May 2009 Archives
05/29/09 10:44 AM
Oil Glut Watch 4: $67ish oil!
Oil is up nearly a dollar this morning, making May's $10 rise the biggest since 1999. This is an argument for OPEC's curious ineffectuality: This week they refused to reduce quotas, admitted that members are cheating, noted that inventories remain ridiculously high--and still the price rose! Here's OPEC Secretary-General El-Badri saying that the rise is based on "sentiment." (He also pulls a lovely Orwell when describing quota cheating as 79% compliance.)
So what are these sentiments? Possibly it's hedge funds entering the crude market in response to the fall of the dollar. Perhaps it's an excess of optimism about the economy, coupled with solid week of warnings from everyone about the likelihood that oil prices will rise when we come out of the recession that has created a little whirlwind of expectation that prices have to rise eventually.
But the scary thing is that if we are coming out of the recession, and oil prices are rising, it's likely we won't get out of the recession. Jim Hamilton of Econbrowser has written about how high gas prices delivered the "knock out punch" to the US economy last summer. Here he is blogging on the subject in the Washington Post last week.
Since, um, cellulosic biofuels aren't going to be arriving anytime soon, now would be the time to start planning scenarios to quickly reduce oil consumption in the event of a price spike. Hate to say it, but: 55 mph speed limit?
So what are these sentiments? Possibly it's hedge funds entering the crude market in response to the fall of the dollar. Perhaps it's an excess of optimism about the economy, coupled with solid week of warnings from everyone about the likelihood that oil prices will rise when we come out of the recession that has created a little whirlwind of expectation that prices have to rise eventually.
But the scary thing is that if we are coming out of the recession, and oil prices are rising, it's likely we won't get out of the recession. Jim Hamilton of Econbrowser has written about how high gas prices delivered the "knock out punch" to the US economy last summer. Here he is blogging on the subject in the Washington Post last week.
Since, um, cellulosic biofuels aren't going to be arriving anytime soon, now would be the time to start planning scenarios to quickly reduce oil consumption in the event of a price spike. Hate to say it, but: 55 mph speed limit?
05/27/09 9:23 AM
Really? The White Roof Solution.
We've come to expect that the "solutions" to Climate Change will be high tech--floating windmills, underwater generators, and nano solar in the Jules Verne/James Bond tradition--or at least high concept (carbon credit trading). But this week Energy Secretary and Nobel Prize winner Steve Chu is in Europe extolling the benefits of ... white roofs. The concept is simple but the numbers he cites are massive: Making roofs and pavement more reflective could offset 44 billion tons of CO2, or the equivalent of taking all of the world's cars off the road for 11 years. (While these numbers appear huge, there's no mention of the time frame, so they're not comparable to other numbers.)
Even so, these numbers are an interesting reflection of how much we've re-engineered the planet and climate already, and how we might start to mitigate that. Chu seems to want us to understand this as a category-jumper, working on climate in a different way than changing energy sources or sequestering carbon, and so he describes increasing the albedo (reflectivity) of buildings and pavements as "geo-engineering."
I guess it's predictable that some media are already making fun of Chu. Perhaps the idea is too simple and sensible, or just too eggheaded. (In California a related proposal to require that car roofs be more reflective as part of the state's climate policy became controversial. There's something about the brainy dumbness of the idea that doesn't float politically.) Over at google's geo-engineering forum, though, they're worried that the reception for Chu's idea is an indication of the ridicule the public may heap upon heavier geo-engineering against climate change--things like stratospheric aerosols and cloud whitening. A few years ago, discussing geo-engineering in polite company was pretty much off limits because it muddied up the discussion about when to take action on climate change. But as action has been delayed, and fear has grown, the concept has moved steadily towards the far outskirts of the center. Chu's use of the term geo-engineering in this relatively benign context is an indication of where the discussion is headed.
Even so, these numbers are an interesting reflection of how much we've re-engineered the planet and climate already, and how we might start to mitigate that. Chu seems to want us to understand this as a category-jumper, working on climate in a different way than changing energy sources or sequestering carbon, and so he describes increasing the albedo (reflectivity) of buildings and pavements as "geo-engineering."
I guess it's predictable that some media are already making fun of Chu. Perhaps the idea is too simple and sensible, or just too eggheaded. (In California a related proposal to require that car roofs be more reflective as part of the state's climate policy became controversial. There's something about the brainy dumbness of the idea that doesn't float politically.) Over at google's geo-engineering forum, though, they're worried that the reception for Chu's idea is an indication of the ridicule the public may heap upon heavier geo-engineering against climate change--things like stratospheric aerosols and cloud whitening. A few years ago, discussing geo-engineering in polite company was pretty much off limits because it muddied up the discussion about when to take action on climate change. But as action has been delayed, and fear has grown, the concept has moved steadily towards the far outskirts of the center. Chu's use of the term geo-engineering in this relatively benign context is an indication of where the discussion is headed.
