The sky rocketing oil price

What about the oil price?  In 1999 we wrote. It is quite possible that the oil price will soon rise to 17-18 dollars per barrel. Nobody in the world has thought, that six years later the price will hit the 50-dollar mark. The predictions for the near future are mind blowing. In May 2004, Simmons explained that in order for demand to be appropriately controlled, the price of oil would have to reach $182 per barrel. With oil prices at $182 per barrel, gas prices would likely rise to $7.00 per gallon. Simmons predictions are downright tame compared to what other analysts in the world of investment banking are preparing themselves for. For instance, in April 2005, French investment bank Ixis-CIB warned, "crude oil prices could touch $380 a barrel by 2015."

But I want to recall what I wrote in 1999 about money and oil prices.

"In our economy these natural resources remain unpriced and therefore not subject to market signals. Our economic models of production do not include the natural resources, they only consider production as a function of labor and capital. Neither capital nor labor can create energy. We cannot print oil. Economists are thinking in money. It is their ultimate resource. They forget to take in account the value of the natural resources. They count as costs only labor and investment to extract them. There is no thought given to the cost of replacement of maintenance for the resources they use. Economists not only forget to take into account the value of natural resources, they also ignore the hidden costs to the environment. The cost of energy is frequently subsidized, by government through investment tax credits, federally subsidized research and military expenditures that ensure access to petroleum. The environmental costs of fossil - fuel burning also do not factor into the price of gasoline. Therefore, the real costs are ignored. They should internalize the real costs in the prize of their product"

Can we find enough alternative sources of energy to replace oil and gas?  

What about the alternative sources of energy? The amount of energy contained in that barrel of oil would cost between $100-$250* dollars to derive from alternative sources of energy. Thus, the market won't signal energy companies to begin aggressively pursuing alternative sources of energy until oil reaches the $100-$250. Once they do begin aggressively pursuing these alternatives, there will be a 25-to-50 year lag time between the initial heavy-duty research into these alternatives and their wide-scale industrial implementation. People tend to think of alternatives to oil as somehow independent from oil. In reality, the alternatives to oil are more accurately described as "derivatives of oil." It takes massive amounts of oil and other scarce resources to locate and mine the raw materials (silver, copper, platinum, uranium, etc.) necessary to build solar panels, windmills, and nuclear power plants. It takes more oil to construct these alternatives and even more oil to distribute them, maintain them, and adapt current infrastructure to run on them.

President Bush has publicly embraced hydrogen as a solution to the US's looming oil supply shortages. But, as Cal Tech Vice Provost and professor of physics David Goodstein has noted, there are only two commercially viable ways of making hydrogen. One is to make it out of methane, which is a fossil fuel. The other is to use fossil fuel to generate the electricity that is required to electrolyze water and get hydrogen. The economics of doing that are such that one ends up using the equivalent of six gallons of gasoline to make enough hydrogen to replace one gallon of gasoline. This "solution" , therefore, turns out to be no such thing.

In recent years, the debate over nuclear power has revived, and to judge from the tremendous rally in the price of uranium and various uranium stocks, the market has already concluded that nuclear power is firmly back on the political agenda again. Nuclear power has undoubted attractions, as it would facilitate compliance with the Kyoto Treaty. But its replacement potential for oil is still limited. To produce enough nuclear power to equal the power derived from fossil fuels, would entail production of 10,000 of the largest possible nuclear power plants, according to Goodstein. "That's a huge, probably nonviable initiative, and at that burn rate, our known reserves of uranium would last only for 10 or 20 years."