Oil on troubled waters

I’m not 100% sure what your question is but the basic answer is just that WTO rules only cover what’s in the agreement and the agreement doesn’t cover (for the most part) oil and gas. There’s talk, I guess, about including more services relating to production of oil and gas but I rather doubt it will go far.

“But seriously, do WTO rules bend the space-time continuum to let OPEC members continue their cartel-building, export-controlling ways? How is OPEC accommodated in the world of sort-of free trade? I’m not looking for the realpolitik answer. That’s pretty obvious. But what is the legal and institutional answer to this question?”
Well, I guess that there’s a basic assumption that free trade and competition does not apply to those industries which a particular state has decided to participate in. Free trade and competition does not, for instance, apply in the US to transportation, which is in the US (and most everywhere else) a nationalized industry. Principles of free trade and competition do not apply in the health care industry of, for instance, Germany. The principles of free trade and competition do not apply to OPEC for the simple reason that those states have nationalized their oil reserves, extraction capabilities, and their distribution. If then WTO can force OPEC to get out of the oil industry, why then can it not force the Germans to get out of the health care industry, and the US to privatize its airports? So, to answer your point a bit more directly, I strongly suspect that the rules of the WTO are written in such a way that state-owned enterprises are exempt.
By the way, according to Catholic doctrine, you are forgiven the sins that you confess and feel sorry for. You are not forgiven those sins you have not chosen to confess. And THOSE are the ones that you are supposed to answer for on the day of judgement.

I am afraid the huge factors that have to be taken into account regarding oil prices have little to do with the OPEC members’ will and desire to rise output. In fact their supposed “refusal” to do so is to mask their powerlessness vis-a-vis oil prices:

a) futures pricing of oil which has only become significant in recent times has a lot to do with today’s oil prices.

b) this futures pricing takes into account the no-end-in-sight rise in demand for oil (not only from China and India as everyone keeps saying, but also and especially for the US, Europe and Japan).

c) for one reason or another (having to do with politics mostly, but also with short-term returns) the oil producing countries invest their money in the US and Europe, rather than in creating excess capacity, resulting in the _ability_ (i.e. capacity) to produce crude to stagnate.

d) finally, futures pricing of oil takes into account the potential for instability in the Middle East, and obviously the markets have spoken.

Finally, as for noen’s glib remark, lest (s)he forget, citizens of the oil producing countries indeed *do* keep getting arrested (and rendered and tortured etc.) by US and its agents/proxies throughout the world, though their arrests don’t *directly* have anything to do with cartels. and might i again emphasise *directly*.

Why aren’t OPEC members immediately arrested when they step foot in the US? They are after all members of an illegal cartel.

Other countries seldom set foot in the US. Officials of countries which are members of OPEC sometimes do, but of course, those officials are not themselves members of OPEC. The Sherman Antitrust Act has very little application to events taking place outside the US, and no application to actors who are soveriegn nations rather than private countries.

How dare they live atop our oil indeed.

Up until now the OPEC countries have wanted very little to do with the WTO–why should they. That I think has started to change. However as has been pointed out people are only going to sign treaties if it is in their interest (or they are strong armed into it, which is actually the usual mechanism). Anyhow the OPEC members have managed to resist the pressure until recently, and as their whole economy floats on Oil, which everyone else needs, they concentrate their efforts there.

As for the operation of the cartel: isn’t it just a mirror image of the operation of the WTO cartel operated by the industrialised countries.

I don’t see the puzzle.

You all seem to be presuming that OPEC _could_ increase production, if they desired.

I’m not sure they can.
And I’m certain that we are not many years removed from the day when they can not.

In the past, OPEC hung together because the Saudis had enough spare capacity to control the price: if they ran at full output then the
balance of global supply and demand would be in
the low-price region. But the world has changed in three big ways: demand from developing countries has increased greatly (especially China, but probably also India, Southeast Asia, and maybe Eastern Europe ?); the breakup of the USSR has changed Russia’s position as a supplier (certainly not so much cheap oil for fellow communists; and perhaps also declines in production due to underinvestment in the communist 1970s and 1980s, and the gangster-capitalism 1990s); and various big fields – in Saudi and the North Sea – appear to have declining production, regardless of price incentives.