05/22/09 4:27 PM
Oil Glut Watch #3--What Google Knows....
Here we are again, crude still bopping around under $60 and the market still glutty. Where is it coming from? A clue: The Middle Eastern Economic Review reports that OPEC is admitting that its members are cheating on their quotas, releasing probably an extra million barrels of oil a day into the market than the 24.8, they've agreed to.
Meanwhile, the analysts over at Sanford Bernstein have apparently been poking around on Google Earth and have determined that China has been importing an extra 400,000 barrels of oil a day since November and sticking some of that in above ground tanks as their version of our Strategic Petroleum Reserve. This is certainly a better time to buy oil and put it in a reserve than 2003 and 2004, when prices were rising and the US was filling our reserve.
However, above ground reserves don't come cheap. The US spends about 20 cents a barrel keeping our 700 million plus barrels in salt caverns near the Gulf Coast. Japan reportedly spends $10 a barrel keeping theirs above ground.
And when will the glut end? The International Energy Agency says not soon, but when it does, prices will rise fast, simply because no one's investing in expanding production.
So this is what worries me: The moment we start to slither out of this recession, we'll be hit by higher gas prices, throwing moderate income households for yet another loop. As I wrote in the NYT last weekend, this is a memo that policy makers seem not to have received, and so they've come up with a cash-for-clunkers bill that points consumers in the wrong direction.
Meanwhile, the analysts over at Sanford Bernstein have apparently been poking around on Google Earth and have determined that China has been importing an extra 400,000 barrels of oil a day since November and sticking some of that in above ground tanks as their version of our Strategic Petroleum Reserve. This is certainly a better time to buy oil and put it in a reserve than 2003 and 2004, when prices were rising and the US was filling our reserve.
However, above ground reserves don't come cheap. The US spends about 20 cents a barrel keeping our 700 million plus barrels in salt caverns near the Gulf Coast. Japan reportedly spends $10 a barrel keeping theirs above ground.
And when will the glut end? The International Energy Agency says not soon, but when it does, prices will rise fast, simply because no one's investing in expanding production.
So this is what worries me: The moment we start to slither out of this recession, we'll be hit by higher gas prices, throwing moderate income households for yet another loop. As I wrote in the NYT last weekend, this is a memo that policy makers seem not to have received, and so they've come up with a cash-for-clunkers bill that points consumers in the wrong direction.
05/15/09 10:56 AM
About that "Energy Independence" President Carter...
Oh how I love the daffy honesty of Jimmy Carter. I was in fifth or
sixth grade when he introduced me to the highly advanced concept of
"lust in the heart," later followed by understanding the macroeconomic
impact of "wearing a sweater." (I'm not belittling those concepts--in
the long run neither can be ignored.) And it was he who followed
Nixon's lead and told the US that we needed to change the way we used
energy.
Carter's presidency is often described as either profoundly unlucky or failed, but on the subject of energy his impact had the stuff of greatness, which unfortunately arrived long after he left office. Since 1973 the US has met 75 % of our new energy needs through energy efficiency, a profound change in economic productivity that has saved us money, pollution, and avoided environmental and political risk. He also ushered in a period of oil conservation that basically knocked the knees out of OPEC's oil prices from the early 80's to the late 90's, though another force keeping the oil prices low was the evolution of the international oil market. If we put presidential faces on household objects the way we put them on coins, we'd have Jimmy on our gas caps. Still, every president avoids doing what he did because they don't want "to end up like Jimmy Carter."
So I read with dismay about Carter's appearance in front of John Kerry's Armed Services Committee, where he talked about the need for "energy independence."
Energy Independence is a political term, but not a reality. The US has 3 percent of the worlds' oil reserves, and we use 24 percent of world's production with just 4-5 percent of the population. We've been committed to an industrial policy and a foreign policy built around oil imports since the 1930's, though we didn't really get into the soup until Roosevelt struck the Big Deal with Saudi Arabia in the early 1940's. Alternative sources of energy currently make up a pitifully small part of our energy mix.
There is no strategy I can imagine where we become "energy independent" (and hey, it's not like we're "deck chair independent," or "silicon chip independent.") What I can imagine, and fervently hope for is that we become more competitive, lower carbon, and more strategic--in that we use alternative fuels and our own resources to build leverage in energy markets while investing in research, technology and behavior changes to give us more breathing room. But to get there we'll need a more productive goal than energy independence.
