Next Generation Energy is managed and written entirely by Seed editors and expert guest bloggers. Read more about them When the price of oil plummeted last month from $145.18 a barrel to $134.60 in only two days, consumers wondered whether they were looking at a respite from the surging market that has pushed prices up 35% in the last year alone. Some analysts hinted that the market may have reached a tipping point, while others warned that it was too early to identify the specific factors leading to the downswing; it could turn around again in a second.
One rumor circulating among economists concerned overspeculation on oil futures; shortly before the drop, a private Oklahoma-based oil-marketing company sold its futures account to a large global investment bank, and there is some belief that the removal of the company—which was known to hold extensive bets in the oil market—removed upward pressure on prices.
The decrease certainly comes as a welcome relief for drivers, but it may not bode as well for the environment. Another factor thought to contribute to the drop is lessened demand from Americans who have changed their driving habits in the face of high costs. If gas prices return to affordable levels, this demand will undoubtedly rise again, both contributing more greenhouse gas emissions and easing the clamor for alternative energy sources.
As many of our bloggers have pointed out, cost will be the number one factor that determines how soon we can make the transition from coal and oil to renewable energy. If overspeculation and other intangible forces are responsible for keeping oil prices high—and not peak oil—what will it mean for the near future of alternative energy? Will even a temporary reduction in prices take voters' minds off energy issues in the upcoming election? Or have we finally been shocked into a more lasting awareness?
Environment
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Renewable energy cannot replace the liquid fuels that will soon begin terminal depletion. This is the conclusion of scientific and government studies.
According to energy investment banker Matthew Simmons and most independent analysts, global oil production is now declining, from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 14%.
This is equivalent to a 33% drop in 7 years. No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always be higher than production; thus the depletion rate will continue until all recoverable oil is extracted.
Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.
We are facing the collapse of the highways that depend on diesel trucks for maintenance of bridges, cleaning culverts to avoid road washouts, snow plowing, roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, transformers, steel for pylons, and high tension cables, all from far away. With the highways out, there will be no food coming in from "outside," and without the power grid virtually nothing works, including home heating, pumping of gasoline and diesel, airports, communications, and automated systems.
This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html
I used to live in NH-USA, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207.
Posted by: Clifford J. Wirth, Ph.D. | August 20, 2008 12:21 AM
Clifford -
Never mind the fact that a significant amount of conservation is certainly possible; electric cars can replace a large chunk of current oil consumption, especially in commuter range.
Certainly there does need to be a large scale program of electrification in the economy whatever power source is going to be used due to the general expense of making liquid fuels; but simply declaring the problem impossible for some frankly overhyper reasons is not particularly constructive.
Posted by: Andrew Dodds | August 20, 2008 4:07 AM
Ack! Short term price movements are like weather, whereas what we need to be concerned with is climate. While the oil price has dropped in the last month or so, it's still not back to where it was before the last big run up. The overall trend is still up.
Seriously, asking whether a one-month price drop signals a "return to affordable prices" is like asking whether one cold winter means that global warming is done for.
If you look at this chart, you can see that the current drop in prices is proportionally smaller than the equivalent drop last year - which occurred immediately before another massive run up.
High volatility is exactly what you'd expect in a supply-constrained market, so I'd hold off celebrating for a while yet. Me, I'm thinking about buying some long futures...
Posted by: Dunc | August 20, 2008 4:44 AM
I think Clifford is being a wee-bit too pessimistic. He makes a lot of assumptions about demand increasing. Umm, it's been falling in the US for the past year. PHEVs will come online if the price stays high, decreasing demand further. There are many many alternatives: hybrids, hydrogen, natural gas, E85, bio-diesel, ammonia. I don't know how many or which of these will be used, but something will be.
Its very silly to say that less oil will cause highways to fail (how, they just suddenly fall apart?) and therefore the grid crashes because they cant get parts? eh? Ever watch "ice road truckers"? Those guys (truck drivers) can get stuff places, give them some credit please.
Reminds me of the old Y2K scare - remember how the grid was going to go down and never come back up on 1/1/00? Oh yeah, never happened.
...darth
Posted by: darth | August 20, 2008 9:26 AM
Yeah, and what about the rest of the world? You know, the other 95% of the world's population?
Posted by: Dunc | August 20, 2008 12:05 PM
World oil production has not increased since 2005. This is a pretty tangible reason for an increase in oil prices. Note that although oil production has been flat for several years does not mean it won't increase in the future as higher prices encourage more production. Higher, declines in existing fields and economic growth in Asia suggests that we are unlikely to see a return to very cheap oil soon. Also, as oil prices have been high for some time now, a decrease in price is likely to be viewed as temporary.
Posted by: Ronald Brak | August 20, 2008 10:11 PM
Dunc is correct - demand is still increasing in other parts of the world. But as prices move up, the demand will lessen there too. My point is only that we need not engage in "gloom and doom" scaremongering.
Posted by: darth | August 22, 2008 9:13 AM
There are many many alternatives: hybrids, hydrogen, natural gas, E85, bio-diesel, ammonia. I don't know how many or which of these will be used, but something will be.
Posted by: Göğüs Büyütücü | August 23, 2008 12:54 PM
Certainly there does need to be a large scale program of electrification in the economy whatever power source is going to be used due to the general expense of making liquid fuels; but simply declaring the problem impossible for some frankly overhyper reasons is not particularly constructive.
Posted by: diyet | August 23, 2008 12:59 PM