James Waterton takes a look at the Middle East and comes up with some conclusions that you may or may not agree with, but all of which are certainly worth examining
It is arguable that securing energy supplies is the most important single challenge within the international security agenda. Entire foreign policies are based around this aim, and nations are constantly jostling to cut deals – in all sorts of ways and often at the expense of others – with energy suppliers, private and governmental. It is hardly surprising, for energy drives our modern economies and is an indivisible component of economic and social growth. The recent war in Iraq and the continuing upheaval in that country is a prime example of an attempt to secure energy supplies. Certainly, stating that Iraq was a “war for oil” is a gross simplification. However, the Middle East is strategic primarily for its energy reserves, and thus it is certainly in the world’s interest to promote a stable Middle East. Such an aim has been a central plank of the foreign policy of every major world power for decades. Of late, however, the developed world has become increasingly engaged in the Middle East – with the overarching aim of securing energy supplies. This has inflamed cultural and often geopolitical tensions, arguably culminating in the current “War on Terror” scenario. I will examine some of the forces at play in the Middle East relevant to global energy supply, and attempt to provide a solution to the energy supply challenges faced today. The West must play the leading role in this envisaged solution, not just because it is most able to; it has the most to gain by determining the solution to the world’s energy supply problems. It can secure its comfortable, energy-reliant way of life into the distant future, as well as making for more peaceful global relations.
Western involvement in the Middle East stretches back long before the existence of the concept of “The West” itself. Obviously, this history impacts on events today, however plenty has been written about that and I don’t want to dwell on it here. In the place of historical analysis, I will state the obvious and highlight the Middle East’s current strategic importance. At the end of 2003, it contained well over half of the world’s known reserves of crude oil. Crude oil is humankind’s most important, widely used and versatile energy source, and it is the largest selling commodity in the world by value of sales. Saudi Arabia, the nation with the largest reserves of crude oil in the world, sits on approximately a quarter of known reserves. Following Saudi Arabia (in descending order of size of reserves) is Iran, Iraq, the United Arab Emirates and Kuwait. These four nations contain approximately 40% of the world’s known reserves of crude oil between them. I briefly mentioned the conflict in Iraq above. Whilst it is too soon to say the Coalition’s mission there has failed, it is surely safe to assert that events are not unfolding in a way the architects of this war had hoped. The predominantly American occupation of Iraq could conceivably still “win the peace”, however it seems less and less likely that the post-Saddam Iraq will resemble the model the United States was hoping for. When the Iraqi occupation ends, Iraq is supposed to be a democratic, liberal, Western-friendly, human rights respecting nation that will hopefully spread these values to its neighbours. It is supposed to be a pacifying keystone in the Middle East. The removal of Saddam Hussein was supposed to defuse much of the tension in the region. None of these objectives have been achieved yet. A hideous tyrant who oppressed the majority in his country to keep cultural tensions at bay and shore up his regime has been toppled.
However, the removal of his iron fist has caused an explosion of ethnic-based insurgency. This may yet be quelled, however the salient fact is that the occupation and reconstruction of Iraq is taking place at phenomenally vast expense – borne by the American taxpayer, mainly. As of this moment, the American government had spent over US$200 billion on the war and occupation, and much more is required. The question must be asked; is it worth the cost? The Iraqi lesson is providing the answer, and that is almost certainly no. The military might of the United States could undoubtedly conquer all the armies of the entire Middle East if the US desired, but the Coalition of the Willing is struggling to administer one Arab nation. Even after all the blood that has been spilled and the money that has been spent, it is still possible that a post-occupation Iraq will become a more dangerous entity than the pre-occupation Iraq.
The Western world’s need for crude oil has required it to act amorally to ensure supply. It has, over the years, acquired some strange and ugly bedfellows to ensure this goal. The West’s shameful partners include the House of Sa’ud, which most notably enforces dark-age levels of freedom on half its population, amongst other abominable human rights breaches; Saddam Hussein, who was arguably the most brutal dictator of the last three decades; and the Shah of Iran, who was not particularly far behind Mr Hussein. There is a moral imperative for Western democracies to stop supporting regimes of these flavours. However, the experiment in direct intervention to bring about change in the Middle East has failed on economic grounds, despite the fact that it is too soon to call the mission itself a failure. A tactical shift is required.
The solution is clear – the Western democracies must disengage from the Middle East – militarily, politically, economically. This means that the West needs to wean itself off the Middle East’s trump card; its crude oil. This is obviously a transitional process that would take some years, but it is necessary that the process commences soon. Obviously, we need to get our energy from somewhere. Alternatives must be developed, however we need to be clear-headed about the nature of these alternatives. Realistically, it must be expected that in the medium term our reliance on fossil fuels will continue. However, governments need to encourage development of fossil fuel alternatives to Middle Eastern crude, and development in the long term of more sustainable alternatives to fossil fuels in general. A two-pronged strategy is required that would use strategic total tax breaks on certain types of research and development efforts, as well as on investment to create production and distribution of the new sources of energy.
The first prong in the strategy involves developing alternative fossil fuel sources. Tax breaks should be introduced to cover exploration for crude in Western countries and countries friendly to the West. Also, tax breaks should extend to funding development of huge alternative fossil fuel deposits such as the Canadian tar sands. The Canadian tar sands hold a phenomenal amount of recoverable tar that can be converted into synthetic crude, and thus other petroleum products. The University of Alberta claims that there are 1.7 trillion barrels of oil locked up in the sands. Using current technology, it is claimed that 265.5 billion barrels of oil (To put that figure into perspective, Saudi Arabia at the end of 2003 held 262.7 billion barrels of proven oil reserves) is accessible. Currently, the process is more expensive than, and not as clean as, oil extraction in the Middle East. However, research and development into harvesting a greater percentage of the tar sands more efficiently and cleanly should narrow the gap. Research and development into crude oil extraction has developed new techniques that have made previously exhausted oil wells produce again and previously inaccessible oil fields viable, so expecting that more research and development into mining the tar sands will lead to more effective exploitation is hardly a flight of fancy. Harvesting tar sands is a technique that is still in relative infancy, and producing synthetic crude from them is becoming cheaper and cleaner. This process needs to be sped up by the strategic application of tax breaks, which should also apply to money invested in large scale production and distribution infrastructure to markets around the world. The second prong in the strategy involves a longer timeframe.
