Posted by: bkivey | 15 January 2015

Drill, Baby, Drill

Where I live gas prices are hovering around $2 gallon, where they’ve been for over a month, and show no sign of rising. I can fill my tank for less than $25, compared to nearly $40 a year ago. The primary motivators for this happy circumstance are increased transportation unit efficiency, Saudi refusal to decrease production, and the tremendous increase in US and Canadian oil production, primarily from oil shale deposits.

Efficiency

Since the passage of the Corporate Average Fuel Economy  (CAFE) law in 1975, every automaker selling in the US must meet escalating government-mandated fleet fuel efficiency targets. The fleet average has increased by 60% over the last 40 years, and manufacturers of everything from tractors to heavy trucks to locomotives to commercial aircraft have followed suit. Businesses don’t like burning money any more than the average person, so the market is always looking for ways to move people and goods more efficiently. The result is that even as populations increase, in much of the Western world oil demand is decreasing.

Domestic Oil Production

The more expensive a commodity becomes, the more attractive previously unprofitable extraction methods become. $100 a barrel oil has made the oil shales of the north central plains and Canadian prairie economically viable. So much so, that the US is on the verge of becoming energy independent. This has led directly to

Saudi Oil Production

The Saudis understand the threat developing large oil deposits represents to their economy, and have refused to cut production in the face of declining oil prices, despite urging from their OPEC partners. In fact, the Saudis are looking to increase production to the extent possible in order to put North American oil fields out of business. Short term this may work, but the long term problem is that after 60 years of pumping oil out of the ground, the industry consensus is that the Saudis may not have a lot of oil left, whereas the oil shale deposits are relatively untouched.

It’s axiomatic that lower energy prices lead to economic growth, and in fact the US quarterly GDP has increased as oil prices have fallen. But it appears that economic law is something only applicable to the classical liberal, oppressive patriarchy, because in February 2012, noted Progressive Liberal economist Barack Obama noted that the Republican plan for $2 gas was

“Step one is to drill, and step two is to drill, and then step three is to keep drilling,”

Then displaying the brilliance the press frequently notes, he added

“Anybody who tells you we can drill our way out of this problem doesn’t know what they’re talking about, or just isn’t telling you the truth,”

Let’s recap:

Average US gas price February 2012: $3.72/gallon

Average US gas price January 2015: $2.10/gallon

That’s a whopping 56% decline. How ever can that be? Is there a price connection between increased production and declining demand? Perhaps Dear Leader had Jevon’s Paradox in mind. But if the infrastructure and culture are oriented toward resource conservation, increasing a resource isn’t necessarily going to increase demand. I’m not going to take the $15 – $30 weekly I’m saving on gas and buy a Hummer. I’m also not going to drive an additional 200 miles a week to burn up the tank of gas that money would buy. The real net result for me and others is that our standard of living has slightly increased. But that’s a problem for Progressives. People are doing better in spite of, not because of, their policies.

Word Watch

I was casting about for a word to describe a five year interval, and came up with ‘quineal’ from the Latin word for five, quinque (who says a liberal education isn’t useful?) But, as with so many things, the Romans beat me to it. The Latin word for a five year interval is ‘lustrum‘ (pl. lustra) from the Greek ‘luo’. I’m partial to my neologism, if only because it bears some resemblance to the word for five in Spanish, Portuguese, and Italian. Lustrum sounds too much like ‘luster’, or some obscure alloy. My term also lends itself to the American practice of shortening words:

“He was in school for a quin.”

Compare to

“He was in school for a lust.”

So if you’re playing Scrabble and find yourself with a bunch of vowels and a ‘q’, play ‘quineal’. If you’re challenged, refer to this post.

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Responses

  1. My take on lower oil prices is one of possible conspiracy between our president and the Saudi’s, by colluding with Saudi Arabia to keep oil prices down, Obama is able to attack Russia and Iran with intent on economic harm to Russia for funding Syria with the added benefit of crushing smaller oil firms that explore and frack for oil, and the keystone xl pipeline as a plus, just my guess, I probably am off base.

  2. HI Joe,
    I hadn’t considered that angle, but if the President were colluding with the Saudi’s, he’d probably be looking to decrease US oil production; something that hasn’t happened. As far as looking to attack the Russians economically through increased oil production, this President hasn’t shown an ability to engage in that type of long-term strategic thinking The Russians are worried about our oil production, but I think any effort by Obama to curtail production is motivated more by ‘Green’ interests than any desire to strengthen another country.

    Happy New Year!


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