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05/05/2005 Archived Entry: "still more on oil"

Back to the subject of oil...our friend and science whiz Gordon P. reminds me that he sent us an article about the "deep hot biosphere" last year. OK, I grant that methane can exist down there. It's conceivable (though still speculative) that more complex hydrocarbons could be synthesized from the methane. But even with regard to methane,

"We have not, however, shown that such reserves actually exist," Fried cautioned. "Furthermore, I am not aware of a present-day technology for exploiting the reserves."

Gordon adds these more recent observations:

• Tim Worstall on Hubbert's "Peak Oil" theory, and his fallacy of assuming that economies remain "static" and that oil is a resource that has no substitute. Best Quote, from the "Comments" section: "Sheikh Tamani: The stone age did not end for lack of stone. And the oil age will end long before the world runs out of oil." Yamani is correct --- and we have already seen an example of exactly such a major resource substitution in the relatively recent past: The burning of Whale Oil in lanterns did not end because the world "ran out of whales," but because rising whale-oil prices provided an incentive to look for a cheaper substitute --- like kerosene distilled from petroleum oil. There is no reason to think that rising petroleum prices will not drive yet Another Resource Replacement --- e.g., "biodiesel," or Brian Appel's "Anything Into Oil" process that can turn any mixed feedstock of "organic" compounds, from turkey guts to old plastic bottles, into something essentially indistinguishable from crude oil.

  My comment: certainly there are substitutes. But what we don't know is, (a) at what oil price will those substitutes become competitive, (b) what oil price will sufficiently drive the development of those substitutes, and (c) how long will that development take?

• A debate on whether Oil Prices are currently undergoing a "blip," or are being driven up by Bush's deficits and the plummeting dollar.

  My comment: and he expects those deficits, and the falling dollar, to disappear when?

• Lynne Kiesling on last week's _The Economist_ on "kicking the oil habit." Best quote: "This article does a nice job of pointing out what's obvious, but obviously can't be reiterated often enough, because it persists: US energy policy is a deeply-meshed rat's nest of distortionary subsidies. Maybe now that influential folks with a wide range of political stripes are pointing this out, Congress might start to listen..." (Apparently, even the "Greens" are beginning to realize that Gov't Energy Subsidies are ultimately Bad For The Environment --- as witnesses by the outwardly unlikely recent alliance between the Cato Institute and the Sierra Club to call for "a market-based, `zero subsidy' energy bill...")

• And while she's talking about energy subsidies, here's Lynne's comments on the recent "Energy Bill:" She agrees with the Washington Post's assessment that it is "New and Unimproved," and that it is basically a subsidy to "Big Oil" to Preserve The Status Quo. Interesting comment: The unfunded (and scientifically unjustified) Federal mandating of "oxygenates" to gasoline was basically a subsidy to the Corn Belt States --- but the "rent seekers" from ADM must have been quite shocked to learn that MTBE was a much cheaper additive than ethanol, since it can be produced during the oil refining process. (BTW, from an "energy efficiency" standpoint, ethanol is a dead loss --- like hydrogen, it costs more energy to produce ethanol than one gets back from burning it!). Conspiracy Theory: The current efforts to ban MTBE despite the lack of clear evidence that it is dangerous may perhaps be being backed by ADM, whose managers are stubbornly refusing to give up their attempts to extort Congress into providing them with a Federal subsidy...
  

All of this analysis is telling me the same thing. A. Fuel prices will go up. B. Government intervention in the market will make the problem worse. Price controls increase consumption, decrease efforts towards conservation or efficiency, exhaust the "cheap" resources faster, and delay or discourage the development of the "expensive" resources and of alternatives. C. Nevertheless, government intervention will continue.

It's not just that prices will go up... they must go up. Sooner, or later. I'm being conservative and planning on "sooner."

—brad