In my opinion, the most plausible sustainable alternatives rest on technology we already possess – nuclear energy for fixed energy consumers and hydrogen fuel for mobile appliances such as automobiles. Hydrogen ‘fuel cell’ technology (pdf document) is in a relatively advanced stage of development, however rolling out the comprehensive infrastructure to transport and store hydrogen at all places where automobiles venture will take a great deal of time, and this is the major challenge. Converting water to hydrogen is also quite an energy intensive process, and further research and development is required to reduce the cost of this. However, emission-free nuclear energy can be utilised for this purpose. Australia and Canada already have enormous reserves of radioactive commodities, and we have barely started exploration for radioactive elements like uranium in earnest – due to a relative lack of demand. Uranium is a very common commodity.
Disengaging from the Middle East could potentially solve a great many problems for the Western world. Disengaging is one matter, however it would be unfair – and possibly counterproductive – for the West to quarantine the Middle East. Disengagement should result from a campaign of incentives to reduce demand for Middle Eastern oil, rather than coercive measures to stifle Western economic activity in the Middle East and vice versa. The West should still trade with the Middle East if parties from both regions are consenting. However, oil would not be required by us. The West becoming more self-reliant in energy would conceivably lower prices. If, for example, the Western world started relying on its own fields and alternative fossil fuel sources like the Canadian tar sands, the power of the OPEC cartel would dissolve. OPEC has constantly put upward pressure on the price of crude oil since its inception. It is estimated that over the last three decades since the energy crisis of 1973, OPEC has artificially diverted 7 trillion dollars from American oil consumers to oil producers through its quota programmes. Also, it is worth considering that prices are also influenced by perceptions of supply, not just supply itself. If consumers, traders and speculators alike believed there was a strong programme afoot to bring the oil age to a close, this expectation would put downward pressure on the oil price. The economic boon of lower energy prices is not the only drawcard of disengagement. Many of the so-called “root causes” of Islamic extremism – as laid out by extremists and various commentators in the West – would disappear, for example. Islamic extremists have made it clear that they do not appreciate the presence of Westerners or Western icons in their homelands. A Western exit from the Middle East should placate many who seethe at the thought of infidels in the holy lands.
There are complications here – such as whether those willing to resort to terror to achieve their sometimes ambiguous aims – will “move the goalposts” and discover new objectives. It may well redefine the War on Terror. If we do withdraw from the lands of the terrorists and terrorism ceases to be an issue, then great. They can go their way, and we ours. If, as I suspect, the terror organisations simply change their demands, their true objections will hove into view. It will be impossible to assert (sanely) that we are not facing an implacable enemy whose target is our way of life. It will be a sign that we need to get serious in our struggle against those who wish to construct the international caliphate – the Clash of Civilisations is real. It will also mean that the endgame is in sight.
Israel is another complication – it is only useful to the West whilst the Middle East is strategic, yet we have a duty to protect it. Having said that, there is no reason why we should continue to prop it up with aid and treat it as a special case diplomatically if the Middle East stops being an energy source. Perhaps the USA could simply mention that Israel falls under its nuclear umbrella. That should be enough to deter any would-be aggressors, in the event that Israel’s own nuclear deterrent is not sufficient. Anyway, the chance of Islamic fundamentalists and Arab nationalists driving Israelis into the sea seems incredibly far fetched, given the above scenario. An Arabia bereft of petrodollars is hardly going to be in a position to wage effective war on a military tour de force like Israel, which – despite its current reliance on American aid – could easily stand on its own two feet economically.
An organised disengagement from the Middle East makes sense to me. I am trying to determine whose interests run against such a plan. Not big oil – most Middle Eastern oil is pumped by state owned juggernauts like Saudi’s Aramco – surely the biggest company in the world by any measure. Big oil should love tax breaks on exploration. The major losers are clearly the Middle Eastern states with their undiversified economies. Most would, in a few years of no oil revenue, be plumbing the depths of penury alongside Africa. Perhaps the military industrial complex might have objections? Any ideas?
My main disagreement is with the contention that toppling Saddam was clearly “not worth it”: I think that is far from clear and it is certainly a matter of perspective. However as James does not examine in any detail the issue of how the Iraqi population, rather than just ‘The West’, figure in that value-equation, perhaps that is a discussion for another article.
Quite so, the fact Bush has made a hash of things does not mean Iraq is not better off than when that psycho who went on trial yesterday was in charge.
But James does make some sense in his broader perspectives…
So your idea of solving this problem is to create a power-vacuum?
um the Islamist seek world domination. Your idea does nothing to solve this problem. Pull out of the ME jihadi victory propaganda for CNN. Go read steve den beste and get back to us.
However, dry up their sources of income, and their ability to hurt the rest of the world and spread their poisonous creed becomes greatly reduced. It takes money to set up Wahhabi schools, produce bombs, finance teror activities. Take that money away, and they are rendered impotent.
That is not to say that all of their funding comes from oil money, but a large chunk of it. Anybody got any estimates?
TWG
From the CIA World Factbook entry on Saudi Arabia:
Take away the oil and they will barely be able to feed themselves: they’d go from having per capita GDP the same as Poland to being around that of Turkey, but without the industrial and agricultural base…and it get’s worse (for the House of Saud, that is!), as most of the services sector of the Saudi economy (67% of it!) is completely fuel by the petrodollars: my guess is that simulations would show a total collapse back to the barbaric economic level that would match their religious ideology.
And Iran would perhaps be worse off in such a scenario, seeing as they are where the Saudi’s would be per capita RIGHT NOW, with most of the same issues. Ditto the other major oil powers on your list.
The Turks, Egyptians and Israelis, of course, would be fine, well as fine as they are now at least, as they didn’t win “God’s oil lottery” in the first place. Funny funny haha, those are the regimes of any note in the area we’ve been most close to.
“However, governments need to encourage development of fossil fuel alternatives to Middle Eastern crude, and development in the long term of more sustainable alternatives to fossil fuels in general.”
Very wrong headed. Governments need to stay out of “encouraging” anything. They exist in order to peotect individual rights and freedoms. They should “encourage” (with my tax money) nothing else. Governments are good at vasting huge amounts on money, but they seldom produce anything useful.
Forget about “independence” from ME oil, about marginalizing it and making it irrelevant. There are no other sources of energy available, at a reasonable cost. All the alternatives mentioned are 1. In the far future and 2. Way, way more expensive than oil.
Oil will be used and needed, as long as it exists. There is absolute no way to get arround this fact. Dreams about “independence from oil” are utterly romantic, unrealistic, idle and false (as much as they are appealing).
I repeat:
Take away the oil and they will barely be able to feed themselves:
Impossible.
The good souls who keep dreaming about this are totally ignorant of technology, engineering, quantitative arguments and economics.
While from a lot of Iraqi’s perspectives, the removal of Saddam has been worth the cost to the country, the same amount of money could have made a huge difference in finding alternative energy supplies.
