Wednesday, June 02, 2004

The Conservation Cycle

Watching the Newshour yesterday, David Yergin, author of The Prize was in a point counterpoint interview with some lost soul conservationist who was simply out of his league.

The Conservationist, of course, was wanting to get in every possible punch to encourage conservation during the current jump in oil prices. After all, that is how the conservation game works. If you hit people with the conservation message when they are paying unexpectedly high bills, then there is a good chance that they will invest time or adjust their life cycle (i.e., sell the RV) to conserve energy.

Mr. Yergin bantied the conservationist about with the message that, ah, this is just a cycle. His book The Prize shows the history of many different ups and downs in the oil industry. History will continue after the current gulf war and the recent rise in oil prices.

Now, I agree with Mr. Yergin. There is cyclic behavior involved in oil production and consumption. During the oil crisis we learned the full cost of our dependency on oil and cut back. As people learned to conserve we cut the need for new refineries, new wells. The world did such a good job at conserving that, when coupled with new exploration, we ended up with an oil glut for a decade.

During the dot com years, American collectively went insane. No longer attached to reality, the suburban American borrowed and bought new SUVs, RVs and every energy consuming appliance imagineable. The glut is gone. We've structured our lives so we consume more than ever.

The cycle is not simply one of oil production. The world learned how to get more out of a gallon of oil.

Conservationists now have a good track record. It should be clear to all except paid spokesmen of the oil industry (the US president included) that conservation is the key to future wealth. If we get more from the resources we consume, then we get richer.

Mr. Yergin is correct. This is just a cycle. If there is an increase in capacity as grubbing oil companies rush to push production, and if there is a systemic drop in demand as vacationers decide to book a room in a hotel rather than pollute the highways with an RV, then we will see oil prices drop and a little bump in employment as hotel workers receive pay checks.

The fact that oil prices go up and down in cycles does not mean the conservationists' ultimate message is incorrect. Oil is not a sustainable energy source. If I heaved a crank shaft into the air, it would spin in cycles while it was air born. The fact that something spins in "cycles" does not mean that it will not auger into the ground when it comes back down to earth. The dot com stocks all had little cycles going until one day that little dip wasn't just one of those dips.

I have no clue as to what oil prices will be a year from now. Third world nations are increasing consumption. If people jumped on the conservation wagon and started considering conservation...then we could see big drops in consumption.

Production Peaks

I haven't a clue about when oil production will peak. The really scary thing mentioned during the Yergin interview is the fact that oil production will peak in non-OPEC producing companies before it peaks in OPEC countries.

This is the extremely dangerous news.

This is what has me scared.

This is what we need to worry about and can do something about politically.

Don't you see the problem? The western nations peak first. When we are truly spiraling down the far side of the oil age, OPEC will be even stronger than it is today.

Mr. Bush has been using Mideast events to accellerate exploitation of the few remaining oil reserves in North America. We do not need these reserves to counter this current silly cyclical rise in prices. The US needs to do everything possible to resist the temptation of putting more reserves into production.

The US should be taking full advantage of the psychological effects that this oil crisis is having on the public and the president should be calling for systemic conservation measures (that is investment in conservation...encouraging the use of smaller cars, etc.) On the production front, we need to be hoarding our national reserves for the real economic challenges that face us after production peaks.

No comments: