Thursday, March 11, 2010

Peak Oil hasn't gone away.

We haven't discussed peak oil in a while, so let's recap a bit. One, geologically speaking, we have used just about all of the easy-to-get-to, high quality, easy to refine, inexpensive top grade sweet crude. The oil fields that are still producing have right at half or less than half their original amounts of oil left. The remaining half is the sludgier, higher-sulfur content, lower quality, harder-to-get-to, difficult to refine, more polluting and less "energetic" stuff (i.e. having higher concentrations of impurities and other things that diminish the BTUs each barrel contains). Geologists began writing articles about peak oil in the mid to late 1950s, and by the 1970s, oil companies were well aware of the problem - so much so that they practically stopped building new refineries, knowing good and well it would be nearly impossible to recoup the costs of new facilities when ordinary people began to be priced out of the market for gasoline.

Fast forward to the last 5 years, when the price of oil went from being around $10-20 a barrel to now being $70-80 a barrel and still rising, just shy of a 10-fold increase in prices. The oil companies are making Billions-with-a-B in profit every year. But, they now say, that amount of profit is inadequate to invest in new infrastructure, or even keep the existing facilities running. Why? Decreased demand, says the article - and that's true. More and more people ARE being priced out of the market. But the other reason is the cost of retrofitting existing refineries to handle the lesser quality goop in the bottom half of the oil fields. If they invested in that equipment, they would never earn the cost back - because doing so would increase the cost of gasoline further and price even MORE people out of the market.

Los Angeles Times Online
Oil companies look at permanent refinery cutbacks
By Ronald D. White
March 11, 2010

..."Refineries will have to be closed," said Fadel Gheit, senior energy analyst with Oppenheimer & Co. "Unless this excess capacity is permanently shuttered, a recovery in refining margins is unsustainable."

..."None of us will sell more gasoline than we did in 2007," Tony Heyward, group CEO for oil giant BP, said during a recent earnings teleconference.

For motorists, talk of refinery cuts promises to be anything but cheap. It's feared that leaner supplies will translate into higher pump prices punctuated by expensive spikes when operations are disrupted by weather or other events...

...Consumer advocates want regulators to probe refinery closures and consolidations that slash supply.

"We know from internal documents from the last time we had a situation like this, in the 1990s, that there was an intentional strategy on the part of some companies to drive up profit margins by shuttering or closing refineries," said Tyson Slocum, director of Public Citizen's energy program.

"Consumer prices will be acutely sensitive to any significant change in refining capacity."

Judy Dugan, research director for Santa Monica-based advocacy group Consumer Watchdog, said that "closing or selling refineries to others who would limit production would be a serious case of corporate irresponsibility."

Refiners say they're merely trying to improve profits so they can keep making gasoline...

...If gasoline doesn't seem particularly cheap these days, that's because operators are keeping a tight lid on production; U.S. and European refineries are running at the lowest rate in more than a decade, Gheit said.

...Critics complained that no new U.S. refinery had been built since 1976, leaving the country's gasoline supplies vulnerable. In fact, between 1998 and 2009, U.S. refining capacity increased by 2.2 million barrels a day, to 17.67 million barrels a day, with the addition of equipment and with improved processes at existing facilities, Energy Department data show.

Refiners raked in big profits from 2003 to 2006, but "by 2007, it was largely over," said Tom Kloza, chief oil analyst for the Oil Price Information Service, an energy information firm in Wall, N.J.

...Some people worry that refiners may cut so much that price surges will become inevitable.

Of course prices will go up more - they will be producing less but want steady levels of profit. Even a high school economist can see that the result will be to squeeze people at a time when everyone can hardly afford it. Everyone who can buy a hybrid or move to a home near a mass transit line has already done so. Everyone else is pretty much stuck where they are and will be hurt badly by rising gasoline prices.

Welcome to peak oil, class. As informed commenters have been saying for some time now, it's not about "running out of oil," it's about oil becoming unaffordable to the average family due to increased costs of finding and refining cruddier quality oil that itself won't last long enough to make building new facilities worthwhile. Consumers had better acquaint themselves with the fact that there is no "right" to affordable gasoline or private automobiles. Only the very wealthy will be able to drive private automobiles when the price of gasoline hovers around $5 and then $10 a gallon. Everybody else will just have to buy a bicycle, or walk, since most communities have failed to invest in sustainable electric mass transit.

Such is life. Griping about it won't help.

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