A scary strategic problem - no oil

[Nemo888]

Why would the global suppliers compete to sell a limited resource and make less money? The answer is simple, they wouldn’t.

If you don’t believe that I have a bridge I’d like to sell you…

There are these things called diamonds. Geologically they are a semi-precious stone but they are very expensive nonetheless. There are a limited number of suppliers that control the market (like the oil cartels).  Without actually colluding (which OPEC does do) they have decided to artificially inflate the price to make more money. Did the light turn on yet?

And your respected source used "kajillions" in his article. That’s not even a word. (So I did read it)

 

[Cpl.Banks]

Your article although interesting is evidently flawed, in several ways. First of all this article claims that "Supplies are at their highest levels in eight years, while demand appears to be falling, or at least leveling off. Should a significant price correction be in the offing, stock markets and the economy will cheer." How could that be, with the emerging markets of China and India, the population of the United-States set to reach 300 million, more and more individuals driving bigger and bigger SUV's. Not to mention the need to reach our own energy consumption needs, how do we produce our energy? through the burning of Fossil fuels (Natural gas, Coal, Oil etc...) It is evident that oil is harder to come by than in the 1970's, less and less new oil fields are being found by prospectors and most of the new oil is far deeper than before, or in much more far away regions. The end of " Easy Oil " is upon us, for example:
- The Sand Island, Azerbaijan. Twenty years ago this oil field was producing a majority of the Soviet Unions oil in that area, now they are forced to drill 2 miles beneath the surface  to claw out a meagre 4,500 barrels a day!
-Ghawar, Saudi-Arabia. In 1953 held a seventh of the known oil reserves, almost 6 million barrels of Crude a day! Now 50 years later it is forced to inject 45% water to pump out the remaining amount of oil in the reservoir.
We may be finding more and more oil but that oil is in far away regions. The amount of consumption of Fossil fuels is set to jump up much higher in the near future: By 2025 the world will use twice as much energy as it uses today, the current oil consumption in the United-States is set to jump from 80 million barrels a day to over 120 million barrels a day. This is not to mention the "emerging" economies of India and China. The question though is there enough oil to continue this amazing growth and usage doubling every generation or so?

 

[a_majoor]

Boiling the article down to the fundamental point, increasing demand raises prices, which causes the supply side of the equation to change in order to match the two sides. OPEC's constant battle is not with the United States, it is with members cheating on their "quotas" in order to sell more oil and rake in more money. High prices also change consumer behavior, hence the observation that demand is flat or decreasing (these observations apply to the United States and are probably projections for up to one year out).

Also, if you follow the entire thread, you will see myriad examples of how increasing prices of fuel drive investors and inventors to look for new ways to cash in, such as coal liquefaction, oil sand production, bio diesel and so on. Increasing demand by China and India will simply result in more alternatives being researched and coming to market. The market is a dynamic system, so changing one factor (prices or available supply) will simply result in changes to other factors (consumer demand, product substitution).

 

[GAP]

Interesting poll being talked about on CBC. People in states were polled about where their oil came from...only 4% knew that most of their oil comes from Canada.    Public perception was the middle east.

 

[Sub_Guy]

We are not running out of oil, we will run out of drinkable water before we run out of oil.

http://abcnews.go.com/2020/Stossel/story?id=1954572&page=1      Have a read, there are other good myths on the page too.

 

[Nemo888]

Boiling the article down to the fundamental point, increasing demand raises prices, which causes the supply side of the equation to change in order to match the two sides. OPEC's constant battle is not with the United States, it is with members cheating on their "quotas" in order to sell more oil and rake in more money. High prices also change consumer behavior, hence the observation that demand is flat or decreasing (these observations apply to the United States and are probably projections for up to one year out).

Also, if you follow the entire thread, you will see myriad examples of how increasing prices of fuel drive investors and inventors to look for new ways to cash in, such as coal liquefaction, oil sand production, bio diesel and so on. Increasing demand by China and India will simply result in more alternatives being researched and coming to market. The market is a dynamic system, so changing one factor (prices or available supply) will simply result in changes to other factors (consumer demand, product substitution).

Notice how even though there are competing oil companies the price of gas is the same all over town? These companies have silently agreed not to compete. You know its true every time you go to the pump. The whole "market forces" thing is a joke right?

 

[clasper]

It is evident that oil is harder to come by than in the 1970's, less and less new oil fields are being found by prospectors and most of the new oil is far deeper than before, or in much more far away regions.

