Oil Prices and Global Exports

[nmap]

I came across a rather interesting chart; I've attached an image, as well as a link to the original source.

The chart plots oil price versus annual production of oil. Notice how the curve has become nearly vertical, which is unusual for typical supply-demand relationships. In essence, even though the price has gone up a lot, the supply hasn't increased.

Some have offered the analogy of 12 people on an airplane that is about to crash. They have 11 parachutes. What is the value of a parachute?

Notice the curved lines on the chart. These represent the percent of global GDP represented by energy costs at various levels. So we've gone from one percent to five percent rather quickly.

My take: shifts in allocation of global GDP will increase economic distress and conflict everywhere. 2009-2010 should be interesting times.

LINK

[3SoldierDad]

Originally Posted by nmap

I came across a rather interesting chart; I've attached an image, as well as a link to the original source.

The chart plots oil price versus annual production of oil. Notice how the curve has become nearly vertical, which is unusual for typical supply-demand relationships. In essence, even though the price has gone up a lot, the supply hasn't increased.

Some have offered the analogy of 12 people on an airplane that is about to crash. They have 11 parachutes. What is the value of a parachute?

Notice the curved lines on the chart. These represent the percent of global GDP represented by energy costs at various levels. So we've gone from one percent to five percent rather quickly.

My take: shifts in allocation of global GDP will increase economic distress and conflict everywhere. 2009-2010 should be interesting times.

LINK

Excellent info - Nmap, this is really good stuff - kudos, to you. A picture is worth a thousand words. I appreciate your sharp eye for such relevant information. How we deal with our energy needs in the next ten years will determine the destiny of many peoples and nations.

This is one of the reasons I enjoy coming to PS.com. The folks here are thinking. If America has a competiive advantage that is it - We think.

And, with enough pain - we act.

The day may come when we'll see these energy prices as a godsend. Pain works.


Three Soldier Dad...Chuck

[GratefulCitizen]

Some interesting historical perspective concerning diminishing energy supplies and economic effects:

http://www.eoearth.org/article/The_C...estion_(e-book)

That was over 140 years ago.
Coal is still cheap and abundant.


I would argue that the combination of democracies, ambitious politicians, and effective propoganda constitute the root of the problem.

[nmap]

Originally Posted by 3SoldierDad

The day may come when we'll see these energy prices as a godsend. Pain works.

Thank you for the kind words!

Yes, at some point, we will do something. What that something is remains to be seen - but curves can't be projected too far into the future. Especially when they go vertical.

Originally Posted by GratefulCitizen

Coal is still cheap and abundant.


I would argue that the combination of democracies, ambitious politicians, and effective propoganda constitute the root of the problem.

Ambitious politicians tend to be a problem; no argument there.

The link is a good reminder that extrapolating far ahead is likely to be wrong. Still, I find it interesting that the percentage has increased from 1% to 5%. That is quite a lot of money to transfer from one group (the U.S. among others) to another group - OPEC, in this case.

I do believe it suggests we should start thinking about solutions instead of merely complaining about gas prices.

[GratefulCitizen]

Originally Posted by nmap

I do believe it suggests we should start thinking about solutions instead of merely complaining about gas prices.

As previously suggested in terms of "pain", high prices are the solution.

Clever men will develop a solution, provided they are allowed to profit from their creativity.

It may seem as if the oil problem cannot be overcome.
Jevons thought that the coal problem couldn't be overcome, and dismissed oil as a possible solution.

From chapter VIII of The Coal Question:
"Petroleum has of late years become the matter of a most extensive trade, and has even been proposed by American inventors for use in marine steam-engine boilers. It is undoubtedly superior to coal for many purposes, and is capable of replacing it. But then, What is Petroleum but the Essence of Coal, distilled from it by terrestrial or artificial heat? Its natural supply is far more limited and uncertain than that of coal, its price is about 15l. per ton already, and an artificial supply can only be had by the distillation of some kind of coal at considerable cost. To extend the use of petroleum, then, is only a new way of pushing the consumption of coal. It is more likely to be an aggravation of the drain than a remedy. "
(emphasis mine)



My comments on a price-driven solution are not made from a "let them eat cake" perspective.
Recent job changes have expanded my daily commute from 10 miles to 266 miles.

American ingenuity, absent excessive political meddling, will prevail.

[Ret10Echo]

Rich nations attacked over biofuels
By Javier Blas and Guy Dinmore in Rome

Published: June 3 2008 03:00 | Last updated: June 4 2008 08:42

Rich countries came under attack on Tuesday at the United Nations food summit for their biofuel subsidies and production targets, declining spending on development aid for agriculture and large subsidies to European and US farmers.

Jacques Diouf, director-general of the Food and Agriculture Organisation, told heads of state and governments gathered in Rome that ”nobody” understood why cereals had been diverted from human consumption ”mostly to satisfy a thirst for fuel vehicles”.

In an unexpectedly strong attack on western countries’ policies, he added that ”nobody understands” why rich countries had ”distorted world markets with the $272bn (€175bn, £138bn) spent on supporting their agriculture.” Mr Diouf said: ”The problem of food insecurity is a political one.”

