Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

Nonsense, nonsense, nonsense: the myths about high oil prices
The Sunday Telegraph ^ | April 30, 2006 | Niall Ferguson

Posted on 04/30/2006 12:55:20 AM PDT by MadIvan

The British call it petrol, Americans prefer gasoline. But whatever you call it, prices at the pump are soaring. Last week gas hit $3 a gallon in some parts of the United States. To which British motorists can only reply: Diddums.

Driving down the M40 on Friday, I passed petrol stations selling regular unleaded at 97.9 pence per litre. That works out at $6.62 a gallon. If a British outlet offered petrol at American prices - 44 pence a litre - there would be a queue from Beaconsfield to Birmingham.

It's no great mystery why the British shell out more than double what Americans pay to fill up their cars. For years the United Kingdom has levied much higher taxes on fossil fuels than the United States. So if British motorists want to blame someone for the high cost of motoring, they know where to start.

Of course, it's not Gordon Brown's fault that the underlying price of petrol has risen steeply since he came into office. Crude oil futures hit a record price of $75 a barrel last week. That's six times the price that producers were asking back in December 1998.

So who's to blame for higher oil prices? This week, we have heard nearly all the usual suspects fingered, along with some new ones. "We are dealing not just with normal supply and demand economics," Lord Browne, the chief executive of BP explained in an interview. "Financial activity in the oil markets" was driving prices up, one of his colleagues explained, a thinly-veiled reference to hedge funds.

American politicians offered a less subtle story. Leading Democrats blamed President Bush for being too "cosy with the oil industry". Those who previously argued that the Bush administration invaded Iraq to make oil cheap now argue that it was in fact, er, to make oil dear.

The Chancellor? The hedge funds? The oil companies? I'm surprised someone hasn't yet blamed the Deputy Prime Minister, John Prescott, who famously keeps two Jaguars - one (it now turns out) for each of the women in his life.

This blame game is a farce. The price of fuel is high precisely because of "supply and demand economics", as Lord Browne knows only too well. Global demand for oil has risen by around 40 per cent in the past 20 years. As so often in world economic affairs these days, a crucial role is being played by China. In the last five years, the G7 countries have accounted for just 15 per cent of the growth in global demand; China has accounted for twice that.

Soaring demand is coinciding with stagnant supply. Global refining capacity has scarcely grown and took a big knock from last year's hurricanes. Meanwhile, political instability in some of the world's principal oil producing countries - Iraq, Nigeria and Venezuela - has made commodity traders and intelligent investors legitimately pessimistic about future supply. And let's not forget the possibility of US air strikes against Iran. It's hardly "speculation" to bid up the price of oil futures. Only a fool is "short oil" these days.

Could we be about to relive the 1970s, which was the last time oil prices were this high relative to other consumer prices? The good news is that, thanks to increased efficiency and reduced industry, the G7 economies are much less oil-dependent than they were back in the days of kipper ties and bell-bottoms. Nor are high oil prices likely to bring back the stagflation - low growth plus high inflation - we saw in those dreary days.

Some analysts even argue that high oil prices are good, on the principle that they send a signal to producers and consumers that it is time to seek new sources of energy. But this is another piece of nonsense.

There are two problems with high oil prices. The first is political: they enrich the wrong people. "Naturally Iran is happy," the Iranian oil minister was quoted as saying by al-Jazeera last week. "High prices make any supplier happy." Well, anything that makes the regime in Teheran happy is bad in my book.

But the much more serious problem is environmental. Here, I have to dissent from the fashionably contrarian view that global warming isn't happening or doesn't matter. For 400,000 years, the world's atmospheric concentration of carbon dioxide (CO2) fluctuated between 180 and 280 parts per million (ppm). Last year it reached 380 ppm. The evidence that global temperatures are rising as a result is incontrovertible. True, no one knows exactly what the effects on the world's climate may be. But, once again, only a fool thinks there will be no effects.

The trouble is that high oil prices are not a signal to mankind to do anything about CO2 emissions. On the contrary, they are as much a signal for oil companies to exploit hitherto non-viable deposits of hydrocarbons, such as Canada's tar sands. At the same time, high oil prices do not deter people from buying gas-guzzling cars. Indeed, the demand for Sports Utility Vehicles like the monstrous Hummer seems to be (as economists say) "price-inelastic". Better-off Americans are still buying Hummers even with gas at $3 a gallon.