The war’s been very costly to the US, not just in terms of money, but in moral and global influence as well.
If simply feeding money into the ME for oil has produced the mess we see today, what would another 30 years of incrased oil prices and money being diverted to ME countries produce?
I’m not sure why the establishment of a Caliphate would be a bad thing though?
A lot of muslims in western countries hate living in western decadent societies, hate their dependance on western provided freedoms, but are unwilling to give them up. A Caliphate may provide an alternative to such resentful and angry persons.
A Caliphate would also provide an “official” Islamic leader, and presumably would start to codify one single brand of Islam as being the official state brand. I suspect those who would work so hard to bring it about, would not find their radicalism appreciated after a while and soon be working to bring it down.
Such a target would be much more important and more appealing for the fanatics.
Finally, a Caliphate might provide a reality check for large sections of the media and population who sincerely believe Islam is a ‘religion of peace’, as traditional punishments for apostacy, homosexuality etc are applied and enforced.
I largely agree with your post James (although I have the same reservation as Perry), but I hope you’ll forgive me for saying I cannot find anything particularly new or interesting about either your diagnosis or prescription.
One point I would raise though is this claim…
“An Arabia bereft of petrodollars is hardly going to be in a position to wage effective war on a military tour de force like Israel, which – despite its current reliance on American aid – could easily stand on its own two feet economically.”
…for it seems to me the more likely (and contrary) answer stares at us from our TV screens every week with news of the latest suicide bombing in Iraq. The suicide bombers may easily begin again in Israel, like elsewhere for that matter, and as you say, then we might have to get serious about the Clash of Civilisations.
As to whose interests would not be served by a withdrawal by the West from the ME – how about China? Would they still take their energy from OPEC, or would they begin to import from Canada and the US? Surely the Chinese would not be too happy about that? As India is already sympathetic to the US and the West in general, I’d assume they’d have no problem with importing their energy from us rather than the Arabs.
On a more political note, a withdrawal from the ME might engender a shifting of party positions on foreign policy; despite the suicide bombers we may observe the left bemoaning the lack of western intervention and social engineering to help the poor people of Saudi Arabia and Iraq – just the sort of intervention they now decry as ‘imperialism’. So you’d have a lot of UN agencies and academics and charities and church groups (at least in the UK and Europe) – all the usual cartel of suspects, they’d be against it (but to hell with them anyway).
James explicitly stated….
“Alternatives must be developed, however we need to be clear-headed about the nature of these alternatives. Realistically, it must be expected that in the medium term our reliance on fossil fuels will continue. “
Yet Jacob comes out with…
“Dreams about “independence from oil” are utterly romantic, unrealistic, idle and false (as much as they are appealing).”
and…
“The good souls who keep dreaming about this are totally ignorant of technology, engineering, quantitative arguments and economics.”
So Jacob, in contradistinction to these ‘good souls’, the presumably bad souls such as yourself who criticise such dreamers have their own special kind of ignorance brought about by selective reading?
or perhaps you didn’t (can’t?) read James’ article at all and were merely vaguely informed of some of its’ content by an irate, partially blind and illiterate Arab oil worker?
Two things are being confused here: dependence on oil and dependence on near- and middle-east oil. I can’t speak for Europe, but the U.S. buys 15 percent of its oil from near- and middle-east countries, according to WTO stats. That’s a lot, but probably not an insurmountable percentage.
However, I disagree with the strategy of not buying oil from that region (whether it’s practical or not). It seems to me that becoming engaged with those cultures (by, for example, helping them get rid of tyrants) is more productive in the long run (to say nothing of being much easier to justify, morally).
It is, something I – and I imagine many others – have thought about. I suppose it comes down to a cost benefit analysis. I think Iraq is showing that overthrowing tyrants, then sticking around to ensure that another tyrant of similar ilk doesn’t pop up and take the first one’s place is economically unfeasible. It may work in Iraq – but at what cost?. And is it worth doing again elsewhere if there is not another specific threat? I would argue no.
I don’t see why it would be a power vacuum. I can’t see why ME regimes wouldn’t still have governance of some description. They would just have little or sway over world affairs.
Yes, and I wasn’t setting out to solve that problem, although clarify it – certainly. I know it’s a long blog post, but read the third last paragraph again.
I’m glad you think so.
Right. Well, back to the real world where we can’t always only demand action that is 100% consistent with our beliefs and refuse to work with the status quo until our own moral imperatives are satisfied…if applied widely, your philosophy is a recipe for complete inertia. Are you American? If so (and if not, just pretend!), are you ambivalent about $200 billion being extracted from you and your fellow taxpayers to fund this campaign with the objective to secure energy supplies, but you are not in favour of applying strategic tax breaks to offer an incentive for companies to complete that objective a lot closer to home?
China can do what it wants. I imagine it will keep pursuing its relationships with its client states ie. Sudan, Libya etc. I’m not really that worried about the Chinese, to be honest. I personally believe the Chinese economic juggernaut’s days are numbered. If I thought they might be a long-term economic counter to the West, then I would afford their actions more consideration. Having said that, if the West managed to be more self sustainable in oil, it would reduce the stature of some of our potential and actual strategic rivals – not just the ME. Take Russia, for example. What does it trade in? Oil and weapons. If a whole lot of new oil sources came online, the price of oil would collapse – permanently. For Russia, every year would be like 1998!
Exactly 🙂 those sorts will do backflips and contort themselves into wildly contradictory positions just so they can run contrary to their ideological opponents in some way – any way will do.
But aren’t we seeing the utter failure of such engagement in the ME now – on economic grounds at least? Do you think the US would be willing to spend another 200 billion a throw liberating each downtrodden nation from its tyrannical leader, then dealing with the (okay, varying levels of) fallout? What’s the prescription for, say, Africa? Plenty of targets for regime change on humanitarian grounds there.
I take issue with talk of hydrogern as a fuel. It isn’t. Hydrogen is a “battery” – you need to input energy to “charge” it. Hydrogen doesn’t invalidate the question of original energy sources, it just means you use the fossil fuel at the power plant rather than at the petrol tank.
Julian Morrison – I am aware of that. In the article, I advocated nuclear energy as the alternative to fossil fuels at the power plant.
And – I should add – the object of the article wasn’t to slap down nasty polluting fossil fuels. I am not advocating Australian and American support for Kyoto or any other such global warming scaremongering silliness; I believe we should work towards a strategic shift away from ME energy. If it’s not feasible to convert all our energy production to nuclear power, I advocate using only coal, gas or non ME-oil as alternatives. Coal and gas are both fuels found in abundance in Western countries.
JDP
So what you are saying, and please correct me if I am wrong, is that it would be necessary for innumerable homosexuals, apostates, champions of women’s rights, bacon lovers, Johnny Walker drinkers et al to be murdered for people to wake up to the fact that Islam is not quite the “Religion of Peace” that we all so deeply love and respect?
Regarding a Caliphate you are somewhat mistaken on this point. The Shi’ites and the Sunnis differ enormously in their views on a ‘unified’ version of Islam, united behind a representative of either Allah or Mohammed. In fact the greatest strife within the ranks of Islam occurred during the calpihates – there were endless minor wars and struggles as various factions sought to oust or otherthrow each other.
So who is to say that it would not be any different now? We are all too aware that Usama Bin Laden is desperate to be the new Caliph, for whatever personal reasons he might have, and that organisations such as Tablighi Jamaat preach a lack of spirituality and decline in religious observance as the root cause of the Muslim World’s problems, claiming that the caliphate cannot be successfully revived until these deficiencies are addressed, all the while pointing the finger at the West as being responsible for this.
James,
“…your philosophy is a recipe for complete inertia”
That’s ridiculous.
You mean – keeping government out of wasting money under the dubious pretext of “energy independence” means “complete inertia” ?? Say that again: only government is dynamic – businessmen and scientists are innert and are not able to innovate if not prodded by government ??
New energy sources will materialize (if at all) in the normal course of things, created by scientists and enterpreneurs. Markets will select the right solutions. Government incentives can only derail the process by wasting money on the wrong track (like alcohol subsidies).
Another error is talking about US oil independence. There is no such thing as US independence as contrasted to EU, Japan and China continuing to buy ME oil.
The oil market is global. The ME oil is the most important ingredigent in this market quantitatively. The US depends on this global market for half it’s oil consumption. You can’t isolate the US from the ME oil.
ME oil will be needed and bought by this global market. If it’s supply is somehow disrupted, it causes a global catastrophe (recession, poverty) of which the US has no way of keeping isolated.
Ayn Rand mentioned John Galt’s electric motor taking energy from the ether. You might not be able to buy one down the shops but have a look around the net people seem to be heading towards it of not already having it. Check out the minato/Kawai motor scooter as featured in the times in 1995. Where’d it go?
Any Arab country the west is going to invade, sorry , Liberate is eventually going to face insurgency as they don’t want outside interference, help yes, dominion no.
Governments can, and must do something to help enhance energy production.
What they can do is what they always should do – keep out, stop interfering, stop hindering, deregulate.
Specifically:
– Repeal the prohibition on oil exploration in vast areas of the US and it’s continental shelf.
– Repeal the practical ban of nuclear power. Devise a new system of safety regulations and licensing that will enable the building of new nuclear power facilities.
These are the two biggest obstacles on the very long way to some “energy independence”. It is this that people should advocate, not government investment or incentives or Manhattan projects.
The hydrogen fuel cell well developed?
This is a joke right?
We know how to make them. Their cost per horsepower is about 100X that of an IC engine. Then there is the hydrogen storage problem. Then there is the refueling problem.
In my opinion the methanol fuel cell has more prospects.
1. A fueling system compatible with current liquid fuel distribution systems.
2. Energy density on par with gasoline
3. Going into commercial production for portable electronics power where the current cost premium vs the IC engine is not a barrier.
This is one very important reason for governments to stay out. Decisions will be political rather than technical/economic. What is popular vs what works.
The same place all the other “free energy” scams go…
EG
Jacob,
What is holding nuclear power back (besides popular perceptions) is the economics.
As wind turbines get larger their cost of electricity per kwH will decline below nukes.
One need only look at the learning curve. Something electric utilities have been doing for over 100 years.
If you see that at X years out the plant you build today will be uneconomic you don’t invest. Or you raise the cost of the electricity you sell to account for the fact.
Other wise I agree.
James Waterton,
By your criteria WW2 was infeasable. It absorbed 50% of America’s GDP, probably more in Britain.
The current war is costing America 6% of GDP.
So how is it we could afford WW2 but not Iraq?
Iraq is probably costing America as much as pet food does. I know we love our pets and hate Iraqis. Still.
Far better we tap the primary South Atlantic reserves, destroy the ridiculously outdated OPEC cartel system and let the Middle East try and sell crude at its own vastly inflated prices in a truly competitive global oil market.
The question is asked:
Do you think the US would be willing to spend another 200 billion a throw liberating each downtrodden nation from its tyrannical leader, then dealing with the (okay, varying levels of) fallout?
Yes. As long as costs were sequential. i.e. start reducing funding of one job and increasing another.
I expect Iraq costs will start to decline once they have a parliament in place. Give them to the beginning of 2007. There will also be a new American Congress in place and Bush will have about 2 years to get something going.
I pray it is Iran.
I’d settle for Syria.
Julian,
What South Atlantic reserves? Could you provide an explanation or a link?
Besides, all agree that any technologically based “energy independence” (whether government financed or not) is something that will mature, perhaps, in somewhat like 50 years’ time.
So how is that relevant to the 200b$ supposedly “wasted” in Iraq to secure the oil flow ?
There is no either/or situation here.
“What is holding nuclear power back (besides popular perceptions) is the economics.”
No. Nuclear power is cheaper than fossil power. What is holding nuclear power back is the refusal of governments to permit it.
James Waterton,
Do not confuse governance with power.
Saddam had governance. He did not have the power to resist America and the Brits.
True governance is the ability to hold territory. If we leave before Iraqis can hold their own in the neighborhood you leave a power vacuum. You Brits used to be masters at understanding simple power politics. It is fortunate that the cowboys learned the lesson before our teachers forgot it.
Jacob,
You did not address the learning curve issue. Which is the real economic question.
Jacob,
I agree with your 50 year time frame.
“As wind turbines get larger their cost of electricity per kwH will decline below nukes.”
Wind turbines is an exellent example of what happenes when government encourages anything. Wind turbinesexist only because of gov. tax breaks. Wind turbines will never be significant contributors to energy. They will never reach a significant energy production quantity. They are just scare crows, and bird killers, and landscape polluters, and a terrible waste of money.
They are par for the course for government encouraged projects.
Got to agree with Jacob on wind power. Unless you have enough wind turbines to ensure that the wind is always blowing somewhere where you can produce power, you will always need more conventional back up generation. This requires a massive over-investment. Better to just build one plant able to produce power independent of prevailing weather conditions.
Oil and gas are here to stay, until the profit motive makes the development of alternative energy sources viable. As for nuclear, the whole of life costs of nuclear power exceed the MWh per dollar of conventional power. The fling with nuclear power in the the last 30-40 years was politically motivated and heavily subsidised. Nuclear power will eventually become profitable, but I’d argue the state should keep out of the energy subsidisation game and let the power utilities get on with it.