Delegates and some FAO officials were surprised by his remarks, which opened a three-day summit in Rome to discuss ways to tackle soaring food prices. The cost of agricultural commodities has doubled since 2005.

Ban Ki-moon, UN secretary-general, was more conciliatory, saying the world needed to reach a ”greater degree of consensus on biofuels”, but stopped short of condemning them. Mr Ban aimed his criticism instead at developing countries that have imposed export bans on foodstuffs, such as India, Egypt and Argentina, asking them to lift the restrictions or at least ease them to allow humanitarian shipments of food. ”Some countries have taken action by limiting exports,” he said. This ”distorts markets and forces prices even higher. I call on nations to resist such measures and to immediately release exports designated for humanitarian purposes.”

Mr Ban also said as important as tackling the food emergency was to plan for a 50 per cent increase in food production by 2030. This was needed to match the expected increase in demand as the world’s population grows. ”The world needs to produce more food,” he said.

Diplomats said biofuels and trade restrictions were the most divisive issues to be surmounted before the summit’s declaration, to be issued tomorrow. Officials suggested a year-long international discussion on best practices for biofuels and another summit next year.

Luiz Inácio Lula da Silva, Brazil’s president, rebuffed the criticism on biofuels, saying some lobbies wanted to create a ”smoke screen blaming ethanol for the recent food inflation”. The link between biofuels and food prices, Mr Lula da Silva added, ”does not stand up”.

”The increase of food prices does not have a single explanation. It is a mix of soaring oil and fertiliser prices, climate change, speculation, growing consumption in developing countries such as China, India and Brazil, and the absurd protectionist [agricultural] policies of rich countries,” he said, echoing comments from US officials.

European leaders, including French President Nicolas Sarkozy, acknowledged biofuels’ role in pushing up food prices but there was little suggestion the EU may drop its support for biofuels.

The Financial Times Limited 2008

[The Reaper]

Originally Posted by Ret10Echo

Mr Ban also said as important as tackling the food emergency was to plan for a 50 per cent increase in food production by 2030. This was needed to match the expected increase in demand as the world’s population grows. ”The world needs to produce more food,” he said.

Socialism lives. From each, according to his means, to each, according to his needs.

Wouldn't it be easier to produce less people, especially in undeveloped countries?

Here is a clue. Food shortages are nature's way of telling you that you have more people than the food necessary to support them. Crop failures are understandable anomalies. Ever rising populations with increasing demands are not.

Maybe food importers should look to fixing their problems?

TR

[nmap]

Originally Posted by Ret10Echo

Jacques Diouf, director-general of the Food and Agriculture Organisation, told heads of state and governments gathered in Rome that ”nobody” understood why cereals had been diverted from human consumption ”mostly to satisfy a thirst for fuel vehicles”.

Sir, statements such as this one by Mr. Diouf, are breathtaking - but not in a good way.

The problem is not the effort to create biofuels. The problem is deeper. The agricultural system is rooted (pun intended) in fossil fuels, and has been since 1943. There is even a term for it - the Green Revolution, circa 1968.

The principles of modern, mechanized agriculture promulgated by the Green Revolution, did increase crop yields a great deal - but at a price. We had to use fossil fuels to accomplish the goal.

Now, we consume about 10 calories of oil for every 1 calorie of food we eat. Thus, as oil goes higher, we see feedback into food costs as everything from tractor fuel to truck transportation increase in price.

This means that if fuel availability declines, crop production is likely to decline too. It seems that Mr. Diouf has not considered that.

Green Revolution info

Eating Oil reference

Originally Posted by The Reaper

Wouldn't it be easier to produce less people, especially in undeveloped countries?

Here is a clue. Food shortages are nature's way of telling you that you have more people than the food necessary to support them. Crop failures are understandable anomalies. Ever rising populations with increasing demands are not.

Maybe food importers should look to fixing their problems?

TR

Yes, Sir, absolutely true.

I suspect that the food importers will never recognize the problem. The original goal of the Green Revolution was to reduce global hunger, which now exists again. The methods used did increase crop yields - but population increased from 2.5 billion in 1950, to about 6.5 billion today. People expanded their numbers to match the available resources, when wisdom might have suggested more restraint.

Population Numbers

The problem becomes one of "overshoot". If population continues to increase as resources decline, the most likely outcome seems to be a sharp reduction in numbers. While I acknowledge that people are not reindeer, the example of St. Matthews island is interesting. Their numbers went from 29 to 6000 - and then back to 42. Thousands starved.

St. Matthew's Island

This is part - and not a small part - of the issue with oil and declines in availability. It is part of almost everything we do, use - and eat.

I came across an interesting piece in IEEE Spectrum, an electrical engineering magazine. The world uses about a cubic mile of petroleum each year. To replace that, we would need to build 52 nuclear power plants...every year for 50 years. I believe this serves to illustrate the magnitude of the problem, as well as why we might not wish to remain sanguine about solutions and innovation.

IEEE

I've attached the graphic from the IEEE piece.

