[Marxism] More liberal wisdom on oil

Joaquín Bustelo jbustelo at gmail.com
Mon Jun 30 14:10:57 MDT 2008


Brad wrote, beginning with a quote from Krugman:

Krugman- "This suggests that growing demand from emerging economies,
not speculation, is the real story behind rising prices of raw
materials, oil included."

This is a rediculus argument.  Is he claiming that demand for iron in China
increased enough to account for the 92% increase in the last month or that
demand for oil has increased so fast as to create the five fold price increase
since 2004 (and jumped from $60 in early 2007 to $140 a barrel in 2008, or $8
in 1998)?  Or, does Krugman think that the price in 2004 and 2007 did not
reflect fundamentals?  Either way, it shows that the oil market is anything but
the result of supply and demand.

*  *  *

The contracts signed providing for 60-some to 90-some percent
increases for iron ore aren't one-month contracts, bur yearly ones.
There is nothing inherently "ridiculous" about increasing Chinese
demand driving such price changes. That isn't the *only* factor of
course. The higher percent increases represent also a "nearness"
premium -- in effect, China sharing some of its transportation savings
(compared to other suppliers, like Brazil) in exchange for priority
access to supplies from Australia.

The idea that financial manipulation of a derivatives market like the
oil futures market, or simply excess liquidity invested in that
market, could drive this sort of multi-year increase in the price of a
commodity like oil is what is truly ridiculous. Especially when the
DATA is easily accessible to anyone -- production of crude (all
liquids) has been stagnant for most of four years, despite the
skyrocketing price. It is this situation in the real, physical market
that accounts fundamentally for the price rises.

It is, perhaps, a comforting thought that mere "speculation" in the
financial superstructure --not fundamental trends in the real,
material economy-- are responsible for the current rise in crude (and
other commodity) prices. It means this, too, will pass. And despite
all the BS that passes for Marxist analysis, I have complete faith in
the capacity of capitalism and its politicians to fix these sorts of
problems with their markets, if that were all that was involved. If
you're counting on the financial superstructure of capitalism to drive
it to ruin, as more than one person on this list argues, I think
you're basically hoping that people will rise up and overthrow
capitalism before the capitalists figure out how to fix their system.
That *may* happen, but it may not: given enough time, the capitalists
*will* figure out how to fix their system's vulnerability to any given
specific problem of that kind.

And it may also be true that even if the price spike is due to
supply-demand imbalance, additional supply may bring prices down, even
for some years. But unless the laws of science or the dimensions of
the earth change, or there is a miraculous technological breakthrough,
this --the current crude price spike crisis-- is at least a foretaste
of what is to come.

The scientific case for peak oil is, I think, very solidly established
by experience. There will, in essence, be a world peak in oil
production for the same reasons that there has been a peak in HUNDREDS
of oil fields, that there was a peak in the "lower 48" United States
at the beginning of the 70's and in dozens of countries since then. It
may not be as "neat" a peak as in the individual field and country
cases, because the level of technology that can be applied won't stay
constant given the run up in price (we've already seen this in making
the production of non-conventional crude a larger slice of the "all
liquids" total). Also each and every supply disruption, real or
threatened, refinery mishaps, etc., is likely to produce significant
price movement, and we may hear more than once, many times in fact,
that THIS is "the" peak so that when finally the peak has come, it
won't be recognized as such for years (although if this --wildly
fluctuating prices-- becomes a major destabilizing factor to
capitalist production I expect the imperialist governments to use
their strategic reserves "tactically" to reduce wild price swings).

But look at the example of the iron contracts. The supplier's side of
"sharing" the cost saving in shipping to China from Australia versus
Brazil is the difference between a 60-some percent increase in price
and a 90-some percent increase. That price differentiation, as it
grows, will lead to a de-globalization of production, starting with
heavier or bulkier products that cost more to transport.

My impression (from cursory, current news coverage research) is that
what is being shipped is the raw or semi-processed ore. At some point,
refining the ore locally will become the only viable option. That
takes, I know, huge amounts of energy, which is why I suspect the ore
is shipped to where energy is more cheaply available (coal). Or has
been.

But we can expect there to develop a very hefty premium, in terms of
price per unit of energy, for liquid fuel as opposed to all other
forms of energy. I suspect at some point this is going to mean a
massive boom in the construction of nuclear power plants, as David
Walters --I think it was David-- has been arguing. I disagree with
David on its desirability, but increasingly I think desirable or not,
it is going to happen if capitalism is allowed to continue to exist
for a decade or two more. And, unforutnately, I do not see *right now*
the combination of social forces and political conditions that could
negate that supposition in this sort of time frame -- say by 2025 or
2030. I hope that no later than tomorrow they will become evident to
me, but for now, on a reasonable political time horizon of 1-2
decades, I just don't see it.

