Peak Oil and the Reactionary Media

Lloyd's of London issued a report two weeks ago warning that businesses must take our peak oil problems seriously. The report predicts oil prices above $200 per barrel by 2013, and it warns businesses to take action now or face "expensive and potentially catastrophic consequences."

News that the world's largest insurance market sees significant risks in the problem of peak oil was reported in the UK media, but I did not see (and have not been able to find) a single mention of it in the mainstream US media.

If the US media doesn't cover the story, does that mean the story isn't real? Even if the story comes from a reputable organization such as Lloyd's of London? What is going on here?

The problem is that "peak oil" is a very expensive story to develop and report. Our media prefer to report on "events" that they can simply "cover" and comment upon. For example, the media spent very little time or effort on the risks of offshore drilling or corrupt and ineffective government regulators before the BP Deepwater Horizon catastrophe happened. And you can bet that they will pay only passing attention to the complicated environmental consequences of that spill now that oil slicks on the surface are evaporating (no more photos of oil soaked pelicans) and the underwater video stream no longer shows oil gushing from a broken pipe.

Peak oil is not so dramatic as an oil spill, and its consequences are only felt over a period of years or decades. It is not the end of oil. It is simply the end of increasing oil reserves and the start of declining oil reserves.

As Lloyd's of London warns, however, peak oil will will be very disruptive over the coming decade or so. As reserves start decreasing instead of increasing, supplies will tighten and prices will rise. That will happen even in a weak economy. And as demand grows dramatically in developing markets, prices will rise dramatically.

It does not take an economics degree to understand that demand will grow dramatically in the coming decade. Billions of families in China, India, and other growing economies want more cars and SUVs just like the American dream. That's why, even in a Great Recession, GM is already selling more vehicles in China than it sells in the US. As the economy improves, China alone will put 2 or 3 times as many vehicles on the road as are on the road in the US today. Plus billions of people in China, India, and other developing countries would love to have lawnmowers, pickup trucks, ATVs, buses, recreational vehicles, air travel, and ocean cruises. Plus pharmaceuticals, plastics, cosmetics, and thousands of other products that contain petroleum by-products. Plus more factories and industrial plants to make all these oil-derived and oil-consuming products.

All of this dramatically increasing oil demand will occur as the accessible oil reserves start declining.

Now if only we could figure out a way to put that on streaming video.

John Howley
Orlando, Florida
www.HowleyGreenEnergy.com

Oil Disasters and Sub-Prime Mortgages: When Risk is Taken Out of the Price

The BP Deepwater Horizon catastrophe has much in common with the implosion of the sub-prime mortgage market. In both instances, very intelligent people failed to take basic precautions with risky investments. Why? Because the risks were not fully included in the investment analysis.

In the sub-prime mortgage market, the rating agencies gave what turned out to be deceptively favorable ratings to Collateralized Mortgage Obligations (CMOs), in part because the risks were chopped up and spread around in pools. Investors did not demand a high risk premium because they could not see the full extent of the risks.

Something very similar happened with BP's investment in the Deepwater Horizon. BP's spill response plan estimated the worst case scenario at 177,400 barrels of oil, a number that we now know was absurdly low. And the bulk of the risk was assumed by the US government when it limited BP's liability for damages claims to $75 million.

If BP had to assume the full risk (potentially billions of dollars) in a gulf that has seen some of the worst hurricanes (including Katrina), the insurance premiums or reserves required to cover that risk presumably would have been much larger. Larger insurance premiums or reserves would have reduced the potential return on investment for the project.

What would BP have done if the financial projections for the Deepwater Horizon project had been lower because they included the full cost of insuring against a multi-billion dollar risk? Maybe BP would have invested in a less-risky natural gas project that would have produced fuel with 30% to 40% lower carbon emissions. Or maybe BP would have invested in some of the new Green and sustainable technologies that it was touting in its advertisements. Or maybe it would have invested in a different oil project that did not carry the risk of destroying the fishing industry in the Gulf of Mexico.

Here's the bottom line: Our best hope for a future of clean and sustainable energy is to encourage rational investments by the private sector. That is only possible if the price of oil includes the full cost of pollution and the full cost of insuring against environmental disasters. Once that happens, alternative energy sources that do not carry those costs will become very attractive investments and the smart money will flock to them. So if you want to start a shift to cleaner and more sustainable energy sources, the first step is to stop subsidizing oil with free liability insurance courtesy of the US Government.

