Tens of
billions of dollars of re-investment in exploration
and production and infrastructure would be required
just to sustain current OPEC production levels;
these investments, if they happen at all, will be
obvious to everyone. But they are not happening now
and are not a priority of most OPEC governments. The
infrastructure in almost all OPEC countries is
woefully outdated and obsolete, a process that dates
back 25 years and has accelerated dramatically since
2000.
Social and
political strife in Venezuela and Nigeria, the
ongoing grind in Russia, not to mention how far awry
Iraq has gone (didn't we go there for the oil?) all
bode for a problematic future for oil prices,
markets and oil supply.
And this is
not the worst of it.
The price
of oil will climb to $50 overnight if a terrorist
attack in Saudi Arabia threatens oil production in a
big way. Make no mistake: Islamist terrorists know
the impact of such an attack.
If most
people think that there is a high likelihood of a
9/11-type attack to hit the United States, they
should be certain that the terrorists are targeting
Saudi Arabia's oil production.
It is only
logical. Saudi oil is the only thing that the West
wants from that country and the only thing that
sustains the current Saudi regime, so hated by the
terrorists.
Even
without such drama, once oil surpassed the
psychological $40 barrier with barely more than a
shrug by oil producers or consumers, the stage was
easily set for another $10 price hike.
Without a
sharp change in the consuming habits of the American
public or the exploration and production spending of
the major oil companies, there is little reason for
oil prices to subside, even after the superficial
factors that many analysts blamed for the price hike
subside or go away.
The price
of oil is affected by long-term factors, one of
which is the equilibrium between supply and demand.
A trend that started at least four years ago is now
tilted toward supply shortages. This will not go
away, no matter what.
True
equilibrium pricing for new global oil exports is
now nearing $30 a barrel.
The nation
must recognize this. If there is one real
shortcoming of the Bush administration, and one that
history will not look too kindly upon (remember this
was supposed to be the "energy administration") it
is that it has not yet passed an energy plan.
Nor has it
been able to articulate to the American people the
importance that energy and energy abundance have on
the well-being of the country and the lifestyle we
enjoy. Transition to other energy sources, primarily
natural gas and coal-fed zero-emission energy
plants, should be the highest of priorities, but
little has been done.
John Kerry
is no better and in many ways is worse. His precious
few pronouncements have included the trite bogeyman
moniker for Big Oil or the blaming of a service
company for all ills, real or imagined.
We are
going through what could be the most important
economic, social and technological changes in the
past 50 years. Energy is likely to be our expensive
and intractable choke point unless the nation, at
the highest levels, acts knowledgeably and
responsibly.
It looks bad right now, no matter what happens in
November.
