Is oil pricing itself out of the market?

Aug 19, 2011

University of Alberta researcher Andrew Leach likes the way Saudi Prince Alwaleed bin Talal thinks.

A new paper by Leach, an associate professor in the Alberta School of Business, and fellow University of Alberta economics researcher Ujjayant Chakravorty, posits scenarios that parallel a statement Alwaleed made in May declaring that it is in the best interests of Saudi producers to keep oil around the $70 mark to prevent the West from developing sources. Their paper, co-written with a colleague from the Toulouse School of Economics , hypothesizes scenarios wherein a narrowing of the gap between developing renewable energy resources and fossil fuel resources might mean a rush to drain the oil from its source.

But . . . will we need oil for 100 years?

Leach is quick to point out that the paper is not attempting to forecast oil futures or costs. Rather, he notes, they model results of possible outcomes if an could replace oil quicker than producers expect it to. Citing resource economist Harold Hotelling's notion that "oil in the ground is like money in the bank," Leach notes that, if a bank adversely changed its paid interest rates, the investors would be quick to withdraw their money. In the case of producers, he says the response would be to curb the cost of oil per barrel and increase current production rates to maximize current profits.

"What we tried to do with the paper was get in to some of the climate-modeling results and say, 'what happens if you go back and look at how oil owners should behave if an is emerging and funded and how technology is improving,'" said Leach. "The answer is that you shorten your timeframe and you start thinking, 'well, I better get the value out of this asset now because it's not going to be worth anything in 30 years.'"

Oil producers: for your consideration

Leach notes that dropping prices might mean less market interest in developing and investing in new energy alternatives. However, he says that if other factors, such as increased production costs or carbon taxes, come in to play, oil prices would rise. And if there is an alternative resource that becomes more economically attractive, oil producers may have to adjust to make sure they don't hasten their own obsolescence. Leach says that, like Alwaleed, oil companies should be looking at these types of possible scenarios as they value reserves and make strategic decisions.

"From an oil company's perspective or an oil state's perspective, they're not going to sit back and price themselves out of the market. A lot of models that look at alternative energy deployment are quite dependent on this continued increase in oil price," said Leach. "If you just put that in your model, you're ignoring the story that says that, if oil is irrelevant in 30 years, then there's going to be a lot of incentive to get it out of the ground today."

No requiem for the electric car, please

Leach suppressed the notion of a worldwide conspiracy that states that oil companies are attempting to keep alternative technologies at bay. The conspiracy would have to be well-planned, he says, if it worked when an alternative technology was less than half the cost of a barrel of oil. He says even now, consumers have the ability to affect market decisions even when prices rise. Boycotting gas stations on Monday only to fill up on Tuesday carries no real message to producers and retailers, he says. However, changing long-term behaviours towards alternatives in the face of a gas hike would be a significant move—and one that would force producers and retailers to adjust behaviours and reduce profit margins.

"Right now they don't have to eat any oil-price increase because they know that whatever price gets posted on the sign, people grumble and complain and pay," says Leach. "If, in Edmonton, when gas prices went above $1.20 per litre- and suddenly 50 per cent of the market dropped out of the gasoline market, you could expect refiner margins, retail margins, everything, to go through the floor.

"The retailers would know that, 'if I increase my margin by $.10, I'm going to lose 50 per cent of my customers because they're all going to be on the LRT, on their bikes or they're going to be walking.' Even in the short term, it's going to force the producers to eat that world oil price increase."

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User comments : 19

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Arkaleus
2 / 5 (7) Aug 19, 2011
"Leach suppressed the notion of a worldwide conspiracy that states that oil companies are attempting to keep alternative technologies at bay."

What happened to the EV1?

What happened to Firefly batteries?

Who is MSM is talking about Andrea Rossi's E-Cat?

These were all "alternatives" that mysteriously aren't available even though they work fine.

The only thing Mr. Leach is "suppressing" are his own senses. To deny there is conspiracy and collusion among rich, powerful factions is asinine and delusional.

