Category Archive

Courtesy of New Scientist, an interactive graphic about oil flows (and chokepoints) across the globe. Nice, but I wish it had included how oil flows will be changing in the next ten years… and I can’t believe their security risk assessment does not mention Nigeria at all, where oil flows are regularly disrupted by rebels. Most recently, a few men in a speedboat managed to take about 200,000 barrels a day off the global market.

People in the U.S. are starting to talk about drilling again – in ANWR, off the coasts, anywhere – and that always makes me think of Frank Sinatra. Or more precisely, his performance as a heroin addict in the movie The Man With The Golden Arm.

People who want to drill for more oil are like the addict who in desperation steals his child’s piggy bank to get a fix. This is almost a perfect analogy. Except that the addict who steals his child’s money to get a fix actually gets the fix. People who push for more drilling probably won’t. If they would only examine the reality of that future:

1. No oil will actually be produced for about 10 years.

2. When it is produced, it will be sold at market rate to the highest bidder.

3. When it is produced, it will be a trickle meandering through a mostly dry riverbed. The world will be running on 20% to 50% less oil than it is today, and the new oil won’t even offset the continuing slide.

So the perfect analogy would be the drug addict who steals his child’s piggy bank to pay a runner who will go off for ten years then return with a tiny bag of dope which he will sell to the person who can best afford his astronomical price. Someone who can afford to pay multiple times what we are paying now.

So I can understand why owners of private jets are all for drilling, because they have a huge sum invested in their jets and you’ll never fly a jet on alternative power. And of course Big Oil is pushing for it (played by Darrin McGavin in the movie). But for the average person, drilling makes no sense. But then, neither does addiction.

I’m mulling this morning over the similarities between the subprime mortgage crisis and the high fuel price crisis. Both strike me as little garden paths that the unwary were led along, by people willing to make a buck over the inability of others to visualize the future.

In both cases, people were sold a dream of the unaffordable made affordable, and sold the products that go with it: big new homes in the suburbs and plush low-mpg vehicles to make their long commutes comfortable. Now however the payment rates are being radically readjusted and the balloon payments are coming due. The purveyors of this dream - the subprime lenders of U.S. energy policy, the oil and auto companies and others aided and abetted by a subprime administration – are escaping with their gains and leaving people made destitute by their deception.

What’s needed is action that materially reduces our dependence on oil forever - higher fuel efficiency, plug-in hybrids, alternative energy. Solutions such as drilling for more oil are merely a continuation of the cruel deception. For starters, it will take about 10 years for any new well to actually produce any oil – no help whatsoever to those being squeezed hard right now by high fuel prices. But the main point is: more oil, from any source, amounts to no more than taking out a second mortgage on a subprime energy policy, something that only puts the inevitable foreclosure off another year or two.

Photo by DigitalHowie via Flickr. Click through for his narrative that sounds eerily like World Without Oil. All rights reserved by DigitalHowie.

….possible within two years, says Sachs Goldman via Bloomberg and widely reported. Folks, less than a year ago “$200 a barrel” was shorthand for catastrophe. Witness our fellow simulation, OilShockwave, which in September 2007 posited a global geopolitical crisis precipitated by oil at $150 a barrel.

Here they are again: real-life headlines that look as though they come right out of World Without Oil. I don’t want to see headlines like these. The question is: is the WWO game helping people adjust to the new economic reality they describe? And - is the game helping to create other realities as well?

I’m in Phoenix, looking for WWO-worthy headlines in the Arizona Republic, and finding them. Front page box item: “Gas prices continue to top records.” The box blurb mentions an Iraqi pipeline bombing and cutbacks by refiners as causes for the inexorable march of gas prices, but of course that’s hogwash (the pipeline will be fixed in the next day or so, and the cutback by refiners is due to shrinking gasoline demand in U.S. local markets). The article itself (top story, Business section) barely mentions the true cause: oil prices still over $105 a barrel. They spend a whole paragraph talking about the refinery cutback, terming it “troubling,” but why? Refineries cut back when local demand lessens, nothing sinister about it. World demand isn’t decreasing, not if China has anything to say about it, and as long as that’s true the fundamental price of oil will stay high.

