Lower gas prices: short term win

Especially when you are trying to sell a Prius now

 

That much more I can put to the car payments. It's at 0%, but I'd still like to have the bill of sale.

 

Those gas guzzers guys need to thank the hybrid and EV owners!!

Without us; gas prices would be higher, because demand would be higher!!

 

I wouldn't credit hybrid tech too much for the drop in energy prices because alternative energy vehicles only make a minority of the pool of motor vehicles. For example, I would say about 1/10 to 1/8 of all vehicles in the Washington DC Metro Areas are alternative energy (BEV, PHEV, HEV, NG/LG) which probably get an a aggregate weighted average of 35 to 45 mpg (because hollow hybrid dampen the FE of the entire group) and 2/3 of all motor vehicles in the area are gas guzzlers like sports utility vehicles, minivans, pickup trucks which average about 16-23 mpg.

The failure of gas prices to stay above $4 per gallon in the USA is due to a very weak economy recovery ... every time speculators tried to push the price of gas over $4 per gallon - the economy showed signs of collapsing ( an extremely bad thing).

Previous jumps in energy prices are due speculation high global demand. High global demand took a nose dive in 2007-2009 with the Great Recession. Economic Globalization means that high unemployment isn't just a regional phenomena but almost everywhere on the globe too - immigrating to somewhere economically better off is going to increasingly more difficult to do as the trend of economic globalization continues. High unemployment means people will have an incentive to use less energy. In addition the global trend towards lower wages for everyone - especially for younger adults - makes operating a personal motor vehicle less viable -- so less people are buying personal motor vehicles.

The real test of whether the era of high energy cost is gone for good - is if and when the world economy starts up again, the employment levels are almost at full capacity, and wages are higher - will energy be more affordable??? When more people are gainfully employed they will likely be using more energy - at work, commuting, and at home - unless energy is rationed out.

Given that my energy usage and my fuel efficiency is already better than the EPA 2025 fuel efficiency target levels - I am unimpressed. If the economy suddenly took off and *real* household levels of unemployment (not just a tally of who is collecting unemployment checks) dropped to lower than 1.5% - energy usage would likely jump and futures contract speculation for energy would also likely return - causing gas prices to jump up.

The overall trend in my life has been that energy cost have been taking an increasing share of my income - while I am pleased that gas is under $3.50/gallon -- I wish it was cheaper still - Temporary lower gas prices has given me more time to learn how to drive more efficiently and more time to learn how to save energy/gasoline and lessen the financial penalty for each time I have made a mistake while I am still learning.

After several years of practice - I have some skill so if and when gas prices do start trending upward - I will be more ready than most.

 

“The era of high energy prices, or at least high gasoline prices, has come to an end,” he adds.

Welcome to Delusionville.

 

The bulk of oil we use has very low extraction costs. The oil sands in canada have the highest extraction costs, these have dropped over time
The Oil Drum | Low energy return on investment (EROI) need not limit oil sands extraction

Remember lots of this energy is in natural gas and not oil. Economically Oil was too cheap 10 years ago to make money at oil sands, the big boom is caused not just because of better technology, but also higher oil prices. Building keystone would reduce the energy needed in the chain from mine to refined products, but would likely raise prices in the midwest (fairly captive) while slightly lowring prices from gulf oil. Bulk of the difference in costs would be seen as profit from the canadian producers.

Let's look back at the late 70s.
Crisis of Confidence . Jimmy Carter . WGBH American Experience | PBS

U.S. Net Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
Oopsy. In 1977, the US imported 8.5 Million bbl/day. In 2005, the US imported 12.5 Million bbl/day. More recently more oil development, substitution, and more efficiency has dropped imports to 7.4 Million bbl/day.

InflationData: Historical Oil Prices Chart

Of interest, even though oil imports increased greatly, the inflation adjusted price was lower for most of the period, and is indeed much lower today.

Indeed since fossil fuel is a fixed quantity, we are burning more than we are making. Is the world burning too much? On oil probably. Are we going to run out in 50 years? No ofcourse not. The latest exxon survey says in 2040 we will still have 65% of oil in the ground.

The government could manage oil prices better. It is indeed a good thing that most of the doom sayers are always wrong. If we get peace finally with Iran, there will be pressure with OPEC to drop prices even further. Sometimes good news is good news. When people spend less for gas they have more money for christmas pressents, and you know food and hospital bills. An oil tax that lowers payroll taxes is more possible with lower oil prices. We unfortunately have congress critters that may snap back. There is little reason for opec to go bellow $80/bbl as even at $84 they reduce some unconventional production in North America and get a higher percent of oil sales.

 

"Are we going to run out in 50 years? No ofcourse not. The latest exxon survey says in 2040 we will still have 65% of oil in the ground."

If that is true, (and we continue on our current course of 2% growth rate) we will run out around 2080, so 67 years, not 50. Therefore, I don't think the error bars on all those assumptions support a conclusion of 'ofcourse not'.

