Got Gas?

[nmm]

Gas is expected to rise in the nation to atleast $3.00 minimum.

On top of that, more and more Americans are deficit spending.

And on top of that, the price of gold keeps rising.

How does expensive gas affect the way Americans live? Do people choose to live inside the city, or do they still plan moving to far flung areas (not the suburbs, i mean FAR away places)? Do people cut back on entertainment expenditure (movies, video games, clothes you dont need, eating out, etc)?

Moreover, do you think with the price of energy + trade deficit + interest rates + deficit spending by Americans = economic recession?

And if there is an economic recession, do you think America will be able to claim the top position in the world ever again? [supposedly, if we DO have a bad enough recession, China/Japan/India would exceed us in the economic field no?]

Your opinions ~

[TheNiche]

Gas is expected to rise in the nation to atleast $3.00 minimum.

On top of that, more and more Americans are deficit spending.

And on top of that, the price of gold keeps rising.

How does expensive gas affect the way Americans live? Do people choose to live inside the city, or do they still plan moving to far flung areas (not the suburbs, i mean FAR away places)? Do people cut back on entertainment expenditure (movies, video games, clothes you dont need, eating out, etc)?

Moreover, do you think with the price of energy + trade deficit + interest rates + deficit spending by Americans = economic recession?

And if there is an economic recession, do you think America will be able to claim the top position in the world ever again? [supposedly, if we DO have a bad enough recession, China/Japan/India would exceed us in the economic field no?]

Your opinions ~

That's a fairly loose and still-complicated scenario. Lets break it down:

1) Is gasoline going to hit $3.00 per gallon? I'll assume you're talking about Houston.

Probably not. The New York Mercantile Exchange (NYMEX) futures on unleaded gasoline reflect expectations by investors regarding the price of gasoline on a monthly basis all the way out to January 2007. Every single month all the way to Jan-07 shows gasoline priced LOWER than it is at present. That is to say, investors think that the price of gasoline has peaked in the short term. Given that they've got money tied up in these predictions, and have incentive to learn everything that there is to gasoline economics, they're probably a fairly good predictor (as long as a Cat 4/Cat 5 hurricane doesn't slam into Houston this year).

2) Is a recession coming?

There are two valid arguments. The first is that the yield curves on treasury notes, bills, and bonds are all FLAT. This is an immediate indication of problems to come. Normally, you'd expect to have higher investment yields for making longer-term investments. Right now, however, you get about the same interest rate no matter what the term of the investment is. That is a very very bad indicator because if the 30-year T-bond is yielding lower than the 3-month T-bill, where the default risk is dependent essentially upon the existence of the Federal Government...it reflects very poor expectations of the future into the long term. The run-up in the price of gold and other precious metals is another indicator, albeit a less well-defined one than the Treasury yield curve. It could mean that people are concerned about any number of things, ranging from recession to inflation to a rapid run-up in commodity prices.

The other argument is very simply that there isn't any really critical force that is inhibiting economic growth and that when an economy is left to its own devices and is allowed to freely trade with other economies, very few circumstances can result in prolonged recession, depression, or political collapse. Perhaps most importantly, agricultural output is higher than ever and food prices are relatively low. Even in the event of a major recession or depression, starvation would not likely become a critical problem, as it was in some areas during the Great Depression...and that's the kind of environment that leads to riots and political instability. Furthermore, most recessions can be linked to a very strong cause; the 2001 recession was a tech bubble that was in essence a result of aggregate financial mismanagement rooting from the fact that few knew how to value high tech companies...so they gave out too much money. Other recessions have been caused by oil shortage (1970s), the near-complete stoppage of international trade (1929), or panics (1929 & 1880's).

I should make clear also that the stagflation of the 70's was made far worse by GAS SHORTAGES. If rationing had not taken place, then everyone who NEEDED gas and was willing to pay enough could get it...those that just kind of wanted it would have been priced out of the market, but the gas ultimately would have gotten to the people and businesses that could use it for the highest and best uses.

3) What consumption behaviors would change if energy prices peaked?

