Reading the Gas Pump Numbers
Reading the Gas Pump Numbers
What the hell is going on here? Just six weeks ago, gasoline prices at the pump were hovering at the $3 per gallon mark; today, they're inching down toward $2 -- and some analysts predict even lower numbers before the November elections. The sharp drop in gas prices has been good news for consumers, who now have more money in their pockets to spend on food and other necessities -- and for President Bush, who has witnessed a sudden lift in his approval ratings.
Is this the result of some hidden conspiracy between the White House and Big Oil to help the Republican cause in the elections, as some are already suggesting? How does a possible war with
Since gasoline prices began their sharp decline in mid-August, many pundits have attempted to account for the drop, but none have offered a completely convincing explanation, lending some plausibility to claims that the Bush administration and its long-term allies in the oil industry are manipulating prices behind the scenes. In my view, however, the most significant factor in the downturn in prices has simply been a sharp easing of the "fear factor" -- the worry that crude oil prices would rise to $100 or more a barrel due to spreading war in the Middle East, a Bush administration strike at Iranian nuclear facilities, and possible Katrina-scale hurricanes blowing through the Gulf of Mexico, severely damaging offshore oil rigs.
As the summer commenced and oil prices began a steep upward climb, many industry analysts were predicting a late summer or early fall clash between the
Then came the war in
We may never know exactly what led the White House to shift course on
In any case, President Bush did allow Secretary of State Condoleezza Rice to work with the Europeans to stop the
For all these reasons, immediate fears about a clash with
Finding Energy in Difficult Places
How long will this combination of factors prevail?
Best guess: The slowdown in global economic growth will continue for a time, further lowering prices at the pump. This is likely to help retailers in time for the Christmas shopping season, projected to be marginally better this year than last precisely because of those lower gas prices.
Once the election season is past, however, President Bush will have less incentive to muzzle his rhetoric on
Now that we've come this far, does the recent drop in gasoline prices and the seemingly sudden abundance of petroleum reveal a flaw in the argument for this as a peak-oil moment? Peak-oil theory, which had been getting ever more attention until the price at the pump began to fall, contends that the amount of oil in the world is finite; that once we've used up about half of the original global supply, production will attain a maximum or "peak" level, after which daily output will fall, no matter how much more is spent on exploration and enhanced extraction technology.
Most industry analysts now agree that global oil output will eventually reach a peak level, but there is considerable debate as to exactly when that moment will arise. Recently, a growing number of specialists -- many joined under the banner of the Association for the Study of Peak Oil -- are claiming that we have already consumed approximately half the world's original inheritance of 2 trillion barrels of conventional (i.e., liquid) petroleum, and so are at, or very near, the peak-oil moment and can expect an imminent contraction in supplies.
In the fall of 2005, as if in confirmation of this assessment, the CEO of Chevron, David O'Reilly, blanketed U.S. newspapers and magazines with an advertisement stating, "One thing is clear: the era of easy oil is over... Demand is soaring like never before... At the same time, many of the world's oil and gas fields are maturing. And new energy discoveries are mainly occurring in places where resources are difficult to extract, physically, economically, and even politically. When growing demand meets tighter supplies, the result is more competition for the same resources."
But this is not, of course, what we are now seeing. Petroleum supplies are more abundant than they were six months ago. There have even been some promising discoveries of new oil and gas fields in the Gulf of Mexico, while -- modestly adding to global stockpiles -- several foreign fields and pipelines have come on line in the last few months, including the $4 billion Baku-Tbilisi-Ceyhan (BTC) pipeline from the Caspian Sea to Turkey's Mediterranean coast, which will bring new supplies to world markets. Does this indicate that peak-oil theory is headed for the dustbin of history or, at least, that the peak moment is still safely in our future?
As it happens, nothing in the current situation should lead us to conclude that peak-oil theory is wrong. Far from it. As suggested by Chevron's O'Reilly, remaining energy supplies on the planet are mainly to be found "in places where resources are difficult to extract, physically, economically, and even politically." This is exactly what we are seeing today.
For example, the much-heralded new discovery in the Gulf of Mexico, Chevron's Jack No. 2 Well, lies beneath five miles of water and rock some 175 miles south of
Or take the equally ballyhooed BTC pipeline, which shipped its first oil in July, with top
In fact, virtually all of the other new fields being developed or considered by U.S. and foreign energy firms -- ANWR in Alaska, the jungles of Colombia, northern Siberia, Uganda, Chad, Sakhalin Island in Russia's Far East -- are located in areas that are hard to reach, environmentally sensitive, or just plain dangerous. Most of these fields will be developed, and they will yield additional supplies of oil, but the fact that we are being forced to rely on them suggests that the peak-oil moment has indeed arrived and that the general direction of the price of oil, despite period drops, will tend to be upwards as the cost of production in these out-of-the-way and dangerous places continues to climb.
Living on the Peak-Oil Plateau
Some peak-oil theorists have, however, done us all a disservice by suggesting, for rhetorical purposes, that the peak-oil moment is... well, a sharp peak. They paint a picture of a simple, steep, upward production slope leading to a pinnacle, followed by a similarly neat and steep decline. Perhaps looking back from 500 years hence, this moment will have that appearance on global oil production charts. But for those of us living now, the "peak" is more likely to feel like a plateau -- lasting for perhaps a decade or more -- in which global oil production will experience occasional ups and downs without rising substantially (as predicted by those who dismiss peak-oil theory), nor falling precipitously (as predicted by its most ardent proponents).
During this interim period, particular events -- a hurricane, an outbreak of conflict in an oil region -- will temporarily tighten supplies, raising gasoline prices, while the opening of a new field or pipeline, or simply (as now) the alleviation of immediate fears and a temporary boost in supplies will lower prices. Eventually, of course, we will reach the plateau's end and the decline predicted by the theory will commence in earnest.
In the meantime, for better or worse, we live on that plateau today. If this year's hurricane season ends with no major storms, and we get through the next few months without a major blowup in the
Michael T. Klare is a professor of peace and world security studies at Hampshire College in Amherst, Massachusetts and the author of Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum.
[This article first appeared on Tomdispatch.com, a weblog of the Nation Institute, which offers a steady flow of alternate sources, news, and opinion from Tom Engelhardt, long time editor in publishing and author of The End of Victory Culture and The Last Days of Publishing.]