Current Events » in reply to re: I do see the dilemma . . .
The Upside of Higher Oil Prices: They may save us from shortages down the line One of the problems with most alternative energy proposals is the cost. Compared to the historical prices of petroleum, most forms of alternative energy simply aren't cost competitive. As Gary pointed out, there were several government ran research programs back in the late 1970s that explored diffenent alternative energy programs. If memory serves, many of them could produce energy, but the price was typically 2-3 times that of the equivalent from petroleum. When the price of petroleum collapsed in the 1980s to the $10-15 a barrel range, the ratios were even more skewed. The WSJ article discusses something interesting: Houston energy banker Matt Simmons, who's pored over technical studies produced by Saudi petroleum engineers, has a forthcoming book challenging claims about the reliability of Saudi output. "We could be on the verge of seeing a collapse of 30% or 40% of their production in the imminent future, and imminent means sometime in the next three to five years--but it could even be tomorrow," he told reporters at a Washington meeting last month. Note that the issue is not whether the world is running out of oil. The debate concerns a theoretical milestone called Hubbert's peak, after which output from any given field slows and becomes more costly to produce long before the last drop is lifted. Half of Saudi Arabia's oil comes from the giant and venerable Ghawar field; much of the remainder comes from four other aging giants that may be at or near their Hubbert's peak. What's true of a single field must, at some point, become true in aggregate of the world's inventory of productive oil fields. Various authorities have been sounding the SOS for the past year, their debate hosted in the pages of the Oil & Gas Journal. How much oil is left is far less significant than how quickly and cheaply it can be extracted, especially from a relative handful of large, cheap-to-produce fields that have carried industrial man for a century. Some believe that getting much above today's 80 million barrels a day would be horrendously costly if not impossible. If they're correct, two billion Chinese and Indians, right now beginning to trade their bicycles for Toyotas, would be stuck trying to achieve modernity by outbidding the rest of us for a share of the world's current rate of oil production rather than benefiting from additional output. Government run research programs frequently degenerate into jobs programs for researchers, where the goal is to maintain funding rather than produce a viable product. If we want more cost effective forms of alternative energy, then we need to get corporations to pony up more of their own money for R&D. Private research is less tolerant of waste than just about any government research program. Every time I hear someone advocate a "Manhattan Project" or "Apollo" approach to solving a particular problem (often with an artificial timeline), I cringe. Back in the 1960s, the semiofficial NASA motto was "Waste anything but time." That may be acceptable if you're trying to build an atomic bomb or get to the moon in a few years, but it's seldom an effective approach to developing a cost effective consumer product. However, the article points out the problem: Yet the unwillingness of doomsayers to credit price signals with eliciting changed consumption behavior, new technology, a thousand substitutions and other adaptive responses is more than a little peculiar here. Oil companies have held back from investing in deep-water searches, Canadian oil sands and Venezuelan bitumen for fear oil prices will plummet to $15. Shareholders have kept Big Oil on a short leash, tolerating only low-risk investment projects that will generate cash flow in a small number of years. Won't this change now if higher prices seem a permanent feature of the landscape? The author points out that higher oil prices may be something we have to accept. Until investors get over their fear of another price collapse, we may not see much investment in new technologies. We have to look at the short, mid, and long-term timeframes. In the short term, we'll probably have to get used to paying these higher prices. In the short term, we can do some things that can moderate the increases, such as reigning in the EPA with it's 300 blends of gasoline for different parts of the country and different times of the year (leads to refinery issues) and maybe to increase refinery capacity. In the mid-term, we can consider drilling in some places that aren't currently allowed. Those who put up roadblocks to domestic drilling are effectively saying that we should continue to become ever more dependent on foreign oil. That's a risky strategy given the global concerns. For the long term, we need to move away from petroleum dependency. That will take some time (and a lot of investment), but our economy could collapse without it.
