Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: que seria who wrote (6599)	2/12/2002 11:24:01 AM
From: el_gaviero	Read Replies (3) \| Respond to of 206184

Jim_P, Sharp, Seppo, Que seria (The problem with oil) Jim-p writes in response to a post of mine: “if the US had all the oil in the world …. we would have more than 538,574” This is a good point and likely correct, but doesn’t addresses my concern, my intuition (which my “counter-factual” was trying to get at), i.e., that we are headed for a trap set by geology & economics. Because more and more effort is required to get the same amount of oil out of the ground, supply will lag demand, prices will spike then fall, and the resulting volatility will inhibit investment in the oil patch. Also, I don’t see the rest of the world ever being able to do what we have done here in the USA -- make a profit on oil wells of low productivity. Out there in the world where the oil is, social, political and legal conditions are not conducive to such an intensive level of activity. In general, it seems to me that the only path that will work is continuation of the status quo --- that is: a year-in year-out 1% or so increase in production. But can we count on this increase, given the high level of consumption of oil already attained, given depletion of old fields, given that thousands of smaller fields will be needed to replace production lost from aging giants? Everybody says prices will provide an incentive (e.g.: Sharp “I just suggest you don't fall for the "no meaningful production increase" line, because we could certainly get one if the money were there”). Yes, true, IF THE MONEY WERE THERE, but will it be? I cannot envision a single scenario where oil prices rise and stay high, and yet the economy remains un-damaged, especially THIS economy. Sharp, ask yourself, why is your industry not attracting new blood? Why are the tools of your trade rusting away? Seems to me that we ought at least to turn over the possibility in our minds that something “systemic,” something “secular,” is happening. A reasonable conjecture is that we face a slowly building oil crisis. But if so -- you ask -- why isn’t the nature of the problem more obvious? Why aren’t prices higher? I don’t have an answer. But I wonder if at least part of the problem traces back to bad theory or no theory. It may be the case that energy markets do not behave like markets for other goods and services --- that energy markets have a perverse streak, such that as oil becomes scarce, demand for oil (over the course of a cycle to be sure) goes down. For a macabre analogy, think of sailors in a submarine stranded on the bottom of the ocean. As oxygen is used up, and sailors die off, the demand for oxygen falls. In other words, low prices IS the crisis. When Seppo says: “if the economic recession is longer than now thought, it will mask the inability of substantial increases in production,” I think that he is correct. We don’t understanding what is happening, so we can’t separate out what is causing what to happen. The reason for this, IMHO, is lack of theory, which leads to lack of data, which leads to an inability to provide a simple, straight-forward, consensus-building description of reality. And this takes me to Que Seria’s point about getting the Government into the act. “… but the scenario you paint may not credit the government's willingness to assure alternative fuel sources before things ever get that bad.” Because no accepted consensus exists about oil reality, the chances are zero that politicians can be pulled far enough away from their usual agendas and their usual demagoguery to do something helpful.