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Thread: Not Alternate Energy, but potentially a big impetus for its take up.

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    SBD4's Avatar
    SBD4 is offline A Keeper of the TGO Gold Subscriber
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    Not Alternate Energy, but potentially a big impetus for its take up.

    Cheers,

    Sean

    “Only two things are infinite, the universe and human stupidity, and I'm not sure about the former.” - Albert Einstein

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    JDNSW's Avatar
    JDNSW is offline RoverLord Silver Subscriber
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    Interesting, but misses a few points.

    1. Sustained low oil prices will not lead to any pressure to reduce consumption, rather the reverse.

    2. The major beneficiaries of the money from oil production are not "big oil". They are the countries that depend very heavily on oil taxes and royalties to sustain their budgets. The obvious ones that are mentioned in this clip are Saudi Arabia and Russia, but there are a long list of other countries that will have their government budgets very adversely affected by sustained low oil prices. These include (apart from those), in random order, and by no means complete, most of the other gulf states, Nigeria, Brazil, Mexico, Norway, UK, Australia, Indonesia, Timor L'Este, PNG, Venezuela, etc.

    3. Most of the cost of production of most oil fields is from of capital costs, usually much higher than actual production costs. A company goes broke, because they can no longer service their capital costs, so what happens? The liquidator sells to assets to the highest bidder. With oil prices low, the highest bidder will be nowhere near as high as the book value of those production assets, so the purchaser can now produce that oil at a much lower cost.

    So the shakeout for this is unlikely to see the industry coming to an end. A lot of investors badly burnt, quite possibly a lot of companies disappearing, a lot of people out of work, a lot of countries in real trouble - and an oil industry still with a large proportion of its current production capacity.

    But this experience is likely to dampen the enthusiasm of investors, so that new discoveries and enhanced recovery improvements are likely to mean that oil reserves will start to decrease again. Which may eventually have an influence on the impetus for alternate energy takeup. But it will not be soon.
    John

    JDNSW
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