OK, thanks for this.

“I don’t think hydrogene will be available for a long time”

Probably not, but the issue is how long is ‘long’. We may be talking about fifty years, but this is still a short horizon if you are sitting on reserves of 200 or 300 years at current rates.

Coal has the big problem that it can have global warming, negative-feedback side-effects. In particular higher global temperatures can lead to more air conditioning and more energy consumption.

China and the US of course are not in Kyoto. Looked at rationally the current high prices may be a blessing in disguise, since they will undoubtedly increase the quantity of resources going into looking for alternatives. Put it like this, I think there is a better chance spending more money on research will come up with something than there is that the Big Pharma will come up with a new generation but conventional ‘blockbuster’ drug. (Genetic therapy would, like non-conventional energy, be a whole new ball game).

Incidentally, did you note Spain’s new energy saving plan to reduce oil imports by up to 20%? (Portugal has also announced something similar).

China is already building plants to obtain coal-based fuel.

I don’t think hydrogene will be available for a long time, there are lots of problems. Joseph Romm, author of “The hype about hydrogen”, said fuel-cell cars should be viewed as a post-2030 tecnology.

I agree with you assessment over the short term. Andy Xie argues that there is a bubble related to China, that they have massively substituted coal for oil (at some cost to human life in the mining industry) and that imports into China have been dropping since the start of the year.

But even if the bubble bursts, and oil futures come significantly down at the end of the year, there is still a big secular upward pressure.

So prices will continue a drift upwards each time we have strong growth years (which won’t be every year). Then we get to the longer term - I have no idea of the timesecale, where the upward pressure (and possibly politically related supply concerns) forces a switch in energy source.

This, when it happens can be rapid and dramatic. The gas-station infrastructure remember is a network system with lock-in. It’s no use having just one or two outlets for the alternative energy, you need a whole national network.

This means it will probably come with govenment prodding, and maybe even subsidies. The oil companies, who control the outlets will resist. This is one product market structural reform which hasn’t been pushed to date.

Once one country moves over, others can follow quickly. Basically the petrol outlets will be phased out, and the new energy ones introduced sytematically, rather like the lead free petrol issue.

Once the transition is complete, it could be bye-bye gasoline. The Japanese are already building hybrid cars.

“on the inefficiency of biofuel”

I didn’t know about this, thanks for the link.

But most of the current rise is due to a terrorism or insecurity-premium, with large producers like Iraq and even SA uncertain, the business climate in Russia and concerns over places like Nigeria & Venezuela, etc.

I don’t really think it’ll drop back down to 30/barrel, but if the sense of insecurity subsides in those countries, new producers are brought on, and/or actual progress is made on alternatives, then the price could ease.

Speaking of the alternatives, and sorry to take this so far off topic, with the recent reporting on the inefficiency of biofuel, http://www.nytimes.com/aponline/business/AP-Ethanol-Study.html. I’m wondering if similar or opposite conclusions had been made in other countries, ie Brazil, that use biofuel heavily.

ps. Why do you think the Bolivians don’t want the gas.

“We may have gotten used to 50-60 dollars/barrel, but it’s not entirely unthinkable for it to drop under 30.”

I’m sure you’re right. We still haven’t got to the level of prices of the 1970’s in real terms (80 odd $ a barrel). The big issue is the OECD-isation of large parts of the global population, after that demand for oil and many other raw materials will be in relative decline as we get into alternative energy sources, and more efficient energy use, especially in China and India. So the question is will the oil producers be able to make the leap and diversify? Those large petro-related accounts sitting in dollars and euros, and buying government debt, suggest they may not be. Miguel Octavio, a blogger in Venezuela, calls his blog ‘the devils excrement’ for what I think should be obvious reasons. By and large, having petroleum can be more of a curse than a blessing.

Incidentally, Gulliver, Adam Smith made a somewhat similar argument about Spanish bullion from the Americas: it simply corrupted Spain, and left her KO’d when the industrial revolution came.

“Your speaking of atleast ten years to replace a significant part of cars if you would have the technology now (which we don’t).”

Oh, I’m talking about a lot longer than ten years. Let’’s say 40 or 50. Apart from gasoline, there is also the petro-chemical industry to think about. Making a transition won’t be easy, but I am sure we are in the process of doing so. Partly we want cleaner energy, so I don’t think (James) that coal will be a solution (this is also a Kyoto related question, and sets the EU in contrast to major energy users like the US and China, China has moved into coal in a big way, but this can be ecologically disastrous). But note, even Bush is now talking about getting off petrol.