Actually the price of oil in current dollars is less now than it was during the 70's.  How does that imply that oil is harder to come by?

The end of " Easy Oil " is upon us, for example:
- The Sand Island, Azerbaijan. Twenty years ago this oil field was producing a majority of the Soviet Unions oil in that area, now they are forced to drill 2 miles beneath the surface  to claw out a meagre 4,500 barrels a day!

There is truth in this statement, but defining "easy oil" is problematic.  Drilling two miles beneath the surface has been common for decades.  The deepest offshore wells are currently in the range of 6 miles.  If you want to prove that easy oil is behind us with a simple depth analogy, you'll have to prove that it is harder to drill that 6 mile well now than it was to drill a 2 mile well back in the 30's.

-Ghawar, Saudi-Arabia. In 1953 held a seventh of the known oil reserves, almost 6 million barrels of Crude a day! Now 50 years later it is forced to inject 45% water to pump out the remaining amount of oil in the reservoir.

Water injection is a sign of disaster?  Do you know anything about the oil industry?  (Here's a hint: look at production levels in Saudi Arabia since 1953, and you'll see that the end isn't quite nigh yet.)

We may be finding more and more oil but that oil is in far away regions. The amount of consumption of Fossil fuels is set to jump up much higher in the near future: By 2025 the world will use twice as much energy as it uses today,

Worldwide oil production was half of its current levels in the late 60's.  Why will the next doubling take 20 years instead of the 35-40 which the last doubling took?

the current oil consumption in the United-States is set to jump from 80 million barrels a day to over 120 million barrels a day. This is not to mention the "emerging" economies of India and China. The question though is there enough oil to continue this amazing growth and usage doubling every generation or so?

Worldwide oil consumption is currently in the 80 million bbl/day range, US consumption is only about 20 million bbl/day.  If you're going to spew alarmist drivel, at least get the easily-googled facts straight.

 

[a_majoor]

Notice how even though there are competing oil companies the price of gas is the same all over town? These companies have silently agreed not to compete. You know its true every time you go to the pump. The whole "market forces" thing is a joke right?

I can drive around London and get a spread of about 4-6 cents a litre depending on when I do this (the biggest spread is usually near the end of the day). Since there are only four gasoline refineries in all of Ontario, this does restrict the amount of competition available (if we had more refineries, I would expect larger price spreads). The prices of most resources including oil have dropped in inflation adjusted dollars since the 1970's, mostly due to market forces increasing supplies or forcing substitutions of cheaper alternative resources. We are seeing the same things in the oil market, and indeed it is fairly easy to make analogies with previous "energy crisis" periods like the whale oil shortage of the late 1800's (which inaugurated the age of petroleum as an inexpensive substitute), or the wood shortage in Elizabethan England which kicked off the age of coal as Britan's inexpensive substitute.


Given your knowledge of basic economics, I would suggest the only joke was on the part of your educators, who have left you woefully unprepared for understanding how things work.

 

[Nemo888]

You mean the the 1970's price artificially inflated by OPEC? Maybe I should get you some crayons.

 

[muskrat89]

OK, enough of the personal jabs. Keep it on track, everyone.

 

[Koenigsegg]

I know not all gas stations do this of course, but Nemo is correct in some places.  In Barrie and such, the companies come to an agreement on what to charge, at least some of them do...
Petro Can, and Esso love doing this in Barrie.  However it is illegal...

If you look across the pond at western Europe, we aren't bad off...They are getting absolutely gouged, but they have several reasons behind the prices that they make public.  We tend not to get straight answers...Unless I am listening to the wrong news.

They have been saying we ony have 35 years of oil left for like 50 years.  I am not worried about running out of oil, as we have probably have a lot left.  I am worried about us killing the planet slowly with burning it.

**Typed this before Muskrat posted his statment...And I forget what track the conversation was on before we got off track, so I will post this, and if need be, you can skip it**

 

[Sub_Guy]

We own the oil though.  So we shouldn't compare ourselves to Europe where they have to import their oil...  We shouldn't be paying these high prices, we should take care of our own needs first (which isn't much) then sell surplus oil on the world market, at market prices.

We have more oil reserves than most OPEC nations, so why does the media feel the need to focus on OPEC all the time, when in Canada we don't need to import oil.

At point in time it was cheaper to import oil than it was to pump it out of the sands.  Now times have changed, we don't need to import at all, but yet we continue to do so.  Why? 

