Tuesday April 18th, 2006. 4:07 pm by frog
$1.68 and counting…
Meanwhile public transport use is up, putting pressure on providers, who nevertheless say that major upgrades are years away. Fun times ahead…
Posted in Economy, Work, & Welfare | Environment & Resource Management | by frog | Tue, April 18th, 2006 |
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April 18th, 2006 at 7:00 pm
The Dunedin City Council, like several other major New Zealand councils, prefers to increase spending in Chinese gardens, artwork created by the homeless and creating more bureaucracy. Wasn’t it the Greens who supported the bill passed in Labour’s first year for city councils to cater for the community’s social and cultural “needs”?
April 18th, 2006 at 9:19 pm
Just as well the Greens had the foresight to get public transport (as well as walking and cycling strategies) into govt planning and legislation. Imagine the pickle we’d be in without the PT infrastructure investment that has taken place in the last couple of years.
In any case frog, I wouldn’t get too excited about $1.68 per litre. It’s cheap in terms of total costs (incl externalities) and a fraction of the high and volatile (no pun intended) fuel costs we’re about to experience. The only thing that will bring a downward trend is “demand destruction” aka global recession. And in NZ at least we can still buy fuel, unlike other parts of the world.
On a related note, Pegasus (Canterbury) township sales open this weekend. I feel sorry for the mugs who are paying $160k+ for an exurban section just as the means of paying for it become uncertain. Slums of the future anyone !
April 18th, 2006 at 10:24 pm
Well supply will most likely increase if there is an increase in the ‘mining’ of ‘oil sand’ in the North of Canada.
April 19th, 2006 at 12:00 am
Won’t bring the price down though, Red… if those Canadian tar deposits become economic to work, it’ll be because oil goes permanently well over $US100 a barrel.
April 19th, 2006 at 9:57 am
Look, listen and learn.
“We need to differentiate between conventional and nonconventional oil. Perhaps the best way to differentiate the two types of oil is to classify it the following way. Conventional–the oil will move to a wellbore on its own. Nonconventional–the oil and oil-like solids have to be surface mined or heated in order to move to a wellbore.”
Fossil fuels can be viewed as a continuum, from natural gas, to natural gas liquids, to condensate, to light sweet crude oil to heavy sour crude oil to bitumen to coal. (Kerogen, a precursor to bitumen, can also be processed to yield oil.) This list is a progression from gas, to liquid to solid. It is also a progression from cleanest, natural gas, to dirtiest, coal.
The world wants Liquid Transportation Fuels (LTF’s)–gasoline, diesel and jet fuel. LTF’s can be obtained for the least expenditures of energy and capital from light sweet crude. It only makes sense that light sweet crude will peak before heavy sour, and based on the current historically high spreads between light sweet crude and heavy sour crude, that appears to be the case.
The world is increasingly turning toward the endpoints–natural gas/natural gas liquids on the light end and bitumen/coal on the heavy end–in an attempt to maintain and increase our supply of LTF’s. There are several problems. These are hugely capital intensive programs that tend to produce liquids at very low rates compared to conventional oil sources, and on the heavy end there are some fairly severe environmental consequences. Another point that is often overlooked is that every fossil fuel resource, except for kerogen, is currently being commercially exploited. In other words, we are simply talking about increasing our rate of extraction of our finite fossil fuel resource base in a desperate attempt to maintain the current American way of life of driving $50,000 SUV’s on 50 mile roundtrips to and from $500,000 mortgages.
Currently, the most significant source of nonconventional oil is the tar sands play in Alberta, Canada, where bitumen is being extracted via surface mining or via the injection of steam into deeper beds.
From fossil fuel and nuclear sources, the world currently uses the energy equivalent of a billion barrels of oil (Gb) every five days. The mighty East Texas Oil Field, the foundation of so many Dallas fortunes, the largest oil field in the Lower 48, and the field that was largely responsible for providing the oil to power the Allies victory over the Axis powers in World War II, made about 5.5 Gb. The field is currently producing 1.2 million barrels of water per day, with a 1% oil cut. It took about 75 years to pretty much fully deplete the East Texas Field. In terms of oil equivalent, the Barnett Shale Gas Play in North Texas should ultimately produce, over several decades, on the order of 4-5 Gbe.
The world uses, from nuclear and fossil fuel sources, the energy equivalent of the recoverable reserves in the East Texas oil Field or the Barnett Shale Play in less than 30 days.
