Wednesday, December 24, 2008

Who can figure Oil out?

First of all I would like to apologize to my readers for missing last week's post. I was out of the country in a business trip. I would also like to inform you this will be the last post of the year, since I will be, again, out of the country for the next week. So, to all of my (millions and millions of!) readers I would like to wish a happy new year, happy Hanukah, merry Christmas, happy Kwanzaa, and all the good stuff!

Now, let’s get down to business: Oil is Greentech’s biggest allied and its biggest enemy too!

On one hand its price becomes an incentive or disincentive to new alternative energy technology development. If the price goes up it’s an incentive for greentech.

On the other, it shapes the world economic outlook in a way that it frees or strangles resources flowing into greentech. If the price goes down more resources are available for greentech development (notwithstanding the global crisis).

Are you confused yet? Wait there is more:

What drives the price of Oil? Well this is also a complex answer.

Any traditional product follows the supply-demand curve. As the amounts of supplied product increase and demand diminishes, the price drops. On the opposite end, if supply is low and demand is high the price escalates.

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Oil has a couple of added ingredients that make the supply-demand curve bend in different directions.

HIGHER PRICE, HIGHER SUPPLY: Oil has a very particular characteristic. Its supply sources become more abundant as the price goes up. Many heavy oil production fields, as well as other, less profitable sources, become feasible only after oil hits certain price targets. That is the case of the Athabasca Oil Sands a large deposit of heavy crude in northeastern Canada, where “despite the large reserves, the cost of extracting the oil from bituminous sands has historically made production of the oil sands unprofitable” (additional info can be found here)

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LIMITED SUPPLY: Oil, as we al very well know, is a non-renewable natural resource. Therefore, its Supply quantity is a finite number. Many different estimates exist as to “how finite” oil is (i.e. when will it run out?), but there is a general consensus that IT WILL in fact run out some day.

As we get closer to the day Oil runs out, the price will skyrocket to levels never seen before. As any other scarce resource it will become a luxury.

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SPECULATION AND CRISIS: This is a factor that has altered oil prices recently, it relates to the “market perception” of the above mentioned factors.

When the economy was booming and oil prices escalated, investors started getting into oil to make big profits, pushing the price further up.

Now, the economy has slowed down and demand has decreased and oil is at 30% the price that it was 6 months ago, investors have shun away from oil.

I will not attempt to include this factor into the supply-demand graph, as it is a very volatile and subjective variable.

The reality is that we are facing uncertain times, and as such people are going back and reconsidering their strategies. Will this affect Greentech?

In one sense it will, because the people that were unconvinced will tend to tilt more towards non-green as the price of oil gets lower and resources for greentech gets scarcer.

On the other hand this will be the big trial for greentech because it will test weather the critical mass of believers in a greentech future exists. And, if this critical mass will be able to propel Greentech to the next level (the mass market or mass implementation of green technologies).

I personally believe that people are aware that whereas oil goes up or down we need to do something to get off the “Oil rollercoaster”. Furthermore, people have also realized that oil dependency has very serious political consequences and they are more willing to do something about it. And, last but not least, oil has an environmental impact that many people are aware should be changed before we destroy our planet, and with it: ourselves.

Again, HAPPY HOLLIDAYS and SHALOM! See you in 2009!

1 comment:

old soldier said...

The current administration has a lot to do with oil and its manipulation by many different entities.

Did you see the picture of W
holding hands with the Saudi.
NOT a surprise to me.
What do we send foreign aid to Saudi Arabia for, do they really need our foreign aid dollars....?

Glad W is gone and we have a
president that does at least know
how to communicate verbally...!

Tim in Tranquility
Tranquility Power Co