Haven’t We Seen This Before?

At this year’s ASPO conference, I was twice asked about the gasoline supply situation – once at a panel session and once by a reporter. At the time, there were gas shortages throughout the southeast, and some of the speakers gave the impression that this was the beginning of the end: Gas shortages are here to stay, and we are on the verge of the entire country running out of gasoline. There were a number of predictions along the lines of “It’s going to get a lot worse before it gets better.”

While first discussing the source of the gas shortages – low inventories followed by a hurricane that sidelined a significant source of refining capacity – I answered the question as follows: “This is a temporary event. We will see imports start to pick up and fill the shortfall. We will see refining capacity start to come back online, and I predict that a month from now gasoline inventories will be higher than they are today.”

Of course that doesn’t mean that we won’t find ourselves right back in this position, nor that it won’t be worse next time. But I think failure to understand how the refinery/pipeline/import system works – sometimes by people in positions of authority – can cause premature predictions of imminent disaster. I think we have far too many people who can’t identify a wolf telling the villagers that the wolf is here. Many know that this is a pet peeve of mine.

So what has happened since ASPO? The ASPO conference took place 4 weeks ago. At the time, gasoline inventories stood at 178.7 million barrels. Imports at that time were at 1.2 million barrels a day. Since then, we have seen 3 consecutive weeks of inventory build, and inventories now stand at 193.8 million barrels, just 2 million barrels short of their position of a year ago. Why have inventories built? Three reasons. Imports, as I predicted, picked up and have been above the 1.2 million barrel level in each of the past 3 weeks. Demand remains historically low due to high prices. And refinery utilization has increased in each of the past 3 weeks.

However, there was one thing I didn’t predict, and that is the primary topic of this essay. If someone had asked me, I would have guessed that because of the inventory situation, gasoline prices would remain strong. That hasn’t happened. (I think the anti-gouging laws worked to keep prices in check, at the expense of worsening the shortages. See Rationing by Running Out).

As inventories have recovered, gasoline prices have plummented. Retail gasoline prices have fallen each of the past 3 weeks, and are now down by $0.50 since the conference. This is of course being driven by the collapse of oil prices, but doesn’t bode well for spring gasoline prices. Why? It seems that we have been here before.

In August of 2006, retail gasoline prices briefly touched $3.00/gal. Prices then plummented by more than $0.70/gal, and spent the late fall/early winter in the $2.20/gal range. The sudden arrival of lower prices had two primary impacts. First, imports dried up, as it wasn’t nearly as financially attractive for exporters to send gasoline to the U.S. Second, demand picked up sharply, eventually reaching winter levels of 9.5 million barrels/day – unprecedented for that time of year. As one might expect, this resulted in a steep decline in gasoline inventories, and we went into the spring of 2007 with historically low inventories.

I devoted a lot of time in the first half of 2007 toward discussing the plunging inventory situation – and predicted much higher gasoline prices as a result. In mid-April, I even got into a debate with Doug MacIntyre, who at that time was the author of This Week in Petroleum, about the direction of gasoline prices. He felt like prices were peaking in April of 2007, I thought they still had room to run. In fact gasoline prices ran up another $0.33/gal in the six weeks following our discussion, setting a national retail gasoline price record at that time of $3.26/gal.

So now we return to the fall of 2008. Because of record gasoline prices, demand this year has been much lower than last year. At times this year, gasoline demand has been half a million barrels a day lower than at this time last year (or in 2006). But gasoline prices – currently still much higher than in 2006 or 2007 – are on a downward trajectory that is certain to result in an increase in demand. In fact, demand last week reversed course and trended higher for the first time since late August. If prices continue to fall, keep a close eye on demand, imports, and ultimately inventories. This is all setting up to be similar to the situation we saw of much lower prices in late 2006, which led to record gasoline prices by the summer of 2007.

This all highlights the fact that we are playing with fire with our gasoline inventories. It was no surprise to inventory watchers that parts of the country quickly ran out of gasoline following Hurricane Ike. This is the risk we run when we maintain gasoline inventories at a low level: Events that disrupt gasoline supplies can very quickly cause havoc. The solution to the problem isn’t easy. Refiners have seen margins evaporate, and thus don’t want to maintain high inventories. A strategic gasoline reserve would seem to be an answer, but it would be difficult to maintain because of the seasonal variations in gasoline blends. The shelf life just wouldn’t be long enough.

So while I expect this trend of shortages to continue, you can give yourself an advantage by being educated about the inventory situation – especially in your particular part of the country. That won’t prevent entire cities from running short of gasoline in the event of a disruption, but it can prevent you personally from being one of the masses of people waiting in gasoline lines, wondering exactly what went wrong.

74 thoughts on “Haven’t We Seen This Before?”

  1. You are absolutely right. These wild swings of inventory have the potential to cause a lot of damage long run. The problem is that in a free market economy, central coordination is very hard (unless you are the finance sector!)

  2. RR-
    I think this probem may solve itself. If gasoline prices stay high, we will see much less demand in years ahead.
    If gasoline goes low, that indicates plenty of supply.
    I understand that refiners now want to minimize inventories, and such private incentives may not be in the national interest. Is there not a “all-purpose” blend that could be used in national emergencies? And stored somewhere? After all, we can forego blending niceties in an emergency, no?
    Maury- be not too bleak. The entire 1970s were ugly, and we got through.
    There are some positives out there. Houses are cheaper, gasoline is cheaper, food will be getting cheaper.
    The credit crisis is entirely a madmade event. Crops are not failing, our factories have not been bombed, our roads still work etc.
    In one sense, the credit crisis is a huge fiction. A few guys by computer screens trading credit instruments, and blammo, we are cooked forever. Voodoo looks substantial next to this.
    We can solve this “crisis,” which to the visitor from Mars looks like an odd self-inflicted nightmare.
    Going forward, a few regs about leverage and financial instruments might cure the disease.
    The good news is that I think we will get sensible regulation in the near-future. The world still generates huge pools of capital that need investing. Global economic growth is a juggernaut. Better days are ahead– they always are. In a few years, maybe months, capital will be snapping up “real estate bargains.”
    Oil may tank, and the alternative energy sector may get crunched. Bad for one sector, but probably good for economic growth.

