The Wall Street Journal does a good job covering the big reason that oil prices have risen so dramatically over the past year: exports fell 2.5% last year in spite of a 57% increase in prices. The conventional wisdom is that higher prices always lead to technological improvements and more investment. This drop in exports "defies traditional market logic," according to the article.
One of the big factors in decreased exports mentioned in the WSJ article is what geologist Jeffrey Brown calls the "Export Land Model." Picture an oil producing country -- "ExportLand" -- that produces two millions barrels of oil per day. It keeps one million for domestic use and exports the remaining one million to the United States at $50 per barrel. As prices rise to $100 per barrel and more, all of that American cash flowing in to ExportLand leads to more consumption, bigger houses, more roads, more SUVs to drive on those roads, suburbs, big box outlet stores, yachts and private jets. This results in more domestic consumption in Exportland, which in turn results in a drop off in exports.
ExportLand has a finite quantity of oil, so that two million barrels per day production is declining over time. In the real world example of Mexico, production dropped a dramatic 15% from 2006 to 2007 while domestic consumption increased. Similar things are happening in Norway, Russian, Saudi Arabia and throughout the Middle East.
Another real world example is the United Kingdom, which went from a major supplier to a net importer in only six years. One time exporter Indonesia became a net importer. Mexico is expected to become a net importer within five years. Even Iran -- the world's fourth largest oil producer -- is expected to become a net importer in a few years.
The question to ask yourself: When all of the large oil exporters become oil importers, who will they import the oil from?
"The sense in the market is that peak oil is here and that things will only get worse," says Lehman Brothers oil analyst Adam Robinson. He continues, "the verdict is still out on that," because of ultra deep water drilling planned off the coasts of Brazil, Australia, West Africa and the Gulf of Mexico. Going for the difficult oil that's only profitable when oil is above $100 per barrel is, of course, part of the very definition of Peak Oil -- when the easy stuff is gone, you must spend more time, effort, resources and money in squeezing the last little bit that's left in the sponge.
Read more in the WSJ. The article explains things fairly well, IMO. Thanks to Jack in STL for the heads up on this.
The upshot is that countries like the US are transferring their wealth to ExportLands.
Some ExportLands with spend this money frivolously (like burning it up powering SUV's and private jets), and most people there will be no better off than us when the oil runs out--others are going to invest it and actually improve their long term economic prospects at our expense (literally and figuratively)!
Exportland will also waste fuel but it is their resources to begin with and we've been wasting it for decades.
But also look at what they are doing for alternatives:’Developing Bicycle Paths in Doha, Qatar; A Plan to Promote Use of the Planned Bicycle Path in Doha’...with particular reference to the training and promotion of cycling to Muslim women.
Now that's a cycling path! http://www.velomondial.net/page_display.asp?pid=32
My Dad lives in Dubai. They have a big AC culture there, or else you can't survive.
Boy, you've got to take a look at how lavishly people live there. Dubai is basically a Las Vegas multiplied by 2.
He tells me the price of everything is increasing out there, from food to clothing to rent of apartment. Low income immigrants are actually fleeing the country. But perhaps a good side is that there are virtually no income taxes, so you can make as much money as you want and no one will ask you any questions.