So why did the Saudis keep the price so low for so long ? Mostly to maintain active US support for their corrupt illiberal unpopular autocracy.
[Compare with Iran, where a democratic government nationalized the oil industry and got a CIA-sponsored coup and dictatorship for a generation]
But perhaps also slightly to postpone technical developments in alternative energy sources.

Either way, the genie seems to be out of the bottle now, and we’re going to have considerable economic disruption as we absorb a oil price shock and have 10-20 years to wait for alternatives to mature.

The main oil fields in Saudi Arabia are not in good shape, capacity-wise. If they pump with wild abandon, they’ll hurt their reservoirs (pumping too fast brings up sediment that clogs the reservoir stone). Also, they are starting exploration projects – there is a lot of oil still there, but they haven’t put new wells in. If they kill off their main fields before successfully tapping their auxiliaries, they will no longer be able to maintain there top presence in the cartel. OPEC understands that these crazy high prices generate bad will for them and that it makes exploration of harder regions (like the US and Canada) more viable. If they cut production, it’s because they are having a hard time with their reservoir management.

Note that the Saudis not only used to have spare capacity, but they were – and I think still are – by far the lowest-cost producers. From memory, their production cost was something like $2-3/barrel whereas most other places – especially offshore fields like the North Sea – are perhaps $10/barrel or more. So the Saudis could plausibly threaten to lower the price low enough to badly hurt other producers (albeit by slightly hurting themselves).

“Self interest should insure that they calculate what rate of production is in their long term best interest.”

Yes. But I’m pretty sure that the correct strategy to maximize total discounted future oil revenue for the Saudis would have involved lower production and higher prices than the the $15-25 range they seemed to keep through the 90s (again from memory, so correct me if I’m wrong). To understand the actions of the Saudi decisionmakers I think you really need a hyper-realist analysis, noting that the regime is undemocratic, corrupt, heavily dependent on US military protection, *and* susceptible to straightforward bribes – see the latest scandal in the UK, where it seems Prince Bandar took $2B in bribes on an arms deal, and the UK government has shut down the investigation for no good reason. The US keeps them in power and bribes them; in return they keep the oil flowing. It ain’t pretty.

1. OPEC isnt illegal. They can collude all they want. If they were domestic companies in the USA then there is an antitrust law that could be used (if there were Dems running the Justice Dept.) but since they arent here our laws dont apply.

2. OPEC’s ability to control prices isnt as complete as people might imagine. Remember that oil was down around $12 not very long ago – That sure wasnt because OPEC wanted it there. Right now it is high and going higher, again not because that is what OPEC wants.

The bottom line is that OPEC has one tool to actually influence the market – the ability plus the willingness to withhold product from the market. That means that they lose their power when demand so outstrips supply that ability to withhold supply makes no difference. It also means they lose their power when supply is so large that their willingness to withhold is less than the slack in the system (as was the case a few years ago when there was so much oil around that the Saudis could have cut their supply to near zero and there still would have been a surplus.

In sum, there is only a narrow band of supply/demand conditions within which they have some degree of power. We were out of that band on the down side a few years ago and we are out of it on the upside now.

3. Oil companies are out there as we speak punching holes in the ground everywhere there even MIGHT be oil. New product will start coming on line in a year or two and if that coincides with a recession then we might well see lower prices – for a while.

Check here

http://tonto.eia.doe.gov/cfapps/STEO_Query/steotables.cfm?periodType=Annual&startYear=2004&startMonth=1&endYear=2008&endMonth=12&tableNumber=7

to see production and capacity figures. Only the Saudis have any excess capacity and they use it at their peril – exploiting it all now would damage the long term production of the wells so they arent too keen to max out.

That’s right, the stuff has low price elasticity of demand.

Many of those producers who had to exit in the 90s happened to be Texans, Republican sponsors. Now they are happy. I’m sure with a Democrat in the WH the price will come down, perhaps significantly, Democratic party being, so far, a client mostly of the financial sector. Unless there is some kind of a re-alignment.

To get back to the original question (or one of the original questions): As I understand it, the WTO exists to influence/regulate the behavior of states as makers of rules governing foreign trade; it has nothing in particular to say about states as direct participants in foreign trade.

abb1 (17.), of course. I agree (well, to some extent – I do think that they are, by virtue of their money, an important player in the international ruling class).

