Going upstream

Ok, before I start talking about going upstream, let me just say that this is the most ridiculous article that I've seen in quite some time: http://articles.moneycentral.msn.com/Investing/CNBC/Dispatch/LowGasolineMaybe.aspx?GT1=8579 The title of the article is "Why $1.15/gallon gas isn't a fantasy." And there are sooo many flaws in thinking and so little understanding of world dynamics….it's ludicrous. But it'still on MSN in a place where millions of people will see it. One paragraph goes like this:

"But things are starting to change. Drivers are changing their habits. Global tensions are easing, and more supply is on its way."

Things are starting to change, eh? That's optimistic -- optimism is good. As far as drivers changing habits - perhaps. But if gas drops back to early 2001 prices, I'm not optimistic that we'll see that "habits" have really changed - but rather that maybe "actions" have changed. And I don't know where Charley Blaine gets his information, but I'm sure not optimistic about things settling down in the Middle East -- even IF Iraq settles down, the situation with Iran - and Venezuela's support of Iran -- doesn't look good for the world's oil market and particularly the US's access to oil. And even if his facts are correct about a couple of new oil fields increasing supplies -- it's short term.

If you'd like to read something on the opposite end of the extreme, check out http://www.peakoil.ie/downloads/newsletters/newsletter55_200507.pdf Be warned, though -- this is as bleak as it gets. I particularly like sections 572 and 573.

Projecting how much oil is left in the world and the length of time that oil will last is very complicated science. There are so many variables and unknowns… chief among them are the amounts of oil and the price (as largely affected by the amount available). In reality, it isn't important about whether oil will last 20 years or 50 years or even 100 years. We know that we are reaching peak oil -- perhaps even DID reach it over the last couple of years… that production capacity can not continue to grow at the same rate as the human demand for energy. And that in and of itself is enough to demonstrate that even if we have a year or two of low-cost gasoline, it is not going to last. With an increasing demand for a finite resource (and I haven't even mentioned the increasing cost of extracting oil) the cost of that resource will go up. As will territorial disputes for access to that resource.

This leads nicely to what I initially wanted to talk about: the need to take an upstream view. What got me started on this today was a comment by our professor about how silly it is from a high-level perspective that Sweden ships milk to Norway while Norway also ships milk to Sweden. (Or a more extreme example with absolutely no logic -- mineral water from Australia being available in Sweden.) So we use an incredible amount of energy just for the transportation of that milk… what sense does it make? From a company's perspective, it might make sense… managers are smart people and when operating within their systems and with the information they have… it works. But from a higher-level perspective, it's absolutely assanine.

Here's something to ponder: "Royal Dutch Shell has begun pumping natural gas from its wind- and solar-powered Cutter micro-platform, sited on a marginal-production gas field underneath the southern North Sea." So it uses renewable energy - wind and solar - but it pumps natural gas. "The use of renewable energy generation equipment not only provides green power, but reduces the cost of providing a subsea cable to power the platforms. The platform’s US$143 million fabrication cost alone is around 40% of that of traditional platforms." More information and pictures at ::Green Car Congress, ::First gas from Cutter using renewable energy technology (this paragraph from http://www.treehugger.com/files/2006/04/natural_gas_pla.php)

Ok - now I'm out of time to actually talk about upstream in detail… maybe another time…