Oil Update (Including a Chart of the Decade)

Back in July, I noted that we had exited many energy positions, and would like to see Oil pull back to $105-110 to re-enter them.

This was a tactical, not secular, repositioning.

Why not secular? Well, for a few reasons. Commodities rallies tend to run decades, not years. And the rise of China and India means huge new demands on global energy reserves are going to keep prices elevated far above the old days of $30 oil.

But the biggest reason is this simple chart, via ITF Interim Report on Crude Oil:

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World_gdp_vs_oil_prod

Sources: Federal Reserve, IAE, ITF

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Note that these aren’t projections, but are actually based upon data.

You don’t have to be a technician to look at that chart and recognize something new is going on. Back in 2003, global GDP began pulling away from Oil production. Note that Oil broke out over $32 shortly thereafter, and never looked back. In the annual BusinessWeek forecasts (2004), I was one of a handful of strategists that picked energy as my top sector.

Its also pretty clear that all of the hullaboo on Off Shore drilling is just so much political nonsense. Yes, we should be drilling. No, it wont make much of a difference in prices. Here’s the usually circumspect John Berry, explaining why:

"It’s absurd to argue that ending the
moratorium on drilling off parts of the U.S. coasts would quickly
bring down the high price of gasoline.

This chimera is being touted by President George W. Bush and other Republican politicians, including the party’s presumptive presidential nominee, Senator John McCain of Arizona, to deflect blame for what it’s costing for a fill-up.

To get around the fact that it would be a decade or more
before any oil would be likely to flow, a few partisan analysts
have said that the cost of gasoline would fall right away. They
argue that the prospect of additional oil supply in the future
would lead oil companies to produce more oil immediately because
they would expect prices for crude to be lower later on.
 

Well, wouldn’t that depend on whether a producer had the
capacity to pump more oil today, and whether it thought lifting
the moratorium would add a significant amount of oil to future
supply relative to future demand?    

There are good reasons to question whether another 1 million
or 2 million barrels of crude a day would make much difference in
prices when world consumption is running at 85 million barrels a
day.

About a fourth of all U.S. oil production is already coming
from offshore wells, primarily in the central and western
portions of the Gulf of Mexico that aren’t covered by the
moratorium."    

Such silliness.

We should be doing more of everything — alt energy, nukes, conservation, tax credits, solar, etc. Focusing on this one issue is simply to the exclusion of all else is childish ignorance. In this country, we keep refusing to make the difficult decisions. Everything requires a quick and painless fix.  (We better wise up fast).

Hence, the pullback in Oil may be viewed as a short term trading opportunity.

>

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Sources:
ITF Interim Report on Crude Oil
Interagency Task Force on Commodity Markets
July 2008
http://www.cftc.gov/stellent/groups/public/@newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf

Offshore Drilling Claims Are a Political Hoax
John M. Berry
Bloomberg, Aug. 1 2008
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_berry&sid=air._Othgtuc

CFTC Report on High Oil Prices – "Speculation My A$$"
Nate Hagens
The Oil Drum July 23, 2008
http://www.theoildrum.com/node/4334

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What's been said:

Discussions found on the web:
  1. Noah commented on Aug 12

    so where do you buy back in? What factors will affect your decision and your buy signal? How important is the dollar rally affecting your buy signal? Where do you see oil going?

  2. Vermont Trader commented on Aug 12

    BR – there is a difference between buying oil companies and buying the underlying commodity itself.

    I follow many of the EP companies and most of them have declining production. I was surprised at how much the cost of production has risen in the last 2 quarters. I do think many of them are sandbagging earnings to avoid bad press and build accounting reserves for the future.

    The bulk of production growth is occuring in non-public enterprises.

    So I would argue that over a long term horizon, a pair trade of long oil and short US oil companies might be worth considering..

  3. DownSouth commented on Aug 12

    Noah said: How important is the dollar rally affecting your buy signal?

    Is the dollar rally causing the drop in the price of oil, or is the drop in the price of oil causing the dollar rally?

  4. DownSouth commented on Aug 12

    Vermont Trader,

    I too follow the stocks of some of the domestic oil and gas producers. They struggle just to keep earnings comensurate with the rise in the price of oil and gas. Oil is up almost 4-fold from five years ago. Natural gas almost 2-fold. (Avg. price 1st 6 months 2008 v. avg. for 12 months 2003). Yet the increase in earnings of many oil and gas producers (Chesapeake, EOG, Anadarko, Devon, ConocoPhillips, Apache) barely kept up, or did’t keep up, with the increase in the price of oil and gas.

    This is so not only because the cost-per-foot-drilled is on the rise, but, also because more and more feet must be drilled in order to find the same amount of oil or gas.

    To satisfy Wall Street’s dual demands of increased earnings and increase reserves/production is almost an impossible task.

    If an oil and gas producer elects to produce legacy reserves, investing little in finding and developing new oil and gas, then it can show substantial profits. However, if an oil company wants to grow production and reserves, or even maintain them, it appears $110/barrel oil and $10/MCF gas (avg. price first 6 months 2008) are insufficient to cover the costs of finding and producing that new, incremental production. The earnings of more aggressive companies therefore often fail to keep pace with the price of oil and gas. Some smaller producers maybe can beat the odds, but it seems the larger the company, the less liklihood of this.