 

[George Wallace]

Did you know that Irving imports most of its' crude from South America?  Venezuela is one of our major suppliers.

 

[a_majoor]

Re: petroleum imports and market prices:

Oil is a fungible commodity (i.e. oil from one place is more or less just like oil from somewhere else), so people will buy it from where they can get the best price, and producers will sell it where THEY get the best price. Sometimes the two don't quite match up, like the example of Irving buying from Venezuela, since it was somewhat cheaper to import oil by tanker than pipe it in from Western Canada. I expect the situation is changed a bit with the growth of East Coast oil drilling, but the principle remains the same.

As for why we pay world prices, let me put you in the place of the owner of a coffee shop. You are told you should sell your coffee to local residents for (say) .75 a cup, and can charge $1.25 to out of towners. On the other hand, the Timmies just down the road on the other side of the town line sells coffee to everyone for $1.25. What incentive do you have to keep selling coffee for .75  when you have to pay the same "input" costs for each cup you make, and don't make as much profit? There are several possible outcomes, such as you move your store out of town, you refuse to sell coffee to locals, you get city hall to subsidize you for each cup you sell locally and so on, most of which don't benefit the consumer in any way at all. Suggesting producers sell Canadian oil at sub world prices in Canada would either result in oil being sold outside Canada to the highest bidder, or producers closing shop and reducing production (until the suppressed price was bid up to world prices), or a black market developing which benefits the criminal elements but few others.

Short answer, the Invisible Hand will wrestle you to the ground every time you try to mess with market forces.

 

[Sub_Guy]

I agree with all of that.  Here is my question to you then.

Why is gasoline so much more cheaper in nations with vast oil reserves?  (its not our taxes)

In a few Latin America and Middle-East nations, such as Venezuela and Saudi Arabia, oil is produced by a government-owned company and local gasoline prices are kept low as a benefit to the nation's citizens.

OPEC controls the oil the market, much like Debeers controls the Diamond market. 

 

[Nemo888]

Why is gasoline so much more cheaper in nations with vast oil reserves?  (its not our taxes)

Because governments threaten them. Technically oil is a National Resource, like water, trees or air so they can't have total ownership of it
http://www.recordnet.com/apps/pbcs.dll/article?AID=/20060625/NEWS01/606250358/1001

But they are still making record profits.
"Oil industry awash in record levels of cash
But a smaller portion of profits is going to find new oil discoveries"
http://www.msnbc.msn.com/id/8646744/

 

[clasper]

In a few Latin America and Middle-East nations, such as Venezuela and Saudi Arabia, oil is produced by a government-owned company and local gasoline prices are kept low as a benefit to the nation's citizens.

And since most of those companies are owned by the sultan's brother instead of shareholders, they are run inefficiently, and tend to waste their resources (ie oil reserves).  BP, Shell, and Chevron do a much better job of managing their reservoirs and getting the most out of their production compared to Saudi Aramco, Sonatrach, and PDVSA.  Citizens who are well fed generally don't ask for that extra percentile of efficiency, but shareholders are a pretty ruthless bunch- they'll pull their money out and put it behind someone who's doing the job better.

The fact that these national oil companies sell gas at a price that their impoverished citizens can afford isn't necessarily virtuous.  Take a look at Nigeria to see what happens when many people in an oil-rich country can't afford gasoline.

 

[DBA]

Read up on Trudeau's National Energy Program. Played out pretty much the way a_majoor suggests it would today. It pissed off oil producing provinces and they cut development and exports to the rest of Canada. When world prices lowered and Mulroney came to power it was axed. Wikipedia link (mindful that it's not allways accurate or complete) National Energy Program

 

[54/102 CEF]

A scary strategic problem to ponder.  
But don't believe me.   Look into it yourself.  

(edited to correct sentence error)

I did

Oil is coming down - here we are mid wya through summer and WOW! It`s hardly above the buck it ws last summer

More here http://author.nationalreview.com/latest/?q=MjE0OA==

 

[a_majoor]

Another reality check for everyone. This .pdf document outlines the various alternative energy sources and quantifies them in easy to understand ways. The crack about photovoltaic being like converting dollars to pesos on a one to one basis is far too true: I worked on a business plan for quite some time and never came up with any viable solution. The Laws of Physics are rigorously enforced, and not even an appeal to the Supreme Court of Canada is going to allow you to evade them.......

http://www.tinaja.com/glib/energfun.pdf