JOURNAL: The Second Energy Crunch

Venezuela's 935,000 barrel a day Amuay refinery (satellite photo) resumed partial operations today, one day after it was shut down due to a power failure.  Full operations are expected to resume in seven days.  The cause of this shutdown was due to the interruption of the fuel to the steam boilers that powered the complex.  Shocks of this type, on top of deep concerns over insufficient global refining capacity, will continue to drive the market to new highs -- the market is that jittery.  This event played a major part in driving gasoline prices to new highs today.

Let's ignore the potential political implications of this (the US and Venezuela are on the outs and this outage may have been a warning from Chavez to Bush).  What's interesting to us (as watchers of global guerrillas) is that global gasoline prices could be influenced by a single point of failure.  This type of failure is well within the means of global guerrilla system saboteurs to replicate on demand.  Iraq's guerrillas have amply demonstrated this capability.

This situation will not get better, instead, it will get worse.  A recent report by Arjun Murti at Goldman Sachs (the largest trader in energy derivatives) predicts, based on economic analysis alone (growing global demand is outpacing the world's limited production capacity), that the price of oil could spike to $105 a barrel in the next two years (that's a gasoline price of $4 a gallon).  He points out that the lead times for infrastructure improvement are so long that only a major decline in demand (due to a substantial economic decline) will get us out of this shortage.  Again, this demonstrates that the world is in an unusual situation.  A window of vulnerability has developed that can be exploited by global guerrillas (a Shadow OPEC that controls supply through disruption) to radically impact global economic development. 

Comments

[Ryan]

Iraq accounts for a small percentage of net imports in the US, and the Middle East on the whole, 25%. A shift by Venezuela is minimal, and will deal a trump card to the gas guzzling powers to emphasis a shift from petroleum products to more reliance on new techonolgies such as fuel cell and mixed fuel engine techology.

Nuclear power will make a comeback.

[Rikkert]

John,
How do you think a coordinated global guerilla stike against oil drilling instalations would disrupt markets? As I understand there are some serious capacity issues in this sector and since a lot of economists still believe extra investment in oil production can boost yields, the resulting market disruption should be serious and relatively long-term.

[Osama_been_forgotten]

$4/gal? That's "average". Where I live, it's already $2.59. Average is $2.10. We're so screwed. Actually, at that point, Biodeisel will be cheaper. (for my Jetta TDI).