Thursday, October 12, 2006

Misc musings about the oil market.

The US has the potential to drastically reduce the consumption of foreign oil in a very short time. We can accomplish this not through reducing our consumption, not through drilling for more petroleum deposits domestically, and not through any existing environmental blockades. We can do this through oil shale.

A bit of a foreword. There is a good reason we aren't already going ape over oil shale. Especially if you are from western Colorado. From living here a short while I have seen an area that went ape over oil shale already in the past. As much as residents here would love the idea of massively boosting the oil shale extraction they do not want to see another oil crash so much in fact that they fear the experimental oil shale projects here for that very reason.

Oil shale right now makes sense. When Shell was looking at the prospects of oil shale production back in 2002 in Colorado it was a very wary of the oil market. Back then Oil was around $25 a barrel, and the cost per barrel of oil through this production method was around $27 per barrel. It made little economic sense, but they were thinking they could fine tune the process and turn a profit domestically. Now the price is at $57 per barrel and we're not going to see a huge drop anytime soon (but it would be nice wouldn't it?). This has gone from a very wary proposition to a very lucrative one in a very short time and any fine tuning they can do with the process now is just gravy.

Why are the communities here so leery of it? It's simple really, they've been through this before. Back in the 70's and late 80's was another very significant price increase of petroleum, oil shale was profitable and the energy companies jumped at oil shale. It's a huge untapped resource here and can be massively extracted, just around double the cost of regular crude reserves. When oil prices plummeted during the late 80's and through the 90's the energy companies took some losses and pulled out entirely leaving billions of development behind. The communities also lost their primary monetary and workforce source of income. These areas were economically devastated. They have recovered, but the potential "return of oil shale" is looked at very cautiously and some think the oil market could go bust again. These individuals are the jaded ones who actually fear petrol cuts in prices. They look at oil shale as only being feasible if the price remains high.

So while our enemies such as Saudi Arabia, Iran, and Kuwait seek to keep these terribly inflated prices high, they may actually be doing us a favor. If we can run their reserves dry and then simply revert to domestic oil shale extraction we would be effectively drawing to a close their foothold in world power. OPEC would simply fizzle into an unimportant and worthless organization.

I can hardly wait to see where we go with energy. For the most important reason, I want to see what we come up with that allows me to retain my purchasing power of other goods, energy needs to be cheap.

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