Re: ] documentation of speculations impact on current oil prices from yesterday's wsj

[David Farber <dave () farber net>]

________________________________________
From: Wulf Losee [qx49 () comcast net]
Sent: Saturday, May 24, 2008 11:58 AM
To: David Farber; ip
Cc: David Farber
Subject: Re: [IP] documentation of speculations impact on current oil prices from yesterday's wsj

Dave:
It's always easier to blame "big oil" or the "speculators". Sure they're making windfall profits right now, but the 
only reason it's possible to manipulate the markets is because there's an oil-buying frenzy going on. Why? Because 
world-wide petroleum production has leveled off while demand has increased. We're at the top of the Hubbert curve, and 
it's only it's only going to get worse as production starts to drop off. For those of you who are unfamiliar with the 
work of M. King Hubbert...

http://en.wikipedia.org/wiki/Hubbert_Peak_theory

In 1956 he predicted that US petroleum production would peak around 1970 -- and it was remarkably accurate prediction.

FYI: The total useful energy drawn from Conventional Fossil Fuels equates today to more than 300 Twh every day -- 
that's the equivalent to 4250 Nuclear power plants, each producing a Gigawatt, working non-stop (not a one-for-one 
conversion due to energy efficiencies inherent in oil).  Here's a grim analysis of what will happen to world economies 
when energy stops being cheap (From TheOilDrum.com)...

http://europe.theoildrum.com/node/3565

And I especially like this timely posting from TheOilDrum. The graphs are clear and concise...

http://www.theoildrum.com/node/4041#more

It lists five myths about petroleum production:

Myth #1: OPEC could produce more if it used current techniques
• International oil companies use same service companies US companies do
• Most are using up-to-date techniques
• Expenditures often are high
• Problem is very old fields
• Overstated reserves raise expectations

Myth #2: Drilling in Arctic National Wildlife Refuge will save us
• ANWR could at most add 4 million barrels a day to production. US is currently using 33 million bpd (I think).

Myth #3: A small downturn can easily be made up with energy efficiency
• The quickest impacts are financial
---Recession or depression
---Serious recession in 1973 - 75
• Use of biofuels raises food prices
---Further increases recession risk
• Don't need peak for recession
---Only need supply/demand shortfall
---Likely what we are experiencing now

Myth #4: Canadian oil sands will save us
• Hard to see this with current technology
---Technology known since 1920s
---Production slow and expensive
• Requires huge amount of natural gas
---In limited supply
• Most optimistic forecasts equal 5% of current world oil by 2030
---Even this exceeds available natural gas

Myth #5: Biofuels will save us
• Corn-based ethanol has many problems
---Raises food prices, not scalable, CO2 issues, depletes water supply
• Cellulosic ethanol theoretically is better
---Still does not scale to more than 20% of need
---Competes with biomass for electric, home heat
• Biofuel from algae might work
---Not perfected yet

--Wulf



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