The energy crisis happened because of optimistic projections – that gas to liquid and coal to liquid would not be needed until the technology had been improved and the cost brought down, that the dramatic growth in China and India could be accommodated by rapidly expanding conventional oil production. (more…)
Bryan Caplan wonders if oil prices are a bubble.
When oil spikes abruptly, that means people made incorrect investment decisions - under invested in exploration, development, and gas to liquids conversion.
A simple back of the envelope calculation tells me they are still under investing. Exxon recently abandoned gas to liquids plant that would be profitable if oil remains above forty dollars to fifty dollars a barrel. But if everyone acts like that – and everyone is acting like that – oil is going to be way above fifty a barrel.
Do I hear someone saying “Hey. Do you think you are lot smarter than the guys running Exxon?”
It is quite simple. For the price of oil to remain stable at present levels, we need to accommodate China’s industrialization by producing a lot more oil each year. The planned increases in oil production add up to peanuts. So the price of oil is heading up, and going to stay up.
To keep the price of oil from soaring even further the world needs to increase oil production three million barrels per day, each year, largely because large numbers of Chinese want to drive cars.
We cannot increase production except in those places where private property rights are reasonably secure, and there is no oil left in the ground in those places. So it has to be coal to liquids.
Most coal to liquids plants are being developed in China. Du Minghua, deputy director of the China Shenhua CTL research institute, said China could produce thirty million tonnes of liquid fuels each year by 2020.
That is six hundred thousand barrels per day. That is about one sixtieth the rate of increase we need.
In America greenies are taking the same approach to banning coal to liquids as they have taken to banning nuclear power. The proposed regulation is that Americans will not be allowed to convert coal to liquids on a large scale unless they can prove that the CO2 can be permanently disposed of – but of course nothing can ever be proven to those who choose to make themselves too stupid to understand the proof. Presidential candidate Obama goes one step further, and proposes to ban substitutes for oil unless they emit twenty percent less CO2 than oil, which bans any use of coal to substitute for oil
A coal to liquids plant needs to be fairly large scale to be economical, needs to produce at least three million tonnes per year, sixty thousand barrels per day. To stop the price of oil from rising further, the world needs to build one of these plants every week, for the next several decades, to meet the Chinese demand for cars.
Yet we see no political will to permit such developments, and not a lot of enthusiasm amongst developers to doing them. To the extent that developers are working on such projects, their primary focus is on assuaging greenie opposition, rather than the technological problems of converting vast amounts of coal to oil. If it is hard to get oil wells drilled off the coast of California or in Alaska, what are your prospects of getting a coal to oil plant approved?
People are starving yet we still treat energy developers as criminals, rather than heroes.