The Oil Drum

Cheap gas and diesel due to government fuel subsidies has become one of the favored whipping boys of late—a convenient way to blame high oil prices on the actions of some other government or faraway people (See 1 2 3 4 5 6 7 8). But how much can subsidies really be blamed for present oil demand? Would cutting a 30% gasoline subsidy reduce demand by 30%? Why not? I’ll stake out and defend a somewhat extreme position: reducing, or even eliminating fuel subsidies will not cause a significant, long-term reduction in demand and may even cause demand to increase more quickly than with subsidies in place. More importantly, we must not fall prey to claims that cutting fuel subsidies is an easy solution to our energy problems.

A Hummer dealership in Caracas, Venezuela, where consumers pay only pennies for a gallon of gasoline as reported by the New York Times

The world oil peak is obviously a popular topic here and many reports look at depletion & production as a function of world supply and demand as a whole. For countries, Chris Skrebowski speaks of Type III depletion which he defines as the tipping point "when a country produces less oil in a year than it did the year before". But what the OECD countries, along with India and China, are most interested in is the oil export capacity of producing countries because almost without exception (Canada), each OECD member plus China and India must import large volumes of oil to meet their internal demand. If a producer is in Type III depletion or close to it, how severe that depletion is as regards exports will depend on it's own internal consumption as well as the geology or economics of its existing production. If that domestic demand is high, this describes the worst case for big consumers who can not meet their own demand. Iran is such a country. On the other hand, the best of all possible worlds is a producer country with little domestic consumption and growing export capacity. And that would be Kazakhstan.

This story examines a hypothetical scenario regarding our best and worst cases regarding their export capacity out to 2012. That in turn is a good measure of how geopolitically important a country is to the US, the Europeans, Japan, China, India and the rest. Afterall, I haven't noticed much interest in Ethiopia or the Falkland Islands lately which, according to the CIA World Factbook (July 28 2005), both produce the same amount of oil--0/kbd.