Fearless Money

From the Economist article Steady as she goes:But is the world really starting to run out of oil?… Despite today’s obsession with the idea of “peak oil”, what really matters to the world economy is not when conventional oil production peaks, but whether we have enough affordable and convenient fuel from any source to power our current fleet of cars, buses and aeroplanes. With that in mind, the global oil industry is on the verge of a dramatic transformation from a risky exploration business into a technology-intensive manufacturing business. And the product that big oil companies will soon be manufacturing, argues Shell’s Mr Van der Veer, is “greener fossil fuels”.What of the notion that oil scarcity will lead to economic disaster? Jerry Taylor and Peter Van Doren of the Cato Institute, an American think-tank, insist the key is to avoid the price controls and monetary-policy blunders of the sort that turned the 1970s oil shocks into economic disasters. Kenneth Rogoff, a Harvard professor and the former chief economist of the IMF, thinks concerns about peak oil are greatly overblown: “The oil market is highly developed, with worldwide trading and long-dated futures going out five to seven years…. We might be running low on $20 oil, but for $60 we have adequate oil supplies for decades to come.”Alternative fuels will not become common overnight, as one veteran oilman acknowledges: “Given the capital-intensity of manufacturing alternatives, it’s now a race between hydrocarbon depletion and making fuel.”… As Peter Robertson, vice-chairman of Chevron, puts it, “Price is our friend here, because it has encouraged investment in new hydrocarbons and also the alternatives.” Unless the world sees another OPEC-engineered price collapse as it did in 1985 and 1998, GTL, tar sands, ethanol and other alternatives will become more economic by the [...]