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[Austro]

I don't know if topics like this are allowable, but I will delete it if anyone objects, I just figured that posters on a Chem E forum would likely be able to give better answers than anyone else.

Oil stands at $140/bbl while the cost of production (supposedly) is no more than ~$70 from even the most marginal oil fields. One could say that this is due to a simultaneous increase in demand and decrease in supply which was too sudden for the free market to adjust to naturally. This is probably the best answer considering how quickly the price of gasoline has increased. And, of course, a sizable portion of that price increase was due to inflation.

However, when there are things like the fischer-tropsch process, which according to the article linked below is profitable at $35/bbl (in 2005 dollars but whatever), it doesn't make much sense for companies to not have been able to build Fischer-Tropsch plants in anticipation of what would seem to be fairly predictable increases in demand and stagnation in production.

http://www.ultraclea...ette_091805.htm

Granted the article mentions several FT plants being built but the only one where it mentions capacity will churn out a paltry 60 million gallons per year.... which would fuel America for literally a few hours... around 4.5. And I haven't heard much about FT plants of notable capacity being built.

Does anyone know something that I don't as far as FT plants being built? Is there some kind of huge risk associated with it? I doubt we will be seeing oil at less than $35/bbl (2005 dollars) in the next 25 years, because the way I see it, only coal and nuclear generated electricity are the only things remotely capable of replacing petroleum as a vehicular fuel and that will take a long time considering that new plants will have to be built to appease environmentalists and even then, oil will still probably be at some sort of equilibrium state where electric will only partially take over.

I don't see the risk, but then again, there have been drastic jumps and declines in oil price in the past. Could we be facing an early 1980s style oil bust where prices drop by 33+% in the next year or two?

The way I see it, if you do the math on the amount invested in the plant described in the article (plant costs $112 million to produce 60 million gal of gas per year at $35/bbl), even assuming the cost to produce a barrel at the plant doubled or even tripled since 2005 due to the increase in the cost of coal, the plant will still pay for itself in no more than 5 years. Especially if it is built in a place with little/no CO2 emissions laws and low corporate tax rates (see: China). And the plant described is fairly small scale... a paltry 1.43 million barrels per year. The numbers are likely to look even more favorable.

[djack77494]

Austro,
While I firmly believe that oil is a commodity and therefore subject to the law of supply and demand, its situation is not totally free and transparent.

In the past, we have seen how the supply could be disrupted by the producing cartel. We have also seen how instabilities in the world can have an impact even if the connection between the two is not so apparent. Now with an extended period of high prices, we have seen that demand is not very elastic. At least not in the short term. Thus, while market forces will inevitably prevail, this fact is far from obvious when we look at short time periods, and especially in response to market "shocks".

The big oil companies, who must look at development project over a very long time frame and in the face of very high risks, do not quickly respond to market fluctuations. Their "price of oil" economic forecasts are based on slow moving historical trends. Months or even years of "price spikes" make very little difference in their decisions. Even then, production projects take years or even decades to move from early decisions to develop a resource to the time when full production is achieved. So while we may not violate the laws of supply and demand, it will take considerable time for those laws to return to balance after a severe disruption.