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Last week I gave a lecture in Paris at the Université de Paris (Dauphine), in which I did my usual best to explain to a group of energy economics students that OPEC had now taken command of the oil price.
Fortunately, the director of that establishment, Professor Jean-Marie Chevalier, had no problem with my contention, because as almost everyone now understands, when the present macroeconomic malaise blows over, OPEC will likely make a move to increase its already impressive income by a few more dollars a day, since the OPEC "hawks" are apparently dissatisfied with the present price.
According to OPEC's October report, world oil production reached 85.8 mb/d during the third quarter of this year, of which OPEC's share (in September) was 33.7 percent. Working with an average price of 77 dollars per barrel (= $77/b), OPEC's (gross) revenues came to a cool 2.226 billion dollars a day.
I can remember when anyone even thinking that OPEC would someday be involved with that kind of money would keep his thoughts to himself. But now, of course, the sky is the limit. Chinese demand continues to move upward, and according to McGraw-Hill's information arm, the Chinese demand reached 8.45 mb/d in April (of this year), which was almost 13 percent above the demand of that country a year earlier.
What will happen to price if this kind of demand growth continues is difficult to say, although according to my way of viewing the issue, it won't be anything nice for those of us on the buy side of the global oil market. The next oil price escalation is going to begin at $75-85/b, which is an event that it would wonderful to avoid.
Everyone doesn't believe however that the situation is as serious as I like to claim. For example, Sandrine Torstad, who is in charge of analysis for (Norway*s) Statoil, believes that the present large inventories of oil will have to be decreased before the price goes on a rampage. I put my usual diagram and mathematics on the whiteboard at Dauphine to explain why normally this was good reasoning, but I made it clear that I am no longer certain that my logic makes as much sense today as it did earlier. OPEC's position has simply become too strong.
At the end of 2008, with the oil price going into the can, OPEC began a production-decrease program of 4.22 mb/d that resulted in certain highly paid oil experts once again seeing their predictions turn sour. What happened was that the oil price began a climb that -- on the basis of what was happening in the world macroeconomy and financial markets -- should not have taken place. That climb culminated with the oil price at about $70/b, and the last time I looked it was over $80/b.
The Secretary-General of OPEC, Abdallah Salem El Badri, recently said that "the emergence of oil as a financial asset, traded through a diversity of instruments in futures exchanges and over-the-counter markets, may have helped fuel excessive speculation to drive price movements and stir up volatility"(2010). I had been lecturing in Paris for almost two hours when I got around to that subject, and had a slight problem remembering what I had spelled out in detail in the long paper on which this note is based, but even so I had enough steam left to insist that unlike the U.S. Rangers, the oil futures markets follow rather than 'lead the way'.
At the same time I made it clear to those young students that if I were in the place of Mr El Badri, I would have said exactly the same thing. After all, that gentleman does not work for the governments of North America, nor the careerists directing the European Union, nor the Association of Good Housekeepers that I used to occasionally hear about when I was a boy in the United States. If the television audiences want to believe that OPEC countries prefer less money to the long green now pouring in, and therefore -- as the Secretary-General claimed -- will join the oil importing countries in keeping the oil price from 'breaking' $150/b again, then as far as I am concerned, they deserve what they will get.
Banks, Ferdinand E. (2010). Oil and Economic Theory: Some Chronological and Mathematical Aspects. The Swedish Journal of Economics (Forthcoming).
Höök, Mikael (2010). Coal and Oil: the Dark Monarchs of Global Energy. Uppsala: Universitetstryckeriet.
Sarkis, N. (2003). 'Les previsions et les fictions'. Medenergie (No. 5).
Smith, Pamela Ann (2010). 'Will oil break the $150 barrer barrier? The Middle East (August/September)
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
Excellent. I particularly noted your "OPEC's position has simply become too strong." as being exactly on point. As long as OPEC countries can afford to curtail production for the time it takes to bring prices up, they are sitting in the catbird seat. I think that condition prevails now, since the much higher "low" price they are getting now before such curtailment is sufficient to satisfy whomever needs to be satisfied.
