energy

Jad Mouawad and Andrew Revkin report in the New York Times on just the most darling Saudi proposal for how to help solve the global warming problem: 

Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers....

The chief Saudi negotiator, Mohammad al-Sabban, described the position as a “make or break” provision for the Saudis, as nations stake out their stance before the global climate summit scheduled for the end of the year.

“Assisting us as oil-exporting countries in achieving economic diversification is very crucial for us through foreign direct investments, technology transfer, insurance and funding,” Mr. Sabban said in an e-mail message....

A recent study by the International Energy Agency, which advises industrialized nations, found that the cumulative revenue of the Organization of the Petroleum Exporting Countries would drop by 16 percent from 2008 to 2030 if the world agreed to slash emissions, as opposed to the projection if there were no treaty.

But with oil projected to average $100 a barrel, the energy agency estimated that OPEC members would still earn $23 trillion over that period.

If Saudi Arabia was serious about diversifying its economy, it would open up its spigots and let the price of oil fall to the point where there were market incentives for economic diversification.  Somehow, I don't see that happening.   

So, this isn't really going to go anywhere -- but what I do find particularly amusing is that if one thought about compensating dirty energy producers for the costs of climate change mitigation, then oil producers would be close to the back of the line.  Coal-producing economies -- like China and the United States -- would be justified in demanding much greater levels of compensation, since coal is a much dirtier energy source.  Oil would be in front of natural gas producers, and that's about it. 

Readers are encouraged to proffer their own proposals in the comments that would seem more outlandish than the Saudi one.  Creativity counts!!

The global economic downturn is not just affecting manufacturing output or the financial sector. I'm afraid that shameless PR gestures by Latin American thugs are also going to be curtailed: 

Houston-based Citgo Petroleum Corp., the U.S. fuels and refining unit of Venezuelan state oil company PDVSA, plans to suspend its program to provide discounted heating oil to poor U.S. communities, according to Citizens Energy, a nonprofit which helps Citgo distribute the heating oil.

Citizens Energy chairman Joseph Kennedy said in a statement Monday that Citgo was calling off its heating oil aid programs in the United States due to "falling oil prices and the world economic crisis."

The New York Times' Jad Mouawad reports that falling oil prices is putting a crimp in oil exploration: 

From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets. In the short run, falling oil prices are leading to welcome relief at the pump for American families ahead of the holidays, with gasoline down from its summer record of just over $4 to an average of $1.66 a gallon, and still falling. But the project delays are likely to reduce future energy supplies — and analysts believe they may set the stage for another surge in oil prices once the global economy recovers.

So, let me see if I have this right:

1. If oil prices are sky-high, the energy sector explains that it will be slow to develop new fields, because exploration requires massive fixed investments and no one knows what the price of energy will be 5-10 years from now;
2. If oil prices are low, the energy sector explains that it is unprofitable to develop new fields because... energy prices are low.

Seriously, am I missing something here?  Given lag times and the natural propensity to consume more of something when prices are low, doesn't it make sense to "drill, baby, drill" when the price of energy is low?  Questions like this are why I could never hack it as an economist.  UPDATE:  Kevin Drum and Andrew in the comments section provide some cogent, but hardly reassuring, replies. 

The latest issue of The National Interest is out, and hey, what do you know, I have an essay in it!  I was asked to speculate on what the world would look like if oil became an irrelevant commodity -- i.e., cheaper than it was at any point since 1973.  The thesis paragraph: 

[L]et’s imagine—as The National Interest asked me to do—that the summer of 2008 turns out to be the all-time peak of oil prices, and that the end of the oil era is imminent. The first instinct is to assume that in this world—a world in which oil would be a minor commodity, irrelevant to both geopolitics and the global economy—America would be much better off. Oil-exporting autocracies would fade into obscurity, and the Middle East would revert to barren sand-strewn lands. This imagined future, after all, is what drives politicians from George W. Bush to Barack Obama to say that ending dependence on foreign oil will liberate America. But would this really be the case? It may be that the assumptions we hold are grounded in a misunderstanding of the global order. Perhaps instead, without oil dominating their economies, the Middle East oil states would be far less dependent on the United States for trade, for security and for dollars. Perhaps the dollar would no longer be the world’s reserve currency, which would severely hinder America’s ability to fund its current-account deficit—and its military superiority. And then, perhaps, the security guarantee the United States provides to the Middle East—and by extension the entire oil-dependent world—would be null and void. In short, a world that doesn’t need oil may also be a world that doesn’t need the United States. But when prices of oil are skyrocketing, people aren’t thinking about the possible long-term implications of energy independence, only the short-term gains.

Go read the whole thing.  Feedback is very much welcomed -- this was, by definition, a speculative essay.  And props to Justine Rosenthal, who was smart enough to push me to write this back when oil was over $140 a barrel.