years later, oil has topped $90/barrel and gas is around $2.90/gallon, indicating the price rise has yet to work its way through the system.

(Just two years ago, Hurricane Katrina caused a “massive jump” in the price of oil. What was the “unheard of” price oil was then demanding? Sixty dollars a barrel.)

Daniel Yergin, of Cambridge Energy Research Associates, said Wednesday that $100/barrel oil was not only possible, but likely in the near future. (Hello, home-heating season!) He attributes the sudden rise to two factors: political turmoil in the oil-producing regions of the world and the weak dollar. “What we’re seeing in the oil market today is rooted more in the cauldrons of geopolitics and the impact of financial markets, expectations, and psychology than in supply and demand, but these are real factors,” Mr. Yergin said.

Mr. Yergin’s quick to discount of the effects of supply and demand; recently he estimated the global oil supply at 4.8 trillion barrels, as opposed to the generally accepted two trillions barrels economists use in supply/demand calculations. Mr. Yergin is the “don’t worry, keep driving” oil economist beloved by the oil companies and their wholly owned subsidiaries on Pennsylvania Avenue.

At the “Oil and Money” conference in London this week Sadad al-Huseini gave a presentation on supply and demand. Mr. al-Huseini is the former head of exploration and production at Saudi Aramco.

Demand (obviously) is up, which in addition to unrest and weak dollars, accounts for the high price of oil. We all know the stories of the roaring Chinese and Indian economies. Spending on exploration by the oil companies is also up. What’s not up is production, the supply side. The reason for that, Mr. al-Huseini says, is there’s nothing more to produce.

On paper, the oil nations have billions and billions of barrels in reserve they should be pumping and earning huge revenues. Instead the production curve has flattened out.

Why? Mr. al-Huseini dates the problem to the late 1980s when OPEC reapportioned the quotas under which various oil countries could bring their product to market. To keep the price high, OPEC limited the total amount of oil on the market, but divided the pie by the amount of oil each nation had in production or reserve. The more oil a nation had, the bigger its share of the quota, the more it could bring to market and the more money it could earn.

The price of oil was running at about $13/barrel in those days, who could resist gilding the lily just a bit? According to Mr. al-Huseini, the lily was gilded to the tune of 300 billion barrels of oil. Those are barrels of oil OPEC nations said they had in reserve and in fact did not, or as Mr. al-Huseini admitted, they may have but the oil may be in such a state that it will never be economically recoverable.

He said 75 percent of Iran’s oil comes from fields that are more than half depleted and the 38 “giant” fields (1 billion+ barrels each) in the Arabian Gulf are approximately 41 percent depleted. Production in that part of the world will now plateau and will begin to diminish in 15 years or less, Mr. al-Huseini said. Meanwhile, demand – and the price of oil – will continue to rise. He predicted an annual increase of $12 per barrel. The price of oil hit $96/barrel yesterday, so that would mean $108/barrel in 2008 and $120/barrel in 2009. When the next presidential election cycle ends in 2012, it would be $155/barrel.

Is Mr. al-Huseini an OPEC employee with a reason to lie, to cover the fact that OPEC nations have plenty of oil, but are crying depletion just to see how far they can goose the price per barrel? Maybe, but whether the problem is politics, weak dollars, empty oil wells or deceit, the answer should be the same: get our nation off its oil addiction. Mayors, governors, presidents – and the people who elect them – should be thinking about little else these days

© Mark Floegel 2007

Oil, and therefore gas, prices remain at near-record levels. A story in last Sunday’s New York Times blamed a shortage of refinery capacity. Hurricane Katrina knocked some refinery capacity off-line in 2005, other refineries delayed maintenance to keep the gas flowing, but now that delayed maintenance is taking refineries off line. That, plus a series of unfortunate lightning strikes, the Times says, is causing our supplies to lag behind demand. The Times article takes pains to note that this is not price gouging by the oil companies. Heavens, no. Perish the thought.

We’re all sure this is not price gouging by the oil companies, but it should be noted that using this tactic – taking power plants off line for maintenance – is exactly what the electric companies, with the connivance of Enron, did in 2001 causing those price spikes and rolling blackouts in California. No, these refinery downtimes are because those unselfish bosses at the oil companies kept their plants going too long for the public good; they’re “refiners who love too much.” Look for an upcoming segment on Oprah.

Of course, if this were price gouging, we can rest assured it would be caught by the eagle-eyed regulators of George W. Bush’s administration, who’ve been so good at holding corporations accountable.

Even if we accept the oil executives’ protestations of innocence, what does it say about them that they have allowed our national oil-refining infrastructure to grow so feeble? How can corporate directors justify giving these people billions in salaries and bonuses each year? What does it tell foreign or domestic terrorists about how easily our economy can be crippled?

Last week I was flying and like so many others this summer, I was delayed. What should have been a six-hour trip took 24 hours. A few weeks earlier, a friend’s family took four days to get from Vermont to California. They could have driven there quicker. That too is about oil.

