High Oil Prices Spawn Immediate Competition

In last weeks post Do Not Blame Big Oil So Fast I had responded to “Are high prices really a bad thing?” with the answer, the short term will be rough but Free Market Enterprise should spawn alternative fuel sources.

Written in the current May issue of Scientific America is an article titled Pumping Coal. It states the United States has one quarter of the world’s coal reserves. It talks about a method called Coal to Liquid where they can convert waste coal (50% of most coal is wasted) to synthetic diesel.

What I thought was worth mentioning is that the developers of this technology have been searching for financing for over a decade. The problem was the price of crude oil was going for $30 to $40 a barrel and the price of Coal to Liquid cost around $54 a barrel. Well, the current price of oil now at $73.15 per barrel.

In this same issue of Scientific America, Chevron has a two page advertisement right in the front page saying “Russia, Iran and Qatar have 58% of the world’s natural gas reserves. The U.S. has 3%.”

The Pumping Coal article wrote

“Qatar and Nigeria are building gas-to-liquid plants, and Sasol estimates that by 2014, gas-to-liquid fuel may account for at least 5 percent of the global market. But the U.S. does not have nearly as much natural gas as coal. And considering the vast reserves in China, which is also considering the technology, coal-derived diesel seems likely to play a bigger role in helping to liberate some countries from dependence on oil imports.”

In response to this persons comment, “Exxon showed a 11% increase in profit from Q1 of last year. They had a profit of $8,000,000,000 in Q1 this year. Guess what…oil supply is higher then it has been in 8 years. It is price gouging plain and simple.”

The notion of Big Oil price gouging the world would assume they have solely focused on short term profits with out considering the colossal negative long term effects. Perhaps I am missing something and if I am I am very open to understanding this point of view but I just do not see the logic in any company pricing their products so high as force the development of alternatives.

I do expect to start seeing many innovative ideas like such as Coal to Oil find its way to the open market. As this occurs Big Oil will have to certainly come up with new products that are competitively priced.