Envisioning a world of $200-a-barrel oil
The Los Angeles Times recently had an insightful article about what $200-a-barrel oil and $7 a gallon gasoline would do to America.
- With every penny hike in the price of gas costing American consumers about $1 billion a year, sharply higher pump prices would lead to “significant bankruptcies and store closings,” said Scott Hoyt, director of consumer economics at Moody’s Economy.com.
- “The purchasing power of the American people would be kicked in the teeth so darned hard by $200-a-barrel oil that they won’t have the ability to buy much of anything,” said S. David Freeman, president of the L.A. Board of Harbor Commissioners and author of the 2007 book “Winning Our Energy Independence.”
- Americans would take 10 million vehicles off the roads over the next four years, Jeff Rubin, chief economist at CIBC World Markets, wrote in a recent report. Dramatically higher transportation costs would usher in an era of virtual mobility, or zero mobility, for many workers.
- Housing prices would fall in areas requiring long commutes. Sky-high gas prices “would basically reorient society to where proximity would be more valuable,” said Tom Gilligan, finance professor at USC.
- Telecommuting, or working from home, is easier than ever because of the spread of high-speed Internet access, said Jonathan Spira, chief analyst at Basex Inc., a business research firm in New York. In particular, workers in “knowledge” jobs that can be performed with computers and phones would benefit. But Gilligan of USC noted that lower-income workers tend to be in jobs that don’t favor telecommuting, such as retail and food service.
- A huge influx of new riders would strain public transportation systems. Quickly adding capacity to meet demand from new riders wouldn’t be easy, because new buses and rail cars cost hundreds of thousands of dollars and take up to two years to deliver.
- Air travelers can also expect much fuller airplanes and much more expensive flights — when they’re available at all. Delta Air Lines Inc., for example, recently said it was cutting about 13% of its flights from Los Angeles International Airport to save fuel.
- Americans may also feel the effects of a rise in energy-related crime. Ads for locking gas caps are becoming more prevalent. Restaurant owners are complaining that thieves are helping themselves to used barrels of cooking oil, which can be home-brewed into biodiesel fuel.
- The costs of transoceanic shipping would increase, affecting global trade. “To put things in perspective, today’s extra shipping cost from East Asia is the equivalent of imposing a 9% tariff on East Asian goods entering North America,” said Rubin of CIBC World Markets. “At $200 per barrel, the tariff equivalent rate will rise to 15%.”
- Consumers can expect to pay for the higher cost of producing food and moving it around the country, say food executives, farmers and economists. Even having a deep-dish pizza with extra cheese brought to your door costs more now that chains such as Pizza Hut are charging for delivery.
- $200 oil would also drive up the price of a broad spectrum of products: Insecticides and hand lotions, cosmetics and food preservatives, shaving cream and rubber cement, plastic bottles and crayons — all have ingredients derived from oil.
June 30th, 2008 at 12:59 pm
Richard - this kind of stuff is scary. In recent weeks, I’ve been trying to rearrange my life to minimize driving. It’s astonishing to realize how ingrained the notion of driving to get to things has become.
June 30th, 2008 at 7:14 pm
I love the graphic. Did you make that up Richard?
June 30th, 2008 at 7:24 pm
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June 30th, 2008 at 11:59 pm
So - what’s your solution, Richard?
Drill on the Continental Shelf?
Drill in ANWAR?
Nuclear Power?
Maybe take control of the second largest proven oil reserves on the planet?
Or maybe you’re just changing your name to Cassandra?
Lots of complaints. Few answers.
July 1st, 2008 at 6:36 am
Related to jd’s comments. Is the current spike in the price of oil the natural price we should be paying based on dwindling supply and rising demand or it is a speculation-driven bubble based on tensions in the Middle East, i.e., the very real possibility that we will bomb Iran? Or some of both? In either event, the question remains, what can be done to bring down the price or to consume less while maintaining a good standard of living. Anyone remember the 55 mph speed limit?
July 1st, 2008 at 7:45 am
Larry– like almost all my graphics, the gas sign was swiped off the Web. I wish I could take credit for it.
jd– the point of the post was to summarize the L.A. Times article. The causes of the spike in oil prices and possible solutions are up for discussion. Speculation is a big factor, according to some experts oil would be at $80 instead of $140 if not for the Enron Loophole.
As for solutions, there are no quick fixes. Obviously, reducing our dependence on oil is going to take some time– all the more reason to start now. Domestic oil supplies are a drop in the bucket and the environmental costs of drilling on wildlife refuges or offshore are unacceptable. Nuclear power is uneconomical.
Iran has the second-largest reserves, and the Bush administration’s policies are making lots of money for them– would a “thank you” be too much to ask?