  3. “Maury- be not too bleak. The entire 1970s were ugly, and we got through.”

    We got through the 1930’s too Benny. Thankfully,I wasn’t around. These are weird times. The Dow had its biggest gain AND second biggest loss ever this past week. Russia’s stock market is down 70% in 5 months. They’re using dollar reserves to shore up stocks. Nuclear-armed Pakistan is on the brink of bankruptcy. Iceland is there already. The system seems to be coming unraveled. World governments have done what they can,but it probably wasn’t enough. Tough times ahead Benny. Tougher than the 70’s imo.

  4. Hoover put about 3.5% of GDP into shoring up banks in 1932. Bush has allocated about 5% of GDP into shoring up banks today. Roosevelt bought stock representing about 30% of bank holdings. Bush is doing something similar,but not on the same scale. Hoover and Roosevelts’ actions didn’t prevent or end the Great Depression. That took a world war. Maybe we acted quick enough to head off the worst possible scenario. I’m not so sure.

    “there has been a general rush by a large portion of our population to turn bank deposits into gold. … Some of our bankers have shown themselves either incompetent or dishonest in their handling of the people’s funds. They have used the money entrusted to them in speculation and unwise loans.”- President Franklin D. Roosevelt March 12, 1933

  5. I havent seen the ‘uptick’ in demand figures Robert talked about, but this shouldnt be concerning. I have been saying for the past 3 years (when everyone else said oil is inelastic) that people will respond to oil prices, but there is a lag to the response. While I expect to see some uptick in demand as prices go down, I think we will continue to be much lower year on year, and demand destruction will continue to accelerate as people get out from the 0 percent SUV payments and switch to much high MPG vehicles.

    The consumers arent as stupid as some of you (Robert) apparently believe. They have seen the huge swings for the past 3+ years. They dont believe low oil prices will last. I dont think they think its safe to go buy that SUV. And even if they wanted to, with so many plants shutters and much higher MPG models getting ready for release, they’ll be stuck with a much more efficient model, like it or not.

    For right now, you peak oilers need to shut it, and see the falling gas prices as a positive. There is enough wrong in the world right now that consumers dont need to deal with ridiculous pricing on top of high unemployment and a world economic nightmare.

  6. you peak oilers need to shut it

    ROTFLMAO ! What’s with the animosity ???

    Odd way to deal with reality …

    RBM

  7. You mean that we are producing more oil this year and using less? That reality? The reality that OPEC could cut production by 2 million barrels a day and still meet demand? That reality? That OPEC actually had spare capacity to increase production despite what the peakers believed to be an impossiblity? That reality? Or that consumers have responded to price spikes and reduced their consumption far and beyond most peak oilers belief? That reality?

    What reality are you referring?

  8. Anon,

    The reality that someone is saying something that you disagree with and you’re response is to tell them ‘shut up’

    Get a grip !

    RBM

  9. I havent seen the ‘uptick’ in demand figures Robert talked about

    Would you have seen it? Did you look? Do you track usage data? The uptick comes from last week’s EIA report.

    The consumers arent as stupid as some of you (Robert) apparently believe.

    They respond to price. That’s the reason personal energy consumption figures in the U.S. are so high relative to the rest of the world. If prices fall and stay, believe me you will see a fast return to the old ways.

    The other thing is that I think you missed the gist of the post. We had a similar situation in 2006, and demand spiked. It had been suppressed until prices plunged, and suddenly we found ourselves with low inventories. Given that we already have low inventories, now is a bad time to have prices plunging. It sets us up for more records in the spring. But I am sure consumers will figure this out and react accordingly, just as they didn’t in 2006.

    For right now, you peak oilers need to shut it,

    A peak oiler is someone who doesn’t believe oil production can grow forever. We are all peak oilers. You may be thinking of someone who either thinks 1). We have already peaked; or 2). That we are doomed as a result of peaking. I don’t fall into either of those camps.

    RR

  10. “Would you have seen it? Did you look? Do you track usage data? The uptick comes from last week’s EIA report.”

    yes. I know the guys at the EIA. I wasnt doubting you saw it. I was saying that I was responding to your post, not actually having seen the data myself.

    “They respond to price. That’s the reason personal energy consumption figures in the U.S. are so high relative to the rest of the world. If prices fall and stay, believe me you will see a fast return to the old ways.’

    Sorry, but I strongly disagree in this instance. You cannot compare 2006 to now. 2006 price plunge was after a relatively short lived price increase after Hurricane Katrina. Most people believed the price increase was temporary, and the consumers at that point were far less educated about the tightness in the market than they are today. Now most consumers know the market is tight. Many might think its a conspiracy, but they know the market it tight. They have now experienced three long years of high energy costs. They have and continue to make long term efficiency changes that will not be fully materialized for another 4-5 years.

    By the way, I am not saying that you will not see some increase in demand at these prices as compared to previous months. You will simply see destruction at a slower pace.

    “A peak oiler is someone who doesn’t believe oil production can grow forever. We are all peak oilers. You may be thinking of someone who either thinks 1). We have already peaked; or 2). That we are doomed as a result of peaking. I don’t fall into either of those camps.”

    Robert, I did not mean to personally assault you. I know that you arent a true peaker. But I am getting a little fed up with the doom and gloom lately. Theoildrum is simply ridiculous. When they dont have high oil prices to get all excited about, now they are talking about the doom of world food production, the doom of the financial systems, and countless other over-the-top end of the world garbage. While there are good lessons to be learned from examining all these scenarios, the fear mongering has reached epic proportions.

    I simply wanted to state that its not such a bad situation to give consumers a break with energy prices for a year or so. Its not going to make or break our getting through a ‘potential’ peak oil crisis. There are already so many things in place from the past few years of energy spiking, that we are well on our way to solutions. Getting the government woken up was the first big thing, and both U.S. presidential candidates have energy solutions as their number one concern. Thats simply amazing. Things will work there way out.

  11. “both U.S. presidential candidates have energy solutions as their number one concern”

    It would be helpful if posters from a parallel universe would identify themselves as such. Maybe post in Klingon?

  12. You cant argue that energy policy is not the number 1 or number 2 issue for both candidates. You also cant argue that both candidates agree that getting off imported oil through numerous means is also very important.