It's easy to see why. If you drive as much as Americans do - it's a big country and people commute long distances to work - you want to be comfortable on the road. The SUV is in fact a kind of hybrid - part vehicle, part living room. Unfortunately, the market is only as far-sighted as consumers. If people don't believe that global warming will affect their lives - and polls show that they don't - then the risk of climate change simply isn't priced in.

So what is to be done? Is there a better way to propel ourselves around than sucking oil out of the ground, refining it and setting it alight in internal combustion engines? The answer is yes.

I've often agreed with Homer Simpson that alcohol is the solution to (as well as the cause of) most of life's problems. In this case, alcohol really is the answer - to be precise, the form of alcohol known as ethanol, which is distilled from plants such as sugar cane.

Unnoticed in the northern hemisphere, one country is pioneering a transportation revolution by switching from petrol to ethanol. That country is Brazil. Today, ethanol accounts for 40 per cent of all automobile fuel in Brazil, while 80 per cent of new Brazilian cars are flexible-fuel cars that can run on either petrol or ethanol.

In theory, such "biomass" fuels - derived from carbohydrates not hydrocarbons - could replace nearly all of the world's oil-based transportation fuels. There would be some environmental costs to such a switch, no doubt, but it would radically curtail CO2 emissions.

What's preventing the northern hemisphere from following Brazil's lead? The answer is not so much Big Oil - though American oil companies have fought tooth and nail against the introduction of ethanol, even as a fuel additive - as Small Agriculture. To protect northern farmers, huge tariffs are currently imposed on imports of Brazilian-produced ethanol by both the United States and the European Union.

Yet not even a world of perfect free trade would convert humanity to more prudent forms of propulsion. Tax incentives are also needed to encourage people to buy flexible-fuel cars.

And if you want to know how to pay for those tax breaks, just ask Gordon Brown. British-style taxation of gasoline won't stop Americans from driving Hummers. But it could help finance a transition to the car of the future: Green Hummers that run on booze.


TOPICS: Editorial; Foreign Affairs; Government; News/Current Events
KEYWORDS: energy; gasprices; myth; oil; oilprice; uk; us
Navigation: use the links below to view more comments.
first 1-2021-4041-6061-74 next last
I disagree with him on two points:

I don't believe in global warming.

I think petrodiesel, then a transition to biodiesel, is the answer.

Regards, Ivan

The Sietch Banner

1 posted on 04/30/2006 12:55:26 AM PDT by MadIvan
[ Post Reply | Private Reply | View Replies]

To: Deetes; Barset; fanfan; LadyofShalott; Tolik; mtngrl@vrwc; pax_et_bonum; Alkhin; agrace; ...

Ping!


2 posted on 04/30/2006 12:55:48 AM PDT by MadIvan (I aim to misbehave.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: MadIvan

"To which British motorists can only reply: Diddums."

And Americans can, in turn, reply:

Well... don't want to get banned, so let's stop there.


3 posted on 04/30/2006 1:20:56 AM PDT by Jack Hammer
[ Post Reply | Private Reply | To 1 | View Replies]

To: MadIvan
The SUV is in fact a kind of hybrid - part vehicle, part living room.

I don't care who you are - that's funny!

4 posted on 04/30/2006 1:58:18 AM PDT by Slings and Arrows (Rachel Corrie's not dead - she's taking a CAT nap.)
[ Post Reply | Private Reply | To 1 | View Replies]

Limbaugh says we aren't paying a lot for gas. So it must be true.


5 posted on 04/30/2006 2:00:38 AM PDT by KneelBeforeZod (I have five dollars for each of you)
[ Post Reply | Private Reply | To 4 | View Replies]

To: MadIvan

Actually ethanol my be an answer, but in fuel cells. Already have them in small ones, but it will be a while before they are scaled up.

Another is Nuclear power. Solar panels. All good, but the problem with all of them is it just reduces demand for oil and therefor, reduces price so it is more affordable and cheaper than the alternatives.

