Thursday, May 8, 2008

How We Got to $4/Gal Gasoline and Rising: Reason #3, Supply

UPDATE: YEP.On any given day here on planet Earth, global oil producers supply global markets on average about 83,000,000 barrels of oil a day.

With 42 gallons to a barrel, that figures out to be roughly 3.44 billion gallons of oil per day of supply.

This supply comes from the Big 3 Oil Supplying Countries: 1)Saudi Arabia, 2)Russian, and 3) the United States, with Venezuela, Iraq, Iran and various other smaller oil producing/supplying countries adding varying amounts to the world total.

If we go back and review, we see that world supply and world demand are almost perfectly in sync at 83,000,000 barrels per day. So where's the problem here?

To keep it simple, it's because world demand is going up faster than world supply can discover, extract, transport, refine and then sell and transport to demanding global markets. Even though world output has jumped almost 11% or 8.5 million gallons per day (which equals 357 million gallons a day)

This voracious demand is especially true in Third World Developing countries like India and China. And when demand is higher than supply with anything, the price of it---be it tech stocks, new homes, gasoline, or tulips----goes up, up, up.

Which brings us to today's rising gas prices going north of $4-6 this summer. It's here, it's happening and there's nothing we can do about it, in the short term. Or is there?

If so, what? And more specifically what can we do individually as citizens and also as the United States to help break the back of higher global demand fuelling higher gasoline and energy prices?
I'm glad I asked and can't wait to give some answers.

1) Energy conservation or cutting back our demand: We in the US can use less gasoline, less energy, and we can invest in more energy efficient houses, cars and lifestyles.

It looks like this strategy is beginning to work: According to the American Petroleum Institute, overall US fuel demand in the US was down 1.4% the first three months of 2008 from the year before. This was the third straight quarter decline in a row.

And while gasoline consumption has risen about 1.5% a year since 2000, it went down the first quarter of 2008 for the first time in over two decades. That doesn't sound like a lot of progress to the doomdayers, but it is considered real forward movement in many circles.

In short, voluntary energy conservation measures are slowly but surely working. If we continue to replace our gas guzzling houses, cars and other energy toys, we will continue to make headway that will bring gas prices back down.

And by the way, the growth of US CO2 emissions have voluntarily dropped greatly without Kyoto much faster than in countries that signed the misinformed treaty which President Bill Clinton never even sent to Congress to ratify.

2) Finding new domestic sources of energy and oil:

This is a very big subject, but it's clear we need to begin mining the many rich energy resources we have in this hemisphere and the North American Continent. Our reserves or oil, natural gas and shale oil are truly staggering both on public lands (656 trillion cubic feet of natural gas and 112 billion barrels of oil as a minimum) and much more on private lands. .There are major untapped resources of oil and gas off the coasts of Florida and California, not to mention ANWR in Alaska. China has been asked by Cuba to help them drill for the oil we refuse to mine off Florida. If we don't, they will.

At today's prices of over $100/barrel it is economically feasible to go through the process of mining, refining, transporting and selling new supplies of energy, for our own use and to supply the rest of the world. US production has slightly fallen over the past 20 years and needs to start rising again.

Not only will it bring prices down, it will also take us out of the geopolitical fray of having to deal with tyrants in Iran, Russia, Venezuela, for starters.

3) Build new oil refineries and allow refiners to make a profit in the US, so that new supplies can be processed in this country faster and more efficiently.

It is truly a travesty that new refining capacity has not been built in the US since 1971. That means we're not only dependent on foreign oil, but also foreign refining capacity. This is a subject I'll revisit again later.


While other countries mine their supply side resources for all they're worth (China made 10 big oil discoveries last year, India has beckoned foreign producers into the country to help is drill for oil, and Brazil has discovered a huge new oil sources, the Tupi field and the offshore Carioca field, which is predicted to hold billions even trillions of barrels of oil, the US discovers and then twiddles its thumbs. Congress ties big oil's hands on all public lands in the US, even as new discoveries are found and mined on private lands.

This is going to have to change, even as new reserves are found like the Bakken oil basin which extends from North Dakota to Montana and Canada. Colorado and Utah meanwhile are estimated to contain 1.2 trillion of shale oil reserves that are only now becoming economically feasible with today's high prices.

I could go on, but this is enough for now. If we don't get started drilling soon, we will only fall further behind the world. These high prices are the best thing that can happen to a country like ours that has become energy fat and very lazy. I'll revisit this again.

More US stats.

1 comment:

Bob's Blog said...

Our second car is a Chevy Metro. I am so glad I have not traded it in!

Thank you for another excellent report.