But there’s no corresponding effect on the high end—wherever you are on the demand curve, reducing supply will move you farther up it.

I believe the point of the comment was to say, OPEC has little ability to move in the opposite direction of what you’re thinking: simply put, OPEC can’t really drive prices down.

It might be hard to see why OPEC would lower prices, even if it could. Regardless, OPEC probably cannot substantially lower oil prices. Their ability to increase production in the short-term is probably not sufficient to control for other market variables. Thus, that’s a limit on how well OPEC can “control” the price of oil — it can really only move the price in one direction, up.

Here’s a simple hypothetical example that shows why OPEC might want the ability to control prices by lowering them: Perhaps this could be used in bargaining/negotiation, to secure other advantageous relationships with oil-importing countries. “We’ll lower the price of oil to $80 US if you provide X, Y, Z.”

Rea wrote “The Sherman Antitrust Act has very little application to events taking place outside the US, and no application to actors who are sovereign nations rather than private countries.”

This is false — The Sherman Act is applied to foreign firms that sell to U.S. customers all the time, with the most notable examples in recent years being the lysine and vitamin cartels. See http://www.usdoj.gov/atr/icpac/chapter4.htm for an overview of U.S. antitrust actions against international cartels.

On the original question:

With regard to the WTO: Matt is correct: “…WTO rules only cover what’s in the agreement and the agreement doesn’t cover (for the most part) oil and gas.”

With regard to U.S. antitrust law: See International Association of Machinists v. OPEC, 477 F. Supp. 553 (1979). The IAM sued OPEC for violating the Sherman Antitrust Act. The District Court ruled that OPEC was covered by sovereign immunity under U.S. statute, since the cartel’s activities were not commercial, but rather merely an exercise of the state’s “sole power to control its natural resources.” It’s crazy reasoning, as you say, the realpolitik is obvious.

“the stuff has low price elasticity of demand.”

True in the short term only. A predictable permanent rise in oil prices will affect investment decisions: on a timescale of 3-6 years, you’ll see people buying smaller more efficient vehicles, new efficient furnaces, more insulation etc; on a timescale of 5-15 years, investments in R&D will produce alternative energy sources and conservation technology. We’re already seeing a boom in technologies like hybrid cars and distributed solar photovoltaic generation.

Heck, given high enough oil prices for long enough it’s even possible the US government might develop sane policies about mass transport, zoning, and energy conservation. But don’t hold your breath …

21: Those are some interesting points. I think we need to wary of the assumption that the now much higher price will stimulate enough future supply to end the economic emergency that oil prices are becoming. Try the following thought experiment:
(1) Most resources follow a log normal distribution, say for oil the resulting bell curve spans several orders of magnitude of extraction difficulty.

(2) Of course you start out extracting mostly the easiest stuff first. As that runs out, you start moving into exponentially more difficult territory. Even with greatly expanded effort, there is no quarantee that you can maintain a high extraction rate. Difficulties could arise long before 50% of the originally available resource has been consumed. We don’t really know much about the OPEC reserves either in size or quality. Maybe they still have significant easy oil left, maybe not. In any case I think the message some would take away for your point (3) is that business as usual will suffice, since the market will save us. That is a dangerous result, as it may very well not be true.

Abb1, at that price demand will be lower and you are back to reducing output. The main difference is that in your example you have certainty about the price and uncertainty abput the amounts, while fixing amounts is the other way round,

Given the investment costs associated with oil production, i presume oil producers prefer certainty about the amounts.

The main difficulty of a cartel is not in physically limiting output, but in getting enough people to join in the reduction. After all, the best position for an oil producing country is when all others are in a cartel limiting their output, while you are pumping full-speed and still get the price.

I think ( but am not sure) that this resulted already in the 80s in enough pressure on OPEC from its members that the quota from then on where basically the same as they would have pumped up anyway, making the OPEC more a talking group than a real cartel.

Yeah, I heard the same explanation, although I think it’s not really the case that Saudi-Arabia can profitably cut production. After all, there will always be a sweet spot in production amounts for SA, and deviating from that costs by definition money.

I think the point is more that the Saudis can influence the oil price enough to punish or reward the rest of the market. If OPEC holds to its quota, SA keeps the pipes closed, and otherwise it floods the market.

“Even if you accept situation X is caused by variables Y and Z, doesn’t mean that it can’t be changed by adjusting some other variable.”

