A Challenge to Peak Oilers
The peak oil piece has gained interest again because the New York light, sweet crude contract has vaulted into new record territory, trading above $67 per barrel late last week. Of course, the peak oilers – by that, I mean the folks who believe the top of the Hubbard's Peak curve for world oil output is coming sometime in the next few years – are all patting themselves on the back and pointing to these high market prices and saying "see, we told you so." Why are prices so high right now? Fear, plain and simple. Last week was a bad week for an already tight refining system in the United States, and every small fire and power outage – from the Paramount Refinery in Los Angeles to the ConocoPhilips plant in Illinois – as well as BP's continuing safety issues with its high-pressure reforming units at its Texas City refinery mean there is near panic over future supplies of gasoline and distillates (heating oil, diesel and jet fuel). This autumn's refinery maintenance season could be longer and more difficult than average, since so many US refineries have to retool for the new low-sulfur diesel mandates. And the shortage of distillates in the "Atlantic Basin" (North America and northern Europe) means that if it's a cold winter this year, a lot of people in New England, Germany and Scandinavia may have to learn to go without heat for periods of time. (This doesn't even begin to touch the astronomical price of natural gas in the US, which will cause huge problems elsewhere in North America if a bitterly cold wind blows south from Canada and settles over the United States this winter.) And fear that world energy markets may have to deal with yet more geopolitical uncertainty in the form of American military action against Iran. "All options are on the table," George W. Bush told Israeli TV when asked about Iran. "The use of force is the last option for any president. You know we have used force in the recent past to secure our country." The evolving confrontation can hardly be much of a comfort (and we know that force is never this president's last option). Iran produces about 4 million barrels per day, only about 5% of world demand. But everyone who can produce is producing, and of the major oil-producing nations, only Iran, Saudi Arabia and the United Arab Emirates have significant extra capacity. Which means if the world loses Iran, it loses that 4 million barrels. No one can make that production up. And depending on how prepared Iran is to wage war, the world could lose a lot more.
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