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Some of the arguments in the Economist article are, to be very generous, misleading. It would be hard, even for a politician, to find an interpretation of the following statement that will render it true: "Rich economies are also less dependent on oil than they were, and so less sensitive to swings in the oil price. Energy conservation, a shift to other fuels and a decline in the importance of heavy, energy-intensive industries have *** reduced oil consumption ***." (*** is my emphasis) 1. Oil consumption has not been reduced in the rich economies. It has increased massively. See the two tables below for details. Of the world's richest countries, only the UK has reduced its oil demands since 1970 and its demands are on the rise again. 2. The argument that the rich countries are less dependent on oil because oil represents a smaller % of energy consumption now than it did in 1970 is senseless (this is the most generous way of interpreting the Economist argument). By analogy: If my beverage intake yesterday consists of 1 litre of water and 1 litre of melted chocolate, but today it consists of 2 litres of water and 4 litres of melted chocolate, I cannot say that I am less dependent on water today than I was yesterday because water represents a smaller % of my total intake. I'm still drinking more water and I will die if I don't drink any. (To continue the analogy, I could say that I have become a bigger glutton.) Replace "I" with "rich countries, particularly the US", "water" with "oil" and "melted chocolate" with "other energy sources". There are other misleading statements, but the above arguments should adequately demonstrate the article's worthlessness. Table 1. " World Energy Consumption by Fuel, 1970 - 2010 Quadrillion BTU Annual % Change Energy Source 1970 1990 2010 1970-1990 1990-2010 Oil 97.8 135.4 181.3 1.6 1.5 Natural Gas 36.1 72.0 106.8 3.5 2.0 Coal 59.7 91.9 118.0 2.2 1.3 Nuclear 0.9 20.3 24.4 16.9 0.9 Renewables 12.2 26.2 41.1 3.9 2.3 Total 206.7 345.6 471.7 2.6 1.6 Note: Totals may not equal sum of components due to independent rounding. Sources: History: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Statistics Database; and International Energy Annual 1992, DOE/EIA-0219(92). Projections: EIA, World Energy Projection System (1995)." (taken from EIA website) Table 2. (apologies for the poor formatting of this one) See it at: http://www.sci.sdsu.edu/classes/phys301/lecture4/sld065.htm World Oil Consumption 1970-1996 (Thousand Barrels per Day) Source : International Petroleum Statistics Report. February 1998. Yr France Italy Ger U.K. Europe U.S. Canada Japan Total 70.. 1,937 1,710 2,607 2,096 12,404 14,697 1,516 3,817 46,808 72.. 2,322 1,947 2,859 2,284 13,934 16,367 1,664 4,363 53,094 74.. 2,447 2,004 2,748 2,210 13,988 16,653 1,779 4,864 56,677 76.. 2,420 1,971 2,877 1,892 14,124 17,461 1,818 4,837 59,673 78.. 2,408 1,952 2,927 1,938 14,290 18,847 1,902 4,945 64,158 80.. 2,256 1,934 2,707 1,725 13,634 17,056 1,873 4,960 63,067 82.. 1,880 1,781 2,372 1,590 12,053 15,296 1,578 4,582 59,503 84.. 1,754 1,646 2,322 1,849 11,736 15,726 1,472 4,576 59,836 86.. 1,772 1,738 2,498 1,649 12,102 16,281 1,506 4,439 61,759 88.. 1,797 1,836 2,422 1,697 12,427 17,283 1,693 4,752 64,819 90.. 1,818 1,872 2,382 1,752 12,629 16,988 1,690 5,140 65,985 92.. 1,926 1,937 2,843 1,803 13,605 17,033 1,643 5,446 66,742 94.. 1,833 1,841 2,879 1,837 13,597 17,718 1,727 5,674 68,313 96.. 1,935 2,058 2,911 1,845 14,269 18,309 1,797 5,867 71,894 Regards, Nathan --- Nathaniel Hurd <email@example.com> wrote: > Below [selected quotes and a comment, followed by > the complete article] one of the Economist's 27 > November 1999 Leaders argues that "Rich economies > are also less dependent on oil than they were [in > '73]." > > "Energy conservation, a shift to other fuels and a > decline in the importance of heavy, energy-intensive > industries has reduced oil consumption. > > Software, consultancy and mobile telephones use far > less oil than steel or car production. > > For each dollar of GDP (in constant prices) rich > economies now use nearly 50% less oil than in 1973." > > "On the other hand, oil-importing emerging > economies-to which heavy industry has shifted-have > become more energy intensive, and so could be more > seriously squeezed." > > This is material worth mulling over while listening > to or reading sermons on how the Middle East is the > permanent and unalterable keystone for U.S. and > Western European energy security. > > With regards, > > Nathaniel Hurd > Boston, USA > > ***************************************************************** > > http://www.economist.com/editorial/freeforall/19991127/index_ld5716.html > > 27 November 1999 > The Economist > Leaders > > Oil’s pleasant surprise > > It seems that oil-price shocks are less shocking > than they used to be > > COULD the bad old days of stagflation be about to > return? Since