I get a lot of my topics from discussions on The Motley Fool. There are a handful of posters that look at the "big picture" as I try to do as well. Kentm is one of those. We have had a lot of discussions on oil supply with a lot of speculative scenarios. He’s more of a fatalist in that regard than I am. However, a truism when discussing the topic of oil, is how long will it last? Hubbert’s Peak, or Peak Oil, is a well calculated scenario of when the world’s oil supply will peak, and therefore become a more scarce commodity. When will it happen? Well, even Hubbert is a little vague. However, this article does explain the concept and scenarious of Peak Oil more clearly than anything I have ever read before. And of course, it comes courtesy of Kent.
According to this model, the Peak will occur somewhere between 2026 ( my reitrement year ) and 2047. Although 20 something years sounds like a fairly long time, when it comes to weening the planet off it’s addiction to petroleum products, that’s not nearly enough time. Now, the problem Hubbert’s model gives you is that once supply peaks, it drops off FAST. AS demand increases while supply decreases, the proportion eats itself up rather quickly. A fraction of a fraction is much smaller than multiplying by fractions. In other words, once it peaks, it’s over pretty quick.
That raised yet another question from Kent, Hubbert’s Peak very simply graphs supply vs demand and makes it dirt simple to understand. However, there are intangibles to it. If the US aggressively pursues alternative energy resources and makes them standard energy supplies accross the country, the Peak Oil will be pushed back. The question, therefore, is "what is the political risk premium on supply" and could you graph it?
1. In order to plot something like that, you’d have to have two coordinating points, what would those be?
2. Would the primary concern be domestic or foreign ( or both )? In order to do what’s right for the US public, hard foreign policies would have to be addressed.
There is some precedent to the risk premium that could be quantified. The recent debate over drilling in ANWR I would think would be an oil supply political risk indicator:
Sixty percent of the 1,000 likely voters polled said drilling for oil in ANWR will do little or nothing to reduce U.S. dependence on foreign oil. In contrast, 30 percent said opening ANWR to oil drilling is a key part of national energy strategy that will reduce America’s dependence on foreign oil.
When they took it to a broader speculation of "Americans’, it came to this:
A Zogby International survey, conducted for The Wilderness Society, found that 51 percent of Americans oppose the idea of drilling for oil in the Arctic National Wildlife Refuge, while 36 percent said Congress should open the ANWR to oil drilling.
In that case, I would put the risk premium at negative 64, a horribly politcally risky move. So, if you graphed the US public over a period of time on domestic supply, it wouldn’t look very good, but you’d have your graph.
If you addressed it as a political risk, I would look at the same issue based on congressional voting records:
Last year, a bill to open the coastal plain of the refuge passed the House but not the Senate, where eight Republicans voted with the Democrats against drilling.
The risk factor politically is apparently a negative number right now as well as both Alaska and California were tossed around and failed.
In order to graph it, I would look at domestic drilling votes over a period of time and plot the negative votes using 50 as a base in the Senate, and 217 being the baseline for the House.
Then, of course, you’d have the foreign risk factor to consider. I don’t really consider the opinions of foreign people or dignitaries the issue, but moreso, how the US public would perceive the relations with other countries if the President had to make hard decisions in regards to supply ( see lhaselden’s NUMEROUS posts ). I can’t think of any consistent poll that would reflect that, or any set of numbers that would consider that either.
The bottom line is that I don’t really think there is a rock solid base to work from. There’s too much data to make it a pretty graph. Consider, if President Bush did ramrod the ANWR issue down the country’s throat, against huge opposition ( 64%? ), BUT, Iraq suddenly kicked production up to levels never seen before and the price of gas suddenly dropped to $1.00, my bet is the public and political opposition to the ANWR drilling would evaporate overnight, even though the ANWR drilling would have had nothing to do with the sudden surge in supply.
A second example is even though supply increased earlier this year ( a perceived good thing ), the fact the feds were replinishing their stockpile and therefore temporarily increasing demand, along with other factors, suddenly caused the speculators to go nuts and run the price up anyway. Ergo, negativ political risk even though the supply increased.
It’s just too vague IMO. You could graph parts of the equation, but more parts are based on perception and I don’t think you can make a worthwhile chart based on perception. It is a valid concept tho. As we get closer to Hubbert’s Peak, that political risk factor will wane as the price of gas soars. A president, in order to be most effective, needs to know exactly when ANWR and the coasts are politically doable and act fast. This perceived graph would be just the tool to do it. I’m just apparently not the man to get it done. Maybe y’all can help Kent and me:
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