It's also asinine to fail to understand the relationships between "oil companies" and the larger financial and governmental networks they operate with. The totality of these relationships is not a conspiracy, it is the topology of reality.
ryggesogn2
2.8 / 5 (9) Aug 19, 2011
There is an open govt policy in the USA, by 'progressives' to end oil exploration, drilling, extraction and refining.
Nanobanano
2.1 / 5 (7) Aug 19, 2011
There is an open govt policy in the USA, by 'progressives' to end oil exploration, drilling, extraction and refining.


When Rossi's e-cat finally hits the market and gets through the red tape, it will cut U.S. and European oil AND Coal consumption in half within about 10 years or so. It will reduce it by more like 75% by 20 years out, when the last gasoline and diesel "clunkers" are phased out in both the private automobile industry and the trucking and shipping industries, and coal fired power plants are replaced with Ni-H reactors that will be small enough and affordable enough for individual companies to own and operate for their needs.

The price of "on grid" energy will go down by about 2 or 3 cents per kilowatt hour.

The price of "off grid" energy will down to almost nothing over the long term...

The energy value of the Nickel metal in a Nickel coin(5 cents) is worth several hundred dollars in 2011 dollars and energy costs if Rossi's device is real...
RustyMustard
4 / 5 (4) Aug 19, 2011
As far as I'm concerned, 'they' can eat their oil right now. Meanwhile I'll be eating local organic foods and running on solar and human power, just as I am right now.
Callippo
not rated yet Aug 19, 2011
sstritt
4.7 / 5 (3) Aug 19, 2011
@nano
I certainly hope you're right, but there is just something fishy about Rossi. He just ended his agreement with Defkalion 2 months before his power plant was to go online. And he has a rather questionable past. I'm just sayin'
Callippo
5 / 5 (1) Aug 19, 2011
.. but there is just something fishy about Rossi..
Rossi didn't invented the hydrogen nickel fusion process, he event wrote a single line about it. He just invested his money into it. If you want to doubt the cold fusion, you should oppose the original twenty years old publications:

http://www.lenr-c...xces.pdf

Ricochet
not rated yet Aug 20, 2011
As far as I'm concerned, 'they' can eat their oil right now. Meanwhile I'll be eating local organic foods and running on solar and human power, just as I am right now.


It's great that you can afford to live in such a way. Unfortunately, most people really cannot afford to be so selective with their energy and food sources. Walmart's prices are compelling, even though some of their sources can be questioned.

As for Rossi, are you really surprised? How many people in the world with enough money to create a power plant aren't nefarious in some way? Here in Texas, it's somewhat well-known that TXU, which is our BMPM (Big Money Power Provider) used to price their energy based on natural gas prices, which is more expensive than coal, even though they only had 1 plant that actually produced power from natural gas.
Burnerjack
not rated yet Aug 20, 2011
The atomic bomb was completely out of reach,UNTIL it was clear that Nazi Germany was close. Then an incredible effort was made and the rest is history. With wealth being drained from the country at an amazing rate, there is a clear and present danger. There can be no meaningful shift as long as systemic bribery in the form of "lobbying" is allowed. The efforts on fusion, seems to be more about extracting tax money more than meaningful results. With Solar, ever notice how every effort begins with yet another publicly funded study? Same Sun, but somehow, yet another study is necessary. Building insulation standards as well as zoning designed to make commuting obsolete could be helpful to reduce the sapping of our national wealth to the benefit of our enemies.
tommytalks77
not rated yet Aug 20, 2011
Naive, very, to think that there is no foul playing in the way it is taking so long to develope an alternative to oil.
I mean, you don't need a classic conspiracy group with shadowy meetings in secret places... No, nothing of the sort is needed. It is all done in the open, in country clubs, in royal dinners, private mega-rich parties... These people, the families behind the real oil, all know each other... They all call themselves by the first name... they all meet in social gatherings, they go top the same gentleman clubs, they call the same high-profile pimps to get some action... What would stop them from deciding on moves that would limit or entirely stop research money going to the development of alternative energy sources...
I mean, just yesterday PhysOrg had an article about a study that demonstrate how a few corporations REALLY do rule the world... While ruling the world, if they notice a new technology that will take that power from their hands do you think they'll do nothing?
jamesrm
1 / 5 (1) Aug 20, 2011
"What happened to the EV1?"
Obviously it used Grey alien technology (Greys seem to be most prevalent in Canada as 90% of alien abductions in Canada are reputedly by Greys, wikipedia.org/wiki/Grey_alien) they where just protecting their investment in tar sand extraction. :)

