Can the world economy recover with rising oil prices?

[famousringo]

Squilliam said:

famousringo said:

dsister44 said:
I was listening to the radio today, and they said that gas barrles dropped $2, so whats the problem?

The problem is that the drop is due to a short-term drop in demand, brought on by the recession. The long-term demand curve is going nowhere but up (especially with emerging economies like China and India industrializing as fast as they can while the needed energy is available), while the long-term supply curve is staying flat or sliding down. The result is that the long-term price of energy is going nowhere but way up, and those unprepared for a future of scarce, expensive energy are going to suffer. Especially if you're an energy importer.

The supply curve would slope upwards in the long term to indicate a diminishing supply of a scarce resource meaning fewer barrels of oil would be supplied at any given price compared to the situation today.

In any case the long term supply curve would have to account for improvements in technology, alternative supplies such as oil from coal, the Canandian tar fields etc. It factors in oil which is currently uneconomical to extract at the current prices but would be economical to extract at higher prices hence total quantity supplied increases in the long term with rising prices.

Time is money. Part of the reason why these sources of energy are more expensive is because they take more time to exploit. More digging, more refining, more shipping. New projects take years of infrastructure development before one drop of oil flows, and in that time the old projects which produce more oil in less time run dry.

As those who talk about peak oil like to say, it's not just the size of the tank that matters, but also the size of the tap.

The marginal sources of fossil fuels and substitutes you describe might drag out the peak and slow the decline, but they aren't going to make the rate of oil production go much faster than it already is. And the price of energy still goes up and up, as demand grows and the energy invested to energy returned ratio gets closer to 1.

Here's part of a really excellent series called "The Crash Course" by Chris Martensen that deals with the idea of peak oil. I highly recommend the rest of the series for an interesting and digestible guide to some of the most serious challenges of the 21st century.

http://www.chrismartenson.com/