Oil at US$500 per barrel?
Willem Buiter has written a provocative piece in his Financial Times blog on what might happen if the price of oil reaches US$500 per barrel.
Buiter is an eminent economist based in the UK.
His piece has provoked a number of comments in the blog thread which are worth a look also.
As he notes Europe, with a well developed rail system and centuries of high density population may well weather such a scenario better than say the USA. Australia because of the fact that the majority of the population is in relatively few major centres may not fare too badly either.
He makes some interesting points on how the US has yet to face reality in respect of oil prices.
The future for New Zealand is likely to be problematic in terms of industries such as tourism, given our geographical location.
Air travel is likely to be severely curtailed due to fuel cost, unless a new source of cost effective and low polluting fuel is found.
Are we likely to see a return to travelling by sea?
How would the NZ economy cope if fuel goes to US$200 a barrel, let alone US$500?
What would be the impact on cost structures?
A stimulating piece, worth a look. It makes you think.
I say BRING IT. I calculated I can still drive my Prius at $2000 a barrel. Yep, TWO-THOUSAND
Here’s how I got there:
There are 42 gallons in a barrel, so $2000/barrel is $47.60 per gallon. I get about 47.6 miles per gallon, so it would cost me $1/mile to drive around. If I carpool with 3 other people, this drops down to $.25/mile. THIS IS ALREADY WHAT STUPID SOLO SUV DRIVERS ARE PAYING TODAY. Gas here in California is $4.76/gallon, and the BEST (highway) mileage for those SUVs is 19 mpg – which (surprise!) is costing the driver $.25/mile.
So, even with oil at $2000/barrel, I’d be able to get around with three car-poolers. And since they’d be leaving their (more guzzling) cars at home, all it would take for the world to get around at $2000/barrel is for the 75% of the population who have the least efficient cars to carpool with the 25% who have the most efficient cars.
Now, as far as how to power the semi trucks that bring us food, medicine and everything else, well, we could convert them to run off of BIOgas (natural gas from landfills and wastewater facilities) – yep, we can run them on crap!
I should add that I largely agree with his assessment, especially since Americans are finally driving less miles with $4 gas. I think the drop-off at around $5.50 would be profound. As a middle-class American, I try not to drive across the city for kicks these days, but I probably won’t start “planning” my drives until around $5.50.
We had a guest speaker in a class on Energy Markets I took a year or so ago and he argued that US oil demand would start to fall-off significantly around $5.50/gallon (were at about $4 now), so I don’t think it will take $500 oil to have a big impact on demand.