In the short term, while people are basically stuck with the energy consumption needs that they have, luxury items will be hit very very hard along with vacation travel. People will have to cut down on what they want (i.e. kids' toys, vacations/recreation, and jewelry) in favor of what they perceive that they need (i.e. air conditioning, commuting to work, and light bulbs). In the long term, people are more easily able to adapt by reducing energy consumption, for instance by moving into more efficient housing, driving more efficient cars or taking shorter commutes, etc.

4) Would America be trumped economically by Japan, China, India, etc.?

Possibly, but then they've got a whole lot of people. Just because their GDP would be greater than ours doesn't mean that the average Chinese person's standard of living was the same. That may not be true of Japan, but then Japan also has a very high cost of living...so it kind of nets out. I'd be more concerned about the military consequences in regards to China than almost anything else if that became the case.

Does that answer everything?

[nmm]

one more question.

Ive heard people mention this, but i have some doubts.

When a nation's economy improves, it doesnt neccesarily mean the peoples' standard of living is improving, rather that the rich are getting rich while the average joe is static.

This phenomena is very true for third world countries who have recently seen their economies grow enormously: China, India, Malaysia, Indonesia, etc.

A strong economy usually meant better living standards for Americans because Americans used to be the top dogs in every field. There wasnt any American equal in the world during the 50s, 60s, 70s and 80s - if you wanted something done with quality you hired Americans. With the surplus of wealth, parts of it were passed down to the American workers. Wealth was abundant everywhere.

However that isnt true anymore as a number of Asian countries have taken leaps and bounds in improving education and business. New markets, cheaper as well as proficient, have opened up in the world. You now have the European Union, Russia, China, Japan, Brazil and India who can offer the same jobs for half the money.

This explains why, while the economy is improving, the middle class doesnt feel it. They feel like they are inching by. Wealth is concentrated in the hands of the uber-rich.

Your opinions?

[TheNiche]

This is a really complicated topic...we could crack the nut and clean it out, but that would take more time than I've got for you today...so I'll crack it and let you take it from there.

Lets start with an analogy: A luxury tax on yachts was passed many years ago. The idea was to tax the wealthy (the ones who would buy yachts) and pass it back to the poorest members of society with social welfare programs. The result was that lots of wealthy people stopped buying new yachts. They'd either fix up old ones or buy something else. As a result, the domestic yacht-building business, especially big on the eastern seaboard and propping up the economies of quite a few small coastal towns, went belly-up. The lesson was that attempting to artificially redistribute wealth from the rich to the poor had unintended consequences that in this case hurt the poor worse than it hurt the rich. But it also illustrates that the consumption of luxury items employs countless laborers that would otherwise be jobless.

The trickle-down effect translates into higher demand for goods. However, a lot of new foreign wealth (especially in China) is spent importing goods from the West, the U.S. in particular. If more of our people are tied up making goods for the foreign wealthy, then the supply of our labor becomes tighter and wages go up. When the relative difference in working-class wages from America to China becomes higher, there is more incentive for domestic producers to relocate to China and other developing nations, using their supplies of labor until wages move into equillibreum.

Up until very recently in most of these developing countries, there has been a massive supply of underutilized labor, but demand for goods that might be created utilizing this labor has been insufficient to provide full employment. But we're slowly exhausting these sources of labor...once China's excess labor is fully employed, you'll start seeing wage growth move upward at a slow pace at first, accelerating as their labor force becomes more and more productive.

There is the distinct possibility that the process may continue to be slower in developing countries than it had been in the U.S., but that is because the world is so much more connected than it once was. When Chinese labor becomes more expensive than Vietnamese labor, more factories will locate in Vietnam; when Chinese and Vietnamese labor are each more expensive than Sudanese labor, more factories will locate in the Sudan; when Sudanese labor becomes more expensive than...well you get the point. Every third-world country is trying to develop at once, and that is a BIG pool of labor, so it'll likely be a while before we see wages start to move upward at any significant pace.

What you can take away from this is that the average Joe IS becoming better off, only one Joe at a time rather than all of them at once, like it is in the U.S. And what is fueling the employment of all of these Joes is the growing demand for goods, which is in turn fueled by new wealth. It's a slow process, especially at first...but economic growth accelerates geometrically. Give us 30 years and it'll be a different world.

