Thursday, July 17, 2008

Oil prices - We won't get fooled again?

It was probably too soon to declare that oil would keep going up and up, and never come down again back at the end of June. It’s probably too soon to declare that oil is coming down again. Still there are hints that that is exactly what is happening. The NYTImes suggests that oil traders think a recession will cause US demand to fall. Of course, possibly conservation (that dirty word that Cheney spits out) might be having an effect. That may be too radical a notion for oil traders (or newspapers reporting on them) to contemplate, but truth to tell, our record from the mid eighties doesn’t give anyone much reason to think we could maintain a serious effort at conservation. Either way, it looks like the price per barrel is dropping a bit. Of course, so far the price at the pump isn’t budging downward, in fact, in some places it is still edging upward.

What will be interesting to see is if demand for gas plateaus or even starts rising again. I suspect demand for gas in China and India have at least slowed. I know China subsidizes gas, but its payments to it domestic energy companies weren’t keeping pace with the rapidly rising price of oil, so they were threatening to go out of business. China adjusted the price of gas upward by some 20% (as I remember), still below the international price but a respectable jump. Since the Chinese are newish to the driving game, they may park their new cars, or delay buying one, and get back on their scooters, electric bicycles or plain old pedal bikes. Ditto for the Indians.

But while global demand for oil may slow, I don’t see it stopping, at least not in the near term. We could be leaders in this regard, but for every Barack Obama, there is a Newt Gingrich that thinks Americans don’t want to and shouldn’t have to give up their comforts and conveniences (after all, its just the planet at stake). Unless population growth stops rising and becomes only replacements for existing people, the demand for energy is going to continue to rise. But we have gotten the really cheap oil out of the ground. Now it is going to get more and more expensive to even get the same amount of oil out of the ground, and of course eventually there will be less and less of it. At this point, investments in the solar and wind industries look like a good bet.

However, I believe Congress is still paying money to oil companies for … nothing, just giving them taxpayer money. They were doing the same for solar and wind, but the Republicans decided that was a good place to tighten the belt (read: solar and wind aren’t contributing to campaigns yet).

If we do start to use an alternative fuel, how is that going to work? Are there enough french fries to fuel a whole America of veggie mobiles? Would you be able to stop in at your local gas station and plug in your electric car or even plug in hybrid and, in the same time it takes us now to fill our tanks (about three minutes), could you fill your battery? How will your corner gas station feel about competing with an extension cord and your own outlet? And is our electric grid ready to replace all those fuel tankers? Where would all that electricity come from?

These are non-trivial questions, and since electricity is a regulated industry, and there are safety standards for cars, government will have to be involved in the answers. I don’t know what they will be. I would hope that a big push for solar and wind generated electricity would be part of them, but who knows.

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