April 15, 2008
Anyone Happy About High Oil Prices?

With oil prices up over 80% since April 2007 you might think leaders of governments committed to CO2 emissions reductions would be happy that prices are restraining CO2 emissions growth. But if you thought that you would be wrong. The British Prime Minister wants OPEC to hike oil output (and does he seriously think OPEC can do this?).

Prime Minister Gordon Brown on Tuesday called on the Organisation of the Petroleum Exporting Countries to boost production to counter rapidly rising oil prices, adding his voice to similar requests from the administration of U.S. President George W. Bush.

"We are not producing enough oil ... and we can take collective action to persuade OPEC and others to get the oil price down," Brown said in an interview on Sky Television.

Does this sound like a guy deeply fearful of anthropogenic global warming? I think not. When you hear other politicians calling on Saudi Arabia and other oil exporters to scale up production you'll know they too are less worried about CO2 emissions and more worried about economic growth and living standards in the short term.

People who are sincerely worried about global warming as a massive threat to humanity right now ought to be thinking one of two thoughts about high and rising oil prices:

  • Oh happy days, the world is running out of horrible polluting oil. Declining oil reserves are doing what 100 conferences of diplomats negotiating climate change treaties can never hope to accomplish.
  • Oh happy days, luckily the oil exporters see more money to be made by restraining production rather than let the gluttonous oil consumers burn much more every year.

Yet as I listen and read I do not hear anyone singing "Oh happy days". Why is that? Or are you singing secretly "Oh happy days" in the anonymity of your daily shower? Anyone want to fess up to happiness about the rising prices of gasoline, diesel fuel, and heating oil?

In after market trading on Tuesday oil hit a new high of $114.08 per barrel. My own reaction was "Oh I hope I do not find myself homeless when oil production starts declining 4+% per year".

If we are lucky the price of oil will hit $130 by the end of the year but world oil production won't start declining this year or even next year. Why lucky? Higher prices without an absolute decline in oil production will wake up more people in time to do more preparations for when world oil production starts declining at 4% or more per year.

Share |      Randall Parker, 2008 April 15 10:43 PM  Climate Policy

Ramez Naam said at April 16, 2008 12:00 AM:

I'm quite happy about higher oil prices for exactly the reasons you state. Higher prices provide incentives both for reducing carbon output and for development of alternative energy sources. There's short term economic pain, but far better for the price change to be gradual and provide advance signaling to incent useful responses than to have a sudden shock years down the road.

jb said at April 16, 2008 7:16 AM:

I'm with Ramez. The increased price of oil is causing all sorts of innovation in the industry, and I have confidence that new technologies will help mitigate the production decreases and price increases. It won't be smooth and easy, but it won't be nation-wrecking either.

As the price of oil increases, expect the following:
1. Mechanics who replace your gasoline engine with electric engines on a payment plan, which you can justify because it costs less than the gas that you would otherwise buy.
2. Power companies announcing new nuclear reactors
3. Announcements of new oil production from previously unpursued fields (horizontal fields, shale fields, tar sands, etc)
4. significant increases in the average fuel economy of new cars
5. Reinvigoration of train-based freight

I'm sure there are others.

Greg said at April 16, 2008 7:41 AM:

Are there any indications of coal-fueled locomotives revival? Especially steam turbine variety? They should be much more fuel efficient than diesel locomotives today, as one calorie of coal-derived energy costs about one-eighth of oil-derived one.

Ned said at April 16, 2008 8:04 AM:

Greg - Here's a little blurb from Wikipedia:

China continued to build mainline steam locomotives until late in the century, even building a few examples for American tourist operations. Since China was the last main-line user of steam locomotives, ending officially at the beginning of 2006, it is plausible that many still exist in industrial operations or in more remote parts of China. Many coal mines and smaller cities, such as Pingdingshan and Hegang, maintain an active roster of JS, SY, or QJ steam locomotives bought secondhand from China Rail. The last steam locomotives built in China were of the SY 2-8-2 class, built until 1999.[citation needed] The last steam locomotive built in China was SY 1772, finished in 1999. As of 2007, at least four Chinese steam locomotives exist in the United States - 2 QJ's bought by RDC, a JS bought by the Boone Scenic Railway, and an SY bought by the NYSW for tourist operations, but re-painted and modified to represent a 1920s era US locomotive.

Apparently China stopped building steam locomotives in 1999, but there are still plenty in operation there (I've seen them). Steamers are much more expensive than diesels or electrics to build and maintain, but, with the rising price of oil, maybe we'll see a revival.

parky said at April 16, 2008 8:05 AM:

Peak oil in my mind for the next several years is more likely plateau oil, compounded by rising demand. The side effects are now begining to occur and are now more meaningful in the real world than peak oil per se. Increased food & manufacturing commodity costs, is the real sore spot that is impacting us ordinary folk. We have no control over those items. Less car trips or solar panels on our roof, won't bring those prices down.

cancer_man said at April 16, 2008 8:08 AM:

Randall, where did the 4% decline in production come from? Thin air?

One interesting story that I don't recall seeing on futurepundit is that global temperatures have not risen in 10 years.

Dave Tufte said at April 16, 2008 8:19 AM:

I think what you are seeing is that it is generally thought to be in poor taste to be happy about high prices. That taste is not symmetric when prices drop.

For one, I'd say most of Texas is thrilled about this.

tom said at April 16, 2008 8:52 AM:

Still half the price of all european countries (both poorer and richer)

You ought to be happy while it's still very cheap in the USA

Brock said at April 16, 2008 10:14 AM:

My Dad bought oil futures last summer using leverage, so he's pretty stoked about it.