    The devil is in the details, however, I am expecting some pretty major legislation out of both candidates if they are elected. I dont expect it to be perfect. Rarely do things have to be perfect, however. The more that is done about it, the more people are aware, and the sooner you can make adjustments to policies that work/do not work.

    Not sure why that’s so confusing…

    We almost never get anything perfect, but we manage to muddle through. Even with this ‘financial disaster’ through years of bad policies, we’re managing to muddle through.

  13. Kinu-
    Another beer I hoist in your direction. If either McCain or Obama has a serious, realistic “energy program” I would like to know what it is.
    On Klingon, they do have an energy policy.

  14. Guys, I am not saying their plans are great. McCain definitely has the better of the two. But it is a start. Short of gas price floors, and a mandate that we all be on natural gas cars in 5 years, what do you guys want?

  15. I want showroom floors limited to hybrids,PHEV’s,EV’s,diesel,and natural gas. Okay,it’s not going to happen. But,can we at least make Honda sell the Civic GX outside of California and New York?

    Obama will have strong democratic majorities in both the House and Senate. Last time that happened,tax rates hit 78%. We also got a Federal Welfare State. If we’re going to become the Socialist States of America,can we at least tax gas and subsidize EV’s? The windfall profits tax will likely pass within a week of Obama taking office. That’s a proven loser.

  16. RR, I think we just have to get used to these swings in inventories and prices. Free market at work! Painful in the short run. But the best way to do things in the long run.

    A strategic gasoline reserve would seem to be an answer, but it would be difficult to maintain because of the seasonal variations in gasoline blends. The shelf life just wouldn’t be long enough.
    What about oxidation/polymerization? Or are there affordable solutions for that?

    A peak oiler is someone who doesn’t believe oil production can grow forever. We are all peak oilers. You may be thinking of someone who either thinks 1). We have already peaked; or 2). That we are doomed as a result of peaking. I don’t fall into either of those camps.
    We may need to agree on terminology here. RR, what you propose would not be very meaningful, since it would mean most people (outside the abiotic oil camp) are peak oilers. Does not seem logical.

    To me a peak oiler is someone that fits #2 (someone who [] thinks []That we are doomed as a result of peaking.). These are people to whom the issue raises to the level of religious importance (“Section 2: How to discuss PO with your friends and loved ones”). I think that is what most people mean when they use the term peak oiler…

  17. both U.S. presidential candidates have energy solutions as their number one concern
    Excuse my momentary cynism: Is that a good thing or a bad thing?

  18. ryan turner
    October 20, 2008 3:02 PM
    U.S. presidential candidates have energy solutions as their number one concern. Thats simply amazing.
    October 20, 2008 5:01 PM
    You cant argue that energy policy is not the number 1 or number 2 issue for both candidates.

    Compare and Contrast ๐Ÿ™‚

    That’s some fast back pedaling !

    RBM

  19. Kingo-

    All hail Kronos!

    Hey, here is a snippet form Thailand, which is rapidly increasing its planted acreage of high-yielding palm oil hybrids:

    “At the end of this [five-year] plan, we should have enough palm oil to support the B50 [fuel containing 50-per-cent biodiesel] policy, but it’d be far-reaching to aim at B100.” – gov’t official.

    Palm oil plantations are a very proven commodity, and this is a feasible, workable plan already underway in Thailand.

    So, a second-world nation like Thailand is within spitting distance of generating 50 percent of its diesel with locally grown palm oil, while our “leaders” talk about taxing oil companies or building nukes (I happen to support building nukes, but it does not provide liquid fuel).

    There is no way that anybody can deduce our candidates have bona fide energy plans for our country. We have the most silly pandering imaginable.

    No one wants to face up to the necessity of taxing gasoline.

  20. valid points robert but I would argue the main difference this year to 2006 is the economy and gdp were growing in 2006 while next summer (09) we are likely to be in the thick of a recession. Unemployment will be higher (fewer people driving to work), real wages will be lower (less elastic demand, eg vacations) and other petroleum product demand will be down as well — jet demand will fall and distillate demand will collapse from currently very high levels. Would suggest you check out container traffic (TEU) stats for the long beach and LA ports — about 90% correlation to distillate demand, higher when acounting for heating oil portion of overall distillate demand — and TEU volumes have been tanking.

  21. Palm oil plantations are a very proven commodity, and this is a feasible, workable plan already underway in Thailand. So, a second-world nation like Thailand is within spitting distance of generating 50 percent of its diesel with locally grown palm oil…
    I guess these guys are going to find out the hard way that it doesn’t make sense to convert food into fuel.

    If they sold that palm oil as food, they’d have more than enough money to buy diesel from the usual suspects.

  22. optimist-
    I am still trying to understand Thailand (my wife is Thai, and we own land there). However, the economics of growing palm oil are very convincing.
    And Thailand actually has a central government that seems to sometimes reflect the national interest.
    Thailand is an oil importing nation. Therefore, the cost of oil is not only the direct cost, but the cost in terms of balance of trade. Thailand takes pains to not run trade deficits (a foreign idea, literally).
    Developing domestic jobs is also importanmt in Thailand, as so many otherwise have to go overseas to make money, thus harming village and family life.
    Obviously, burning palm oil is more CO2 balanced.
    The price of a commodity does not always reflect external costs.
    I would not be too quick to condemn Thailand’s oil palm policies. If they achieve energy independence, and there is an oil crisis 10 years down the road, who will look smart?
    Surely, the government there is as corrupt as ours, and there are all the shortcomings that any government has. But they do follow macroeconomic policies that seem to be improving the lot of the Thai people.
    Right now, I would take Thai leadership over our own.

  23. I’m not sure about problems in the spring. Here in the Hartford, Ct. area we are having what looks like gas wars. I’ve noticed cars have become smaller quickly and someones blog quoted an Arabian Shiek say. “All those people buying Priuses are never going back.” J.C., Sr.

  24. “You cant argue that energy policy is not the number 1 or number 2 issue for both candidates.”

    Actually, I could — and quite convincingly, but I won't. Because even if both presidential candidates had energy policy as their genuine priority and had coherent plans (OK — so we are back to Planet Kronos, I know), it still would not matter.

    Read the Constitution. The President executes the laws & administers the budgets passed by Congress. That's it. The President can't make a rule, pass a law, spend a dollar, sign a treaty, appoint a judge without the approval of Congress.

