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116 comments on DrumBeat: September 26, 2007

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Marco on September 26, 2007 - 10:01am Permalink | Subthread | Comments top

Jeffery, I'm like a dog with a bone with this question but it sits in the back of my mind now like a feather under my armpit (If you'll excuse the phrase).

I previously asked (and still had no credible counterargument)

Is demand destruction the achilles heel of your ELM and if not, why not? Answers on a postcard.

Marco.

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BrianT on September 26, 2007 - 10:05am Permalink | Subthread | Parent | Comments top

A lot of the exporting countries are subsidizing internal consumption of oil products. As an example, demand destruction is unlikely in Venezeula as long as Hugo is in charge.

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Marco on September 26, 2007 - 10:17am Permalink | Subthread | Parent | Comments top

I am laughing becuse I made this point to someone yesterday. Further; that these subsidies are slowly being removed as these countries feel the pinch on their revenues from exports. Iran is the classis case. others are folling suit. I googled 'opec oil subsidies' yesterday and was suprised at the amount of headlines about countries removing their subsideies to their own population. Try google it yourself.

Marco.

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BrianT on September 26, 2007 - 10:35am Permalink | Subthread | Parent | Comments top

I wouldn't laugh too loud. Internal subsidy is only part of the story-exporting countries' economies improve as oil prices rise-this improvement in the economy generates internal demand even without subsidy.

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Sunspot on September 26, 2007 - 12:48pm Permalink | Subthread | Parent | Comments top

I'd add that at these high prices, which aren't going away, oil exporting countries are making boatloads of money, creating an expanding class of people who will be able to afford FFs regardless of subsidies. As with everyone else, it's supply that's the most important, and gov'ts that try to restrict supply to their own people to maintain the revenue stream from exports risk internal strife.

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Carbon waste Life form on September 26, 2007 - 11:19am Permalink | Subthread | Parent | Comments top

The BBC says the current crisis in Burma was precipitated by a hike in fuel prices. I don't think Burma is a producing nation but the government (junta) there is presumably reducing subsidies. Sign of the times. Interesting study for other countries who are export nations and thinking of reducing subsidies.

http://news.bbc.co.uk/1/hi/world/asia-pacific/7014570.stm

The protests were triggered by the government's decision to double the price of fuel last month, hitting people hard in the impoverished nation.

Carbon UK

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mcgowanmc on September 26, 2007 - 10:59am Permalink | Subthread | Parent | Comments top

A lot of the exporting countries are subsidizing internal consumption of oil products. As an example, demand destruction is unlikely in USA as long as Cheney is in charge.

Arkansaw of Samuel L Clemens

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ImSceptical on September 26, 2007 - 9:18pm Permalink | Subthread | Parent | Comments top

mcgowanmc -

A lot of the exporting countries are subsidizing internal consumption of oil products.

See my reply to BrianT above.

James Gervais

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ImSceptical on September 26, 2007 - 9:15pm Permalink | Subthread | Parent | Comments top

BrianT :-

A lot of the exporting countries are subsidizing internal consumption of oil products.

If a government of a country that exports oil and/or natural gas sets an internal price below the world price, it is NOT necessarily a subsidy, unless the price charged doesn't pay for the exploration, production, refining, transportation, and marketing. The price of any substance or object is whatever the holder wants, and there is no reason why a government shouldn't treat it's own people better than foreigners. Too many people have bought into the bs of "the market knows best".

James Gervais

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westexas on September 26, 2007 - 11:34am Permalink | Subthread | Parent | Comments top

Marco,

As Brian noted, I expect to see revenue from export sales increasing, even as exports fall, because of rising oil prices. But I guess the key question is what price is charged to consumers in exporting countries, which will vary from country to country.

However, I think that it will be very difficult for governments in exporting countries to try to reduce domestic consumption when sales from exports are increasing. A case in point is Saudi Arabia, which is showing an accelerating increase in consumption, above 9%/year currently, according to Rembrandt.

In any case, even in the absence of any real increase in consumption, e.g. the UK, net exports can still crash--peak exports to zero in seven years in the UK.

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SaturnV on September 27, 2007 - 9:50am Permalink | Subthread | Parent | Comments top

Jeffery, I'm like a dog with a bone with this question but it sits in the back of my mind now like a feather under my armpit (If you'll excuse the phrase).

I previously asked (and still had no credible counterargument)

Is demand destruction the achilles heel of your ELM and if not, why not? Answers on a postcard.

I wouldn't be so smug. Oil prices have gone from $2 to over $80 since the first oil shock of the 1970's. Since then there has never been a single 5 year period where oil consumption has been less than in the previous 5 year period - despite increases in energy efficiency and substitution. Why? Because there is an extremely, almost 100% correlation between oil consumption and GDP growth. The unhappy truth is that this demand destruction you speak of, far from lowering oil consumption through conservation, would instead do so via recession, or as is more likely, recessions.

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Pitt the Elder on September 27, 2007 - 10:42am Permalink | Subthread | Parent | Comments top

Oil prices have gone from $2 to over $80 since the first oil shock of the 1970's.

That's a 7x real increase in price, according to the BLS inflation calculator.

Since then there has never been a single 5 year period where oil consumption has been less than in the previous 5 year period

That's simply not true, at least according to EIA data on world oil demand.

Based on that data, the periods fitting your requirements are:

  • 1980-1984 vs. 1975-1979: -1.8GB (-1.6%)
  • 1981-1985 vs. 1976-1980: -5.4GB (-4.7%)
  • 1982-1986 vs. 1977-1981: -5.6GB (-4.8%)
  • 1983-1987 vs. 1978-1982: -3.4GB (-3.0%)

there is an extremely, almost 100% correlation between oil consumption and GDP growth.

Correlation does not imply causation. Global GDP growth was positive in every one of the above years, and in the 10 years it took oil demand to get back to 1979's level, world GDP grew by about 25-30%.

So there's very little indication that the link is as strong as you suggest.

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GlenO on September 27, 2007 - 1:57pm Permalink | Subthread | Parent | Comments top

"Correlation does not imply causation. Global GDP growth was positive in every one of the above years, and in the 10 years it took oil demand to get back to 1979's level, world GDP grew by about 25-30%.

So there's very little indication that the link is as strong as you suggest."

I don't have the numbers in front of me, but I'll bet most of the decrease in oil demand over those years was from increases in efficiency. There may have been a net increase in applied oil-based energy despite reduction in oil use after taking the improved efficiency into account, and this is what should be used to determine the strength of the link to GDP.

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116 comments on DrumBeat: September 26, 2007

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