In the 4/2/06 Star Telegram, Automotive Journalist Ed Wallace, in the classified advertising section, wrote a rebuttal to the Peak Oil theories. Mr. Wallace’s two basic points: (1) improved technology will increase recoverable conventional reserves by 50% to 3,000 Gb and (2) nonconventional oil sources will add another 3,000 Gb. Therefore, based on Mr. Wallace’s estimates, we have used 1,000 Gb out of a 6,000 Gb resource base. (See link below.)
In the Viewpoints (Op-Ed) section of the Dallas Morning News, similar “cornucopian” energy abundance articles were published last year making basically the same points that Mr. Wallace made.
In regard to the technology issue, this assertion is directly contradicted by our experience in Texas (peaked at 54% of Qt), the overall Lower 48 (peaked at 49% of Qt) and the North Sea (peaked at 52% of Qt). Nothing the industry has tried in these regions has reversed the production declines once about half of the oil reserves were consumed. The reason is best illustrated by the East Texas field, now producing water with a 1% oil cut. What can better technology do to help a field that has watered out?
In regard to the nonconventional sources of oil, Mr. Wallace is primarily focused on the Canadian tar sands and shale oil (kerogen). The tar sands play is a proven commercial success, that is however hugely energy intensive and that is also yielding vast amounts of contaminated waste water. Mr. Wallace cites the most widely used estimate of 175 Gb in recoverable reserves (note that this should be discounted by about 35% to 50% to get net energy equivalent). He also cited a vague estimate by a Shell executive of 2,000 Gb, that can’t be currently recovered. There is one interesting research program testing some new shale oil technologies, but there is nothing commercial yet.
In any case, let’s look at past and current estimates of Canadian tar sands production. In 2003, the US Energy Information Agency (EIA) estimated that total Canadian oil production–driven by increasing tar sands production–would increase by 700,000 BOPD from 2003 to 2005. The reality? Total Canadian oil production fell from 2003 to 2005. The tar sands production fell short of estimates, and the increasing tar sands production the Canadians had could not make up for the decline in conventional Canadian oil production.
The Canadians themselves are estimating that tar sands production will only increase to about three million BOPD (mbpd) in 2016 from one mbpd today. Note that we will probably start losing a net two mbpd to four mbpd in conventional oil production per year, starting this year. Again, note that you have to discount the tar sands production by 35% to 50% to get net energy.
In effect, Mr. Wallace, and the other energy cornucopians see no problem with the $50,000 Hummer, $500,000 mortgage way of life.
…
While nonconventional oil will help, it will only serve to slow the rate of decline of total oil production.
Some types of ethanol production (not from corn sources) appear have some possibilities, but there are a number of problems. Among the problems is a basic conflict between land devoted to food production and land devoted to fuel production. By the way, the US is probably now a net food importer. Currently, the US uses up to 10 calories of fossil fuels to produce one calorie of food. Ponder the impact on our food supply of a declining oil supply.
…
However, in my opinion we have hit the iceberg. You can lash yourself to the sinking ship, by failing to face reality, or you can face the reality of finite energy resources and start heading for the lifeboats.”
With thanks to Jeffrey Brown at TheOilDrum.
April 19th, 2006 at 10:57 am
I’ll just keep on cycling…. and keep on reminding others about the many benefits of bicycles!
(having said that, my “fuel” prices will increase, too - the cost of food is no doubt going to rise as a result of fossil fuel price rises…)
April 19th, 2006 at 11:04 am
I had a bad cold recently and stopped cycling - now the problem is getting the motivation to get out of bed at 6.30am on these cold mornings to start again. The packed out trains when the school holidays end might provide the right incentive!
I feel sorry for those who don’t have point to point public transport and have to use cars, especially at the easily solved choke points in the Hutt Valley.
April 19th, 2006 at 2:18 pm
There within Fastbike’s piece is the absolute vital truth about tar / oil sands, a key message we need to keep hammering home. There may be gazillions of barrel equivalents up there, but the rate of production will never equal that of conventional oil, and on a day to day, year on year basis the only important measure is how many barrels will we extract for use today. Tomorrow doesnt matter, any more than total reserves dont matter.
April 19th, 2006 at 2:32 pm
fastbike wrote:
“With thanks to Jeffrey Brown at TheOilDrum.”
Thanks for reposting this stuff.
Readers may also be interested in reading other posts by this contributor at The Oil Drum, who goes under the handle “westexas”. He is an independent petroleum geologist and one of the best TOD posters, IMO.
He and another researcher also posted a paper at Energy Bulletin last month:
M. King Hubbert’s Lower 48 Prediction Revisited, which includes an important point about falling worldwide export capacity and a proposal for a petrol tax in the US to replace their federal payroll tax.