And while we're at it, we need to look carefully at the international clout we've gained --and the economic and environmental hassles and costs we may have avoided--by being energy dependent.
Nattering on about the glamorous goal of energy independence is a political way for Jimmy Carter to avoid being Jimmy Carter and telling the bad news.
Carter's presidency is often described as either profoundly unlucky or failed, but on the subject of energy his impact had the stuff of greatness, which unfortunately arrived long after he left office. Since 1973 the US has met 75 % of our new energy needs through energy efficiency, a profound change in economic productivity that has saved us money, pollution, and avoided environmental and political risk. He also ushered in a period of oil conservation that basically knocked the knees out of OPEC's oil prices from the early 80's to the late 90's, though another force keeping the oil prices low was the evolution of the international oil market. If we put presidential faces on household objects the way we put them on coins, we'd have Jimmy on our gas caps. Still, every president avoids doing what he did because they don't want "to end up like Jimmy Carter."
So I read with dismay about Carter's appearance in front of John Kerry's Armed Services Committee, where he talked about the need for "energy independence."
Energy Independence is a political term, but not a reality. The US has 3 percent of the worlds' oil reserves, and we use 24 percent of world's production with just 4-5 percent of the population. We've been committed to an industrial policy and a foreign policy built around oil imports since the 1930's, though we didn't really get into the soup until Roosevelt struck the Big Deal with Saudi Arabia in the early 1940's. Alternative sources of energy currently make up a pitifully small part of our energy mix.
There is no strategy I can imagine where we become "energy independent" (and hey, it's not like we're "deck chair independent," or "silicon chip independent.") What I can imagine, and fervently hope for is that we become more competitive, lower carbon, and more strategic--in that we use alternative fuels and our own resources to build leverage in energy markets while investing in research, technology and behavior changes to give us more breathing room. But to get there we'll need a more productive goal than energy independence.
And while we're at it, we need to look carefully at the international clout we've gained --and the economic and environmental hassles and costs we may have avoided--by being energy dependent.
Nattering on about the glamorous goal of energy independence is a political way for Jimmy Carter to avoid being Jimmy Carter and telling the bad news.
05/12/09 8:25 PM
Just how close are we to energy and climate disaster?
(Please ignore the giddy grin on my picture for this post...)
Over the last month or so I've been to several events that suggest that US scientists and government types are starting to seriously game out how disasters in energy security and climate change may unfold, interact, and multiply. At one event, people from various government departments, national labs, and, um, information gathering agencies sat around tables and tried to play out how, say, black carbon causing ice melt in the Tibetan plateau would interact with the struggle for scarce oil resources, the spread of disease, and the potential for developing countries to leapfrog to new energy technologies. What would be the first warnings of disaster? How could it be avoided or mitigated if it was too late?
A few of my totally unauthorized takeaways:
1. The political and scientific establishment is pretty comfortable responding to impending disaster with avoidance/mitigation while they're uncomfortable demanding the deep (and still unknown) changes that may be necessary to address all of the interlocking issues. On the surface, their confidence in successful response is reassuring; in the long run it is profoundly dismal because it means we will lurch from one crisis to the next, devoted to a lifestyle of constant emergency.
2. Smart people are already planning for all sorts of worst case scenarios, ranging from massive death (which some believe could take the pressure off the ecosystem) to making the best of species die off. (The weirdest notion: Since the oceans are likely to be filled with jellyfish, perhaps we should genetically modify the jellyfish to make a better food source. "Have a PB and Jellyfish," said the speaker, giggling appropriately.)
3. There is raging discussion about how to communicate the need for costly, possibly unpleasant action to the public. Among the scientific community this translates into trying to get together "blue ribbon panels" to communicate the need to address climate change and energy security and economic competitiveness issues together. (To which I say: blue ribbon panels are great, just be sure you've got a Pabst Blue Ribbon panel to communicate outside the policy community. More on that in a second.) But this sense of being unable to get across the danger we're in has even lead reasonable types to publicly make distressing suggestions, along the lines of "should we exaggerate danger to spur the public to action?" To me, that sentiment among reasonable people is a disaster in public trust, and cannot lead to any positive outcome.
4. If you're a total cynic invest in 3M immediately. Damn! These people love Post-Its. And if they're even half right about the future, they're going to need a lot of them.