If the high price of oil (denominated in dollars) is caused by the value of the dollar dropping, why on earth should producers volunteer to reduce the value of the payments they recieve in return for their oil, just to keep the price constant in dollars. Posibly they could, but why would they?

tracy w and great zamfir

Yes the point is precisely that Saudi Arabia can no longer exert pricing discipline.

It can cut production, but it cannot raise it, due to geological and physical factors in its oil fields.

The other factor is that the OPEC ‘hawks’ have rising young populations and high spending needs: Iran, Nigeria, Venezuela etc. The ‘doves’ have lots of oil and not many people, so a lower price for oil (discouraging new entrants) is generally a good thing. They can always reinvest the money in London office blocks.

Saudi Arabia has moved into the ‘hawk’ camp. It now has over 3 times the population it had in 1975, and half are under 25. Unemployment is high, and the infrastructure put in in the 70s and 80s needs replacing.

So it has no incentive to cut production.

And it has no ability to increase production.

If you look across the piste, there is no spare production capacity left in the world (that isn’t constrained by political violence a la Iraq and Nigeria).

Whether that situation will change is anyone’s guess, longer term. Maybe the oil just isn’t there.

Note US gasoline consumption is projected to fall this year, only the 8th time it has done so since WWII and the last time since 1990-91. But only by a small amount (c. 0.4%).

As Matt Simmons points out, gas is the cheapest bottled substance you can buy at an American petrol station: Coke, orange soda and bottled water are all more expensive per gallon.

He also points out that gas is now $9/gallon in London (actually it is $10/IMperial gallon, now) and yet London’s biggest problem is traffic congestion.

“Am I doing price-fixing? You bet. Am I limiting the output? Not at all, at $500/barrel I’ll sell you as much as you want. QED.”

But then “as much as you want” is going to depend on the price you set. So if you choose to set the price at $500/barrel, demand is going to be smaller and you’re going to sell less. And unless you want to fill all your bathtubs with the unsold oil, you’d better cut production to match.

There’s a short-term demand curve (demand vs price); there’s a more elastic longer-term demand curve. You can set the production, and then the
market will find the price point where the demand matches the production; or you can set the price, and then the market will find the level of demand matches that price. Or you can juggle the two factors (with the difficulty that control of pricing and production both involve delays – delivery from the oil well is not instantaneous; price decisions affect future contracts but not existing supply contracts). But no matter what you do, the consumers have a big say in the outcome.

But all this economic mumbo-jumbo obscures the fact that the Saudi elite are clients of the US, and their decisions are primarily about personal self-interest, and only indirectly about the long-term welfare of the Saudi population. If they can continue to pocket $2B bribes while avoiding a bloody revolution, they’re happy. And heck, they’ll also play all sides, kicking back some of that money to the jihadis as long as they promise to use it abroad.

Abb1, at that price demand will be lower and you are back to reducing output.

No, these are two different strategies – one is ‘price-fixing’ and the other ‘capacity-withholding’. A monopolist can use either one, or, I suppose, a combination of the two.

For example, they could do price-fixing while explaining (falsely) that the price is high because they don’t have enough capacity. Which might very well be what they are doing now.

“Unfortunately the market adjustments to these sorts of price changes take a long time. It takes perhaps 15years to retire vehicles for example.”

Quick check of figures: about 200M cars and light trucks total in the USA, annual sales about 15M.
That would suggest 13.5 years for complete
turnover. But it isn’t that bad: firstly, the vehicles that are really old are obviously not the ones that are doing a lot of miles; secondly,
the gas-price incentive to trade-in will affect the most-used (and least-fuel-efficient) vehicles most strongly. So it might be reasonable to think
that within 3-5 years you’ll get a very significant change in gasoline consumption, as the worst of the low-miles-per-gallon high miles-per-year vehicles get traded in first (and then either scrapped or bought by people with low miles-per-year usage).

Other kinds of investments take longer – e.g.
building non-fossil-fuel generation capacity,
investing in rail infrastructure. But there’s
scope for big wins there: rail freight is 3-4x more efficient than trucks in energy-usage-per-
ton-mile. I find it pretty easy to see how, with appropriate investments, the US economy could do
just about what it does now but with 50% less –
maybe even 65% less – fossil fuel consumption.
I find it appallingly hard to see how you can
match that on the supply side (even ignoring the
CO2 emission problem).