[Pete]

They voted and the Yea's beat the Nay's.

They voted to build the 1st new oil cracking plant in 32 years in the US.

http://www.siouxcityjournal.com/arti...5e00110beb.txt

But what about the Nay's? They vow to fight on using every trick in the econut's tool box to stop the construction.

[Pete S]

Great news, but I wonder how long it will take for it to be up and running with the enviromentalists fighting every step.

[Ret10Echo]

Originally Posted by Pete

They voted and the Yea's beat the Nay's.

They voted to build the 1st new oil cracking plant in 32 years in the US.

http://www.siouxcityjournal.com/arti...5e00110beb.txt

But what about the Nay's? They vow to fight on using every trick in the econut's tool box to stop the construction.

I wish them the best. Arizona Clean Fuels did an initial proposal to seek license in Arizona a few years back and the environmental wackos were flown in to start the assault.

http://www.arizonacleanfuels.com/index.htm


That created all sorts of greaf....

An Arizona refinery company that spent seven years struggling for approval to build illustrates why the U.S. needs to change its rules for reviewing refineries, oil industry officials told U.S. senators Thursday.

http://www.tucsoncitizen.com/daily/business/19103.php

Then they got their permit

http://www.azdeq.gov/environ/air/permits/acf.html


Now they are trying to figure out how to bring the oil in. I believe the original plan was a pipeline in from Mexico. Not sure how it is going since moving out here.

Any of our desert dwellers heard anything new?

R10

[nmap]

It appears that the Saudis will increase prices to the U.S., and decrease them to Europe.

In the article below, notice that starting in August, the U.S. will pay a premium of $2.40 above the price of West Texas Intermediate Crude compared with a discount of $1.45 in June. In contrast, Europe will receive small discounts.

Perhaps a diplomatic signal from the Saudis?

LINK

Saudi Arabia Raises Price for Lightest Oil to Record for U.S.

By Alexander Kwiatkowski and Nesa Subrahmaniyan

June 4 (Bloomberg) -- Saudi Aramco, the world's largest state oil company, will increase prices for its lightest crude oil exports for the U.S. to a record in July.

Aramco increased the price formula for Arab Extra Light exports to the U.S. in July to a premium of $2.40 a barrel above the West Texas Intermediate benchmark, compared with a discount of $1.45 in June, the Dhahran, Saudi Arabia-based company said in a faxed statement. That is the biggest ever premium.

Light crude oil is favored by U.S. refiners for its high gasoline yield compared with heavy crudes. U.S. refinery utilization rates rose 1.8 percent in the week ending May 30, according to an Energy Department report today. Crude oil stocks fell 1.5 percent, or 4.8 million barrels, to 306.8 million barrels.

``These prices are for oil which will come to the market in August and they are counting on a recovery in gasoline demand,'' said Ehsan Ul-Haq, head of research at JBC Energy in Vienna. ``Gasoline demand might pick up in the driving season.''

Prices for all crude other Saudi Arabian exports to the U.S. rose by between $1.60 and $3.20 a barrel, according to the statement.

Arab Light will be priced at a discount of $2.45 in July compared with a discount of $5.65 this month. Arab Medium exports to the U.S. in July will be at a discount of $8.30, compared with a discount of $10.45 in June and Arab Heavy grades will be priced at a discount of $13.30, compared with $14.90.

Production Increase

The middle eastern kingdom last month said it will increase oil production by 300,000 barrels a day to satisfy rising customer demand. Saudi Arabian crude accounted for about 14.5 percent of U.S. oil imports in 2007, or 1.45 million barrels a day, according to the Energy Information Administration. Only Canada imports more crude to the U.S.

In contrast to U.S. customers, refiners in Europe will pay less for Saudi Arabian crude oil shipments in July. For its Northwest European and Mediterranean customers, Aramco will lower its price differentials by between 10 cents and $1.90 a barrel, the statement said.

Mediterranean and European prices are expressed as a differential to Intercontinental Exchange's weighted average of North Sea Brent crude oil. All prices are free-on-board, where the buyer has to pay for shipping costs.

[GratefulCitizen]

Originally Posted by Pete

They voted and the Yea's beat the Nay's.

They voted to build the 1st new oil cracking plant in 32 years in the US.

http://www.siouxcityjournal.com/arti...5e00110beb.txt

But what about the Nay's? They vow to fight on using every trick in the econut's tool box to stop the construction.

If the plant gets built, the druids ...err... I mean enviromentalists will protest the inevitable pipeline coming down from the Bakken field.

(oops! There's no oil in the Bakken field. Nothing to see here. Move along...)

[nmap]

The Bakken field is a nice discovery, but the amount recoverable is still in dispute. I've LINKED a report that discusses it, especially on page 2, under conclusions and recommendations. We import a lot, and a number of fields are in decline, so we'll be lucky to offset part of the overall reduction of supply.

I wouldn't worry much about environmentalists. When gas hits $5 per gallon, they are likely to become quite unpopular.

[GratefulCitizen]

Figured it would be better to add to this thread.

An interesting price difference:

http://tinyurl.com/3rm7mr