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Earlier discussion

Ask Jeff Rubin Add to ...

Sonali Verma, Globe Investor: And Jeff, we have a few questions about alternative fuel sources:

Glenn Carnegie writes: Historically, it seems that, periods of low oil prices usually defer the sense of urgency towards development of alternative fuel sources. Is there any evidence that this is now occurring or do you believe the peak oil theory is readily accepted and we have start to act accordingly ?

Philippe Davidson writes: You predict that the price of oil will reach $200 per barrel or more in the near future. Don't you think that before oil prices establish themselves at these or higher levels for long periods of time time, demand will either switch to alternative sources of energy or be contained if not reduced altogether by new energy-efficient technologies?

Stefan Szary writes: I've got through half of your book 'Why Your World is About to Get a Whole Lot Smaller', though I didn't need much convincing as I'm sympathetic to the 'peak' proposition.

My question is this: Given the continued depletion/use of cheap, conventional oil, and the significant geo-economical and geo-political ramifications of the 'peak process', what do you foresee as feasible replacements, if any? Baring some paradigm shifting technological breakthrough, what is your position on item like coal-to-liquids technology?

Jeff Rubin: No question that over time, triple-digit oil prices will induce and incent the development of new fuel technolgies. But in the here and now, the answer will not be in finding some new fuel source but in reducing our fuel needs - in short - by reducing the energy requirements per unit of GDP. And that process is bound to make all of our worlds smaller because it means that once again, production will move closer to markets and we will become less and less dependent on both imports and exports.

P.S. - As for peak oil, it's not that the world is running out of oil in an absolute geological sense, but it is running out of the type of oil you and I can afford to fill your tank with.

Shawn Bellihal writes from Calgary: What's the model price of oil the Alberta oil producers are anticipating, for reviving the Mega projects that have been currently placed on 'HOLD', and when do you project we will attain that price?

Jeff Rubin: For most, we need a price of near $90 per barrel to generate a reasonable economic return on the billions of dollars a new oil sand project requires. And that's true for most unconvetional oil projects around the world.

Dave Thompson writes from Edmonton: If I understand correctly, oil supply will be low coming out of the recession, and demand will be high, driving oil prices up. At the same time, Canada's national economy won't be so hot. What will the economy look like in oil-producing regions like Alberta?

Jeff Rubin: Better than it will look in oil-consuming provinces like Ontario or Quebec. Virtually all of oil sand production is going to be exported to the US, so the fact that demand may remain weak in Canada really won't have that much of an impact on the oil patch's fortunes.

Mike Larsson writes from Montreal: I bought your book yesterday and was anticipating it for a while. It's a great book - highly readable for non economists. I would argue essential reading for Canadians.

As an export meat trader in montreal in 2005/2006, I was playing close attention to the future direction of the Canadian dollar and the price of corn. Both are key indicators for the export dependent Canadian meat industry, and both are tied to the price of oil.

I noticed that your unconventional predictions of the future price trend for oil and the dollar were in line with the predictions of the major agricultural economists at the American Universities (eg - Purdue). Corn was $2 a bushel, and had been low for a long time.

Economists were predicting a doubling of the price of corn - corn behaved according to your scarcity theory: its rocketed up to over $5, then fell back - but its not fallen back to previous levels. Speculators in the corn futures markets and the ethanol mandate were targetted as the main factors, but agricultural economists are focussed on the long term structural trends: scarcity of the fertilizers (petrolium based) and land & water scarcity.

My first question is what do you see regarding the "petrodollar" in your scenario - will the dollar keep rising with oil? (this kills our agricultural exports in general)

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