[Lowbrow]

I'm no economist but my view on our status is rather bleak. Not enough to keep me from buying a new home but enough to make me decrease my excess spending. I work in the oil industry and I believe the price of gas in america is still held pretty low for the consumer. I think we americans live in something of a bubble (not the kind that pops but the kind that seperates us from more natural economies) that will dissolve over time now that we have competition in many markets. Five dollars a gallon does not seem outrageous to me. I think that will bring us more in line with world averages. It will also make other sources of petroleum economically viable. More frozen methanes, more oil sands, etc. My hope as an American to retain some standing in the world community is tied to education and science. I am very troubled with the "brain drain" we currently see with most of our technical grads moving back home (ie not the US). H1 visas are way to hard to obtain and greencards even worse. This all ties into immigration issues that I could talk about all day so I'll stop there.

[TheNiche]

I'm no economist but my view on our status is rather bleak. Not enough to keep me from buying a new home but enough to make me decrease my excess spending. I work in the oil industry and I believe the price of gas in america is still held pretty low for the consumer. I think we americans live in something of a bubble (not the kind that pops but the kind that seperates us from more natural economies) that will dissolve over time now that we have competition in many markets. Five dollars a gallon does not seem outrageous to me. I think that will bring us more in line with world averages. It will also make other sources of petroleum economically viable. More frozen methanes, more oil sands, etc. My hope as an American to retain some standing in the world community is tied to education and science. I am very troubled with the "brain drain" we currently see with most of our technical grads moving back home (ie not the US). H1 visas are way to hard to obtain and greencards even worse. This all ties into immigration issues that I could talk about all day so I'll stop there.

You know, I read an article yesterday written by a Federal Reserve economist that may be of interest.

http://www.dallasfed.org/research/houston/2006/hb0601.html

So if OPEC no longer has any substantial power as a cartel, its all up to us, basically...given your insider knowledge, at what price does the exploitation of tar sands and oil shale become feasible?

[tcole]

at what price does the exploitation of tar sands and oil shale become feasible?

$20-25/barrell. Initial outlay. That figure is from CERA.

[Lowbrow]

Tar sands are feasible now. Just look at Alberta's booming exports. Alberta is the new Iran. I wholely believe if we treated our neighbors (Canada and Mexico.. oh and Venezuela (lol)) we could become western hemisphere dependent only.

But that wont happen as long as our stand on Globalization (venezuela), Immigration (mexico) and Soft Lumber (canada) remain what they are. Also the chinese are growing really friendly with canada lately.. they are even building them a nice little pipeline to the west coast for exporting to asia. Go China!

[Guest danax]

But that wont happen as long as our stand on Globalization (venezuela), Immigration (mexico) and Soft Lumber (canada) remain what they are.

If the next Mexican president is Obrador and he gets buddy-buddy with Chavez of Venezuela, they could really put the hurt on us with oil. brief piece here.

In simplistic local terms, the higher gas is, the more townhouses will go up around obvious work centers. But I do also agree with Lowbrow that gas is still relatively cheap here and the ends of our tolerance price-wise is probably a few bucks away, meaning most people won't make major transportation/lifestyle changes until we hit a much higher level.

Even at current prices, more Federal money should be allocated for alternative transit projects so that we can move unhindered in our rail development plans.

All in all, higher gas prices can be both a bad and a good thing; more inner-city development but less consumption, especially by the middle-class suburban commuters.

[editor]

My hedge against rising gas prices: I bought ExxonMobil stock.

[nmainguy]

That's a fairly loose and still-complicated scenario. Lets break it down:

1) Is gasoline going to hit $3.00 per gallon? I'll assume you're talking about Houston.

Does that answer everything?

Yeah-that answers everything .

We decided to sell our truck, put my 83 350SL in the garage and bought a hybrid Lexus RX 400h<<stolen 4.12.06 in the Greenway garage We are replacing all of our windows with glass filled, low e-coating and multiple glazed windows. We are consolidating errand trips. If we are going downtown, midtown or the museum district we take the bus and train or we bike.

