Oil Price Choke Point

I think this article by columnist Dick Morris, more than all the other hand wringing going on, has got it. The great transition out of the fossil fuel paradigm is underway. The political support is now in place to have the US economy and thereafter the global economy completely retooled away from any reliance on oil in particular and eventually natural gas and coal.

I expected it to take much higher prices to reach this trigger point, but it appears that we are here. The massive financial resources of the modern global economy will now be harnessed to shift us out of the fossil fuel energy trap.

Of course, if the Brussard fusion energy system works out, the transition will even be abrupt. The transition will appear to be abrupt anyway. The automakers are today cranking out electrics and hybrids. The next generation is next year. It is amazing to me that even manufacturers appear to have gotten on to internet time.

On top of all that, those who have actually read through this blog over the past year will have seen us discover several nifty strategies that are even happening now and many others if successful, that will be a major part of the energy equation within twenty years at most.

To begin with, conversion of the diesel truck fleet over to LNG is a must because this releases a major portion of our oil demand. LNG is not going into anything other than capacity shortage for a very long time. It is still a fossil fuel, but it is a good quick fix for the developing squeeze on global oil supplies. The last oil crisis pushed oil out of the home heating business. This one needs to shift the haulage industry out.

The conversion of the automotive fleet into less oil dependency is underway. My guess is that it will be able to cut demand there by about half over the next five years.

Several millions of barrels per day of demand can be fairly cut without any special action taken and in a simple response to the current price regime. And that is what we need to give us the five years we need to mobilize the alternatives.

What I have found always delightful, is the way that a generally free liberal economy is able to do when facing a clear cut challenge. It is amazing how swiftly decisions can be made and implemented in the face of sudden death. Now try to imagine any bureaucracy performing like that.

I had a revealing conversation yesterday. A Canadian businessman who has made his life for the past decade in Hong Kong told me that about two years ago the Chinese government veered away from attempting to involve the state and is now supporting the same style throughout China. It was very much a case of recognizing that China needed more of what Hong Kong has. This also suggests that within a generation we will see Taiwan climb back aboard as it will not matter anymore. I also now expect electoral systems to start working their way vigorously through the body politic. There is just too much heat to contain and that will blow it off. I also suspect that the political leaders of China are ready to transition to a fully democratic system as the middle class is now emergent and very conservative.

In any case, as I have said before, the oil price regime has shifted from the twenty year $30 mark to the plus $100 mark. This is a four fold increase in the cost structure and is now sitting at the upper range. We cannot afford this. The rest of the globe cannot afford this. What is more, we now know that we cannot depend solely on the oil industry. During the seventies oil shock brought on by the initial declines in US production, there was always the Middle East. All those reserves are no longer enough to satisfy projected global energy demand.

A lot of alternative energy strategies become feasible when cheap oil is $100 per barrel. We will soon see that price again because right now, consumers of oil are rapidly adjusting and demand is dropping. So unless we get a serious supply shock of a couple of millions of barrels per day, we will retreat from the $140 range. The long side speculators will get creamed and we will have a serious oversold market very quickly. The range may even open up to $60 to $140 before stabilizing at the $100 mark.

For those who like history, the seventies oil crisis peaked at $40 and crashed to $12. That was still four times the sixties bench mark of less than $3 and the real market shook out around $20 for the next twenty years. As I said, an accident could take us to $200, but it is now more likely we will see $60 first.

McCain Scores Big With Offshore Oil Drilling Proposal

Thursday, June 19, 2008 2:06 PMBy: Dick Morris & Eileen McGann

John McCain has drawn first blood in the political debate following Barack Obama's victory in the primaries. His call yesterday for offshore oil drilling — and Bush's decision to press the issue in Congress — puts the Democrats in the position of advocating the wear-your-sweater policies that made Jimmy Carter unpopular.

With gas prices nearing $5, all of the previous shibboleths need to be discarded. Where once voters in swing states like Florida opposed offshore drilling, the high gas prices are prompting them to reconsider. McCain's argument that even hurricane Katrina did not cause any oil spills from the offshore rigs in the Gulf of Mexico certainly will go far to allay the fears of the average voter.

For decades, Americans have dragged their feet when it comes to switching their cars, leaving their SUVs at home, and backing alternative energy development and new oil drilling. But the recent shock of a massive surge in oil and gasoline prices has awakened the nation from its complaisance. The soaring prices are the equivalent of Pearl Harbor in jolting us out of our trance when it comes to energy.

Suddenly, everything is on the table. Offshore drilling, Alaska drilling, nuclear power, wind, solar, flex-fuel cars, plug-in cars are all increasingly attractive options and John McCain seems alive to the need to go there while Obama is strangely passive. During the Democratic primary, he opposed a gas tax holiday and continues to be against offshore and Alaska drilling and squishy on nuclear power.

That leaves turning down your thermostat and walking to work as the Democratic policies.

McCain has also been ratcheting up his attacks on oil speculators. With the total value of trades in oil futures soaring from $13 billion in 2003 to $260 billion today, it is increasingly clear that it is not the supply and demand for oil which is, alone, driving up the price, but it is the supply and demand for oil futures which is stoking the upward movement.

The Saudis have made a fatal mistake in not forcing down the price of oil.

We could have gone for decades as their hostage, letting their control over our oil supplies choke us while enriching them. But they got greedy and let the price skyrocket. The sudden shock which has sent America reeling is just the stimulus we need for a massive movement away from imported oil and toward new types of cars.

The political will for major change in our energy policy is now here and those, like Obama, who don't get it need to rethink their positions. To quote FDR, “this great nation calls for action and action now” on the energy issue.

What has been a back-burner problem now has moved onto center stage and McCain has put himself in the forefront.

The Democratic ambivalence stems from liberal concerns about climate change. The party basically doesn't believe in carbon-based energy and, therefore, opposes oil exploration.

That's why Obama pushes the windfall profits tax on oil companies — a step that tells them “you drill, you find oil, and we'll take away your profits.” But Americans have their priorities in order: more oil, more drilling and alternative energy sources, flex-fuel cars, plug-in vehicles and nuclear power.

With his willingness to respond to the gas price crisis with bold measures, McCain shows himself to be a pragmatist while Obama comes off as an ideologue to puts climate change ahead of making it possible for the average American to get to work.

Of course, the high price of gas makes it inevitable that the U.S. will lead the world in fighting climate change.

With $5 gas, Americans will switch en masse to cars that burn less gasoline. Already we have cut our oil consumption by 500,000 barrels a day in the past year (about a 3 percent cut).
The move away from oil will be exponential from here on out, dooming radical Islam and reversing climate change at the same time. But while we are getting new cars, we need more oil and McCain has flanked Obama on this issue. Big time.

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