"What happened to Firefly batteries?"
http://www.greenc...rgy.html
On Friday, Peoria, Illinois-based Firefly Energy presented US Senator Dick Durbin (D-IL) with a mock up of an HEV cell (based on its first-generation 3D technology) for a mild-hybrid application, similar to what the company will begin to ship to the Department of Energy (DOE) this quarter for validation and testing.

Maybe you should try looking/searching for it, just a thought?

Andrea Rossi needs a way to find way to perceive the Yukonadious, another Grey race that have cloaking tech, are plainly trying to discredit his team by sabotaging his devices when being demonstrated to the public?
jamesrm
not rated yet Aug 20, 2011
"There is an open govt policy in the USA, by 'progressives' to end oil exploration, drilling, extraction and refining."

Why is it that tea party rallies only serve their tea white as white can be?
John_balls
not rated yet Aug 20, 2011
What conspiracy? Splitting the atom in 1917 no problem. Having electric cars that were created and driven over 100 years ago and now coming into fruition today appears to be quite normal.
Ricochet
not rated yet Aug 20, 2011
Same reasons you can't get insurance to pay for artificial cervical discs to replace the ones you blew out playing Hockey, but they'll more than happily set you up with a fusion operation, which will almost assuredly have you back for the adjacent discs in 10 years or so...
And yes, I'm venting...
The FDA won't accept any scientific study results conducted in any other country. It HAS to be done in this country, or they won't do crap. It has to be a 10-year study, then another year or so to publish the results. Then, you're lucky if insurance will cover it for at least another 10 years, as it'd still be considered "experimental"
hard2grep
not rated yet Aug 21, 2011
I would like to make an alternative suggestion to saving the environment. I hear methane is a good thing for returning the environment in some lethargic but intuitive way... Why not have everyone sit on a ziplock for a while, and then come together at the doorsteps of one of these oil producing sites. We can then release all the methane at once to counteract the effects that the site is introducing into the atmosphere.
rwinners
not rated yet Aug 21, 2011
Who knows what a barrel of oil will be worth in 100 years? Oil is the feedstock of many many products. The need for it won't go away.
Arkaleus
not rated yet Sep 15, 2011
@ jamesrm

The press release link you casually offered to us after chiding my research skills is from 2008, not last week. Please learn to read before correcting others.

My research into the mysterious fall of Firefly led me to a find a failed attempt to sell the firefly concept to the DoD for use in artillery and other high drain applications requiring durable and and EM-quiet power sources.

It seems the DoD didn't choose Firefly, and because of this they lost their hope of revenue. Was there no one else interested in them?

Strangely, this technology is market ready and proven to work, but could not find a place in the USA.

A similar situation can be found when you research who holds the patent on large format NiMH batteries (GM), and why you don't see any available. Even Tesla motors has to use large multi-cell battery packs, instead of the more efficient large formats held by GM.

http://en.wikiped...atteries

Ricochet
5 / 5 (1) Sep 16, 2011
A similar situation can be found when you research who holds the patent on large format NiMH batteries (GM), and why you don't see any available.


Here's a patent law reform for you... If the company that secured the patent doesn't do anything with it w/in five years, the patent is automatically revoked.
Arkaleus
not rated yet Sep 19, 2011
@ Ricochet:

I would take it a step further. It is within the authority of the president to nationalize that technology and cancel its patent. If our "president" was really serious about alternative energy, this would have already been done.

There should be no patent on the large format NiMH battery. It should be immediately released into the public domain and developed by anyone who wants to build it.

Other key technologies that allow electric vehicles to become available to that mysteriously unobtainable middle distribution should be similarly liberated from their captors.

It's not a "conspiracy theory" we're looking at here, it's a fully realized restraint of trade.