Regardless of what Niche says-whatever that was-it is not a hard nut to crack. Decide what you want and adapt. High energy prices are here to stay unless something unforseen occurs. If you want to maintain your current energy consumption, then cut back on your everyday lifestyle or get a bike, buy some good walking shoes, improve your quality of health and life, organize carpools, get off your ass and quite whining. You think you've got it bad? Move to Darfur. Health willing, we hope to be there next year.

[Houston1stWordOnTheMoon]

In the oil industry? Then you should know when the "pipeline " is completed, that will have a major affect on oil prices. Sending them downward a bit, not upwards.........

[torvald]

Gas is expected to rise in the nation to atleast $3.00 minimum.

On top of that, more and more Americans are deficit spending.

How does expensive gas affect the way Americans live?

Your opinions ~

it has changed mine a bit. i don't really have the knack for economy

but as far as my personal experience (i wish i had more to pull from for

you HAIF folks most times) my chronic bike riding is mostly due to gas

prices. my car is now a huge responsibility with gas prices, insurance, etc.

making my decision to leave the corporate realm and go wage earner for

a "less complicated life" a mixed bag --- giving up a daily 2 hour commute

of 10 years is truly priceless!

the bike thing started off as a necessity and ended up something positive,

at least. i really enjoy it. i have a basket on the back for errands and i

am quite happy with the set up. admittedly, i mostly stick to my neighborhood

for things and am lucky that the montrose/hyde park area is a bit like a

smaller town. the car is now reserved for road trips and hauling equipment

and projects too large to bike.

[TheNiche]

My hedge against rising gas prices: I bought ExxonMobil stock.

So did I...got in back in 2003 when it was in the mid $30's per share...sold a little more than half at $64 and hedged my Exxon position with JB Hunt. Both of them have since been about static.

Regardless of what Niche says-whatever that was-it is not a hard nut to crack. Decide what you want and adapt. High energy prices are here to stay unless something unforseen occurs. If you want to maintain your current energy consumption, then cut back on your everyday lifestyle or get a bike, buy some good walking shoes, improve your quality of health and life, organize carpools, get off your ass and quite whining. You think you've got it bad? Move to Darfur. Health willing, we hope to be there next year.

I see...and your rebuttal to my statements that you evidently(?) disagree with was what?

[uncertaintraveler]

Five dollars a gallon does not seem outrageous to me. I think that will bring us more in line with world averages. It will also make other sources of petroleum economically viable. More frozen methanes, more oil sands, etc.

The only way gas prices in the U.S. can be brought "in line" with world averages is if the U.S. inceases the gas tax. The base price of gasoline is essentially the same within developed economies around the world--it is the amount of the tax that causes the disparity in actual prices between nations. That being the case, increased gasoline taxes will not make other sources of petroleum economically viable, because you are not replacing an expensive product (i.e., a barrel of oil) with a cheaper product (i.e., oil sands), you are simply replacing the initial source of the end product. So regardless from where you obtain the gasoline, because the price is increased only due to increased taxation levels, gas prices would remain constant to the consumer.

[Lowbrow]

The only way gas prices in the U.S. can be brought "in line" with world averages is if the U.S. inceases the gas tax. The base price of gasoline is essentially the same within developed economies around the world--it is the amount of the tax that causes the disparity in actual prices between nations. That being the case, increased gasoline taxes will not make other sources of petroleum economically viable, because you are not replacing an expensive product (i.e., a barrel of oil) with a cheaper product (i.e., oil sands), you are simply replacing the initial source of the end product. So regardless from where you obtain the gasoline, because the price is increased only due to increased taxation levels, gas prices would remain constant to the consumer.

Perhaps I should have said "world averages of today". I do wish taxes were higher on fuel here in the states but that isn't what I am talking about when I am talking about $5.00 gas. I'm talking about $100+/barrel oil really. Although we are already comfortably into the viable oil sands margin. I'm not sure exactly where the frozen methane (clathrates) margin is... I dont think anybody does. By hitting these margins we effectively expand our reserves and hopefully add some stability to the market.

Again, I'm a rock guy, not a economist.

[TheNiche]

Perhaps I should have said "world averages of today". I do wish taxes were higher on fuel here in the states but that isn't what I am talking about when I am talking about $5.00 gas. I'm talking about $100+/barrel oil really. Although we are already comfortably into the viable oil sands margin. I'm not sure exactly where the frozen methane (clathrates) margin is... I dont think anybody does. By hitting these margins we effectively expand our reserves and hopefully add some stability to the market.

Again, I'm a rock guy, not a economist.

Actually, our reserves are already way above normal. It's just going to take a couple years to fully expand capacity of our energy infrastructure before prices come back down significantly. Until then, speculators will maintain above-normal reserves.

EDIT: Oops. I meant to say inventories, not reserves. See new post below.

[RedScare]

Actually, our reserves are already way above normal. It's just going to take a couple years to fully expand capacity of our energy infrastructure before prices come back down significantly. Until then, speculators will maintain above-normal reserves.

You are a joke. Our oil reserves have been declining since the 70s. You also ignore the political cost built into the oil price. You know, the Iraq war, the Iran nuclear problem, the Nigerian protesters, that Venezuelan guy who seems to annoy us. You sound like a Republican geologist. You only talk science, while ignoring the politics that OUR government is agitating. Meanwhile, as oil prices are virtually at $70, you claim that they should not be there, and will drop soon.

Gas prices have risen 20 cents since you told us they were topping out. When are you going to explain things in real world terms, as opposed to your dream world?

BTW, while you are buying a Suburban in anticipation of the gas price decline, the rest of the US is buying Hondas and Toyotas. Please explain that phenomenon.

[nmainguy]

So did I...got in back in 2003 when it was in the mid $30's per share...sold a little more than half at $64 and hedged my Exxon position with JB Hunt. Both of them have since been about static.

I see...and your rebuttal to my statements that you evidently(?) disagree with was what?

I am not inclined to rebut, debate or discuss any of your long winded treatises. God, I can barely skim them anymore. As soon as I read the nut analogy I leap-frogged to post what we are doing to cut back our energy consumption.

There is always so many things to pick apart in your novels but it's just not worth my time.

[TheNiche]

You are a joke. Our oil reserves have been declining since the 70s. You also ignore the political cost built into the oil price. You know, the Iraq war, the Iran nuclear problem, the Nigerian protesters, that Venezuelan guy who seems to annoy us. You sound like a Republican geologist. You only talk science, while ignoring the politics that OUR government is agitating. Meanwhile, as oil prices are virtually at $70, you claim that they should not be there, and will drop soon.

Gas prices have risen 20 cents since you told us they were topping out. When are you going to explain things in real world terms, as opposed to your dream world?

BTW, while you are buying a Suburban in anticipation of the gas price decline, the rest of the US is buying Hondas and Toyotas. Please explain that phenomenon.

Actually, you are partially correct. I mistakenly used the word 'reserves' instead of 'inventories'.

According to the Energy Information Administration, crude oil inventories were at 1,716,963,000 barrels in January and have been rising since 2003, when there were 1,504,403,000 barrels held in inventory. Given a longer-term perspective, there were only 1,088,620,000 barrels in inventory in 1976.

In terms of reserves, there were about 21,371,000,000 proven barrels of oil in 2004 (most recent data) in comparison with 32,250,000,000 proven barrels of oil in 1974. So the amount of proven reserves has fallen by 10,879,000,000 barrels. That sounds bad, but the production data, which starts in 1977, shows that we've brought up on average 2,561,000,000 barrels per year. Extrapolated out to 1974, that equates to about 76,838,000,000 barrels of production. Note the gigantic gap.

Although it is true that the number of proven reserves has delined since the 1970's, the number of new discoveries has historically been high enough to supply all the oil that has been demanded. But see, the "proven reserves" aren't actually a meaningful number to economists. They're more of an indicator of oil prices than of anything else. When prices go up, companies explore and prove more resources. There was an article in the Chronicle yesterday about the immense demand for new petroleum geologists...because we now have NEW exploration going on by the big players. So, given a few years for reserves data to become available, I'd look to the figure to start an upward creep. It may be of use to check out the Dallas Fed article that I posted a link to a while back, if you haven't already.