    Unfortunately, even a Klingon could readily demonstrate that energy policy is not high on the To Do list of San Fran Nan and the rest of the political class.

  25. your recovery explanation involves a significant dependence on imported fuel. this was true also post Katrina.

    what strategic conditions/agreements are in place for the assurance that sufficient import quantities are available for such import relief?

    could future oil quantity/cost, foreign gasoline/diesel fuel production mix, or other probable occurences place us in “shortage” jeopardy. what is worldwide reserve/backup capability, since we have no strategic reserve?

  26. The world’s first PHEV should hit showrooms in China next month. It’s supposed to go 68 mi. per charge and cost $25,000. Warren Buffet bought a 10% stake in the parent company of BYD Auto.

  27. I find it interesting that no one has been able to cite ways to enhance either of the candidates energy policies other than with things that will not happen anytime soon: only alternative vehicles in showrooms. I know, its much easier to throw rocks.

    There is so much pressure being mounted on congress to open up drilling, that eventually Nancy will have to capitulate. That or she’ll be voted out of her position as speaker.

    Thats not klingon. Its just the way things work here.

    If you guys want a perfect solution to a problem, I wonder what foreign planet you’ve been living on, because the U.S. never has perfect solutions to any problem.

  28. I'll respond to some of your points.
    1) [you say] improve efficiency of fleet and provide rebates for buying efficient/alternative vehicles
    – I agree, however this is already happening. Congress passed the same type of tax credit for plug in hybrids/electric vehicles that exceed the tax credits for the original hybrid model tax credit a few years ago. Gas prices already have many people buying many more small efficient cars. All the major automobile manufacturers are focusing on efficiency for all their upcoming models. However, we dont need governments to give tax credits so that people will buy small cars. They are already doing that. SUV plants are being mothballed and shuttered everyday. The SUV craze is already over. I do support tax credits on cars that are both efficient AND dont use petroleum products, because their initial cost will be high and adoption needs to be incentivised.

    2) [You say] high gas taxes. Why do we need this? High gas prices have already contributed to amazing year on year reductions in our use of oil consumption. This is with flat gas taxes. The market took care of this without any government intervention. Why do we need a huge tax burden artificially driven into the U.S. economy? Can you say with a straight face that $4 a gallon gas is the same in the U.S. as it is in Europe? Its not. People's budgets/lifestyles/choices have assumed cheap energy for a long time in the U.S.. Europeans have priced in expensive energy into their budgets and decisions for a long time. While Europeans are more insulated from price spikes, Americans are not. Europeans have a massive transportation system that has been built up over decades from high taxes. We could not expect anything like that anytime soon. We certainly couldnt beat out the peak oil doomsday scenario, so an enhanced public transportation system could only hope to enhance, not cure any potential consumption issues we have. All high gas taxes would do is inflate prices of goods, starve people of much needed funds, drive the economy into the toilet, and then all those companies you want investing into R&D for the latest and greatest technology wont be around, because the financing for those ventures will have dried up.

    3) [you say] tax credits for renewable energy: I agree. However, we have had renewable energy tax credits for a while. another renewable tax credit bill was just passed with the bail-out. Its not like the government or either candidate isnt on the right track with this. Not enough, you say? Fine. But its not like this isnt an option already being discussed/acted on.

    4) [you say] Electric cars: I agree. Again, not like this isnt a source of emphasis for both congress and both presidential candidates. It is.

    So, no offense Robert, but I dont see anything that is either that special or different from what is already being done or being proposed.

    I am willing, however, to say that a gas floor might be something I could consider, but that will depend on how people respond to oil consumption with lower oil prices. If they do not continue to reduce year on year consumption, then I would support artificial methods to continue conservation. But I think the market is already taking care of that, and we really dont want to be another Europe with high taxes.

  29. “I find it interesting that no one has been able to cite ways to enhance either of the candidates energy policies …”

    Solutions have been discussed extensively on web-sites like this for many years, long before the current election.

    At one end, there are the Euro-centrics who want to cut demand. They want higher taxes. They get a thrill up their leg at the sight of all those Dutch people riding their bicycles in the rain.

    The demand-side fraternity ignores the unintended consequence that high global taxes on oil will have on the behavior of oil exporters.

    They also ignore the inconvenient truth that, even with the EUs high taxes, the EU is still by far the largest fossil fuel importer in the world. The EU imports almost as much oil as the US, a lot more gas, and the EU imports coal. Basically, real world experience has told us that high consumer taxes are not the path to energy independence.

    At the other end there are the realists who see that the world faces a supply-side issue on energy. With about 2 billion human beings living in energy poverty today, we simply need a bigger supply.

    The solution is a technology issue — primarily nuclear fission with the technology we have today, but with opportunities for expanded use of coal, unsubsidized solar & wind, and eventually fusion or some Black Swan that none of us have recognized. The biggest things governments could do to help is to cut back on excessive regulation which squashes progress. Governments could also allow experimentation and encourage innovation.

    To his credit, the real solution does make #5 on RR's list.

  30. They get a thrill up their leg at the sight of all those Dutch people riding their bicycles in the rain.

    Heh. I did that this morning here in the Netherlands. I found I can ride my bike while holding an umbrella, but the wind gusts almost knocked me over a couple of times.

    RR

  31. Honestly, I dont see the problem of domestic power production a difficult solve. We have numerous solutions. Power production issues are all ‘above ground’. I admit that the oil consumption issues are both above and below ground, and are much more difficult to solve.

  32. Kinu:

    I used to work for the Congressional Budget Office. What the Constitution says and what happens are two different things.
    The Executive Branch Office of Management and Budget (OMB) runs the federal budget.
    The President proposes a budget every year (thus setting the stage) and Congress usually just adds earmarks and a few wrinkles. In days of yore, they might cut something, but those days are long gone. I have yet to a see a Congress that says “We are imposing an across-the-board 10 percent spending cut.” When did that happen? Never.
    Similarly, we seem to have gotten into two major wars (Vietnam and Iraq) mostly by executive command, rather than a Congressional declaration of war. Texan presidents got us into those wars, not Congress — although Congress lacked the spine to get us out, I will concede that.
    Congress only wants to spend, 435 Reps and 100 Senators intereted in spending more in their districts. It is up to a President to propose a balanced or surplus budget, and try to see it through. The President can veto spending bills, also. And when did that happen?

