Yes, less than a year ago, the price of oil was at $145+ per barrel and gas (gasoline) was over $4.00 per gallon. Now, oil is at about $80 per barrel and gasoline is a little over $2.00 per gallon.
What's that you say? "The prices were too high. The market couldn't support them. The prices of oil & gas had to start dropping."
Or maybe you said "The oil companies were holding oil and gas off the market. It was all a conspiracy! When the price gets right, they brought new supplies into the market place. Everything is now returning to normal."
Or, worst of all, you said "Ethanol saved the day. Our corn farmers saved us. We're growing our way out of the energy crisis!"
All of the above reasoning has become popular as oil and gas prices drop.
But, folks, I believe the recent drops in oil prices and gas prices are temporary and are more tied to the recession and stock market crash than to energy fundamentals. As soon as the economy improves, prices will rise again.
Yes, we are still going to be running low on oil in a few years and both the price of oil and gas will recover and begin to rise again.
If any of the above or similar lines about why energy prices rose came from you, don't feel too bad. Most of us have been at least partly wrong on the energy crisis. I will admit I was wrong. Even as evidence mounted that peak oil was real and that we were in a heap of trouble, I kept thinking that it really wouldn't happen. In the end, something would save us. In my case, I thought alternative fuels would be the the hero to rescue us.
I never believed in the ethanol craze. Being a chemical engineer, I had seen the calculations long ago that showed you couldn't produce ethanol from corn and use it for automobile fuel and make a genuine profit. A large government subsidy was necessary. (See Time for the truth about ethanol and some of the biodiesels.)
So, I didn't believe in ethanol but I did believe in solar energy, fuel cells, geothermal energy, hybrid cars, bottom-of-the-ocean methane hydrates, etc, etc, etc. Like I said before, I just knew something would save us. I thought the most likely savior was alternative energy.
And, believe me, I still believe in alternative energy. It can do the job (hopefully). The only problem is that we are getting a very late start and decades are going to be required to get a solid alternative energy program up and working..........and that is after we decide which alternative energy sources may work and which ones will not work.
As we await development of alternative energy sources, be prepared to live with some additional major price increases at the pump for gas as soon as the developing world recession is out of the way. Also, be prepared for global warming to accelerate as we run out of the high-grade, cleaner fossil fuels and turn to the lower-grade, dirtier fuels, e.g. coal, heavy oil, shale oil, oil sands, etc, that emit more noxious combustion gases. Even though these lower grade fuels are undesirable compared to the fuels we have been using, their cost will be even higher than the good fuels due to higher extraction and refinery expenses. We have no choice but to pay more for the dirty fuels. We are running out of the higher grade fuels! The good stuff is gooooing.......gone!
The projections I have seen from the so-called oil experts are that we will, in the next year or two, see oil prices much higher than now, probably over $100 per barrel. This would translate into gas prices of at least $3 per gallon. Of course, other factors than supply and demand enter the picture.
These are the conservative projections of an amateur (me), but I have not been impressed with how far the whiskered oil experts missed the oil & gas price variations of the past year. I don't trust the oil experts! Remember, many, if not most of the official experts tend to be conservative on price increase estimates because they are obligated by pressure back at the office to put the oil industry's and federal government's best feet forward
Remember the last energy crisis late in the past century.....images of men and women fist-fighting at the pumps keeps popping back into my memory. Remember "topping out the tank".....I was guilty of that! If, sometime in the future, this panic occurs again, Katie bar the door on prices. But, maybe before panic strikes, we will have some leadership back in Washington and such disasters won't occur. But, no matter what happens in Washington, you are looking at substantial oil & gas price increases over the long term.
O.K., so you don't like the scenario that I've laid out for the U.S. and the world regarding oil and gas price increases in the future. What can be done? Here is my plan:
All politicians who favor gasoline tax holidays, ethanol subsidies, no drilling off Florida, California, & the North Slope, and punitive legislation toward the oil companies have to go. Hillary Clinton with her blatant appeals to the unwashed masses regarding a proposed gas tax holidays is the first name that comes to mine. John McCain is close behind because he suggested the gas tax holiday in the first place and even though he fought the ethanol subsidies back when he had good sense.
Any rational energy program has to wait until Obama and the new congress has been in office long enough to properly assess the energy situation.......and their attention must first be focused on solving the economic crisis that has plunging the country into a deep recession.
Maybe Obama can solve the problem. At least, he was against the gas tax holiday and has even ridiculed it. If Obama were to really put together a rational energy program, he would be the man we need.
I hate to emphasis the political angle so much but, until we can get enough sensible people in congress and in an administration that hasn't completely whored themselves out, we can't have a energy program that will work.
A government-run national energy quasi-company should be set up in the U.S. to handle the tough programs that U.S. private energy companies are too controversial to handle. The national company would handle the following specific programs:
a. Drilling and developing Anwar
b. Drilling off Florida and California coasts
d. Coordinate with Mexico to rework their rapidly deteriorating oil industry. Provide financing if necessary.
e. Work with Brazil (if needed) to develop their huge new offshore Carioca oil strike.
f. Work with Russia (if requested) to rework their massive but static oil and natural gas industry.
g. Work with Cuba to develop their (rumored) very large offshore oil strike. Better us than China.
h. Work with the natural gas companies to develop a strong LNG export industry. The amount of natural gas available from the recent shale formation discoveries is massive. It will be in excess of what the U.S. needs for many years. Why not export to Japan & other natural gas-poor countries? Let's compete with the Middle East for awhile.
i. Explore in world areas where the private oil companies are hesitant to go. Even if a non-democratic country benefits. In the long run, we will also benefit.
j. Perform intensive research on producing a clean liquid fuel from coal.
l. Coordinate but not dominate alternative energy development (discussed below).
m. Coordinate energy efficiency efforts related to transportation.
The national company would not interfere in the affairs of the private oil companies or compete with them. I have been very impressed by the success of several of the government-run oil firms of other countries, notably Petrabras of Brazil. Lets copy their success. Just don't let Brownie run the show!
3. Get Rid of Ethanol Subsidy
The ethanol subsidy has to go, immediately! Period! No slow phase-out! No nothing! Sorry, corn farmers. If you can't raise corn at a profit without a subsidy, grow something else or find another line of work.
The national firm would coordinate government efforts in developing alternative energy sources. But, until a workable alternative energy source(s) becomes obvious, there will no government mandates as to which energy source is the way to go. No Manhattan-type programs based on false assumptions! No more ethanol-type mistakes! We can't afford them. And we have to be aware that years or even decades may be necessary for us to go to a alternative energy source for the bulk of our energy supplies.
Happy drilling and happy searching for clean energy sources!
1. Oil & Energy Company Stocks. Someone is going to make money off the arrival of peak oil and the energy crisis. It might as well be you.
2. Germany in World War 2. The German side of World War 2. Germany had their own energy crisis to deal with in World War 2.
Once the present economic decline is over, oil and gas prices will begin to rise at a rapid rate as we run out of high grade oil and have to turn increasingly to lower grade oil. The rapid rate of price rise could accelerate if consumers panic as they did during the energy crises of the 70's & 80's. A government-run oil company should be set up to perform tasks the private oil companies can't do without controversy. Serious recommendations were made for improving the conventional oil, gas, coal, and alternative energy sectors to prevent a catastrophic increase in oil & gas prices.
Updated: 10/21/09
Contact me @ vanc13@cox.net (Author: Van Cook)