Tuesday, March 20, 2012

The Price of Gas

  First of all, so sorry for the delay in posting; a few technical difficulties cascaded into a tidal wave and ended in my having to cough up for a new computer.

  This morning as I drove up to the gas station with an empty tank, I was a little perturbed to see that gas has hit $3.74 here in Minnesota, with the summer driving season still ahead of us. Unless things change, gas go above $4.00 per gallon here in the MidWest. If the situation in Iran blows up, we'll see $5.00 in short order. With an election coming up, President Obama knows that nothing makes Americans angrier than a bad economy and soaring gas prices. There has been talk of releasing some oil from the SPR {Strategic Petroleum Reserve}, a 60 day reserve of oil our nation keeps in case of an emergency. Obama's re-election is not an emergency.

  But we do need to ask ourselves why this is happening and will it continue. Simple question, complex answer. The first part is that the world's production of petroleum is plateauing and as time goes by will begin to decline. There is already some serious doubt whether Saudi Arabia can supply the additional 2 million barrels per day {bpd} they say they can and if so for how long. The oilfields in other nations like Mexico and the UK's North Sea are in a steep decline. Both Canada and the US are ramping up production via oil sands, but producing oil in this fashion is very expensive. Worse, environmentalists are upset at how this is produced and the EU is threatening sanctions against Canadian oil sand production.

  The situation in Iran and the Gulf of Hormuz is another concern-- and while a number of people are just blowing this one off, my opinion is that Israel's PM Netanyahu will not sit idly by as Iran obtains a nuclear weapon. In Israel there is a saying-- "Never Again" and it refers to the Holocaust. A war is coming folks-- bet on it. Obama knows it's coming-- and is trying to delay it until after the election. He might well do it. Looks like the Mayans might've got the date of Armageddon right after all.

  There's more to this story. In the emerging nations of Asia, oil comsumption is growing by leaps and bounds, especially in China and India. In an article recently posted by Ambrose Pritchard, he relates that China will have an additional 125 million cars on the road within 5 years. India will put another 35 million. Then we come to the other rising economies like Indonesia, Malaysia & Vietnam. It's not only cars either-- the average peasant in China and Vietnam are switching from bicycles to scooters. Water buffalo are giving way to gas powered tractors. The implications of this are mind boggling. If these numbers are even close to the truth, the globe is looking at a rise in crude consumption of nearly 20% by 2020. And the world's non oil sand production is going to begin declining next year. Rock. Hard Place. Here in the States, that Rock will be when gasoline goes above $4.50 for an extended period of time. That's when the US economy will blow another piston.

 Is it within the Wit of Man to avoid this ? Yes it is. But it'd take a global effort and coordination that simply does'nt exist today. For example we can all agree not to produce consumer goods like toys and plastic bags. If we get really ambitious, we can limit car engines to 800 cc on a global scale-- which would leave us with only having very small mini cars available, but would dramatically reduce oil consumption. Will any of these things really happen ? No. What is far, far more likely is a war for control of those resources. That and $5.00/gal gas when the shooting starts. 


  1. I think the idea of the amount of oil declining is dated... we may very well have over 1.5 TRILLION barrels in reserves given the new finds and the technology to get it out...your premise needs more research.

  2. Possibly-- but at what cost ? Producing a barrel of oil from Canadian tar sands is an expensive proposition, as is offshore oil platforms. What is certain is that demand will rise in Asia far, far faster than your rise in supply.

  3. a hag who reads historyMarch 21, 2012 at 10:18 AM

    As an 'oldie' (but goodie!) trying to live off SS and savings on a fixed income gaining NOTHING and still paying health care, I can not only see this happening...I'm afraid that part of the solution will have to be a 'drop off' in care to those with dehabilitating diseases. A 'survival of the fittest' that will see the infirm, weak, and poor of ALL nations reduced to a decline that no one will champion.

    And, as a person who deals in truth, I see no way to either prevent this or escape. Where could you put money? Even if you see value in silver and gold you supposition is correct that unless you would be fortunate enough to be self-sufficient and barter you have little chance of escape. I doubt that the government would allow that for long as they would either TAX you OR force you to 'share' the fruits of your labor for the 'common good.'

    It is BECAUSE of this that I find it difficult lately to deal with my children, neighbors, relatives, etc. because they prefer to bury their heads in the sand rather than stare at the future as they simply don't want to 'believe'.

    As a 'prophet is never recognized in their own country' so it is with those who observe and speak truth. Now, we could have a huge oil 'find'. We could also have a natural event that would bury millions (ie a plague/war/famine).

    The secret to speculation is to try to read and research as much as you can, prepare in whatever way you see fit, and then come to the realization that no matter how much you do of the former, in the end you simply have to endure.

    I just wish I knew Rumplestiltskin's secret of spinning straw into gold ;-) Then again, you can't EAT gold even if it is worthy of barter.

  4. If you look at the real cost of Mid East Oil, by adding the cost of the U.S. military, then the Oil sands is a bargain.

  5. The battle over resources has already begun. I really do not like to be pessimistic. What bothers me even more is the way our country is acting right now. Cutting Iran off to Swift is going to kill alot of Iranians. No matter what our governments do I just cannot fathom starving a countries populice over this nuclear issue. History is repeating itself once again as we were attacked by the Japanese for basically cutting them off from resouces specifically oil.

    Telling other countries we will sanction them if they trade with Iran could be the end of our reserve status in the world. More and more countries are telling the USA we will no longer use your currency in trade for oil because of our actions. I hope I am wrong but bullying the world is not going to solve anything. I served this country thru two wars and we are playing a very dangerous game that could start a world war this time. Sinking one carrier will equal WW3. We are not invulnerable.

  6. Good post Mr K as always. I agree with your reply to anon at the top. The oil may be there, but there is the law of diminishing returns as it cost more energy to extract it than is gained. Even getting natural gas and oil from fracking has its costs to the environment as well. Here is a website that describes the process. I don't vouch for its accuracy. http://www.gaslandthemovie.com/whats-fracking