As for recent events, gas prices fluctuate wildly when the market is shocked by breaking political news. That much is just a fact of life, and I won't and can't dispute that. My concerns are less for the peaks and vallies of the short term (1 to 2 years) and more for the long term average, which is a span that will outlast the presidency of George Bush.

By the way, I do not have any interest in owning a Suburban...nor do I wish to live in the suburbs. Please don't stereotype me just because you and I don't agree on an issue. That said, I don't drive a hybrid and have absolutely no interest whatsoever in one. I just don't drive enough miles to justify the added up-front cost. Moreover, I receive intangible benefits from the satisfaction of a V6 engine and a car that feels like a more stable platform. I did not consider Toyota at all in my purchase, but strongly considered the Accord; it was a close second to the Mazda 6.

[TheNiche]

I am not inclined to rebut, debate or discuss any of your long winded treatises. God, I can barely skim them anymore. As soon as I read the nut analogy I leap-frogged to post what we are doing to cut back our energy consumption.

There is always so many things to pick apart in your novels but it's just not worth my time.

How is it that you always find time to criticize me...yet you never say why?

For that matter, if you barely know what it is that I'm saying, why do you bother responding? Do you even know what you're responding to?

Please don't avoid the question in your future responses. If you're going to criticize, please legitimize...like Red does. It doesn't mean that I'll agree with you, but at the very least I can then respect the logic of your position as I do Red's.

In terms of reserves, there were about 21,371,000,000 proven barrels of oil in 2004 (most recent data) in comparison with 32,250,000,000 proven barrels of oil in 1974. So the amount of proven reserves has fallen by 10,879,000,000 barrels. That sounds bad, but the production data, which starts in 1977, shows that we've brought up on average 2,561,000,000 barrels per year. Extrapolated out to 1974, that equates to about 76,838,000,000 barrels of production. Note the gigantic gap.

You'll have to excuse me again...one more clarification.

The data I provided is DOMESTIC data. According to the same source, the WORLDWIDE proven petroleum reserves have been rising since at least 1980, when the data first became tracked. In 1980, there were 644.9 billion barrels of proved oil. In 2005, the most recent estimate, there were 1,292.6 billion barrels of proved oil. So worldwide, we're discovering oil faster than we can get to it.

Now why is it that energy prices would be going up in the long term?

[Lowbrow]

The first thing that comes to mind is china.

[nmainguy]

The first thing that comes to mind is china.

I was going to say India as well. It looks as if the 21st century won't be ours like the 20th was.

[nmainguy]

This is a good chart http://tonto.eia.doe.gov/dnav/pet/pet_sum_...dc_mbblpd_a.htm showing how domestic production has steadily declined since 2000 while imports have increased in the same time period with the exception of 2002.

Every day makes us more dependent on foreign oil.

[RedScare]

The data I provided is DOMESTIC data. According to the same source, the WORLDWIDE proven petroleum reserves have been rising since at least 1980, when the data first became tracked. In 1980, there were 644.9 billion barrels of proved oil. In 2005, the most recent estimate, there were 1,292.6 billion barrels of proved oil. So worldwide, we're discovering oil faster than we can get to it.

Now why is it that energy prices would be going up in the long term?

A closer inspection of those proven reserves shows a huge increase between 1985 and 1990. Discoveries since 1990 have been relatively flat. Additionally, most of the Middle Eastern reserves have not been validated, because they are state secrets. We must "trust" the Saudis and Iranians that they have the reserves they say they do. Consumption, however, has accelerated in the 21st century, most notably, in India and China, but also in the US.

Current worldwide consumption is 87 million barrels per day, 32 Billion barrels a year. With no future discoveries (unlikely), and no increases in consumption (also unlikely), the reserves would be gone in 40 years. Therefore discoveries must be made faster than the consumption. It is not currently doing that.