James, very impressive piece but I think you overlooked a rather obvious point (well, obvious to me, anyway!): the market. With crude having recently hit about 70 bucks a barrel, there is no need for governments to offer special incentives like tax breaks (which often produce unforseen economic side effects and attract shysters). Any entrepreuneur, geologist, investor or engineer with the right experience would be piling into the energy sector. Look at the stock prices of firms in this sector (like BP, Shell, etc). Let Adam Smith’s friendly invisible hand do the job.
rgds
I think a lot of people are missing the point or chasing red herrings. Some people don’t even seem to have read the article fully, but for some reason still feel qualified to make comments authoritatively. Okay.
Jacob:
I agree that’s how it should be, too. However, as I’m pretty sure everyone else here agrees, that’s not how it is. We need to work with what we’ve got. And we’ve got are governments that interfere in the economy, influencing the market. Often this is disastrous. Occasionally it’s beneficial – see Ireland’s IT boom. What I was responding to was what I thought you were asserting – we shouldn’t do anything unless the action checks all the libertarian boxes. Your talk of “governments wasting money” seems misplaced, considering I’m talking about stimulating strategic exploration through tax breaks.
The point is, if the US government offered American oil companies the opportunity to explore for oil in particular areas of the world, and then allow said oil companies to claim exploration costs as a tax deduction, do you think this would cause a massive jump in exploration? I think it would. If the tax breaks were minimal for dry holes and generous for strikes, do you think the oil companies would go on a bout of frivolous exploration without using their standard criteria for selecting places to drill? No.
The world is a mighty big place, and oil is potentially everywhere. As big as the oil majors are, they can only focus on certain areas. If it were more cost effective for them to explore in particular parts of the world, they would. If exploration was encouraged because they could claim expenses on their tax bill, they’d increase the rate of exploration. In conjunction with tax breaks (not subsidies) on R&D and subsequent production infrastructure of alternative fossil fuel reserves like the Canadian tar sands, can you not see how in a few years a flood of new oil supply will find its way on to the market? What will this do to prices of crude? They’ll fall through the floor, not to rise again for many years. OPEC will be broken. I never said that the ME should be coercively ring fenced, but it will lose a huge chunk of its relevance. Thus the West would not need to deal with it – and try to control it – nearly as much. Seems fairly self explanatory to me. All done by governments *not* charging tax. What’s your problem?
Yes, and this is precisely what needs to change. You seem to be attacking several strawmen in your various posts.
However, I agree with you on the issue of removing bans on exploration in the US, as well as your nuclear energy proposals.
Here’s one of the guys who doesn’t seem to have read the article fully. Establishing a hydrogen economy will take time – that’s why I flagged it as a long term objective – however the timeframe can be shortened by offering incentives in the form of tax breaks on fuel cell R&D as well as hydrogen storage and transportation infrastructure. I said all that in the article, M. Simon. Do try to keep up. And here’s more evidence that you didn’t read carefully/much of the article or of the subsequent thread –
Where did I say that the US should walk out of Iraq post haste? When I was talking about power vacuums, I was referring to someone’s contention that if the Middle East lost its strategic importance, it would become a power vacuum. I fail to see why this is a necessary fact. Incidentally, I’m not British, but that’s by the by.
Re your WW2 claims – what did the USA get out of WW2? Global dominance. Unrivalled economic influence. And virtually no war debt at the close of hostilites. Was going into WW2 worth it for the States? If one ignores the bloodshed – sure.
In Iraq, a close-to best case scenario is that the USA installs a durable but compromised constitutional government that isn’t particularly pro Western, which would be a reflection of the population. It would probably join OPEC. Back to square one. What’s there to show for $200 billion, bar the humanitarian aspect – which could be chimaeric if a new Saddam pops up. In contrast, if the USA fails in its Iraqi objectives, what have the American people got to show for their spent tax dollars? A humiliating retreat, a considerably trickier Middle East, and a further complication to global energy supply. There is no comparison between the two wars on economic benefits. I have to say, I think your belief in the fact that the US government will keep starting and fighting wars that it has little to gain from somewhat misplaced.
Jacob:
I agree, the market will stumble over a solution sooner or later. 50 years sounds feasible. However, that process can be accelerated with a price tag (in foregone taxes) that is massively smaller than the $100 billion+ per year Iraq is currently costing.
I agree about the wind turbines.
Sorry, when I said “a lot of people” I actually meant “a lot of posts”. And, on reflection, there aren’t even that many. Apologies for misunderstandings.
Johnathan:
You’re right, I think the market would eventually find a solution. The trouble is that I reckon it will take too long. The sooner we are not in thrall to the gaggle of oil sheikhs and dictatorships that largely control international energy – with their lengthy and strong track record of being perfidious to our interests – the better. The longer it takes to get out of their clutches, the more it costs us, and the likelihood of a catastrophic disruption to supply due to said perfidy increases. It goes against my instinct to say so, but I believe some form of government action would be useful in freeing us from the likes of them more rapidly.
Cheers,
I hear a lot of talk about tax breaks as incentives for investment. Why not just reduce taxes full stop? People don’t need extra incentives to make money or invent stuff other than pure profit motive. What you are really talking about is forcing everyone to “invest” via the tax system in any number of technologies hoping that one of them might turn out to be a knight in shining armour, cold fusion for our times. Sure, such coercion may accelerate innovation, but perhaps at the cost of other incremental technologies that require less investment and result in less upheaval.
High energy prices will stimulate two activities, more efficient use of energy, and development of alternative energy sources (either in sources of existing energy technology through exploration/extraction technology or new alternate technology). More efficiency was what we gained at of the 1970s OPEC squeeze, and we are probably better off because of it. If the oil price continues rising, this will only accelerate the private sector. In a peverse way, the Iraq war is stimulating energy investment through government intervention by other means! More unintended consequences of government intervention.
There appears to be a very strong correlation between the quantity of a nation’s oil exports and its hostile impact on western capitalist nations. Protecting ourselves against these well funded (with our own money) enemies is a major cause of our ballooning defense expenditures. Even the Taliban in Afghanistan were (Saudi) oil financed.
What this means is we are subsidizing imported oil to a huge but invisible degree. We should look at trying to shift some of what this situation costs us, over onto the root cause. These greatly increased expenses need to be shifted from our income taxes to an imported fuel tax. Then, if some of us choose to use energy more efficiently, at least we don’t have to subsidize those of you claiming a god given right to waste as much as you (with my defense tax dollars subsidizing your purchase) can ‘afford’ to buy.
