Wednesday, March 2, 2011

The Steven Chu Effect

The amount of news to read / review is overwhelming during earnings season. In addition, I am getting a lot of comments regarding current events and current price of oil.

In recent postings, I have touched upon the "Perfect Storm for an Oil Price Spike" and have received some interesting feedback.

It seems I have missed one huge component of this perfect storm, although I touched upon it earlier today, the Steven Chu effect.

Thanks to the internet and to folks who have sent in comments, we are now about to see the consequences of a "perfect storm" made worse by ideology.

My thesis for the "Perfect Storm" was this: once the global economy turns, the demand for oil will more closely match supply. Anything that disrupts supply, and threatens that demand/supply match (or appears to threaten that demand/supply), there will be a spike in the price of oil.

Never in a million years did I think that just after four months of positing that "perfect storm" did I think that the supply/demand disruption would begin with demand for human rights in Tunisia. But now we are there.

Somewhere on this blog, and I can't locate it now, I wrote that at some point the lack of energy policy or the wrong-headed policy of the current administration would aggravate the problem.

Some of you probably remember what I wrote: as long as the global economy had not turned, and supply of oil still exceeded demand, the administration could shut down oil drilling in the Gulf; the administration could advocate for no more drilling in Alaska (coincidentally "helped" by the leak in the Alaska pipeline); and, the administration could delay permits for onshore drilling, all without significant effects on the economy. The average consumer would not even notice, as long as price of oil remained manageable.

Because of the ideology of the current administration with regard to fossil fuel and renewable energy, there was no plan for a crisis involving interruption of the world's oil supply, even a small amount of interruption. I have no inside information and no one to corroborate that there was no planning by the Department of Energy or the administration, but there are only so many hours in the day and only so many people working on policy. If they were all directed to think about renewable energy, and how to orchestrate the demise of the oil and gas industry over time, there was no time for any other planning. If anything precipitous happened, there was no Plan B.

As long as supply met demand, and there was no real or perceived interruption in oil supply, having no Plan B was fine.

But now, there is a real or a perceived interruption in the global supply of oil, and the administration has no Plan B.

So, the US is forced to react to events. It cannot execute Plan B. Plan B does not exist. There is no Plan B because it is now clear that this was part of Steve Chu's grand plan: a major spike in the price of oil and/or gasoline was needed to force a change in America's use: a transition from fossil fuel to wind and solar.

There is still a surplus of oil in the US and no need for tapping the strategic petroleum reserve. The folks driving the price of oil up know this. That's why there is no call for tapping the SPR.  But oil traders also know that there is no Plan B. The strategic petroleum reserve would get the US through a short term crisis but was not designed for a long term crisis. Ideological policies (no drilling in Alaska, no drilling in the Gulf, delay drilling on shore, frustrate use of fossils through EPA regulations) have long term effects. It takes years to get drilling back on track, if that was even in the plan, and as noted, there is no such plan. There is no Plan B.

The Steve Chu effect is the result of Plan A: take advantage of any crisis to drive the price of oil higher, forcing America to invest in renewable energy. The problem is a) such a transition would take decades; and, b) wind and solar can never come close to meeting the needs of America, much less the entire world.

So, if folks ask me what's causing the price of oil to spike over $100 even though there are ample supplies of oil at Cushing, Oklahoma; the Libyan shortfall is a piddly 1.5 million bopd which can be met by Saudi Arabia (it is said); and, the global recovery is not yet in full gear, this is my answer: there is no Plan B. For those who follow current events closely enough, I would add that it is the Steven Chu effect: Plan A is Steven Chu's plan.

[By the way, when former Vice President Cheney does not address this issue, there is a reason. There is no need for him to explain to the American public what is happening. It's only a matter of time before the fallacy of Plan A and its consequences become obvious. Vice President Cheney knows he does not have to point it out to us. It will soon be obvious to anyone who drives an automobile, or even worse, who drives an F-150. By the way, last week I saw a Cadillac Escalade with an Obama sticker on it -- from the 2010 election; it was priceless.]

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