 

Is it true? Yes it is absolutely true that Exxon's latest report is that in 2040 we will have used about 35% of economically good researves since we started using oil. Now is Exxon correct? I don't know. The other part of the report is that europe and north america are on the downslope (using less oil), while Asia is growing, but will peak before 2040 then decline.

Now what should happen according to economic theory, is as the price rises, technology will come along to extract more (the harder reserves that we don't count in that 65%). The other part is as prices rise, we will substitute away and use less. At about $150/bbl ($99/bbl today) plug-in and hybrid technology gets cheaper than oil, so we substitute some electricity and get more efficient. What will happen eventually is oil prices will rise enough to greatly reduce consumption, and that is long before we use the last 20%. 67 years from now my bet is we still have 40% of that oil still in the ground. Only a small increase in price would have the picken's plan go into effect, substituting lng for diesel for long haul heavy trucks.

U.S. Product Supplied of Crude Oil and Petroleum Products (Thousand Barrels)
You will note the rise in consumption in the US stopped in about 2005, but the decline is quite slow. Government policy can increase the decline (open fuel standard, cafe standards, oil tax), or reverse it and cause more oil to be used (hybrid taxes, more oil subsidies, business credit for SUVs). The earlier the US reduces consumption the less costly it should be to economic security.

 

Don't forget about the oil itself.

We're using up the low-hanging fruit first, the easiest & cheapest to refine. The low-grade stuff isn't what we want to be stuck with... but will if we continue making "decades remaining" excuses.

 

What are you talking about John. There is a great misunderstanding of those stuck in the '70s and think oil is about to run out. Its just wrong headed thinking. The price spiked as these things often do, and has declined to a more natural level. Now if people had understood what happened with the '73 crises (OPEC blackmail + weaker dollar+domestic price controls)properely they would have been much better set up to handle the '79 spike from the iran sanctions, revoution, and iran/iraq war. For the price spike in 2008, we were much more prepared, but had also added mechanisms for financial speculation.
What Caused the Big Slide in Oil Prices - TIME
Today's price is underpinned with some continued problems with iran built in. The 2008 and 1979-1981 spike were not about running out of oil at all, and understanding that is important if you are going to understand just how much oil we really have.

Now no excuses at all, but if you understand the explanation, there is good reason to think that the price of oil is going to head back down to $90/bbl or even lower if relations with Iran are reestablished, and the taper of QE3 accelerates and strengthens the dollar. Will full ignorance never gives a path for good policy.

Now if you understand that a monopoly still controlls oil, that China and India will likely increase consumption, the best policy for the US is to reduce consumption, even as we reduce imports because of short term domestic oil production increases. So I will repeat a good policy would be to remove oil subsidies, add an oil tax (Around $40/bbl, slowly implemented, revenues offset by reduction in payroll taxes), change regulations to restrict oil futures and oil derivitives to industries that are dependant, and not allow them to trade for high multiples of their use/productions (make wallstreet speculation illegal).

 

Hmm...I was surprised Mazda evidently has the highest EPA MPG average.

I guess I was thinking back to their "Zoom, Zoom" advertising which seemed to promote driving "enjoyment" above efficiency.

As far as gas prices go? Well, when I bought my Prius, my brother said something to the affect of "You'll be happy when gas prices go up".

I said nothing in response, but it struck me as a dumb statement. I value efficiency. I love the fuel efficiency of a Hybrid. But I don't want gas prices to go up. I think if gasoline was $1.80 a gallon, I'd still want and enjoy a hybrid.

Since I've bought my Prius, gas prices have been stable and actually trending downward. But I don't care.

Gasoline is a finite resource, with a lot of factors that influence cost, from manufacturing to political. Someday? The price of gasoline will rise. I won't be any MORE happy because it does. My Prius might allow me to feel the pain a little less, but it doesn't stop the reality that when gas prices rise, everything costs more.

 

Your like for debating with me is interesting, but I'm not sure what the counterpoint is in this case.

Some oils are dirtier than others, higher in some substances... like sulfur. That's why some are sweet and other are just crude.

 

Just like members.

 

I'm not trying to debate. You followed my statement with something nonsensical, showing you didn't understand at all what my statement was.

If you simply were saying the world produces the easiest oil first, you would be ignoring all that easy crude sitting in the ground in opec countries, while we produce much harder stuff in canada and north dakota. The idea in the 70s seemed to be oil companies are evil, opec is good, since their oil is easier to produce we should be more reliant on it and have price controls and wind fall profit taxes here. Those policies greatly hurt the american economy. Now the great north american increase in production is keeping a cap on opec's pricing power, as well as ability to blackmail the US. The growth in production is that more expensive to produce stuff, funded by higher prices. Absolutely we are using more energy and money to produce the harder to produce and refine stuff here.