The rest of the article is quotes from drivers, and it’s all pure WWO: “Gas prices have really impacted our budget.” “We might not be able to take a vacation this year.” “I’m taking the bus and riding my bike more.” “I used to go back to Chinle, my hometown, every two weeks – now with higher gas prices, I only go up once a month.” Is this not a game?

From WWO fan Laurel K.: an interactive tool to graphically display the relationships among candidates and oil interests. The 2008 campaign is of course relevant, but if you want to acquire a deep understanding of why we are in this handbasket and where its trajectory came from, select the 2000 and 2004 elections and click “Find The Oil Money!” (thanks Laurel!)

Revealing AP article today by John Wilen, highlighting the trouble that US consumers find themselves in today: gas prices are going up, no matter what. And increasing fuel costs mean that the price of everything goes up, no matter what. Under price pressure from all sides, US consumers are “combining errands, sharing rides, eliminating pleasure trips and using public transit more” in an effort to control the cost of fuel on their budgets. But what’s not happening is any decrease in fuel prices commensurate with the decline in fuel usage. Gas usage is off by 1% in the past 8 weeks, instead of its usual 1.5% growth (to keep up with population growth). But gas prices have only retreated by a few cents in recent days. The result: a father in Pleasanton, CA, is considering cutting swim lessons for his kids. Which may not seem like much, unless you’ve played World Without Oil and recognize that this is how it all begins.

Not discussed in the article: the Tata Motor Company, which seems set to buy Jaguar and Land Rover from Ford. Tata is famous these days for the Tata Nano, a marvelously inexpensive car that seems destined to escalate India’s oil consumption at a rate commensurate with its economic growth. Why would cutting oil demand in the US reduce prices, when demand is increasing elsewhere? World oil consumption is expected to grow by 1.3 million barrels a day in both 2008 and 2009, according to the EIA update of March 11. (photo by goatopolis)

…the price of gasoline in the U.S. broke records, pushed higher than it’s ever been by the high cost of oil (now at $110 a barrel) and the ever-weakening dollar. “Analysts see little reason for the dollar to stop falling, or for oil and gas prices to stop rising, any time soon.” “Strong global demand for oil will keep prices high despite a downturn in demand in the U.S., two prominent forecasters warned.” Was this not a game?

Presented without comment, from the front page of the San Jose Mercury News.

It’s a sign that investors think that crude oil prices “will keep climbing despite evidence of plentiful supplies and falling demand,” says John Wilen of AP. He goes on to say, “The fact that there was no overriding reason for such a price spike could be a bad omen for consumers already bearing the burdens of high heating costs and falling real estate values.” The reason: investors are moving to the oil futures market, driving up prices, as a hedge against the falling dollar. (And let’s not forget: demand from China and India continues to forge ahead, even as the U.S. economy sputters.) The Energy Department said that it expects gasoline prices to peak this spring well above the record – $3.227 a gallon average – set last May when the WWO game was going on. When, it should be noted, oil prices were “only” $65 a barrel.

Oil prices up over $2 a barrel, to $93 or so, upon tumults legal and illegal. In Venezuela, Hugo Chavez reacted with threats when a British court ordered over $12 billion in Petroleos de Venezuela SA assets frozen (PDVSA is Venezuela’s state-run oil company). In the Niger Delta, unidentified attackers fired on a vessel escorting oil workers, killing a sailor, and furthering fears that Royal Dutch Shell will lose yet more production in Africa’s largest oil-producing nation (an earlier attack on a Nigerian pipeline has already taken 130,000 barrels of oil a day off the market, possibly for months). To WWO players, this all seems familiar, as players forecast similar events in Venezuela and Nigeria during the game . . . especially since the nationalization of a multi-billion Exxon-Mobil facility in Venezuela (the action that caused the British court order), occurred in real life on Day 2 of WWO.

The saying goes: If you owe the bank $10 billion, the bank owns you. If you owe the bank $10 trillion, you own the bank. That is, you owe so much that if you default, the bank goes under too.