OPEC agreed to supply-cuts in March, > the price of crude oil has jumped to almost $26 a > barrel, up from less than $10 last December and its > highest since the Gulf war in 1991. This > near-tripling of oil prices evokes scary memories of > the 1973 oil shock, when prices quadrupled, and > 1979-80, when they also almost tripled. Both > previous shocks resulted in double-digit inflation > and global recession. So where are the headlines > warning of gloom and doom this time? > > Their absence is even more striking given that, at > the start of the year, many commentators (including, > rather prominently, this newspaper) expected prices > to fall, not rise. OPEC’s agreement to cut output > has so far proved more durable than many predicted. > The oil price was given another nudge up this week > when Iraq suspended oil exports in a showdown with > the UN over sanctions. Strengthening economic > growth, at the same time as winter grips the > northern hemisphere, could push the price higher > still in the short term. > > Yet there are good reasons to expect the economic > consequences now to be less severe than in the > 1970s. The sharp rise in oil prices follows an > equally sharp collapse over the previous two years, > when prices fell by more than half to their lowest > level in real terms since before the 1973 shock. > Even now, prices are not much higher than in early > 1997. > > Moreover, in most countries the cost of crude oil > now accounts for a smaller share of the price of > petrol than it did in the 1970s. In Europe, taxes > account for up to four-fifths of the retail price, > so even quite big changes in the price of crude have > a more muted effect on pump prices than in the past. > > > Rich economies are also less dependent on oil than > they were, and so less sensitive to swings in the > oil price. Energy conservation, a shift to other > fuels and a decline in the importance of heavy, > energy-intensive industries have reduced oil > consumption. Software, consultancy and mobile > telephones use far less oil than steel or car > production. For each dollar of GDP (in constant > prices) rich economies now use nearly 50% less oil > than in 1973. The OECD estimates in its latest > Economic Outlook that, if oil prices averaged $22 a > barrel for a full year, compared with $13 in 1998, > this would increase the oil import bill in rich > economies by only 0.25-0.5% of GDP. That is less > than one-quarter of the income loss in 1974 or 1980. > On the other hand, oil-importing emerging > economies—to which heavy industry has shifted—have > become more energy-intensive, and so could be more > seriously squeezed. > > The impact on the output of oil-importing countries > also depends on whether oil producers save or spend > their windfalls. In 1973 and 1979 many OPEC > countries already had current-account surpluses, and > most of their extra oil revenues were saved. Today, > many have large current-account deficits (Saudi > Arabia’s hit 10% of GDP last year). Cash-strapped > producers are more likely to spend their windfalls > on imports from rich countries. > > One more reason not to lose sleep over the surge in > oil prices is that, unlike the rises in the 1970s, > it has not occurred against the backdrop of general > commodity-price inflation and global excess demand. > A sizeable chunk of the world is only just emerging > from recession. The Economist’s commodity price > index is broadly unchanged from a year ago. In 1973 > commodity prices jumped by 70%, and in 1979 by > almost 30%. > > Refining the argument > > > Even if the impact will be more modest than in the > past, dearer oil will still leave some mark. > Inflation will be higher and output lower than they > would be otherwise. The OECD’s rule of thumb is that > a $10 increase, if sustained for a year, would > increase the inflation rate in rich economies by > about half a percentage point and knock about a > quarter-point off growth. > The impact of higher oil prices varies by country > too. Perhaps the biggest risk is in America, where > rising oil prices may push the inflation rate higher > than is currently predicted. The slide in oil prices > in recent years was one of the main factors that > helped to hold down American inflation, so > prolonging the country’s long economic expansion. > That positive factor is now going into reverse. > Higher oil prices have already helped to lift > America’s inflation rate to 2.6% in October, up from > 1.5% a year ago; the latest rise in oil prices could > well push it above 3%. The core inflation rate > remains relatively subdued, but headline inflation > could still spill into wages and hence other prices. > If it does, the Fed might be forced to raise > interest rates by more than is now forecast. So OPEC > could yet do more damage than most people expect. > ----------------------------------------------- > FREE! 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