> "Prices will rise up to 50% but that isn't much of a crisis "
If a 50% price increase isn't a crisis, then what is?
If a 50% price increase isn't a crisis, then what is?
And more importantly, oil prices are less important to the economy than most people believe.
TL: DR - Oil prices are not that important
Fortunately for me, they hadn’t read the newspaper lately.
It was a lot of fun to quote the collapsed oil price from a newspaper I found lying around and then relax the rest of the debate.
https://www.energy.gov/eere/vehicles/fact-915-march-7-2016-a...
ROTFL
https://oilvoice.com/Opinion/24972/Our-Finite-World-Why-We-G...
2015-present the price has been around $50-60 with some points below 30 and above 70
Has that 50% drop been some kind of miracle?
We would just be returning to prices of the previous decade.
https://www.macrotrends.net/2516/wti-crude-oil-prices-10-yea...
[Actually petrol is down about ~7%, 140p->130p per litre https://www.racfoundation.org/data/uk-pump-prices-over-time; and fuel-oil about ~10%, £300->270 per 500 litres https://www.cheapestoil.co.uk/articles/trend. But, compare that to https://www.macrotrends.net/2480/brent-crude-oil-prices-10-y... showing 2012 prices at 4 times 2015 prices.]
I think when people are thinking of "oil prices", as consumers they're converting that to "petrol prices" (and fuel oil if they use that) and thinking "if petrol/heating prices rise >50% that's going to be very hard".
Petrol prices only falling by four-twelths when the crude price fell by nine-twelths suggests that petrol costs a lot on top of the crude price and that a 50% crude increase might lead to, say a >100% petrol price increase.
On top of all of those factors I would only guess that at high prices profit margins fell by ratio which was recovered (or just increased) when prices fell.
Why? If petrol price is fairly inelastic to crude price (for reasons siblings note) that means it would increase a little, not a lot.
[1]https://www.macrotrends.net/1369/crude-oil-price-history-cha...
That’s probably it.
Something like 5% of world natural gas consumption is to drive the Haber process to create fertilizer that then drives everything else in modern agriculture. Now, natural gas and oil prices are not as correlated now as they used to be (due to fracking) but there seems to be some residual connection between the two, so that could be something to look out for.
A 50% price increase would be bad for people who have to drive and are in a financially precarious situation, but it's not any more a catastrophe than all the other various things that affect people in financially precarious situations, which upper-middle-class people can shrug off as a mild annoyance.
The only times gas has been unavailable for a sustained time is when the government fixed prices or otherwise prevented the market from working.
For example, when there's a natural disaster and anti-gouging laws kick in, gas becomes unavailable.
Later, the DoE started allocating (i.e. rationing) gas to gas stations.
Reagan abolished these by executive order as one of his first acts as President:
https://www.nytimes.com/1981/01/29/us/president-abolishes-la...
and the gas lines disappeared overnight and never returned.
I'm surprised it isn't talked about more. During the gas allocation times, there'd be a glut of gas in Florida and long lines in California because the DoE would allocate gas based on the previous year's usage patterns. Things change constantly, and the DoE was unable to adapt.
I had a friend who bought a gas station. It took him months to get a gas allocation from the DoE because the gas station across the street challenged his allocation, for obvious reasons.
When the market decides where to put the gas, the tanker trucks take gas from the glutted areas and move it to the shortage areas as a natural action. Any reasonable business moves product to where it is selling.
I personally don't think that will ever happen. The increased adoption of renewables means oil demand will not outstrip supply.
The increasing penetration of renewables is dwarfed by increased population + raising living standards.
If the Saudis are under-reporting their reserves, that's why. They don't want oil prices to be higher because it makes alternatives more competitive. It doesn't help them to sell oil for 50% more for a few years while that spurs everyone to buy electric cars and charge them with solar panels, only to have that demand reduction cause oil prices to decline below their current level and stay there forever. Or worse (for them), for consumption to decline to the level that consumers no longer strongly oppose a carbon tax, which would naturally cause consumption to fall off a cliff (as intended) as even more people switch to alternatives.
On top of that, the alternatives need volume to build economies of scale which make them more competitive. This is already happening but would happen faster with higher oil prices, and as it does the result is a permanent reduction in alternative energy costs, making oil less competitive even at lower prices.
Not arguing, but here's the data that should be reconciled:
https://ourworldindata.org/grapher/world-crude-oil-price-vs-...
And for most of the period on that graph, we didn't have the alternatives we do today. When oil prices spiked in 1979, people bought smaller cars that got better mileage, but they still ran on petroleum and used gas stations, and then people started buying petrol SUVs when gas prices came back down. If that happens in 2020 then people buy electric cars rather than econoboxes, and then we get more charging infrastructure and more battery research and economies of scale, and there would be no obvious advantage in ever switching back even if oil prices subsequently declined to their current level.
https://www.eia.gov/energyexplained/oil-and-petroleum-produc...
Moreover, you don't have to replace all cars to significantly reduce oil demand when each replacement with an electric vehicle reduces that driver's oil consumption by 100%, particularly when the vehicles most likely to be replaced as a result of higher oil prices would be the ones that drive the most miles. On top of that, the non-electric vehicles sold during periods of high gas prices would tend to be high fuel economy vehicles as well, and the vehicles in the existing installed base most likely to be junked would be the most inefficient ones.
The Chinese market in particular is fascinating from an EV perspective. Particularly because it seems to indicate that non-personal vehicles (especially buses, delivery trucks, and semi-trucks) are either going to be not far behind in electrification or even possibly slightly ahead.