July 1st, 2008 at 9:44 am
So that’s 4 “NO”s, Richard.
What are your “YES”s?
Positive suggestions?
I’m curious about this statement, though. Can you elucidate?
July 1st, 2008 at 10:05 am
The education of jdberger continues. According to the NRDC (PDF) and other sources I could give you, commercial nuclear power plants are too costly to build without massive government subsidies. Even with subsidies, the cost of electricity generated by a new nuclear plant is about 60 percent higher than the cost of electricity from a coal plant.
I would give a big YES to removing market barriers to energy efficiency across the board. We could say YES to solar power– unbelievably, half the world’s solar power is now generated in Germany (if you’re ever been there, you know it’s not as sunny as Utah to say the least!). YES to wind power– wind turbines are getting cheaper and more efficient, and already more economical than coal and nuclear. Sixty-five percent of our garbage is biomass: food, paper, scrap wood. All of it could be converted to methanol if we say YES to alternative fuels.
Market solutions work best– if the government ever gets out of the way, and stops subsidizing the oil industry for example.
July 1st, 2008 at 10:11 am
Richard,
You sound like a republican here:
I say the exact same thing about health care and almost get shouted down as not caring about people. Let’s have some consistency here. Which is it? Should governments be involved in running businesses or not?
As far as expenses, 60% higher costs is better than having no power; wouldn’t you agree? Let’s build the plants and find ways to make them cheaper and safer as we build them.
There are also currently tax credits available to home owners that invest in solar power. For electric solar panels, there is 30% tax credit up to $2,000 dollars. I agree there should be more research into solar power to increase the efficiency.
July 1st, 2008 at 10:21 am
I am still a registered Republican, however I intend to switch to Independent. If you believe in the market, maybe you can tell me why we should rely on expensive, government-subsidized nuclear power plants when cheaper alternatives are available that take less time to build.
July 1st, 2008 at 10:38 am
Richard,
No where did I say we should rely on nuclear power when there are alternatives.
What I said was let’s build nuclear power plants and find ways to make them cheaper and safer. I don’t think it’s the governments job to be subsidizing power or anything else.
I agree, let’s invest in alternative methods. What I don’t agree with is requiring those methods by law or allowing environmentalist to block building any power plants.
Given the choice between an endangered species and people or businesses hurting because of lack of power; I say let’s build power plants. Let’s build a variety of different types of plants. Don’t subsidize the plants, let people choose which types of power generation they want to support.
This is part and parcel with what I’ve said all along; the government has a few required responsibilities. Let’s make the government stick to those and get out of the other areas.
July 1st, 2008 at 10:44 am
The NRDC isn’t a decent source. It’s hopelessly partisan. Show me the others.
Burning coal is dirty, contributes to massive emissions of particulates and creates greenhouse gasses. It also releases massive amounts of sulfur into the air. Coal mining is pretty nasty business, too.
Wind farms decimate bird populations. They also have to be located in particulary windy areas. You can’t just throw up a turbine anywhere.
Biomass/Methanol production requires vast amounts of space where garbage can “ferment”. It also stinks to high-heaven. Where should that be? Can you think of any states with large amounts of open space? There’s the cost of getting the garbage there, then trucking the methanol out (like ethanol, it can’t be piped).
Solar is great, but what do you do when the sun isn’t shining? Batteries? There’s an enviromental disaster right there.
Clearly the answer is to free up oil supplies by replacing them with another type of energy producing technology.
Nuclear.
July 1st, 2008 at 10:51 am
jd, you’re being SO negative. Where are your YES’s?
If you are not prepared to believe NRDC, check out Wikipedia.
July 1st, 2008 at 12:58 pm
July 1st, 2008 at 1:54 pm
Once touted as “too cheap to meter,” nuclear power simply became “too costly to matter,” as The Economist put it back in May 2001. After capital costs, wind power and solar power are pretty much free. Nuclear plants require a high degree of monitoring and maintenance, and have significant costs associated with nuclear waste and decommissioning.
The price of new nuclear power has risen faster than any other form of power, as a detailed study of coal, gas, wind and nuclear power capital costs by Cambridge Energy Research Associates concluded.
The cost of wind systems has dropped by more than 80% over the last 20 years. Solar is getting cheaper too.
Wind generation cost per kWh– approximately 3 cents
Solar generation cost per kWh– approximately 5 cents
Nuclear generation cost per kWh– 12 to 17 cents
Source: Joseph Romm, Salon
Did I mention that you don’t need armed guards to protect wind and solar power plants from terrorists?
July 1st, 2008 at 3:28 pm
Richard, you don’t read your own links, do you?