I wonder if the following reasoning had anything to do with the Bush project to "export democracy". eg. so long as only a small group of oligarchs participated in the proceeds of oil sales, they could afford to curtail production long enough to shorten supplies sufficiently to raise prices. However, with democracy, popular voting for controlling leaderships etc., and broader participation in revenues via vote-getting social programs etc., an OPEC country would have much greater difficulty curtailing production sufficiently to seriously increase prices.... ?
Ferdinand E. Banks 11.11.10
Right on, Len. Great observation. I made a note to put it somewhere in my new book.
The exportation of democracy sounds to me like the kind of reasoning that goes along with Mr Cheney. He probably had more brainpower than everybody else at the table on those famous early morning get-togethers. If he had used that brainpower constructively, things might be OK in this old world of ours. And not just Chaney. As far as I am concerned we are in trouble because of Mister Clinton. He had the intelligence AND the position to make our world a better place, but his thoughts were apparently elsewhere.
Len Gould 11.11.10
Your observations on Clinton noted, but I really wonder if the position has much power anymore. It appears not, based on the difficulties Mr Obama is having trying to be constructive without the sidline distractions.
Ferdinand E. Banks 11.11.10
Len. after the 60 Minutes team visited Iraq and did a reportage on the situation with hospitals and medicine in that country, all Clinton had to do was to have a talk with his wife, and come to the conclusion that the US would see to it that children and elderly people obtained the care and medicine they needed in Iraqi hospitals. Cost - a few billion a month maybe.
One argument against this might have been that some of this care and medicine would have gone to Saddam's army. SO WHAT?
And if he didn't want to do that during his first term, he certainly could have done it during the second. Let me ask the following: why would a man that intelligent turn off his brain when faced with such a simple problem?
Jack Ellis 11.11.10
Mark my words. When the price of oil skyrockets and auto manufacturers finally start giving us the multi-fuel vehicles some have mentioned in this forum, the next resource scarcity is going to be drinking water. Gas producers with more bombast than brains will assure us that shale gas can be produced without any health impacts and whtout contaminating the key aquifers that lie atop several important formation. Next thing you know, we'll be choosing between keeping freezing to death or poising ourselves to death.
Exxon and Chevron have started airing ads for their biofuels research. I wish they would stop messing around and get something into production (I know, wishful thinking).
Richard Vesel 11.13.10
Hi Fred ... With the same end result, my own thinking about OPEC is that they are fortunate enough to be "at the right place, at the right time", and are now smart enough to recognize it. The only issue they have to continuously manage is the urge to "kill the goose that lays the golden eggs". They do indeed have command of the situation, at this time. It DID take them 30+ years to figure out how to take advantage of their position.
Politically, will the rest of the world now try to pluck the feathers off that goose, or perhaps steal a little of its DNA, and create alternative golden geese? Then the OPEC (black) gold won't hold as much worth. Maybe it will be China and India who have to suffer the worst of the $200+/bbl oil costs that may hit before 2020?
In terms of "real dollars", $200 per barrel now is equivalent in financial impact to $35 per bbl in 1973 - most everything else has gone up by a factor of 6x as well. My cost as a commuter to go to a major midwestern private university in those days was $3000 per year, for tuition and books. Now it would be 6-8x that much. Same for home prices... So the "oil shock" of $150/bbl that toppled the recent financial house of cards wasn't even as severe as the 1973 event.
Regarding speculation: please review the price of silver and what it did when the two guys (Hunt brothers) tried to "corner the market" in the 1970's, ending with the price of silver spiking $11 --> $50 per ounce, and then collapsing in a matter of two months. Speculation LEADS price, IF the market conditions permit (i.e. demand exceeds current AND projected supply). I maintain that the ONLY way to prevent such speculation is for a central authority to amass a counterbalancing strategic supply, large enough to prick any speculator's plans to blow a bubble. The US has the ability to do so, at a cost FAR lower than would be required to mitigate the damage from another oil shock. About two hundred billion for the prevention, vs. trillions for the "cure"...
I just hope that the current Washington Deficit Reduction Task Force does not recommend selling off the contents of the Strategic Oil Reserve as a way to raise cash. That would be the absolute dumbest thing imaginable, in the context of the current environment...but perhaps an announcement that they would CONSIDER doing it if the price gets high enough ($90/bbl+), will help to dampen any current efforts to speculate (or manipulate supply at OPEC). A nice little tightrope to walk...
Biofuels: If we turned 10% of all the organic matter each of us creates as waste each day, into liquid biofuel, that would be absolutely huge. Each day, as an average collectively, I estimate we generate AT LEAST 6+ lbs. per man woman and child of organic waste (paper products, food scraps, "sewage", yard waste, agricultural and industrial waste related to our consumption of food and products, etc.) The majority of this ends up in some kind of central collection and/or treatment facilities, but it is not converted into anything useful (generally speaking - there are a few Waste-to-Energy plants operating around the country, but they are a pimple on this elephant of an issue).
The numbers: 6 lbs per person, times 310,000,000 of us in the US alone, times ten percent conversion, divided by 260lbs per barrel of product (I'm using gasoline for the nominal density), yields 715,000 BARRELS of biofuel per day. Total transportation fuel consumption per day in the US is under 14 million bpd, so this is a 5% contribution. Significant! Organic waste has a high moisture content, so ultimately, we could convert only 30-40% to final product, but even so, that could mean 20% of our transportation fuel needs would be met, in a carbon-neutral fashion too. (Even better than carbon neutral, because currently a lot of waste generates methane that leaches into the atmosphere and is 20x worse than CO2 as far as its GHG effect.)
This is only from one "stream" of production - waste. Intentional production/conversion of grasses, corn, algae, etc. can double, triple, quadruple the size of the stream, depending on the intelligence and efficiency of the approach. (I believe corn is a BAD approach, by the way - being far too energy intensive on the production side...).
Regards to all, RW Vesel
Ferdinand E. Banks 11.14.10
Interesting Richard, but this thing about the oil price worries me. You see, I am convinced that the oil price rise in 2008 was a big cause of the macro-meltdown. More thinking needs to be done on this however.
As for the rest of it, I think that it is possible to be sort of optimistic. Eventually what can be done will be done. We have some bad luck of the usual kind now (in the US) in the form of an energy secretary who should be in some storefront university, but maybe that will change. As a Democrat I dont think much of our president either, but eventually someone will come along who can add and subtract, and then maybe...just maybe....
Len Gould 11.15.10
Was just reading the biography of Alfred Loomis, himself mainly notable for having pulled all his (and several friend's) huge assets out of the stock markets about 2 months before the 1929 crash, (perhaps initiating it?) and being among only a very few Wall St. bankers whose ethics exceeded his greed. The book, however, gives a good picture of the inside life of a banker before, during and after the crash, including the many moves negotiated / made by the governments of the time (he was Stimson's brother-in-law and business partner) to save the banking industry from failure.
Surprising how similar that time was to present and recent past. Many Republicans publicly declaring "Let them fail" (while privately lobbying for support) and Democrats eventually taking the steps which saved the banks, though it's not clear to me that many beyond the clique in Tuxedo Park would have suffered any more if the banks had failed.
Jim Beyer 11.15.10
"You see, I am convinced that the oil price rise in 2008 was a big cause of the macro-meltdown. More thinking needs to be done on this however."
I tend to agree with this. Some could argue the credit default swap business as well, but I think that may have been more of a symptom than a cause.
Jack and Richard,
I think you both underestimate how devastating an oil price rise could be (and is) for our economy. Especially a prolonged one. The ready use of biofuels is limited. That's because it takes so much energy to haul the feedstocks to where ever you are processing them. So that means no wonderful economies of scale for biofuel - lots of little plants.
OTOH, there is at least potential savings in oil use by our transportation sector. It uses about 2/3rds of the oil and could (in theory) be made much more efficient. If only by electrifying more of it and thus displacing oil with coal. (Global warming be damned, at this point.) The trick is getting the consumer to realize that swallowing this bitter pill is less problematic in the long run than living like Mad Max in "The Road Warrior".
Dr. Daniel Meneley 11.16.10
Dan Meneley We're burning about 1000 barrels of oil each second, every day of the year. Don't you think, as does the IEA, that we should "leave oil before it leaves us"?
Try nuclear fission. This technology has enough fuel to supply 100% of the world's energy for thousands of years. Via synthetic fuels production, it can drastically reduce our oil consumption and thereby weaken OPEC's presently strong hand. And guess what? The US can do it all alone, if we so wish.
Peter Boisen 11.16.10
How to maximize your profits if you are the owner of a fully integrated oil company with long term crude oil supply contacts, own crude oil production assets, long term charters of crude oil carriers, refineries, product tankers, seaboard product terminals, inland teminals, rail and road tankers, and product distribution outlets? A sufficient product demand is guaranteed, at least in a 15-20 year perspective, later possibly more shaky as a consequence of the introduction of other fuel/energy options which gradually become more competetive when crude oil prices climb.
1. I would sell off my whole product distribution system, and the refineries, move my head office to a tax haven, continue to buy or produce crude oil, and then sell the crude at whatever price the refiners are prepared to pay. Why bother with the downstream side? The big profits are upstream, and I would milk that cow as long as possible.
2. Taking a longer view I would try to see what mid term fuel alternatives are likely to be succesful. LNG/LBG for ships and heavy duty vehicles, and CNG/CBG for light duty vehicles, are realistic alternatives, but distribution infrastructure developments are costly. The automakers might also be somewhat reluctant as a quick expansion of their product programs would mean lots of money for product development, and also substantial investments in the assembly plants. Still, hedging my bets, I might spend a certain portion of my profits to build a dominant future position in the retailing of these methane alternatives.
3. Future biorefineries processing a mixture of crude oil, natural gas, and biomass derivatives is another future alternative which probably is the best way to secure long term access to jetfuel and chemical industry feedstock. Projects of this nature would sit well with the politicians and thus not be very risky, but the investments are big. Maybe clever to wait and see, and learn from mistakes made by others?
4. Various electric or hybrid vehicle concepts, including use of fuel cell technology, may work for urban vehicles, but are not likely to be a near term favoured choice for other vehicles. In principle all of these alternatives strive to replace fossil or renewable fuels with use of renewable electric power or energy carriers. This is far from from my core activities, and there are already many existing heavy actors in the power industry.
5. Summing up, and determined to stay focussed on fuels (my area of competence) rather than electric power, I would plan to establish a leading role concerning supply of NG/biomethane to retail distribution networks. I would also use some of my huge profits to try and secure control over a larger share of worldwide NG/biomethane production output. I would also carefully follow developments on the biorefinery front and be prepared to step in at the right moment.
6. Risks which I have to consider are a more critical view on fuels or feedstock produced from crops, and substantially raised taxation of fuels produced from fossil resources. Diverting some of my profits into NG/biomethane, however, seems fairly safe - NG has lower CO2 emissions than any other hydrocarbon fuel. Concerning biomethane my main focus should be on getting control over all kinds of organic waste and residues, rather than biomass produced via heavily criticized agricultural monocultures.
Don Hirschberg 11.16.10
As I have frequently said, the oil problem is merely one of the many dilemmas which are mere corrolaries to the mother problem: Too many people.
The rub of course is that how do we reduce propulsion when we cannot even stop the it’s growth amounting currently to almost 0.1 billion per year. (Total world population of only about a thousand years ago was only 0.3 billion.)
Population is a taboo. Nearly all you rational people out there are not rational about population. It seems to be hard- wired in us to go forth and be fruitful and multiple. Population will decrease one way or another. The question is do we wait for billions to starve, die in epidemics vastly worse than anything in history, a nuclear holocaust (mere conventional weapons wars cannot begin to get the job done, WWII didn’t even make a blip)
We should be thinking about the least horrible way to get rid of perhaps 5? billion people.
As bad as it is, having about 25,000 children die of diarrhea today and EVERY DAY doesn’t come close to population stabilization. (It would only take a few drops of laundry bleach.) But do we really want these children to survive?
I only recently became aware of the phosphorous problem. (On bags of fertilizer there are three numbers, % Nitrogen, phosphorous and potasium) It is the nature of food crops to require fertilizer. It seems that we are facing “Peak Phosphorous.” If food supply decreases are imminently due to shortages of Phosphorous perhaps the decrease in world population will occur before we have vastly more than 7 billion. Better it happen to 7 billion than 10? billion.
Ferdinand E. Banks 11.17.10
Dr Meneley, I'm with you on the nuclear. I just want more though, and not a reactor on every street corner. About leaving oil before it leaves us, I saw that program on TV a few nights ago. My answer to that was WHY HIM AND NOT ME, because when I was in a conference with him some years ago, I didn't hear him say anything that made sense, and he thought that the price of oil was going to take the long drop-
Don seems to want a little genocide. I'm not in favor. If they made me dictator of Sweden today I would start planning tonight for the kind of country Sweden should have in 2050, when there are 9 billion candidates in this old world of ours for lives of bourgeois comfort. Schoolchildren would learn how to be carpenters, farmers, mechanics, nurses etc. Repairmen and women would be a dime a dozen. The key words would be electricity and biological resources. Immigration would not be encouraged, and there would be compulsory military service. Tennis and music lessons would be free of charge again. etc, etc. And listen, we're running out of time.
Len Gould 11.17.10
Well, we've already stood by and watched >1,000 people die of very easily treatable and preventable cholera in Haiti last week (treatment amounts simply to re-hydration with clean saline I.V.) .... Is that your strategy Don, let them die?
Should we treat the easily cured or educate all and bring them up to a standard of living by sustainable means where they no longer will want more than one or two children? I prefer both, but many prefer neither, a position which is bordering on some nasty words.
Len Gould 11.17.10
BTW, curing of cholera amounts simply to providing clean drinking water, eg. a rudimentary water treatment facility and some distribution means.
Christopher Noble 11.17.10
Saudi Arabia has much of the world's remaining oil, and money in the bank. Our demand is essentially inelastic. The only "rational" economic move would be to cut back on production. The price would skyrocket. The only reason they don't do it is political pressure from the West.
Prof. Banks is trying to look at a political situation through an economic lens.
Bob Amorosi 11.17.10
Prof. Banks knows however that the economics of oil prices DRIVES the political situation. Political pressure from the West is merely an extension of the well-known economic pressures that skyrocketing oil prices would result in, in the West especially.
A nice Ph.D. thesis project perhaps for one of Prof. Banks' students might be modeling the economics of oil prices that INCLUDES factors that account for political pressures on OPEC countries. Such modeling would not be trivial by a long shot in my humble opinion because it would attempt to predict sometimes irrational forces that manifest themselves in politicians' behaviors i.e. political pressures.
Christopher Noble 11.17.10
no argument, except for your commingling of "irrational" and "can't be modeled by economists".
Jack Ellis 11.17.10
I understand exactly how devastating it would be, in spite of the fact that I'm an engineer and did sleep through most of the one economics course I took in college. We need alternatives, but it seems to me that putting our eggs in any one basket is asking for more trouble. Coal is cheap only because supply, production capacity and transportation capacity exceed demand. If we start building coal plants like crazy, the price of coal is going to rise, and probably quite quickly. There are limitations on production and more importantly, there are probably severe limitations on the transportation network that cannot be quickly or easily surmounted.
I'd advocate for a little more balanced approach that might include some coal plants, while making sure no one technology becomes dominant. That becomes a prescription for cartel-like behavior of another kind and it introduces volatility that should be avoidable.
Bob Amorosi 11.17.10
"I'd advocate for a little more balanced approach that might include some coal plants, while making sure no one technology becomes dominant."
Very thoughtful comment Jack. This is precisely one of the big reasons politicians are pushing much more renewable sources onto the electricity system. This is happening with their FULL KNOWLEDGE that renewable sources are much more expensive than traditional generation sources, because they hate the prospect of putting all the electricity generation eggs into one big cheap basket, a.k.a. many more big nuclear stations.
Too bad us average rate payers will suffer paying for much more renewables. It seems they believe higher rates from much more renewables is somehow considerably more tolerable by the public than the perceived gouging by nuclear for massive up-front construction costs of new large nuclear plants.
Don Hirschberg 11.17.10
The only two comments about my post were negative. “Genocide”, and “Let them die” I find it hard to believe either of these respondents read my post.
Let’s review some very recent history.
For the first third of my life I don’t think I once heard anyone comment favorably about elective abortion. The notion that the medical profession would perform abortions as elective surgery would have been considered outlandish. Murder. Nazism. The demand then was small, and back- alley abortions were both illegal and dangerous. What is the worst thing that can happen to an individual? For believers: Going to Hell. Not so long ago nearly all Christians believed abortion was a mortal sin. It was automatic excommunication for Roman Catholics – automatic, even without the Church knowing. Contraception is still a RC sin. Even old people who lived through it refuse to remember. They also refuse to remember that you had to leave Massachusetts to legally buy a rubber. But politicians such as three generations of Kennedys continued to get Communion and the Catholic vote. Didn’t anyone notice what fools their pet Bishops were?
Thank goodness we have legal abortion, and the pill. We need them, but even so the results are poorer than when we depended largely on responsible behavior. Responsible behavior, sounds like lose of rights to many I suppose. Are not promiscuity and free abortions civil rights? It is a mighty fine legal distinction between killing inches from emerging and emergent. A legal minuet, how readily we can accept sophistry when it suits us. Is this what was meant by the comments “Genocide”, Let them die?”
Have you ever heard the Chinese praised for their One-child policy? But plenty of so-righteous excoriation.(Unfortunately China has backed off in resent years.) If other countries had followed suit (not remotely possible) we might have but half of our present world population.
Picture a preemie with all kinds of problems who just might possibly be saved with 24 hour teams and hundreds of thousands, maybe a million dollars. Down the hall a perfect baby is being aborted.
As a footnote: Back about 1900 illegitimate American births were very low among both whites and Blacks – something like 3%, if memory serves. Today, while white rates are nothing to brag about, the Black rate has risen to an astounding 70%. To those who say we need better schools - how good were the schools in 1900? In the main, very good. The strongest determinate as to whether a male ends up in prison is whether he had a home with a father, good bad or indifferent. Today 25% of young Black males are in prison, on parole, probation or under some kind of court supervision. One in four!! And these are only those who have been caught and convicted. How come I never knew one person who went to prison? (Maybe a couple who shoulda.)
There are more humans in abject poverty today than ever before - before we had much knowledge, before schools and sanitation and medicine, or fossil fuels. Sustainability with 7 billion and unable to even stop increasing? No, I believe in arithmetic, not miracles.
Ferdinand E. Banks 11.18.10
Don, I have seen bad schools turned into good schools in a heartbeat. The school that my son attended in Sydney (Australia) was one of those. Fortunately a segregation by sex was not necessary - it was already all male - and so it was a simple matter for the teachers to shout at and threat the darling boys in their charge. Those young lads soon got the message
The best thing that Mr Obama could do for our country is to forget about joy riding in Air Force One, and make a commitment to turn American schools into the best in the world. Anybody with any high flown ideas about 'freedom' would be shown the door. While he's at it he can fire some of Dr Chu's chorous line over at the energy department, and Dr Chu could be put on notice.
As for population, an American arranged a conference in Hong Kong that I attended maybe 15-20 years ago. During a break he told me that the conference was nonsense because the big problem for the subject being discussed was population. I immediately made it my business to forget that contention, because the population thing is just...too much for dumb guys like me to handle. I am glad though to see that Professors Milton Friedman and Julian Simon are openly being called fools for their views on this subject.
Bob Amorosi 11.18.10
One of the biggest messages I have been personally writing on this website many times is about the INTOLERANCE of the public, and the general economy, to drastic electricity rate increases.
THE VERY SAME CAN BE SAID FOR OIL PRICES.
Would readers like some proof? Here in Ontario Canada all 5 million electric utility customers in the province have had smart meters imposed on them by our provincial government, and now Time-Of-Use billing since earlier this year. In their wisdom regulators have set off-peak billing rates to be almost on par with the flat rates we enjoyed prior to TOU billing. As such the mid-peak rate is considerably higher, and on-peak rate almost double the off-peak rate. This apparently was done in part to help to pay for all the “clean” and “green” energy sources rolling out i.e. the huge number of renewables coming on line in the province.
Combine the TOU billing with a notably hotter summer this year in Ontario, where AC's were running much more than previous years, plus the planners’ oversight that the majority of customers cannot easily load shift the bulk of their electricity consumption to off-peak hours, and guess what guys, virtually every utility customer has been experiencing much higher electric bills. Many have seen their bills skyrocket by as much as 50% - far too much to stomach.
Public anger and backlash has been growing steadily towards our provincial government lately over this. To ward off the backlash, just today the Ontario government is officially announcing a "clean energy benefit rebate" of 10% off all customers' electric bills, to last for 5 years to help us cope with TOU billing, and cope with their admitted steadily rising rates to come. This rebate alone will cost the Ontario government billions of dollars added to their deficit over the next 5 years, but hey, a provincial election looms next year so what better time to dole out handouts.
I wonder – would the billions of dollars the rebate will ost the provincial budget might have been better spent on building one new large central nuclear plant?
One thing the higher rates are promoting however is much more efficiency and conservation awareness with consumers. LED Christmas lighting is selling like hotcakes this year in Ontario for example, in spite of them being considerably more expensive to buy than older incandescent lighting.
Merry Christmas everyone, albeit a bit early.
Len Gould 11.18.10
Don: Just to return to the population issue a bit (sorry people, but I agree with Don that it is the most important issue our world faces. Resolving any energy crisis etc. won't help if population growth is not dealt with.)
Your statements would carry a lot more credibility if you limited them to those which have been proven true, and which follow logically from truths.
1) How much is your identification of "black unwed mothers" actually applicable to "poor unwed mothers"?
2) Among (black people / poor people), how much of the "no father present children" issue is a direct result of economic pressures, eg. the mother's best means of support is government subsidies for which she can only qualify if she remains unwed and not co-habiting? Presuming this to be the case, there are some obvious conclusions a) Improve opportunities for black men so they can compete. b) eliminate the "unwed" criterion for support, and continue to provide support whether or not a father is present. c) several others.
3),,,, 4),,,,, 5), etc. etc.
Of course these foolish counter-productive incentives are forced onto the system by a huge "family values" vote which is basically whipped up by uneducated preachers who very often are knowingly implementing the "low tax" agenda of the wealthy. It's a very easy means to get people to vote against their own interests, a very widespread phenomenon.
Bob Amorosi 11.18.10
Lastly, reports coming out today include studies prepared for Canada's manufacturers and exporters that say Ontario's electricity rates are predicted to increase from 38 to 47 percent over the next 5 years, in part to pay for the renewables rolling out.
To further add to the rate misery, Hydro One, Ontario's largest utility company that owns all our long-distance transmission lines, claims they will need "billions" more to renew and upgrade the province's aging transmission system. I’ll bet many US states are facing a similar sobering state of affairs with their electricity grids.
In essence the Ontario government's new clean energy rebate of 10% they’re announcing today won't cover the rate increases looming over the next 5 years.
What about oil prices? Gasoline prices in Ontario have been edging slowly higher in recent months in response to steady run-up in oil prices lately. Gasoline prices have now reached roughly 80% of their painfully high peak in July of 2008, when the economy then crashed into the "Great Recession".
Another message from me many times on this website - save your pennies guys - we're going to need them.
Happy New Year everyone too.
Bob Amorosi 11.18.10
If only we had something like an IMEUC market system as proposed by Len Gould a long time ago on this website, I'll bet many Ontario rate payers , particularly the computer savvy types, would now JUMP ON IT, to shop around for the lowest electricity rates.
Sadly, IMEUC or anything like it is simply not an option for anyone.
I suspect it is not going to be such a Happy New Year for many of us in spite of my good wishes. Perhaps we should all have a drink instead and pray for the general economy.
Ferdinand E. Banks 11.18.10
Bob, I studied engineering like you, and was a very successful designer of...something (I cant remember what) with the US Navy for about a year. I left them for Hughes aircraft in LA, where I stdied engineering (servomechanisms) in the evening and did a job during the day that anybody could have done. Fortunately I was fired after a few months.
The interesting thing about engineering was that I was always surrounded by competent people. When they were incompetent they were canned, like I was in LA. In energy economics though, some of the dumbest people on the face of the earth have found a home. That's why crazy things happen - those guys mean well, but they just don't have it. And their teachers didn't have it either.
Bob Amorosi 11.18.10
Fred, I believe what you are saying.
Our governments and energy planners mean well but they continually forget that changes to how we use all energy sources, presumably for a better future, must cost something. That cost will inevitably be something substantial, including spending at least something on new nuclear plants. Spending absolutely nothing on new nuclear does not make sense.
