8 replies to this topic

[Egann]

This is one of those current events issue which we really should talk about.

 

OPEC has drastically increased their output over the last year, which is in turn driving energy prices down everywhere.

 

Now, there are a lot of reasons OPEC could be doing this. If you're not familiar, most oil producers worldwide break even at producing oil somewhere between $60 and $110 per barrel. OPEC, however, has access to remarkably sweet oil (low sulfur content) which requires less refining, and can probably still make money below $40 a barrel. Prices at the beginning of the year were around $115. Right now it's about $60.

 

You've probably noticed the drop in price at the pump. That's just the beginning.

 

 

There are a half-dozen reasons why OPEC might be doing this. One of the more circulated theories is that they're trying to shake American Shale producers out of the market, or that they're trying to protect their market-share by driving competition out of business.

 

"Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect," he said.

 

However Saudi Arabia's oil minister Ali al-Naimi had told last month's OPEC meeting the organization must combat the U.S. shale oil boom, arguing for maintaining output to depress prices and undermine the profitability of North American producers, said a source who was briefed by a non-Gulf OPEC minister.

 

Of course, the real victim will be green energy, which simply can't compete when oil is cheap.

 

Discuss.

[Veteran]

Long may this bubble remain unburst! I'm saving far too much money in petrol to care about polar bears! 

[JRPomazon]

I too am enjoying this break from $3+ at the pump where I live. But I don't think green energy is going to be hurt as much as you think Egann. People who drive electric cars are still paying less at the pump for their vehicles, even less so now. The best thing about this is that it's making big oil companies sweat a little to compete with other prices.

[Delphi]

I don't think green energy will be hurt much.

I think "Oil = bad" has been harped on loud enough and long enough for there to be a shift in the type of people rising up and inventing new technologies.

It may be more of a western US thing since I see a difference in what you see happening energy wise around you compared to what I see around me, since outside the flyover states the west is pretty liberal.

Alternate power tech has been big here for a while, especially hydroelectric on the lower Columbia River and wind (as much as I'm not a fan of it) on the upper Columbia in the gorge that acts like a natural wind tunnel. Nevada just opened up their new solar plant and it's been connected to the grid. I could actually get power from that now where I live. Utah is looking into that now and I know Wyoming has been looking at geothermal for quite a while now with their very geologically active areas. Utah just shut down one of their coal mines because it didn't meet EPA standards (I'm not big on burning coal anyways. It's also hilarious that people are against nuclear power but we're pumping out radioactive isotopes whenever we burn coal but they'll fight to the death to protect coal mining).

I may also hear more about it since my husband's best friend is studying civil engineering in green energy and my dad works on the power grid and we talk about this kind of stuff a lot. But there's a lot going on, it's just not mainstream news right now because we havent had something that's a high enough holy shit quotient for the general public to care. Just little things here and there that save when added together. But that's not exciting.

But on subject of the actual oil stuff, from the admittedly few things I've read we're kind of at a precarious balance. The strangle hold OPEC had us in before is what made oil shale viable since it's more expensive than regular drilling. But if the prices go down too much then the cost of oil shale is no longer worth it.

It's also done a lot for providing jobs. A lot of younger men in this area have picked up and moved to the Dakotas or live there half the year since it's not to far from here to work the oil fields and make bank doing it right now. It's been nice for the intermountain area to have that money circulating about again.

So the higher prices suck but it also means we in the US can supplement foreign oil and not be so prone to being at the mercy of whatever OPEC is doing since they were one of the only games in town. Ideally we use this reprieve on prices and the boom in jobs to concentrate on alternative energy so we don't have to rely on OPEC period.

So as much as higher prices suck it does mean we can afford to go after our own oil and build a reserve.

[Egann]

I personally expect OPEC has opened a can of worms without really thinking about what it will do.

 

First, the reason they likely did this...we all know it's American shale. My conspiracy theorist side is they don't want America in particular to be energy independent because (most) of our activity in the area can be seen as protecting our interests to buy oil at a stable price. An energy independent superpower is a bit of a loose canon because it can literally do whatever it wants.

 

The irony, however, is that it *won't* affect the US production first. Russia will get shaken out of the energy market first, which is really going to drive Putin nuts. I'm willing to wager half the reason Russia wanted Crimea was to export things (namely oil and natural gas) onto the Mediterranean. Now China's basically the only major buyer of Russian energy.

