Wednesday, April 25, 2007

Is There Really an Energy Crisis? ... by Alan Caruba

Is There Really an Energy Crisis?
By Alan Caruba

A little news item in an April 15 edition of my daily newspaper was headlined “Saudi Arabia proposes to boost oil production.” The increase was intended to “meet domestic and international demand while insuring ‘fair’ world prices”, said King Abdullah. Indeed, OPEC, the oil cartel, had twice cut production, “contributing,” said the news item, “to relative stability that has kept benchmark crude between $50 and $60 a barrel—down from the record highs of more than $78 a barrel last summer. Current prices are around 40% above 2004 levels.”

The world is not about to run out of oil, but the price is likely to remain where the Saudis and other oil producing nations want it, knowing that too high a price retards the billions that must be invested to find new reserves and then extract, transport and refine it. They know that the world is growing hungrier for oil as nations like China and India industrialize and become major economic centers.

The oil we use today is the result of careful decisions made a decade or two ago by the world’s greatest masters of risk, the oil companies whom we trust to keep the world’s economic engine running. If the price was less in the past, it is because fewer nations were competing for it and that it could be extracted from places less costly than deep oceans.

These days when I hear our politicians talk of “energy independence” while often refusing to allow our own reserves of oil and natural gas to be tapped, I am mindful that they are deceiving us.

This was clarified in an excellent policy analysis published recently by the Cato Institute. The authors are Eugene Gholz, an assistant professor of public affairs at the University of Texas at Austin, and Daryl G. Press, an associate professor of government at Dartmouth University. It had six pages of footnotes as an indication of how thoroughly researched it was.

It’s title was “Energy Alarmism: The Myths That Make Americans Worry About Oil.”

The authors of the Cato analysis assert that (1) the notion of ‘peak oil’ depletion of existing and future undiscovered reserves of oil is a myth. This is based on what they determined is “scant evidence and dubious models of how the oil market responds to scarcity.” That is very good news.

The report repeats what every Economics 101 student knows. (2) “Market forces, modified by the cartel behavior of OPEC, determine the key factors that affect oil supply and prices.” And now you know why a tiny news story about Saudi Arabia’s intention to pump more oil is an important indicator.

Perhaps the most important element of the Cato analysis is (3) the finding that the use of U.S. military power in the Middle East is counterproductive to our interests there. “Past efforts to increase stability in oil-producing areas by supporting dictators, policing violent regions, or spreading democracy have a dubious track record.”

“In fact, the United States has led 17 efforts at democratic nation building since 1900. Two of those cases, Iraq and Afghanistan, are still under way, though neither appears promising. Of the other 15 cases, only 4 resulted in democracies lasting 10 years or longer.”

What most Americans do not know is that the world’s major oil companies have wisely diversified their oil holdings to insure that any perturbation in the Middle East will not significantly impact the flow of oil to the world market. One of the regions where oil exists in abundance is Africa. Russia has huge amounts. The Pacific Basin is another and even the Gulf of Mexico still holds great promise of more oil. More reserves exist off our continental shelf on both coasts.

We will surely continue to be bombarded by self-serving politicians and others telling us that China poses a threat to the world oil market or that we have to dramatically reduce our use of oil, but the facts do not support these claims. Proposals to raise taxes on gas consumption only hide their greed for funding their many dubious “earmarked” projects.

The truth is to be found in the Cato analysis and elsewhere if you can resist being stampeded to drastically alter our economy by schemes such as federally subsidized ethanol production or the nonsense of wind and solar energy. The good news is that the bad news is wrong.

Alan Caruba writes a weekly column, “Warning Signs”, posted on the Internet site of The National Anxiety Center, His book, “Right Answers: Separating Fact from Fantasy”, is published by Merril Press.

© Alan Caruba, April 2007
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Frank said...

The report repeats what every Economics 101 student knows. (2) “Market forces, modified by the cartel behavior of OPEC, determine the key factors that affect oil supply and prices.” And now you know why a tiny news story about Saudi Arabia’s intention to pump more oil is an important indicator.

The real point is this is not s free market, if oil companies cut production of gasoline, heating oil, etc. that price skyrockets, we as a nation aren't able to just say "stick it" I am not using your over priced garbage and are forced to buy the crap at 3.00 to 4.00 per gallon. It is the only market where the producers can "screw up" and make trillions. An example would be if a fast food chain said, "We're only going to make 50 hamburgers for a lunch rush and charge quadupal for them." They'd be out of business the next day. We need alternatives to keep B.P., Exxon Mobile, Texaco, and Shell from doing this year in adn year out since their oily buddies took over the white house. Funny how they bought up the independent refineries and closed them, and now that refinery cpacity is tight they do not reopen them and permits for existing cites are very easy for them to get and they are grandfatered in under older (less stringent) E.P.A. standards. It's time to put price controls back on their butts, coupled with quotas for production.

Longstreet said...

Absolutely NO price controls! It is one of the surest ways to crash the national economy.

Anonymous said...

From Bloomberg:

Stockpiles fell 2.79 million barrels to 194.2 million, the lowest since Oct. 7, 2005, when refineries were shut because of hurricanes Katrina and Rita. Refineries operated at 87.8 percent of capacity, down 2.9 percentage points from the prior week, the Energy Department said. A 0.5 percentage point gain was expected, according to the median of responses in a Bloomberg News survey.

so the oil companies will make a killing on THEIR price fixing, guess it's ok to fix it higher.....