WHY ARE ENERGY PRICES SO HIGH?
Our energy situation in anywhere is a real mess.
We are faced with absurdly high energy prices and supplies that we fear could be disrupted at any time. In fact, high energy prices and fear of energy supply disruptions often go hand in hand.
Why do we have these problems?
THE THEORIES
Volumes have been written about our energy problems, the global oil industry, attempts to control price and supplies, and more. Most paint a bleak picture.
[Note: Conventional oil is the main source of financial pain and concern in the energy sector today. So, for now, we will focus on strategies that compete mainly against conventional oil.]
A number of authors suggest that tight energy supplies and high prices are a result of filthy-rich oil companies hoarding supplies and engaging in global price fixing. Others say that the situation is caused by greedy oil cartels like OPEC conspiring to do the same. Many suggest that it’s a combination of those and similar factors.
The main problem with oil conspiracies is that they just don’t work very well when supplies are plentiful. That’s not to say that nobody tries. And when supplies are already tight the impact can be, well, much like we face today.
The OPEC information page at Wikipedia includes a telling example of the power of fundamental supply and demand over energy supplies and prices.
Plentiful supplies and low demand mean cheap prices.
Tight supplies and high demand mean high prices.
The end result of exceptionally high oil prices is always increased exploration and development.
Increased exploration and development increase supplies.
Increased supplies lower prices.
Oil producers, like all business concerns, know that excessively high prices attract investors and ultimately result in tough competition and lower prices.
So, why would oil producers allow a situation to exist that would ultimately cost them billions, even though they are currently reaping a huge harvest?
The answer is that they wouldn’t allow it, if they could prevent it.
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THE PROBLEM
I’m going to suggest that our energy problems are caused by something other than attempts to control supplies and prices. I won’t argue with the notion that a number of oil interests are moving to influence the energy market. But the results of those manipulative attempts are limited.
Any conspiracy that attempts to control energy prices is up against a fundamental law of economics - The Law of Supply and Demand.
I’m going to suggest, even insist, that THE Problem with energy today is an economics problem.
THE problem is a combination of high and increasing global demand for energy, and energy supplies that are getting harder to find. Not all energy supplies, mind you, but conventional energy supplies, especially oil.
Conventional energy supplies are the ones we’ve been using for the last century. They include resources like coal from coal mines, natural gas (that’s often found in oil wells), and oil from oil wells.
China and India, among others, are currently enjoying explosive economic growth. Virtually every nation on Earth wants the same thing. That economic growth requires increased energy supplies.
Meanwhile, the easy to find, easy to harvest conventional energy supplies are, by most accounts, fully developed. Conventional energy exploration and development today is a high-risk, multi-Billion dollar gambling operation.
The end result of all of this activity is high energy prices with economic pressures threatening to push them still higher.
But.
We do have energy resources that can compete head-to-head with conventional energy.
Energy exploration today is much more than drilling more oil wells. It includes research into a host of alternative energy resources and technologies that can reduce, or even eliminate our need for conventional oil.
We’ll discuss those at Solutions to Energy Problems .
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