April 19th, 2006 at 2:51 pm
Hello to all the other TODers here. I don’t recognise any of your handles, but maybe they’re different at TOD. And if the others here haven’t visited “The Oil Drum”, then I would highly recommend you have a look. It’s not the extreme Doom and Gloom that other Peak Oil sites can be. It’s just good, informed, analytical, unbiased commentary as the Peak Oil situation unfolds.
Frog and TOD are the only blogs I read regularily now.
April 19th, 2006 at 3:25 pm
There was a small article in the DomPost with the encouraging headline “Rail link to airport considered”, but after a bit of digging (http://wellurban.blogspot.com/2006/04/secret-railway.html) it looks like there’s no actual concrete proposal. It’s just that they won’t dismiss a rail option out of hand if it’s suggested as part of submissions on improving transport between Ngauranga and Wellington airport. Will the Green party be putting forward a policy on this and making submissions?
Even if it would take four years to get more/better trains, it shouldn’t take long to buy some more buses, should it? On a wet rush hour it’s sometimes impossible to get on a bus in Wellington, so even a handful of new ones would help.
April 19th, 2006 at 4:47 pm
Oh, and did anyone notice the delicious irony of Gerry Brownlee (on a TV3 story on ministers being overseas) claiming that Pete Hodgson shouldn’t be in Qatar while petrol prices are rising, but he should be back here to “fix petrol prices”. Fix prices? I thought National was supposed to be the free market party?!?
April 19th, 2006 at 5:45 pm
Yeah, that’s why they wanted to remove/relieved the tax burden on petrol.
April 19th, 2006 at 6:53 pm
So motorists could free load on society even more ?
April 19th, 2006 at 6:58 pm
Red,
Some more homework for you
http://www.transport.govt.nz/downloads/surface-transport-overview.pdf
We’ll test you tomorrow.
April 19th, 2006 at 10:07 pm
The government needs to establish a sliding scale of new road projects and mass transit projects dependent on the price of oil. For example now, they should currently be spending more on commuter rail as it is clearly in demand. If oil prices get to $US150 a barrel ($4 a litre petrol) all funding should be diverted to rail and mass transit projects instead of new roads.
Also there needs to be some serious hurryup in the planning- why is it that big projects take sooooo long to plan in NZ? Its almost as bad as the British. These projects need to be started and soon, as the cost of energy/cement/steel is rapidly rising, compounded by the falling dollar. The longer these essential projects are put off, the more expensive (and unlikely) they become.
Whatever happens the government must continue taxing petrol to some extent, and not give into the whingers. NZ still has some of the cheapest petrol in the OECD, hell it’s £1 per litre in the UK! The problem is not taxes, it’s increasing global demand and stagnant/declining production.
This is going to be an interesting summer.
April 20th, 2006 at 2:42 pm
There is no need for more state funding of public transport under these circumstances, as the relative competitiveness of public transport improves because it is more fuel efficient when it carries significant numbers of people - the operators can invest in more capacity due to increased fare revenue. Rail is only peripheral as it doesn’t exist outside Auckland and Wellington, and in those cities carries less than buses do. Buses are relatively cheap to provide more capacity and far more flexible.
In short, if public transport is so “good” then the increased demand generates revenue to provide more capacity. If road traffic declines, then fuel tax revenue will decline and the concern about money going into new road capacity ceases - the money wont exist to pay for it, and the demand wont exist to justify it.
April 20th, 2006 at 10:16 pm
“the relative competitiveness of public transport improves because it is more fuel efficient when it carries significant numbers of people”
Except where it doesn’t exist (e.g. Auckland), and it is controlled by useless city councils.
I do agree that the new construction should be part funded by fares, but given the dismal track record of private companies in the rail sector in NZ and Australia, any such undertaking must be heavily regulated by Government. It is my belief that it would be far more efficient for central Government to control construction and use of rail, as the private sector has proven that it will cynically abuse any monopoly situation for the benefit of shareholders.
There is also a national security aspect to all of this. By having a functional electric rail system, particularly urban commuter and interurban freight, the economy will be in a much better position to weather oil shocks, such as the current one which is dampening consumer spending, and the mother of all oil shocks which will occur if oil supplies are temporarily or permanently cut.
Given the current stand-off in the Middle East this is a clear risk to the NZ economy.
“In short, if public transport is so “goodâ€? then the increased demand generates revenue to provide more capacity.”