This would all be easier if the elites of the USA could recognize that spending $1T on investment in energy conservation was a much more rational approach than spending $1T on military operations in oil-producing regions abroad. Sigh …

You seemed to be suggesting that you can fix the price without adjusting production.

No, I’m suggesting, that adjusting production doesn’t matter much, especially for a product with low price elasticity of demand. If I could arbitrarily quadruple the price, a 5% drop in sales wouldn’t bother me at all. And the prospect of 15% drop ten years from now would bother me even less.

You seemed to be suggesting that you can fix the price without adjusting production. My point is that you can’t: the relationship between price and production is determined by the consumers
(the demand curve) – the producer can only choose
a point on that curve.

You are correct. Abb1 is confused.

There are probably two interesting points on that curve: the point that maximizes short-term profit; and the harder-to-find point that maximizes total future discounted profit

Except it’s more complicated than that, because there is neither one major producer, nor a very large number, but a smallish group. So strategic interactions become important. For instance, my understanding is that in the past Saudi Arabia has “punished” other OPEC members that exceed their quotas by increasing its own production, even though this moves it away from both the short-term and long-term profit maximizing levels.

“For instance, my understanding is that in the past Saudi Arabia has “punished” other OPEC members that exceed their quotas by increasing its own”

True. As the low-cost producer, the Saudis can
inflict severe pain on others while only suffering mild pain themselves. Which can probably be justified in game theory as a good long-term strategy, as in the Prisoner’s Dilemma, to force others to co-operate in future.

“Where am I confused?”

You’re not necessarily confused: you’re just emphasizing the current short-term inelasticity of demand, where I’m seeing that as a localized, and probably temporary, feature in the evolution of the demand curve. 2 or 3 years from now we’ll see how the economy responds and whether my relative optimism is justified. If I really knew what’s going to happen I’d be getting rich on that knowledge :-)

I have been spending quite a bit of time recently looking into developments in solar photovoltaics, high-efficiency internal combustion engines and suchlike. And based on that I’m pretty sure there are good technological solutions coming along: it’s just a question of what gets to production and when, and at what cost. But given that you can already buy a 45mpg Prius for around
$22K (?), which is pretty much the cost of an average family car, I think the “emergency” may resolve itself merely by choosing to have fuel efficiency rather than leather seats and 4WD and a DVD player for the kids. And to live in apartments near subway stops, rather than in McMansions with a 45-minute commute.

“Richard. In real life the oil interests easily buy and shelf all these beautiful inventions”

Really ? I must have missed where Exxon bought Toyota and stopped production of the Prius ?

Now it’s undoubtedly true that US government policy is heavily influenced by oil producers: hence incredibly stupid policies like the tax credit for buying hybrid cars *as long as you don’t sell too many* !!!??!! But with $120 oil and gasoline approaching $4/gallon, we’re getting into the region where the economically rational decisions of individuals can cause a whole lot of progress *in spite of* dumb policy. And I don’t
see that the oil companies can do much to stop
that.

Incidentally, in this particular subject I actually do have some relevant expertise (hard to believe, I know). Some years ago I programmed a computer model for a spot-market-style deregulation of the electric power in US states. Based on the game theory and all that. The model won a DOE grant and I know they’re still using it, because they recently complained to me that it doesn’t work on a Win3K server (the dot-net crap).

Now, in that model the energy producers had two distinct strategies: ‘strategic bidding’, aka price-fixing (I don’t know why they call it ‘bidding’ when it’s really manipulating the ‘asking price’) and ‘capacity withholding’. These are the basics, but I could go on.

I believe the world oil market operates on a “dominant-firm oligopoly” model, with OPEC (which is itself like a large firm with multiple and internally competitive plants) as the dominant firm and other countries, including the US, UK, Norway, Mexico, Canada, Russia, and other non-0PEC oil producers, as the competitive fringe. Being extralegal – beyond the purview of any national law enforcement system – allows OPEC to continue, but none of the competitive fringe producers are in a position to challenge for market leadership at this point.

All of this talk about fixing a higher price is irrelevant to current conditions when the price is already heading higher with all countries producing as much as they can. All of the models about oligopolists colluding and market leaders withholding production only make sense when the price wants to go lower and the producers want to keep it higher.