On the another side of the argument, I think our strategic petroleum reserve is a short term stop gap measure, at best. The reason I don’t get upset about the restrictions on domestic oil production is that these resources make, in effect, a much larger SPR. We should explore it, measure it, and maybe prepare to tap it, but not actually start to pump. I believe it would probably be a large enough reserve to allow is to change to alternative sources of energy in a deliberate and market driven manner.
The oil ‘weapon’ is much over hyped. The very use of it by the Saudi’s will destroy their economy. We do not need subsidies for the Canadian Alberta tar sands and the Australian oil shales to come to market. The leaseholder companies of those have been holding them for several decades now (I held stock in one from about 1981 to 1991) and are simply waiting for the global oil price to reach a level at which putting the fields in production will not depress the per barrel place below the economic production level. It is my understanding we are right on the edge of that price range already; if it were pushed up again by market forces, the sands and shales will come on line… and like all such things, after a period of time the learning curve will reduce costs and at that point the dictators are really effed.
There is another option near to my heart which will also only come about when energy prices reach a high enough level: Geosynchrnous solar power sats. They are conceptually simple although there are some rather interesting and yet to be experienced problems in dynamic orbiting megastructures which can only be discovered and understood by doing… not to mention that they are too costly at present launch costs That will change in a decade.
I also, like Perry, am somewhat disconcerted by the dog that didn’t bark in this article: the Iraqi’s themselves. That our battle plan did not survive contact with the enemy is not a surprising fact; that the article does not recognize Iraq is a far better and more hopeful place for its citizens today than several years ago is a bit sad.
I might also note that it does not work strategically. If we disengage from the enemy and leave them large swathes of the world in which to freely operate, how exactly are we going to win? Is the alternative to turn the ‘West’ into a 1984 style police state? We would not succeed even if we had Stalin running the country. Stalin’s threat was, after all, that he’d kill you. What worry is that to a self portable explosive device? It just wants to kill itself and as many ‘other’ as possible.
We have to go after them where they are. Dig them out of their caves, blow their brains out with sniper rifles in mountain passes, take out their leadership one by one by one. Forget the instant gratification society. We will have to lie in wait for them with the decades long patience of a Byzantine plotter.
From a military standpoint, I also highly recommand looking at the map of the region. We have split the enemy North to South. The Russians are covering the Northern flank; the US Navy has the Southern flank in the Gulf sorted.
All their bases are ours.
Dale,
“and like all such things, after a period of time the learning curve will reduce costs and at that point the dictators are really effed.”
Forget it.
A best scenario envisages a shale oil extraction price of $30/barrel (it is currently more in the vicinity of $100), while the extraction price for Saudi oil is just $3/barrel.
The Arabs and whoever has oil, will ALWAYS sell their oil at a huge profit, even if the price drops to $30 from the current $60.
As long as there is oil in the ground, oil will be extracted and sold at a good profit, and used.
No alternative energy source will EVER come close to being as cheap as oil (and gas).
It’s not really as simple as that.
Nuclear reactor fuel costs, in round numbers, about a million bucks a ton. However, you really don’t need much. If you consider ONLY the fuel costs (market prices, not extraction costs), nuclear is actually cheaper that oil or gas per kWh, not least because the energy density of the fuel is thousands of times greater.
Nuclear is expensive in practical terms because it has to account for the costs of waste treatment and disposal, not to mention the rather higher capital cost of plant construction. Oil and gas power plants don’t need to do this, since the waste is just dumped to atmosphere (disposal costs are externalities) and the plant is a lot cheaper. If you factor in these waste costs, but not the capital plant costs, to compare on an equal footing, nuclear is the cheapest method of power generation.
EG
Wrong.
Nuclear energy isn’t cheaper than oil. Nuclear fuel is cheap, but you need an enormous investment in the plant, due to security considerations, and also insurance, financing, etc. Nuclear energy might be in total, cheaper than oil if you take oil’s market price of say 30-40 $/b.
But if you consider oil’s extraction price of $3/b, nuclear energy isn’t anywhere near. Not to mention the fact that vehicles and planes need oil.
That’s why, as I said, oil will always be in demand, and will always fetch a fat profit to it’s owners. We will never be in a position to tell the Arabs: keep your oil and get lost.
Something for libertarians to ponder with respect to nuclear power: In the U.S. and Canada (and I suspect in many other countries), legislation limiting liability had to be passed to make civilian nuclear power economically feasible. That’s something that should concern libertarians. I see no reason why someone wanting to build a nuclear plant should be shieled from liability in any special way.
If you factor in the effective subsidy that this limitation of liability creates, the cost of nuclear power goes up considerably.
Note: I’m not anti-nuclear. I was a nuclear safety systems engineer for a major power utility for some years, and I think it’s an important energy technology. But, as someone concerned with liberty, I’m also uncomfortable with the legal framework we’ve constructed around it.
Jacob – I assume you aren’t in a position to tell the future and know about new technology that will be invented and existing technology that will be developed; not to mention the discovery of non-Arab oil reserves. So I hardly think you’re in any position to authoritatively say
It’s probable that for several decades there will be a market for Arabian oil. However, the level of demand for Arabian oil is the issue. I’d like to see it reduced dramatically.
Where to begin?
Nuclear fuel is extremely expensive, and has problems associated with it in the form of security and safety considerations in its refining and transport. On the other hand, you need very little of it, so little in fact that the fuel cost element of the ultimate electricity price is minimal.
The capital cost of a nuclear power plant is high. The reasons for this have less to do with security but more to do with public health and safety. Waste disposal and treatment facilities MUST be accounted for in a nuclear plant, but all an oil or gas plant needs is a chimney. I simplify, but that’s basically the situation. If you take account of the externalities of waste disposal and treatment, health effects, pollution, etc., from oil or gas plants, the true capital and maintenance cost of the fossil fuel power station rises enormously.
Then there is the insurance and liability question, which makes privately owned nuclear plants far less feasible & tends to put it into the hands of the state. This is not because nuclear plants are more dangerous than fossil plants – the safety record is quite the opposite – but because people have an irrational prejudice against nuclear power. There is also the question of long term waste safety, and the free market is really not good AT ALL at coming up with very long term solutions to anything, especially if expense is incurred throughout the long term.
Yes, but nobody buys oil for the extraction cost. This is like saying you want to buy food at cost price and profit is not considered. Or, more aptly, that nuclear fuel costs only the amount of money to extract the ore from the ground. You still need to do all the processing and refining.
Also, nuclear power suffers far less from price fluctuation. Doubling the price of oil, for example, has little effect on the price of nuclear generated electricity, but it has a huge effect on oil or gas generated power. The cost of electricity is a major factor in the economy, so a nuclear-fuelled economy would be a tad more stable than a fossil-dependent one. And indeed we see this is the case.