It is impossible to say how long large scale demand for petrol will last, but I am sure one day it will be a lot less than it is now. The big issue is the development of the third world, especially at the moment China and India. All this extra demand is what is forcing up prices.

I can’t remember offhand how long oil stocks are set to last. There is a lot of debate about this. But lets say there are stocks for 200 years, but we come off using oil in a big way in 50. This would be the issue. Of course oil producers can’t increase output too much anyway, since even if they could do it technically, this would simply collapse the price, that’s why they need a delicate balance.

“I agree with you, but I think Iraq is an outstanding part.”

Well, it seems we are not that far apart, since we would end up having simply a semantic discussion about the meaning of ‘outstanding’. I have posted here on various occassions about how the Iraq war has served to increase the level of terrorism in various ways, the Chatham House report says this too, and the CIA also argue this (which is in part understandable since the background to the decision to go to war is a shift in influence away from the CIA and to the Pentagon). This is why I think the Blair/Straw argument is both ridiculous and outrageous.

What I am trying to stress is that the terrorism problem will be with us long after the Iraq war recedes into history. Also that the Iraq war and the Afghan war are very different, and if you notice, Afghanistan is once more being stressed in terrorist circles.

“But you have to cross a high psychological barrier to kill civilians in the country where you have been living all of your life.”

This point is a fair one. It may be the case, but don’t discount what people can be lead to do once they are inside a sect. The Sarin gas case in the tokyo underground would be one example, the people concerned were Japanese. Also, inside the US itself, right wing terrorism has killed civilians with no very clear aim. Radical islamists also do something pretty similar in India. I suppose you can say that the Kashmir there is an issue, but, if you look at who is in Beeston, so it is in the July 7 bombings. The family of at least one of the bombers came from Kashmir, and Britain, of course, is the ‘guilty party’ there too.

Sadique also felt very strongly about Israel, if the reports that he was there with a suicide mission are correct.

“I mean the last Iraq war, I don?t think the 1991 war and the embargo were strong enough as stimulation.”

My feeling is that these people weren’t in the least bothered about this part of history. Saddam was the enemy of radical islam, not the friend. If he was having problems, I guess they didn’t give a damn. It is only after he fell, and Iraq became an area of potential jihad that it’s level of importance rose. Actually I’ve even speculated on this blog that OBL knew the Neo-con agenda (it wasn’t exactly a secret), and that his objective on 11 September was precisely to draw the US into Iraq. You have to imagine he realised that there would be a response, that the war in Afghanistan was predictable, but he might also have been able to guess the next move. I think we shouldn’t make the mistake of imagining our enemies are stupid. At one swoop he got rid of an enemy (Saddam), opened Iraq to his ideas, and provided a battleground where he could attack the US military.

OBL was concerned about the 1991 war, but I think only because of its impact in having US bases in Saudi. Remember he had been fighting people similar to Saddam (Russian allies) in Afghanistan, and had, of course, allied himself with the US to do so. I think the post 1991 war issue is one for anti-US people in Europe, it is important to try and keep these distictions clear.If you look at the comments you will find arguments which go from 1991, to Kosovo, to Afghanistan, to Iraq. This is just anti Americanism pure and simple.

“That may be true. Because there are Spanish troops in Afghanistan”

Well you may be right that it is for this reason, but my feeeling is that more issues will arrive. I don’t see how Spain can stay in Ceuta and Melilla and not have problems (anyway it shouldn’t be there, it is a remnant of colonialism), but I see lots of discussion about Gibraltar, and none about an exit strategy from North Africa.

Wholesale oil prices are over double what they were just a few years ago. We may have gotten used to 50-60 dollars/barrel, but it’s not entirely unthinkable for it to drop under 30. Besides, do you think the oil lobby in the US is more powerful than all other businesses put together? High oil prices increase costs for businesses, which would be passed onto consumers, who in turn can’t buy as much. It also eats up the military budget for the US.

Look at Saudi Arabia, and OPEC, even when they announce a drop in output, it’s not held to, since oil prices are so high, its in each producers individual interest to pump as much as quickly as possible and get it at a high price. If oil does get much higher then it may actually prompt people to look for alternatives or conservation

“So the maximumization problem most oil rich countries have is to get it out of the ground and sell as much as possible before that happens.”

Before oil we used coal but nobody uses that anymore :-). The maximumization problem is IMHO wrong. The oil using countries will not subsidies oilproduction if it isn’t that important anymore and so prices will rise instead of your predicted fall