  33. @Ryan,

    Gas prices already have many people buying many more small efficient cars.

    Got any numbers with that claim ?

    RBM

  34. “The President proposes a budget every year (thus setting the stage) and Congress usually just adds earmarks and a few wrinkles.”

    Yes, Benny. But you remember the Reagan years, when the Democrats in Congress would proudly announce the President’s Budget was Dead On Arrival.

    Actually, we are in complete agreement on this topic. The power belongs to Congress. But the political class in Congress too often ducks their responsibilities. (One reason why it is never a good idea to elect a Senator as President).

    But when Congress speaks, Congress gets its way. A good example was VP Al Gore’s meaningless signing of the Kyoto Protocol early in Clinton’s second term. The Senate passed a “Sense of the Senate” resolution by 95 to 0 pointing out flaws in the Protocol. As a result, Pres. Clinton never presented Kyoto to the Democrat-controlled Senate for approval, and Kyoto died on the vine.

  35. “4) [you say] Electric cars: I agree. Again, not like this isnt a source of emphasis for both congress and both presidential candidates. It is.”

    And over 100 years after the first PHEV was rolled out,automakers are finally going to give consumers a chance to buy one Ryan. There was a time when electric cars outnumbered internal combustion vehicles on American roads. Once again,that was a HUNDRED years ago. But,if we’ll just patiently wait on technology….LOL.

    “Honestly, I dont see the problem of domestic power production a difficult solve.”

    America is blessed with abundant coal,natural gas,and even uranium. We have as much wind,water,and solar potential as anyone. Electricity isn’t a problem. Getting automakers to give consumers a choice is. California instituted a law where 2% of vehicles had to be emission free. Automakers came out with electric cars. They killed their programs when California killed the mandate. Honda won’t market the Civic GX outside of California and New York,because other states don’t have laws as stringent. If we’re gonna get off the oil tit anytime soon,we need congressional mandates. Without them,automakers will continue dragging their feet.

  36. As a result, Pres. Clinton never presented Kyoto to the Democrat-controlled Senate for approval, and Kyoto died on the vine.
    Memory getting confused, King? The GOP controlled the senate from Clinton’s fist midterm election in 1994 (remember the Contract with America?) until 2006, with a 50:50 split from 2001-03 (Click here to review), including all of Clinton’s second term.

  37. I would not be too quick to condemn Thailand’s oil palm policies. If they achieve energy independence, and there is an oil crisis 10 years down the road, who will look smart?
    You fail to ask what Thailand will end up paying for the mirage of energy independence. Using food for fuel means they will have higher food prices at best and food shortages at worst.

    Right now, I would take Thai leadership over our own.
    I won’t. Here’s why: Even the most intelligent, honest leader can’t figure this stuff out. That’s why you’re better off trusting the free market (in spite of the last month). Add the human elements of greed, self-intrest, nepotism, etc. etc. to your leader, and you need separation of power to protect you from this guy.

    In the end the optimum solution would be this: the less government interference we have, the better off we’d be. We’ll probably keep burning fossil fuels for the foreseeable future – no government scheme is going to change that. Once we have exhausted the fossil fuels, Big Oil (yes, those guys) will discover that biofuels (from waste) is cheaper to produce and allows them to stay in business. You may like to imagine that good leadership can speed this process up, but I’m skeptical.

    What if we cook the planet, before we exhaust the available fossil fuel? This is where the government’s role as a referee in the game comes in. Hard as it is to believe, the poles won’t melt away without Joe Sixpack (and his neighbor, Joe Plumber) noticing. Eventually they are going to demand action from the elected prosti… I mean, representatives.

    For those in the position of lookout (RR), this can be immensely frustrating. Can’t these people see that they are going to ruin everything? Unfortunately they can’t. Truth be told, the lookout’s view of the future is obscured by his own prejudice, superstition and experience. No two lookouts see quite the same picture. In the end, we, as a society, can only respond to those threats that actually prove urgent.

    Which is not to say we should ignore the lookouts (as the current administration excelled at doing). Lookouts have their role in society. Identifying the threats while they are far away is part of their job. But steering the ship based on distant perceived threats is just not going to happen. Nor should it.

  38. Optimist:

    In general I worship free markets and especially the price mechanism.
    Oil is an exception, due to its concentration in the hands of thug states.
    To be so dependent (in the case of Thailand and the US) on a few sources, run by backward and despotic lunatics, is not a good position to be in. There is NOT free enterprise and democracy on the supply side of the equation.
    Thailand, in general, is neither depleting its forests nor its cropland by planting oil palms. They have lots of degraded lands. The enormous increases in productivity of oil palms in the last 10 years makes these plantations real moneymakers. And, you can eat the oil, if you want. It is cooking oil.
    They are also conveting hundreds of thousands of cars to run on natural gas, which they do have.
    I can’t say that Thailand (or a Brazil) is doing a bad job, by having a national policy. They seem to be making progress, while we become ever more indebted and bereft of alternatives to thug oil.
    Who will pay our oil bill? Our children, with lower living standards. In Thailand, they will be paying the owners and workers of domestic palm plantations.
    Really, I can’t say they are making the wrong choice.
    And if we do have an oil crisis, they will be that much further ahead.

  39. “Memory getting confused, King? The GOP controlled the senate …”

    Yes — memory confused. Maybe because when the Republicans controlled the Senate, they still acted like the Minority! Thank you for the correction.

  40. “If we’re gonna get off the oil tit anytime soon,we need congressional mandates.”

    No, if we are going to get off oil, we need a better, cheaper replacement technology which people will adopt voluntarily because it benefits them. Just like horses replaced walking, or mineral oil replaced whale oil in lamps, or steam replaced sail.

    Congress could help encourage the development of new technology in a variety of ways (mainly by eliminating unnecessary regulations and preventing obstructive lawsuits). But mandating that people use something which is more expensive and less convenient will not result in sustainable change.

  41. “No, if we are going to get off oil, we need a better, cheaper replacement technology which people will adopt voluntarily because it benefits them.”

