Energy: OIL


Cameron Sawyer adds his comments to the discussion about oil:
 
1.  Remember that the cost of production (lifting cost, transportation cost, etc.) of oil from different fields is very different one from the other.  Saudi Arabia has some of the cheapest oil in the world -- light, sweet crude practically bubbles out of the ground.  It is not in the interest of the Saudis to have an oil price so high that all kinds of otherwise economically unviable fields start to produce.  Very high oil prices also lead to intensification of investment in new production and in alternative energy sources, all of which will reduce the Saudi market share and the Saudi's influence on world energy markets.  A particular beneficiary of high oil prices is Russia, which has an enormous amount of oil but much of it very expensive to produce and/or transport.    Russia is not a member of OPEC and is not a Muslim country, and is only very happy to step into Saudi Arabia's shoes as the West's main source of energy.  And Russia is already producing more oil than Saudi Arabia.
 
2.  Iran and Venezuela can "connive" all they want.  They might temporarily drive oil prices up somewhat, but not to the extent that the U.S. economy will be significantly harmed.  The higher the oil price, the more investment will go into developing other fields both in the U.S. and in third countries, and eventually, into developing alternative technologies.  The higher the oil price, the more people will conserve.  Iran and Venezuela might try a different tack -- sell oil so cheap to the U.S. that higher cost producers will be driven out of business, making the U.S. dependent on them (so-called predatory pricing, another Marxist fiction).  The fact is that the world oil markets are markets, and neither Iran nor Venezuela control them.  Both Iran and Venezuela are at least as interested in selling their oil and getting money for it as the U.S. is in buying it.  Therefore, oil -- like trade in general -- makes a very ineffectual weapon, whether through high, or through low prices.  If they are indeed manipulating the markets, then they are hurting themselves without causing serious or permanent harm to the U.S.  They would be much better advised to mind their own business and try to grow their economies.
 
3.  Much nonsense has been pronounced about the fact that much new Alaskan oil will be exported.  If we produce an extra barrel of oil, what difference does it make whether it is used domestically or exported?  None whatsoever.  An extra barrel produced and exported equals an extra barrel we can import without trade imbalance.  If we produce a billion barrels of oil, say, and export them all to Japan, and import another billion barrels of oil from Saudi Arabia for our own consumption, and we do it like this because it is more convenient to transport like that, then we are exactly as well off as if we produced and consumed a billion barrels of our own oil.  It makes no difference whatsoever whether the particular oil to be produced in the ANWR will be consumed locally or exported.
 
4.  However, no one barrel of oil can be a Dr. DeBakey.  With slight corrections for quality (sulfur content and other criteria), barrels of oil are entirely fungible -- that is, one is just the same as another, unlike doctors whose talents vary enormously.
 
5.  I don't know where Randy gets the figure 10.8 barrels of oil per day as U.S. oil production.   According to official USDOE sources (http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/petroleum_supply_monthly/current/pdf/stable2.pdf), we produce 5.4 million barrels a day (of which 923,000 are produced in Alaska), and import another 10.1 million a day.  As of January, 2005.

RH: My guess is that Randy's statement was garbled.  He probably meant that the US imports 10.8 barrels of oil a day.  Incidentally, I don't understand why some oil is described as sweet.  I have never tasted the stuff.
 


Cameron Sawyer spoke of sweet oil.  I asked why it is called sweet, since I have never tasted the stuff.  Caneron replies¨Ah, sweet when it has a low sulfur content -- sulfur makes it sour.  And difficult to refine.[RH: A clear misuse of the word "sweet.]  I first came face to face with crude oil on the beaches of Santa Barbara in 1977 where I spent a summer playing in the opera festival there they called Music Academy of the West.  There had been some kind of oil spill.  We all kept cans of lighter fluid about to use to get the stuff off our feet.

From Denmark, Holger Terp writes: The accident on the BP plant in Texas has disappeared from the news. Here is an interesting article: "The Energy Crunch to Come. Soaring Oil Profits, Declining Discoveries, and Danger Signs" by Michael Klare.  http://www.tomdispatch.com/index.mhtml?pid=2277.  RH: The accident at the BP plant in Texas has certainly not disappeared from the US media.

Randy Black confirms his statement about oil production, which was questioned: I looked at my original statement, which was that our national oil supply comes [RH: partly?] from 550,000 wells which produce an average of 10.8 barrels of oil a day. This statement is correct; 550,000 of the wells in the United States produce only 10.8 barrels per day each. This means that more than half a million wells produce very little oil. Another way of looking at the fact is that once they were high producing wells but have nearly been depleted, thus, it is urgent that our exploration, drilling and production activity be increased.
 

Cameron Sawyer spoke of sweet oil.  I asked why it is called sweet, since I have never tasted the stuff.  Caneron replies¨Ah, sweet when it has a low sulfur content -- sulfur makes it sour.  And difficult to refine.[RH: A clear misuse of the word "sweet.]  I first came face to face with crude oil on the beaches of Santa Barbara in 1977 where I spent a summer playing in the opera festival there they called Music Academy of the West.  There had been some kind of oil spill.  We all kept cans of lighter fluid about to use to get the stuff off our feet.



Ronald Hilton 2005

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last updated: April 12, 2005