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June 27, 2008 – Comments (4)

What if Bush is right. Suppose there is 12 - 86 billion barrels of oil available offshore in currently unleased potential drilling bonanza hotspots. Lets presume the best, all 86bil barrels are found and  recovered. How great would that be?

The USA uses 20,730,000 barrels of oil each day. 86,000,000,000 barrels divided by 20,730,000 equals 4148 days of oil consumption. divided by 365 days equals 11.3 years of oil supply.

Quite the boon to the old USA seven years from now when it starts pumping.

So lets see. 86bil barrels times 42 gal/barrel is 3,612bil gallons of gasoline. times $4.00 for each gallon is $14,448,000,000,000 divided by 300million citizens $48,160.00 divided by 11.3 years equals $4261.00 dollars for each year of driving from 2015 until 2026.

Of course 4% inflation will raise that cost to $5607 in 2015 and increase to $8632 in the 2026.

On the other hand.

Suppose, at $4.00/ gallon we slow down our driving. We start buying smaller more fuel efficient cars which happen to be cheaper and some of us who bought big expensive SUV's save $10,000 in purchase costs. We drive less. I'm not going to the store unless we need five items. Already this year our driving miles are down and as the smaller cars do more of the driving our gasoline consumption will come down even more. Such disruption is upon many of our lives already.

That is what gas at $4.00/gallon does. What might gas at $5.00/ gallon do? Force us to carpool? Jim would ride with Timmy and Rachel. Joanne could ride with Lucy and Dagwood would still be late. Could we reduce driving by 1/5th. Easily. The rural countryside may not be able to carpool easily, but the metroplolitan USA could easily make up that difference. Could you imagine the LIE with 1/5 fewer cars? You would save fuel just by not idling in a traffic jam.

Look at that chart of oil consumption. Make no doubt that our excess is the immediate problem and it will be solved. It will be solved by oil at $5.00 or $6.00 or whatever it takes. Rest of World demand is growing and they have our money to buy fuel with.

If we wait for for Free Markets to raise the cost of fuel, Free Markets will. And our cash will build China and Russia and Saudi Arabia and Iraq.

At $5.00/gallon we will be hurting. At $4.00/gallon it hurts. And it is going to hurt until we do not buy oil.

Right now there is no competition among sellers of oil for buyers. So price goes up. We do not have control of oil supply. We do have control of demand. We can demand more oil as long as we can pay for it. And that day has just passed as $4.00 oil has forced us to cut back. The Rest of the World is still asking for more oil. If they can pay more, they will get more, unless we pay more. Oil is a sellers market. And every penny we pay more for oil is another penny gone from the USA. Unless we cut back even more. There really is no choice but to conquer our addiction. It would be better to do it on our terms than the terms that the Saudis and BP and XOM and Iran and Venezuela would impose. The oil from Iraq is not coming here. Most of us cannot afford it. Neither will the offshore oil in seven years.

So what happens if we collect oil revenues. Lets say $1.00/gallon. Thats right. I'm talking taxes. Hold onto your panties Alstry. Right away the price at the pumps jumps to $5.15 and people will scream. People will carpool. They will drive less and use less oil. They will cut their driving in half, by putting three people in a car where possible. This will happen whether the price of gas goes up on its own, or from a $1.00 tax. If it goes up on its own it will continue upward "charging all the traffic will bear". And with each increase on its way to $5.00, more and more Americans will fall into poverty. Because whether the Saudi's charge us that dollar or we charge ourselves it will be the same effect. Pain.

But what might happen if we collect that dollar? We use less oil. 20% less. Easily.  US consumption drops to 16 million bbl's /day. 4 million bbls appear on the market with no more cars to burn them in. Not for a few years anyway until China and India build them. Excess supply stops the price escalation, maybe competition lowers it a little. Hopefully alot.

16,000,000 bbls/day times 42 gallons equals $672,000,000 dollars per day. Times 365 days equals $245,280,000,000/year. 

