Saturday, January 31, 2015

Who Knows What Oil Price Will Be?

Several months ago I had a telephone conference call will some folks who know quite a bit about energy.  Oil prices were around $100 per barrel then.  The gurus told me that big money was betting prices would drop to $70 a barrel and I reported this to my client in the energy business.  I did expect a drop in oil prices, but never imagined how far down it would go.

I am not a fortune teller but at this level of oil price many fortunes have been lost and many companies may see shutdown of their production.  Big Oil Companies like BP, Exxon, Chevron, and Shell have slashed budgets.  Russia is reeling and the American motorists are smiling while filling up at the pump.   Boom towns in North Dakota may just empty and Texans may not boast as much.  But what will happen is that cheaper oil will mean more added carbon in the atmosphere. 

Everyone knows now that biofuels from cellulose were a thermodynamic pipedream and a myth.  The US produced less than 1,000,000 gallons of cellulosic ethanol in 2014.  Perhaps we will produce as much as 10 million gallons this year with new plants that started up in Iowa and Kansas.  This is a drop in the bucket.  Vinod Khosla and the VC who bet their money and took taxpayer money for these bio fool pipe dreams did not succeed in making OPEC weaker, they just proved that the laws of thermodynamics rule.  A company called GEVO that I said would get the heave ho is now trading at 13 cents a share.  It once traded for $25 a share.  KIOR once had a market cap of over a billion dollars now it is worthless.

Bigger cars and trucks will sell more as motorists now think $2 a gallon gasoline is here to stay and the whole cycle of waste will repeat itself till gasoline goes back to $4 a gallon.  Then we will say Houston we have a problem. 

I wish I could tell you all that we have a real plan on what to do to start to lower carbon emissions in a real way but each time we make a little progress, OPEC or some other group comes up with a way to manipulate a market and cause massive economic and ecologic dislocation.  The world just runs that way.  Greed and Fear drive markets.  Thermodynamics is different it does not depend on greed or fear it just makes entropy increase as time progresses.  The rule that time progresses in the direction entropy increases is never going to change so we just have to look forward to a more disorganized future.  We can all wish it will be different but it won’t.  That is why I cannot tell you where oil prices are headed.   I just drive as little as possible and hope that the Super Bowl is a close game.  I am sure there is statistician somewhere who can correlate a NFC win with low gasoline prices.  My head is spinning and I cannot even pretend to tell you what gasoline will cost in February 2015.  

Just like watching the Super Bowl, the Green Machine is a Spectator when it comes to predicting energy prices.