Saturday, June 7, 2008

The Coming Energy Wars

Hmm... "Oil prices could hit $200 a barrel in the next few months. How the spike changes everything." ... Oh, really? Yeah, this is a big problem alright. The article starts off with the average gas price "edging towards $4 per gallon"... er, in California it's been over $4 per gallon for quite awhile ... in any case it's obvious that the higher price is going to cause the populace to make some changes. This happened in the 1970's during the prior oil price shock, as that was the previous time in which efficient cars were popular. It's happening again.

In a sidebar is a picture showing oil consumption in millions of barrels per day. The chart shows the future and since we don't have a time machine (unlike Doctor Who) the future figures must be a projection based on assumptions made by 'CIBC' (whoever that is). It shows "developing countries" having a high growth in oil consumption, while "developed countries" had a peak in oil consumption in 2004-5 and should be falling off over the next few years.

Perhaps this is a result of the outsourcing of industry to places like India and China. The overall story is that industrialization of India and China is a huge factor in the price increases. That these countries are increasing their oil demand as they industrialize, and as a consequence the developed countries have less need for oil because less industrial activity is happening in the developed countries.

The price for oil has recently risen to $130+ per barrel, last year it was $95 per barrel and in 1999 it was $10 per barrel. This is quite a price increase. The article doesn't directly say this but the cost of doing business is greatly affected by the price for oil. The most direct example of this is the airline industry and there's huge turmoil in the airline industry right now because of high fuel prices. There have also been protests in France by fishermen and truckers, etc.

I am one of those the article mention who welcome high oil prices. The higher the oil prices go the more attractive do the alternatives appear to be. The best way to get investment in alternative fuels, vehicles, etc, is for high oil prices to give people incentive for the investment.

...Oil drives so much of the global economy, it's almost impossible to fully imagine the world of $200 oil....force nations to go greener much conserving energy and developing and adopting new non-fossil fuels. But none of this can happen full stop in six to 24 months... Since it will be difficult to do this quickly we may see a shift to more regional trade and a reversal of globalization. Globalization depends on cheap energy to make it feasible to ship products around the world. But with higher shipping costs it's less cost effective to produce in China and sell in Omaha, the relative shipping costs would tip the equation to a U.S. based producer who doesn't have as high a shipping cost.

"...In the United States, consumer confidence is now at a 15-year low...." This phrase 'consumer confidence' always seems to derive from sales figures as if the only way to gauge how 'confident' people are is by how much they're spending. Anyway in this case ... Energy Department data show that $4-a-gallon gas is finally forcing Americans to cut back on driving; this year gas consumption in the country is expected to drop for the first time since 1991 ... and economic "fiscal stimulus" looks to be unlikely to "help". Um, the talking here is in form presenting as a problem that a decrease in oil use is a problem that has to be solved.

"At $200, GM tanks," says energy expert Philip Verleger. "They just don't have time to fix their fleet." ... That is, high oil prices are hurting the U.S. carmakers because the U.S. carmakers focused on selling SUV's. SUVitis has put the U.S. carmakers in a position of selling vehicles that are absolutely bad for the current market, since there is a shift to efficient cars. This is short sighted thinking on the part of U.S. carmakers and they will get what they deserve. Insofar as it is a free market then the result of making a bad choice in product mix is for the company in question to be hurt or even die.

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