A 10kw solar system on your roof costs $30,000. It is enough to do 8 million roofs. Or 16 million roofs of people with money to pay half. It would take 15 years to make every household in the USA a net producer of energy. Less if the people who get the free solar pay their current electric amounts back into solar installations.

And what about those 4,000,000bbls /day we arent buying anymore. $4,000,000 times $140 equals $560,million dollars less deficit each year. Good for us.

So it is either the USA grows a set of balls and stands up to those who would have us continue in our Free Market death spiral, or we take control of our own destiny.

And no President should run this program. No current Gov't official. No Businessman. I nominate a team from current Greenpeace and Sierra Club officials. People who are already working for America's best interests.

$245,280,000,000 divided by 300,000,000 Americans equals $817.00 per year each. Until gas hits $5.00 on its own, we get to decide how to spend it.

It will hurt. But it is the best choice we have left.

See you in the morning.

4 Comments – Post Your Own

#1) On June 27, 2008 at 10:31 PM, ahabswife (64.37) wrote:

A voice of reason.

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#2) On June 28, 2008 at 11:29 AM, rd80 (98.66) wrote:

I disagree with your assumption that we'll reduce US energy consumption enough to offset growth in the rest of the world.  Time will tell.

In my opinion, we need to drill offshore to keep prices from hitting $15+ over the next 4 or 5 years.  Extrapolating the last two years worth of price hikes forward would put gasoline at something like $17 a gallon in four years.

A point almost no one addresses is the revenues the gov'ts - both Fed and states - could get from offshore drilling leases and revenue sharing arrangements.  I believe Alaska still not only has no state income tax, but PAYS their citizens with part of their oil revenues.  Flip your gasoline tax around and put a revenue share on the front end of production, 86 billion barrels x 140/barrel x 25% gov't share - that funds a lot of alt energy research, healthcare, tax cuts, whatever.....  And how about the jobs that would be created to build, equip, maintain and operate the rigs.  Those aren't min wage burger flipping jobs. 

IMO, we need to get started opening up more drilling as a hedge against alt energy.  If you don't drill, you are, by default, assuming that conservation and alt energy can make up for oil production declines.  IF they don't, the economy is in far deeper trouble than it is today.  If they do the job as well as the proponents claim, those leases won't get drilled because the cost of recovering the oil will no longer be competitive and the gov't still gets the lease revenue - almost like a tax on the oil companies, but one they'll sign up to in a heartbeat.  Keep in mind, we've had 30+ years to work on this and still don't have the answer.

The politicians on both sides are spinning this.  Those in favor of drilling are pitching lowered gas prices.  It won't lower gas prices, it'll keep prices from skyrocketing in the future.  Those opposed to drilling are telling us conservation and alt energy will do the trick alone - they won't, we're already seeing what $4 gasoline does to the economy, I don't care to see what $10 does.  Both sides have part of the answer.  We need to conserve, we need to develop alternatives AND we need to develop our existing reserves.

And, kudos for the suggestion to hike gasoline taxes.  I don't agree with the policy, but I applaud your consistency on the issue.  There is no doubt that higher prices would do more for conservation than any gov't policy or regulation could ever hope to achieve.

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#3) On July 07, 2008 at 11:00 PM, GCrackers101 (< 20) wrote:

 Thanks Devoish great read

There is no doubt that higher prices would do more for conservation than any gov't policy or regulation could ever hope to achieve. (rd80)

Hear !  Hear !  I know many will disagree but a hike in taxes to fund Alt energy might be the only way forward......given we're so far behind the eight ball.

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#4) On July 09, 2008 at 1:51 PM, Tastylunch (29.54) wrote:

Nice post Devoish, don't know how I missed this the frst time around.

Normally I'm a free market guy, but I don't tink the free market will act quickly enough to make the transition without gov't getting involved.

If nothing else free market guys often forget that the eco system cares nothing about human economies , they are either healthy or unhealthy. By the time the free market says it will be time to save the rainforests etc. It will likely be too late...

 

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