On to my personal PBR panel moment. Last week I was at a seminar where 2000 logistics specialists for the National Guard were hobnobbing and thinking about their evolving role. (They were also shopping for Butyl Hoods "For Mass Casualty and Mass DeCon Events," insoles for their combat boots, Force Escalation Kits, and "Mobile Integrated Remains Collection Systems.") It quickly became clear that the National Guard is now on the front lines of cleaning up evolving climate disasters, ie freak storms; as well as being involved in the ongoing energy security issues in Iraq. I had a lot of interesting conversations over the two days I was there, but one of them showed me how different the Guard's experience is from that of the rest of us. I asked a captain about all of the talk of climate and energy disasters and he answered, flatly and without hesitation, that the average American does not take responsibility for our lifestyle's impact on ourselves or overseas, that we do not want to think about the risks we're taking, and that we don't prepare ourselves to protect our communities.
I found his answer more bleak and more motivating than all the theoretical talk of Black Carbon and PB and Jellyfish. I think the National Guard needs its own TV show.
But I also wonder if this planning for disaster is new? Does it mean anything? Or is it part of the avoidance process? Have we been here before, say during the Cold War or when smog was smothering us and Love Canal was leaking? What do you think?
Over the last month or so I've been to several events that suggest that US scientists and government types are starting to seriously game out how disasters in energy security and climate change may unfold, interact, and multiply. At one event, people from various government departments, national labs, and, um, information gathering agencies sat around tables and tried to play out how, say, black carbon causing ice melt in the Tibetan plateau would interact with the struggle for scarce oil resources, the spread of disease, and the potential for developing countries to leapfrog to new energy technologies. What would be the first warnings of disaster? How could it be avoided or mitigated if it was too late?
A few of my totally unauthorized takeaways:
1. The political and scientific establishment is pretty comfortable responding to impending disaster with avoidance/mitigation while they're uncomfortable demanding the deep (and still unknown) changes that may be necessary to address all of the interlocking issues. On the surface, their confidence in successful response is reassuring; in the long run it is profoundly dismal because it means we will lurch from one crisis to the next, devoted to a lifestyle of constant emergency.
2. Smart people are already planning for all sorts of worst case scenarios, ranging from massive death (which some believe could take the pressure off the ecosystem) to making the best of species die off. (The weirdest notion: Since the oceans are likely to be filled with jellyfish, perhaps we should genetically modify the jellyfish to make a better food source. "Have a PB and Jellyfish," said the speaker, giggling appropriately.)
3. There is raging discussion about how to communicate the need for costly, possibly unpleasant action to the public. Among the scientific community this translates into trying to get together "blue ribbon panels" to communicate the need to address climate change and energy security and economic competitiveness issues together. (To which I say: blue ribbon panels are great, just be sure you've got a Pabst Blue Ribbon panel to communicate outside the policy community. More on that in a second.) But this sense of being unable to get across the danger we're in has even lead reasonable types to publicly make distressing suggestions, along the lines of "should we exaggerate danger to spur the public to action?" To me, that sentiment among reasonable people is a disaster in public trust, and cannot lead to any positive outcome.
4. If you're a total cynic invest in 3M immediately. Damn! These people love Post-Its. And if they're even half right about the future, they're going to need a lot of them.
On to my personal PBR panel moment. Last week I was at a seminar where 2000 logistics specialists for the National Guard were hobnobbing and thinking about their evolving role. (They were also shopping for Butyl Hoods "For Mass Casualty and Mass DeCon Events," insoles for their combat boots, Force Escalation Kits, and "Mobile Integrated Remains Collection Systems.") It quickly became clear that the National Guard is now on the front lines of cleaning up evolving climate disasters, ie freak storms; as well as being involved in the ongoing energy security issues in Iraq. I had a lot of interesting conversations over the two days I was there, but one of them showed me how different the Guard's experience is from that of the rest of us. I asked a captain about all of the talk of climate and energy disasters and he answered, flatly and without hesitation, that the average American does not take responsibility for our lifestyle's impact on ourselves or overseas, that we do not want to think about the risks we're taking, and that we don't prepare ourselves to protect our communities.
I found his answer more bleak and more motivating than all the theoretical talk of Black Carbon and PB and Jellyfish. I think the National Guard needs its own TV show.
But I also wonder if this planning for disaster is new? Does it mean anything? Or is it part of the avoidance process? Have we been here before, say during the Cold War or when smog was smothering us and Love Canal was leaking? What do you think?
05/08/09 12:54 PM
Oil Glut Watch #2--the curious case of rising prices
I happen to think oil markets are more exciting than opera, soap operas, Iron Chef, and high speed car chases combined. But even if I didn't, I'd probably still love reading Tom Kloza of the Oil Price Information Service for his hilarious analysis of myth and market in domestic gasoline prices.
