Friday, January 2, 2009

Gasoline Ration Cards

I have posted often on the pending oil supply crisis, now been briefly masked by the decline in demand caused by the global credit collapse. As credit begins to flow again as it is now, demand will quickly recover.

This returns us fairly swiftly to the inelastic supply conditions that permitted this past summer’s price rise to $145. I do not get any sense of supply buildup taking place while the price is so low, but surely every refiner is restocking the pipeline while demand is lower. We will have a small cushion.

In the meantime OPEC is tamping back supply by a couple of million barrels. I would like to believe that this could last but it will be gone with the snow. In the event, the price of oil will soon back to a $60 to $100 trading range, assuring everyone that it is just too expensive. If inventories do build properly, we may get a year’s pause in volatility in oil pricing, but this is only a respite.

The fundamental problem remains. We have no method of turning on an additional two million barrels of production per day. We could not do it properly when oil was $145 per barrel. All we could do was standby and watch the train wreck. The first casualty was the excessive credit balloon aided and abetted by the two year long commodity bull and the massive exposure to soft mortgage lending.

Oil drained the cash flow needed to support that balloon.

We also now know that the economy cannot be operated on expensive oil. This means that we are headed for demand regulation in order to preserve the economy. We have already discussed this extensively and have concluded that switching the trucking industry over to liquid natural gas (LNG) as proposed in California is the best available quick fix. Done in the USA, some millions of barrels of oil per day will be released back into the global market. Done globally, a real percentage of global demand will be released. I have not recently checked the numbers, but I believe that this will be close to 15 million barrels out of 87 million barrels.

Therefore, before we even think of the solar build out, we can ride through a major portion of the pending decline.

That still leaves us with the most economically wasteful use of oil. Personal transportation will have to be rationed. We cannot permit the demand for private convenience to price public good. Up to now we have had both. We are now entering a world were the use of available stocks will need to prioritize in terms of the common good. The best way to do this will be the ration card.

A ration card for gasoline will do more than any thing else we could ever do to drive the adoption of the electrical autocart. And yes folks, EEStor is looking more real every day.

An alternative to a ration card is a non commercial use tax. This is unfair to those who must have a car just to operate from their suburban home, or is it? We have a century of persuading folks to move out into distant acreages all supported indirectly by cheap gas. In reality, a ration card issued against known available supply is about as good as it will get. Some will benefit by having a surplus while those who must will buy those surpluses.

The good news is that we do not have a problem for 2009. In the meantime, maybe someone will hit the panic button and cause a crash THAI program in Alberta to give us that real two million barrel cushion and regulate the rapid adoption of LNG as in California.

Recall one single fact today. We are now consuming four barrels for every barrel we now find of conventional oil, excluding the Tarsands and their ilk. Those have only begun to yield oil in appreciable amounts. How much more stark can I make this?

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