On a temporary basis, the government agreed to lower the maximum speed limit on Spanish highways to 110 kilometers per hour from 120 kilometer per hour to reduce gasoline consumption. It will also lower ticket prices on the state-owned railway system to encourage the use of public transportation. In coming days, Industry Minister Miguel Sebastian will meet with regional authorities to study additional energy-savings measures.
Michael Lynch, on the other hand, is quite happy telling folk that there isn’t a problem, and that the Kingdom of Saudi Arabia (KSA) has lots of additional oil fields that it can tap, whenever they are needed.
There are several other reasons to remain calm about Saudi reserves. Officials there have discovered approximately 70 major oil fields that they have left untapped over concerns that increased Saudi production would cause global oil prices to collapse.
And while Aramco is hardly likely to find anything on the scale of the Ghawar oil field, the world’s largest, they haven’t been looking very hard. The Saudis drilled about 500 wells last year; some 11,000 are drilled every year in the United States alone.
The situation is, of course, that any analysis of any worth about the rising demand for liquid fuels comes to the conclusion, relatively quickly, that we are going to need several multiples of the production of the KSA it the world is going to continue to be supplied with an adequate resource to meet the demands of the almost immediate future. But that is not the real point.
What the current situation is likely about to teach us, however, is a somewhat different lesson, though one that some of us have been preaching for the last half-decade. It is that, regardless of resource, it is the rate at which you can bring this to market, to meet immediate demand, which is the critical value. It matters not if there are a billion barrels in the ground, if the wells taping into that deposit are few, and their individual productivity small. There are, for example billions of barrels of oil in the oil sands of Athabasca, as there are in Venezuela. Do we see that pouring into the market to meet the challenge that we face as the countries of the MENA falter in the face of political challenges more important to them than maintaining their fossil fuel production rates? No we do not, because there are a whole lot of steps between having the oil in the ground and being able to put the produced and refined gasoline into your car, and these all have to be in place before a resource can be brought into production at sufficient volume to be significant.
There is also the non-trivial point that the world is not discovering the multiples of the oil in Saudi Arabia each year that would stabilize supply, and in fact we are far beyond that point. Yes discoveries continue to be made, and likely will for decades, but they will no longer be enough in terms of volume of availability to meet the burgeoning needs of society, at the cost it is willing to pay.
Now having said that I don’t necessarily disagree with Mr Lynch’s point about the investment priorities of the current Administration. They (and also the previous Administration) were beguiled into spending more on trying to get cellulosic ethanol into significant production before fundamental commercialism of the technology was established. Robert Rapier has explained in detail what the problems have been, so there is no point in renewing that discussion here, and so I would agree that this was overdone. But to suggest that there should be no investment in future technologies is folly.
To suggest, almost in the same sentence that we should aim to stop importing Saudi oil, and at the same time not invest in “technologies of the future,” leads me to wondering as to whether Michael Lynch has been watching too many Harry Potter movies. You cannot, short of waving a magic wand in a fictitious universe, replace something with nothing. If the nation is to stop importing Saudi oil it has to replace it with something else.
Reducing demand by improving energy efficiency is a method that has been demonstrated to work in California. I get 50% better mileage with my Camry hybrid than I got with the Buick that preceded it. So technology has already a track record of providing a way of reducing energy demand. In the right places wind has been able to generate significant amounts of power – I don’t think that it is going to be enough, or grow fast enough to play a significant part in the coming energy shortage, and since it largely is aimed at replacing coal rather than oil it is a bit of a red herring to the problems of the coming oil shortage.
In the immediate short term KSA has said that they can produce enough crude to meet any potential shortages. Whether they can match the quality of the crudes that are needed is yet to be determined, as will be the time that such an increase in production must extend. The IEA has also mentioned drawing down the reserve stocks held by member nations.
IEA also said it can make up for any lost shipments from Libya by tapping into large surpluses held by member countries, which include the U.S., the United Kingdom, France and Germany. Altogether, member nations hold 1.6 billion barrels of emergency oil supplies, or enough crude to supply the group for 145 days.Unfortunately the political crises may play out over a longer time frame than will allow this to be a viable solution. Short term fluctuations in the price of oil, as the reality of the situation starts to play out over the next few months are similarly no useful guide to the ultimate development of this situation. It is too early to know whether, for example, changes in government will change the supply of fuel to Israel, which is already looking for alternate sources of supply. (Their indigenous new gas will likely not show up in a pipeline for a couple of years yet). And that is but one precursor of other changes that might come about.
Being more cautious than Mr Lynch I do not plan on predicting how this might play out, but that does not stop me suspecting that, as he has been frequently in the past, he will be proven wrong this time also.