  5. steve commented on Aug 12

    Overlay oil price on that chart and it loses a lot of it’s luster of an argument for current oil prices. A 700% price increase for a 30% increase in world gdp?

    then I point you to this more telling chart that actually conveys a real point:

    http://subrealism.blogspot.com/2008/05/oil-supply-vs-demand.html

    not my blog nor do I know who’s it is, but the numbers look right at a glance.

  6. steve commented on Aug 12

    actually noticed a peak oil skew to that chart so take it with a grain of salt. point is, supply doesn’t oustrip demand by that much and will most likely fall back in line after all the recent demand destruction.

  7. Vermont Trader commented on Aug 12

    downsouth – there is also the massive benefits of buybacks.

    The other thing about oil companies is that they are cyclical companies.

    Peter Lynch (maybe my favorite of all time) said you buy cyclicals when they are expensive and sell them when they are cheap (on a P/E basis). It seems counterintuitive but in the up cycle earnings rise faster than the stock and on the downside the reverse is true.

    I see this unfolding in the energy space right now.

  8. bdg123 commented on Aug 12

    You are right. We should be doing more of everything. At the top of that list should be reforming the commodities market internationally to keep investors and crooks out of the market – some legitimate and some manipulative. Want to make a bet on your commodities thesis of lasting decades? What is that based on? A general consensus on Wall Street? History? Fundamentals? What? It was easy to see hard assets were going to outperform starting in the late 1990s but don’t be surprised to see the entire thesis Wall Street has ramrodded come crumbling down. And, the expectation of future returns turn out to be an entire bust.

  9. Jake commented on Aug 12

    barry-

    yes, the more gdp grows, the more oil the world needs. however, you can’t ignore the other side of that… the higher the price of oil, the slower gdp growth all else equal.

    what has happened with oil up 5-6x in less than 5 years… demand destruction for oil in many parts of the world. do i think this outweighs the growth factor… not necessarily in the short-run, but top selling cars are no longer s.u.v.’s and companies are seeing the benefits of higher initial cost / energy efficient plants.

  10. dad29 commented on Aug 12

    Umnhhhh…

    That GDP/Petro line will merge again, albeit the price of Petro will be higher. There are plenty of efficiencies which industry will find, given the pain of the price.

    But it won’t be next week.

  11. VennData commented on Aug 12

    Only Islamosexuals believe we don’t have enough oil at our beaches to end our dependency on India and China.

    This summer, every school child in this fare nation should be given a job, a shovel, and one of those advanced swim suits that we’re using to sweep the medals in Peking so they can dig, dig, dig. That would:

    1) End Barack Hussein Obama’s lies about teen military re-deployment rates
    2) Re-balance the so-called trade export credit issue and stop those Bavarian swim suits imports (that look like a couple of shoelaces tied together with string.)
    3) Teach these non-home-schooled future-Weathermen Underground members about work and not relying on government handjobs.
    4) Get some sun: A little exposure to SUV rays never hurt anybody, no matter what Maureen Dowd, Marc Rich, and the rest of those New York Times Journal of Medicine liberals – that Clinton pardoned – say.
    5) And while we’re at it, bring back the Corvette (how does Ralph Nader feel now about disbarring this gas efficient car from America’s highways, bridges, and infrastructure?)

  12. Gavin commented on Aug 12

    I would love to see the relative price overlaid on that chart, just for interests sake.

    Also, I dont know how much once can trust a lot of the GDP numbers, esp china and usa.

  13. Gerg commented on Aug 12

    I would love to see that chart going further back, say to 1990.

  14. Gerg commented on Aug 12

    I don’t have much respect for a chart that purports to graph “supply” and “demand”. By definition those are going to be the same number — for every buyer there’s a seller.

    Any attempt to measure hypothetical demand were circumstances different will only show the biases of the person calculating the numbers.

  15. doug champion commented on Aug 12

    Ok, let’s say we drill every where and up out production by a million barrels/day. Isn’t there a likelyhood that one of the large oil producing regions will cut their output by the same ammount, thus keeping the price and the supply the same?

  16. Verus commented on Aug 12

    is anybody aware that saudi arabia dillutes petro storage with H2O to inflate inventory? apparently Flour

  17. Michael Donnelly commented on Aug 12

    Ditto, I’d need to see a lot more historical data back to 1973 or at least the last big oil shock in 1980.

    The US used to use something like 6 cents of oil for every 1 dollar of GDP but that ratio has moved down to 3 cents. So it is NOT unusual for GDP to run faster that oil production. But obviously the break points on oil production take a while to force efficiency gains in GDP, so there is always pain.

    More data please, if possible

  18. Tim Vincent commented on Aug 12

    I read the REST of Berry’s column. Where he says that releasing the SPRO would lower gas prices.
    This guy needs to change dope suppliers.
    Releasing the relatively insignificant SPRO supply MIGHT reduce gas prices for about… an hour.
    This type of “thinking” invalidates anything else he has to say.
    Is he a Gore-worshiper?