So do we do as the Brits and increase taxes on it to reduce demand? That would put more money in the US pocket and less in Iran's and SA.


6 posted on 04/30/2006 2:21:41 AM PDT by KeyWest (Help stamp out taglines!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Slings and Arrows

Yep that's funny. I drive an SUV to help speed up the consumption of gas. We won't stop using it until it's gone. Necessity being the mother of invention, when we need a new energy source we'll get one. I watched a movie about a promising new alternative called energon....


7 posted on 04/30/2006 2:34:43 AM PDT by grantgarvey
[ Post Reply | Private Reply | To 4 | View Replies]

To: MadIvan; All
I have been covering, ( Or, as Seamole calls it...-backhoe's pseudoblog--... ) pseudo-blogging, this issue for years, so allow me to drop out of Lurk & Link mode for a rare bit of commentary-- we all need to get serious about our dependency on foreign sources of energy, and use our own resources.

Our consumer-based economy is driven by and dependent upon readily-available, reliable energy-- choke that off, and we'll all be back to using one rotary dial phone in the dining room, watching one TV in the living room, and driving one car per family-- probably a Hudson Hornet or a Nash Metropolitan...

We need to

1) end the nonsensical ban on offshore drilling off California and Florida--read & weep:
Castro Plans to Drill 45 Miles from US Shores, But We Can't

2) build a lot of next-generation nuclear power plants, not just for electricity, but for any process requiring heat, power, or steam.
And if we replaced our existing nuclear plants with
this one there would be significant benefits.

3) end Jimmy Carter's idiotic ban on recycling nuclear waste, and reprocess the stuff rather than fighting over where to bury it. Europe has done this for decades.-- what to do with spent nuclear fuel? Answer here: http://www.freerepublic.com/focus/f-news/1468321/posts?page=50#50 hattip:  Mike (former Navy Nuclear Engineer)

4) use the 300-500 years worth of coal we have on our own land, using the new clean-coal technology.
-Clean Coal Centre--

5) and finally, there's nothing wrong with conservation, we should all practice it- but you can't conserve your way out of a shortage. Nor is there anything wrong with "alternative" energy sources- except they don't supply the vast ( not to mention readily-available ) amounts of power we need at a price competitive to more conventional sources. Then again, there is this to ponder:
Energy From the Gulf Stream
http://www.energy.gatech.edu/presentations/mhoover.pdf

We do need to get serious about this before we get strangled by a bunch of petty thieves and dictators who don't like us much.

My tongue-in-cheek collection of energy-related links:

Sticker Shock-$3 a gallon gas? Click the picture:

And kindly note, and note well-- the first reply to this post ( when gas was $1.45 a gallon ) was derisive... so, who's laughing now?




8 posted on 04/30/2006 2:42:16 AM PDT by backhoe (Just an Old Keyboard Cowboy, Ridin' the Trakball into the Dawn of Information)
[ Post Reply | Private Reply | To 1 | View Replies]

To: KeyWest; backhoe

Has anyone here looked at the numbers?

Can we grow enough ethanol to fuel all the cars in the US?

Basically burning ethanol is using solar power.

I find it hard to believe that we can. It is also seasonal. And last but not least it uses a lot of water.


9 posted on 04/30/2006 3:19:58 AM PDT by DB ()
[ Post Reply | Private Reply | To 6 | View Replies]

To: DB
Has anyone here looked at the numbers?

From my links:

http://www.instapundit.com/
ALTERNATIVE-FUEL-O-RAMA: Popular Mechanics crunches the numbers on various alt-energy schemes.

10 posted on 04/30/2006 3:27:07 AM PDT by backhoe (Just an Old Keyboard Cowboy, Ridin' the Trakball into the Dawn of Information)
[ Post Reply | Private Reply | To 9 | View Replies]

To: MadIvan
Driving down the M40 on Friday, I passed petrol stations selling regular unleaded at 97.9 pence per litre. That works out at $6.62 a gallon.

What is he using? British math? There are less than 4 litres per gallon. That means that "petrol, my dear diddums" is less than $4/gallon.

