IMF consider Peak Oil

[Pat Gill]

IMF consider Peak Oil

Just when you thought the worlds economic crisis had become complicated enough, it just got a little more complicated.

The IMF recently issued a working paper which looks at the subject of the high oil prices which the world economy, and you and I, are coping with today, the paper discusses the reasons that prices are so high and forecasts what the future price of oil will be.

This IMF paper is being discussed by assorted experts this week in West Cork those interested can of course discuss it here also.

The significant event though surely is that an economics organisation such as the IMF is now seriously considering a subject which up to now has been considered slightly out there and is further considering the effects this will have on the world economy.

What does a doubling in the real cost of oil mean for Ireland and more importantly for you.

While our model is not as pessimistic as the pure geological view, which typically holds that binding resource constraints will lead world oil production onto an inexorable downward trend in the very near future, our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade. This is uncharted territory for the world economy, which has never experienced such prices for more than a few months.
Our current model of the effect of such prices on GDP is based on historical data, and indicates perceptible but small and transitory output effects. But we suspect that there must be a pain barrier, a level of oil prices above which the effects on GDP becomes nonlinear, convex. We also suspect that the assumption that technology is independent of the availability of fossil fuels may be inappropriate, so that a lack of availability of oil may have aspects of a negative technology shock.
In that case the macroeconomic effects of binding resource constraints could be much larger, more persistent, and they would extend well beyond the oil sector. Studying these issues further will be a priority of our future research.

http://www.localcampus.com/Regions/E...es/wp12109.pdf

[2wheels]

I think this "peak oil" is a wee bit of a scare tactic to justify high prices and also for promoting alternative energy sources (which is also a global business). New oil is being discovered every week its just harder to extract it at the moment because the technology is just not there for safe extraction (BP taught that lesson) A lot of places have easily accessible oil but political uncertainty delays extraction...men with AK47's tend to upset things !!!
I work in the industry and can see no real slowdown in exploration and extraction, and big money is being spent on new builds...the one I'm on cost $2billion and its not even bringing oil up yet, one thing I do see is more jack-up rigs being built as they are more cost effective than fixed platforms, and can be towed to new fields when one is exhausted.

[C. Flower]

Wars are fought over, and lost and won because of, oil.

We are so oil dependent that it doesn't take a very big price increase to cause serious problems.

[Pat Gill]

I think this "peak oil" is a wee bit of a scare tactic to justify high prices and also for promoting alternative energy sources (which is also a global business). New oil is being discovered every week its just harder to extract it at the moment because the technology is just not there for safe extraction (BP taught that lesson) A lot of places have easily accessible oil but political uncertainty delays extraction...men with AK47's tend to upset things !!!
I work in the industry and can see no real slowdown in exploration and extraction, and big money is being spent on new builds...the one I'm on cost $2billion and its not even bringing oil up yet, one thing I do see is more jack-up rigs being built as they are more cost effective than fixed platforms, and can be towed to new fields when one is exhausted.

2wheels,

Peak oil is mainly about price and a picture paints a thousand words.



Until 2005 there was a quite placid relation between supply, demand and price which, allowing for short lived spikes, extends back for almost a century .

After 2005, production struggles to continue its historical 2% annual increase, consumption exceeds supply for a longer time than the capacity of the oil storage industry can cope with, production struggles to keep up, in fact it declines, storage can't make up the difference and price reacts. And then continues to react.

It was of course in 2004 that Saudi Arabia decided it needed to double the amount of wells in order to maintain its output. That doubling of production assets has only marginally increased output since then.

Your bosses are not worried about finding new fields, they are more concerned about demand destruction as the cost of recovering this new oil increases, forcing up the price of oil.

If the price goes too high we can't afford to buy as much of it. That of course increases the price further which means even less litres through the forecourt.

You should read the IMF paper.

[MPB]

IMF consider Peak Oil

Just when you thought the worlds economic crisis had become complicated enough, it just got a little more complicated.

The IMF recently issued a working paper which looks at the subject of the high oil prices which the world economy, and you and I, are coping with today, the paper discusses the reasons that prices are so high and forecasts what the future price of oil will be.

This IMF paper is being discussed by assorted experts this week in West Cork those interested can of course discuss it here also.

The significant event though surely is that an economics organisation such as the IMF is now seriously considering a subject which up to now has been considered slightly out there and is further considering the effects this will have on the world economy.