  19. DownSouth commented on Aug 12

    Vermont Trader,

    The problem with the expensive/cheap dichotomy you describe is that we currently find domestic oil and gas company stocks all over the map.

    ConocoPhillips, for instance, is selling for 6.6 x earnings (based on 1st half 2008).

    EOG, on the other hand, is selling for 27.6 x earnings.

    Large companies like ConocoPhillips that have chosen conservative exploration and development budgets, and therefore flat or declining production and reserves, sell for a low P/E.

    Companies like EOG that have opted for aggressive exploration and development in order to grow reserves, however, sell for a high P/E.

    Who knows which will prove to be the more prudent strategy. Granted, companies like EOG have grown production. But at what cost? Will future oil prices justify the huge costs required to find and bring new prodction on line these days?

    Like I said before, I don’t think $110/barrel oil and $10/MCF gas are going to cut the mustard.

    It’s all highly speculative because future oil prices will be determined by what plays out in Russia and the Middle East, China and India, and not by anything that domestic oil and gas producers do.

  20. Quincy Walters commented on Aug 12

    Barry,

    I am glad to see that you linked to that story from The Oil Drum. Nate Hagens really nailed it.

    (In fact, I really love TOD…they deserve to get a lot more attention than they do, just my opinion.)

    QW

  21. Carmen commented on Aug 12

    This quoted ITF report is designed to rule out speculators as driving oil prices to the levels we just saw and was issued around the time the prices were peaking. Since then we have to say that whatever fundamentals were causing the spike, are still mostly intact. However the prices are in a downward trend suggesting a bubble is bursting.

    I would not be surprised, this is an election year, that oil will go down further than $105 during the next two months and equity prices will go up at the same time. But after the election it’s going to get even more interesting.

  22. AlladinsLamp commented on Aug 12

    If GDP is over stated in (Fuzzy Numbers; B’s previous post) then is this chart less than it appears to be?

  23. zackattack commented on Aug 12

    Wouldn’t shock me to see oil in the 80s.

    I don’t think we’ve seen the real oil bubble yet. In fact, I don’t think we’ve ever seen anything in history approaching a bubble in something civilization needs to function.

    Bubbles tend to run in factors of 20. Nasdaq, 300 to 5100. Gold from ’76-80, 35 to 800. South Seas trading company: 5 pounds to 100, almost to the dot. And so on.

    One characteristics is that they tend to get cut in half just before their parabolic run. Gold from 200 to 100 before going to 800, for example.

    Just this crude historical parallel would put oil at just about 80. Plateau production or whatever, it’s still a cyclical, subject to the business cycle. If we really are at plateau, you’d expect higher lows and higher highs until a replacement is found.

    80-ish would be where I’d be looking to reenter. The guys who will be golden are those with huge reserves. DVN with its share of Jack/Jack II. PBR with its maybe-33 billion barrels.

  24. Eric Davis commented on Aug 12

    Good Call Barry,

    We need some good Fear in the Oil Trade. It can barely hold 114. The bounce at 120 was hardly strong. maybe a Bear Trap sub $100, in the fall or spring.

    But… one could get more optimistic with the other materaials.

    “Focusing on this one issue is simply to the exclusion of all else is childish ignorance. In this country, we keep refusing to make the difficult decisions. Everything requires a quick and painless fix.”

    that was very good…. but in our Mcdonalds/ADD world…. We don’t like tough choices. Never have.

  25. Alfred commented on Aug 12

    That was a great call. Would you care to comment on why you picked energy back in 2004? From the graph it looks as if the break came at the end of 2004. Boon Pickens picked energy and oil in 2000 because two Texas oilman took residence in the White House. That was a rather bold approach but proofed to be very effective.

  26. David commented on Aug 12

    solar, nuke, etc won’t change our use of OIL, which is primarily used for 1) transportation–when was the last time you saw a solar powered truck? and 2) chemicals/materials.

    If you want to reduce oil demand, you need to attack transportation first (because finding substitutes for oil in chemical/materials is harder). THAT can only be done by developing more efficient autos, aka plug-in hybrids and the like. Tangentially, that’s where increasing electrical capacity would help, but first we need better batteries etc.

    Wasting tax credits on solar will do ZERO for reducing oil demand. Providing tax credits for plug-in hybrids (how about a $1B prize for batteries that work?) would help.

  27. CNBC Sucks commented on Aug 12

    David, some damned moron already proposed a $300 million contest for batteries, so all you are suggesting is 3.3 x the idiocy.

    We are actually not that far off when it comes to battery efficiency. (Don’t dispute this unless you want to get into Ragone charts and nanostructured electrodes and electrolytes.) We have a little bit more to go technically, but it’s not going to take a Manhattan Project as some people would like you to believe. The whole concept of an Energy Manhattan Project is just a political obfuscation anyway to make the concept of electrified transportation seem that much more daunting than it is, and thus create more inertia. Thomas Edison and Henry Ford were working up a plan for an electrified US transportation system based on distributed power generation back in the 1910s, until Big Oil won with cheap, abundant oil from Texas.

    As for solar power tax credits, it’s really not asking for much. The subsidy for nuclear indemnification alone in this country comes up to about $100 billion. (I saw a number along these lines so I throw that number out nonchalantly, Larry Kudlow style.) The solar industry would settle for less than that, even though it shouldn’t.

