Whew! It's been a very exciting decade in petroleum. We started in the spring of 2000 with an infamous Foreign Affairs article fretting about the "shocks to the world of cheap oil," a cataclysm they expected to set in at around $7/barrel. By summer of 2008 we'd hit $145/barrel, and now, despite falling demand and a surplus of supply, prices are about $80. We've had many exhausting years of real war in Iraq that some argue is "over" oil, and a long-running domestic political war over climate change. Yet, at the 11th hour (December 2009), no U.S. oil companies bid to drill in Iraq's oil fields and no less a climate denier than Exxon came out in favor of limiting carbon emissions with a tax shortly before buying a big natural gas company. This is not the oil world as we knew it.
So what is it?
1. Maybe U.S. gasoline consumption has peaked
For many decades increasing oil use has lubricated our far flung suburbs, our commutes, our love of farm fresh baby lettuce and products from China. But in 2009, the recession pushed U.S. gasoline demand down by 3.5 percent and diesel by 6.5 percent. New fuel economy standards for cars and trucks are likely to push that down further, and greenhouse gas emissions regulations will do more still. (The EPA will release its mobile source aka vehicles finding in March.) High oil prices will do even more. The first casualty of this trend is the U.S. refining industry, which has closed 4 refineries in the last few months and will probably close more. This is somewhat ironic. It was only two years ago that some people were demanding that the US build more refineries and supposedly box the ears of the environmentalists who were supposedly the main barrier to their growth.
The Good: Everybody from environmentalists to survivalists to Peak Oilers to tea partiers wants the US to "get off foreign oil." Here we go!
The Bad: Unpredictability. Repercussions range from the closing of the refineries (which could lead to higher prices during peak months) to declining US influence in the world oil market.
2. Oil is no longer the only energy game
Exxon's purchase of gas exploration company XTO shows how the major US oil companies may deal with the decline in gasoline use and profits--by diversifying into lower carbon fuels. That's a win for everyone, particularly people who breathe. A more interesting, and possibly more telling, example is giant domestic refiner Valero, which is closing a big sour heavy crude refinery in Delaware City while purchasing ethanol producer Verasun and buying a stake in Australian bio diesel producer Mission NewEnergy. But, as analysis by ClearView Energy Partners LLC points out, this is really greening their spreadsheets because Valero could be avoiding as much as $250 million/year in carbon costs while gaining as much as $500 million a year in biofuel tax credits and other subsidies.
The Good: The system might be working! When the carrots and sticks are in place to push fossil fuel companies in a low carbon direction, the great engines of capitalism will go to work.
The Bad: Fossil fuels are the devil that we know, environmentally and politically. The environmental costs of bio-fuels and unconventional natural gas could be very high. We'll need new bureaucracies to regulate, and new interest groups to figure out how much trading oil's environmental risks for new ones is worth to us. Also, we'll need to keep an eye on those subsidies as Doug Koplow does at Earth Track Inc.
We just don't know what will happen when, but we know things will happen. No need to believe me, though. Read Tom Kloza of OPIS.
4. The curious substitution of "energy" for "power" at the gas station
For years gas stations have supplemented their declining income from gasoline by selling us soft drinks, chips and all sorts of fantastic stuff designed to fit in our cupholders. As tobacco sales slumped during the past decade, shelves became stocked with power bars and power drinks, among other things. Over the past year "power" has given way to "energy" in the form of the expected energy drinks (modeled on Red Bull) and weird permutations such as caffeinated beef jerky (one brand is Perky Jerky), potato chips, and oh, just dozens of seemingly revolting products that can be found on the blog "energy fiend." Again, the spectacle of capitalism at work! But should we think of the substitution of "energy" for "power" in more metaphorical terms? Is the U.S. slowly abandoning the old structures of its international power and starting to embrace our real natural resource--energetic creativity? Dunno, and I fear I'd have to eat a lot of Perky Jerky to believe it. But we can hope.
And finally, apropos of absolutely nothing but the concept of smoked meat, here is a guide to using a Slim Jim and a cucumber to cut through metal. Happy New Decade!
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