Falling oil prices endanger alternative sources

[Desertdog]

Falling oil prices endanger alternative sources
By Joshua Boak | Tribune Reporter

http://www.chicagotribune.com/business/chi-sat-outlook-energy-1227-dec27,0,3203427.story

Energy prices resembled a roller coaster this year, clambering to record heights only to hurtle back toward earth at an alarming speed.

Expect a smoother ride in 2009, industry experts say. Gasoline could hug $1.50 a gallon. Crude oil, once thought to reach $200 a barrel, could stay well below $50.

The worst economic crisis since the Great Depression has lessened the demand for fossil fuels around the world. Americans are driving fewer miles, while growing economic powers such as China and India have begun to stop gorging on petroleum.

Along with the drop in demand was the removal of investment dollars from the commodity markets. That should limit how much oil and gasoline prices can swing, since hedge funds and banks can no longer borrow money at low rates to speculate on energy.



"We're not going to see the kinds of spikes we've seen in the past," Alaron Trading Corp. analyst Phil Flynn said. "The days of [borrowing] easy money are over."

When oil hit a record $147 a barrel in July, legislators claimed speculators were the culprits. What the investment dollars linked to speculators did was increase the volatility of the prices, such that the price of a barrel of oil could move by more than $110 in just six months, Flynn said.

What mainly drove up oil and gasoline prices were supply and demand, the same basic forces that have caused the fuels to plunge in value since the summer.

Up until a worldwide economic implosion, the markets assumed that demand for oil from ascendant countries such as China and India would outstrip supply from aging fields in the Arabian Peninsula.

During the first half of 2006, global daily demand for oil increased by an average of 500,000 barrels, to roughly 86 million barrels, according to Goldman Sachs.

Demand fell during the next six months to a year-over-year decline of 1 million barrels a day. Goldman Sachs forecasts an additional average decline in demand of 2 million barrels a day in the first half of 2009.

"It's quite clear that emerging-country demand growth will lose a lot of momentum and even grind to a halt," said Antoine Halff, head of commodities research at the Newedge USA LLC global brokerage.

The economic situation is so dire that oil prices fell almost 28 percent in the three days after the Organization of the Petroleum Exporting Countries announced it would trim total daily output by 4.2 million barrels at the start of next year.

The consensus among analysts is that oil will stay between $25 and $50 a barrel. Gasoline could hit $1 a gallon, according to Flynn.

Those prices rearrange an entire energy sector, possibly halting a shift toward renewable sources. Profit margins for wind turbines shrink when oil falls below $70, according to German manufacturer Siemens.

And no new biofuel can compete against $1-a-gallon gasoline, according to cellulosic ethanol-maker Coskata in Warrenville.

The difficulties in the private sector shift more of the burden for developing alternative energy onto the government. It will take government incentives to move Americans away from petroleum, shielding them from prices that eventually will rebound, said Rebecca Stanfield, a senior energy advocate for the Natural Resources Defense Council.

"We should be preparing for more expensive gasoline," Stanfield said. "People are smart enough to know that it will happen again and that what the government can do for us is not control the price of oil but lessen our dependence on oil."

The current low prices also affect the foreign governments funded by their oil reserves. Some countries have a single-digit cost for extracting oil, making it easier for them to weather prolonged drops in prices.

Falling prices permanently could undermine governments in Venezuela, Nigeria and Iran, potentially cutting back supplies and causing prices to increase.

"With less money to go around, it's unclear whether those countries will be stable enough to not cause a supply disruption," Halff said. "Those political regimes have bet their survival on a high degree of social spending."

jboak@tribune.com

[Nitrogen]

In other news, SUV sales are up, economy car sales are down.  This proves that the average American has a worse memory than a cat.

Personally, I don't care if gas costs a buck a gallon, or 4 bucks a gallon; I want a domestic alternative, so we can tell Saudi Arabia and Venezuela and Russia to go make babies with itself.

[Standing Wolf]

Supply and demand? You mean it wasn't those mean terrible awful horrible wicked oil companies, after all?

Well, gosh. I'll bet those leftist extremists in Congress sure are embarrassed, aren't they?

[Jeff B.]

...

The worst economic crisis since the Great Depression has lessened the demand for fossil fuels around the world. Americans are driving fewer miles, while growing economic powers such as China and India have begun to stop gorging on petroleum.

Along with the drop in demand was the removal of investment dollars from the commodity markets. That should limit how much oil and gasoline prices can swing, since hedge funds and banks can no longer borrow money at low rates to speculate on energy.

... What mainly drove up oil and gasoline prices were supply and demand, the same basic forces that have caused the fuels to plunge in value since the summer.

Up until a worldwide economic implosion, the markets assumed that demand for oil from ascendant countries such as China and India would outstrip supply from aging fields in the Arabian Peninsula.

