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> Market demand for oil collapses (read: recession) long before it gets anywhere close to $500/bbl. Above $80 a barrel, alternative fuels (such as liquid fuels

by w00pla 16y ago

> Market demand for oil collapses (read: recession) long before it gets anywhere close to $500/bbl. Above $80 a barrel, alternative fuels (such as liquid fuels from coal) becomes profitable. I sincerely expect that this will expand extremely rapidly in the next 15 years.

CWuestefeld 16y ago
And resources such as natural gas are at very low prices right now, due to recent development of huge deposits such as the Marcellus Shale. In the medium-to-long term, I think that substitutability between oil and natural gas would go a long way, once oil prices get to a point where oil looks less attractive. While I'm not entirely unconcerned, I don't think there's any reason to panic.
RyanMcGreal 16y ago
When demand becomes tight, the price driver is not so much the cost to produce as it is the rate of production. Can we produce five or ten million barrels of oil-from-coal a day? Can we replace a two or three percent annual drop in oil production rates through some combination of conserving and replacement without recessionary demand destruction? I'm not so sure.
- nostrademons 16y ago
  We'd switch to more mundane substitutes long before oil got to $500/bbl. Just the spike to $130/bbl in 2006 saw people switching away from SUVs to Priuses in droves. If that were sustained for any length of time, everyone would be driving a plug-in hybrid to work. The technology exists today, and the production capacity would ramp up pretty quickly. If every switched from a 20mpg car to a 50mpg car where the first 100 miles of each trip was free, it'd more than make up for anticipated oil production declines over the next 50 years.
  - RyanMcGreal 16y ago
    That might work if the developed world was driving the increase in fuel consumption, but that hasn't been true for quite some time. North American oil consumption is already going into decline, but global demand pressure is coming from the developing world - China, mainly, followed by India - as well as all the oil-producing countries with nationalized industries and artificially low domestic prices (Venezuela, most of the Middle East). Those consumers will not be buying plug-in Priuses; and with consumption growing rapidly in the oil exporting countries, once they pass their national production peaks their export rates will decline faster than their own production rates.
    - nostrademons 16y ago
      They have the same price constraints that the developed world does. If oil goes up to $500/bbl, we'll see one of three things happen. 1.) They'll substitute more efficient yet more expensive cars for gas guzzlers, as the TCO of a gas guzzler goes up. 2.) Efficient, cheap, yet small cars will start being developed for emerging markets. (This is already happening a bit - consumers in Beijing tend to drive much smaller cars than consumers in Houston.) 3.) They won't buy cars at all. There's no innate reason beyond price why consumers in developing companies can't buy plug-in hybrids. And if price is the governing factor, they simply won't buy cars as well. Either way, it puts downward pressure on oil demand and hence serves to limit prices.
- CWuestefeld 16y ago
  the price driver is not so much the cost to produce as it is the rate of production. Neither of these are ever what determine the price. Price is determined by the intersection of what buyers are willing to pay and what sellers are willing to accept in payment. Now, the cost to produce, as well as the production rate (in relation to the consumption rate at a given price) may well feed into the seller's decision about what they're willing to accept. But that's a second-order effect. Sellers charge what buyers are willing to spend. They'll make more of it if there's a good profit to be made; if nobody will pay very much, they'll invest their money in producing something different. The price that a buyer is willing to pay is influenced by how important is the goal for which he wants to use the product, but also how readily he use an alternate product in substitution for this primary one. Thus, he may be willing to forgo the purchase of a vacation trip, because it's just not worth the money. He might also, in the longer term, substitute different goods. So in a longer time horizon, he might change jobs to one that allows him to telecommute, in order to circumvent gas prices. Or car manufacturers might see that they themselves are having trouble selling gas-guzzlers, and change production to alternate-fueled cars, like electric (whose power is ultimately generated by coal or nuke), or maybe engines fueld by natural gas, or something. So in the big picture, there are many safety valves allow this pressure to be dissipated.
- w00pla 16y ago
  > the price driver is not so much the cost to produce as it is the rate of production. Yes, it will require a rapid expansion of CTL plants and demand will drop. It would probably mirror the expansion of South African CTL plants after numerous oil boycotts.

by w00pla 16y ago

CWuestefeld 16y ago

And resources such as natural gas are at very low prices right now, due to recent development of huge deposits such as the Marcellus Shale. In the medium-to-long term, I think that substitutability between oil and natural gas would go a long way, once oil prices get to a point where oil looks less attractive. While I'm not entirely unconcerned, I don't think there's any reason to panic.

