Weekly Review

Back in the 1960s and 1970s, the country that was the “big growth story” was the Soviet Union. Its oil consumption grew by leaps and bounds. Its space program grew; its military program grew; and it became much more industrialized. But then something happened to stop the amazing growth story. The Soviet Union became the Former Soviet Union (FSU) in late 1991, and even before that, oil production and consumption slowed.

In this article I will further expound on my reasoning behind the ELP plan, otherwise known as “Cut thy spending and get thee to the non-discretionary side of the economy.”

I have been advising anyone who would listen to voluntarily cut back on their consumption, based on the premise that we were probably headed for a period of deflation in the auto/housing/finance sectors and inflation in food and energy prices.

On June 23rd, the International Energy Agency (IEA) and the US government announced the intention to tap strategic petroleum reserves (SPRs) of the US and other countries, with an eye to reducing oil prices. The US was to provide 30 million barrels (mb) and other countries a similar amount, for a total draw of 60 million barrels.

The market responded sharply, with oil prices falling nearly $6 / barrel within a day or two; the intervention appeared effective. But it was not too be. Within a week, oil prices had recovered the pre-announcement price. They are even higher now. The market simply absorbed and discounted the news.

In the issues of energy, many Americans pin their hopes on far-away technology solutions that will enable the nation to continue its growth in energy consumption, while sparing the public the challenge of making common-sense changes in our lives for greater community development, energy efficiency, and resource conservation. This week, Christine Patton, Co-Chair of Transition Oklahoma City, takes a humorous look at this line of thinking by describing a fictional future event and an out-of-this-world solution to America’s energy challenges. – ASPO-USA

June 18, 2012 — CAMBRIDGE, MASS —

In a Gallup poll released today, Americans chose dilithium crystals as the “most likely” fuel to run future cars and power plants, with 84% of Americans choosing the crystals over other options including nuclear, hydrogen, corn ethanol, shale gas, and photovoltaic solar panels. Respondents indicated that dilithium crystals are popular for providing quiet, clean energy, with a proven track record of seven-hundred twenty-six episodes in four different Star Trek television series.

The IEA decision to release 60 million barrels from strategic petroleum reserves (SPR) of member nations has been criticized as politically motivated, too small and too late to matter, or, at best, as a desperate attempt to fend off economic woes. The reality and impact of the decision are more complex than that. The move is a bold, price-suppressing “poke in OPEC’s eye” from nations that have been perpetual price takers in the world oil market. The short-term rationale for the decision, however, should not obscure our real oil problem – geopolitics is combining with economics and geology to put us in an oil crunch that is not likely to abate until our nation moves beyond oil.

The timing and volume of the decision make sense, and one need only to look at the vigorous complaints from Iran to gauge its significance. The Libyan conflict became a factor in February, and it took time to recognize that its 1.3 million barrels per day export volume was lost to the market on a relatively long-term basis, and to fully grasp the impact on the OECD economies. It took time to see that OPEC’s promise to cover the loss had little substance, as confirmed by the recent OPEC meeting.

Recently President Obama, under pressure from Republicans and the public to bring down gasoline prices, announced a plan to expand domestic oil production in Alaska and the Gulf of Mexico.

The media appeared to joyfully trumpet the idea that with expanded oil drilling in the U.S., oil production would ramp up. No one in the media appeared to question that idea although I’ve made the case on several occasions that U.S. oil production will, in general, trend down in the future even if every last acre of U.S. territory were soon opened for oil development.

The belief among the media, politicians and the public, in general, is that with increased drilling and expansion of available territory, oil production absolutely increases.