Right now the price very obviously has no tendency whatever to go down – And it has nothing to do with OPEC withholding output because they are all producing at capacity (even the Saudis who could technically increase output but only at the cost of damaging long term production capacity).

OPEC may become relevant again in the future but they arent right now – even if they continue to meet and pretend they have power. Dont forget they still met and pretended to control the market even in the late 80’s when the oil market collapsed and prices were less than $10/bbl (seems a distant dream doesnt it?)

The game right now is to develop alternative energy sources and more efficient end use devices. Whoever leads in these areas will make a bundle of money. Whoever focuses only on pumping out more oil is riding a wave whose crest may well already have passed.

all countries producing as much as they can

But how do you know that?

“all countries producing as much as they can

But how do you know that?”

check this link

http://tonto.eia.doe.gov/cfapps/STEO_Query/steotables.cfm?periodType=Annual&startYear=2004&startMonth=1&endYear=2008&endMonth=12&tableNumber=7

What? I don’t see any proof or even a statement on that page that they produce all they can.

It’s just that 48mpg doesn’t seem too impressive for all the hype and for all the additional highly sophisticated stuff they put in there. It less than doubles the mileage of an average petrol equivalent and a very slight improvement (if any) over a diesel equivalent. Wtf? I feel that they just sell you a lot of gadgets for little added value, that’s all. Maybe it’ll get better, who knows.

Richard, whether doubling something is a lot, it depends on the starting point, and the starting point is frankly atrocious. I mean, if you are making $100K and your boss doubles your salary – that’s great, but you’re making 3K – that still sucks.

I would’ve been greatly impressed by 48mpg if it was achieved by some relatively simple improvement. But I’m not so impressed by 48mpg when it’s achieved by making the engine akin to that of a freakin space shuttle.

BTW, I think if Edison came and took apart modern cars, I think he’d be truly amazed and baffled by computer-controlled electronic fuel ignition systems and engine-management computers. He’d have no difficulty understanding the non-electronic parts of the Prius’ hybrid system.

“For example, they could do price-fixing while explaining (falsely) that the price is high because they don’t have enough capacity. Which might very well be what they are doing now.”

Which IS pretty much what the California/Western electricity companies did a few years back (and given abb1’s later post it’s not surprising he comes up with this example).

“You are correct. Abb1 is confused.”

Nah, they’re just thinking about it differently, but I think on the whole abb1 is right.
Basically abb1 is thinking of this in terms of a Bertrand market – firms fix a price, then are ready to pretty much sell you as much as you want, while Richard is thinking of this in terms of Cournot – producers choose output then bring it “to the market” and sell at whatever is the market price (while being conscious that their output decision will ultimately affect the market price).
If there’s only single firm it actually doesn’t matter.

The thing is, for the oil market (and many others), while the Bertrand setup may seem “more realistic” – after all, firms do choose their prices – the Cournot outcome is more like what we observe in practice. And in fact the standard way to analyze the OPEC cartel is in the Cournot framework.

But this is the danger of insisting on more “realistic” assumptions – sometimes they give you the wrong answer.

The trick is, that in fact the Cournot outcome corresponds (theoretically) to a two-stage Bertrand market where in the first stage firm’s choose capacity (in the case of California electricity companies, in part by having “technical problems”) and in the second they set prices. And this basically sounds like what abb1 is talking about and is probably a pretty good description of how OPEC operates these days.

“Toyota is not making a serious profit on them, let alone recovering the investment cost. But the image of technology leader is worth a fortune.”

They’ve licensed their hybrid technology at least to Ford and Nissan. So I suspect they’re going to make a healthy profit on the technology in the long run.

And that’s the way of the auto business: you have to make heavy investments in factories and new car design and tooling that only pay off years in the future. Toyota’s investment in developing hybrid technology may be a bit more long-term than most projects, but then if there were an easy cheap low-investment path to better fuel efficiency, it would have been done long ago.