It is starting to look like in the US it will be the case that commercial vehicles may electrify faster than the personal vehicle market (at least partly because manufacturers aren't really selling EVs for personal auto sales in a tautological fallacy that they think they won't sell in the US). Amazon's big recent deal with Rivian, for instance, should put a lot of commercial EVs on the streets. UPS' similar older, quieter deals with multiple companies pushing them to hybrid trucks only already and an entire EV fleet supposedly in the next several years. Proterra seems to be making great headwind in the US bus market, as another example.
I think there are some interesting possible big disruptions on the horizon:
- Oil prices go up (as this article is about)
- EVs become the cheapest powertrain option for any new vehicle. VW's ID.3 is already cheaper than all comparable Golf models, and most of the other German manufacturers expect to hit that switchover (due to efficiencies of scale) for almost all their models no later than 2023. (Chinese manufacturers seem to have mostly hit the switchover point already. Most other Asian manufacturers aren't far behind. Traditional US manufacturers GM and Ford are idiots and lagging everyone else again.)
- Somewhat similar to above, a small disruption in the complex web of internal combustion engine supply chains could potentially domino to greatly increase new ICE vehicle costs, and even potentially have similarly drastic consequences to ICE vehicle repair/maintenance costs. Internal combustion engines (especially compared to EV motors) have a lot of little, very specialized parts. Even just one supplier pivoting could have fascinating consequences. (With perhaps the only counter-disruption being something like 3D printing hitting certain machining specifications that seem currently unlikely.)
The middle one is definitely happening. The article here suggests the first one is maybe closer than people expect. The third one is one I'm amusedly watching, and I think is going to be a quick accident after the middle one happens. If German manufacturers move to certain sales benchmarks, that definitely affect global suppliers that are Germany-based such as Bosch, as just one example of many, and GM/Ford certainly have plenty of Bosch pieces in their supply chains, whether they admit it or not.
What about the issues with lithium and coltan supply for batteries ?
What about the ~+33% increase required in electric power generation to replace oil in transportation ?
I just don't see how it could be a "surprisingly quick" transition... even if we had started it early !
Lithium is in large supply (Atomic Number 3, right, third place on the Periodic Table), and is easily recyclable from current batteries.
Cobalt is a miniscule portion of current battery compositions. Most battery companies have been working to minimize or remove it. It should be recyclable, but it's never been economically feasible to recycle it from current battery compositions because a) it is such a minority component of current batteries, and b) Cobalt is cheap. (Cobalt is a "waste product" or by-product of Nickel mining today. The threat to Cobalt supply is that most Nickel mines today are in politically questionable regimes such as Columbia and the Democratic Republic of the Congo. But Nickel mining is likely something that continues to happen regardless of politics.)
> What about the ~+33% increase required in electric power generation to replace oil in transportation ?
If every car on the road today switched to EV tomorrow, but made sure to charge only during the "bathtub" of off-peak (evening) hours, there's absolutely no increase in power generation needed. Our culture's day-time peak generation capability, which has to account for most of our industrial use, is more than sufficient so long as consumers are smart about when they charge.
(The difference between Peak demand during the day and off-peak evening hours really is huge. "Filling in the bathtub" that the off-peak hours create in the demand chart is considered something of a holy grail for decades in utility grid planning because it would mean more base load generation that doesn't have to shut down every night and can run more continuously/smoothly every day.)
Smart Grid solutions exist and are being planned where cars can even help solve demand problems by acting as sitting batteries (as owners allow them to) that utilities can "loan" power from a car during peak demands, and pay back with "interest" during off-peak (and potentially doing so at an incredibly granular level).
All of which is to say that there are already market solutions to the increased electricity consumption of EVs. Peak rates might go up, perhaps, but the natural tendency of most EV owners is already to charge during off-peak (at home on the evenings), even without the extra incentives of big cost differentials between peak and off-peak utility rates. Most EVs today already have okay off-peak hours selection tools built-in, even without the detailed electricity price-sensitivity options that Smart Grids might eventually bring to the market. (But Smart Grids are certainly on utility road maps because there's a lot they could do with that extra demand sensitivity.)
I've yet to hear a worst case for EV electricity demand that would need 33% more capacity at Peak demand. That's an interesting and presumably unlikely scenario.
Being at the 3rd place in the atomic table isn't a guarantee of availability - after all hydrogen is first, is 75% of the mass of the universe, and yet isn't directly available to us ! (at a low cost) And recycling batteries won't help much when the goal is to massively increase production...
The only EV producer that's outright complained about battery availability is Tesla, and it's very easy to wonder how much of that was marketing spin to cover other production issues (and the accusation of the traditional car manufacturers that car production is hard and has huge startup hurdles), and maybe even PR/marketing spin to their own investors to explain insourcing battery production (building the "gigafactory") rather than partnering with an existing battery manufacturer.
Tesla probably has scaled faster than most other car companies, but yet it has also scaled much less comparably (to say Renault or VW just signing delivery or plant contracts in partnership with existing battery manufacturers rather than building their own factories from 100% "scratch").
I'd love to see a better analysis of the battery market right now. I'm betting the catch-22 that car manufacturers don't feel a lot of consumer demand for EVs has more on bottlenecking EV production than batteries in the current term.
They are (kind of), or at least talking loudly about it. They just don't seem to be very good at pulling off these sort of ambitious large scale projects.
https://www.bloomberg.com/news/articles/2018-12-16/why-saudi...
https://www.greentechmedia.com/articles/read/saudi-outlook-r...
No such thing. Prices will always hit a point where demand decreases. Inelastic isn't 100%.
So, it’s true, right up until it’s not
Good old-fashioned fraud. Oil prices had nothing to do with it.
Source: acquaintance who spent three years in court testifying about the rampant fraud in the mortgage industry. He worked for an investment bank which is no longer with us.
But I guess that it's a bit academical, as that bubble would have popped soon enough anyway...