Thus, we may even get to the point --the absurd point-- where more
than one gallon's worth of energy will be expended to produce one
gallon of gasoline, diesel or fuel oil. Environmentalists who argue
that at that point production must stop forget that the fundamental
measure of value in a capitalist economy is not joules or BTU's but
money. If you have to spend two gallon's equivalent of energy at a
cost of $5 in electricity to get a $15 gallon of gasoline, it will
happen. But this means that what drives your power plant can't be
petroleum-derived liquid fuels and probably also not natural gas,
which is to some degree interchangeable with petroleum products and
therefore subject to the same problems.

Solar power will be great in the "small is beautiful" socialist future
of humanity but will be marginal under capitalism especially as a
large scale source for industrial production. Similar statements can
be made about wind power and generation based on tides or ocean
currents (except for perhaps a couple of local exceptions in the
latter case)..

That leaves, basically, coal and nukes. Coal is so immediately and
locally environmentally devastating that it is very doubtful to be the
energy source of the future. Which leaves nukes. As for a society like
the U.S. becoming two, three or four times as energy efficient, which
is perfectly possible technologically, that, I think, would require
putting aside the profit motive as the fundamental engine of economic
decisions. Because the costs of energy inefficiency are mostly
"externalities," i.e., do not accrue to the debit side of corporate
ledger sheets, but rather are lived as non-financial detrimental
impacts by society as a whole. The certain quality of life degradation
caused by coal-fired power plants means that the roll-the-dice
possible catastrophe of a nuke gone bad is going to win. especially as
all the power company execs and government officials will be swearing
nukes now are much safer, forget Chernobyll and Three Mile Island.

Because of the uncertainties about actual reserves and real production
capacity of the OPEC countries, there is no way to tell whether the
current run up in petroleum prices is the beginning of the peak oil
hurricane or a precursor. And while the claim is made that the entire
world has been thoroughly explored geologically and no new mega-fields
that can be exploited by fairly conventional means are yet to be
found, I suspect this isn't yet entirely true. But even if some
staggeringly fortunate find postpones matters for a few years, the
volume of production now, and hence of declines of existing fields
reaching or past their peak, is so great that the current shortfall
will, even in the most wildly optimistic of scenarios, be repeated in
some form in a few more years.

It would be great if, instead of trashing Obama for supposedly talking
white (and in reality discrediting himself in the Black community),
Nader focused his campaign on explaining the end of the cheap oil era
and making proposals to face it, for example, a $10/lb tax on any car
weighing more than 2,000 lbs and castration of any pricks found
driving humvees, things like that. I thought about making summary
execution the punishment for humvee driving but castration is more
appropriate, I believe. Free distribution of compact fluorescent light
bulbs and a steeply progressive tax --on the orders of hundreds of
percent at the top end-- on the electricity bills of those found using
incadescents. Nationalization of all subsoil resources with a steeply
progressive royalty scale based on market prices for the extraction of
crude. For a field with costs of production and transportation to
market of, say $9, if the market price is $10, this royalty might be
50 cents. If the market price is $50,  the royalty should be the bulk
of the market price. At current price levels of $140, it should be on
the order of $125 or more.

I saw Nader in a TV news report a couple of days ago and
--unforunately-- he was railing agains speculators and corporate
manipulators who have driven up the price of gasoline. The defense of
the "right" of Americans to consume a quarter of the world's
petroleum, first and foremost as cheap gasoline, even if only
backhandedly in the form of denouncing the dastardly profiteers who
have driven the price of fuel sky-high, is a reactionary, imperialist
position. The one saving grace of what I saw attributed to Nader (and
again, this was a TV news report, i.e., filtered by the folks that
brought us Saddam's WMD's and nuclear program) was a big tax on
windfall profits of the oil companies. But I've seen enough on this
subject from Nader's campaign --although I don't follow it closely--
to make me very critical about this aspect of it in my support. Oil
company profiteering needs to be attacked not on their income tax
returns but at the source, at the wellhead. The idea is that these are
not the resources of a company, but of the people,

Unfortunately, I'm writing this through gmail's web interface and if
there is an easy way to change the subject line apart from
copy-pasting all of this and starting a new message, I don't know what
it is. The Great Flood in my house was 5 weeks ago, but I'm still
waiting for the insurance-blessed restoration company to allow me to
move back in. So I'm at a flea bag motel connected to the internet
thanks to the kindness --or carelessness-- of strangers, and don't
want to press my luck while the wireless signal is strong.

Joaquin




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