What does a doubling in the real cost of oil mean for Ireland and more importantly for you.

Pat, the only reason for the high price of oil is because it is a traded commodity.

It can be traded on the speculative markets and manipulated by people with more money than conscience.

Your own Spirit of Ireland project is a possible solution to our energy future and you should be making progress with Enda Kenny as Taoiseach.

I met with him as part of a business group on a day when he had just met with Spirit of Ireland and he could not contain himself about the potential of your project.

Of course that was 2 years before he became Taoiseach and fell under the control of the ESB.

[Count Bobulescu]

US oil is now below $80 for the first time this year.

http://www.foreignpolicy.com/article...ming_oil_crash

To understand why your average oil king is right to be worried at the moment, grab your calculator. The price of U.S.-traded oil fell to $83.27 a barrel on Monday, and global benchmark Brent crude to $96.05 a barrel; now juxtapose that against the state budgets of Iran, Russia, and Venezuela, which require more than $110-a-barrel Brent prices to break even, according to generally accepted estimates, and you'll see the problem.

The biggest uncertainty in the global oil market isn't whether oil prices will drop further -- they seem likely to -- but how long they will stay down. In short, how long, and at what scale, are the petrocracies likely to suffer? This state of affairs is a woeful blow to petro-rulers after nine years of mostly nirvana. The year 2003 started with oil at about $33 a barrel, after which prices went mainly up, peaking in July 2008 at $147 a barrel. They bounced back nicely even after the global financial crisis sent prices plummeting below their 2003 level, to about $31 a barrel in December 2008. When the Arab Spring unfolded, first Libya and then Iran triggered worried looks on trading desks in London and New York, and the price spiked to about $128 a barrel. My mom saw the average price of gas in California rise to $4.36 a gallon. But then the concern of war between Iran and Israel all-but vanished, and prices since have been on a seemingly relentless decline.

Now, a convergence of forces is weighing on petro-rulers' nerves: Europe's economic crisis; a slowdown in Chinese growth including the demand for oil; a steep decline in U.S. oil consumption with a simultaneous rise in domestic oil production; and a determined effort by petroleum colossus Saudi Arabia to build up global inventories.
It is perhaps the last data point -- Saudi Arabia's aggressive actions to lower prices by pumping some 10 million barrels a day -- that might seem baffling given Riyadh's economic stake in the oil game. But Verleger, the Colorado-based oil economist, says the Saudi rationale is clear, and linked to the kingdom's traditional long game.

[morticia]

Oh wow, the IMF have finally realised that the oil price could have negative effects on the economy, 5 years after the mother of all crashes. Get this, guys, the rate of oil production or energy conservation, reducing demand, or both, needs to exceed demand by about 10% for prices to stay down for long.

Not sure I see this happening, so that means very little economic growth. Personally, I have a theory that economic growth is impossible without debt expansion above 50-60 bucks a barrel.

And debt expansion just means misery amplified and postponed down the line

[Count Bobulescu]

US which traditionally has accounted for 25% of global oil consumption has reduced consumption significantly and imports even faster. Only 20% 0f US imports and even less of consumption now come from the Middle East. With the US deliberately down, and China inadvertently down, and Europe in a mess, it’s not hard to see a 10% production - consumption differential, particularly if Saudi is playing the long game.

gotta run

[Pat Gill]

Oh wow, the IMF have finally realised that the oil price could have negative effects on the economy, 5 years after the mother of all crashes. Get this, guys, the rate of oil production or energy conservation, reducing demand, or both, needs to exceed demand by about 10% for prices to stay down for long.

Not sure I see this happening, so that means very little economic growth. Personally, I have a theory that economic growth is impossible without debt expansion above 50-60 bucks a barrel.

And debt expansion just means misery amplified and postponed down the line

morticia,

We might have an interesting conversation sometime about your theory.

In effect, where once upon a time currencies were pegged against the price of gold, the value of currencies is now pegged against world GDP, which in turn is dependent on the fractional reserve banking model.

Was it a coincidence that between 2000 and 2010 the average annual increase in oil price was 12% at a time when interest rates were below 3% and what effect did this have on the stability of the global banking system ?

Perhaps every school term should begin with a lecture on the power of the exponential function ?

