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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: elmatador who wrote (165994)	3/21/2012 7:26:14 PM
From: Bearcatbob	1 Recommendation Read Replies (1) of 206176

Elmat, Let us look at the issue of energy price and supply as a classical engineering problem where the analysis is done on the basis of a control volume that for our purposes will be the USA. edforall.net To analyze the problem for the control volume an material/energy balance where In - Out = Accumulation. The inputs to the control volume are the supplies from various parts of the world and domestic production. Outputs would be the supply of fuel for commercial use. Accumulation would be the build up of supplies within the Control Volume or the decrease of supplies due to liquidation of storage. On this basis we need to look at what factors impact each of the three components of the equation. The amount of output is determined by the demand. Demand can be impacted by cost, by the level of economic activity (eg recession or growth) and substitution - eg electric or natural gas, and efficiency of use. Inputs are determined by where we can get it. The fact that ANWR is not online is a significant missing input. The decrease in GOM production is another missing input. However, currently there is no lack of supply in world as long as we are willing to pay the price. Accumulation is a very interesting aspect of the problem. Accumulation can be in things like the SPR. Accumulation can be increase storage at Cushing. Accumulation can be oil in storage because people rather own the oil asset than cash (reference Profiles comments) or simply fear a supply interruption would damage their business. The last thing we need in the short term is policies that encourage accumulation for whatever reason. If markets are allowed to work the above equation will work to solve the problem. If markets are not allowed to work the equation will hold - but the components would be manipulated. In the short term there is little we can do for supply sources - hence there is no immediate supply silver bullet -but there is much that we can do long term. For instance 10 years ago we were told it would take 10 years to get oil to market from ANWR. At all times the above equation is working. The system is large so the time constant Tau of the system is large - it takes a lot of time to change. A true "all of the above" solution would work to decrease demand (out), increase supply (in) and provide confidence that accumulation is not needed. I submit that the problem is multi variable and that the best way to protect North American consumers from rising fossil fuel prices is to work on all aspects of the problem. IMO markets allowed to work will solve the problem. Good or bad policies (reference nostarch) only impact how the equation is balanced. I have no doubt that markets allowed to work coupled with constructive policies will handle the problem quite well. The reader can judge how well the equation is being solved today. Bob

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