First, I quoted a section of the Wikipedia article you linked to that refuted your initial assertion.
Then you posted more stuff, quoted verbatim from a Salon.com OPINION piece, and in the first link, I found the following statement:
So, according to the above, when you exclude the costs of nuclear plants costs INCREASE 3%. That gives lie to your assertion that nuke plants are SO EXPENSIVE (and I was completely willing to believe you on that one).
Finally, the point of nuclear power is to free up fossil resources that are currently being converted to electricity to power people’s blenders. Less demand pressure on oil means prices fall again.
July 2nd, 2008 at 7:39 am
Of course, it takes 20-30 years and at least $12 billion to build a new nuclear power plant. So, it probably won’t happen in my lifetime.
July 2nd, 2008 at 8:43 am
There is no physical reason why it should take twenty years to build a nuclear power plant. If, however, plant construction is tied up in court for years, the time-line will stretch to over twenty years, and the costs will escalate accordingly. This country cannot go nuclear without a political and legal paradigm shift.
July 2nd, 2008 at 9:36 am
Nothing on your bad numbers, eh, Richard?
And you wonder why no one listens to you…
July 2nd, 2008 at 9:54 am
Anyone can cherry-pick data. I say that no new nuclear plants will be completed in America in my lifetime, so the nuclear discussion is moot.
July 2nd, 2008 at 10:33 am
Richard,
The same answers where given decades ago about drilling in ANWR, about shale oil, etc. When do we stop saying it’s not my problem and start taking action even if the results are long term?
Had not environmentalist, onerous government regulations and law suits stopped nuclear power 20 years ago, this discussion would be moot.
France has nuclear power plants and have for decades. I was surprised to learn that nearly 80 percent of the power generated in France is from nuclear plants.
America needs to get started now, or my children will only be able to readstories to their kids by candlelight.
July 2nd, 2008 at 11:42 am
Bob S.– Drilling in wildlife refuges and trying to recover oil shale make no sense either, so I suppose they do belong in the same category as nuclear power plants. ANWR, for example, would take a decade to develop and might optimistically yield a peak 876,000 barrels a day– a little over 4 percent of current U.S. consumption. Oil shale might as well be snake oil– there is no way to extract it that makes economic sense (at least 40% of the energy value is consumed in production), and the devastating environmental consequences are completely off the charts.
My sympathy for the poor nuclear power industry is constrained by the knowledge that they have received something like $100 billion in taxpayer subsidies. Back in the early 80s, I was involved in a successful effort to stop a nuclear dump from being sited next to Canyonlands National Park here in Utah– our federal government at work!
I would very much like to see the invention of a commercial nuclear fusion power plant, but the experts say that also won’t happen for at least 20-30 years. As I said above, there are no quick fixes. I actually thought everyone knew that.
July 2nd, 2008 at 12:06 pm
There are quick fixes on the demand side, but they would be painful and/or unpopular, e.g. drastically reduced speed limits and rationing. On the supply side, I think a quick fix is on the order of five years, and it would require a national commitment on a large scale including regulatory changes.
July 2nd, 2008 at 12:12 pm
I am ruling out really drastic fixes like invading another country. We also might get some short-term relief if peace breaks out in the Middle East. We just can’t count on that.
July 2nd, 2008 at 12:51 pm
Leo is right, there are adjustments on the demand side that will be made– I suppose you can call them fixes or you can call them consequences. We are already seeing a decline in air travel, and people are driving less and taking mass transit more often.
I really, really hope that our government has finally understood that it’s always cheaper to buy oil than to conquer oil-producing nations. Dick Cheney still seems pretty low on the learning curve, though.
July 2nd, 2008 at 1:05 pm
Richard,
I’ve never said there were quick fixes, but attitudes like yours are keeping any options from being explored and improvements made.
So ANWR is only 4%, that is 4% more then we have now. Efforts have been made to drill ANWR for 20 something years and environmentalist have blocked it. Should we wait another 20 years when it will only produce 0.5% of that demand to even start?
How about drilling the Continental Shelf? Nope, a leak might happen and might affect something. So let’s do nothing and force people to go without gas or electricity. How many deaths can we anticipate due to lack of heating or cooling?
Shale Oil, Oil sands, any technology starts off being unfeasible in reality. Let’s give it a chance and trust that someone’s imagination will find a way to make it profitable.
Here in Texas the Barnett Shale gas fields were economically unfeasible until horizontal drilling and the increased price changed. Let’s get started on many different projects and keep going on the ones that work. Stop being negative.
As far as Leo, I agree. Let’s make a legislative push to change regulations, provide subsidies. How about taking some of the entitlements for those able to work but dont and using them to subsidize start up, research and exploration costs?
