Prominent energy investment banker, Matt Simmons, President of Houston-based energy investment banking firm Simmons & Co., and author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, recently stated that the global financial crisis and collapse of oil prices have stalled investment in oil exploration and production, which could soon lead to shortages and sharp spikes in the price of oil.
Simmons argues that the underlying rate of decline in the world's aging "elephant" oil fields is as much as 20% a year and that much more investment in drilling and exploration is necessary to offset the decline. He does not add that all the recent discoveries are very small relative to these major fields that have supplied us for the past 50 years, and that, while we were producing much more oil than we used 50 years ago, in that we were using, in the U.S. only 5 million barrels a day in the 50s, while the really large discoveries were still being made. Now, we are using 20 million barrels a day, and world wide demand is increasing, while the largest fields are in steep decline and new discoveries are relative small, usually about 5 to 15 billion barrels potential at the most.
Yet drilling and other investments are likely to remain stalled as long as oil is below $70 a barrel. We're ignoring the overhanging energy crunch because the sharp decrease in demand, due to a steep contraction in the global economy, has dampened demand. However, developing countries such as China are rapidly expanding their demand. China is taking advantage of their solid financial posture and everyone else's extreme weakness to get a lock on a major portion of the world's oil production for the future.
The current financial crises has pushed the energy situation off the radar, but, thanks in no small part to the weakness of our currency, oil is now beginning to ratchet back up. Simmons predicts that we could be seeing price spikes "3, 6, no more than 9 months" from now, and it looks like oil is on track to hit $70 a barrel by the end of summer, if current price action is any indication.
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Here in Atlanta, the Republican Governor is trying to dismantle the ancient, encrusted State Dept. of Transportation (DOT). A furious battle is going on, and the Guv has his own Republican reasons for wanting to take down the Dept., but Democrats and Republican voters are backing him in the fight.
Our DOT has been perhaps the worst DOT in the country. Most observers liken it to a Soviet style bureaucracy that answers to no one except a select group of private contractors. This has been going on since the early 1950s.
Despite the current political fight, the DOT's latest scheme is to try to get toll roads on parts of the interstate system in and around Atlanta. The public is very much against this plan, so the DOT has taken what I call a baby step strategy. They want to put tolls on select HOV lanes for 2 or 3 miles. If you drive in those lanes you would pay a toll.
Personally, with apologies to addicts, I think most of the DOT board and staff are on crack.
Our collapsing economy and oil problems haven't dented the thinking at DOT, but it has changed the politics of transportation SLIGHTLY here in Georgia.
Tolls are one way to get highway users to pay their share of the costs of these roads, which can cost as much as $130M a running mile.
We really need to establish a direct connection between what you use and what you pay. I hate the idea of a gasoline tax for the interstates, for some motorists never use them at all.
Right now, the better part of the costs of these roads, as well as for street parking and the extra lanes needed to carry our traffic on city streets, is borne by the taxpayers at large. Somehow, tax monies allocated to roads and highways are considered "investment" while monies allocated to public transit is "subsidy".
Given my druthers, I'd like to see it all defunded and let the user pay for it all. I believe that if people were given the choice of paying the full cost of the interstates in the most direct way- tolls- vs paying the bus or train fare, half of all car owners would ditch their cars in favor of buses and trains, and would be highly motivated to reside and work where they could dispense with autos.
Only because, since 1920 or thereabouts, we have lavishly subsidized auto transportation and ownership at the federal and municipal levels, can most people pretend to afford cars. Most people don't question this. Every personal car on the road is subsidized to the tune of about $2500 a year each at least, and that was according to a study done in 1994.
Same for airlines vs railroads- we worked vigorously to destroy the railroads through punitive taxation and regulatory strangulation while subsidizing the airlines heavily, both directly and indirectly. Today, the private air carriers receive about $14 Billion in subsidies yearly. Jerk those subsidies, and watch how fast the short-haul air travel dries up.
But our politicians know that making the user pay for our lavish interstate system is political suicide, so they will not change the system. They also know that they had better keep the oil flowing as long as they can, so we can expect to be at war in the middle east for the foreseeable future.
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