    F*ck ignorance, go Obama.

  28. Vic commented on Aug 12

    This is a BIG mistake Barry. Notice also that in 2003 the credit expansion went into overdrive? Now we’re at the tail end of the credit cycle (I highly recommend reading Mises/Rothbard on this to fully understand how credit cycles play out). All that credit (which GDP is built on top of) is now being destroyed in one of the largest credit deflations in history.

    So it’s folly to look at that graph and say, GDP has gone way past oil production, therefore oil is still in a secular bull market (although that may be true for other reasons). GDP along those years (2003-2007) was massively inflated and not a measure of real wealth creation.

  29. CNBC Sucks commented on Aug 12

    Vic, your point on inflated GDP figures is PRECISELY the reason oil is ONLY at $113 and was able to come down all the way from $147.

    By the way, so we are clear, steve’s little chart of supply and demand measures “all liquids”, including crude oil, condensate, natural gas liquids, and other liquids including ethanol. There have been periods before where that estimated demand has surpassed supply, but to me, the bigger concern is how much of that 85 million barrel mix is ethanol vs. crude. Ethanol has been a dampener on the price of oil, but of course you are paying for that elsewhere.

    F*ck ignorance, go Obama

  30. beth commented on Aug 12

    I see comments like this frequently now:

    “We should be doing more of everything — alt energy, nukes, conservation, tax credits, solar, etc. Focusing on this one issue is simply to the exclusion of all else is childish ignorance.”

    When you say everything, you really mean “everything that might make sense,” right?

    I mean, some alternative energy plans seem very dubious relative to the alternatives. Why don’t we focus all our attention at a few high probability, scalable approaches rather than “everything”?

    If we’re talking about private money investigating new technologies, then great. But if we’re talking about government-financed research, I certainly don’t want them to pursue “everything”! That would be a bigger debacle than ethanol.

    I’m not sure about the drilling issue. There are claims that we have numerous locations where the structures are already in place and could be online in a year or so. Again, if it’s private money, I say let them do it. Worst that can happen is they prove you wrong (ignoring the environment impact argument since I think it’s overblown).

    And does the growth in oil output need to track GDP growth? Every unit of GDP growth needs one unit of oil growth? Dunno, thought I heard that oil per unit of GDP has declined significantly in the U.S. in the last 30-40 years.

  31. Jeff commented on Aug 12

    @Beth: Even if opening up more lands to drilling did help reduce oil prices, what the GOP and oil industry don’t tell you is that the oil industry already has lands it does NOT drill on. Unless the government forces them to drill (and not on the taxpayer dime, thank you very much), what makes you think they’d drill just because we open up these lands to them when they’re not even drilling on the lands they have access to? This drilling issue is yet another red herring by the GOP (and land grab by the oil industry) to distract an ignorant, lazy, simple-solution-hungry-for-everything populace instead of coming up with real solutions that might require some (or any) sacrifice. The oil industry will likely not drill until/unless they receive more subsidies from you know who – you guessed it, the taxpayer.

  32. David commented on Aug 12

    Well, as for $300M or $1B or whatever, I’d like that to substitute for the DOE’s budget, killing a couple birds with one stone, but never mind.

    As to batteries being “nearly there.” Well, that’s like saying we’re “near to sending a man to Mars.” Being near Mars ain’t quite the same, and you can’t cut out half way through. Wake me up when we’re “THERE.” A car (plug-in hybrid) that doesn’t get at least 40 miles to a charge isn’t viable commercially, period. As to Ford and Edison, well, Edison thought that DC was the way to go, and, well, da Vinci drew up designs for a helicopter. Doesn’t mean it’s feasible.

    I’ll politely ignore your ignorant obama quote except to point out that Obama was the same guy who claimed to belong to a senate committee he didn’t, and also that there were 57 states, and that one stray bomb that just happened to fall on his home state 67 years ago.

  33. beth commented on Aug 12

    @Jeff: From my understanding, oil companies purchase leases from the government to explore. They have to pay for those leases… they aren’t given to them. If there are high probability oil finds that the companies are not exploring on their existing leases then shareholders need to sue, esp. with $120+ oil. I think the “they aren’t drilling on existing leases” meme is just propagated by those who are philosophically opposed to drilling. And yes, I would totally oppose any government funding (and don’t support any subsidies that exist).

    I found a reference to the oil per unit of GDP issue. It’s from Greenspan, so take from it what you will, but…

    “In the United States, between 1945 and 1973, consumption of petroleum products rose at a startling average annual rate of 4-1/2 percent, well in excess of growth of our real GDP. However, between 1973 and 2004, oil consumption grew in the United States, on average, at only 1/2 percent per year, far short of the rise in real GDP. In consequence, the ratio of U.S. oil consumption to GDP fell by half.”

    http://www.federalreserve.gov/Boarddocs/Speeches/2005/20051017/default.htm

    That suggests to me that the idea that oil production needs to keep up with GDP to contain oil prices isn’t necessarily true.

  34. beth commented on Aug 12

    Certainly we need to make progress with battery technologies, but it begs the question of where is all that electricity going to come from?

