Sunday, January 27, 2008

Oil Prices Could have Been $200/ barrel

Oil prices briefly touched $100 per barrel in the first week of 2008. This price was estimated by forecasters in the middle of 2007. But if we really think about it, oil prices could easily have been double if governments had ignored new products, new energy sources.

The first savior was the 1973 oil shocks that had prices rushing through the roof in matter of days, at the least the $100 was predicted for a long time, in 1973 it was a real shock. After this shock societies looked at their knowledge base and decided to diversify their energy source consumption, no more was this more evident than in France. France took a radical leap and ignored calls from the far left and developed nuclear power as a strategy. Nuclear power is not a nuclear weapon, it generates electricity. France wisely understood that as best as possible it must be ready for future shocks, today it generates over 70% of its power/ electricity from nuclear stations. Nuclear power is reliable and countries needing diversification need to look at it as an option, it is also a clean energy source.

The shock of the 1973 oil crises also led countries to demand more fuel efficient automobiles. This led to the rise of Japanese motor vehicle companies especially Toyota, they made reliable cars using less fuel than their competitors. These automobiles are the love of the world, without the 1973 oil shock there would have been no incentive for more fuel efficient cars, indeed Detroit would still dominate the world market because caution would have been thrown out of the window. 1973 was a supply shock, 2008 is caused by demand, with or without 1973 oil shocks, the demand for oil would still have steadily increased over the years because of increased demand, that there was this supply shock truly has proven to be a blessing.

Because of the 1973 oil shock, the world looked into technology for other sources of renewable energy, thus research into wind, solar, tidal power and other sources of renewable energy took pace at a faster rate, wind turbines are now for more efficient than they where a decade ago let alone 1973, solar panels have become more efficient, great strides have been taken into geothermal power generation, how much urgency would have been put into this research if it where not for the shocks of 1973, not too much. Gradual increase in prices allows people to psychologically get used to the changes, they adapt, a shock however spurs people into action.

Energy diversification has led to some old industries surviving, like the coal mining industry. However without coal energy prices would have sky rocketed at a faster pace, diversification is important. However with the environmental concerns even coal powered power plants have had to adapt to these concerns and they have become more efficient and much cleaner than they where three decades ago.

Look at the buildings, today’s architectural wonders are more energy efficient as well as good for the eye to look at. Some Toronto office blocks use a unique system of cooling down that greatly reduces the use of power, this system involves using lake Ontario to power the cooling system, as can be seen from this website, City of Toronto Cooling System. Many ways are being found to reduce energy consumption, things that where not so important pre 1973.

Housing appliances have become not only more sophisticated but more energy efficient, the lights, the washing machines, fridges, computers, televisions, all are more energy efficient. This is all in a desire to give more for the buck and save money on energy prices.

The shocks spurred societies to be innovative, the long term property of knowledge is that it grows exponentially, once investigation into alternative energy was spurred on, the global knowledge base of these energy systems grew allowing for more efficiency to be reproduced each time thanks to research.

On the sad side, not taking knowledge seriously and playing strange games Africa has failed to developed, this failure means oil prices are lower than what they would be if a continent like Africa had taken knowledge seriously, an African economy growing at full potential would definitely see oil prices much higher than what they currently are. Right now many societies are having problems with a steady supply of energy, it can not be afforded.

As explained above, humans psychologically can adapt to gradual increases in prices, there really is no real anger at oil prices hitting $100/ barrel, why, because societies could accept the gradual creeping higher prices, however a shock spurs innovation, without 1973, oil prices could be much higher.

Bhekuzulu Khumalo

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Bhekuzulu Khumalo

I write about knowledge economics, information, liberty, and freedom