August 23, 2005

The Non-Breaking Point

I just got through the NYT Magazine article The Breaking Point about the problem of managing an oil economy. A long article, it had a little bit of everything in it, the scary apocalyptic chicken little, the former oil executive who is quietly pessimistic, and the PR flak who smiles and assures that all is well. What it didn't have was any sort of information about what the switchover points would be to something else.

The baseline assumption of almost the entire article was that there would be no significant switching over to alternative fuels. This is economic illiteracy at its worst. The apocalyptic, Simmons, completely ignores the idea that indirect competition will lead to substitution and predicts triple digit oil prices, and not "low triple digits", either.

What if natural gas shifts to become the fuel of choice, whether burning it or using it as feedstock for fuel cells? What happens to oil demand projections? They get thrown away as the new energy demand is fulfilled by cheaper alternates, primarily natural gas, but not exclusively. A growing portion of the machinery running the global economy will be multi-fuel friendly fuel cells starting the end of the decade. Indirect competition to gasoline and other petroleum products will largely become direct competition in a hydrogen economy.

It would be extremely obtuse to think that oil executives don't closely follow their indirect competitors. The article even says that a switch to alternatives is a fear of all the oil executives. But nowhere are the questions asked, "What is your most formidable alternative energy competitor in the medium to long term? What was the price point at which switchover would happen five years ago? What is the price point today? What will it be five years from now?". All in all a long, interesting read for a Sunday that is a huge missed opportunity for those who wanted serious insight into what's going on with oil.

Posted by TMLutas at August 23, 2005 11:11 PM