Since the USA consumes one out of every four barrels of oil produced in the world, we own the oil bank, so to speak. Or thought we did, maybe, until yesterday, when President Bush went to Saudi Arabia, met with King Abdullah, and asked him to please produce more oil or else the US economy would slow down and thus we would buy less of his oil.

Leave aside for the moment the absurdity of anyone giving the King of Saudi Arabia a lecture in Economics 101, and focus on what this means: Bush is saying “we buy so much, we own the bank.” The Saudi response? According to an article in the New York Times, the Saudi oil minister said that Saudi Arabia shared Bush’s concern that a recession in the US would have profound effects, but “Saudi Arabia would raise production only when the market justifies it.” In short: “No, Mr. Bush, actually the bank owns you.”

Quite understandable, from the Saudi point of view. Why invest money in additional infrastructure and sweat to pump a gallon of oil to sell this year at $100, when without any additional effort you can pump that barrel next year and sell it for $150? So what if the US goes into a recession and buys somewhat less oil? China and India are standing by, cash in hand. And the World Without Oil scenario continues, scarily, to become more real.

A good catch today by Gracesmom (Marie Lamb): Thieves take truck, gallons of oil in the Kennebec, Maine area. Eerily reminiscent of many reports we got in WWO…

“CHINA has urged local governments to set up an early-warning system to ensure sufficient oil supplies at filling stations, which face shortages across the nation, the state-run Xinhua News Agency has reported…” So says The Australian, here. Is this not a game?

“The current surge in the price of oil is certainly not driven by a conviction that oil supplies have peaked and can only decline from now on. The dealers in the London and New York exchanges who make the market react to the daily flow of news  and don’t bother much about longer term issues like peak oil. The market is a simple-minded beast: Supply is tight and disruptions are possible, so the price goes up. But the market is so tight because demand has been growing faster than supply for years, and now the fear is that supplies may have stopped growing altogether.” Read the rest here.

As reported today in the WSJ. Just as a reminder, when WWO launched, oil was less than $70 a barrel. And gasoline prices were less than $3 a gallon. Ah, the good old days.

As player Warnwood told us, “the war is in words” - and here’s Michael T. Klare to parse the latest word stratagem from the U.S. Department of Energy. Be sure to read down to the part where it may become necessary for the U.S. to create “more investment-friendly environments” in oil-producing nations. As we have in Iraq?

Or so reports the Wall Street Journal today, here. Subscription required to read the whole story, but I found the first sentence pretty much says it all: “A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.” And: “Plenty of energy experts expect sky-high prices to hasten the development of alternative fuels and improve energy efficiency. But evidence is mounting that crude-oil production may plateau before those innovations arrive on a large scale. That could set the stage for a period marked by energy shortages, high prices and bare-knuckled competition for fuel.” Sound familiar?

Or so Time magazine predicts, right here.

Take a look at the preview of this article in the WSJ (subscription needed to read the whole thing, but the gist of it is freely available here). This is essentially a validation of the formative assumptions of WWO: that oil demand is strong and getting stronger, while oil production is weak and getting weaker. What force is there to prevent a rupture between the two?

The price of crude oil closed above $80 a barrel for the first time on Thursday, as a hurricane in Texas raised supply concerns. US light crude hit $80.20, two cents higher than the price it touched on Wednesday. Oil prices have risen 30 per cent since the start of this year and are four times higher than their 2002 level.

The latest figures from the US Energy Information Administration show that global liquid fuels production in August was almost a million barrels per day lower than the same period in 2006.

Lord Oxburgh, one of the most respected names in the energy industry, said a rapid increase in the price of oil was inevitable as demand continued to outstrip supply. He said: “We can probably go on extracting oil from the ground for a very long time, but it is going to get very expensive indeed.”

As reported in The Independent today.

Thanks to our very own Marie Lamb (Gracesmom) for finding this one: scientists rebuke oil industry forecasters, question rosy forecasts. And check out the headline they gave it… coincidence?