The best way to stockpile fossil fuels for future use is to leave them in the ground. So if we really wanted to save oil for future years we should be shutting down domestic production.
We’ve been doing that. It’s not an either-or choice. If by “we”, you mean the government, then there are lots of regulations, laws, tax credits and other mechanisms that encourage conservation. Some of it makes sense, but a lot of it contradicts economic reality by creating incentives and rewards that cost a lot of money for little gain.
If by “we”, you mean individuals, then we are all able to conserve energy use however we see fit.
We use lots of oil because there is no more convenient, affordable and portable energy source. The US is very fortunate to have large reserves of both oil and natural gas, and it’s paying off for us right now, as the international market responds to the additional supply.
Yes, it has less clout. But less clout is not the same as no clout.
The US currently has 691 million barrels of crude oil stored in artificial caverns created in salt domes in Texas and Louisiana. This is estimated to supply 37 days worth of oil at the US current consumption rate.
(I’m not saying **LonghornDave **is unaware of this, just providing some background.)
Not exactly.
IF we’re stockpiling against adverse political actions, THEN we need to be able to react as fast as the bad guys. IOW, if SA or Russia cuts deliveries of crude, we ought to be able to replace that crude supply tomorrow, not 2 years from tomorrow. Oil in the ground doesn’t start flowing based on just a wish.
Likewise, to the degree we import partly or fully finished products we’d need to have excess onshore refining capacity to convert our excess available crude to finished products immediately.
Right. I’m very familiar with the SPR. I know quite a bit about and have been to the Hackberry facility and to the old Weeks Island facility.
- High oil prices led to two things: 1) people who use oil looked for ways to reduce their demand. They conserved and looked for alternatives. To some degree, they were successful. 2) producers explored higher costs supply sources. As long as there was money to be made at $100 oil, they sought our sources of oil that could make money. Sure, sources that cost $10-20 to produce exist and they’re awesome to have, but if you can make $20 while oil is at $120, why not try?
So, this led to demand declining (or at least not growing as fast as it could have) and supply increasing. This could have continued on longer, but it was inevitable that prices would decline. What caused this precipitous decline was Saudi Arabia’s (and ultimately OPEC’s) decision to keep production at a high level. This guaranteed high production for the medium term, which coupled with the flat demand noted above, meant that low prices would also remain for awhile.
This makes sense for Saudi Arabia who has enough capital reserves to survive $30 oil for years without having to worry about raising taxes or whatever. They are willing to forgo short term profits in order to gain advantage (economic, political, etc) in the longer term.
Private companies don’t really have a say in this and will make decisions that will allow them to be profitable over the long term. This will mean cutting back on expensive oil and investing in cheaper oil. This will likely mean lower production, which will lead to higher prices eventually.
But there’s a tipping point. If you have less clout, then affecting the price requires you to enact greater restrictions on output. The value of a cartel is that you restrict output, and the price goes up so much you make more profit dollars even with less sales.
With less clout, the same level of restriction means the price doesn’t go up as much, and maybe you don’t actually make more money anymore.
But that’s exactly what’s not happening. Just the opposite. In a scenario in which OPEC pushed the price to rise to over $100, that would be self-defeating because it allowed U.S. and Canadian oil, profitable only when prices got over around $75 a barrel, to enter the world market.
But OPEC didn’t do that. The growing world market created a demand, which a) raised prices and B) everyone rushed to fill. That might have worked, except that the factors mentioned previously in this thread caught everyone by surprise. Result: lowered demand, lowered prices.
OPEC is not acting as a unified cartel, either. The Saudis are playing the others. They have huge capital reserves and can afford to. Venezuela does not. Neither do the Arab oil states like the UAE, which was spending gazillions until the worldwide recession hit in 2008, from which they still haven’t fully recovered.
Nor does OPEC, even if unified, have the power it had in the 1970s. But the Saudis can afford to play a long game. The U.S. is producing oil that only becomes profitable at, say, $75 a barrel. That will eventually come off the market. The world economy will eventually swing back upward. Therefore, supply will go down, demand will go up. What’s happening now is tactical maneuvering.
This is just another way of saying what phreesh already said. I think he or she is quite correct. What I don’t understand is what you or Carryon or others are trying to say.
phreesh is saying that the Saudis are forgoing short term profit for long term gain. I’m saying that maybe there isn’t any tactical maneuvering going on at all. The Saudi production has been pretty constant over the last year and a half.
If their power is reduced, it may be that the Saudis are unable to unilaterally affect the price of oil enough to make restricting output deliver a positive outcome for them. If that’s the case, the correct business decision is to produce what you can produce, and earn whatever monies you can right now.
Edited to add, this power reduction may be due to US/Canadian high cost oil, but it still means the Saudis become price takers instead of price setters.
I tend to agree with Cheesesteak, although I don’t think there is really much disagreement (in most of the above posts) on the economics of it all, only to what extent OPEC and/or Saudi Arabia has/is orchestrating demand/supply/pricing. I perceive that OPEC still has some power, but much less than they did previously. Finding, quantifying and extracting oil in the US and Canada has disrupted OPEC’s control of the market, and they have less power to control supply and pricing.
Yes, they can still produce oil at a lower price level than the US and Canada, and they can exploit that in the short term when prices are lower. But we still have the oil in the ground and pretty much know at what prices it pays to extract it. Seems to me we (US and Canada) are in a pretty good position right now. Other than oil drilling companies, we get to eat our cake (enjoy lower oil prices) while still having it, too (we still have huge reserves in the ground for the future when prices go back up).
But their power to control the market and pricing by either restricting or boosting supply is diminished by large supplies in non-OPEC countries.
I guess this is what we’re disagreeing about. I say keeping the production constant is a tactical decision. Not making a change is still a decision that needs to be made.
We actually have. California oil consumption in 2012 was approximately the same as for 2000 - not per capita, absolute. Cite. The carbon tax just went into effect in a bit of lucky timing, since there seem to be few people moaning how they can’t possibly afford to pay an extra dime per gallon at most when gas prices went down $1.50. I don’t have data but I believe I’ve seen that the efficiencies we are seeing from a higher mpg fleet also helping in the reduction of demand.