    How can people adopt something that isn’t available to them kinuachdrac? Electric cars have been around since the Model T. When’s the last time you saw one on the showroom floor? Why did GM insist on crushing EV1’s when people wanted to buy out their leases? Internal combustion engines are much more complex,and much more profitable for automakers. But,what works best for them isn’t necessarily what’s best for the country.

  42. Electric cars actually pre-date the Model T by quite a while. NYC was serviced by fleets of electric cabs in the 1890s. But it wasn’t a corporate conspiracy that crushed the electric car in the US. Gas was cheap and gasoline engines had far superior power and range. There was a seemingly boundless supply of domestic oil so no thoughts of dependence on other countries for the resource. No worries about tailpipe emissions etc.

    Robert
    http://www.industrializedcyclist.com

  43. Yeah,if gas had been $4 a gallon 100 years ago,ICE’s never would have made it. But,that doesn’t explain why we’re stuck with no viable alternatives today. Why is the Civic GX only sold in 2 states? And why is it the only car that runs on NG? Makes no sense. Natural Gas costs 73 cents a gallon in Utah. Good luck taking advantage of that.

  44. I would argue the main difference this year to 2006 is the economy and gdp were growing in 2006 while next summer (09) we are likely to be in the thick of a recession.

    This is a good example of why I always put posts here before posting them at The Oil Drum. Readers offer insights that I will incorporate into the essay, which is what I did for the essay that was posted at TOD. I put the caveat in that the economic conditions were a major difference between now and 2006. Thanks to readers who noted that.

    RR

  45. “@Ryan,

    Gas prices already have many people buying many more small efficient cars.

    Got any numbers with that claim ?

    RBM”

    I am not going to go hunt down auto statistics. Its common and accepted knowledge that all the bigs are not moving SUVs or trucks. That means a higher percentage of cars and smaller vehicles are being sold as a result.

  46. “How can people adopt something that isn’t available to them”

    Why would people adopt something that is less convenient, more expensive? That is why it is not available.

    Go back & read about the development of the automobile — fascinating! Serious competitors included electric, steam, methanol, gasoline. You know which won.

    If Congress wants to rerun that competition today, the way to do it would be to use the purchasing power of the Federal Gov't — say, by committing to buy 1,000,000 vehicles for Gov't use fueled by x. Which would be similar to what the Gov't has done by committing to buy jet fuel for the Air Force from non-traditional sources.

    Mandating that the sheeple have to buy something they don't want is a way for Congress to undermine its own (already shaky) legitimacy.

  47. My friends–

    Oil down below $68 on the NYMEX, and $64…and still sinking. I notice the doomer crowd has changed topics, or gone into way future tense, when discussing the “oil crisis.” One verboten topic on The Oil Drum is the oil price, now at less than one-half the peak, and falling…
    Things are shaping up, spookily similar, to 1979-80. Back then there was an oil price spike and a global recession. Oil demand back then fell by 11 percent, and did not recover peak levels for a full 10 years — and only then when oil was cheap again.
    If demand falls by 11 percent this time, we won’t see demand outstripping supply for at least another 10 years — and all the while, biofuels and PHEVs will be making headway. Thailand says they will get one-half of their diesel from oil palms in just 5 years. In 10 years, Thailand may not use oil (having switched their fleet to natural gas and palm oil).
    Funny thing about TEOTWAWKI — it just keeps getting pushed back by a few more years.
    Do you suppose the price mechanism has anything to do with that?

  48. Benny, you sound like McCain. Is that intentional?

    Converting food crops into food makes no sense. If the food crop is a high yield variety that does not change the underlying stupidity. The Thai palm oil -> fuel strategy will lead to high food prices at best and food shortages at worst.

    It's corn ethanol all over again. Complete with we can grow enough for everybody assurances…

  49. Ok I think deductive reasoning works well – to a point.

    I was actually trying to determine if you are just another ‘hand waver’ – with an attitude !

    RR and others who tend to deal with details use an empirical approach very often in their work.

    Your posts are at the other end of the spectrum.

    IMVHO, that places those posts in the category of ‘argumentative’ and not in the of category ‘dialogue’.

    So be it.

    RBM

  50. Optimist:
    Well, at what point do oil palms make sense? You are saying never. But yields have risen from 4 tons per hectare to 10 tons, and new varities are promising 18 and 36 tons of oil per hectare(a ton is roughly 250 gallons).
    And the oil palm tree is planted once every 25 years, not every summer. Seeds are collected by hand.
    It appears that oil palms will not be subsidized (although if oil plummets much further, who knows?)
    I agree Optimist, in a perfact world, in which all nations were democracies and embraced well-regulated free enterprise with viable contract law, then of course, we should just import $20 oil from wherever.
    But a rather different picture defines reality. Indeed, oil supplies are controlled by despots and even terrorists. They can easily amplify (with help from financial quislings and websites) any Peak Oil tightness, with devastating effect.
    Sheesh, Optimist, oil shot from $10to $147 a barrel. What if Iran had attacked Israel? What if the King of Saudi didn’t like the way Bush kissed him, down at Crawford?
    I sense we have dodged the bullet this time, and have another 10 years to play with. Thailand is not frittering away those 10 years — they will likely be energy independent by then. long the way, their balance of trade will be much better.
    And us? We will be worrying about the next oil cutoff, and who is going to pay the enormous debt we have incurred. Maybe you will end up migrating with me to Thailand. It’s a nice place.

    My friends–I couldn’t resist.

  51. Benny, oil palms should be used for food only – regardless of yield. Using second hand (used) cooking oil for fuel: now that’s a great idea! As is using any waste for fuel. These are the technologies governments should be encouraging. As long as we have all that waste available, nobody should invest in energy crops, including all governments.

    Once we have exhausted the available waste, and assuming we still need more energy (not necessarily a given – as recent events showed energy demand depends on prices), it would be time to consider an energy crop. Here I see only one winner: open ocean-based algae. Sure there will be an environmental impact, as would there be for anything else.

    So, here’s the future as I see it: waste-based biofuels, conservation and open ocean-based algae (either for fuel or for carbon capture).