I disagree with rationing, that didn’t work out too well in the 70s. Let’s not use the government to try to control the market but to support American companies trying to provide resources to the country.
July 2nd, 2008 at 1:51 pm
Bob S. — You are making the assumption that environmental costs are irrelevant to any cost-benefit analysis. Most people don’t make that assumption.
July 2nd, 2008 at 2:01 pm
Richard,
No I’m not. I’m assuming that companies will do the right thing, that the environmental issues will be part of the developmental and business planning.
Strip mines used to have incredible environmental impact, now restoring the land is part of the operation. How is anything going forward going to be any different?
Should we have a pristine planet at the cost of every living human being?
July 2nd, 2008 at 3:09 pm
Bob S.– First of all, surface mining reclamation is a joke. Second, even if it were possible to restore ecosystems wiped out by oil shale development, the costs would eliminate the economic viability of any such projects.
“Assuming that companies will do the right thing” is always cited as a reason for deregulation– the results can be seen in the collapse of the savings and loan industry, the Enron fiasco, the mortgage meltdown, etc.
July 2nd, 2008 at 5:51 pm
Richard,
So what is your solution? Total government control of all industries and services? Layers of regulations that make the tax code look simple?
I’ve asked several times for answers and you respond with negatives and dismissals. Try again. As I stated, either part of the problem or part of the solution.
Why it is anything that doesn’t agree with the typical liberal viewpoint is dismissed as a joke, not valid or an isolated case. You just did it with the surface reclamation. Show that it is a joke. Propose ways to improve it; don’t just say no to everything.
July 2nd, 2008 at 6:32 pm
Bob S. — I’m not running for office, therefore I don’t have to pretend to know the answers to all the world’s problems. I have commented on some possible solutions, such as wind power, the cheapest known source of electricity.
You asserted that “strip mines used to have incredible environmental impact,” as if they don’t anymore. Where’s your evidence? Or are you going to hide behind the adjective “incredible”?
I assert that the cost of doing real reclamation for surface mines, assuming for the sake of argument that it’s even technically and biologically feasible, would render such mining economically impossible. IMHO a realistic viewpoint. Synfuels are a non-starter. I wrote a post on this issue back in February.
July 2nd, 2008 at 6:57 pm
Hmmmm.
Not only do the repugs want to saddle future generations with the cost of fighting a moronic war in Iraq, now they want to smash open the piggy bank of energy reserves that remain in the ground and may truly be needed 100, 200 or 300 years from now.
Drilling the ANWR will accomplish nothing - even the chimp’s advisers know that.
What ever happened to planning for the future through saving and conservation?
July 3rd, 2008 at 8:23 am
Problem with Cassandra, is that she turned out right.
July 3rd, 2008 at 10:29 am
Uhhh….stagnation?
July 3rd, 2008 at 7:24 pm
jd:
Congratulations.
It’s nice to see a Bush supporter finally agree that the economy is fucked up. But, at the same time, I see it typical that you - a Bush supporter - would willingly work toward depletion of the planet’s limited oil supply for immediate gratification at the expense of your offspring. At least no one can fault you for being outwardly dishonest!!
July 3rd, 2008 at 11:19 pm
Regarding past nuclear energy subsidies: Some of those subsidies were associated with the development naval nuclear power, so to some extent civilian nuclear power is a spin-off of that research. More importantly, it seems to me that these are all sunk costs, and we might as well take advantage of them.
The more I look at nuclear power, the more I think it deserves a second look.
July 4th, 2008 at 1:25 am
You’re right Albert, we should try to make the oil last as long as we can….
Really? Can you say that with a straight face?
However, for the last 50 years, we’ve been running out of oil. Somehow, we keep finding more and realizing that we vastly underestimated the amount that was there in the first place. And the higher prices go, the more economically feasible it becomes to search for and extract oil that was previously thought too expensive (see: the advancement of ocean drill rig technology).
July 4th, 2008 at 1:52 am
jd:
Spoken like a true repug!!
I’ll bet you really believe, too, the rhetoric that states so long as we grow the economy, we should not care about the national debt! Or, spoken more repug-like, so long as there is a chanec the economy will expand, we should just spend, spend and spend!
Really, on this point, I expected more rational thought from you!!
July 4th, 2008 at 10:59 pm
Let your anger go, Albert. Breathe.
Or - if you wish, continue to insult me, it only illustrates how vacuous your arguments are.
In fact, if I look back, you haven’t made an intelligent substantive argument, yet.
Your posts are simply infantile demands for commonly known definitions, playgroundesque hands-over-the-ears “nyah nyah” defiance or personal insults.
But, whatever trips your trigger, Albert.