RyanMcGreal 16y ago

When demand becomes tight, the price driver is not so much the cost to produce as it is the rate of production. Can we produce five or ten million barrels of oil-from-coal a day? Can we replace a two or three percent annual drop in oil production rates through some combination of conserving and replacement without recessionary demand destruction? I'm not so sure.

nostrademons 16y ago
We'd switch to more mundane substitutes long before oil got to $500/bbl. Just the spike to $130/bbl in 2006 saw people switching away from SUVs to Priuses in droves. If that were sustained for any length of time, everyone would be driving a plug-in hybrid to work. The technology exists today, and the production capacity would ramp up pretty quickly. If every switched from a 20mpg car to a 50mpg car where the first 100 miles of each trip was free, it'd more than make up for anticipated oil production declines over the next 50 years.
- RyanMcGreal 16y ago
  That might work if the developed world was driving the increase in fuel consumption, but that hasn't been true for quite some time. North American oil consumption is already going into decline, but global demand pressure is coming from the developing world - China, mainly, followed by India - as well as all the oil-producing countries with nationalized industries and artificially low domestic prices (Venezuela, most of the Middle East). Those consumers will not be buying plug-in Priuses; and with consumption growing rapidly in the oil exporting countries, once they pass their national production peaks their export rates will decline faster than their own production rates.
  - nostrademons 16y ago
    They have the same price constraints that the developed world does. If oil goes up to $500/bbl, we'll see one of three things happen. 1.) They'll substitute more efficient yet more expensive cars for gas guzzlers, as the TCO of a gas guzzler goes up. 2.) Efficient, cheap, yet small cars will start being developed for emerging markets. (This is already happening a bit - consumers in Beijing tend to drive much smaller cars than consumers in Houston.) 3.) They won't buy cars at all. There's no innate reason beyond price why consumers in developing companies can't buy plug-in hybrids. And if price is the governing factor, they simply won't buy cars as well. Either way, it puts downward pressure on oil demand and hence serves to limit prices.
CWuestefeld 16y ago
the price driver is not so much the cost to produce as it is the rate of production. Neither of these are ever what determine the price. Price is determined by the intersection of what buyers are willing to pay and what sellers are willing to accept in payment. Now, the cost to produce, as well as the production rate (in relation to the consumption rate at a given price) may well feed into the seller's decision about what they're willing to accept. But that's a second-order effect. Sellers charge what buyers are willing to spend. They'll make more of it if there's a good profit to be made; if nobody will pay very much, they'll invest their money in producing something different. The price that a buyer is willing to pay is influenced by how important is the goal for which he wants to use the product, but also how readily he use an alternate product in substitution for this primary one. Thus, he may be willing to forgo the purchase of a vacation trip, because it's just not worth the money. He might also, in the longer term, substitute different goods. So in a longer time horizon, he might change jobs to one that allows him to telecommute, in order to circumvent gas prices. Or car manufacturers might see that they themselves are having trouble selling gas-guzzlers, and change production to alternate-fueled cars, like electric (whose power is ultimately generated by coal or nuke), or maybe engines fueld by natural gas, or something. So in the big picture, there are many safety valves allow this pressure to be dissipated.
w00pla 16y ago
> the price driver is not so much the cost to produce as it is the rate of production. Yes, it will require a rapid expansion of CTL plants and demand will drop. It would probably mirror the expansion of South African CTL plants after numerous oil boycotts.