<Have we passed “Peak Travel?”The Oil DrumDrumBeat: June 21, 2008>

140 comments on Saudi Arabia - opening the tap?

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karlof1 on June 20, 2008 - 7:22pm Permalink | Subthread | Parent | Comments top

I don't think if rising price is expected, that "the incentive is to cut supply," if by this you mean to not open the spigots further. That only serves to create the emerging recriminations and invites trouble. Rather, the best way to take advantage of rising price is to slow down current decline mitigation by slowing down the pace of bringing new discoveries online and causing an early peak but with a less precipitous decline rate. Something very much like the Oil Depletion Protocol. I actually think this might get proposed, which is why the Saudi's wanted heads-of-state to attend. Consider the advanatage to OPEC for them to announce Peak and simultaneously as a solution to the problem suggest the Protocol. Think about it good. It puts the game into a whole new perspective. Think how the users response must be Yes. What else can they say? Abdullah simply states that T. Boone Pickens is correct, that 85Mbpd is tops, and its going to slowly subside. He should further say that in order to keep the price from spiraling out-of-control, it should be made permanent at $150/bbl, and adjusted bi-annualy to the inflation rate of a basket of currencies, commencing at the start of 2009. It would sound like a proposal instead of an edict. It would be the most important act of Statesmanship of the 21st Century.

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screamingchimp on June 20, 2008 - 10:50pm Permalink | Subthread | Parent | Comments top

Freezing the price is, in my opinion, a very logical solution. I'm sure the Saudi's are concerned that if the price goes into a prolonged superspike the impact won't be a slide into global recession it will be global economic collapse and the demand on oil will plummet. I'd expect the Saudi's objective is to take advice from Goldilocks and not let the price get too hot or too cold. Make it just right and maximise profit for as long as possible. Locking in a price would keep the economies going a bit longer but I'm not sure how that would be achieve other than by rationing and then who would get to decide who should have oil and how much.

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DaveMart on June 21, 2008 - 4:58am Permalink | Subthread | Parent | Comments top

How would you freeze the price? Without excess supply there is no mechanism to do it, and is west texas's ELM is halfway correct it will simply be blown out of the water.
You don't get a 4-5% reduction is export capacity for a very valuable resource and have anything other than rapidly escalating prices.
You might transfer some of the profits to a middleman, or otherwise have minor marginal effects, but the basic conditions for stability do not apply.
Even the modest aim of a regular escalation f prices, by, say a couple of percent every six months to counteract a 2% fall would not hold, partly due to inelasticity of demand and partly because the decline would not be smooth - a sudden outage, say a strike at a Nigerian platform, would destroy it.

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eric blair on June 21, 2008 - 7:46am Permalink | Subthread | Parent | Comments top

How would you freeze the price? Without excess supply there is no mechanism to do it,

Coupons - you, as a citizen with X needs, gets these many coupons for Y gallons of gas at Z price.

So long as you do not leave the coupon system the price will be fixed.

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karlof1 on June 21, 2008 - 11:39am Permalink | Subthread | Parent | Comments top

I'm refering to the price of oil on the international market being capped thorugh treaty. The price of transport fuels in individual countries would vary due to their tax/subsidy regime, having their own resorces to add to imports, and their refining capacity. Setting the price is easy; establishing an allocation agreement will be harder, but the Protocol as proposed sofar states that importing countries will have their import allocation reduced by the rate of decline. This would allow for a managed decline rate that arrives at a soft landing for the global economy, and would be far more equitible to the poor and poor countries. Those unfamiliar with the Protocol can read it here.

A simple way to look at the Protocol is to see it as Sane, while the opposite can be seen in the Neocon strategy as Insane.

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Kiashu on June 21, 2008 - 7:42pm Permalink | Subthread | Parent | Comments top

Fixing the oil price brings us peak oil sooner.

If you fix the oil price, then either the oil producers make losses on the difficult fields like Brazil's Tupi, or else they decide they don't want to give charity to the West and just stop producing.

So then you have a fixed price with a declining supply. Every day becomes a race to the pump to use your coupons before the pump goes dry.

Fixing the oil price means many fields will never be developed, and the peak comes sooner. Since I'm concerned about climate change, I'm fine with that - but you might not be.

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karlof1 on June 22, 2008 - 7:46am Permalink | Subthread | Parent | Comments top

I fail to see where oil production becomes uneconomic when the price is $150/bbl and indexed to inflation. There only "becomes a race to the pump" if efficiency gains combined with lessened demand lag the declining supply. Fundamentaly, the idea of the Protocol is to provide a cushion to economies over-reliant on oil and others from becoming completely priced out of the market. I don't think it will do much to mitigate Climate Change, as all the fossil fuels there are to burn will be burned, perhaps spread over a few more decades.

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mdsolar on June 23, 2008 - 9:00am Permalink | Subthread | Parent | Comments top

Fixing the price acknowledges that there is no point in producing stupid oil such as tar sands. Given the EROEI of renewable aleternatives, any oil that costs more than about $15/barrel to produce is stupid oil.

In order to fix the price, we pretty much have to control demand. That means that issuing more coupons than supply makes no sense. Thus, gas pumps will have gas. They will just be used less.

Chris

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PhilR on June 21, 2008 - 9:03am Permalink | Subthread | Parent | Comments top

the decline would not be smooth - a sudden outage, say a strike at a Nigerian platform, would destroy it.

You mean a few more incidents like this?

LAGOS (AFP) - Nigerian militants blew up a key oil supply pipeline operated by US oil group Chevron, slashing output by 120,000 barrels per day, military and industry sources said Saturday.

"The attack took place yesterday (Friday) near Escravos. The supply pipeline was blown up. The company has shut down operation in the area," military commander Brigadier-General Wuyep Rimtip told AFP.

It would be folly to assume that everything goes smoothly, that there's no insurgency, and that equipment never breaks down.

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