During the first half of 2006, global daily demand for oil increased by an average of 500,000 barrels, to roughly 86 million barrels, according to Goldman Sachs.

Demand fell during the next six months to a year-over-year decline of 1 million barrels a day. Goldman Sachs forecasts an additional average decline in demand of 2 million barrels a day in the first half of 2009.

"It's quite clear that emerging-country demand growth will lose a lot of momentum and even grind to a halt," said Antoine Halff, head of commodities research at the Newedge USA LLC global brokerage.

The economic situation is so dire that oil prices fell almost 28 percent in the three days after the Organization of the Petroleum Exporting Countries announced it would trim total daily output by 4.2 million barrels at the start of next year.

... The current low prices also affect the foreign governments funded by their oil reserves. Some countries have a single-digit cost for extracting oil, making it easier for them to weather prolonged drops in prices.

Falling prices permanently could undermine governments in Venezuela, Nigeria and Iran, potentially cutting back supplies and causing prices to increase.

"With less money to go around, it's unclear whether those countries will be stable enough to not cause a supply disruption," Halff said. "Those political regimes have bet their survival on a high degree of social spending."

Common sense should tell the public that fuel prices will rise again, eventually...  when that will be seems to be further and further out because of the growing financial/economic mess.  And, I'm really, really sorry for the governments of Iran and Venezuela, not being able to foment anti-American sentiment on our own dime.

Jeff B.

[Waitone]

Great news!  We've now established the max tax load the economy can take without immediately tanking:
$140/barrel - $40/barrel = $100/barrel tax.

We can now take $100/barrel and do things like free health care, monstrous youth organizations, subsidize pie-in-the-sky energy schemes, or re-wild the US back to a pre-Columbian status.

Didn't think I'd ever see Utopia implemented but we've got the right Dear Leader in place and the perfect tax.  It's gonna be great!

[Firethorn]

Eh, I'd say $80 was where it was just starting to get painful and change people's patterns.  That'd be a $40/barrel tax to get people to change.  Of course, we realize that change hurts.

On PBS yesterday I happened to catch some sort of 'presidential' panel where they were doing a mockup of Obama's cabinet.  No Obama or actual cabinet measures were present.

One of them had the nerve to talk about how going carbon neutral/free would be a boon to the US economy, how it'd lead us into the future, etc...  No mention of the infrastructure costs of doing so.

Personally, with that tax money I'd fund experiments in PRT*, nuclear plants, and battery/energy storage technologies.

By taxing it NOW, we reduce demand, lengthening the time before petrochemicals become truly unsustainable.  By building nuke plants, we conserve our coal reserves, the primary source of replacement chemicals.  Battery/energy storage because, well, it IS the constraining factor today against electric vehicles.  Even if the 70 pound motor in the Tesla Roadster only costs hundreds, it's battery costs ~$34k minimum for the cells alone. 

If we can get a technology with the capacity for the size, weight, and efficiency of LiIon for a tenth of the price, then we're in business.  But unlike in computing, getting a given battery technology to be an order of magnitude cheaper is TOUGH.

*Personal Rapid Transit, think independently routed individual 3-4 person electric cars on ultralight light rail.  Oh, and hit the cities first.

[Ben]

The worst economic crisis since the Great Depression

Talk about hyperbole. These people should do some historical research. They have no idea what a real depression is. As I continue to say, when I don't see every other cart at Costco with a giant flat screen TV in it, then you'll be able to start convincing me we're in a serious depression. When I start seeing lots of people on the street with raggedy patched up clothing, and homeless for reasons other than wanting a giant new home they knew they couldn't afford, then you might be able to convince me we're in something similar to the Great Depression.

As for fuel, China and Paris Hilton have the plan. Continue using, and expanding domestic drilling for current fuel, while promoting private expansion of alternate sources (including tax breaks to the developers, but not new taxes to pay for it). Oh, and Nuclear energy Congressional and environmental idiots -- just like all the European countries that signed Kyoto.

[taurusowner]

I don't really like my posts being edited by others, so I'm just removing all the text I wrote.

[Tallpine]

People were using too much oil, and that was bad.

Now people aren't using enough oil, and that is bad.


Apparently, we really are doomed since whatever we do is wrong  :rolleyes:

[HankB]

Funny how some people, no matter what the problem (real or perceived) see higher taxes as part of the solution.

Sometimes the only solution.

 

[Jamisjockey]

Falling gas prices make towing my boat to the bay and running it around like a madman much, much cheaper!
 

[Scout26]

What mainly drove up oil and gasoline prices were supply and demand

Two of the first laws that Obama is going to repeal on 20 Jan   :rolleyes:

Funny how some people, no matter what the problem (real or perceived) see higher taxes and more government control as part of the solution.

Sometimes the only solution.

Fixed it for you.
.