[morticia]

No coincidence. All we need to do to round off that set of figures is the extent to which world debt levels rose during that period. I would also dispute the 12% figure. Basically, oil price 1999= roughly 10 bucks a barrel. Peak in 2008; 147 bucks a barrel. Yes, it had come down by 2010, but the dominos had started to fall by 2007, when the price was hovering around 70bucks.

To bring it down to consumer impact, sept 2007, when there was just still growth, petrol was just over €1.10. Now, the price is about €1.64 per litre. And we want economic growth.

Two words; dream and on.

As for convex effects on the economy, would the IMF consider the EU banking system collapsing like dominos to be a convex effect, or is that still in the file labelled "frantic official denial required" Given that no one is actually admitting to the trillions in recaps that are required.... Yet. The Bankster classes are to some degree, also scapegoats, not that I feel too sorry for them. If oil were still 10 bucks a barrel, we would not be dealing with that level of unserviceable debt.

Oh, but I forgot; denial is a river in Egypt, innit?

[Yojimbo]

I think the issue of the relationship of oil to the economy has become extremely complicated - there seems few adequate explanations as to why, for example, the price of oil went up so much at a time when demand was being cut in most of the world due to the recession. Information on supply is notoriously hard to come by, so there must be a suspicion at least that there have been surreptitious cuts from the big suppliers - whether as part of price manipulation, or because the mega reserves of Saudi Arabia are now finally running down isn't clear. It does seem that now finally there has been an expansion of oil supply from Iraq, this is one of the key drivers in getting the price down the past few months (although it is still of course at historic highs). Unconventional oil exploitation in north America has also taken a bit of stress off the system.

But it does seem that we are heading for an era of wild swings in oil prices (and possibly other energy sources too). This is the worst of all worlds - its even worse than permanent high prices, because the swings can undermine investment in alternatives.

[Count Bobulescu]

Following on from a reference in a piece that Yojimbo posted over in the Chinese Bubble thread that suggested there was a new cold war taking place between the US and China over control of African oil supplies I wanted to post a couple of grafs that counter that view.

It is not in dispute that China is seeking to secure oil and other energy supplies in Africa and elsewhere, particularly South America. The US while not ignoring those sources is much less dependent now, and will be in the future on Africa for oil, so there is less perceived need to engage in a cold war.

Below is a synopsis of a piece that was published in the WSJ on June 27, still behind the paywall. It in turn is based in part on the on the June 25th report from the US Energy Information Agency titled Annual Energy Outlook (2012-2035).
That’s a fairly dry 250 page report, that you can find here.

http://www.eia.gov/forecasts/aeo/

I’ve excerpted a few grafs from the Executive Summary below. Bottom line from this report and the other pieces I’ve posted is that the oil outlook for the US over the next 25 years is a lot better than it was 25 years ago, Peak Oil notwithstanding.

The US has just experienced a shale gas boom, and currently looks as if it is beginning a shale oil, (also known as tight oil) boom, due to advances in fracking technology. Canadian tar sands and shale oil deposits are now estimated to surpass Saudi Arabia. They’ve got to sell it somewhere, it’s way beyond their own needs.

I post this by way of countering what often seems a European misconception that the US is overly “dependent” on Middle Eastern and OPEC oil, when the reality is that Europe and China are in fact the ones much more dependent.

The U.S. will halve its reliance on oil from the Middle East by the end of the decade. “America will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to declining demand and the rapid growth of new petroleum sources in the Western Hemisphere, energy analysts now anticipate. The shift, a result of technological advances that are unlocking new sources of oil in shale-rock formations, oil sands and deep beneath the ocean floor, carries profound consequences for the U.S. economy and energy security…By 2020, nearly half of the crude oil America consumes will be produced at home, while 82% will come from this side of the Atlantic, according to the U.S. Energy Information Administration. By 2035, oil shipments from the Middle East to North America ‘could almost be nonexistent,’ the Organization of Petroleum Exporting Countries recently predicted, partly because more efficient car engines and a growing supply of renewable fuel will help curb demand.” Angel Gonzalez in The Wall Street Journal.

EXECUTIVE SUMMARY

The rate of growth in energy use slows over the projection period, reflecting moderate population growth, an extended economic recovery, and increasing energy efficiency in end-use applications.


