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Comment by ori_b | Hacker News Reader

This is slightly worrying, because if we want to reduce CO2 emissions, we need to leave the oil in the ground.

High prices may not be ideal economically, but they do reduce demand for oil, and increase demand for alternative energy.

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Well, counter-intuitivley, consumer gas prices aren't falling nearly as much if at all.

Personally I think the DOJ should investigate refineries, as none of the seem particularly eager to compete on price. They're making record profits as the price of crude collapses while the price of gasoline is flat.

http://www.latimes.com/business/la-fi-refinery-profits-recor...

It seems very fishy to me that we have so much crude building up, yet consumers aren't seeing any real benefit from cheaper gas, cheaper shipping, or cheaper domestic flights.

There is a refinery problem in Indiana which is why gasoline is staying elevated even thought crude is falling. If anything happens along a refinement chain, there is a disconnect between market prices. The full affect is on the Chicago area, not sure how it is affecting other regional markets.

Prices haven't dropped elsewhere like they should, you know that.

Refining capacity doesn't increase because of a drop in crude oil prices. If supply of gasoline cannot be increased, prices will not fall even if the raw crude price falls.

The EPA has been hostile to refinery expansion or new refinery construction.

Capacity doesn't increase, but costs do decrease as the cost of raw materials drops.

Now, obviously price is only partly determined by cost.

That's kinda the whole point. There is nothing for refineries to gain by reducing the price of gas because...nobody is going to sell gas at a lower price and take over the market because...the EPA does not allow one to build refineries.

Free markets y'all.

So much this. Price is driven by supply and demand. Not the cost of materials.

But price changes supply, no?

Some oil is $1 a barrel to pump. It will always be worth pumping.

Some oil is $50 a barrel to pump. It is only worth it when oil price is greater than $50 a barrel.

Free markets don't account for negative externalities so they have to be regulated y'all. In any case, gasoline prices do move so there must be some market forces at work, but it's a mystery at least to me. I'd love to read an explanation.

>the EPA does not allow one to build refineries

Two refineries have opened in the US this year:

http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6

This is more of a lack of competition issue. A lot of gas suppliers have regional contractors that basically have a lock on entire regions and their prices. There is no incentive to reduce price.

Also, since we can not export crude, but can export distillates, we can sell gas to other countries, increasing demand to some extent.

Consumer gas is an inelastic demand--they've got people by the neck.

People had forty years to figure out, "Shit, what happens if gas gets expensive", and they did the wrong thing. Let'em pay.

It's an interesting question. How many people have made choices that at least somewhat accounted for uncertainty in oil prices? You can't see the retirees who stayed in their suburban home instead of moving to rural Wyoming (I don't mean that there are tens of millions matching that description, I mean there are things that are really hard to measure).

Airfare isn't falling because the domestic airlines a) have a triopoly and b) have learned not to compete on marketshare, so capacity isn't increasing as much. The big 3 have become much more disciplined when it comes to revenue management.

Actually airfare prices have fallen recently.

http://www.nbcnews.com/business/travel/airline-fares-record-...

> Airline fares recorded their steepest monthly decline in 20 years, falling 5.6 percent last month, according to the Bureau of Labor Statistics.

> consumer gas prices aren't falling nearly as much if at all.

Consumer gas is a very small portion of energy use. Just a very visible one.

Many refineries were closed by oil companies with the intention to reduce supply and raise prices. Now there is a glut of crude, and they don't have the capacity to take advantage of the low crude cost / high refined product cost. https://books.google.ca/books?id=74brGsoymBoC&pg=PA35&lpg=PA...

Recently they have also been deferring maintenance to keep capacity of their refineries as high as possible and now failures are causing major shutdowns.

This is why the idea that the free market will solve global warming doesn't stand up. We need to leave a huge amount of oil in the ground, it's in the financial interest of oil producers to make sure that doesn't happen, and the price of extraction is low enough that many of them can sell it dirt cheap to ensure it all goes. Indeed, I've seen arguments that the Saudis are driving down the price in part because they've noticed renewables are about to undercut them and want to make sure that doesn't happen.

I think it could, but we have to account for the externalized costs. And, we're pretty bad at that. Lots of people's paychecks depend on stuff not getting more expensive.

> This is why the idea that the free market will solve global warming doesn't stand up...

Regardless of your suggested approach to solve global warming, I suggest you reconsider your reasoning. There's a limit as to how much oil companies can extract and remain profitable. To that point, oil storage utilization is at a historic high with new investments at a historic low.

