[R-G] [BillTottenWeblog] The Silly Season Is Upon Us

[Bill Totten]

The Peak Oil Crisis

by Tom Whipple

Falls Church News-Press (April 17 2008)


During the past week, the surge in oil prices continued with crude,
gasoline and diesel prices all hitting new highs.

US gasoline consumption may be down by a few tenths of a percent (which
seems logical) or then again, it may be up a bit in recent weeks
depending on which numbers you are reading. Our Presidential candidates,
or at least their handlers, are beginning to grasp that we have a
problem here and are beginning to make proposals.

We have clearly entered the silly season, for all three major candidates
now have endorsed the notion that the US should stop buying oil for its
strategic reserve in order to force prices back down. This might sound
sensible until you learn that the US is only squirreling away eight
ten-thousandths of the world's production each day. The Republican
candidate for President is now calling for a "holiday" that would
suspend the 18.4 cent a gallon federal gas tax. This proposal of course
will never pass, but if it should, the hoped-for jump in gasoline sales
will quickly move gas prices higher. At a time when prices are rising
about five cents a week, cutting taxes is unlikely to boost Hummer sales.

Up on Capitol Hill a lot of folks are worried, but as yet few have
mustered the courage to propose realistic solutions. Some are beating on
the oil companies and are calling for the umpteenth investigation of gas
prices. Others want to yank the $18 billion annual tax break the oil
industry gets and move the money to researching renewables. The rest
just want to increase drilling for oil somewhere - usually in the
Atlantic or Alaska - without mentioning that at best it would take
decades to produce the oil should some be found. No one wants to mention
that our energy crisis now seems months, or perhaps less, away.

It is hard to really blame the politicians. As long as most of us cling
to the hope that high gas prices will go away or that a painless silver
bullet that will solve our energy problem is just around the corner, few
candidates for public office are ready to propose what are thought to be
"painful solutions" to our problems. They still shoot messengers.

The great irony in all this is that the problem is simple to understand.
World crude oil production has been essentially flat for the last three
years while 1.3 billion Chinese, 1.1 billion Indians, and another
quarter billion or so living in oil exporting countries continue to
increase their oil consumption at a prodigious pace. Incidentally, the
Chinese just announced that their diesel imports during the first
quarter of 2008 were up seven fold over 2007.

Currently, the real issue is how long it will take the American people
to understand the seriousness of a problem that will require decades of
pain, discomfort and inconvenience to mitigate. When gasoline and diesel
prices go up a few more dollars a gallon, or when permanent shortages
develop, everybody will get the message and media will start to talk
coherently. Until then, understanding will be incremental and painfully slow

Every now and again, however, a voice of reason is beginning to appear
in the mainstream media. On cable business news, every 500th guest now
speaks of looming oil shortages in terms of inadequate supply to meet
growing demand. This message is immediately drowned out by wave after
wave of talking heads explaining that now is a great time to find
bargains in the equity markets and high oil prices are caused by a
temporary surge in speculation.

In general, there seems to be progress in that most, but not all, of the
major national newspapers will now acknowledge that world oil production
will peak some day. Rather than presenting imminent oil depletion as a
fact, the major papers are writing "balanced" stories in which somebody
says peak oil is imminent, somebody says it is forty years away, and
wise expert arbitrator splits the difference saying oil supply problems
are ten to fifteen years out. The reader of course accepts all this,
breathes a sigh of relief that he still has fifteen years and goes about
his business.

A poll of Congress, their staffs and senior government officials is
likely to produce similar results - world oil production will indeed
peak, but that day is not close enough that I have to risk public ire by
proposing painful and unpopular solutions to my successor's problem.

Unfortunately for the future of America, The Washington Post, which is
read religiously by everyone of consequence in the federal government,
has been among the slowest in acknowledging that a paradigm-changing
worldwide oil shortage is imminent.

Last week, with oil pushing above $110 a barrel and gasoline prices
setting new records each day, The Post felt impelled to say something
about the issue. After telling us that prices are indeed going up and
the Presidential candidates are coming up with inadequate solutions, The
Post cites one of the many pronouncements by the CEO of Shell oil
company, Jeroen van der Veer, to the effect that "The fundamentals are
no problem". "He blamed the lack of spare oil production and refining
capacity, and tensions in the Middle East, for keeping prices high".

The Post adds the coup de grace with "Shell's Van der Veer said he
expects a crunch in energy markets in ten to fifteen". The rest of the
story is taken up with how speculators and hedge funds fleeing the
falling dollar are driving up oil above its "true" prices which is a few
dollars above the cost of production. The Post suggests this "true"
value could be anywhere from $10 to $60 a barrel, depending on which oil
field it is coming from.

So there you have it. Our national leaders now know that the peak oil
crisis is ten to fifteen years away and that speculation is largely
responsible for your soon-to-be-$4 a gallon gasoline.

http://www.fcnp.com/national_commentary/the_peak_oil_crisis_the_silly_season_is_upon_us_20080416.html


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