This week Tom talks about the cognitive disconnect of the Glut. The US now has more than a billion barrels of oil in storage, gasoline demand is flat, and diesel demand (the real economic indicator) is off by twenty percent. Meanwhile, oil prices have risen by $8.33 a barrel in the last week. "A stew of investment, speculation, and actual commerce," is the way he describes today's oil market, (after he gets in some digs at Star Wars fans and oven mitts.) He's getting at something bigger, though: We really don't understand how the oil market works now.
Perhaps at one time the market was about trading the commodity, but it has now become something more meta: a currency hedge, a place to put money while waiting for other opportunities, a place for speculation (of course. But that's not necessarily a bad thing though it would help if the trades were more transparent) and an hugely influential global index based upon an increasingly anachronistic flavor of oil called West Texas Intermediate. After crude prices went up last year there were many calls for better regulation of the futures market, but in the meantime the market has continued morphing day by day into a new creature.
Much much better than opera.
This week Tom talks about the cognitive disconnect of the Glut. The US now has more than a billion barrels of oil in storage, gasoline demand is flat, and diesel demand (the real economic indicator) is off by twenty percent. Meanwhile, oil prices have risen by $8.33 a barrel in the last week. "A stew of investment, speculation, and actual commerce," is the way he describes today's oil market, (after he gets in some digs at Star Wars fans and oven mitts.) He's getting at something bigger, though: We really don't understand how the oil market works now.
Perhaps at one time the market was about trading the commodity, but it has now become something more meta: a currency hedge, a place to put money while waiting for other opportunities, a place for speculation (of course. But that's not necessarily a bad thing though it would help if the trades were more transparent) and an hugely influential global index based upon an increasingly anachronistic flavor of oil called West Texas Intermediate. After crude prices went up last year there were many calls for better regulation of the futures market, but in the meantime the market has continued morphing day by day into a new creature.
Much much better than opera.
05/02/09 8:04 PM
Oil Glut Watch #1
Welcome to strange scenes from the oil glut. A side show in the global recession is this surreal result of low oil demand: A floating pool of at least a hundred oil tankers wandering the seas, according to this Reuters story.
The vision of 125 million barrels of homeless oil is amazing enough. One analyst even calls it "ethereal." But consider how different this is from a year ago, when the Nigerian militia named MEND attacked Shell pipelines that shut in just 170,000 barrels a day on May 3, and the price of oil went over $120 a barrel soon after. Then, the fear was that the market wouldn't be able to find an extra 170,000 to make up the difference, what with the Chinese Olympics and the US summer "driving season" about to hit. Even then, 170K barrels wasn't really all that much--the world was trading nearly 85 million a day, but oil prices were being determined by fears about the oil on the margins.
Now we have the exact reverse: a giant slosh of oil that appears to be supporting prices around $50, but is also keeping them from budging too far upward. It's a sort of ad hoc anti-OPEC too--hampering the cartel's ability to raise prices by cutting production.
Given that oil prices are likely to rise as the economy recovers, we might spend this time thinking about how to mitigate their impact or at least hold them from rising too fast. We could be proactive about reducing US oil demand by getting people into more efficient transportation, but fast. We could use the downturn to add storage tanks to our refineries, since inventory levels are in a feedback loop with prices. And maybe there's something to be done with a floatilla of oil tankers, like a more mobile, global, SPR, but aimed at dampening price rises.
The vision of 125 million barrels of homeless oil is amazing enough. One analyst even calls it "ethereal." But consider how different this is from a year ago, when the Nigerian militia named MEND attacked Shell pipelines that shut in just 170,000 barrels a day on May 3, and the price of oil went over $120 a barrel soon after. Then, the fear was that the market wouldn't be able to find an extra 170,000 to make up the difference, what with the Chinese Olympics and the US summer "driving season" about to hit. Even then, 170K barrels wasn't really all that much--the world was trading nearly 85 million a day, but oil prices were being determined by fears about the oil on the margins.
Now we have the exact reverse: a giant slosh of oil that appears to be supporting prices around $50, but is also keeping them from budging too far upward. It's a sort of ad hoc anti-OPEC too--hampering the cartel's ability to raise prices by cutting production.
Given that oil prices are likely to rise as the economy recovers, we might spend this time thinking about how to mitigate their impact or at least hold them from rising too fast. We could be proactive about reducing US oil demand by getting people into more efficient transportation, but fast. We could use the downturn to add storage tanks to our refineries, since inventory levels are in a feedback loop with prices. And maybe there's something to be done with a floatilla of oil tankers, like a more mobile, global, SPR, but aimed at dampening price rises.
