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Monday, March 4, 2019

#ENERGY #CRISIS LOOMS: With Shrinking Oil and Coal Supply

Have We Already Passed World Peak Oil and World Peak Coal?




Most people expect that our signal of an impending reduction in world oil or coal production will be high prices. Looking at historical data (for example, this post and this post), this is precisely the opposite of the correct price signal. Oil and coal supplies decline because prices fall too low for producers. These producers make voluntary cutbacks because the prices they receive fall below their cost of production. There often are supply gluts at the same time.
This strange situation arises because prices must be high enough for the producers at the same time that goods and services made by oil (and other energy products) are inexpensive enough for consumers to afford. There is a two way battle taking place:
(1) Prices producers require tend to rise over time, because of depletion. The easiest to extract portion of any resource (such as oil, coal, copper, or lithium) tends to be removed first. What is left tends to be deeper, lower quality, or otherwise more difficult to extract cheaply.
(2) Prices consumers can afford for discretionary goods (such as cell phones and automobiles) tend to fall for a combination of reasons:

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