by frog
Joe Bennett receives a lesson in the economics of oil this morning in the Dominion Post.
Tell me, I shouted above the din of hooves, why the price of petrol is soaring like the lark. Why, every time I stop at the pumps, someone is up a ladder changing the price. It’s killing me, Mr Economist. My car is not a luxury, but a necessity. Without a car this town is uninhabitable. The mall where I worship is too distant to walk to.
Luckily for Bennett the price is actually lower than it could be due to the high New Zealand dollar. Joe then asks:
Is there a shortage of oil, Mr Economist?
I know that all the prosperity that I take as my right has grown from cheap energy, the energy stored long long ago when trillions of little sea creatures laid down their lives in the sedimentary rocks and kindly composted themselves into 91 octane petrol.
I KNOW, too, that we have been profligate with those creatures’ remains, that for a century or so we have spent them as casually as Mrs Beckham spends dollars.
I know too, we all know, naggingly, that oil is finite, that the day of no oil must come, but it isn’t now, is it?
Luckily for Bennett we are not yet at ‘last smears of the dead from the bottom of the oil barrel’. But the oil that is left in the world is, on average, far more expense to extract and process than the oil we are used to. We’ve got plenty left for things that really need it but not for continuing to use profligately as we have up until now. Bennett continues in his commentary to suggest the price problem may be because oil companies like Shell and BP may have an interest in rising petrol prices. Which may well be true, but it doesn’t stop the fact that the science of peak oil is now entering our mainstream lexicon.
Published in Economy, Work, & Welfare | Environment & Resource Management by frog on Wed, May 28th, 2008
Tags: , Joe Bennett, peak oil, petrol
on the trolls and those who are unable to keep on topic
Does anybody have figures for the current cost of production of crude in various locations? It would be interesting to see how much the price rise is due to rising costs of production and how much due to profiteering and gerrymanderings in the financial markets.
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Oil price is not a function of physical oil production nor changes in that production. Oil price is depends on production costs (marginal costs) and the relationship between demand and supply.
At this stage, the actual productions costs are not significantly higher than they were a year ago, so supply and demand imbalance is causing the price rise.
Which is not much different really to the Fonterra/milk price situation. the 60% price rise in the last year is driven in large by supply/demand issues. The actual cost of producing milk is NOT 60% more than in May 2007, so diary industrialists are making out like bandits. Caveat, milk does not take millions of years to make
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Without a car this town is uninhabitable. The mall where I worship is too distant to walk to.
……………………..
Whats wrong with a mountain bike over the bridal path?
Actually it’s a shame there isn’t a cycle lane through the tunnel. A tunnel could have a robotic vehicle to carry cyclists(?). Of course you wouldn’t want it to go off course into a big truck.
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the “cost” of extracting oil from the ground should not be seen as merely the cost of the mechanical process, but also the cost of the underlying asset – there’s an opportunity cost involved in digging it up now instead of later when stocks will be less & prices will be higher
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If the production costs haven’t risen, isn’t Frog’s comment: “the oil that is left in the world is, on average, far more expense to extract and process than the oil we are used to” a fallacy?
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depends whether the cost of extracting/processing is just about to go up dramatically. anyway, isn’t it already the case that they’re starting to extract oil from those tar sands which were said to be so much more expensive to extract it from, & that oil fields which used to gush under their own pressure are now being sucked out with pumps?
that’s got to indicate greater expense
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Fastbike you are forgetting inflation from the “money printing” by the US Federal Reserve in your price calculation. So it should include the supply & demand & inflation & the production cost.
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I think the most interesting Peak Oil (?) stories are the blockading of a port by french fishermen and the truckers in the UK protesting. The fishermen will start looking sideways at fat cats in luxury yachts.
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Sam I recall The Economist reporting that Saudi Arabia’s cost was about US$2 a barrel, and they could make good money at $5 a barrel. They must be laughing all the way to the bank at the moment
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Yeah, I recall figures from two or three years ago citing Middle East oil as the cheapest, costing $7-$9 to produce, and North Sea oil being at the top end at around $30. The dollar’s lost value since then, but not by heaps.
George Soros was quoted in the DomPost yesterday as saying the oil price looks like another speculation bubble.
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Do those costs include finding the oil and drilling for it, or are they just the costs once a field is established? My understanding is that the exploration side is a major cost.
Trevor.
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The omitted cost of oil is the burden the world bears for every mole of carbon that is released that the ecosystem cannot absorb. When the shareholders in that mess ask ‘where is our return on investment?’ the corporates are strangely bereft of reply.
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The Mean Season
John Mauldin’s Outside the Box
Regular readers of Outside the Box will be familiar with Michael Lewitt’s thoughtful commentary. Today, he reminds us that much of the turmoil we are in could have been avoided with proper regulatory structures and then does a very poignant analysis of various sectors of the economy. I agree with him that we have not seen the worst and that we will continue to see this mild recession/slow recovery for longer than we should without true structural reform. [rather than a marxist revolution]
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/06/02/the-mean-season.aspx
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Knustler Podcast: Peak oil NZ
Beware NZ becoming colony of China. China building deep water navy. Japan (Banzai!!!!!!!!!!!!) now importing (x%) fossil fuel. May become desperate……
Iceland… entering bankrupcy… need to grow food in green house. Peak water… China in the poo… Water table in Nth China going down… going down… Europe energy probs incl natural gas. Europ has been unmilitaristic of late. What if Russia shuts off gas… Suez Canal…. NZ… Australians may be desprate “who knows what their attidude may be”
http://media.globalpublicmedia.com/RM/kunstlercast/KunstlerCast_16.mp3
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