[go_bang]

When oil hit a record $147 a barrel in July, legislators claimed speculators were the culprits. What the investment dollars linked to speculators did was increase the volatility of the prices, such that the price of a barrel of oil could move by more than $110 in just six months, Flynn said.

What mainly drove up oil and gasoline prices were supply and demand, the same basic forces that have caused the fuels to plunge in value since the summer.

Up until a worldwide economic implosion, the markets assumed that demand for oil from ascendant countries such as China and India would outstrip supply from aging fields in the Arabian Peninsula.

Nice little trick they do there.  Try to make you think it was plain old supply and demand and not the commodity speculators that drove the price up, then go ahead and talk about how speculators drove the price up.

Falling prices permanently could undermine governments in Venezuela, Nigeria and Iran, potentially cutting back supplies and causing prices to increase.

"With less money to go around, it's unclear whether those countries will be stable enough to not cause a supply disruption," Halff said. "Those political regimes have bet their survival on a high degree of social spending."

Speaking of which, correct me if I'm wrong but it seems that there has been a lot less chest pounding out of Venezuela and Iran since the price of oil crashed.

Personally, I'm glad that oil came down.  Not so much because it's easier on the wallet but because I'm glad the biofuel business got the wind kicked out of it.  Taking food away from those who have the hardest time affording it and turning it into fuel that is less efficient and of dubious environmental friendliness and benefit is ridiculous.

[Firethorn]

Speaking of which, correct me if I'm wrong but it seems that there has been a lot less chest pounding out of Venezuela and Iran since the price of oil crashed.

I wouldn't be surprised.  High oil profits has been about the only thing allowing Chavez to do his thing.

Personally, I'm glad that oil came down.  Not so much because it's easier on the wallet but because I'm glad the biofuel business got the wind kicked out of it.  Taking food away from those who have the hardest time affording it and turning it into fuel that is less efficient and of dubious environmental friendliness and benefit is ridiculous.

While I'd prefer to wait on major biofuel plants until we get cellulostic/algae production methods economical, Biofuel production was actually a minor component of the rise in food prices.  Consider that wheat, not significantly used in biofuels, went skyhigh as well - a lot of it was due to the rising cost of oil making fertilizers, shipping, and farm work like plowing and harvesting cost more.

[coppertales]

I have been saying it for years........"follow the money".  If there was money in alternative fuels, it would already be here........Companies smell a freebee from the government over this and are waiting for a free money handout so they don't need to use their money on this alternative energy project....chris3

[FTA84]

Nice little trick they do there.  Try to make you think it was plain old supply and demand and not the commodity speculators that drove the price up, then go ahead and talk about how speculators drove the price up.

I think it worth stating -- speculation and supply/demand are linked.  Basically, speculators are trying to make money off of predicting (gambling) on the future supply/demand of a given product.  The problem with oil, is it is not as fluid as other products.  One can jack up the price of beef, but it will collapse fairly quickly, as people begin to use more chicken, pork and lamb.  With oil though, people can maybe drive a little less, but in much of America, most of the driving is done for obligatory purposes (work, school, ect.) and not recreation.   This of course, is less fluid.  How high does the price of gas have to go before you either a) Move closer to work, b) Get a job closer to your house or c) Take a hit trading in you car for another?

I think the rise we saw this summer, was a flood of investors trying to recover losses from the housing market crash, in oil/gas.  The problem is, there were so many investors doing this, they basically had to find the ceiling of oil/gas demand.  And that they did.  People actually started doing combinations of a, b, and c to fend off gasoline prices, and it came at the wrong time, the time when China stopped hoarding oil for the Olympics.

[go_bang]

I think it worth stating -- speculation and supply/demand are linked.  Basically, speculators are trying to make money off of predicting (gambling) on the future supply/demand of a given product.  The problem with oil, is it is not as fluid as other products.  One can jack up the price of beef, but it will collapse fairly quickly, as people begin to use more chicken, pork and lamb.  With oil though, people can maybe drive a little less, but in much of America, most of the driving is done for obligatory purposes (work, school, ect.) and not recreation.   This of course, is less fluid.  How high does the price of gas have to go before you either a) Move closer to work, b) Get a job closer to your house or c) Take a hit trading in you car for another?

They are and they aren't.  The commodity traders base what they are willing to pay for goods tomorrow on how much demand there is for them today.  They are speculating on what the price will be later. 

I think the rise we saw this summer, was a flood of investors trying to recover losses from the housing market crash, in oil/gas.  The problem is, there were so many investors doing this, they basically had to find the ceiling of oil/gas demand.  And that they did.  People actually started doing combinations of a, b, and c to fend off gasoline prices, and it came at the wrong time, the time when China stopped hoarding oil for the Olympics.

