Tuesday, July 25, 2006

When Oil Prices Crash

So one of the radio show hosts' passion is ethanol. And not that I'm not interested in it, but it's not necessarily a forte or a particular interest of mine.

That is until my daytime gig required I analyze an ethanol plant as a prospective investment.

Now, truthfully, I couldn't care less about the ethanol deal. Yeah, I'm sure it's interesting, but as far as I can tell, oil has to be pretty darn high to make ethanol economic WITHOUT the subsidies.

And that's my whole point.

It's only when oil is in the nose-bleed section does ethanol (among other alternative fuels) ever become addressed or contemplated or make the news. Of course oil doesn't remain in the nose-bleed section forever. And if/when any one of the following happens;

1. The Mideast settles down, grows up and instead of killing people to get to Allah they find out they can make a tidy living pumping oil
2. A new large deposit of oil is found
3. The US goes into recession thereby dropping demand for oil
4. China grows only at 7% GDP instead of 12%!
5. We build some refineries

Interest and demand for these alternative fuels are going to tank as the price of oil is going to tank (bringing ethanol prices with it) and thus go back to being once again the fuel of choice;



And while I may lament the loss of ethanol for a discussion topic, when oil tanks (which it will), there will be a much more interesting topic in its place;

How the hell will Hugo Chavez stay in power without his oil money?

5 comments:

Paul E. Zimmerman said...

How the hell will Hugo Chavez stay in power without his oil money?

He and Evo are going to run around throwing rocks through windows to create jobs (har har har).

Captain Capitalism said...

Yeah, I'm eagerly anticipating Bolivia's economic growth figures in the next year.

JTapp said...

How exactly is oil going to tank? Did you not read the OPEC newsletters?

Absolutely right about the subsidies. Brazil makes ethanol more cheaply, but we make sure we keep our tariffs high enough to keep them out. Otherwise, we might actually pay 50 cents less on the gallon for the stuff.

The real money is in biodiesel (according to The Economist). Switchgrass, waste products, etc. But, you won't hear the ethanol lobbyists say that.

Anonymous said...

www.peakoil.com

Roger Browne said...

You're a smart guy to have forecast this in 2006 (it's 2018 as I post this), and you had the guts to go against the mainstream narrative of "oil will run out real soon".