Overall U.S. energy consumption grows at an average annual rate of 0.3 percent from 2010 through 2035 in the AEO2012 Reference case. The U.S. does not return to the levels of energy demand growth experienced in the 20 years prior to the 2008- 2009 recession, because of more moderate projected economic growth and population growth, coupled with increasing levels of energy efficiency. For some end uses, current Federal and State energy requirements and incentives play a continuing role in requiring more efficient technologies. Projected energy demand for transportation grows at an annual rate of 0.1 percent from 2010 through 2035 in the Reference case, and electricity demand grows by 0.7 percent per year, primarily as a result of rising energy consumption in the buildings sector. Energy consumption per capita declines by an average of 0.6 percent per year from 2010 to 2035 (Figure 1).

The energy intensity of the U.S. economy, measured as primary energy use in British thermal units (Btu) per dollar of gross domestic product (GDP) in 2005 dollars, declines by an average of 2.1 percent per year from 2010 to 2035. New Federal and State policies could lead to further reductions in energy consumption. The potential impact of technology change and the proposed vehicle fuel efficiency standards on energy consumption are discussed in “Issues in focus.”

Domestic crude oil production increases

Domestic crude oil production has increased over the past few years, reversing a decline that began in 1986. U.S. crude oil production increased from 5.0 million barrels per day in 2008 to 5.5 million barrels per day in 2010. Over the next 10 years, continued development of tight oil, in combination with the ongoing development of offshore resources in the Gulf of Mexico, pushes domestic crude oil production higher.

Because the technology advances that have provided for recent increases in supply are still in the early stages of development, future U.S. crude oil production could vary significantly, depending on the outcomes of key uncertainties related to well placement and recovery rates. Those uncertainties are highlighted in this Annual Energy Outlook’s “Issues in focus” section, which includes an article examining impacts of uncertainty about current estimates of the crude oil and natural gas resources. The AEO2012 projections considering variations in these variables show total U.S. crude oil production in 2035 ranging from 5.5 million barrels per day to 7.8 million barrels per day, and projections for U.S. tight oil production from eight selected plays in 2035 ranging from 0.7 million barrels per day to 2.8 million barrels per day (Figure 2).


With modest economic growth, increased efficiency, growing domestic production, and continued adoption
of nonpetroleum liquids, net imports of petroleum and other liquids make up a smaller share of total U.S. energy consumption
U.S. dependence on imported petroleum and other liquids declines in the AEO2012 Reference case, primarily as a result of rising energy prices; growth in domestic crude oil production to more than 1 million barrels per day above 2010 levels in 2020; an increase of 1.2 million barrels per day crude oil equivalent from 2010 to 2035 in the use of biofuels, much of which is produced domestically; and slower growth of energy consumption in the transportation sector as a result of existing corporate average fuel economy standards.

Proposed fuel economy standards covering vehicle model years (MY) 2017 through 2025 that are not included in the Reference case would further reduce projected need for liquid imports.

Although U.S. consumption of petroleum and other liquid fuels continues to grow through 2035 in the Reference case, the reliance on imports of petroleum and other liquids as a share of total consumption declines. Total U.S. consumption of petroleum and other liquids, including both fossil fuels and biofuels, rises from 19.2 million barrels per day in 2010 to 19.9 million barrels per day in 2035 in the Reference case. The net import share of domestic consumption, which reached 60 percent in 2005 and 2006 before falling to 49 percent in 2010, continues falling in the Reference case to 36 percent in 2035 (Figure 3).



Natural gas production increases throughout the projection period, allowing the United States to transition from a net importer to a net exporter of natural gas
Much of the growth in natural gas production in the AEO2012 Reference case results from the application of recent technological advances and continued drilling in shale plays with high concentrations of natural gas liquids and crude oil, which have a higher value than dry natural gas in energy equivalent terms. Shale gas production increases in the Reference case from 5.0 trillion cubic feet per year in 2010 (23 percent of total U.S. dry gas production) to 13.6 trillion cubic feet per year in 2035 (49 percent of total U.S. dry gas production). As with tight oil, when looking forward to 2035, there are unresolved uncertainties surrounding the technological advances that have made shale gas production a reality. The potential impact of those uncertainties results in a range of outcomes for U.S. shale gas production from 9.7 to 20.5 trillion cubic feet per year when looking forward to 2035.

As a result of the projected growth in production, U.S. natural gas production exceeds consumption early in the next decade in the Reference case (Figure 4). The outlook reflects increased use of liquefied natural gas in markets outside North America, strong growth in domestic natural gas production, reduced pipeline imports and increased pipeline exports, and relatively low natural gas prices in the United States.