As for vehicles and planes, this is true. However, we can use cheap nuclear-generated electricity to run cars and trains directly, or can use it to generate hydrogen for fuel cells, or possibly to generate oil from coal if we really had to. Of course, there probably will be a demand for oil for decades to come, but it is unlikely that it will be THE dominant energy source all that much longer. There are better and cheaper alternatives now, and that really means nuclear.
EG
James,
I assume you aren’t in a position to tell the future and know about new technology that will be invented and existing technology that will be developed;
Correct.
And neither are you, nor is anyone else, in that position. That’s exactly my point.
We know what is now known. What is unknown should not be part of our argument. (See Rumsfeld).
Based on what we do know – oil is cheaper by far than any other energy source, and will be in demand, and used, as long as it is available, as long as there is oil in the wells. There will never (within the limits of our knowledge) be a time when we will say: no, thanks, we have cheaper energy, we don’t need oil.
EG,
I agree with all you say.
Still one point needs to be stressed: what counts about oil is it’s extraction costs not the current market price, which is accidental, driven by supply and demand. What counts about nuclear energy is also the production costs, not the market selling price.
(Production costs including all costs, safety, insurance, disposal, financial… etc.).
Those vile Saudi sheikhs who extract oil at $3/b and sell it at $70/b, will sell at $5/b if they have to, and still make a good profit. So, there… When they offer you oil at $5, you will never be in a position to refuse no matter how many nuclear plants you’ll have online 50 years from now.
Euan :
Nuclear waste disposal costs would decrease if there was a large waste dump for all nuclear waste generated across the world, as opposed to the current unsatisfactory scenario of having many small storage sites dotted all over the globe. This is a highly inefficient way of storing the stuff – not to mention the increased danger involved. I would personally like to see a large number of Australians have a serious think about their NIMBY-istic objections to the construction of a huge dump in central Australia. It’s the most geologically stable rock in the world and politically, Australia is equally stable. So it’s an ideal site, especially when considering that there are sites that are thousands of kilometres away from the nearest settlement.
One large international waste dump would reduce the cost of storage and disposal of nuclear waste considerably, and also be a good source of income for Australia. This would make large scale nuclear power generation even more cost effective.
Yes, but I’m not the one peering into the future and making absolute predictions. Look, we know that ME oil is currently one of the most inexpensive forms of energy, right? The point is, there are almost certainly other oil fields out there that have not been found yet. If these were exploited, Like I said earlier, it currently costs about $1/barrel to extract Saudi oil, and $2.50/barrel to extract Russian oil – which is considered expensive extraction. Despite this, if the extraction cost is take in the context of the current oil price, the difference is negligible. Thus increasing supply massively through the fruits of an exploration binge will still enormously lower oil prices. The extra supply – and as importantly, the new diversity in supply – will make the ME considerably less strategic. This scenario seems perfectly feasible. I simply cannot understand why you so categorically state that it will not happen.
Ditto tar sands harvesting and developing hydrogen as a fuel (or battery – thanks, Julian). Both processes are not fully developed – with further research into production, the processes involved in harnessing the above resources will become more cheaper and more efficient. This is the story of everything that humans have ever developed. I cannot understand why you think these absolute rules do not apply in this case.
James,
I’m all enthusiastically for much more intensive oil exploration, and I don’t doubt that new wells will be found and put on-line, therefore oil prices will probably go down. They will go down from $60 to maybe $30 or so. But Saudi oil is the cheapest of all to extract, and they will always be competitive. Whatever oil you get from other sources, the Saudis will always undersell you.
And oil is a scarce resource, there isn’t an infinite supply of it. Production in current fields is declining due to depletion, while demand is increasing. The Saudis have more than half of that scarce oil. There is no way to manage without the Saudi oil in the coming decades. Absolutely none. As much as I would like one to be.
As to other energy sources:
Ditto tar sands harvesting and developing hydrogen as a fuel (or battery – thanks, Julian). Both processes are not fully developed – with further research into production, the processes involved in harnessing the above resources will become more cheaper and more efficient.
The question is physical, and quantitative. No matter what sources will be developed, and no matter how efficient the processes will become – they will never be as cheap as Saudi oil. Never. Because they are complicated and difficult processes.
For example: enhanced efficiency might enable us to extract energy from tar sands at $30/barrel instead of the current $100, but never at $1 as the Saudi oil.
Saying that efficiency will drive prices down is a little bit nebulous. You need to be more exact. What is the price (or price estimate) now ? How many percantage points can efficiency cut from that price ? How intrinsically and physically elaborate and complicated is the production process ?
Not to mention the fact that these alternative resources aren’t yet available, and won’t be for dozens of years at least.
One can dream. One can imagine a wonderful future world where energy is extracted out of thin air (like in Atlas Shrugged). But this is the realm of fiction, of poetic imagination.
If you try to realistically asses the science and technology of energy production, based on current knowledge, concrete, scientific, technological, quantitative knowledge, you will see that no energy source can be as cheap as oil.
Maybe, in the future, an energy source, that we cannot even imagine now, will be discovered. Maybe John Galt’s motor will be built. Maybe. But we cannot base a discussion of energy prices based on such a sci-fi breaktrough.
So, I repeat: there will be no “energy independence” in the foreseable future. Of course, you could extract oil from tar sands at $100/b. But when the Saudis then come and offer you oil at $20/b will you say “no, thanks ” ?? Is that oil independence ?
As to your original question, voiced by many others: “would’nt it make more sense to invest $200b in energy developement that in a war in the ME ?”
the answer is that this is not an either/or situation, and the two issues are totally unrelated.
Jacob says wind turbines are government boodoggles.
In the USA wind costs per KWh are below natural gas electricity – which we have a lot of.
Texas is building lots of wind machines so it can get more profit from the gas it sells to the other 48. So currently wind makes economic sense in America.
As wind cost come down the learning curve its costs will be below coal or nukes. This is due to happen in the next 7 to 12 years. The learning curve.
Which I note you still have not addressed. Except to say that wind is a total government boondoggle (there is some of that I’ll grant). However, wind industries are already talking of getting off government subsidies. They say it distorts the market.
In this case I’m not against temporary subsidies because it gets us down the learning curve faster.
It would be helpful Jacob if your arguments hewed closer to the current facts. They have changed since you last updated your store.
And lest you think I’m anti-nuke – I was a Naval Nuke Reactor Operator. I am not unmidful of the attractions of that technology.
If you count the efficiencies of conversion wind electricity comes in cheaper than Saudi Oil in North America. The Saudi Arabia of wind.
