Wednesday, November 18, 2009

The New Oil Finds - Reality

The Australians get it. The Sydney Morning Herald lays out the economic realities of extracting oil from the new finds. You can expect that from here on out anything we find will be equally costly to extract and produce. This is why we are headed down a difficult path in regards to oil, especially in the transportation segment, which eats up the vast majority of the oil we use.

This article drives home the point that we are in trouble NOW. Not tomorrow or next week or next year or sometime in the next decade. WE. ARE. IN. TROUBLE. NOW! Energy powers the economy and the current conventional wisdom is that oil prices north of $80 will limit the recovery and possibly set us back. Reread the marginal costs identified in the article and the impact on pricing. Consider the implications.

While I have your attention, I note that the price of gas over at the CITGO station was $2.99/gallon last night. We don't lack for supply, but the refiners are shutting in some of their production because the price they are getting for the product is less than the cost to produce it. In a free market economy the smart thing to do is hold back unless you want to take a loss. Most businessmen don't.

1 comment:

The North Coast said...

If we want the economy to function, increased efficiency and conservation are essential. In no case should we call for the regulation or capping of fuel prices, as keeping valuable commodities artificially cheap is only provides incentive to waste.

Relocalization and high-density living around transit hubs will start to look really good when fuel prices here reach European levels, but we can expect some pretty fierce resistance to the New Regime from the bulk of the population. They will kick and scream and throw tantrums and scapegoat every pol or pundit who tries to take steps towards making our communities more sustainable and livable on the way down the slope. Such is the nature of denial. So we will unfortunately spend a lot of our money and resources in pretending that we can somehow maintain as we are, and when we at last get it through our heads that we have to totally retool our systems, we won't have the capital to do it because we shot it all on old, obsolete systems and industries.