Declining Oil Reserves

Karl Davies karl at daviesand.com
Tue Feb 22 11:04:03 EST 2000



Christopher Erickson wrote:

> Karl's analysis fails to take into account the existence of "back stop"
> technologies. In particular, as the price of oil begins to rise, alternative
> energy sources become economically viable.

Right, and there are lots of them.

> For example, I have seen studies
> that indicate that solar cells become very competitive when the price of oil
> rises to about $25 per barrel. Thus should the price of oil stay much above
> $25 per barrel for any substantial period of time, industry and individuals
> will begin to bring solar on line, thereby forcing the price of oil back
> down to the $25 range.

Good point.  Wood energy could do the same.

> (Of course, this is a long run phenomena. In the
> short run, the price of oil can rise and has risen substantially above $25.)

But as soon as people start making investments in solar, wood, etc, the oil
producers could drop prices back down to $10 per barrel, and keep them there
just long enough to squash the competition.  They've certainly done this
before.  What's to stop them from doing it again?  Unless they're now seeing
competition as being in their best long-term interest...

> With technological advances, the cost of solar power will fall, hence the
> price of oil will decline long term.

Hmmm.  I wonder if the oil producers are in the process of adjusting their
long-range strategy.  Maybe they're willing to let prices rise enough so that
solar and some other energy sources become competitive for heating buildings,
but not not enough so that they become competitive for powering cars, for
example.  The fact that heating oil prices have gone up a lot more than gasoline
prices might support this argument.  Or is there some other reason for this?

KD






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