John Howley
www.HowleyGreenEnergy.com
Orlando, Florida

Mr. President, Put General Petraeus in Charge of the BP Catastrophe

Mr. President, if our shores were being attacked, you would not rely on profiteers and mercenaries to defend us. You would appoint our best General to lead the defense, and you would support him with our best troops. You would not "supervise" private companies and "approve" their decisions. You would appoint one person with authority to make all decisions, and that person would have undivided loyalty to you as President.

Well, our shores are under attack. By the worst man-made environmental catastrophe in history. Eleven people have died, untold thousands are losing their livelihoods, and the damage may haunt us for generations.

The first thing you must do is appoint a battle-tested General and call up the troops. Call the oil companies and tell them that you are drafting all of their top scientists and engineers. You want them in the gulf tomorrow morning. They will no longer report to the oil companies. Until this catastrophe ends, the scientists and engineers will report solely to a chain of command headed by General Petraeus who will be advised by Energy Secretary Chu.

They will not work only on plugging the blowout. They will also do everything possible to protect the people of this nation from the devastating effects of the blowout -- even if that means doing things that will increase BP's costs or reduce its future profits.

General Petraeus knows how to organize and lead people. He knows how to get things done. He will not be distracted by falling stock prices, profit and loss statements, or corporate lawyers advising on potential future liabilities. He will not increase the number of people cleaning the beach when the press is around, and then send them home without finishing the job when the press follows you back to Chicago or the White House. With General Petraeus in charge, you (and the American people) will be confidant that everything is being done with the sole objective of protecting our nation and its people.

Mr. President, you have said that we need the oil industry's superior expertise in deepwater oil drilling. That may be the case. But this is not about expertise. This is about leadership. It is not enough for you to "supervise" or "approve" everything that BP does.

We know from experience what happens when war profiteers and mercenaries like Halliburton and Blackwater make decisions subject to the "supervision" and "approval" of the US government. The profiteers make billions and the national interest is not well served.

You must relieve BP and all of its corporate officers from any authority to develop strategies or make decisions. They can provide technical support. They can serve as advisors. They can make suggestions. But you must have one person, and one person only, who is directly responsible for developing strategies and making decisions. And that person must have no loyalty other than his loyalty to you as President and to the People of the United States of America.

Mr. President, you promised us change. You promised us that we would no longer rely on war profiteers and mercenaries to defend this nation. We need you to keep that promise. Please put our best battle-tested General in charge of the situation and tell everyone else that they are reporting to him effective immediately.

John Howley
www.HowleyGreenEnergy.com
Orlando, Florida

The Blame Is On BP, But The Solutions Are All Ours

In 1969 a blowout off the coast of California caused an 800 square mile oil slick. We kept drilling.

In 1973 members of the Organization of Arab Petroleum Exporting Countries refused to sell us oil, causing an economic crisis. We invented the SUV and the McMansion to consume even more oil.

In 1989 the Exxon Valdez spilled 10.8 million gallons of crude oil along 1,300 miles of pristine coastline. We built more and larger supertankers.

In 2001 the son of a Saudi Arabian construction magnate orchestrated the worst terrorist attack ever on US soil. We went on to buy more oil than before, sending more of our money to Saudi Arabia and other oil-producing countries where, as Thomas Friedman notes, "it ends up with mullahs who build madrasas that preach intolerance."

In 2010 the BP blowout is destroying the ecosystems and the economy along our Gulf coast. We . . . .

Have we learned anything at all? Or will we increase our dependence on rapacious oil companies and despotic regimes once again?

We can and should blame BP for their reckless disregard of the environment in the Gulf of Mexico, the Niger Delta, and other places around the world where they and the rest of their industry have destroyed entire ecosystems and communities.

But they will never give us the solutions. The solutions will depend entirely on our own choices.

Will we choose to continue wasting energy? Or will we require that all cars, trucks, and buildings reduce energy consumption by 20% or more?

Will we allow oil companies to sell products that pollute the air and water without including the cost of that pollution in the price of the product? Or will we level the playing field for clean and renewable alternatives by imposing the type of pollution tax (or cap and trade system) favored by well-known conservative and libertarian economists such as Nobel Laureate and Reagan advisor Milton Friedman?

In 2020 will our children thank us for making the right decisions today? Or will they suffer even worse catastrophes brought on by our selfish, thoughtless, and unnecessary addiction to oil?

The choice is ours.

John Howley
Orlando, Florida