NC Media Watch

A quest for reason and accuracy in letters to the editor, guest editorials and other issues of interest to the citizens of Western Nevada County.

Monday, August 29, 2005

Another peak oil scare

Tem Tarriktar, in another peak oil scare in "When the oil crisis hits home," August 29, 2005
The mainstream media, which, amazingly, has barely reported the imminent peak of global oil production (or "peak oil"), is just now beginning to follow the lead of Chevron in admitting that we may be in a serious bind before long. The main reason the cash-flush oil companies aren't building more gasoline refineries in the U.S. - despite having virtually no spare refining capacity - is that they know there is not enough easily extractable oil remaining to make for a decent return on their investment.

This from a Federal Trade Commission report on the proposed merger of Valero Energy Corporation and Ultramar Diamond Shamrock Corporation
Entry [new refining capacity] is difficult and would not be timely, likely, or sufficient to prevent anticompetitive effects arising from the proposed merger. Building a new refinery is extremely unlikely due to the severe environmental constraints and substantial sunk costs. Imports of CARB gasoline from outside California are unlikely because of substantial import barriers, including (1) geographic isolation from potential outside sources; (2) cost and difficulty of producing CARB gasoline; (3) lack of potential customers because of the extensive integration of refining and marketing that has eliminated most independent gasoline marketers and retailers; and (4) price risk stemming from spot market volatility in Northern California.
In other words are we are screwed. We have no excess refining capacity, we can not import CARB approved gas from out of the state, and environmentalist will not allow us to build any new capacity.

From the National Center for Policy Analysis:

No new refineries have been built in the U.S. in the past 25 years. And petroleum industry experts say anyone would have to be crazy to launch such an effort -- even though present refineries are running at nearly 100 percent of capacity and local gasoline shortages are beginning to crop up.

Why does the industry appear to have built its last refinery? Three reasons: refineries are not particularly profitable, environmentalists fight planning and construction every step of the way and government red-tape makes the task all but impossible.

* The last refinery built in the U.S. was in Garyville, La., and it started up in 1976.

* After Hampton Roads Energy Corp. proposed building a refinery near Portsmouth, Va., in the late 1970s, environmental groups and local residents fought the plan -- and it took almost nine years of battles in court and before federal and state regulators before the company canceled the project in 1984.

* Industry officials estimate the cost of building a new refinery at between $2 billion and $4 billion -- at a time the industry must devote close to $20 billion over the next decade to reducing the sulfur content in gasoline and other fuels -- and approval could mean having to collect up to 800 different permits.

* As if those hurdles weren't enough, the industry's long-term rate of return on capital is just 5 percent -- less than could be realized by simply buying U.S. Treasury bonds.

"I'm sure that at some point in the last 20 years someone has considered building a new refinery," says James Halloran, an energy analyst with National City Corp. "But they quickly came to their senses," he adds.

Analysts tell us a few new big refineries could produce enough extra gasoline to make a dent in prices. Especially refineries of heavy crude, which is cheaper than light crude. Two thirds of the US refining capacity is built to process light crude. Heavy crude is harder and more expensive to refine than "light" crude, but it's is $10 to $20 a barrel cheaper, and there are millions of barrels for sale. When “peak oilers” talk about a peak, they are referring to light crude, not heavy oil, tar sands oil, or oil shale which are all heavy crude. California lacks the refining capacity to take advantage of these heavy crude resources. It takes 15 years to just get past the environmental hurdles, at a huge cost, before construction can start.

I agree, oil companies are not willing to invest in new California refineries. The risk is too high due to CARB regulations, and environmental opposition, not because we are running out of oil. This is a problem of our own creation. Returning to 19th Century agrarian economy is not the solution.

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Blogger CT said...

So what's your honest opinions about "Peak Oil", and why?

Mon Aug 29, 10:29:00 PM PDT  
Blogger Russ Steele said...

I think we have no idea how much oil is available. Most is controlled by national oil companies controlled by governments, such as Mexico which has made very little investment in exploration. One early claim for an off shore discovery was it could be as large as Saudi Arabia. Who know, the Mexican government controlled oil company is not saying. The Arabs will not say how much oil they have, they could be running out, or with new technology could double output. Russia does not know how much oil could be recovered with existing technology, they refuse to let US companies try. Much of Asia’s island nations have not been explored, due to political conflict. We have not drilled of the coast of Florida and stopped drilling off the coast of California for environmental reasons. We know there is oil there, but not how much. Same on the Alaska Wild Life Reserve, we know oil is there, but not how much. Much of Canada’s Arctic regions are unexplored, yet we know they have large tar sands deposits. Oil has been discovered in Utah, yet more exploration is needed to determine how much.

Government regulations control how much a publicly traded company can say about potential reserves. All estimates are very conservative. We have huge shale deposits, but it is hard to get as it requires large quantities of energy to release it from the shale. With nuclear energy to providing the needed heat, we could have a 500 year supply. This is political decision, not a resource issue.

Bottom line, we have no idea how much oil is really available. To say we have peaked, requires ignoring what we do not know.

Mon Aug 29, 11:13:00 PM PDT  
Blogger Frederic Christie said...

You're right, there are numerous reasons (not just the ones you listed) that oil reserves remain foggy. But we know one thing for sure: They're less than they were two centuries ago. Further, many scientists, with the same data as you and very good work, as well as industry experts, have concluded that we will reach peak oil sometime soon. The deposits may change the picture by, oh, let's say twenty years in either direction. Strikes me that we should be planning for the shit to hit the fan twenty years EARLIER than it may, not twenty years LATER.

Fri Sep 09, 09:41:00 AM PDT  

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