Huh? Then why
April 20th, 2006 at 10:22 pm
Contd…
“In short, if public transport is so “good� then the increased demand generates revenue to provide more capacity.�
Have you read the article? Wellington and Auckland trains and buses are full to bursting at peak hour. People are voting with their feet and demanding more capacity already as fuel gets more and more expensive. Hopefully central government will step up to the challenge and put the plans on a fast track. (Pun definitely intended)
April 21st, 2006 at 4:35 pm
Meanwhile, Peter Dunhill continues his somewhat unhinged championing of the car above all other forms of transport: making streets safer for pedestrians is “nutty”, apparently (http://wellurban.blogspot.com/2006/04/dunne-roamin.html).
April 22nd, 2006 at 2:07 pm
A gem of a quote from Caltex NZ’s chairman:
But Mr Hannan does not subscribe to fear that the world is close to a so-called “peak” in which the global potential to extract extra oil levels off and becomes permanently outpaced by growth in demand.
“There is an enormous amount of oil out there to find,” he said, noting that Caltex’s United States parent company, Chevron, had budgeted almost US$15 billion ($24 billion) this year for drilling and exploration.
New Zealand would still have access to enough fuel even if supplies dried up from Iran, producer of 5 per cent of the world’s oil, although this would add even more price pressure to that being imposed by the voracious economies of China and India.
———————————–
what can i say? he’s not lying, he’s just not telling the truth either.
and to think Chevron is the most upfront Oil Major when it comes to PO…
BTW, don’t you love how the herald reporter frames the debate in the first paragraph above? the implication is that the “so-called “peak”" is just a bunch of doomers trying to get attention, and it has no scientific basis whatsoever.
and as for Caltex’s “enormous amount of oil out there to find”, he just doesn’t mention it will get MUCH more expensive.
Oh, and the Iran-out-of-the-equation bit is the dumbest–if Iran stopped exporting tomorrow, we’d have $3/litre next thursday. good for the oil companies though!
April 23rd, 2006 at 12:55 pm
Anyone wants me, I’m draught-proofing the house and submitting everything by e-mail, b***er travelling anywhere under these conditions!!
Any calls for NZ to start getting oil from Hugo Chavez in Venezuela, knock this Iran/Iraq thing on the head pronto?… think South America is closer than Persia, or do I need to swot up on my old NatGeo maps…
Ok, I’m bored and it looks like rain out, somebody flame me….
April 23rd, 2006 at 5:05 pm
“$1.68 and counting…
Meanwhile public transport use is up”
Shock horror! The market works! As costs of one good increase, people use an alternative!
Now if we could just get councils and governments out of transport (public provision, and roads), and we’d finally see some real quality in this field.
And peak oil is a fiction. Harold Hotelling anyone? Of course the price will imcrease, but only by a rate of interest. Otheriwise you keep in the ground to appreciate.
April 23rd, 2006 at 9:32 pm
Venezueala’s oil consists of heavier grades and is much more costly to refine!
Still would be good to get closer to them…. also Cuba who could lend us a
few Doctors to cover our shortage!
Watch for road maintenance costs rising and some roads being considered
off limits…. with revenues on a downward spiral with peak car miles this year!
April 23rd, 2006 at 10:10 pm
Red
I’ve now given you all weekend to do your homework.
Where’ve you gone ?
April 24th, 2006 at 11:02 am
Stephen
“Now if we could just get councils and governments out of transport (public provision, and roads), and we’d finally see some real quality in this field.”
It sounds like you’re too young to remember that we’ve been there and done that. E.g. Public transport was privatised in Chch in the 1990’s and almost disappeared from the scene. Dirt, old and unreliable buses, no off peak or Sunday service, etc. Not what we’d call quality. Only the coordinated actions of the CCC and Ecan got things heading in the right direction again.
And if you want more, ask me about the shambolic privatisation of British Rail in the 1990’s. My experience: Fares through the roof, service through the floor and the subsidies paid to the privatised operators increased. And with London buses, 3 buses from different operators all arriving together on the same route, AT THE SAME TIME. I’m not sure how that gives me, the passenger, actual choice. What we were promised was 3 buses per hour, what we got was 3 buses on the hour and then a 59 minute wait !
Private operators do have a role to play, but the unregulated market will not prevent cherry picking and the type of scenarios described above. Maybe take a read of the Ecan PPT strategy to see an example of what works in practice to deliver quality affordable usable public passenger services.
“The market works! As costs of one good increase, people use an alternative!
Why do you sound so surprised that the market works ?
