Raise and you shall receive
Thursday, June 26, 2008 at 4:12AM EDITORIAL: "Recoil: Painful though it is, this oil shock will eventually spur huge change. Beware the hunt for scapegoats," The Economist, 31 May 2008, p. 13.
BRIEFING: "Double, double, oil and trouble: Is it 'peak oil' or a speculative bubble? Neither, really," The Economist, 31 May 2008, p. 73.
GLOBAL BUSINESS: "Well-Oiled Machine: With a push from Exxon, Alberta's tar sands are poised to increase oil production to Saudi-like levels," by Erik Heinrich, Time, 2 June 2008, p. G2.
From the editorial, this bit of logic:
The truth [of the energy crisis] is more prosaic. Finding and developing new oil fields is an expensive and time-consuming business. The giant new fields in the deep water off Brazil are unlikely to produce oil for a decade or more. Furthermore, oil is perverse. When prices are low, oil-rich countries welcome the low-cost, high-tech and well-capitalized oil firms. When prices are high, countries like Russia and Venezuela kick them out again. Likewise the engineers, survey ships and seismic rigs that oil firms need to find and produce new deposits are expensive right now. The costs of finding oil have, temporarily, doubled precisely because everybody wants to give them work.
So yes, we'll see lotsa conservation (already begun), says the Economist, "but everything high prices achieve could be done better by sensible carbon taxes."
Still, half the world's population is sheltered by subsidies, meaning plenty of waste ensues among those who can afford it least.
The upside?
The first two oil shocks [early and late 1970s] banished oil from power generation. How fitting if the third finished the job and began to free transport from oil's century-long monopoly.
This too shall pass.
From the accompanying briefing, more wisdom:
High prices are seen as proof of some sort of breakdown. Yet the evidence suggests that, to the contrary, the rising price is beginning to curb demand and increase supply, just as the textbooks say it should.
I am shocked! SHOCKED!
The annual change in world oil consumption is down from the recent 2004 high of 2.5% to roughly 0.75% last year.
The longer term reality is suggested by Gary Becker, U Chicago: over the short run of less than five years, when price doubles the OECD/Core countries' demand drops only 2-9% while oil production outside of OPEC grows only 4%. But over the long haul, a price doubling gets you a 60% drop in OECD demand and a 35% rise in non-OPEC production.
Where will that happen this time?
How about the tar sands in Alberta? Roughly enough to account for 10-15% of global oil production in the future.
Alberta liberal politician Ross Jabobs puts it well: "We need to start acting like an OPEC-level player with an ability to change the world economy."
Only 70 years to enjoy, in terms of supply, so I say, start fast.
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