167 comments on The Economics of Oil, Part II: Peak Oil and the Energy Supply Curve
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167 comments on The Economics of Oil, Part II: Peak Oil and the Energy Supply Curve
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Nice commentary.
The real danger comes from those who would try to ration by some means other than the price mechanism ... the "entitlement society" has caused a whole generation of people to think that they are entitled to things they can't pay for.
I like much of this. We can adapt to nearly everything. It is not price but price spikes, economic heart attacks, that will get us into trouble.
We can even contain most of those if we act in advance.
Acting in advance will also mitigate increased political risks during periods of flux. What will Mexico be like when they lose their oil revenues?
bill.james@jpods.com
It costs less to move less
We can only adapt to things to which our physical existence gives possibilities to. No amount of economic modeling can know this. Only physics can and even that very roughly/approximately.
As for Mexico, oil exports are c. 20% of their export revenue. As such, the fall in exports is probably not critical on its own, but there are another factors:
RISK = Lost oil exports + Increased oil imports * increasing oil price + supply risk (i.e. delivery disruptions in imports)
This combination may be harder to stomach for Mexico at least temporally as it is not just a mere price hike.
Time will tell though. I hope that Mexico will weather this well, but I'm not counting on it.
This is, I think, the exact problem with the analysis above. It is based on a model which does, to a great degree, reflect the economic processes involved.
HOWEVER - after having said this...
Your first assumption is that the oil market is a "free" market. This changed at the latest in the 1970s after production in the US peaked. National oil companies now account for 80% of production!!!
Are they going to react free-market rationally to make sure that production drops are gradual? OPEC did the exact oposite at the end of the 1970s, if I may just offer one small case in point.
I missed the part of the essay which acounts for W*A*R, natural catastrophy and other "minor" disruptions which can and will change the world over night.
And who is going to garantee me that I'll get my petrol when I need it??
I have no problem with steadily rising prices when I can the act accordingly - and *rationally* by conservation etc.. What will more than likely happen is that I wake up in the morning and find out that the local gas station won't be able to fill my tank on that day - just because some tanker riffed somewhere between here and Nigeria, ie a very tight supply chain snaps. What to do? Jump into the non-existent public transport? Buy a house in town that I can't afford and won't be finanzed for anyway?
Post Peak will hurt, despite all signs at the moment of a relatively funtioning transition.
Next objection:
Living in Germany, I would agree from experience on the fact that higher prices influence consumption. This ASSUMES however, that these prices happen gradually. Petrol was extremely expensive here 16 years ago when I came - and since then it has gotten much more expensive. No problem, we all had time to adjust. What would we do if there were a sudden price spike - say doubling or trippling? Of course - change my lifestyle!! It's just too bad that this doesn't happen over night. Or how fast can you move out of the suburbs when everyone else wants to move out too? House, kids, mortgage to the hilt, job too far away, public transport (which I already use, by the way) which is already a pain in the gazoo.
Cheers from Munich,
Dom
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Just remember the Golden Years, all you at the top!