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Oil is up and will continue to go up
Oil barrels on the side of the road in Baghdad
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TEXT OF INTERVIEW
Bill Radke: The energy bill under debate in Congress now is less ambitious than what many Democrats once hoped for. One ideas Democrat abandoned was putting a tax on carbon production. Marketplace's economics editor Chris Farrell says tax or no tax, the price of carbon is headed up -- especially the carbon contained in a barrel of oil. Good morning, Chris.
Chris Farrell: Good morning, Bill.
Radke: Chris, oil is under $80 which, you know, is a lot less than what it was a couple of years ago, right?
Farrell: Oh, but Bill, think about it -- what have we been talking about for the past several months? A slowing economy. Not just here in the U.S., but in China and in Europe. And yet oil has been up for the past three months, up to around $77, $78 a barrel level. And it was only back in 2003, you know, it reached $30 a barrel. So what that tells me is that hte price of oil is going to go a lot higher.
Radke: How much higher, you think?
Farrell: Well, I think it's very easy to say $100 a barrel. Now that's what the Saudis say is the equilibrium price if the whole global economy is growing. But remember Bill, it went up to $147 a barrel in 2008. So if the global economy is growing and production is peaked, you know the laws of supply and demand, you know what they tell you? A higher price. So $100 a barrel, we may look back that on say, hey, that was low.
Radke: Well, as you said, we hit $140-something a couple of years ago. How bad would $100 a barrel of oil be?
Farrell: It would be bad, because I think there is no doubt . . . now there are many factors that played into the Great Recession, the worst downturn since the 1930s, but it's very clear economists have looked at it and one of those factors was the high price of oil. So our economy is very vulnerable to an increasing price of this precious commodity. And that's why we need to have alternative energy, or else it's the risk that it's going to be energy once again, oil once again, will help put this economy back in the soup.
Radke: What are the odds alternative energy is going to come along and save us from an oil shock?
Farrell: Eventually, it will. My guess is the price of oil is going to go up, all of a sudden we'll be scrambling with alternative energy, we'll dip down again into a recession or some sort of sluggish economic grwoth, but we'll finally climb out of it. I just wish that we would accelerate the process so we don't have to go through this boom-and-bust cycle again.
Radke: The uncharacteristically pessimistic economics editor of Marketplace, Chris Farrell. Thank you, Chris.
Farrell: Thank you Bill. And Bill?
Radke: Ya?
Farrell: . . . I hope I'm wrong.
Radke: And, well, so do we.
Let's face it. China and India are positioned best to use labor and carbon to produce consumer goods. We here will use less of those goods and we(hopefully) will electrify what we can, produce and use more coal and natural gas to get by, produce electric cars, and consume less and less each year. Our society is aging and we will be a country focused on protecting the rights of older folks in assisted care facilities while the younger generations will be doing what younger people always do but at a faster pace in the new society. Interesting high tech items will be created and we seem to be moving into a direction where more and more services will be accomplished at your place of living. Possibly even the technology to disable nuclear weapons will arrive. So, in other words, we will slowly move away from life as we know it now and you all will be saying "I remember being freaked out by the thoughts of running out of oil!" Who knows, maybe there is alot of oil in Russia.......
Ah, yes. Chemistry is wonderful. But without ingredients, one cannot make a stew. When Coal and oil shale are gone or take more resources to produce than what is extracted (4 bbls of oil to mine the shale to get 1 bbl of oil), we have no choice. Carbon will be gone, whether we like it or not. In a few billion years, we may have more oil, but that will be too late.
I agree, the reality is we will turn to coal for energy to heat homes and we will produce the vast number of products we use (which are vital) from carbon. We will extract from oil shale, we will use synthetics, in short, products from carbon WILL NOT AND CANNOT go away. The only reason humans have made such incredible progress (if we can so boldly say this) is from the extraction and use of carbon. All you need do is look at a timeline of human civilization and see the advances humans have made by utilizing carbon more efficiently. If I were a young man I would definitely pursue a career in chemistry.
I appreciate Mr. Farrell's candid assessment of the importance of the situation we are in at the end of the Oil Era. But, there are no alternatives to Oil as a fuel source. Do the research. There is no other substance that can be mined so cheaply that can fill so many niches (transportation fuel, heating fuel, fertilizer, herbicides, pesticides, plastics, pharmaceuticals, etc.) We may be able to limp along using various renewable electrical sources, but even the technologies and materials upon which that energy supply is based is supported by Oil. In short, Peak Oil is (was) here.