11 posted on 04/30/2006 3:48:16 AM PDT by raybbr
[ Post Reply | Private Reply | To 1 | View Replies]

To: MadIvan
If the oil companies are making approx. 19 cents a gallon (and they made billions) and the government is making almost 50 cents a gallon in taxes...
Why aren't Americans upset with the insane profits that the government is making.
I guess I just don't understand. The angst seems misdirected.
12 posted on 04/30/2006 3:51:20 AM PDT by philman_36
[ Post Reply | Private Reply | To 1 | View Replies]

To: raybbr; MadIvan
What is he using? British math? There are less than 4 litres per gallon. That means that "petrol, my dear diddums" is less than $4/gallon.

OOOOPPPPPSSSS! 97.6 pence!

You Brits got to change that - it sounds too much like pennies. :)

(After a long run through the woods the oxygen was trapped in my legs slowing down my brain.)

13 posted on 04/30/2006 3:59:34 AM PDT by raybbr
[ Post Reply | Private Reply | To 11 | View Replies]

To: raybbr

pence are worth more than pennies.


14 posted on 04/30/2006 3:59:56 AM PDT by palmer (Money problems do not come from a lack of money, but from living an excessive, unrealistic lifestyle)
[ Post Reply | Private Reply | To 11 | View Replies]

To: raybbr

Oops, late again.


15 posted on 04/30/2006 4:00:38 AM PDT by palmer (Money problems do not come from a lack of money, but from living an excessive, unrealistic lifestyle)
[ Post Reply | Private Reply | To 13 | View Replies]

To: MadIvan
While booze and hummers have a long history of association, they can be deadly on the highway.

ANWR (Alaska) was purchased for its oil -- time we followed through on the idea.

16 posted on 04/30/2006 4:01:00 AM PDT by Ed_in_NJ (Who killed Suzanne Coleman?)
[ Post Reply | Private Reply | To 1 | View Replies]

To: MadIvan
The price of fuel is high precisely because of "supply and demand economics", as Lord Browne knows only too well. Global demand for oil has risen by around 40 per cent in the past 20 years.

Would an economic model suggest that, since the price has increased sixfold in the last eight years, the supply should have declined sixfold during the same period? I don't buy the argument that global demand is driving prices up without a significant reduction in supply......

17 posted on 04/30/2006 4:04:21 AM PDT by eeriegeno
[ Post Reply | Private Reply | To 1 | View Replies]

To: DB

Interesting.

Look at the graph in post #28 on your 2004 thread (NYMEX Oil Futures). That graph is two years old but accurately predicted our $75/barrel high from last week.

In other words we had 2+ years warning of this impending "crisis". Two years to shape policy and prepare. Or not.

Apparently the price of gas isn't dear enough. Yet...


18 posted on 04/30/2006 4:54:21 AM PDT by rockrr (Never argue with a man who buys ammo in bulk...)
[ Post Reply | Private Reply | To 9 | View Replies]

To: MadIvan
The evidence that global temperatures are rising as a result is incontrovertible.

The author cites that the historic levels of CO2 have been 180 to 280 PPM, notes that they are currently 380 PPM, and points to that as incontrovertible proof. Sure lets me know why he's a journalist and not a scientist.

A couple of simple points, the first being the most obvious:

Correlation is not causation.

Nobody's proved that there IS a variation in the temperatures yet to my satisfaction.

And you're seeing more and more climate scientists breaking ranks with the global warming theory.

19 posted on 04/30/2006 5:08:10 AM PDT by Hardastarboard (Why isn't there an "NRA" for the rest of my rights?)
[ Post Reply | Private Reply | To 1 | View Replies]

To: raybbr
What is he using? British math? There are less than 4 litres per gallon. That means that "petrol, my dear diddums" is less than $4/gallon.

I think that 97.9 pence is a portion of the British pound which when converted to dollars would account for the $6 + per gallon amount.

20 posted on 04/30/2006 5:13:06 AM PDT by USS Alaska (Nuke the terrorist savages - In Honor of Standing Wolf)
[ Post Reply | Private Reply | To 11 | View Replies]


Navigation: use the links below to view more comments.
first 1-2021-4041-6061-74 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson