Jul

2

Oil is again trading at over $70 per barrel. However, as I understand it we (the US) have more oil in four states than there is in Saudi Arabia, locked in shale, and it can be extracted profitably at less than $35 per barrel.

Meanwhile the U.S. is pursuing and subsidizing ethanol from corn, driving up corn and meat prices. I think that a policy of extracting oil from shale should be our primary policy. What am I missing?

Of course, more than 30 Senators are from farm states and a policy of oil from shale, tar sands (under $30/barrel), or coal ($40/barrel) would drive down oil prices.

Jaime Klein writes:

Exploiting shale requires immense investments as well as a change in environmental regulations. Historically, oil markets suffer from cycles of overproduction followed by tight supply (like recent years). Investment in oil production has a long maturation period and is very risky. Any number of events, such as an outbreak of stability in Iraq, opening up Iran to foreign investments in oil, Hugo Chavez retired by a military coup, strengthening of demand destruction (in many developed countries oil demand is falling), could cause crude prices to collapse and then settle at its historical level (maybe half of its current price). I am shorting oil.

Sam Marx replies: 

If oil goes below $50, Saudi Arabia will cut production as it has in the past.

Alan Millhone comments:

Yes, then a 'created' scarcity. Alternative fuels, hybrid cars, etc. have been 'beat around' for years, but little done. In Vegas they have built an elevated monorail from MGM to the Sahara and talk is to extend it all the way to the airport. Taxi drivers are against this, but something has to be done to ease traffic congestion and fuel consumption in one isolated area of the US. America has always had a love affair with the automobile.

In Europe you can get a passenger train to about any location and buses and subways are readily available. I drove in Paris once and quickly realized I would not want to have a car there. Problem is not many of us are willing to 'cut back' on our driving. 

Sam Marx writes:

I believe that the only "alternative" fuel that will work is oil produced in this country. That means drilling in Alaska, offshore, and very deep drilling on land. Aside from that are oil produced from shale, coal, and tar sands (Canada). Money and necessity should be the solution to environmental problems.

I believe that by hybrid cars you mean they also use ethanol. For many reasons I don't believe that ethanol is the solution. As for smaller cars, it is my understanding that since 1972, an additional 50,000 people have died in auto accidents in the U.S. because they were in a small car, but would've survived if protected by being in a larger car.

During WW II , Germany had to resort to oil from coal. After everything is considered and there is rational leadership in this country, willing to stand up to big oil, I believe we will have to resort to oil from shale, tar sand, or coal also.

I don't believe that there is a conspiracy by big oil to drive up prices, but I do believe that they don't want prices to come down and oil from shale, tar sands, or coal would do that. 

Henry Gifford writes:

A man named Peter Judd did a study of the amount of fuel used to make heat and hot water for each of thousands of apartments in New York City in the 1980s. He divided the buildings into five categories: old law tenements (pre 1901), new law tenements, pre WW2, post war, and post 1974 oil embargo. The average use for each category was about the same, except for some improvement in the post 74 buildings, which when credit for more bulk and therefore a lower surface area/floor area ratio is considered, means there has been approximately zero progress in 100 years.

The most interesting thing he discovered was the spread between the best and the worst buildings - about 700% when the unusually high and low consumption buildings were tossed out of the mix. The spread persisted in all categories.

The main exception were the buildings gut renovated in the 1980s, which had new double pane windows, insulation for the first time, and new boilers and controls. They used 50% more fuel than the average of the existing housing stock. Since they were renovated by the government, and Peter was a government employee, he was moved to a do-nothing job, and soon left. His counting skills are now put to use in producing off-off-Broadway theatre.

The lesson I took from this is that some buildings use 1/7 of what others use, while providing better comfort. Meanwhile, this is all done unintentionally, as it wasn't until the mid 1990s that anyone even claimed to be making energy efficient houses in NYC. The extra cost of course was zero. I think this argues that there is a lot of potential gain from conservation.

It turns out there is a field called "Building Science" which is a study of the factors which effect comfort and building durability and energy use, which is widely ignored by the industry. But the science to explain this exists, as does the counting to show what is possible. Knowledge of these things has led me to believe that buildings could be built that use 10% or 20% of the energy that existing, average buildings use, and be built this way for no extra cost. I have done this, and am one of the only people in the field who shows fuel bills to back up claims. Of course, zero extra cost has its own problems, not the least of which is that there are approximately four people in the US who work on energy efficiency in buildings and are not paid by the government. This causes many conversations to start with "money is available for…" instead of "energy can be saved by…", which of course is an impediment to innovation.

I cannot predict how widespread sound building practices will become, but have no doubt that from a technical perspective, all the necessary technology has existed for decades, and is currently for sale in Home Depot. It's just that the industry that knows how to design and build such buildings mostly does not exist.

As for oil from coal, it is true the Germans did it, but at a high cost, and only in the face of severe shortages. The rumor that fuel was so scarce in Germany that the first jet planes in history were towed to the runway with horses is simply not true. They used cows, because the army was using all the horses. I think fuel will get more scarce before oil shale is economically viable.

One of the costs is the energy used in the process. The Canadians say that it will take the energy from two barrels of oil shale to produce a third barrel. Perhaps in our milder climate the numbers will be a bit better, but probably not by much. At best, it will be a costly and difficult process. 


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