In the tradition of resource economist Julian Simon, here are some of the conclusions and predictions from new research just published by Harvard Research Fellow Leonardo Maugeri, titled “Oil: The Next Revolution; The Unprecedented Upsurge of Oil Production Capacity”

1. Contrary to what most people believe, oil is not in short supply and oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The full deployment of the world’s oil potential depends only on price, technology, and political factors. More than 80 percent of the additional production under development globally appears to be profitable with a price of oil higher than $70 per barrel.

2. The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation, although the U.S. boom is difficult to be replicated given the unique features of the U.S. oil (and gas) arena. Whatever the timing, emulation over the next decades might bear surprising results, given the fact that most shale/tight oil resources in the world are still unknown and untapped. China appears to be the first country to follow the U.S. example. Moreover, the extension of horizontal drilling and hydraulic fracturing combined to conventional oil fields might dramatically increase world’s oil production and revive mature, declining oilfields.

3. In the aggregate, conventional oil production is also growing throughout the world, although some areas (e.g. the North Sea), face an apparently irreversible decline of the production capacity. In most traditional producing countries, old oilfields go through a production revival thanks to better techniques and knowledge, or advanced exploration and production technologies, so far used only in the U.S. and in the North Sea. Huge parts of the world are still relatively unexplored for conventional oil (for example, the Arctic Sea or most of sub-Saharan Africa).

4. Over the next decades, the growing role of unconventional oils will make the Western hemisphere the new center of gravity of oil exploration and production.

5. Based on original, bottom-up, field-by-field analysis of most oil exploration and development projects in the world, this paper suggests that an unrestricted, additional production of more than 49 million barrels per day (mbd) of oil is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd. After adjusting this substantial figure considering the risk factors affecting the actual accomplishment of the projects on a country-by-country basis, the additional production that could come by 2020 is about 29 mbd. Factoring in depletion rates of currently producing oilfields and their “reserve growth,” the net additional production capacity by 2020 could be 17.6 mbd, yielding a world oil production capacity of 110.6 mbd by that date – as shown in Figure 1 above. This would represent the most significant increase in any decade since the 1980s.

http://www.aei-ideas.org/2012/06/no-...tion-underway/


(

Reuters) - The U.S. government published its first official forecast for booming "tight oil" production on Monday, estimating that shale formations such as the Bakken in North Dakota will more than double output in the next two decades.

The projections, one small part of the Energy Information Administration's updated long-term forecasts, shed light on the agency's take on the role of the oil found in low-permeability reservoirs such as shale and chalk formations, the largest new source of U.S. supply since offshore Gulf of Mexico.

U.S. output from eight tight oil prospects covered by the report will more than double to 1.23 million barrels per day by 2035 from 2011 levels, the EIA said, breaking out specific data on tight oil production for the first time in its 2012 Annual Energy Outlook.

In 2012, tight oil output will reach 720,000 bpd, or 12.5 percent of domestic production, it said.

The estimates -- based on a "reference" case, which assumes current technological and demographic trends will continue -- show that total U.S. oil output will reach a peak of 6.7 million bpd in 2020, the highest since 1994. About 18 percent of this will come from tight oil.

The report considers output from the Bakken, Eagle Ford in Texas, the tight oil plays in the Permian Basin of Texas and New Mexico and the Monterey shale in California, among others.

SHALE REVOLUTION

A combination of horizontal drilling and hydraulic fracturing technologies have unlocked massive shale reserves in the United States and upended oil markets by adding a surplus that is now flooding the key storage hub in Cushing, Oklahoma.
Output from the Bakken and Three Forks shale in North Dakota, the most prolific tight oil prospect in the U.S., reached 545,000 bpd in April, according to data from the North Dakota Industrial Commission.

Eagle Ford output is on its way to match Bakken's, after output reached 520,000 bpd in April, according to research firm Bentek Energy.
Energy companies have also set their sights on burgeoning oil plays like the Utica shale in Ohio, whose oil output is yet unknown. The EIA's latest report does not include projected Utica production.
The "Reference" estimate is the second-lowest among four case scenarios the EIA considered in the report.
The largest estimate projects tight oil output will grow to 2.24 million bpd in 2020 and 2.8 million bpd in 2035, assuming an average eight wells will be drilled per each square mile of tight oil acreage.

http://www.reuters.com/article/2012/...85O1AS20120625

[Pat Gill]

I think the issue of the relationship of oil to the economy has become extremely complicated - there seems few adequate explanations as to why, for example, the price of oil went up so much at a time when demand was being cut in most of the world due to the recession. Information on supply is notoriously hard to come by, so there must be a suspicion at least that there have been surreptitious cuts from the big suppliers - whether as part of price manipulation, or because the mega reserves of Saudi Arabia are now finally running down isn't clear. It does seem that now finally there has been an expansion of oil supply from Iraq, this is one of the key drivers in getting the price down the past few months (although it is still of course at historic highs). Unconventional oil exploitation in north America has also taken a bit of stress off the system.

