Gasoline Prices
On August 23, 2005, John Tierney, a conservative ex-columnist for
the New York Times, made a $5000 bet with energy investment banker, Matthew
Simmons, regards the price of a barrel of oil in 2010.� Tierney believes oil prices will return to
$35 a barrel or lower and Simmons estimates that oil will cost $200 a barrel.
Tierney�s opinion is faith-based, being informed not in the belief
in a benevolent creator but in the invisible hand of the free market.� Simmons� opinion is reality-based on a
rather remarkable knowledge of relevant petroleum geology data.
These views have divergent implications for the future of our
economy and our welfare.� They suggest
very different domestic and international policy and local adaptation and
mitigation strategies.� Current rising
gasoline prices are begging us to consider which one of these views is most
nearly correct.
Tierney admits to knowing �next to nothing about oil
production.�� But to be fair to Tierney,
there is a body of data to which he could have referred:� US Geological Surveys, Energy Information
Administration (EIA) reports and if one had $10,000, the latest report from
Daniel Yergin�s company, Cambridge Energy Research Associates.�
Simmons� position is more complex and technical.� All of his talks and papers are available
for free download at his web site and his book �Twilight in the Desert� is a
well-researched description of the state of depletion of Saudi Arabia�s oil
fields.�
Petroleum deposits are inherently finite and we are using 85
million barrels of liquid fuel every day or 31 billion barrels a year, the
equivalent of nearly one cubic mile of oil.�
All of this fossil oil was formed since the Cambrian explosion of life
544 million years ago and an estimated total of about 2 trillion barrels of it
is ultimately recoverable.� We are thus
using about 8,000,000 years worth of Earth recoverable-oil productivity every
year.�
Since the Tierney-Simmons wager was contracted, proprietary
Kuwaiti National Oil Company papers have been leaked to the Petroleum
Intelligence Weekly, indicating that Kuwaiti�s proven and probable reserves are
not the 100 billion barrels everybody, including the USGS and the EIA, assume,
but about 24 billion barrels proven and 48 billion barrels probable.� Thus over one weekend in January, 2006, 5%
of remaining ultimate recoverable reserves disappeared bringing us 18 months
closer to world peak oil production.�
Kuwait formally announced that their biggest field, Burgan, has entered
irrecoverable production decline.
PEMEX, Mexico�s national oil company, formally announced what keen
analysts had already observed, that the second largest oil producing structure
in the world, Cantarell, has also peaked and because of the use of
extraordinary secondary and tertiary techniques, production may collapse rather
rapidly.� Some believe that Mexico will
not be able to export oil to the US after 2010.�
A common myth is that Canada has more oil than Saudi Arabia.� Canada�s conventional oil production has
already peaked and the country is importing oil from the Middle East to make up
for declines.� What Canada does have
more than any other country is tar encrusted sand.� Copious quantities of natural gas and fresh water are required to
process the tar so that it can flow through a pipeline to the refinery.��� The supply of each of these commodities
will ultimately limit oil production to about 1 or 2 million barrels a day
depending on one�s level of optimism.�
Saudi Arabia�s big field Ghawar, by contrast produces 5 million barrels
all by itself, for the moment at least.
Since the publication of Simmons� book, Saudi production has
declined from about 9.5 million barrels per day in January, 2006 to 8.5 million
barrels a day in January of this year. If this is due to geological limitations,
as some suspect, it represents a 10% decline in just a single year.�
Gasoline prices are increasing as a direct result of oil
production declines world-wide and also because of refinery limitations.� While, I would not want to defend oil
companies, they are only taking advantage of this situation, they did not, by
themselves, create it.� Refinery
limitations exist because it simply does not make any sense to invest billions
of dollars in a facility which may never turn a profit or pay itself off because
there is not enough oil left in the world to refine in it once it is completed.
The price Americans pay at the pump cannot be reduced simply
because others in the world are willing to pay more.
Tony
Noerpel
Founder
Loudoun County Committee for a Sustainable Society