Say Saudi wants a nuclear bomb because Iran gets one, and we produce sanctions against them, as we have against Iran. We will want to produce more north amerian oil. But it could also go the other way. Iran relations which have been poisoned since 1979, thaw, and sanctions lifted. Iran and saudi may do a price war, and drop the price of oil
Iran Deal Could Lead To Scuttling Of The Great U.S. Oil Boom - Forbes I don't think that would happen, but policies should be in place.

 

Acknowledge the difference between EXTRACT and REFINE.

 

You have to love the marketing mentality of gasoline prices. Gasoline goes to $4 a gallon and then drops to close to $3 a gallon and all of sudden gas is cheap and we can all go out and buy pickups. I'm waiting for gas to go up to $5 a gallon and then drop to justify shopping for a gas hog.

 

Some math to consider:

Doubling time ~= 70 / growth rate.

Oil consumption = 2% growth rate -> doubling time = 35 years.
Oil prices = 5% growth rate (above inflation) -> doubling time = 14 years.
Solar PV price = -10% -> halving time = 7 years.
Chinese PV production growth rate = 100% -> doubling time = 1 year.

Anyone who talks about oil consumption continuing past 2040 is living in a dream world. At that point Oil will be $400 / barrel, and there will only be 1 doubling of it left (i.e. 35 years). PV will $0.05 / peak watt, and China will be producing enough panels to supply the entire previous year's energy usage every year.

 

I think you have major problems in setting up your story problem.

The predictions for oil consumption are that consumption will increase slowly, level then drop. Yes ofcourse if you have an increase at an exponentional rate forever, you need to seriously question the assumption.


As you can see by the above chart, if you look at US, Europe, and Japan consumption is already declining. In the ROW, it is still at the upslope, but.... this is certainly not at a constant rate. Here you go with past production data which should be roughly the same as consumption data

World Crude Oil Production by Year (Thousand Barrels per Day)


59.4 million barrels a day in 1980, 53.1 million barrels a day in 1983, 74.6 million barrels a day in 2012. Let's pretend we should pick 1983 (for the highest growth rate) to 2012 we get just under a 1.2% growth rate. Why would it accelerate to 2% instead of decline? The only reason for a higher growth rate would be if oil prices dropped a great deal, in which case you are estimating that we end up with even more oil in 2040 than we have today. Excellent. That is not exxon or my prediction. I don't think its your prediction either.

Well I beleive we will be still using oil in 2100, I expect it to be much less per capita, but plenty of oil in the ground to produce Jet A, and other important fractions. I have no idea what oil will be priced at in 2040, or what inflation will be. I tend to look out 5 years, as it is hard to understand geopolitics in OPEC and monetary policy any longer than that. In that time I am hopefull that the US greatly reduces our military footprint from today, and that we come to some kind of peaceful relations with Iran. If QE3 ends, and we get to at least the level of drug dealer, client with the middle east, I expect oil will only outpace inflation by a couple of percent, or around $110/bbl in (inflation adjusted 2013 dollars) in 2018. The negative scenario would be somthing like contagion from the Saudi/Iran proxy civil war in Syria causes anouther shooting war in Iran. Oil fields are set ablaze and oil jumps to $250/bbl. Putin seemed to have sided with the Iranians/Hezballah/Syrian dictator but pulled the biggest potential out of chemical warfare. Refugees have been pouring out but the saudis and iranians seem to not care at all. Its all about state funded terrorists fighting it out.

You decide what your likely scenario is. I don't have one where all the oil would disapear in that short span of time to 2040.

As for solar panels dropping to $0.05/kw and replacing oil, there seems to be some dreaming here. In order to replace the oil you need technology in the cars that can burn the solar. That is plug-ins or hydrogen cars. Either way it is replacing oil with electricity in transportation requiring a fundamental change in transportaion infrastructure. THis is indeed one of the possibilities of substitution economists talk about, which would produce us not running out of oil. Peak oil would be peak demand because of oil costing more than substitutes or efficiency. THis is different than peak supply because we have used it all up. Peak oil in the us happened because foreign oil was substituted so the price did not rise nearly as much as it would have leading to substitutions. I seriously doubt that solar will replace most fossil fuel in electricity by 2040, but it doesn't have to do that, electricity as you pointed out or biofuels simply need to be substituted for oil. Say in 2040 its natural gas and wind that are mainly used to run plug-ins (bevs and phevs) and fuel cells. Then the infrastructure will be in place to replace the natural gas with solar.

 

Yes there is a difference;-) Happy now.

When the light sweet stuff is in Lybia and sudan, it may be easy technically to extract it. It has political risks. The more sour stuff from saudi is more energy intensive to refine, but supply is less risky. It is still prone to OPEC risks, and negative economics. Bakkan and Eagleford are domestic and sweet, and don't have OPEC risk, but they are energy and man power intensive to extract. In 30 years they may be played out, with quickly declining production. Oil sands are energy intensive to extract and refine, but don't have OPEC risk, and are vast compared to Bakkan and Eagleford.