Carpe Diem

Cheap energy today: The best friend and salvation of the poor

Somehow we have to figure out how to boost the US price of gasoline to the levels in Europe.” ~Stephen Chu, US Secretary of Energy

Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket.” ~President Barack Hussein Obama

Willis Eschenbach responds (emphasis mine) on Watts Up With That (the world’s most viewed site on global warming and climate change):

Here’s my problem with these brilliant plans. Regardless of whatever hypothetical possible future benefit they might or might not bring in fifty years, right here and now in the present they are absolutely devastating to the poor.

The difference between rich and poor, between developed and developing, is the availability of inexpensive energy. We’re rich because we have (or at least had) access to the hardworking servants of inexpensive energy. We have inexpensive electrical and mechanical slaves to do our work for us.

This is particularly important for the poor. The poorer you are, the larger a percentage of your budget goes to energy-intensive things like transportation and heat and electricity. If you double the price of energy, everyone is poorer, but the poor take it the hardest. Causing an increase in energy prices for any reason is the most regressive tax imaginable.

So I find it both reprehensible and incomprehensible when those of us who are in the 1% of the global 1%, like President Obama and Secretary Chu, blithely talk of doubling the price of gasoline and sending the cost of electricity skyrocketing as though there were no negative results from that, as though it wouldn’t cause widespread suffering, as though cheap energy weren’t the best friend of the poor. What Chu and Obama propose are crazy plans, they are ivory-tower schemes of people who are totally out of touch with the realities faced by the poor of the world.

As far as I know, other than the completely overblown “peak oil” fears, about the only argument raised against the manifold benefits of inexpensive energy is the claim that increasing CO2 will lead to some fancied future Thermageddon fifty years from now. I have seen no actual evidence that such might be the case, just shonky computer model results. And even if CO2 were to lead to a temperature rise, we have no evidence that it will be harmful overall. According to the BEST data, we’ve seen a 2°C land temperature rise in the last two centuries with absolutely no major temperature-related ill effects that I am aware of, and in fact, generally beneficial outcomes. Longer growing seasons. More ice-free days in the northern ports. I don’t see any catastrophes in that historical warming

So I’m sorry, but I am totally unwilling to trade inexpensive energy today, which is the real actual salvation of the poor today, for some imagined possible slight reduction in the temperature fifty years from now. That is one of the worst trades that I can imagine, exchanging current suffering for a promise of a slight reduction in temperatures in the year 2050.

Even if the dreaded carbon menace were real, raising the price on fossil fuels would be the last way on earth I’d choose to fight it. Like I said … big current pain for small future maybes, that’s a lousy trade.

HT: Joe Lais

20 thoughts on “Cheap energy today: The best friend and salvation of the poor

  1. From the state of ND:

    “November saw a small decline in drilling with a very large decline in hydraulic fracturing resulting in a 2.2% decline in oil production rate from October. More operators are transitioning to higher efficiency rigs and implementing cost cutting measures at the end of their 2012 capital budgets, but the primary reason was winter storm Brutus. Williams County was impacted the most with November 10, 2012 being the snowiest day since 1901. The idle well count rose sharply indicating an estimated 410 wells waiting on fracturing services.”

    In the Bakken area, the number of wells went up in November, but the daily oil per well fell in November by almost 5%, reflecting mostly the major winter storm. The same decline happened in April 2011, the month of one of the last huge snow storms in ND that had a major adverse impact on drilling. In that month, daily production also fell 2.20% (same as the 2.2% decline in November), and the daily oil per well fell by about the same – 5.4%.

    I think December oil production will probably be back to an all-time record high level.

    • Context. Perspective.

      Yes, but the -8,441 bpd greater decline in November 2012 (-15,074) compared to April 2011 (-6,630) isn’t a fair comparison because Bakken oil output in Nov. 2012 was 135% higher than in April 2011 and 384,000 more bpd!

      As I explained above using percentages, the weather-related April 2011 Bakken decline was actually -2.6% and therefore greater than the weather-related November 2012 decline of 2.2%.

      Given the huge exponential growth Bakken oil, we can’t even accurately compare weather-related output changes like these in 2011 and 2012 (consecutive years), without using percent changes, that’s how much output has grown!

      • That’s also how much the decline rate has grown. :)

        You have 400 “unfracked” wells up there, so it’s not like you’re going to see an immediate decline, however, it’s going to take more wells completed to keep the growth going.

      • The big issue for tight oil and gas production has not changed over the years. It is still rapid depletion and the inability to generate a positive energy return on the energy invested outside of a few productive core areas. The simple fact is that the huge depletion requires more and more drilling just to keep production flat but that kind of capital is very hard to raise for companies that have yet to generate positive cash flows even though they have been operating in the sector for more than half a decade.

  2. But actually the point is North Dakota is not really where things are happening it is the Eagle Ford and now all of the Midland/Permian basin area in Tx. If the rumors about the Permian basin are true it could be a bonanza for the second time in its history, now that we have figured out how to get oil out of the source rocks skipping the step of finding reservoir rocks and getting the oil there.
    Recall that the traditional steps for getting oil are
    1 A source rock
    2 time and temp to cook the source rock
    3 a reservoir rock
    4 a seal to stop oil and gas from leaving the reservoir.
    5 A path from the source rock to the reservoir rock that the oil and gas can migrate on.
    6 that the reservoir has not been overcooked itself after the oil got there.

    Fracking in the shales means that you need just points 1 2 and in some sense 4 and of course 6.