    All we’ve done is shift the question. I don’t think most hybrid-car advocates are fans of additional coal-burning power plants.

  35. contantnormal commented on Aug 12

    David – ‘Wake me up when we’re “THERE.” A car (plug-in hybrid) that doesn’t get at least 40 miles to a charge isn’t viable commercially, period.’ – wake up, the Tesla all-electric (not a hybrid) gets about 200 miles per charge, and is being built today (albeit in an inefficient hand-assembled manner with a primitive assemblage of lithium-ion batteries, instead of mass-produced with a state-of-the-art lithium battery).

    Hitachi and Sony are in the process of rolling out advanced lithium batteries that can recharge at about 20X the rate of today’s batteries.

    Plug-in electric vehicles are perfectly feasible, I offer the booming business in Southern California of converting Prius to plug-in electric operation as evidence of that. People do it, and it works.

  36. constantnormal commented on Aug 12

    beth – ‘All we’ve done is shift the question. I don’t think most hybrid-car advocates are fans of additional coal-burning power plants.’

    Yes, shifting the question from oil (that we don’t have that much of, regardless of off-shore or Alaska) to coal (which we have in abundance) is exactly the point.

    It gives us room to make choices in, and time to build the infrastructure of alternative energy (nukes, wind, solar) that can give us alternatives. Takes decades to build a new nuclear plant, last time I checked. Also takes a long time (years but not decades) to drill and provide the infrastructure to get oil out of the ground (and refined — anybody building new refineries?). Wind power goes in place the quickest, and solar is not far behind.

    If we are utterly and completely dependent on oil (as we are today, because oil runs ALL our transportation), the only recourse we have is to use conservation in a major way. I think that might be even harder to sell than getting tree-huggers to embrace coal-fired electricity.

    Unless you are of the persuasion that thinks we can flip a switch and get as much oil out of the places we’re not drilling today (including the lands already leased by Big Oil but not being exploited) as we get from Canada and Mexico, and sustain that rate of production indefinitely, coal, wind, nuclear and solar will all have to come into play. ALL of them.

    If you look (seriously look, not merely read some oil propaganda) at the available clean energy from any of wind, solar or nuclear, there are adequate supplies FROM ANY ONE OF THEM to satisfy the energy needs of America going forward. We just lack the infrastructure (and in some cases the technology) to exploit them, and it will take some effort and time (less than a decade, I suspect) to get us there.

    As for myself, when some auto manufacturer produces a plug-in electric hybrid, I’ll cover the south roof of my garage with solar panels and charge the car from the sun for 80+% of the miles I drive. I figure a payback of between 5 and 7 years, but my primary reason is not cost savings — it is to be able to drive when gas supplies are interrupted/rationed, as they are surely going to be, since Washington is driving the nation to hell in a handbasket, with the pedal floored. The rest of you will be buying black market gas at $20/liter or riding bicycles.

  37. Deborah commented on Aug 12

    That chart reminds me of what the charts and predictions on base metals looked like two years ago…

  38. CNBC Sucks commented on Aug 12

    contantnormal, our friend David is babbling about energy density while your counterpoint is about power density. Leave it to me to dispose of this McCain supporter.

    David, a first-generation A123 Systems Li-ion module can go 60 – 80 miles to a charge now on a PHEV retrofit. It’s doing about 40 miles on the GM Volt, which will go into production in 2010. That’s FIRST GENERATION, and A123 just announced an IPO for expansion of manufacturing facilities plus more R&D. I personally know some of the people who invested in A123 and I can tell you that company is a stone cold killa. There are also NiMH batteries on existing PHEV retrofits on the road now that go 60 – 80 and even beyond 100 miles to a charge. I can further tell you there are other A123 fighters (A123 will not be left alone to make all of the profits) in the pipeline and batteries are not even the end game for electrified transportation. There are ways to max out both energy density and power density and blow past 100 miles to a charge; it’s an engineering problem, not a scientific one.

    David, I think you need to read more than Popular Mechanics to learn about PHEVs and picking your choice for President.

  39. beth commented on Aug 12

    @constantnormal:

    You say:

    “coal, wind, nuclear and solar will all have to come into play. ALL of them.

    If you look (seriously look, not merely read some oil propaganda) at the available clean energy from any of wind, solar or nuclear, there are adequate supplies FROM ANY ONE OF THEM to satisfy the energy needs of America going forward.”

    This is exactly my original point. Why do you say “ALL of them” will be needed in the first paragraph and then say any one of them would satisfy our needs going forward in the second paragraph?

    If your second premise is true, why not try to assess the most cost-effective, scalable solution and focus on _just that one_? Why distribute resources across them all, unless you fear one or more of them won’t actually pan out?

    It’s nice to see some people are starting to consider nuclear power “clean.” It certainly seems like, relative to the alternatives, nuclear is by far the most scalable and sustainable solution (if we’re allowed to reprocess the spent fuel rods).

    I’d be happy to see 100% of our effort go into nuclear. I just don’t understand why doing “everything” is such an appealing concept. There’s always opportunity costs.

