Oil prices close at $114.65 a barrel today, the lowest closing price since May 1st. Record high oil prices aren’t bad news for everyone, especially companies in the business of building infrastructure to help support the growing demand for natural gas and nuclear projects.

Fluor Corporation, a leading contractor in energy infrastructure development, saw its second quarter net income double. Every sector of the company grew last quarter, but industrial-and-infrastructure grew 500%. The company is benefiting from high oil prices as consumers and politicians plan for alternatives such as increased use of nuclear power.

The Wall Street Journal reports that as long as crude oil prices remain above $70 a barrel, Fluor will have room to continue investing in capital projects in the energy sector.

The title of this post is taken from yesterday’s article in the Wall Street Journal, “Boone Doggle“, written by Holman W. Jenkins, Jr. Context follows:

“As Mr. Pickens says, we can’t drill our way out of the dilemmas of living in the world. But drilling is one of many things we can do that are worth doing. Over time, the price mechanism and technology will tell us how to harness the energy that is infinite around us. There’s the sun, the tides, geothermal and nuclear — energy is not in short supply; only know-how is. And a shortage of know-how is a problem that our society, as long as its basic incentives remain intact, is constantly solving every single day.”

Jenkins expresses a valid point. We will only develop technologically as we need (are forced) to. We will continue to burn oil because the technology is established and well developed, and comes at a relatively low cost compared to generating energy from unrefined technologies (solar, wind, thermal). We will only ever consider alternatives when the world can’t survive economically on oil production rates any longer. Some believe oil production has already peaked.

What does Pickens mean when he says “we can’t drill our way out of the dilemmas of living in the world” ? He means we will always pay for convenience with the money we save. When people save on fuel, they just drive more miles.

“They buy more affordable homes farther from town; they commute longer distances to work; they trek across two counties to buy groceries at Wal-Mart rather than the pricey supermarket down the street.”

Our energy wants and needs will always be ahead of the technology curve.  We will always find a way to use more energy when it becomes less expensive by constantly taking steps to make our lives more convenient. New forms of energy will only be developed when convenience becomes too costly. You can’t drill your way out of that problem. You can’t harvest enough wind on the planet to get yourself out of the problem.

Energy is infinite. Energy doesn’t depend on oil or wind or the sun. Energy depends on technology, and technology depends on the cost of convenience.

Exxon Mobil reported their 2008 Q2 earnings on Thursday at a record high of 11.68 billion dollars.  This is a 14% increase from the same quarter in 2007 and a new record for earnings generated in a single quarter by any corporation ever.

Regardless of these earnings Exxon still suffered on Wall Street where it’s shares fell by nearly 5% to $80.43.  As a counter measure Exxon is expected to ramp up exploration initiatives in Africa, the Middle East and the Gulf of Mexico.

We have discussed in the past that one of the few positives related to the growing cost of fuel is the urgency for innovation that is created. I really don’t believe we have hit that breaking point yet, however, concerns are growing and we are getting closer.

One innovative person that believes we should act now is Shai Agassi. Shai is the founder of a company called Project Better Place. The company launched in 2007, is backed by 200 million dollars and has the goal of moving a countries transportation from gasoline to electric. The companies plan is to create an infrastructure for inexpensive electric cars. Rather than buying an expensive gasoline powered automobile, you would purchase miles for an electric car on the Project Better Place system. Each subscriber would receive an electric car, a battery and have access to recharging stations across the country. The company is also looking to power the recharging of the electric cars using solar energy to create a truely green system. The first 500 cars should be available in Israel by this time next year.

More than innovation I think this is really an example of an individual pushing forward and actually making something happen. Not surprising, the driving force of this revolution is coming from the private sector, where financial incentives prevail.

We recently posted about peak oil, the theory that oil production will hit a peak and from then on diminish as world demand continues to grow. The problem with peak oil is that it does not take unproven oil reserves into account. This means peak oil is only based on known oil reserves that can currently be mined for fuel oil production. There are many other reserves of oil on our planet that contain a wealth of oil production potential.  They are just harder to get to and harder to produce oil from.  Oil has always come easy, so we have never been forced to seek out these more difficult-to-get deposits.

The most expansive known oil reserves currently exist in the middle east. Countries surrounding the Persian Gulf are estimated to have reserves that could last another 150 years at current production levels. Saudi Arabia alone has 264 million barrels of estimated oil reserves. There is another country with know, but not yet proven oil reserves, estimated at 800 million barrels; The United States.

Oil shale is coal like rock hundreds of feet beneath the earth’s surface that contains high amounts of oil.  unlike liquid oil deposits, shale oil is very difficult to extract. This is the reason it is not considered a proven reserve and is not taken into account by the concept of peak oil.  Companies have been researching ways to draw oil from shale for over a decade now.  High costs and lengthy production cycles have been the major deterrents from exploring the resource. Recent advancements in technology and increased demand for relief from foreign energy dependence seem to have made production of oil from shale within reach.

The process is outlined in the image below.

Kerogen, the organic matter within the shale containing the oil, must be heated to 700 degrees in order to separate the oil from the rock. A wall of frozen ice must be put in place around the reserve to keep ground water from running into the shale which would dissipate heat and raise pollution concerns. The shale needs to be heated for two years at 700 hundred degrees before oil can be pumped to the surface.

With the process within reach by many large oil companies, you may wonder why production hasn’t started during the current energy crisis. The answer is poor planning.  Commercial production with current technology is ten years off.  A history of low oil costs for the U.S. has prevented serious exploration from beginning until now. This vast resource will come into play too late to help curb our energy crisis. The environmental worries are secondary (as always) when it comes to energy production. 800 million barrels pouring off pollution into our atmosphere seems to be the least of anyone’s worries even during a time of “green” consciousness.  It looks like peak oil may come,  but if oil shale is pursued, it might be our great grand kids who face it.