Oil and scarcity, what’s to be done

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Rising and volatile oil prices suggest that oil scarcity is a important issue.  So what can be done?

Personally, I think nothing – the price represents scarcity, and unless we think there are asymmetric information issues regarding the stock of fuel then this is fine.  If we do believe these issues exist, then since fuel is a “non-perishable” we will see individuals/communities stockpile – again, there is no reason for government intervention.

Or so I agrue here.

Posted in Articles, Energy Economics

About Matt Nolan

Matt Nolan is an economist at Infometrics (although the opinions expressed are independent of the organisation) . Email: matt@tvhe.co.nz; nolan.matt@gmail.com; matt@infometrics.co.nz. Work phone: 04-496-5290

  • JC

    The real story of the 1970s is that the world reacted to higher prices by seeking out new supplies of oil, making cars smaller and more efficient and using other fuels like coal and hydro. Pretty soon the price of oil fell sharply.
     
    Today, the evidence is that Canada and the Americas have something like six times the volume of oil of Saudi Arabia, mostly in the unconventials like oil sands and shales plus deep sea oil. The current high price of oil makes it relatively easy to mine these sources, and over time oil will become cheaper again.. as has happened often enough in the past as the new technology beds in.
    It seems likely that a more politically stable part of the world will become the main supplier.. which has its own price stablising effect, and that gives us all much more time to develop viable future alternatives.
    JC
     
     

  • Bill

    I read a comparison of Britain and Norway’s North Sea oil strategies many years ago. It pointed out that stockpiling oil by leaving it in the ground was a risky strategy. Some unscrupulous country could come along and claim it. Better, it argued, was Norway’s strategy of realising the income from oil and then investing internationally. This diversified the risk.

    • Kimble

      It may diversify that particular risk, but could you imagine a situation where that oil exposure is offsetting another risk? In which case, the diversification would leave the whole system worse off.