But I don't think environmentalists should be happy. The fall-back fuel of first resort is coal, which is environmentally worse than oil in a number of ways. Eventually we'll switch to nuclear, solar and wind, but it won't be overnight. Coal is a known factor; the cautious types in government and industry will choose the devil they know. Any environmentalist out there right now should be campaigning (hard, hard, hard) for massive investments in nuclear infrastructure and R&D. We'll have "peak Uranium" one day too if we keep burning it as wastefully as we do now. We need to switch to 3G/4G breeder reactors and thorium fuels, but now I'm preaching to the choir. :)

Fat Man said at April 16, 2008 10:16 AM:

I pray daily for Peak Oil, and for Nuclear Power. There is a new world coming. One where power is produced by clean cheap safe nuclear plants, and where Arabs cannot afford weapons more high tech than the sword.

Alexis Madrigal said at April 16, 2008 11:29 AM:

I'm pleased that the high price of oil is driving innovation, but I'm increasingly worried about this whole coal-to-liquids movement, which can take advantage of high oil prices as easily as clean alternative energy. I shudder to think what will happen if a company like Coskata or another biofuels company develops $1 a gallon biofuel.

Jonathan said at April 16, 2008 3:29 PM:

I am super happy about paying a lot for oil. It's great!!

I think that new energy tech coming out in the next few years is seriously going to put a dent in the amount of oil used for energy.

TTT said at April 16, 2008 5:41 PM:

I think the optimal price for oil is $120/barrel.

That is high enough to spur technology, reduce consumption, and force the petrotyrants to burn the candle at both ends and increase their domestic consumption enough for their exports (and revenues) to dry up.

Yet it is not high enough to cause too deep of a recession or other serious pain.

So a sustained $120/barrel is the best of all worlds. Any higher, and we get a deep recession. Lower, and innovation slows to a crawl, while the petrotyrants continue their nefarious activities.

Randall Parker said at April 16, 2008 6:46 PM:


4% oil field production decline rate: That's the historical US lower 48 rate of decline. The North Sea is 4.5%. Some of the petroleum geologists expect that'll be about the world decline rate.

Our available oil will decline at a more rapid rate due to decline in exports in countries whose consumption grows much faster than world consumption (e.g. Saudi Arabia). Also, Asian demand will raise prices and cut US consumption even as Asian consumption grows. This is already happening.

Look at the pattern of oil demand and consumption growth:

The crucial difference this time is that the US, Britain, Germany, Japan and other rich OECD countries are no longer the driving force in the oil market. The US added just 7pc of total demand growth from 2004 to 2007, compared to 34pc for China, 25pc for the Mid-East and 17pc for emerging Asia.

The US might hit its own peak oil consumption in 2008.

Temperature plateau: I've written about it. I think I didn't write about the most recent report of it since I felt I'd already done it.

Randall Parker said at April 16, 2008 6:59 PM:

Alexis, Brock,

We do not know how much coal is left. David Rutledge at CalTech thinks the official coal reserve estimates are way too high.

Biofuel companies: Yes, they will succeed eventually. Yes, they will cause food prices and lumber prices to go much higher. Oh, and bye bye to lots of wildlife. The biomass shift from wild uses to human transportation uses will be enormous.

We are watching a huge human train wreck unfold across the planet. We need fewer people and less damaging tech.

steveb said at April 17, 2008 5:17 AM:

Sorry about Brown. He's hopeless. We didn't elect him, and he won't go away.

Paul D. said at April 17, 2008 11:38 AM:

At $114/barrel, coal-to-liquids plants will be insanely profitable. Expect many to be built; already China has many in the works.

Converting US coal reserves to CTL fuels would be the equivalent of adding nearly 600 billion barrels to the US oil reserves. The reserves of Peabody alone would be worth more than $4 trillion if converted to CTL fuels. Conversion to pipeline-grade methane is also quite possible; GreatPoint's gasification/methanation technology can do it with an energy efficiency of 85%.

cancer_man said at April 18, 2008 7:11 PM:


You *cannot* assume that since U.S. oil was depleted at 4% /year that you can extrapolate that to the entire world. There are two basic reasons: new technology is still finding more oil, even if not used for a few years. But OPEC also has a say in how much is produced.

Allan said at April 19, 2008 3:05 PM:

Initial Test Results Indicate at Least 33,000 gallons of Algae Oil per Acre Possible

During a 90 day continual production test, algae was being harvested at an average of one gram (dry weight) per liter. This equates to algae bio mass production of 276 tons of algae per acre per year. Achieving the same biomass production rate with an algal species having 50% lipids (oil) content would therefore deliver approximately 33,000 gallons of algae oil per acre per year.

…As a comparative, food crop such as soy bean will typically produce some 48 gallons oil per acre per year and palm will produce approximately 630 gallons oil per acre per year. In addition, the Vertigro Bio Reactor System is a closed loop continuous production system that uses little water and may be built on non arable lands.


It might help ...

Randall Parker said at April 21, 2008 6:10 PM:


The enhanced recovery methods will make decline rates faster, not slower. The enhanced recovery rates will cause a larger percentage of the oil in an oil field to be recovered by the time production peak is reached.

The US experience was based on most enhanced recovery methods becoming available after US production peaked. Those methods are getting used on lots of fields now at earlier stages. So when they start declining a larger fraction of their total oil will already have been removed. So I'm being an optimist by forecasting a 4% global decline rate.

rektide said at May 1, 2008 2:06 PM:

Colder areas resort to burning wood as the price of heating oil rises. This is definitely not good for the environment.

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