Surveys may say drivers are willing to pay up to $4 a gallon for gas, but that doesn’t hold down the cost of sandwiches or airline tickets. Airlines are losing their shirts over the cost of fuel, but they’re doing everything they can – goodbye, tiny bag of peanuts – to keep ticket prices down. Flying is still in many cases cheaper than driving, but the airlines, having cut unprofitable routes and redundant flights, are running at over 90 percent capacity. If your flight is delayed by weather and you miss your connecting flight, as I did, the ticket agents have a difficult time finding an open seat. If you’re flying from a small airport (like Burlington) or are traveling with a family of four, then it may take you four days to get to California, as it did my friends.

Inconvenient as air travel has become, if the airlines have to start raising ticket prices (they will if this keeps up much longer), then they will be faced with fewer travelers and costs they can’t cut any more. Flying a half-empty plane is much less profitable than flying a full one.

The New York Times says this crisis is about refining, but the federal government’s Energy Information Agency recently posted global oil supply and demand statistics for the first three months of 2007. We as a planet used an average of 1.4 million gallons more oil than we pumped in the first quarter. That in itself is neither cause for panic nor explains high gas prices, but it is a concern that demand outstrips supply more frequently than it once did.

If supply and refining bottlenecks are playing havoc with the price of sandwiches and airline seats, what of all that plastic crap made in Asia and sold at the big box store down at the mall?

Like the airlines, those manufacturers want to keep their consumer prices down (the only reason we buy that stuff is because it’s cheap), but not only has the price of hauling the gewgaws halfway across the world gone up, but the gewgaws themselves are made of oil-based resins, so the price of raw materials has gone up.

If a sneaker maker faces an increase in both material and transportation costs then the only things to cut are profits and/or wages. Cut profits and your stock price takes a hit, so…. sorry, already-underpaid gluers of sneakers.

Asian pieceworkers and travelers and airline employees are the contemporary victims of oil. They join the Katrina survivors still sweltering away in their formaldehyde-emitting FEMA trailers and the flood and wildfire victims on almost every continent this summer. We will all be victims of oil sooner or later, it’s just a question of when.

© Mark Floegel, 2007

(EIA oil data: http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html. Scroll to the bottom of the page and under the heading “International Data” click on the Excel spread sheet entitled: “World Oil Balance.”)

Conventional wisdom has long held that the Earth has two trillion barrels of oil. There’s consensus that we’ve drilled, pumped and used about one trillion barrels of oil, which has led some to speculate that we will soon pass over global oil’s “peak” and demand will soon outstrip supply, if it hasn’t already.

The Times article pointed to a 2000 U.S. Geological Survey estimate that put total recoverable oil at 3.3 trillion barrels, which if true, would give us all some breathing room.
An extra trillion barrels, however, is small reason for comfort in light of a 2005 report commissioned by the Department of Energy. “Peaking of World Oil Production: Impacts, Mitigation and Risk Management” – commonly called “the Hirsch report” after its principle author, Robert Hirsch – predicts it will take 20 years of preparation to avoid an economic crisis caused by peak oil. At current consumption rates, it would take us only another 10 years to pass the peak of a three trillion-barrel supply.

Riding to the rescue is Daniel Yergin of Cambridge Energy Research Associates, the energy consultants the Bush administration and oil companies would like you to believe. He tells us there are actually 4.8 trillion barrels of recoverable oil on Earth, which means we’ve only used a bit more than 20 percent of what we’ve got. Hooray! (A statement that startling deserves to be on the front page of the New York Times. It also deserves a follow-up question, to learn how Mr. Yergin arrived at such a bodacious figure, but the Times remains silent on that point.)

If Mr. Yergin’s right, the oil peak is some 30 or 35 years away and we don’t even have to start making the preparations Mr. Hirsch recommends for another decade or so. When we consider that England has just promised to cut CO2 emission by 60 percent in the next 40 years (and other global warming-aware countries might follow suit), maybe oil consumption will actually decrease and our supply will last even longer. Wow! Whaddya think? Maybe we should all buy new Hummers.

Or not. One thing everyone agrees on is that we won’t know we’ve past the oil peak until after its happened, because every nation that has oil has reason to lie about how much it has. Predictions, even from bright people like Mr. Yergin, involve substantial guesswork. The numbers you don’t have to guess are the actual barrels brought to market and used.

The federal Energy Information Administration (EIA) tracks global oil production and consumption. (See below for information on where to find these numbers.) Their charts show both demand and supply have been rising in recent years.

Oil supplies increased by an average of 2.61 million barrels per day in 2003. In 2004, supplies increased by 3.43 million barrels per day and in 2005, oil supplies increased by 1.56 million barrels per day.

The final 2006 figures were released the same day as the Times article; the oil supply increased by an average of 30,000 barrels per day. That’s a small increase, far less than one would expect after reading the Times’s description of renewed pumping from old wells or Daniel Yergin’s 4.8 billion-barrel prediction.

In fact, if you look closely at the spreadsheet, you’ll see that due to Hurricane Katrina, U.S oil production dropped by a million barrels per day in the fourth quarter of 2005. If not for Katrina, 2006 production might have been lower than 2005.

The EIA has yet to print consumption numbers for 2006, so we don’t know if demand exceeded supply, but I think skepticism is still called for; a visit to the Hummer dealer is not.

© Mark Floegel, 2007

(EIA oil data: http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html. Scroll to the bottom of the page and under the heading “International Data” click on the Excel spread sheet entitled: “World Oil Balance.”)