  40. clip bartow commented on Aug 12

    we need a manhattan project for energy. forget the 4$ gas, think about where the petrodollars are going. compare today with 10-11 years ago: the collapse of asia, the bankruptcy of russia and venezuela. every year we’re paying for our indulgence. i must say the arguement that starting to explore/exploit our oil resrves won’t have any affect. what about 10 years from now? that arguement is specious at best. what if the mideast implodes? what if saudi’s ghawar is peaked? if the brics continue to grow we’re going to have a secular issue with energy. lets get off oil! keep up the good work. clipb

  41. David commented on Aug 12

    Look, CNBC. In your own words, you said we’re “NEARLY THERE.” Look, it’s right up there. Perhaps you need to read, period, instead of playing with yourself to Popular Mechanics or dreaming about being a VC and buying into A123.

    The Chevy Volt in 2010???? Yeah right. Mass production? Care to wager on that? You must be smoking some of Obama’s private stash.

    Sure there are plug-in Prius kits…that cost $10K on an already overpriced car that people buy for vanity, not for economic reasons.

    So, again, wake me up when there are commercially viable/feasible plug-in hybrids on the market. Until then, don’t tell me the battery problem is solved, cuz clearly it ain’t by the certifiable lack of these vehicles on the market. Can it be solved? Sure, why not, and probably in the near future. Is it solved now? No, or if it is, the “solution” (like those Prius kits) aren’t economical…just like using solar power for your home, etc etc.

  42. Darkness commented on Aug 12

    Isn’t there a likelyhood that one of the large oil producing regions will cut their output by the same ammount, thus keeping the price and the supply the same?

    I would think so. Now that Opec has empirical evidence for the high price the market will bear. Our drilling more just means we have a race to see who runs out utterly first. Personally, I wish dearly that we had a truly conservative policy that everyone else should run out first.

    and also that there were 57 states

    There are 57 U.S. states and territories in the commonwealth of the U.S. Just because you don’t work most of the year with the representatives from American Samoa, Puerto Rico, et al, doesn’t mean they don’t count.

    Really, if you were putting money on a battle of wits between Obama and Bush, you’d really put your money on Ole’ Fooled Me Twice…Can’t Get Fooled Again?

  43. Darkness commented on Aug 12

    Sure there are plug-in Prius kits…that cost $10K on an already overpriced car that people buy for vanity, not for economic reasons.

    That assertion paints a pretty broad stroke. Let me give you my numbers:

    Cost of 2004 Prius: 25,000
    NY tax REBATE 2,000
    Fed tax deduction realized gain >1,000
    Actual cost of car: 22,000
    Cost of comparable car: 21,000
    Actual incremental financial pain: $1,000

    Total cost of owning the vehicle for an estimated lifespan of 125,000 miles including the cost of money: 42,300
    Cost to drive the car 1 mile with gas at $4.00 => $0.34
    Current business mileage reimbursement=> $0.585

    Estimated business miles we will drive this year: 10,000 miles
    Pocketed pure profit just in 2008: $2,468

    Yeah, but it was a vanity decision, all right. My sole vanity being that every evening should end with a nice glass of wine that I can easily afford off the savings from my car.

  44. CNBC Sucks commented on Aug 12

    David, you wanted 40 miles to a charge and I made my points that is already being done. Now, you want PHEVs for $10K less than they are now. You aren’t going to get that whether you throw John McCain’s $300 million or your $1 billion at a battery contest; the first production units of any new technology will always cost more. You can continue to improve the technology’s performance through some intelligent, sustained R&D investment program, but not some dumb contest that frankly is insulting to some of the smartest scientists and engineers that you will never meet. Unless you find some unobtainium that you can deposit in a dirty environment and at ambient conditions, I don’t know how much more you can drive the cost down through R&D because of material and process limitations (vapor deposition is vapor deposition), but you have a good shot at lowering the cost through scale, learning, and production and design engineering improvements. In summary, your and your candidates’ idea of a battery contest not only trivializes the existing progress of technologists far smarter than either of you can comprehend, misrepresents the battery issue with the electorate by making it appear to be a challenge that is only surmountable in the far future and only through luck and chance, and if McCain were to win would only waste time because researchers need funding, not a bounty.

    From a VC perspective, A123 is oversubscribed so we couldn’t invest in it if we wanted to.

    F*ck YOUR ignorance, go Obama.

  45. David commented on Aug 12

    Darkness. A “comparable” car to the Prius costs $21,000? Say what? A 2009 Toyota Corolla (a comparable car) costs $14-$18K invoice, gets 26/35 mpg. A Prius gets about 20-30% more mpg. If you drive 15,000 miles/year, you’re paying $2,000/year on gas for the Corolla. You’re saving $500-$600/year on gas for the Prius. That’s a 10 year break-even point for the mid-point Corolla price. 10 years. Median time Americans keep cars is about 8 years. Never mind opportunity cost, or cost of financing coupled with opportunity cost… This is an economics blog…

    CNBC.
    My point stands. Yeah, I do want PHEV’s for an economical price. Yeah, first-run technology costs more. So what? You JUST MADE MY POINT. It’s not cost-effective. If it were, there’d be more than some garage in SoCal doing the conversion. QED. PHEV’s won’t be “real” until I can go down to just about any dealer AND BUY THE CAR (or a conversion kit). Not talking about putting a Tesla on special order. Not talking about getting a garage in SoCal to convert my 2004-2008 Prius.