The investment banks got serious about trading commodities back in 2002, and if you dig up the price graphs that is when you start to see the prices slowly creeping up.  I think you're right about investors using the oil market to soften the hit they were taking on real estate, and I think they did so for much of the reason you stated earlier.  Because high oil prices were seen as being more crash resistant due to the necessity of the commodity.  Everything has it's limit, though.

While I'd prefer to wait on major biofuel plants until we get cellulostic/algae production methods economical, Biofuel production was actually a minor component of the rise in food prices.  Consider that wheat, not significantly used in biofuels, went skyhigh as well - a lot of it was due to the rising cost of oil making fertilizers, shipping, and farm work like plowing and harvesting cost more.

I think algae-based biofuels are probably the best solution all around.  I think that cellulostic could have a negative impact on food prices because it could cause land formally used to grow food to be converted over to switchgrass or some other process friendly crop.  With algae you have no farmland being removed from food production and you could conceivably have a closed loop system so there would not be any environmental water pollution.

[Firethorn]

I think algae-based biofuels are probably the best solution all around.

I think it'll be a major source; algae can be used very directly for biodiesel production, and it can also be used to produce 'biogasoline', which is a drop-in replacement for dinogas, no need for engine modifications, and it even has comperable energy per gallon, so no negatives on mileage.

Still, due to the increased cost there's many competitors - cellulostic methods using dependable sources of cheap feedstock will be able to compete.

Looking at it - algae is 50% oil for biodiesel and most of the rest is cellulose/sugars for biogas/ethanol(whichever wins).  The rest, of course, you'd recycle back into the system as 'fertilizer'.

Oh, and 'given the right conditions' it can double in volume in a day, though this is difficult - one limiting factor is CO2.
http://www.popularmechanics.com/science/earth/4213775.html - neat stuff

[Tallpine]

The problem with oil, is it is not as fluid as other products.

As compared to say, buttermilk

 

[roo_ster]

While I'd prefer to wait on major biofuel plants until we get cellulostic/algae production methods economical, Biofuel production was actually a minor component of the rise in food prices.  Consider that wheat, not significantly used in biofuels, went skyhigh as well - a lot of it was due to the rising cost of oil making fertilizers, shipping, and farm work like plowing and harvesting cost more.

1. IMO, the substitution effect was a big part of the rise in cost of wheat.

2. Also, folks who usually planted something else were lured into planting corn due to the subsidies.  Some of those new corn acres used to be wheat, reducing the wheat supply.

[GigaBuist]

I have been saying it for years........"follow the money".  If there was money in alternative fuels, it would already be here.

I really think we're going to see electric cars take off soon.  Within the next 5 years.  I know it was tried in the '80s but the technology and circumstances are different now.

Rechargeable batteries are way better.  These days every yahoo has got a LiIon powered cell phone in their pocket, laptops sales are taking off and they're LiIon too. Power tools too.  We build the things on a regular basis, it's just a matter of tooling up to make 'em bigger for cars.  It's not like the old NiCad stuff.

Do It Yourself electric cars are here.  People are getting sick of gas prices and just tearing their old engine out and tossing an electric motor under the hood, tossing a bunch of lead-acid batteries into the car, and off the guy.  Some go with LiIon or Li-polymer battery packs, but they're $10-$20k right now.  Once those packs are used in production vehicles costs will come down.

Then there's Tesla motors, showing that private investors think the idea has merit, and they're actually building cars that work, and generating some excitement about the performance levels we can get out of electric.

Plus, pick a demographic and there's a way to sell it to 'em.

[Desertdog]

I really think we're going to see electric cars take off soon.

Do the electric cars have heating and A/C in them?
I have heard that they do not.  If not,I am sure they will not sell vry many.  Here the temps are often at an uncomfortably levels, both winter and summer.

I would like a hybrid where they have an engine for the heating, A/C and for charging the battery.  This would give you unlimited range in comfort.

[Firethorn]

Do the electric cars have heating and A/C in them?

Some do, some don't.  Most have some form of heat available.  Many do have A/C, but some also say it's not as necessary - what with no heat generating monster under the hood.

Your mileage varies widely with homebrew vehicles, of course.  Given that most are not highway vehicles, many save the range/batteries and go with 4&40.

I would like a hybrid where they have an engine for the heating, A/C and for charging the battery.  This would give you unlimited range in comfort.

Then you can walk into many car dealerships and get what you're looking for today.

[ilbob]

Then there's Tesla motors, showing that private investors think the idea has merit, and they're actually building cars that work, and generating some excitement about the performance levels we can get out of electric.

There are only so many people willing to pay $109k for a car with limited utility.

[Firethorn]

I've looked at it before - about all that's needed is for LiIon batteries(or equivalent) to be an order of magnitude cheaper.

Interesting enough, the surcharge per watt-hour for LiIon has dwindled to about 20% over the 200% it was a few years ago over NiMH.