Thursday, 5 April 2012

The Real Energy Crisis

As of today (5 April 2012) people across Southern Ontario are griping that the price of gasoline at the pumps.
I live in a world full of people who utterly fail to pay any attention to reality, wherein even the university-educated make up all sorts of fanciful explanations to cover the jump in price, viz..
- It's spring, and the refineries are refitting in preparation for the summer and the price always jumps in Spring (true, but not that significant.).
- It's just before a long weekend and oil companies always gouge then. (It couldn't be that, say, demand goes up as everyone gasses up before the weekend? No?).
- It's the mean ol', nasty ol' , greedy oil companies that are driving up the price artificially, to make more profit. (no matter what the price, this canard is constant).
- Or government taxes. (Oh, yeah, sure, that's it. Taxes have actually gone down from 49% of the price in 2003 to 30% of the price in the past 10 years.)
The reality that everyong is ignoring:
- In the past 7 years, world oil production has been flat. New drilling has just made up the shortfall from the declining output in the old oil fields. Fact about markets, with fixed demand, price varies inversely with supply. So with fixed demand and declining supply, what do you think is going to happen to the price?
- If the price of raw material goes up, the price of the finished product must go up, no matter what product we're talking about. About 3 months ago, the three-month-oil future prices went up over $100 (US) per barrel. It's now three months later, so that expensive raw material is now being used, and the costs passed on.
The price of crude accounts for 52% of the cost, taxes having dropped to 30% and profits/production costs remaining constant at 18%.
Yet people are all over the radio and TV grumbling about prices, complaining about the government. Opposition parties are eagerly trying to pretend that fossil-fuels are still cheap and plentiful and that renewable energy is some sort of boondoggle, that we have to close the coal-fired power plants to protect people's health, that we dont' need to...
This is the world I live in.

No comments:

Post a Comment

Note: only a member of this blog may post a comment.