Quite coincidentally, the Russian bank announced a few days ago the discount rate for investing in the Ruble is now 17% (it was 10% before). I wonder why. Could it be that Russia is desperate for foreign capital? So yeah, Russia is about to be in a world of pain (along with Venezuela and Iran). I half expect Russia to go to war to distract from its economic woes, but then how will it feed its troops?
 

Second, OPEC is operating on the assumption that oil demand is relatively inelastic because that's how oil traditionally behaves. In developed countries like we all live in, that's largely true, but the world now has two emerging markets with over 2.5 billion people in them: China and India. Lower oil prices will trigger consumption in the Chinese and Indian markets. Consumption which would not have existed if gas stayed at $3+ a gallon.

 

I too am enjoying this break from $3+ at the pump where I live. But I don't think green energy is going to be hurt as much as you think Egann. People who drive electric cars are still paying less at the pump for their vehicles, even less so now. The best thing about this is that it's making big oil companies sweat a little to compete with other prices.

 

Yes, but one of the major reasons I advised my parents against buying a hybrid with their last car was that the math didn't work out. Even though hybrids are easier to maintain and cost less per mile, it is very hard to justify the added MSRP against a standard econo-box car.

 

Toyota has announced the successor to the Prius. The Mirai is a proper mass-produced fuel cell car, and it just went on sale in Japan two days ago. This is COOL. This is exactly where I've been saying cars need to go for years...and requires Hydrogen infrastructure. Good luck getting that to stick when gas is cheap.
 

Sucks to be Toyota right about now....

 

But on subject of the actual oil stuff, from the admittedly few things I've read we're kind of at a precarious balance. The strangle hold OPEC had us in before is what made oil shale viable since it's more expensive than regular drilling. But if the prices go down too much then the cost of oil shale is no longer worth it.

It's also done a lot for providing jobs. A lot of younger men in this area have picked up and moved to the Dakotas or live there half the year since it's not to far from here to work the oil fields and make bank doing it right now. It's been nice for the intermountain area to have that money circulating about again.

So the higher prices suck but it also means we in the US can supplement foreign oil and not be so prone to being at the mercy of whatever OPEC is doing since they were one of the only games in town. Ideally we use this reprieve on prices and the boom in jobs to concentrate on alternative energy so we don't have to rely on OPEC period.

It's more like OPEC can't make its mind up if it's about making a profit or if it's about economic control. Pumping like this has to eat OPEC's reserves, and it doesn't turn a good profit compared to what they can sell the oil for. I'm normally all about the free market doing its thing for prices, but cartels like OPEC are never about free market prices.

I seriously doubt that alternative energy will start to take over because of the excess oil. People seldom buy more expensive things, even if they know better. What I do hope, however, is that the economy will pick up before OPEC inevitably ratchets the price up again. Hopefully, when that happens, car manufacturers will have the time and money to R&D and will be ready with fuel cell and electric cars. Also, hopefully, people will have the money to buy the upgrades at the same time.

[Delphi]

Out here Tesla cars are seeing a lot of support, mostly because of the polution problems in the northern valleys of Utah. I mean it is so bad that when we get an inversion in the Salt Lake Valley when I was living there I got extremely ill. I grew up in an area with almost zero air pollution though so it was definitely a shock to my body.

The Salt Lake area also tends to be an early adopter of new technologies then running with it. Intermountain Healthcare has one of the best electronic medical records database in the nation and they first adopted an electronic records database in the 80s. Which I can personally attest to since I work registration and the back end systems in the hospital chain.

There's a lot of hubub up north about new technologies now that it's becoming cheaper to actually mess with stuff again. Believe it or not Forbes rates Salt Lake City as number five on the list of best cities for tech jobs. We also have no shortage of uranium in southern Utah and University of Utah and BYU have been in a self imposed competition to produce better ways to harness resources for energy.

I'd check out University of Utah's Energy and Geosciences Institute to see what I mean about the different mindset. They're still searching hydrocarbon based energies but ways to make it more efficient. Utah also funds the USTAR initiative to help small technology businesses gain a foothold. And naturally since we have a large cattle industry biofuels are a big research topic right now.

I guess that's why I'm so optimistic about newer energy sources being researched because I live in an area that is always actively researching it.

[Selena]

It's shale oil -- but it probably won't last long.

 

A price drop is to be expected, since OPEC controls oil like the Spacing Guild monopolizes melange in Dune -- THE SPICE MUST FLOOOW. They want to retain the control they've always had. Which means temporarily lowering prices. Temporarily. Could be a year, could be several years, but it won't last forever. Extracting shale oil is roughly the equivalent of scraping the bottom of a barrel. There's supposedly a lot of it. But it's problematic. 

