Tuesday, September 27, 2005

Oil, Natural Gas, and Gasoline: Shortage is coming

I was just speaking to my brother about his take on the current energy situation. I often use him and other family members as a gauge of how aware other folks in the country might be on a particular issue. In this case my query concerned energy and in particular Gulf of Mexico related fuels. His take, based on CNN and other corporate media was that there was little to no damage to the energy infrastructure in the Gulf. His co-workers (tech workers at a very large brokerage firm) are all of the opinion that any rise in gas prices are due to gas gouging by the gas companies.
I never fail to be amazed by the level of ignorance that my fellow citizens manage to achieve with the help of the corporate media.
Perhaps I'm a freak, perhaps I'm obsessed... probably a bit of both. Suffice it to say I've spent far too much of my time looking at the energy base of our society. It's not good folks, not good at all.
Now, I'm not saying that gas companies don't gouge, I'm certain they do. Don't complain, okay? It's capitalism and most people love capitalism, don't they? I mean, it's the only way, is it not? Yup, ya gotta love capitalism and ya can't get too pissy about a bit of gouging now and then. But capitalism is not the focus of this post so let me get back on track.
At this moment the energy infrastructure (oil drilling and production platforms) in the waters of the Gulf of Mexico is heavily damaged. After Katrina and in the weeks before Rita, 50-60% of oil production was shut down. Thats 24 days at less than half. Since Rita it has been 0. Zero. Zilch. Nada. Nothing. Normally we get 1.5 million barrels a day. But this my friends is not the whole story.
Natural gas is another part of the story. We use it to heat our homes, our water, and to cook with. It's also used to generate electricity and is an important ingredient for making fertilizer for farmers. After Katrina and in the weeks before Rita, 35-45% of natural gas production was shut down. Since Rita 75% of the natural gas production has been shut down. Normal natural gas production is 10 billion cubic feet per day.
If you'd like more details check the source. The most recent shut-in stats (9/27/2005) here.
But wait, there's more. If we move inland we find that the Gulf Coast of Texas and Louisiana are home to more than 25% of the U.S. refinery infrastructure. After Katrina 5% of this production was offline. Since Rita 25% has been shut down. Current estimates are that 2-3 refineries representing 500,000+ barrels of gasoline have light to moderate damage. That may not seem to bad but that is not the whole picture. The local power infrastructure is down and the current estimate is that the refineries themselves will not have power for 15-30 days. If those estimates are correct the U.S. will have lost 25% of its gas production for 15+ days. This will be offset a wee bit by conservation as well as gasoline imports but those will be minimal. At the moment there are no more tankers available to bring imported product. Shipping companies are rushing to clean a few "dirty" tankers to make them available but as it stands now, there will be a wait.
As we move into the fall and winter our gasoline and diesel supply is low. Our natural gas supply is low. Now is normally the time that refineries shift from producing gasoline to begin producing higher quantities of heating oil for the winter. Now is the time that natural gas should be produced for the coming cold months. This is all the short term and it's not pretty with various shortages likely.
Let's put into the larger context and a larger time frame. The simple truth is that demand for energy, and oil in particular, has grown to the limit of supply. The planet's oil fields are tapped out and we find ourselves at or very near to peak production. Generally this means that we have gotten half of the oil out of the ground. It also means that we've gotten the easiest to get oil and the majority of the light sweet oil which is much easier to refine. All future oil is of much lower quality, dirty oil that will need more refinement. What does that mean? It means it will cost more and require more energy... yes, it takes energy to get energy, don't forget that. Oh, and it will be harder to get out of the ground in the first place which means more energy just to get it to refinement. That is the larger context and the future. It only gets more difficult, more expensive, and dirtier.
A further consideration is that as we have reached peak oil we have a planet of people that do not share resources equally. Non-western nations average 2 barrels of oil per person per year while those of us in the U.S. and other "western" nations use 18 barrels of oil per person per year. Most recently and in the near future we can see and should continue to expect China and India to dramatically increase their use of oil. Add to this the disruptions to production caused by political instabilities, war, and the occasional hurricane and it should become obvious that supplies are balanced on a razor's edge. Shortages will happen and in the future they will become a fact of life for those of us who have gotten used to a steady supply.
Folks, like it or not, this is the situation. Some will run from this reality until it slaps them squarely in the face and even then they will do their best to deny it. Denial won't change the reality though. So folks, while gouging may happen I assure you higher prices are coming and they are just the beginning. I expect that in the near and increasingly desperate future $5/gallon gas will not be the issue, finding a station with gas will be the issue. This winter the price of heating our home will not be the only issue, hundreds or possibly thousands of frozen poor and elderly people will be the issue.
These past few weeks the media, markets, and government react to this energy crisis just as they always have which is to say they don't. They're doing their very best to ignore it in the vain hope that it will go away. I don't think that it works that way.

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