But it does seem that we are heading for an era of wild swings in oil prices (and possibly other energy sources too). This is the worst of all worlds - its even worse than permanent high prices, because the swings can undermine investment in alternatives.

To begin an analysis of the relationship between oil and money supply you must consider firstly that since the 80's the value of currency has been pegged against world GDP rather than gold as was formerly the case.

A fundamental driver of world GDP is the cost of the energy component of all economic activity.

You must then look at the fractional reserve model of banking which we use.

And then analyse the much reduced EROEI (Energy Returned On Energy Invested) of new oil supply.

Finally you must take a look at the rising domestic consumption of the oil exporters, particularly the Middle East and Russia, this dynamic reduces the amount of oil released into the market and pushes prices higher causing demand destruction and recession.

We are at the beginning of a global energy transition away from oil which will take at least forty years to play out.

[Count Bobulescu]

To begin an analysis of the relationship between oil and money supply you must consider firstly that since the 80's the value of currency has been pegged against world GDP rather than gold as was formerly the case.

A fundamental driver of world GDP is the cost of the energy component of all economic activity.

You must then look at the fractional reserve model of banking which we use.

And then analyse the much reduced EROEI (Energy Returned On Energy Invested) of new oil supply.

Finally you must take a look at the rising domestic consumption of the oil exporters, particularly the Middle East and Russia, this dynamic reduces the amount of oil released into the market and pushes prices higher causing demand destruction and recession.

We are at the beginning of a global energy transition away from oil which will take at least forty years to play out.

I hope you are right about that transition from oil I wish for it too, but as Yojimbo rightly points out, it’s a very tricky proposition. As drilling technology advances and the dangers of Peak Oil diminish, the incentives to transition are undermined.

I’m a big fan of the Rocky Mountain Institute and their “Winning the Oil Endgame” theories, which offer practical solutions with today’s technology. But they are not without their own costs.

http://www.oilendgame.com/

I’ll pass on your fractional reserve banking, and theories unless/until you elaborate . Sounds like you have been drinking some of the Ron Paul Kool Aid.

[Yojimbo]

I hope you are right about that transition from oil I wish for it too, but as Yojimbo rightly points out, it’s a very tricky proposition. As drilling technology advances and the dangers of Peak Oil diminish, the incentives to transition are undermined.

I’m a big fan of the Rocky Mountain Institute and their “Winning the Oil Endgame” theories, which offer practical solutions with today’s technology. But they are not without their own costs.

http://www.oilendgame.com/

I’ll pass on your fractional reserve banking, and theories unless/until you elaborate . Sounds like you have been drinking some of the Ron Paul Kool Aid.

I think a huge issue for the future of oil supplies is that many of the major suppliers are now essentially 'addicted' to high prices. Saudi Arabia could once make vast profits at almost any oil price, but they are now in a domestic situation where the House of Saud find they have to spend so much domestically to quell political unhappiness that they probably need oil at around $100 a barrel. Iran needs high prices as it cannot invest in more refinery capacity otherwise. Venezuela and Russia are in a similar position. In the US, a vast industry has arisen which needs high prices to remain profitable (i.e. tight oil, etc). The problem is that contrary to what lovers of conspiracy theories might like to think, maintaining high prices isn't easy if demand is falling. The virtual collapse of gas prices in the US (and the consequent ongoing collapse of the shale gas industry there) is a case in point.

From the point of view of all our futures, the best scenario is a long term, predictable increase in fossil fuel prices, providing the economic and political incentives required to invest in alternatives. However, it seems very likely that as the old market assumptions are breaking down. While the current drop in oil prices (which seems likely to continue as demand continues to go down) is welcome for the economy, its likely to trigger yet more instability in the Middle East and be another kick in the teeth for renewables (and just at a point when solar and wind are now fully competitive).