Peak Paranoia

This FT story was linked on Drudge this morning as "oil futures near 130" but by the time I clicked through the headline said $140. Perhaps later this week, or today, it can reach $150. Peak Oil, until quite recently denounced as the sort of thing that you hear from people who grind axes about the JewsInternational Bankers and the Bilderberg Group and how they are shifting their savings into Krugerrands. But, just as I now regularly hear people making mid-six figures speculate about how the world is really run by richer bastards than them, the Peak Oil meme has gone mainstream.

The problem today is not the supply of oil--gasoline inventories in the US are at their highest levels in years, and imports have actually declined for several months now and are forecast to continue doing so for the next five years. The problem is honest information, the supply of which is never high, and is currently almost nonexistent. We don't trust Wall Street, we don't trust bankers, and we certainly don't trust Washington.

T. Boone Pickens is quoted in that article as saying that the world demand is for 87m BBLs daily while production will not exceed 85. People assume that this means disaster and chaos will necessarily ensue. Upon reading that, two things came to mind. First, that is not quite like saying there are ten zombies approaching, and we have a shotgun with only eight shells. The overwhelming majority of oil consumption is for energy which is far more substitutable than it is assumed to be.

But more importantly, why shouldn't T. Boone Pickens try to scare the shit out of people as much as possible? A friend of mine happens to be a pilot on one of Pickens' jets and flew him up to Boston a few months ago. Pickens asked what the price of jet fuel at Logan was, and my friend remarked that it had just broke through seven bucks a gallon. "Well," Pickens said, "I hope it goes to $12." I'm not saying that Pickens doesn't know far more about the dynamics of the oil business than I do, I'm just saying that he has one of the strongest incentives known to man to present the situation in the worst light possible.

I'll reserve my strongest disdain, however, for the Democrats who are, dishonestly or foolishly, trying to play both sides of the issue. On one hand, a consensus has formed that energy independence is a Good Thing, and with this, there's a strong sense that renewable/environmentally-superior forms of energy are our best bets. On the other, we see Reid, Pelosi, Obama et. al. crying for the heads of oil companies for 'artificially inflating the price of oil.' Silly industrialists, don't they know that's the government's job?

Bottom line, if you believe that energy independence and environmentally-friendly fuel sources are strategically important, then high oil prices are an unalloyed good. I realize that the Democrats would strongly prefer that the federal government raise the price of gas by a buck a gallon through taxes so that they can dictate what substitutes ought to be researched, but even assuming that this process was completely straight pool--I hesistate to write that for fear of inducing fatal hilarity--there is simply no way that it will happen as efficiently as it is right now. I have dealt with businesses that were once bringing in hundreds of millions a year in revenue and are now struggling to get above ten. If oil is indeed running out, that is what the oil companies will become, and it is a well and truly pathetic sight. The fear of that future will do far more to spur ExxonMobil in new directions than anything the government can do.

More to the point, nothing concentrates the minds of consumers and entrepreneurs half so well as the price of a stupid commodity going through the roof. For the past few decades no one with half a brain or more went into the energy business because it was about as dull as the postal service. Oil made for such cheap energy that looking for alternatives was a mission only for fools and idealists. Now even guys like me are starting to wonder whether maybe finding new ways to produce and manage energy is the place to go. I still think oil may yet see $200--and it could happen before this Christmas--but I think that will be the last hurrah.