The difficulty of course is transportation fuel.
Batteries are not very energy dense. Even with the IC engine delivering only 10% of the energy in the fuel to the wheels the energy density is still effectively 100X that of batteries.
Jacob,
The Canadians are getting the oil out of the tar sands for about $10 – $12 a bbl. Very profitable in today’s market.
Some of what the Canadians learn can be applied to oil shale.
Brendan,
Distributed wind is good for 20% of nameplate rating as base load.
Until wind gets to about 20% of grid capacity its variability is not a problem. By the time that happens in America we will have solved the storage problem.
In America we are about 20 years away from that level of wind.
BTW I am predicting the future based on one of the most reliable methods: the learning curve. The electric utilities have been using this method for over 100 years to determine the present value of a plant. The factors in the rise of wind (re: the learning curve) are the same as the factors governing the rise of coal electricity. Larger plants are cheaper to build and operate per KWh produced. For wind: doubling the size of the turbine in series production reduces electrical costs by 1/3.
In North America well sited wind runs $.08 to .12 per KWh. 2 1/2 doublings (from 2 MW- to 12 MW) reduces the cost of wind to $.03 to .045 per KWh – in the neighborhood of coal and nukes. At 25 MW (new materials will be required for blades) the cost becomes $.02 to $.03 per KWh. At 50 MW it gets to $.012 to $.02 per KWh.
The current rate of doubling of turbine size is about 4 to 5 years. So in 15 to 20 years (at most) wind will be on par with coal. After that price decline below coal.
It is a long term deal. However the future (out to 12 MW at least) is very predictable.
M. Simon
“The Canadians are getting the oil out of the tar sands for about $10 – $12 a bbl. Very profitable in today’s market.”
These aren’t the numbers I have been reading about.
Could you provide a link ?
If that’s the price of production it would have been profitable already a long time ago. What kept them from utilizing those tar sands until now ? How much tar sand oil do they produce now ?
Frankly, I doubt those numbers.
As to wind.
All wind farms developed until now were done due to tax credits. There is also the problem of the cost of land, the land on which the turbines stand, and the roads needed to access them and service them.
I’m not saying that wind turbines don’t make sense at all. I’m saying that their quantitative contribution to our total electricity production will never be more that a few percentage points, at best. And that, apart from transportation fuel.
I’m also not sure that when tax credits are stopped, wind turbines will be viable at all.
So, if one is looking for a solution to energy to replace oil – wind is not that solution.
Jacob : it costs nothing like $100/barrel to create synthetic crude from the tar sands. I think it’s somewhere in the vicinity of $40. And that figure has constantly fallen.
Also, whilst Saudi Arabia may be able to provide the cheapest oil because it’s the cheapest to extract, they cannot provide the cheapest oil in practice. Due to their undiversified economy, if the oil price dips too low they really start to sweat. Ditto Russia. This is precisely what happened in 1998 when Saudi Arabia teetered on the brink of bankruptcy and Russia defaulted on its sovereign debt.
So a private oil company extracting oil at $2.50/barrel (quite a high figure) will still happily sell it when the oil price is $10/barrel. Sure, the Saudis can theoretically undercut everyone due to their extraction costs of $1/barrel, but since it’s the state’s overwhelmingly dominant source of income – it can only fall so low before the Saudis start haemorrhaging in other ways. In such times, ExxonMobil and others will keep on pumping.
Yes, they are. The tar sands are currently being mined by three companies. I read an estimate that stated approximately 10% of North America’s crude oil will come from the tar sands within a decade. Also, I cannot see why further R&D into tar sands extraction won’t make it cheaper and cleaner. That’s what’s happened with every other kind of mining. Regarding the fuel cells – sure, they won’t be feasible (in regards to distribution infrastructure etc) for a couple of decades. However, that was a major plank in my article – incentivize the rollout of that infrastructure, as well as R&D.
It wouldn’t be anywhere near that much. Perhaps not even a 10th of that would be required in terms of public money in the form of forgone taxes.
I cannot understand how you can say that – the ME is only important due to its energy. Find or develop a lot of alternative sources, and the ME declines in importance. QED.
I cannot understand how you can say that – the ME is only important due to its energy. Find or develop a lot of alternative sources, and the ME declines in importance. QED
Well, we have gone over that ground already, so I will try just a short summary:
1. New sources of energy, even developed at a furious pace, won’t be available in enough quantity for several decades. Meanwhile you have to do what it takes to ensure the continuous flow of oil from the ME. So it’s not an either/or situation but a “both” situation.
2. ME oil is cheaper by several orders of magnitude than other energy, so other sources will never make ME oil obsolete. Your beleif that the cost of other sources will drop over time if just that – a blind belief. Examining the technoligies involved you will see that as much as the cost can go down it cannot go so low as the cost of ME oil. It is not enough just to have other sources – costs matter a lot.
3. I don’t believe in Government subsidies. New energy sources are being developed by scientists and enterpreneurs at the fastest pace that science and economy permit. More government involvement would be just a waste of money.
Jacob, I think you may have missed what I took to be one of James points.
The difference between the cost to pump the oil and the cost of pumping it. While the engineers can get it out of the ground for next to nothing, the privilege of doing that comes at very great cost. The remaining markup is all ‘spent money’. When the market price drops, the engineers can still get it out of the ground, but the government totters towards collapse. The network of pay-offs, social infrastructure, defense systems, and physical infrastructure in nations relying on oil ultimately fails. This has to be considered part of the cost of extraction.
So you want to say that if, say, the oil market price drops to $10/b it causes such turmoil and chaos that the Saudis stop pumping and exporting oil ?
I don’t think so. It will cause them a lot of hardship (which is fine with me), but they’ll survive.
But that is idle speculation. Oil will never drop again to such low levels. Oil reserves are falling and the demands is galloping ahead. Forget about $10 or lower oil.
And remember: no alternative energy that we know of can be produced at less than – say optimistically – $40/b. (For big volume production).
I read the article about the Tar sands in Alberta, Canada. The writer needs to spend more time researching the information. I work for one of the oil producers in Fort McMurray. The oil companies, 24 plus, make huge profits and recover as high as 92% of the oil from the tar sand. The average cost per ton, after ALL expenses, is around $12 Canadian the selling price today is around $70 per barrel. This oil is also cleaner, higher quality oil after being process than conventional crude oil. Companies Dutch Royal Shell are mayor players in these parts and are very clear of the profits they will realize. The oil companies are making “billions” every year with a technology that is CLEARLY proven.
I’m not suggesting I support the activities of any oil company I’m suggesting the writer do his or her home work before writing an article. This kind of commentary doesn’t support anyones purpose.
Jim