    You’re right, though, silly scientists I’ve never met (like those 3 Nobel Laureates in Medicine and Chemistry I’ve met–both Kornbergs and Paul Berg, along with a couple Lasker award winners–Mike Houghton and Bob Gallow)…Those guys NEVER response to silly prizes…like the Nobel. Nosiree, you got me.

    A123 oversubscribed? Well, sorry sir, you suck at dealmaking then, cuz that’s the lamest excuse for not doing a deal. What’s the name of your fund so I’m sure LPs stay far far away.

  46. David commented on Aug 12

    Oh yeah. forgot about a 4th Nobel laureate. Stan Prusiner.

    Never met ’em.

    And by “real” up there, I also mean having any effect on oil consumption, which, you know, despite your spittle-flecked rantings about McCain or whatnot, was kind of what the post was about.

  47. CNBC Sucks commented on Aug 12

    David, do you now agree we don’t need a $1 billion CONTEST to make progress in PHEV technology? Do you agree that we can invest the $300 million bounty proposed by McCain and spread that across MIT, Stanford, etc.? I love the idea of public sector investment in PHEV technology, but I detest the idea of a contest, not least for which is that there are real cash flow issues when it comes to basic research. Research labs need money up front for operating expenses and equipment; primary investigators, collaborators, post docs, and PhDs have to pay bills and they can’t work on spec. Sorry to lash out at you, but McCain’s ignorance – as demonstrated by his utter ignorance of how basic research works – just seems patently dangerous to me. What’s even more ominous given the challenging times ahead is McCain’s apparent indifference to or even celebration of being ignorant.

    BTW you aren’t suggesting that the great men and women who have won the Nobel prize set off on their journeys in life in search of some award, much less a cash prize, are you?

  48. CNBC Sucks commented on Aug 12

    I am gonna go for a late run, so given that people seldom go back to Barry’s threads the day after, I just wanted to say to David: you don’t seem like the type of person that would support John McCain. You value your interactions with intellectuals, you are enthusiastically engaged on advanced energy technology, and you don’t seem the type who would offer up his wife for the Miss Buffalo Chip contest at Sturgis. Let me tell you something. I was a Republican and I hated Barack Obama not that long ago. Frankly, I was and still am a hawk on foreign affairs, I still love Reagan and even maintain some fondness for Dubya, and I can be accused of – yes – racism. But I love my country and I am worried that the Republicans and McCain will lead this nation down a very bad path. David, you seem to have an interest in energy so I would put aside any preconceptions or even perceptions of Obama that you may have and do a DEEP FACT-BASED DIVE on what the two parties are proposing in terms of energy. I think my old Republican party has become so woefully symbiotic and intertwined with Wall Street and Big Oil (and to a lesser extent, King Coal and Big Nuclear) that it can no longer be objective and intellectually honest in terms of what it used to do best: protect this country. The Democrats now have the intellectual upper hand; I was slow to support Obama when the really smart guys in Silicon Valley were backing him way early in the process.

  49. anon commented on Aug 13

    Democrats have the intellectual upper hand? lol!

    Most of your argument is ad hominems and arguments from authority.

    Both parties are idiots. Bush has just about destroyed the republican party.

    But Obama? The guy who’s advocating 1k “rebate” checks to help us pay for gasoline? And this is the same guy who thinks the gas tax holiday is silly. What an ass.

    Less government, more liberty. There are many intellectuals who aren’t supporting Obama. Maybe get out more.

  50. Darkness commented on Aug 13

    David says: A “comparable” car to the Prius costs $21,000? Say what? A 2009 Toyota Corolla (a comparable car) costs $14-$18K invoice, gets 26/35 mpg. A Prius gets about 20-30% more mpg.

    Your ignorance is overwhelming, so this is probably a lost cause but here goes. Leg room of a prius exceeds that of a camry, which greatly exceeds that of a corolla. I load 10 ft boards in my prius at home depot, no problem, hatch closed with 6 inches to spare. Just to clue you in, curb length on a car with a dual engine is misleading as an indicator of the passenger compartment, but since you’ve never been in a prius, let alone driven one, I can understand your being confused. What I don’t get is you deciding you are an expert, given that.

    Moreover, the fit and finish is so not at the corolla level, it is at the camry level. The instrument panel bus is from the lexus. On top of it, the image is far higher: I can pick up clients in a prius that I’d die of embarrassment picking up in corolla.

    Mileage. Where the heck are you getting those percentages? I’ve had this car 5 years and I know how to drive it. When that corolla is tooling around the city, I’m getting 100% better mileage. Unless I’m exceedingly late for something or take a trip less than 2 miles I get 53 mpg. To get crappy mileage, it has to be a short trip in the dead of winter with cold batteries. Then I get 45 mpg, which btw, is still 73% better mileage. On the rural sideroads, I get 57 mpg, as long as I avoid ethanol blends, that is. I would have to drag a parachute behind the car to get mileage as bad as you cite.

