The Coming Global Blackout
By
Andrew Gordon
 Leave
it to the government. It’s proposing a “tax and cap” regime for
energy producers which will require fossil-fuel generating plants to pay
extra.
The idea is to encourage clean fuels and discourage dirty ones. That’s
fine in theory. But instead of helping our future energy situation, it’s
going to make it a lot worse.
The price of oil has already doubled in the past six months to over $60
per barrel. But it’s just the beginning of oil’s next gigantic
price surge. If you thought that oil was ridiculously expensive last
summer, you haven’t seen anything yet.
It doesn’t matter whether you believe in “Peak Oil” because this
isn’t about Peak Oil coming to fruition. Peak Oil believes that oil
discoveries have peaked leading to oil production’s inevitable
decline.
This crisis will be strictly man-made. Governments and oil
companies have already planted the seeds of the next great energy
crisis. And there’s nothing anybody can do to prevent those seeds
from sprouting.
The U.S. government got its religion late. But it’s now following the
lead of European governments in limiting the use of fossil fuels through
taxes and restrictive regulations.
That’s bad enough in itself. But then there’s the roller-coaster
ride which oil prices have taken. The price of oil fell more than $100
from over $140 to under $40 (before going back up again). Oil
companies everywhere had the same response. They all cut back on oil
spending and production...
- OPEC has cut back production by 2.2 billion barrels a day
- UAE has put off plans to expand oil production by 1 million
barrels a day.
- Saudi Arabia has delayed two $10-$20 billion refining projects
(and may cancel them altogether).
- Russia’s biggest oil company, Gazprom, has slashed production
spending by 24 percent.
- Venezuela, Nigeria, Malaysia and other national oil companies have
cut back on their capital spending.
- Statoil, EnCana, Petro-Canada, Suncor, Imperial Oil, and Royal
Dutch Shell have all delayed or cancelled major projects in
Canada’s vast but expensive-to-produce oil sands.
How bad are these cutbacks? Just ask the widely respected oil
consulting agency, the International Energy Agency. It recently warned
of a “second capacity crunch” causing widespread underinvestment in
the oil industry.
Oil’s recent price rise could have loosened up oil producers’ purse
strings. But oil companies are facing increasing disincentives from a
government trying to replace fossil fuels with renewables.
If you want to know how the CEOs of Big Oil feel about the Obama
administration’s energy policy, just ask Jim Mulva, head of
ConocoPhillips. This global oil company has operations in more than 30
countries. Mulva said last week that government intervention in the
energy market "has an impact on the willingness of companies to
pour billions into the development of new projects.”
In the meantime, the Obama administration is spending hundreds of
millions of dollars on renewables, like the $467 million to encourage
the development of geothermal and solar energy.
The result? Geothermal and solar energy will have slightly bigger pieces
of the energy pie. But oil priced at over $150 per barrel will kill
the U.S. and global economic recovery in its infancy.
The cost of plastics and resins will go way up. Gas prices will surge
over $5. New highs in jet fuel will crash several airline companies.
Actually, practically everything will cost more. I don’t think
that’s what these governments have in mind.
And even with ample government support you shouldn’t invest in
geothermal or solar companies. They will still depend on government
subsidies to compete with the price of electricity generated by – take
a guess – fossil fuels.
Instead you should invest in oil producers but not just any oil
producer. Thanks to vast underinvestment and government policies, the
price of oil will sky rocket. The only thing keeping the price of oil
from going higher right now is that we’re still in the middle of the
worst recession in seven decades.
But once demand returns, watch out.
Andrew
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