Meaningful Distinction:

Patrick S. Lasswell Look outward for something to accomplish, not inward for something to despise.
pslblog at gmail dot com
Friday, April 28, 2006
Clarification of Oil Supply

SMASH has a generally irrefutable set of facts for the reality impaired. On one point he is marginally incorrect in his details.

Gas prices are high because oil prices are high.

Oil prices are high because increasing global demand is outpacing supply.

There is nothing any politician can do about it.

Supply is a more complex concept than described in SMASH's post. The overwhelming infrastructure investment in Oil Supply is predicated on a baseline reality that at any moment Saudi Arabia can sell oil for $15 a barrel. They can make a substantial profit at this price, and they can maintain that price for five years without a problem. Everybody in the oil industry knows this.

Nobody in the oil industry has been willing to invest in solutions that generate oil that is only profitable at $20 a barrel without extensive government subsidies. This is not a massive oil company conspiracy, this is just good corporate governance. There is no justification for risking billions of dollars of other people's money when you know that at any moment the Saudi's can drop the price through the floor and bankrupt you. Any corporate officer who made such a risky expenditure would be fired or the stockholders would file suit and win.

There is a lot of petroleum in various forms available around the world, and most of the research on deposits is proprietary information owned by the companies that did the exploration. Oil companies extract the cheapest and most readily available oil first because they have an obligation to the stockholders to be profitable. Oil Sands in Canada are just now being developed again because prices have been high enough, long enough to justify building the infrastructure to extract this expensive ($20 a barrel) source. Coal transference is another expensive ($30 a barrel) source that is getting developed because it is now profitable. Other, more esoteric and often less realistic sources are being developed now because it is relatively profitable to do so.

Our national economy is doing well, much better than during the stagflation days of 1979 when oil traded for the equivalent of $98 a barrel in today's dollars. Although oil is trading for over $70 a barrel today, we are much better able to absorb the effects individually and nationally. We are currently rich enough to pay for high fuel prices and still develop alternative energy sources much more efficient than in the pre-microcomputer days of yore. President George W. Bush is an oil man, like his father before him. He knew all of the above when he took the oath of office to support and defend the constitution. There exists reason to believe that President Bush has chosen to execute his oath by furthering the energy independence of the United States. For instance, President Bush's repeated statements that he was going to do so are indicative.

SMASH is wrong on one detail. President Bush is perfectly capable of driving events to the point where oil prices are high enough for alternative sources are profitable. There is every reason to believe that he has done so and he is a politician. It is more accurate to say that there is nothing that any other politician can do about oil prices while President Bush is maintaining his oath by keeping them high.
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