But what you’re forgetting is that, in Chch for example, bus patronage has been rising since 1998 when the PPT strategy was introduced. Nothing to do with the price of fuel and nothing to do with the market providing alternatives. Had we left these decisions to “the market” we’d be in a bind now due to insufficient capacity and the long lead times required to increase it. It’s kind of obvious that there are social goods that are delivered by an efficient modern PT system, as well as market outcomes.
Idealology and reality are two different worlds.
April 24th, 2006 at 11:41 am
Harold Hotelling
There’s a couple of in depth articles on the Hotelling hypothesis over at The Oil Drum. Compare this to the 5 lines posted at Stephen’s link
Anyway for those who are interested but time constrained here’s a quick summary.
The Extraction of Exhaustible Resources
and a more recent post on Predicting Future Oil Prices
I can highly recommend these two posts and many more on The Oil Drum.
E.g.
The Top Twenty Fields: Are They in Decline? What Do We Know? (Updated)
On production rates and refinery capacity
April 25th, 2006 at 12:27 am
One element of Harold Hotelling’s work is that technology will lead to more exploration, but it wasn’t the element I aimed to highlight.
Essentially, peak oil is premised on the price of oil jumping through the roof. This makes no sense. It will tend towards the rate of general interest it could earn. If it jumps above it, people get it out of the ground faster to take advantage of it. If it’s going to get hiogher they keep it in the ground. So while prices may steadily increase, there’s no rerason as to why they’ll jump suddenly, as in peak oil predictions.
April 25th, 2006 at 1:55 am
“Shock horror! The market works! As costs of one good increase, people use an alternative!
Now if we could just get councils and governments out of transport (public provision, and roads), and we’d finally see some real quality in this field.”
The market does not, and CANNOT work by definition in a monopoly situation like rail, so it’s a terrible idea. Toll roads can work in some circumstances, and must be heavily regulated; otherwise you get situations such as in Sydney, where the toll road operator allegedly co-erced/forced the council to close competing free roads!
And you might want to read the history of TranZrail sometime. Basically one of the biggest disasters in NZs history. The ‘investors’ asset stripped about $600m of taxpayers’ money, and then left after they couldn’t pillage any more from the crumbling system. Absolute disaster, one of National’s worst ‘market will provide’ fiascos, and a perfect example of the raw greed of the richest New Zealanders.
The market works in things like soap powder or breakfast cereals, but in essential infrastructure, no way should it be entrusted to private companies. They should be controlled and contracted out by central govt, with limited input from local councils.
As for Peak oil, even the most optimistic EIA estimates put peak production in a couple of decades. (the pessimistic view is last year.) That’s not all that long really, and given that most production comes from unstable areas of the world, NZ at least needs to be looking at alternatives in the case of a severe shortage.
April 25th, 2006 at 2:05 am
Stephen Whittington wrote:
“And peak oil is a fiction.”
So, you mean it will be possible to go on increasing the rate at which oil is extracted from the ground, year in, year out, forever?
Hooray! All our problems solved! And to think I was worried!? Silly me.
Hotelling the hero!
April 25th, 2006 at 4:56 pm
No. No one says that an exhaustible resource is inexhaustible. What you fail to realise is that the wight of peak oil doomsayers is not that oil will run out. That’s about as prophetic as saying that tomorrow the grass will still be green. The reason it gains electoral traction is that the result of peak oil is rocketing prices, quite literally overnight by most estimates.
The point about Harold Hotelling is that he debunks this myth. Essentially, and what the theory comes down to is the following idea: If your oil in the ground will increase in value more than the money will above the ground… then you keep it in the ground. They ultimate effect of this is that oil prices tend towards consistency. Consistently increasing, sure. But not the dramatic change Greens so claim.
An important assumption of this model is one socialist and environmental parties are not good at upholding: property rights hold. As prices rise consistently, there’s pressure for the government to steal the justly acquired oil fields of companies. This obviously ruins the theory and throws economic sense out the window. They steal property in the name of ’sustainability’, which essentially means that to keep things… government must decide what to use. And they of course point to the great environmental standards in communist countries when.. oh wait, that’s right, almost every environmental disaster has been caused by government ownership, or perverse incentives provided to private industries by the government. ‘Crony capitalism’, if you will.
Peak oil is a bit of a nuisance for Greens. The exhaustible supply of oil is an environmental issue. Unfortunately for Green-Socialist parties, it’s best solved by the market. As prices of oil increase, the relative price of substitutes decrease. This is why we’re seeing more hybrid cars, more bio-fuels, more public transport. This is individuals’ actions.
It’s also important to realise that any truth or logic in Green claims is eradicated as soon as you put a gun to the head of citizens and say “So don’t drive a car on x day” or “So we’ll force companies that sell petrol to pay extra tax”. Why pervert the very morality of your argument by trying to win by immoral means?
“The market works in things like soap powder or breakfast cereals, but in essential infrastructure, no way should it be entrusted to private companies.” The perversion of logic there is that ‘public’ is good. It’s not. The cost of private hospital treatment is about $3,000 less than public. We have a health bureacrat for every bed. Take a look at the effects of what you advocate, and you’ll realise provate provision is more efficient, more beneficial, and will ultimately be more universal.
April 25th, 2006 at 5:02 pm
Also, just dealing briefly with your ‘monopoly’ situation. There’s no reason to suggest that railroading is a natural monopoly. It certainly isn’t in the US. In fact one element of US monopolisation occurs through market regulation by government, as is typically the case. An individual’s lack of creative ability to see how railroads work non-monopolistically cannot be attributed to laissez-faire capitalism, but is another and less seen effect of government action.
But where things are a ntural monopoly, I have no problem with private providers doing that. If they raise prices dramatically it tends away from a natural monopoly. The point is if we reduce the prices of entry and exit from markets (usually bureacracy), then they tend towards market prices, and efficiency.
The means by which I would get the government out of the economy (for they should play no part in it), would most likely be by floating assets as companies and dividing shares amongst all tax payers. The disaster in rail, and ‘local loop unbundling’, is the government’s inability to promise to protect property rights. As soon as they do there’s an incentive for other companies to invest. When they dither, we have calls from other companies to nationalise (steal) the property of companies.
April 25th, 2006 at 5:16 pm
An amazing editorial in The Age (Melbourne):Petrol prices signal the need to prepare for change
So, will any of Fairfax’s NZ titles follow suit in fronting up honestly to Peak Oil?
April 25th, 2006 at 5:26 pm
Stephen wrote:
“And peak oil is a fiction. Harold Hotelling anyone? Of course the price will imcrease, but only by a rate of interest. Otheriwise you keep in the ground to appreciate.”
I would have a lot more confidence in the market’s ability to deal with the reality of Oil Depletion IF there was accurate information for the market to work off. But as it has been well documented by Matt Simmons the information we have on how much oil is in the ground in the Middle East is unverified and hardly trustworthy. So how exactly is the market supposed to price it correctly and at a steady rate of appreciation? No - rather the reality is a series of shocks (up and down likely too) with the ups setting the overall trend and the downs getting smaller and smaller.
April 26th, 2006 at 12:39 am
it always astounds me when your free market theory types start on their logical arguments, how completely nutty and out of touch with reality they sound.
So if the price of oil gets high enough so that it becomes economic to leave it in the ground, how will you get to work Stephen? How will your food get grown?
April 26th, 2006 at 4:54 am
Stephen Whittington- good replies, but your faith in the market is not justified IMHO, you need to deal with the realities in THIS world not a perfect one.
As for Hotelling: “If your oil in the ground will increase in value more than the money will above the ground… then you keep it in the ground. They ultimate effect of this is that oil prices tend towards consistency. Consistently increasing, sure. But not the dramatic change Greens so claim.”
Sure for a ‘rational actor’ western oil major in a perfect world, but again we are talking about this world, where the vast majority of production comes from not the western oil companies, but government owned nation-state producers like Saudi Aramco. So they are more interested in placating their (generally poor and angry) people now, rather than any future benefit.
Saudi has large debts to the IMF and World Bank (such lovely organizations- read Confessions of an Economic Hitman) that they must pay huge amounts of interest on. The average income there is about a third of NZ, and something like half the population is under 15. They are also under enormous political pressure from the US to keep the taps open, which is generally a pretty good incentive.
And if these wonderful alternatives that are ‘in the pipeline’ are only cost-effective at $300/bbl, don’t you think that may just cause a slight dislocation of society? Plus the slight problem of at least 20 years to build the new infrastructure when it will be needed in 10. You are right though, the market will effectively distribute scarce resources amongst buyers and sellers. Just not necessarily at a price most can afford.
“The perversion of logic there is that ‘public’ is good. It’s not. The cost of private hospital treatment is about $3,000 less than public. We have a health bureacrat for every bed. Take a look at the effects of what you advocate, and you’ll realise provate provision is more efficient, more beneficial, and will ultimately be more universal.”
This is material for another thread, but the US health system costs double per capita than most European ones, and has comparable results to a third world country. Americans are forced to buy prescriptions at inflated prices by the drug cartels when the Canadians get them much cheaper. The government system there gets a better outcome at a far cheaper cost. But this is not relevant to the topic…
“But where things are a ntural monopoly, I have no problem with private providers doing that. If they raise prices dramatically it tends away from a natural monopoly. The point is if we reduce the prices of entry and exit from markets (usually bureacracy), then they tend towards market prices, and efficiency. ”
So, by your theory, when the trains in Wellington had to go at 20km/h because the track maintenance had been badly neglected, then another company should have built a parallel rail system? Didn’t notice that happening…
Where you have a natural monopoly, it clearly is far more effective, and usually cheaper, to leave it in government ownership and contract out the day-to-day running. Another example is the division of the power sector in New Zealand. Power bills have increased dramatically, maintenance was ignored leading to a 3 month blackout in Auckland. The profit motive overrides the service motive in every case, which leads to terrible outcomes. Enron was a classic case of this- they screwed everyone, even their own staff, in pursuit of profit.
“The disaster in rail, and ‘local loop unbundling’, is the government’s inability to promise to protect property rights.”
Agreed. The TranZrail disaster was the direct result of the National Government giving the property rights to a bunch of sharks and cheats, without any oversight. They decided it was more profitable to liquidate the system, take the money and run. If the Government had retained ownership of the tracks, and had a charter that could be revoked if the service went downhill, it may have worked. Same thing goes with the local loop: If the government had retained the copper, and tendered out the rights to use it, then we might not have the monopolistic, voracious, hideously expensive Telecom- we might actually have competition on those lines between a number of companies.
So I guess we agree on something- the Government should retain ownership and/or control of strategic assets for the people.
Phew.
April 26th, 2006 at 10:16 am
“Essentially, and what the theory comes down to … They [sic] ultimate effect of this is that oil prices tend towards consistency. Consistently increasing, sure. But not the dramatic change Greens so claim.”
And this is where the actual behaviour and the theory diverge so widely as to make a fool of the latter. Yes, I know there are many reasons, political and geological but that is life.
April 26th, 2006 at 2:41 pm
Helen Clark admits Peak Oil is upon us, and the entire NZ press fails to relay this admission to the public.
I happened to check in on the Energy Bulletin this morning, and the top headline is “HC admits PO”. I think, gee, ANZAC Day has affected her desire to be honest. But then I follow the link to scoop.co.nz and the article is from 18 April! Over a week ago!!! There’s no transcript of the press conference, just audio. A search of google news for “helen clark” and “peak oil” gets a single hit: Steve MacKinlay’s essay carried by EV World (Nebraska).
Why is Steve McKinlay doing the job for the NZ press? WTF is wrong with NZ print media? If scoop had not carried that audio and that not been picked up by a PO activist, the public would have no means of finding out about this huge admission. Not a single MSM source in sight.
April 26th, 2006 at 10:35 pm
Problem with ‘public’ anything is the relative attractiveness of the ‘public’ offering versus the private one - a point well covered in respect to malls by Glenn Reynolds in ‘Army of Davids’. People simply feel safer in private malls, where the ‘public’ right to do crazy stuff does not exist. And even though mall security staff tend to the minimum-wage stereotypes, they’re there, which is more than can be said for the public city-centre equivalents.
As for transport, anyone who has had a bag slashed on a metro, or been intimidated by a gangsta bunch on a bus, or been jostled by a football crowd clean off a BR carriage to make room for their mates, will quickly come to value the safety, privacy and convenience of private transport. A safety externality, you might say.
This isn’t to denigrate the idea of better public transport. But public provision does have to measure up better than the present ‘anyone no matter how munted or dangerous can ride’ policy.
A quick sample will be instructive: ask an XX chromosome human of your acquaintance whether she would ride the 1030 from Wellington Central to Upper Hutt City alone?
April 26th, 2006 at 10:38 pm
Steve McKinlay (me) is doing the work of the NZ press and, incidently the ministry of economic development (see my blog, I have provided data and arguments debunking MED assumptions and oil pricing scenarios) because the media are fucking comatose in relation to peak oil. The reason why eludes me to date, I always thought the media were into a sensational story, and peak oil is as sensational as you can get.
The issue the Government now have is that we have Dynhoven, Hodgson and Mallard all regurgitating the 2037 IEA reference date as which oil might peak (IEA’s best case scenario is 2067) and Helen Clark making them all look like plonkers by clearly stating we are at peak or it isn’t far away.