The average consumer voters out there are not that stupid, just easily manipulated often by some incompetent planners and often by the media. Sooner or later the best teacher in the world I hope will prevail, and that teacher my friend will be the collective consumers' pocketbooks.
Bob Amorosi 11.30.10
Of some interest to readers is that Ontario's system planners have released in the past week a long-term electricity system plan for Ontario, out to the year 2030.
The plan decides to keep nuclear as a major generation component in Ontario as it is at present, and pledges a $33-billion spending commitment to do so. To keep it as a major component will require refurbishments to 10 reactors at the Pickering, Bruce, and Darlington plants, and the construction of two new additional reactors at Darlington. However there are no details on the breakdowns of cost figures, or terms, or schedule, or vendors, or operators.
Ontario’s preferred choice for this work is the federal government of Canada’s nuclear vendor Atomic Energy of Canada Limited (AECL). But the feds have put it up for sale, and it is very uncertain whether they will be around in its current form to bid on any of this. Ontario is expecting that the federal government will restructure AECL in a manner that will allow Ontario to be able to complete a deal with the new owner at a price that is in the best interest of ratepayers. The Ontario government also wants any cost over-runs to be guaranteed by the vendor, because history has been a bitter experience for nuclear cost over-runs even as recently as has happened at some of the Bruce refurbishment work going on.
The last time Ontario asked for bids on the new Darlington reactors, the construction cost was too high for the government to accept. The uncertainty of AECL’s future, combined with lower demand growth than expected due to the Great Recession of recent years, and other new generation supplies coming on-line in Ontario lately, have given Ontario’s system planners years of extra time, in their view, to make decisions on adding new nuclear. Industry experts disagree, saying nuclear work needs to start now, not years down the road.
So in essence the nuclear industry has only two choices for business in Ontario – lower its construction bid prices substantially, or wait. Some say whither.
Meanwhile ratepayers in Ontario are being told to expect nearly 50% increases in rates over the FIRST 5 years of the plan, in order to swallow the higher costs of the alternative generation sources coming on-line, and transmission upgrades needed to support them. Whither us ratepayers.
Bob Amorosi 11.30.10
Ontarians can expect a 50% increase in their electricity rates over the next 5 years as promised by the Ontario government. I'll bet electricity rate increases of the same magnitude are also in store for many parts of the US over a similar time frame, perhaps lagging Ontario’s rate increases somewhat but they will all go up sooner or later.
Now consider what oil prices will do over the next 5 years. Is it possible they may increase by 50% too? Maybe more? This article and much of the comments suggest it is VERY POSSIBLE.
Now just think for a moment about the impact on consumers' budgets and the general economy if electricity bills, gasoline prices, transportation costs, and other oil-price-dependent product costs grow by 50% or similar over the next 5 years. Whither us ratepayers INDEED !
Many consumers who presently don’t care about conservation and energy efficiency upgrades are bound to experience a slowly rude awakening, and eventually a change of heart. As a design engineer in the high-tech industry of electronics, I would place my bets on conservation and efficiency upgrades as being the next the big tidal wave in consumer and industrial products. Same should be expected in building designs and transportation vehicles engineering. Some might say this has been going on already for decades, but watch for it to accelerate like we have never seen before.
Richard Vesel 12.8.10
This is an "aside" comment, regarding our recent exchanges about speculation. I can now, with reasonable confidence, point out that speculation is in serious play for copper and silver. One investment bank has purchased about 50% of the open interest for copper in the London exchange "for clients", but is suspected of trying to "corner the market". I would agree with the latter analysis...The action in copper is based on *predictions* of production v. demand shortfalls in 2011 and 2012. So copper is now at historic highs, over $4 per pound, with those predictions picturing prices going to $5 due to the shortfalls. Let's see what happens.
Silver is already up 50% over the previous year, now just under $30 per ounce...
The world economies have not yet recovered, consumption of these commodities has not yet recovered, yet the "projections" are in place, and the smart money speculators have begun to pile in. I suspect that the smartest of them have already begun to unwind some positions which have netted them 50-100% profits, by selling into the strength of the trends.
A fresh round of oil speculation may be just over the horizon, in spite of the current demand picture still being relatively weak...Film at 11!