>This is why the idea that the free market will solve global warming doesn't stand up.

The idea that there's such a thing as a 'free market' at all doesn't stand up. It's a mythical beast.

The other way to look at this is that if the price is able to find equilibrium at a low enough point, it will not be economically feasible to extract certain types of oil from the ground (e.g. tarsands). The real question is how much of an effect low prices will have on demand.

Yes, but that's temporary. As demand exceeds supply again (because we're running out of oil) then the prices rise and suddenly all these unconventional oil projects become feasible again.

The only way to keep that oil in the ground is to eliminate the market for oil at profitable extraction prices through very cheap energy alternatives.

It's very difficult to solve the problem through regulation because you need all the countries making up a sizable portion of demand to regulate together. The incentive will be strong for individual countries to defy global pressure to do so, because cheaper energy means more economic growth. So far we've seen very little in the way of effective regulation and I'm not optimistic for a change, the incentives for short-term-minded politicians are in the other direction.

It's a very easy problem to solve through regulation. Just tax carbon emissions.

The hard thing about it is not scuppering economic growth (plenty of ways to achieve that), but keeping a lid on lobbying and bribes by the carbon industry until their political back is broken and renewables can take over.

When you can get all of the world's major economic powers to agree on that, then you can say it's easy. In principle it's easy, but in reality good luck!

Australia managed to do it without the agreement of other countries. It wasn't any bullshit about competitiveness that caused the repeal either. It was pressure from the coal industry.

Yes any country could do it alone, but all it does is slightly reduce global demand, Australia being a fairly small country population-wise likely didn't make a dent. All other things being equal it doesn't leave fossil fuels in the ground, just increases the amount of time before we extract them. That does buy time for the human race to find a lasting solution.

The current drop in prices seems to mostly be a price war between the Saudis and new producers in the US. It's probably not sustainable long term.

But, if increased crude production in the US has lowered the long-term equilibrium price, the US could increase fuel taxes to discourage increased consumption.

The only downside to this is that it'd be a very regressive tax increase.

>The current drop in prices seems to mostly be a price war between the Saudis and new producers in the US. It's probably not sustainable long term.

In the medium term renewables will take over. It no longer makes sense to build an oil fired power station any more. In a few more years it will probably be cheaper to drive electric (it already is if you just count the energy cost).

We might still continue making plastics and fertilizer from oil, but even for them the oil is substitutable. At that point we'll probably be more worried about the supply of other commodities and oil will be no more important to us than copper or iron ore.

Whether this is bad from the environmental standpoint depends on why the price is low. The price may be low because demand is off.

I am not sure if we could conclude that the demand is off. I believe that the traders who were controlling the inventories have finally closed their trades and walked away while they are ahead. Oil of course is a geopolitical commodity and a slide in prices usually helps developing countries that need oil to just keep the machinery running. Alternative sources are still not as accessible as one would like. All in all, I seem to think that this trend is not going to bode well for all the tax subsidies for solar panels in the US and will only delay discussions on climate change.

Demand had been increasing since the bottom of the great recession. This started last June with the dollar lifting off (pushing commodities down and crashing emerging markets), and the Saudis deciding to try to retain market share and crush the booming US oil production. So now, despite $40-$60 oil, the Saudis are producing the most oil they ever have. US oil companies have managed to constantly reduce the cost of their oil, with frackers getting it down to $40 to $50 / barrel, the US will produce almost a million barrels per day more than in 2014 despite the price drop. On top of all of that, the market is front running both Iran bringing its oil online again, and the Fed raising interest rates and sending the dollar higher.

"After mid-2014, the lion’s share of the decline in oil prices has been caused by negative oil-specific demand shocks and, to a lesser extent, by negative aggregate demand shocks. In contrast, the role of the oil supply (understood as the current physical availability of crude oil) has been small."

https://research.stlouisfed.org/publications/es/article/1034...

US oil production increased considerably over the past few years, then the Saudis deliberately increased production to drive down the high prices that had in part enabled the increased US production.

"Saudi Arabia has maintained a high level of oil production despite the slump in crude oil prices, arguing it needs to protect its market share in an economy in flux because of the glut of U.S. oil."

http://www.upi.com/Business_News/Energy-Resources/2015/07/13...