Dynhoven even went as far to say last week (I gather he was almost heckled off) that peak oil occuring this decade is no mainstream (read IEA) opinion. The guy is either utterly clueless, is in denial or is parroting party line.
I will publish my theory on the reasons behind the price volatility tomorrow on Scoop. Essentially its an economic argument due to the movement beyond the “margin” for the commodity - there is no swing producer, there is no spare capacity hence the marginal cost becomes irrelevant. So, although we might not quite be at peak, because OECD oil is now in decline, OPEC are pumping at capacity the margin has been exceeded. Hence marginal cost (which is still around US$30) is irrelevant.
My conclusion is THE MARKET IS TELLING US WE ARE AT PEAK. So, yes the market works. Commoditys only sell at marginal prices when we can produce more. We can’t produce any more oil hence the price is all over the place.
Once we move into decline, probably later this decade, be sure - we’ll stand still (due to “human ingenuity”) for quite some time, once in decline oil will most certainly move beyond $200 a barrel.
That equals about $4.70 a litre - several hundred dollars a tank. Pricing off the road every one but the rich.
As for NZ - stagflation (we are already seeing this emerge) massive unemployment, displacement, the end of suburbia (to coin a phrase) - the next great depression, almost certainly.
Cheers
Steve.
All the PowerLess press releases are collected on Roberts site
http://www.oilcrash.com - Click on the Powerless link.
http://ontic.blogspot.com/
April 27th, 2006 at 2:28 am
Waymad- In my first reply I absolutely agreed with this- the private sector does a great job with shopping malls, breakfast cereals and so forth. But I think essential infrastructure is a different case altogether, and needs to be owned and controlled by central government. Also I would note that public transport is very appealing when your other option is hugely expensive and takes far longer, in the case of commuters.
Public safety is a factor of decent policing- here in the UK actual policing is now too dangerous as they get attacked by gangs. They have been slowly replaced by cheaper CCTV. Your bad experiences on transport are unfortunate but it is also possible to get possessions stolen from private cars, and be intimidated or followed by people in other cars?
Again transport security is an issue that would be resolved by more staff. Also I would point out that violent crime is actually a very rare occurrence, which is heavily played up by the media because it sells papers. A more cynical person would say that people locked up at home are easier to sell to
April 27th, 2006 at 9:34 am
“As for transport, anyone who has been abused by a enraged driver, or been intimidated by an SUV, or been jostled by a B-Train semi clean off the carriageway, will quickly come to value the safety,value and convenience of public transport. ”
Amazing how easy it is to rejig the straw man argument;-)
Of course you would then want to omit the 5,000+ people who dead on NZ roads in the last decade, the 100,000+ who were seriously injured, the 3,500+ who have died from air poluution etc, plus the loss of freedom of movement of the more vulnerable members of our society.
April 27th, 2006 at 11:31 am
And while we are talking about the absolute failure of the energy markets to deliver the appropriate signals - the price rises coming too late and as yet not high enough to reflect the true costs of our addiction to oil - we may as well take a peek at Exxon-Mobil.
This is the company that still has not paid the fines that were levied in the wake of the Valdez disaster, that has poured millions into anti climate change junk science, and paid it’s outgoing CEO USD400m for a years work. And what’s it doing with last year’s record pile of cash ?
Now - I’ll sit back and wait for the wingnuts to rush to Lee Raymond’s defence
April 27th, 2006 at 6:55 pm
The OilDrum has a great post going today.
It seems the politicians in the US have taken a leaf out of National’s desperate attempt to bribe motorists at our last election.
Meanwhile the editors at TOD write
They then list 4 of the main reasons for high “gas” prices.
Of course the media in this country are as remiss as their US colleagues in faciltating any real debate of these issues.
I wonder why !!
April 28th, 2006 at 1:24 am
my guess is that it will take $2/litre petrol before we get any real response from our wonderful “media”.
btw, in the related matter of public transport, i definitely recommend reading an Australian academic paper on the history and underlying causes of Auckland’s bureaucratic bias toward motorways and against trains. fascinating! (thanks to Brian Rudman in the Herald)
Backtracking Auckland: Bureaucratic rationality and public preferences in transport planning (.pdf)
and the mindlessness of certain elected officials in Auckland is truly impressive. witness the various elected councils’ enthusiasm to continue spending millions on studying road pricing options rather than on getting a decent public transport system up and running!
Regional council backs push to continue road-pricing study
April 28th, 2006 at 7:51 am
Good paper tochigi,
Thanks for the reference.