“Nah, they’re just thinking about it differently, but I think on the whole abb1 is right.
Basically abb1 is thinking of this in terms of a Bertrand market – firms fix a price, then are ready to pretty much sell you as much as you want, while Richard is thinking of this in terms of Cournot”

I’m not familiar with the terminology. But I think that abb1 and I agree that there *is* a demand curve. And I choose to emphasize the fact that we’ve seen quite a lot of medium-term elasticity of demand in the past (e.g. after the 1970s oil shock); where he emphasizes the short-term inelasticity of demand. But surely no-one thinks consumption patterns would remain the same at $500/barrel ? At some price level whole sectors of the economy just become unprofitable and have to shrink dramatically (e.g. airlines, selling SUVs). Think of the most inelastic commodity imaginable: air for breathing. Everyone would pay whatever they have for that. But even so, if the price is more than they’ve got, they’ll just die and thus reduce demand.

Indeed, a recession, with a total reduction in economic activity – with the heaviest reduction in oil-consuming sectors – is precisely the
“economic emergency” that we might be concerned about. Perhaps the real difference between abb1 and myself is that I see a lot of potential to reduce oil usage with little effect on GDP, whereas he seems less optimistic.

The current Prius is actually a fairly large car by international standards — the EPA lists it as a mid-size — though that doesn’t prevent it from being smaller than most other cars in the US. It’s moderately bigger than a VW Jetta, for example.

Some notes on Prius’s technology:

The engine has electrically-timed valves, something increasingly common in more conventional cars, but is otherwise no different than most other small ICE’s (other than the modified Atkinson cycle achieved by its unusual intake-valve timing). The transmission is mechanically much simpler than conventional cars: a single planetary gearset with the ICE on one shaft, a motor-generator on another, and the drive wheels and second motor-generator on the third. Effective gear ratio is changed by electrically moving torque between the two motor-generators. So computer-controlled MOSFETS and power inductors substitute for the mechanics and hydraulics of a standard automatic transmission. Battery power is applied and extracted as necessary.

The battery itself is carefully kept at a middle level of charge — between about 30% and 80% — which increases its life dramatically, to the equivalent of tens of thousands of charge cycles. It’s otherwise just conventional NiMH cells. Since charge is entirely controlled by computer algorithms, changing to a different battery technology would be relatively simple.

Electrically-controlled hydraulic modulators (such as those used in anti-skid systems) allow regenerative breaking to occur when the brake pedal is mildly depressed, with further pressure activating the wheel brakes (which will be activated by hydraulic pressure alone even if a compete electrical failure occurs). So the car is partially drive-by-wire — the throttle petal is a spring and position sensor, merely an input device to the car’s control computer.

The synchronous motor-generators are entirely unremarkable, 19th-century technology except perhaps for their use of niobium permanent magnets. Thus the only truly out-of-the-ordinary components are the MOSFET power inverters — handling more than 30KW at up to 500 volts in a liquid-cooled box a couple liters in volume. Complete computer control of engine and transmission function and even wired throttle are hardly unusual any more.

On the highway Prius mileage is exceptional only for a car its size — a sub-compact might do as well. In the city there is simply nothing that can touch it; I get 44 mpg on an urban commute (with lots of lights and speed changes) where I got 17 mpg in a VW Passat, with no change in driving habits (which were already pretty mileage-aware).

I consider hybrids to be transitional technology. They are an incremental improvement over non-hybrid cars, but they are also a proving ground for mass-produced automotive power electronics and advanced computer control — and whatever the future brings in terms of alternative energy, those are going to be a big part of it.

In the spirit of conspiracy-theorizing I seem to exhibit in this thread, I’ll say that the hybrid technology (especially the hype associated with it) might be a way to head off the development of a truly electric car with no internal combustion engine whatsoever. In the end, with a hybrid you still need gasoline and the whole infrastructure associated with it. What amount of fuel you save with the increase in fuel efficiency you’ll probably compensate (at least somewhat) by driving more.

http://www.mininova.org/tor/888950
http://www.imdb.com/title/tt0489037/

Well, the EV1 was a revolutionary thing, I can see that; Prius – no, not so much. I guess we’ll have to agree to disagree.

Hey, watch the film, or at least read a synopsis or something. California passed the ‘zero emissions’ law in 1990 and they had to start building electric cars, they didn’t do it to greenwash anything.

I think I’ve seen electric forklifts (though diesel usually), but I haven’t seen a single electric ‘plug-in’ passenger car in my life. And yes, AC engine is not complicated, it doesn’t need much maintenance or replacement parts. That I find revolutionary, not squeezing two different engines and a dozen computers under the hood.