    Maybe you will end up migrating with me to Thailand. It’s a nice place.
    At the rate that our protectors are tearing up the constitution, that is a distinct possibility, my friend…

  52. Benny: Right now, I would take Thai leadership over our own.
    I won’t. Here’s why: Even the most intelligent, honest leader can’t figure this stuff out. That’s why you’re better off trusting the free market (in spite of the last month). Add the human elements of greed, self-intrest, nepotism, etc. etc. to your leader, and you need separation of power to protect you from your great leader.

    In the end the optimum solution would be this: the less government interference we have, the better off we’d be. We’ll probably keep burning fossil fuels for the foreseeable future – no government scheme is going to change that. Once we have exhausted the fossil fuels, Big Oil (yes, those guys) will discover that biofuels (from waste) is cheaper to produce and allows them to stay in business. You may like to imagine that good leadership can speed this process up, but I’m skeptical.

    What if we cook the planet, before we exhaust the available fossil fuel? This is where the government’s role as a referee in the game comes in. Hard as it is to believe, the poles won’t melt away without Joe Sixpack (and his neighbor, Joe Plumber) noticing. Eventually they are going to demand action from the elected prosti… I mean, representatives.

    For those in the position of lookout (RR), this can be immensely frustrating. Can’t these people see that they are going to ruin everything? Unfortunately they can’t. Truth be told, the lookout’s view of the future is obscured by his own prejudice, superstition and experience. No two lookouts see quite the same picture. In the end, we, as a society, can only respond to those threats that actually prove urgent.

    Which is not to say we should ignore the lookouts (as the current administration excelled at doing). Lookouts have their role in society. Identifying the threats while they are far away is part of their job. But steering the ship based on distant perceived threats is just not going to happen. Nor should it.

  53. Hey-o Optimist:

    Well, you make excellent points, and I guess there is no way to “prove” one course or the other is the right way.
    We will just have t see how this energy situation unfolds. As for ow, oil is cratering, and into low $60s in the Brent spot.
    My guess is that crude oil demand has peaked for the next 10 years, as it did following the 1979-80 oil price spike.
    Meanwhile, biofuels and EVs will be progressing every year. Depending on price, we probably have seen Peak Demand globally.
    Over at TOD they are hatching 17 explanations as to why oil prices are falling faster than Humpty-Dumpty, proffering everything except the market is responding to higher prices, and so demand is falling. I see RR got rapped at Peak Oil Debunked, a bit unfairly.
    Still, we could see a sloggy oil market for the next decade, all the while we can improve our options to fossil fuels.
    I have great faith in the price mechanism and human ingenuity, in a well-capitalized and free society.
    I still worry that a relatively small number of thug states control the world’s oil supply, and that makes us vulnerable — not to Peak Oil, but Thug Oil.

  54. @Optimist,

    Thanks for the mention of toilet-to-tap. I had heard of the concept but Google points out that it’s a technology in the field.

    This is a potential job opportunity for me upon graduation Dec. ’08.

    Your mention of the yuk factor brought a chuckle to me. The program chair at school is a plumber by trade and VERY traditional – turds in water to the sewer – only !

    I will keep an eye on the developments. Google’s first page features CA predominately.

    I don’t expect to move to CA., but the universe works in mysterious ways ๐Ÿ˜‰

    RBM

  55. RBM,
    Toilet-to-tap is why will never have Peak Water. It is also the reason why all those seawater desalination plants are going to stay 5 – 10 years in the future for eternity. Sure, the Arabs can afford them. For the rest the energy requirement is just too high. It's thermodynamics principles thing: there is no way around the HUGE energy requirement for desalination.

    Since you're in the field, let me preach my vision for the wastewater treatment plant of the future: it has the potential to serve as a source of clean water, power AND fertilizer. Much of the technology needs further R&D, but the basic process would be:
    1. Anaerobic treatment to remove the bulk of the incoming energy (a.k.a. BOD or COD) and convert it to biogas (i.e. a useful form of energy).
    2. Aerobic polishing (BAF?).
    3. Sludge gasification (more useful energy) so that the volatile solids leaving the plant eventually approaches zero.
    4. Nutrient recovery (IX?). The current process whereby we convert valuable ammonia into useless molecular nitrogen is an exercise in stupidity. On the other side of the fence we use a ton of natural gas to produce ammonia from molecular nitrogen…

    It takes a big picture view to see what needs to be done. Unfortunately most government officials (and environmentalists for that matter) suffer from extreme tunnel vision. As in: Get that nutrient/micro-nutrient/EDC/DBP below the detection threshold!

  56. At the time, there were gas shortages throughout the southeast, and some of the speakers [at the ASPO-USA conference] gave the impression that this was the beginning of the end: Gas shortages are here to stay, and we are on the verge of the entire country running out of gasoline. There were a number of predictions along the lines of “It’s going to get a lot worse before it gets better.”

    LOL! That's why I didn't go to the conference.

    And what happened was that things gradually got straightened out for exactly the reasons you gave, Robert.

    The bigger issue here is hysteria and ignorance about the oil markets & industry among many in the peak oil movement. I just made a relevant comment on this blog here regarding the demise of the oil bubble.

    One prominent peak oil veteran can’t write a column without the word “shortages” in it. These never come — except after we have a couple of hurricanes — and they never will because high prices will always destroy demand before shortages develop. Unless we have a real honest-to-God supply shock like we did in the 1970’s.

    Is this 2006/07 all over again in 2008/2009? I doubt it — I think we won’t get anything close to the usual Spring Gasoline Demand Bounce. This recession will be deep and encompass all of next year, and the lower prices won’t matter to people whose business is slow or failing, or people without work. Don’t look for low prices to stimulate demand much next year. IMHO.

    best,

    Dave Cohen

  57. I see RR got rapped at Peak Oil Debunked, a bit unfairly.

    I answered it, because it was unfair. What I was quoted as saying – which JD said was wrong – was in fact exactly right. I pointed that out in the comments.

    Cheers, RR (back in Dallas as of a few hours ago)

  58. The bigger issue here is hysteria and ignorance about the oil markets & industry among many in the peak oil movement.

    Hey Dave! Good to see you here. Your comments are spot on. There are a number of people making comments that are just out in left field. In some cases, these are people who are looked upon as authorities. And I cringe when they say some of the things they say.

    Further, when their predictions turn out to be wrong, they just rationalize them away (or sometimes just update the prediction without acknowledging the failed prediction).