 

1. It takes more effort to produce -- that means a bigger production price tag. Which means less profit and more waste. This is fine for now. Alternative energy is presently expensive. But a 128 meg hard drive used to cost a crapton of money back in the 90's. As the cost of alternative energy comes down, shale oil may eventually become unappealing for everyday small-scale energy uses. But that would be a long-term transition.
    
2. The environmental impacts are uncertain -- not only is there a risk from the usual things like oil spills and waste, but a lot of earthquakes conveniently occur around fracking sites. In places where earthquakes never used to happen. The more land you grind up, the less stable it becomes. This is uncharted scientific territory. We've had no way to test the full impact of fracking. It's entirely possible that we're playing with fire.
    
3. Consumption rates means that we're boned either way -- Even if we double our oil production, our energy demands continue to increase. We're going to burn through all of it regardless of how much we produce. And once you're out of shale oil, you're out. No mas. Fini. Kaput. Alternative energy sources are fundamental to the continued progress of humanity. 
    
4. Gas prices still aren't "cheap" -- Gas is under $3? That's still like $40 a tank. The only reason this feels cheap is because we've gotten so used to paying even more. It's like being excited that something's 50% off when it was originally marked up 400%. I had to borrow mom's truck and fill the tank. Part of my soul died. Four times more money that I'm used to spending at the pump. That shit adds up, especially in an age when regular income is not always guaranteed.
    

So while some are heralding this as the new age of oil production, I see it a different way. I see oil in its death throes. The fact that we have to rely on shale oil is a sign that we're getting more and more desperate. This is a temporary boom. The bubble will burst eventually. If I were a bettin' girl, I wouldn't put any money into oil. Alternatives will eventually replace it, one way or another. It's just a matter of whether or not humanity will wait until the last minute.

[Delphi]

I'm actually wondering since our generation are now the scientists and economists that are up and coming in the world if we won't see a rather rapid change.

We've had it beat into our heads from childhood oil is finite and is running out fast, greenhouse gases = bad, save the whales, hug a tree, renew, reuse, recycle, etc, etc.

Our generation's conservatives raised by conservative parents are even rather liberal when it comes to renewable energy.

I'm expecting a paradigm shift on all of this from what we're used to. I think we're already at the tipping point. I mean you can go back the five years in contro and see if any of us would have expected a viable electric car that people actually want to buy and then the same company turns around and opens the patents for it? We probably would have laughed them off the forum saying they were a naive idealist. But here we are.

And well I am kind of a wide eyed idealist in some things but I think this is one worth being an idealist about.

[J14N56-24]

 

 So yeah, Russia is about to be in a world of pain (along with Venezuela and Iran).

 

 

 

This.

 

Any country that consumes more than it produces is going to benefit.

Any country that produces than it consumes (and by extension exports and constitutes a significant part of that country's GDP) will lose out.

 

In theory, from a macro-economics point of view, this may be slightly beneficial as there will be a slight increase in global GDP because of the shift from producer to consumer (the latter is more likely to spend their gains). This should roughly translate into gains and increased productivity in energy dependent industries (e.g. agriculture and by extension food production and the cost of food itself).

 

Sounds peachy. But its all hard to swallow.

 

From a Latin American perspective this really blows. The aforementioned is going to happen at the expense of my economy. 

 

Hopefully the situation is expected to last 1.5 to 2 years - though it may take more time to recover fully. While I've personally prepared for 'when the sky falls', this is going to affect the social environment that I exist and by extension the quality of my life and dependents (i.e. increase crime, possible civil unrest etc). 

 

I know I haven't contributed much to the discussion, but I felt the need to share to add some contrast. 

 

 

 

 

Our generation's conservatives raised by conservative parents are even rather liberal when it comes to renewable energy.

I'm expecting a paradigm shift on all of this from what we're used to. I think we're already at the tipping point. I mean you can go back the five years in contro and see if any of us would have expected a viable electric car that people actually want to buy and then the same company turns around and opens the patents for it? We probably would have laughed them off the forum saying they were a naive idealist. But here we are.

 

Delphi, I really want to be as optimistic as you, but Sweden is really ahead of the curve and they're decades away from their projected goals of a fossil free  dependent economy. I do recommend researching some of the incentives they've put forward for 2020 and 2050 - its very encouraging.