Econbrowser: The PR of PO

JDH has an interesting piece over at Econbrowser on the Simmons $5k PR move/bet/political statement/belief in his cause.  (I meant to post this yesterday, but I forgot, I know many of you have been over there already from the comment boxes...).  Still very much worth the read if you haven't been there yet.

<kind of inside joke for those who have read the post>
(and one more thing, $2500 (the amount you have to pay to see the CERA report) is still a ridiculous amount of money...but JDH is worth closer to $2500 than CERA is for my money any day.)
</kind of inside joke>

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Unrelated I know, but... the Indonesians are having a hard time replacing reserves, whatever the excuse may be... 5.7% is a healthy cut!

Indonesia cuts oil output forecast

August 26 2005

JAKARTA, Thurs: Indonesia, South-East Asia's biggest crude oil producer, cut its oil production forecast 5.7 per cent to 1.06 million barrels a day this year, after rains disrupted drilling at main fields in Sumatera.

The country has missed its initial target of 1.13 million barrels a day because of a production decline at fields operated by Chevron Corp's unit PT Caltex Pacific Indonesia, PT Medco Energi Internasional, and state oil company PT Pertamina, Energy and Mineral Resources Minister Purnomo Yusgiantoro said yesterday.

"Our oil and condensates output will range between 1.06 million and 1.08 barrels a day," Purnomo said in Jakarta.

Also unrelated, but I just saw Trent Lott, of all people, on the Daily Show, mentioning high gas prices. Lott said that people were hurting but of course they're driving these hog SUVs, so do we produce more or consume less?
Freakonomics author Steven Levitt has a new post up also discussing the bet,

He wrote to Simmons about possibly creating their own bet, but Simmons demurred, saying "I have had a slew of economists offer to make same bet. I am actually not in bookie business and pondered whether it was even appropriate to make this Visable Wager to help focus people on how absurb we still price energy." (I'm not sure who was responsible for all the typos in this text, but it is how it appears on Levitt's blog.)

Levitt himself seems to be taking a slightly more moderate view, writing: "Whether we should care about 'Peak Oil' boils down to (1) will the cost of supplying oil jump, (2) If it does jump, by how much, and (3) how elastic is demand. As I read through the 100+ comments I got on my last blog on peak oil, it seems that there is strong disaggreement on each of those three points." So this seems to somewhat leave open the possibility of a Peak Oil transition that could be genuinely painful.

From Freakonomics author Steven Levitt:
[Matt Simmons is] the point man for the Peak Oil team
PG, HO, Ianqui, I've always wanted to be on the Peak Oil team! Is this a football team -- I'll play cornerback! Basketball -- always wanted to be a point guard!
I am a betting man. And when I see that the NYMEX December 2011 crude oil future is priced under $60 a barrel, under $200 looks like a pretty good price to me!
Oil futures traders know a lot more about peak oil than we do! They're just so smart, you know? They are not merely herding animals with their heads down on the ground. I retract previous statements.
That is why water, oxygen, and sunshine, all incredibly value products, are virtually free to consumers: it is cheap or free to supply to them. And that is why we use a lot of gas and oil, but not many rickshaws at current prices.
I have been so wrong!!!! Water, Oxygen and Sunshine are virtually free to consumers! The Universe was designed for us! Oil and Gas are cheap! But when they are not, we'll switch to Rickshaws and import hundreds of thousands of Chinese coolies to power them. I am so relieved. If I commute 30 miles to work each day in my car right now in a about 40 minutes, in the future I can hire a coolie to do the same work for maybe the same price (or perhaps cheaper!) to get there and back! And what a benefit that will be -- though my commute time will be a bit slower. But, nothing's free! There's no free lunch!
So if these things are so free, can someone tell me why solar panels and wind turbines are so expensive, and at the moment, scarce?

(When I was in grad school, we used to go to a bar that also had an oxygen bar. You could pick from 3-4 different colors. I think they also had different therapeutic qualities.)

"That is why water, oxygen, and sunshine, all incredibly value [sic] products"

Water, Oxygen etc. are valuable products. Not to mention CO2, Methane, Iron, Gravity, Neutrinos, Plate Tectonics, the Earth's Magnetic Field, the Moon, the Solar System, Dark Energy, Chimpanzees, Lions, Tigers, Bears, Shrimp, Nematodes, E-Coli, Avian Flu Viruses, Wood Pulp, Mangroves, Tuna, Sharks, and the rest.

And as products, they can be priced.
It isn't surprising that so many economists would want to take Tierney's side of the bet. As the linked article explains, Tierney was only offering Simmons evens, whereas the futures markets would give him much better odds. Tierney could make his $5000 bet with Simmons, then hedge against it by investing in call options on oil. He'd be a winner whatever happened.

So in a sense, Simmons really is putting his money where his mouth is: He's deliberately taking crappy odds to make a point. Of course, as a rich banker who thinks oil has already peaked, I'm sure he's already invested much more than that in the futures markets. (And if Simmons does have a selfish financial motive for promoting peak oil, it's probably those investments, not the few cents per copy he gets in book royalties.)

I wonder how hard it has to rain in Indonesia to disrupt drilling. Indonesia is a rainy country and has experience drilling in the wet. Is there some field they are developing that they can't get the drilling rigs to because the roads are muddy?