    Cheers, Robert

    P.S. I had seen your article. A couple of people e-mailed me the link. I read most of it, but got interrupted before finishing. I will try to finish it within a day or two.

  59. Cuba claims to have 20 billion barrels of oil off their coast. That could be a game changer. The U.S. has 29 billion barrels and is the world’s #3 producer.

  60. Just a few points…

    (1) Chevy is allowing people to drive their H2 Equinox, which is completely fuel cell powered. It’s been all over the news this week.

    (2) Cheap nuclear, solar, and wind can be “wasted” on splitting water molecules into O2 and H2, and/or charging batteries in PHEVs.

    (3) Here in NC, a dealer was recently advertising “buy 1 Titan, get 1 Versa free”. This is a trend I am seeing. I don’t know anyone with a decent income that is giving up their big machines. But they are buying small used ones to drive to work daily, but they drive the big stuff for comfort on long trips. A lot of these types want the Volt bad, but they have NO INTENT WHATSOEVER to drive it on a vacation, or really even to church or weekend activities for that matter.

    (4) I have been in disagreement with RR for some time about energy storage methodology. I think that if you can make lots of cheap energy (read: nuclear, wind, solar), why not convert it to something that the world’s transportation fleet can currently use? Mainly, gasoline, diesel, and Bunker C (or whatever they call the stuff at the bottom of the barrel nowadays). Why kill economies, by government mandate to switch to “something different”? With enough cheap energy we could turn our pre-emitted CO2 back into gasoline. What’s so great about this is that we can preserve the transportation infrastructure we have in place, and by placing loads of grid capacity online from nearly inexhaustible energy sources, when the battery technology or hydrogen storage technology comes online, we already have the relatively clean energy capacity to switch to providing power to either batteries and/or hydrogen production/compression/storage. In other words, we could phase in H2EVs or PEVs without so much as a hiccup. Right now our grids are not up to snuff — even Toyota has admitted this issue, and 50% of our power is from coal.

  61. Wow. OPEC cut production by 1.5M barrels and oil sank anyway. Stock markets haven’t fallen this far,this fast,in decades. Maybe not since the Great Depression. Good thing we’ve got those lock limits….LOL.

  62. “OPEC cut production by 1.5M barrels and oil sank anyway.”

    That should read — OPEC said they were going to cut production, and the world said ‘yeah, right’.

    Interesting question is what individual oil exporting countries may consider doing.

    For example, if someone pre-emptively nukes Iran? — would certainly benefit Saudi, Kuwait, Russia. Or what if Venezuela, having invited Russia in, suddenly descends into non-exporting chaos? Would benefit Russia, for sure.

    Interesting times. There are undubtedly a lot of governing cliques thinking outside the box right now.

  63. I have been in disagreement with RR for some time about energy storage methodology. I think that if you can make lots of cheap energy (read: nuclear, wind, solar), why not convert it to something that the world’s transportation fleet can currently use?

    I am not sure how that is in disagreement with me. My opinion is that in the long run, PHEVs are going to be the way to go. But I favor raising fossil fuel costs and letting the options compete against each other. DME – which I have discussed before – could be a viable option. So I don’t suggest that liquid fuels are dead. If I had a huge source of cheap energy, I could readily turn it into liquid fuels. But I don’t have a source available that is cheap enough to convert and still have cheap liquid fuels.

    RR

  64. (1) Chevy is allowing people to drive their H2 Equinox, which is completely fuel cell powered. It’s been all over the news this week.
    Relevance? Think GM is going to survive this recession? Only with Uncle Sam’s help. And, of course, your tax dollars at work

    (2) Cheap nuclear, solar, and wind can be “wasted” on splitting water molecules into O2 and H2, and/or charging batteries in PHEVs.
    Hydrogen is like a bad battery that leaks and explodes. Hydrogen is never a good energy carrier regardless of the application – excluding space travel where its high energy: mass ratio counts for something. Wake me up when… I mean, if hydrogen makes an impact on air travel, another industry where high energy: mass is valuable. Just not valuable enough to make hydrogen work…

    A lot of these types want the Volt bad, but they have NO INTENT WHATSOEVER to drive it on a vacation, or really even to church or weekend activities for that matter.
    Good for them. When the Volt hits the showrooms both GM and you will be disappointed by how few of these buyers there are out there.

    I think that if you can make lots of cheap energy (read: nuclear, wind, solar), why not convert it to something that the world’s transportation fleet can currently use?
    If these sources of energy are so cheap, why can’t they survive in the market place without Uncle Sam’s support?

    With enough cheap energy we could turn our pre-emitted CO2 back into gasoline.
    Now you’re onto something. Know of any technologies for doing such?

    OPEC cut production by 1.5M barrels and oil sank anyway. Stock markets haven’t fallen this far,this fast,in decades.
    Earth calling Maury (again)!

    The two events are not related. As Kinu pointed out, oil prices didn’t bother to lift in response to the first event. The second event was already in motion before the first happened.

  65. “Cuba claims to have 20 billion barrels of oil off their coast”

    Maybe… but….
    how reserve estimates relate to your barbecued fish dinner.

    Proved reserves: You have caught the fish and they are safely in your boat.

    Probable reserves: You’re getting lots of nibbles.

    Possible reserves: You see some fish swimming near the boat.

    Estimated offshore reserve potential: There’s a big lake near here where the fishing is rumored to be pretty good sometimes.

    Reserve estimates released by state governments prior to initial licensing round: It is known that people have caught fish in this part of the state. You’re not sure what kind of fish there are or which lake to try. When you get your next paycheck, you’re buying a fishing pole. You feel lucky.

  66. I have a thought experiment for you guys. Suppose someone gave you a windmill in the great plains somewhere for free. Your cost of energy is nothing. Can you make a car fuel that is price competitive with gasoline? And you are required to build the infrastructure to ship your product to “civilization” somehow whether it be pipeline, rail, trucks, whatever the plan is. If you want to make hydrogen, you have to pay for the electrolysis. You have to pay to compress it or liquify it or whatever the plan is. There’s a reasonable amount of biomass around if you want carbon atoms. You’ll have to pay for the biomass to liquid plant. There’s also air around if you want to make ammonia. The energy and cost to distill air comes out of your paycheck.

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