    The key to your calculation is unrealistically bad mileage, so the hypothetical savings for me would be $800 per year. And the average u.s. lifespan is also meaningless; my last two cars I kept 12 and 17 years. I’m not making any arguments for fleet changeover, I’m only making arguments for my personal situation, as I suspect even you’d agree each consumer should do.

    The key to my calculation, which you totally ignored, is that the whiners with the ford f-150s determine reimbursement rates and if one drives a lot on business, that difference is outright cash in the pocket. And better yet, as gas prices rise, I get increasing amounts of kickback. All of which I knew when I bought the car, making it (the horror, the horror) an economic decision. But whatever. Keep driving whatever your driving and I’ll keep laughing when I pass gas stations struggling to find enough 4s. To each their own.

  51. CNBC Sucks commented on Aug 13

    Hey anon, I would concede to your and anybody else’s “less government, more liberty” argument if every single one of you purported libertarians commit to voting for Bob Barr this November. We haven’t had small government since Hoover, and I don’t know how you maintain superpower status with a small government. Not that the last point matters, because personally I would have preferred we had held true to the Monroe Doctrine, continued to de-colonize, stayed out of WWI, and maintained an isolationist, small-government republic. But that horse is long, long gone. In 2008, we have the choice of two socialist political parties, a Republican Party that favors spending lots of taxpayer money (from the middle class and the poor) to help huge corporations drill dry holes off the continental shelf, blow up mountains (our own mountains, mind you) to extract coal more cheaply, and build 45 fundamentally uneconomical, unclean, and unsafe nuclear power plants, and a Democratic Party that favors spending lots of taxpayer money (from Larry Kudlow’s “investor class”) to help smaller corporations (GE an exception) put up windmills and solar panels and thermal solar concentrator plants. I have said before that the Democrats’ plan is clearly less risky and very likely less costly than the Republicans (http://bigpicture.typepad.com/comments/2008/07/nozzle-rage.html#comments). I will conclude by saying that the executives I know in the U.S. solar industry – and there are many – are exceedingly intelligent, libertarian capitalists, and all they want is a FAIR FIGHT with Big Oil, King Coal, and Big Nuclear. Just get rid of ALL the subsidies, they say. Well, my friends, that means getting rid of the Republican Party.

  52. Ashish commented on Aug 13

    Don’t think the graph says anything – you have to factor in changes in energy intensity as a whole AND changes in GDP composition together with relative energy intensity of each component.. Just as an example, if the increase in GDP is due to (i) increase in productivity or (ii) increase in services as compared to goods, the relation can be easily skewed.

  53. David commented on Aug 13

    Darkness. Your making arguments from a luxury good standpoint. I’m making them from a utility standpoint. That’s fine. I don’t care what the finishes are (clearly); I can’t differentiate between a Lexus and a Corolla finish because I barely drive the 12 year old car I do have (I take the train or bus or bicycle to work, and take some big ole’ saddle bags on my bike to the grocery store). In the end, I put maybe 300 miles/month on my car, and that’s because I drive 150 miles to see my parents once a month. So a car to me is a rarely-used conveyance. BTW, I don’t do this out of any “eco consciousness;” I do it because I intensely dislike driving in a urban environment and it’s cheaper (and takes just as long) to use mass transit or my bicycle.

    CNBC: thanks I think for the back-handed compliments. Seeing Obama up close in the swamp of Chicago politics, I’m sorry to say, does not inspire confidence in him for me. But you can be assured that my vote, even if it’s not for Obama, won’t matter, given the state I’m living in–it’s safely in the Obama column, and nothing will change that between now and election day, even if he was found to be sleeping with Putin. The only Chicago politician I like is my local alderman and King Daley, but I wouldn’t vote for either for President.

    Trust me, I’d love to give the middle finger to oil sheiks, Canadians, Chavez and Putin, but I just don’t see it happening for several years. And I don’t think the general rules of economics will change–either we have PHEV’s (generally available and selling at a healthy clip) because the price is within reach (accounting for efficieny gains, etc) and/or because oil prices stay high/go higher.

    As for my personal energy policy, what I would actually prefer in terms of encouraging PHEV would be mandating ethanol/biodiesel be used only in high efficiency cars, and then subsidize the biofuel up the wazoo so if you’re paying more for the PHEV, you essentially get free fuel. But that’s just me.

    Time to short more stuff. later. It’s good to be a short-seller:)

  54. CNBC Sucks commented on Aug 13

    David: Thanks. The compliment wasn’t back-handed. We probably have more common ground than you know.

    @ anon: Your critique of my arguments has bothered me all morning. You bring up nuances of critical thinking when I am talking about American politics? Regarding John McCain? On the Internet?

    Only when the eggheads fight each other will the lowest 1% of the Naval Academy class win the Presidency.

  55. hr commented on Aug 13

    We should be doing more of everything — alt energy, nukes, conservation, tax credits, solar, etc. Focusing on this one issue is simply to the exclusion of all else is childish ignorance.

    The fact that we can’t even get half the nation to agree on drilling, or any of the above ideas, is disturbing.

  56. North of the Border commented on Aug 13

    “Trust me, I’d love to give the middle finger to oil sheiks, Canadians, Chavez and Putin…”

    One of these things is not like the others.

Read this next.

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