A bigger issue is whether reserves can be accessed. Political turmoil is only destined to increase as consumption increases. If oil consumption is not curtailed, we can look forward to Iraq wars constantly, as we try to secure a stable supply of oil. It is only reasonable to assume China, India and Europe will not appreciate us invading oil producing countries, and will retaliate. Political turmoil roils the markets, increasing prices.

Makes perfect sense to me.

[Houston1stWordOnTheMoon]

The first thing that comes to mind is china.

Dont put too much effort into China....things will turn to ____ for them soon. It will not be thier oil consumption we talk about, but it will be something else.............

[RedScare]

Dont put too much effort into China....things will turn to ____ for them soon. It will not be thier oil consumption we talk about, but it will be something else.............

More cryptic posts from the 1stWord.

BTW, it seems to me that if things turn to ____ for China, it can't be very good for us. But, what do I know? I only speak in plain English.

[TheNiche]

More cryptic posts from the 1stWord.

BTW, it seems to me that if things turn to ____ for China, it can't be very good for us. But, what do I know? I only speak in plain English.

If they enter a recession that is not caused by a recession in the U.S., possibly from overinvestment, then the U.S. is a net gainer in the process. See, their demand for energy would decline, allowing gas prices to take a breather. Furthermore, the cost of using their production capital would decline, allowing multinationals to produce less expensive goods for export, at least for a couple years.

[TheNiche]

This is a good chart http://tonto.eia.doe.gov/dnav/pet/pet_sum_...dc_mbblpd_a.htm showing how domestic production has steadily declined since 2000 while imports have increased in the same time period with the exception of 2002.

Every day makes us more dependent on foreign oil.

I agree with your conclusions completely. Its time to drill off of the coast of California as well as in ANWR. Lets take advantage of what we've got.

[TheNiche]

A closer inspection of those proven reserves shows a huge increase between 1985 and 1990. Discoveries since 1990 have been relatively flat. Additionally, most of the Middle Eastern reserves have not been validated, because they are state secrets. We must "trust" the Saudis and Iranians that they have the reserves they say they do. Consumption, however, has accelerated in the 21st century, most notably, in India and China, but also in the US.

Current worldwide consumption is 87 million barrels per day, 32 Billion barrels a year. With no future discoveries (unlikely), and no increases in consumption (also unlikely), the reserves would be gone in 40 years. Therefore discoveries must be made faster than the consumption. It is not currently doing that.

A bigger issue is whether reserves can be accessed. Political turmoil is only destined to increase as consumption increases. If oil consumption is not curtailed, we can look forward to Iraq wars constantly, as we try to secure a stable supply of oil. It is only reasonable to assume China, India and Europe will not appreciate us invading oil producing countries, and will retaliate. Political turmoil roils the markets, increasing prices.

Makes perfect sense to me.

As your calculations suggested, current proven reserves would take us about 40 years to fully exhaust. I would submit to you that within 40 years or less, alternative energy technologies may finally be at the point that it becomes economically viable to ween ourselves completely from oil and come out ahead.

If for the sake of argument, however, we were to extrapolate long-term average rates of consumption and discoveries out until the point that all known reserves were depleted, then the last year of full production would be 2087. Granted, I'd expect for consumption to increase at a slightly faster pace in the next decade, but as energy becomes more efficiently used in presently developing nations, I'd also expect for that pace to slow somewhat, even though I'd really not expect it to reverse anytime soon. Eyeballing the data, however, I'd still guestimate right at about 40 years before we'd face that scenario.

I don't think that the Saudis or Iranians would want to mislead the markets into believing that they have more reserves than there actually are because that would have the effect of calming investors, leading to lower oil prices. I can understand a situation where they might intentionally underestimate reserves since they'd benefit from higher prices, what would be their motive to overestimate?

You know, if there is any political turmoil over the control of oil, I'd almost expect to see China as more of the instigator than we are. I know that there are a lot of people out there that claim that we went to war with Iraq over oil...but we don't seem to be getting any, and that casts serious doubt on those theories. If we were there for oil, we'd be taking it, right? Besides, why would any country want to provoke world oil markets...that'd just make buying oil that much more difficult for that country because the prices would rise; meanwhile, it would have to fight a self-defeating war.