Monday, August 22, 2005

The wrong way of looking at the problem?

Peter Maass's The Breaking Point (New York Times, 21 August) is a workmanlike piece on Saudi oil. It doesn't explore much new ground, but this kind of stuff is quite useful:

"Although Matthew Simmons says it is unlikely that the Saudis will be able to produce 12.5 million barrels a day or sustain output at that level for a significant period of time, [Sadad al-] Husseini says the target is realistic; he says that Simmons is wrong to state that Saudi Arabia has reached its peak. But 12.5 million is just an interim marker, as far as consuming nations are concerned, on the way to 15 million barrels a day and beyond -- and that is the point at which Husseini says problems will arise".


"The most worrisome part of the crisis ahead revolves around a set of statistics from the Energy Information Administration...[which] forecast in 2004 that by 2020 Saudi Arabia would produce 18.2 million barrels of oil a day, and that by 2025 it would produce 22.5 million barrels a day. Those estimates were unusual, though. They were not based on secret information about Saudi capacity, but on the projected needs of energy consumers. The figures simply assumed that Saudi Arabia would be able to produce whatever the United States needed it to produce. Just last month, the E.I.A. suddenly revised those figures downward -- not because of startling new information about world demand or Saudi supply but because the figures had given so much ammunition to critics. Husseini, for example, described the 2004 forecast as unrealistic".

And the conclusion that [many US] "politicians [and others] remain in the dark" looks about right. (MEOW indeed. Recall: Campaign '80. Jimmy Carter: "Let's talk better mileage". Ronald Reagan: "Kill the bastards". Which message will resonate with voters? - The Onion)

But the following paragraph connects to flaws in typical ways of looking at the problem:

"High prices can have another unfortunate effect for producers. When crude costs $10 a barrel or even $30 a barrel, alternative fuels are prohibitively expensive. For example, Canada has vast amounts of tar sands that can be rendered into heavy oil, but the cost of doing so is quite high. Yet those tar sands and other alternatives, like bioethanol, hydrogen fuel cells and liquid fuel from natural gas or coal, become economically viable as the going rate for a barrel rises past, say, $40 or more, especially if consuming governments choose to offer their own incentives or subsidies. So even if high prices don't cause a recession, the Saudis risk losing market share to rivals into whose nonfundamentalist hands Americans would much prefer to channel their energy dollars. A concerted push for greater energy conservation in the United States, which consumes one-quarter of the world's oil (mostly to fuel our cars, as gasoline), would hurt producing nations, too. Basically, any significant reduction in the demand for oil would be ruinous for OPEC members, who have little to offer the world but oil; if a substitute can be found, their future is bleak. Another Western diplomat explained the problem facing the Saudis: ''You want to have the price as high as possible without sending the consuming nations into a recession and at the same time not have the price so high that it encourages alternative technologies'.''

Point one: energy alternatives are viable [although probably at higher price than $40 per barrel Maass suggests]

Point two: world economy can probably afford this in the near to medium term without going into recession and can surely do so in medium to longer term.

Point three: potential to increase the efficiency of oil use is substantial, and "even" the US will respond if high prices are sustained. So envisage, for example, US imports remaining roughly constant or [slowly] declining even as miles driven increase.

Point four: weaning OPEC off oil is a necessary but almost impossibly difficult task. Chances of implosion/explosion in Saudi look high under most scenarios. Suggested ideal (probably impracticable): a world 'caretaker' body - with US, EU, Chinese, Indian and other major player participation - to help manage the transition under a total world carbon cap over [three?] decades (the prospects of political will for something like this, however remote, are greater if stability of Middle East as well as environmental issues are linked. An ODP plus plus).

Point five: don't forget that getting off oil will be good for everybody... so long as alternatives are not worse.

(see also What will they do with all the money? and How much carbon can we emit?)

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