Dr. Art Laffer: It's Not Peak Oil Production; It's Supply and Demand and Government Intervention
SUGAR LAND, TX--(Marketwire - June 4, 2008) - "Peak oil" refers to the inevitable maximum in global oil production. Oil is a finite, non-renewable resource. The rate of oil extraction and refining is currently about 84 million barrels per day. Theoretically, after half of the reserves are used, oil production is likely to stop growing and begin a terminal decline. Peak oil does not mean that oil will run out, but it would cause a permanent switch from a buyer's market to a seller's market with strong price and economic consequences.
In that light, hear world-renowned economist Dr. Arthur Laffer's answer to Dan Frishberg's key question: "Even though we're using less, oil prices have continued to rise. Have we reached peak oil?"
Dr. Laffer: "No. What you have, Daniel, is growth and demand for oil had been rising for years and years, and all of a sudden when it hit the limits here, the price went sharply up. All of a sudden, you're hitting a finite amount of the refining capacities, tankers, oil wells -- all of that stuff. You have the emerging markets all using oil and you've had very steady increases in the demand for oil. Now the demand leveled off and then started coming down sharply in the U.S.
"When the price of oil was $18.50 a barrel, the refining and the exploration for new oil was way down because it wasn't profitable, you had a lot of excess capacity, and prices were very low. Then once the price of oil starts up, you do start more exploration; you do start more refining; you do start building more tankers; but frankly that takes a long time.
"In the developing world, the governments have subsidized oil consumption. This is in India, in China, in Indonesia. I think a third or a half of the world's oil is heavily subsidized by governments, and as the price went up, Daniel, those subsidies became very expensive, and now some are removing those subsidies. I think you're going to see a fairly sharp change in the demand for oil in those countries.
It hasn't happened in India and you know China has been subsidizing its oil a lot. Russia has a 90% profits tax on the oil in there. What are your incentives for going out and drilling oil in Russia? Well, they're dropping it sharply over the next year, which should lead to a lot more exploration and a lot more oil production. So these things, which naturally take a long time -- when the government intervenes, it takes even longer."
So don't listen to peak oil fear-mongers. Stay tuned to BizRadio's MoneyMan and http://www.industrialinfo.com/radio/index.jsp Industrialinfo.com Radio for energy news and trends.
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