Friday, November 14, 2008

Oil is still too expensive

I had the following censored from what appears to be an oil industry astroturf site today:

"It seems to me that we should set a target price of $20/barrel by controlling demand. This is above the cost of production of most oil in the current supply, and there is ample future oil to maintain that price over a decade or so. All we need to do is to direct investments into cheap-to-produce oil exclusively as we cut demand to follow depletion down. This figure that rembrandt posted from the WEO 2008 shows that investments in expensive-to-produce oil is a whole other world.

We can get at least 1 trillion barrels at less than $15/barrel cost of production and that is the amount of oil that got us on to oil so it should be plenty to get us off of oil. Investing in anything more expensive than that looks to be a true waste of money and effort."

What is wrong with the sentiment expressed here? Clearly it is factually accurate. Draw a line across the figure at $15/barrel cost of production and there is plenty of oil below that cost to use to transition off of oil. That can't be the problem. The idea that demand control can control price is historically validated. There was an oil glut from 1884 to 2000 brought about by switching electricity generation off of oil and boosting efficiency in transportation. The price of oil was forced down and then kept low then. That can't be the problem. So, what is the problem?

I think that the problem is that to deal with the finite oil resource in a cost effective way, we need to start shrinking the oil industry now. And, that is not happy news for oil industry advocates. On the Internet, censorship is practiced by corporate sponsored groups or non-democratic governments. Elsewhere the ethos of freedom of expression runs too strongly to tolerate censorship. We must thus take evidence of censorship as evidence of corporate or foreign sponsorship or both. It is not unusual for the oil industry to hide its attempts to influence public opinion with false information. What strength there is in global warming denialist propaganda comes from often hidden oil industry funding. It thus appears that this must be the cause of the censorship I experienced. We are likely seeing an industry scam attempting to manipulate the price of oil.

The present price of oil, $55/barrel, is still way above the cost of production and is thus too high. None of the proposed new investments in oil supply that fall in the expensive range makes any sense compared with real energy sources like wind and solar. So, there is no reason at all not to cut the price of oil in half right now. Oil is still too expensive!