    • If the rumors about the Permian basin are true it could be a bonanza for the second time in its history, now that we have figured out how to get oil out of the source rocks skipping the step of finding reservoir rocks and getting the oil there.

      You are just moving the pea again. The fact is that we have been sold shale gas and oil as a path to independence and riches for quite some time now and that sales pitch included formations now known not to be very economical. We can’t ignore the real world performance of those formations and keep chasing rumours just because the promoters have changed their tune and ignored their past failures.

      The fact is that Eagle Ford wells have high depletion rates as well. The same math that ensured that the Bakken production would disappoint once the drilling activity levelled off will ensure that Eagle Ford and the other basins do the same.

      Recall that the traditional steps for getting oil are
      1 A source rock
      2 time and temp to cook the source rock
      3 a reservoir rock
      4 a seal to stop oil and gas from leaving the reservoir.
      5 A path from the source rock to the reservoir rock that the oil and gas can migrate on.
      6 that the reservoir has not been overcooked itself after the oil got there.

      Fracking in the shales means that you need just points 1 2 and in some sense 4 and of course 6.

      You frack because you don’t really have a suitable reservoir rock. A good conventional field has rock that has high permeability and porosity. Shale has neither. That is why it is such a loser for all but the promoters who understand the reality and sell off positions right after they get buyers excited about future prospects. If we see a correction in oil, as we should when the contraction in the real economy begins again, most of the shale investors will wind up with nothing in the way of profits or their original capital. If you like risk you would be better off looking at well capitalized coal plays with cash on hand.

      • Note that as I understand it the shales are the source rocks, where the oil and gas are generated, there is no issue of the fluids having to flow to a reservoir, which of course is why they have to be fracked. So given that one does not have to have the path or a judiciously localed rock for a traditional reservoir there should be a lot more of the fluids there. Now economics are another issue, but then it depends on the time frame, after the first wave wipes out a lot of the small operators as always happens in oil and gas. In the 20 to 40 year time frame it is important as conventional sources deplete.
        But if you think about it an aweful lot of folks lost their shirts in the East Texas field, or other big fields of the past, and someone bought up the fields and produced the profitably because the drilling costs were absorbed by the bankruptcy. So independents always have been and always will be a risky investment.

  3. Note that compared to North Dakota the Eagle Ford and the Permian Basin (both experiencing booms) are either near refineries (Corpus Christi ) or in the middle of a lot of existing pipeline infrastructure (Permian Basin). Thus production there can be moved much easier to the refineries.

    • I’m not sure that’s accurate. In October 2012, Texas oil output increased by 50,000 bpd vs. September and grew by 31% on a YoY basis. In October 2011, oil production increased by 59,000 bpd vs. September, and grew by 32% on an annual basis.

      Over the last two years, the average monthly increase in Texas oil output has been 36,000 bpd, so the October 2012 increase was 39% above that two-year average.

      EIA data available here. for Texas Field Production of Crude Oil (Thousand Barrels per Day).

      • I’m not sure that’s accurate. In October 2012, Texas oil output increased by 50,000 bpd and grew by 31% on a YoY basis. In October 2011, oil production increased by 59,000 bpd and grew by 32% on an annual basis.

        Stop looking at the noisy data and try to look at the bigger picture. The simple fact is that the depletion in shale formation is way too high to allow the type of production increases that we have seen in the past two years continue into the future. We have historical data on all this in the Elm Coulee, a very good formation that was quite profitable. The exponential production gains reversed very quickly once the reality of depletion reared its ugly head. We are going to see exactly the same thing for exactly the same reason in all of the shale formations.

        • So, basically, you are arguing that all of the many analysts (industry and non-industry) that have predicted a 100 years of high energy production are wrong. You know better.

          • So, basically, you are arguing that all of the many analysts (industry and non-industry) that have predicted a 100 years of high energy production are wrong. You know better.

            I am arguing that there is no empirical data that would support the claims made by the analysts. History shows that shale oil and gas production is the bottom of the barrel and not very economic outside of a few core areas.

            Note that the experts were talking up a housing boom without ever acknowledging that it was a boom. They were telling us that ‘it was different’ during the tech bubble. They are telling us that treasuries are riskless. History shows that those claims are wrong.

  4. “Causing an increase in energy prices for any reason is the most regressive tax imaginable.”

    This, along with “inflation taxes the working” are wonderful sentiments, usually uttered by people who are totally bereft of such concerns in any other context.

    So, are regressive taxes good or bad?

    • “usually uttered by people who are totally bereft of such concerns in any other context”

      Just because others reach different conclusions from you, about what actually helps the poor, doesn’t mean they have no concern for the poor.

    • “This, along with “inflation taxes the working” are wonderful sentiments, usually uttered by people who are totally bereft of such concerns in any other context.”

      Benji names no names, just tosses a bucket of slander and runs away.

      Benji just won’t stand for any criticism of his boyfriend Barack.

  5. re; regressive – low prices (and taxes and fees) help the poor more than high prices and taxes….

    ;-)

    re: weather-related slowdowns – does that happen in general to all drill-based operations?

    re: high capital costs for tight, shale , oil, etc

    is there a way to graph production with costs that would show that fracking is more capital intensive than conventional drilling?

  6. ”Somehow we have to figure out how to boost the US price of gasoline to the levels in Europe.” ~Stephen Chu, US Secretary of Energy

    If that Bozo actually said that, it’s time to break out the tar and feathers.

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