In fact it's low because supply is increased. Saudi was annoyed by North American innovation, and sought to dissuade private investors from financing any more of it. Private investors do wish that the price were higher, but it turns out that exploration and production costs are now low enough for North American production to be profitable still. For the most part, despotic regimes who control various national oilfields are suffering in the current market. Either Saudi don't care which of their competitors go out of business, or they have other reasons to keep production high over the medium term.

It is a race to the bottom in oil to fend off the development of new oil, but that will still happen once imported oil becomes more scarce.

The problem is that capitalism rapes externalities.

Even if you are not against the killing of an individual animal for food, for instance, the capability of doing so drives an increase in demand which drives an increase in supply -- billions of animals raised for the sole purpose of being killed for food. And then we try to do it more efficiently, at less cost, in factory farms. And economics drives us to this.

Similarly, the supply of oil will drive down prices and now result in newfound uses for it, we WILL use it up until none is left. And it's all in the atmosphere.

Same with elephant tusks in Africa being poached.

Same with overfishing.

Capitalism may be just too efficient... the name of the game is to increase money velocity through the system ... so without inflation, we will actually go even faster and eventually turn all the resources into garbage.

Oh and the greatest demand expansion of all... human population growth. The more people the faster we pollute. It's unsustainable. But all we can talk about are the cents each person is saving at the gas pump... really people?

The real "problem" with Capitalism is that the effects of the trade-offs being made are either not felt directly by the perpetrators or the feedback loop is too long that you end up in a "slowly boiling frog" situation.

If the person that reaps all of the money for a particular business makes enough money off of the venture that they can insulate themselves from the consequences, that is a failure of Capitalism. For example, someone lives in a community that depends on a particular waterway. They make a bunch of money by skimping on correct disposal of toxic waste, instead dumping it into the waterway. Once they've "made it," they take the money and leave the area. They are no longer feeling the effects of their actions, instead they are forcing them onto others. This is the legacy of Capitalism.

A supporter of capitalism would say the problem there is the lack of capitalism - someone should have owned the waterway, so that they'd have an incentive to sue if there was someone dumping stuff.

That would need changes to laws. A real supporter of capitalism would say the government should be owned by a king or group of shareholders who could put those kind of laws into place and defund the care of the disabled, etc.

There are legion ways to mitigate expelled CO2. But probably the cheapest is just to leave it in the ground.

"There are legion ways to mitigate expelled CO2."

Could you please elaborate on this assumption?

One way is to use the self-replicating, solar-powered, biotech carbon sequestration product known informally as "trees."

ways to sequester CO2? Plants/Trees, Freezing/compressing air, catalysts that react with CO2, and this: https://en.wikipedia.org/wiki/Carbon_dioxide_removal

Leaving it in the ground with today's technologies is very expensive in terms of opportunity cost. You can leave it in the ground, but people don't want to pay $5 per gallon for gasoline. The climate models don't show high costs to warming for at least s few decades.

It's also an opportunity. It costs energy to make alternative energy sources. So build them now while prices are low (I.e. don't send the Middle East lots of cash).

Then reduce demand for hydrocarbons by simply producing lots of alternative energy.

The other alternative is wait for prices to be high, which increases demand for alternative energy exactly when it's the most expensive to manufacture.

A smart company will build and stockpile, then sell when prices are high. A smart consumer (with deep pockets and lots of patience) will do the same.

Building and stockpiling solar panels would certainly be disastrous.

The solution is a 10x better energy source. And it's only going to happen if smart people get focused on it. Fluctuations in the price of oil affect funding, etc, but the people working on the problem are a bigger issue.

Elon Musk is doing his best to drive down the price of batteries and solar power. What will you work on? Baseload power probably needs nuclear. There are a number of nuclear energy startups right now.

We already know how to build nuke plants to replace coal. Fear-mongering over exceptional incidents at first and second generation sites like Chernobyl, Three-mile Island and Fukushima, and the extreme regulatory restrictions and NIMBYism are the problem there, not anything technical or economic.

Hell, you've got Germany closing perfectly good clean nuclear plants, that have to be replaced with new coal-burning plants, due to misguided environmental activism.

Innovative nuclear may be well priced out of the market at this rate but research (Gen IV, fusion) is going very fast nowadays and will only go faster with eDesign and cloud computing.

We need to keep oil in the ground but also massively reduce our meat consumption. I think animal agriculture accounts for something like 50% of all greenhouse gasses, whereas the burning of fossil fuels accounts for less than 20%.

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