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Black Gold
Jun. 5th, 2008 02:22 pmA news item this morning reported that Brazil's recent oil discoveries could cost $240bn to bring "on stream", some $100bn more than the previous most expensive development. Of course, if oil is trucking along at $120 a barrel or more, then it's all fine and dandy.
But how much is $240bn? Well, it's about 3 times the impact of Hurricane Katrina. Money being put into oil development would seem, therefore, to have an impact on current consumption. On the other hand, the question is, how much is "extra" (i.e., how much is being diverted from other investment?).
I tried to find a number for the world's gross domestic product and all I could come up with was the guesstimate of just over $32tn, which equals 80 Hurricanes of 2005. But those numbers are deceiving, because there's what one might call "discretionary" GDP and "non-discretionary" GDP. Massive hurricanes hit the discretionary side, whereas oil investment only partially hits the discretionary side.
I was wondering about that because it seems clear that the credit crunch and the subprime crisis might only be about $300bn in total (1% of the world's GDP and, interestingly, about on a par with the world's retail drug trade each year) but that probably hits the discretionary side far more than the non-discretionary side. Combine that with a significant hurricane season in 2008 (if that happens) and you kind of wonder how well the world economy will cope.
But, how much of the world's GDP could be described as "discretionary"? I don't know, because I don't think that any work has been done on this. Rule of thumb numbers put it at about 10% in the US, but it would be far less in the third world. So, let's guess at 8%. That gives us a discretionary world GDP (money that can be diverted from A to B) of $255bn every year.
If the credit crunch came to $300bn, and if we amortize that out over, say, five years, then that still leaves us with very little leeway against even a moderately serious hurricane season. But if we were to get an earthquake in a highly populated area of California, or if there were a repeat of the, er 1933? hurricane that hit New England, then that would wipte out discretionary GDP as sure as eggs is eggs.
So you THEN get the situation where you have to take money from where money can't be taken (i.e., the situation in Britain during World War II). The other option is to go onto a war footing and to increase GDP. That is, everyone works harder (another strategy used in World War II).
But, it's one thing fighting the Germans; it's a bit harder to explain to people that you are at war against a GDP crisis.
__________
But how much is $240bn? Well, it's about 3 times the impact of Hurricane Katrina. Money being put into oil development would seem, therefore, to have an impact on current consumption. On the other hand, the question is, how much is "extra" (i.e., how much is being diverted from other investment?).
I tried to find a number for the world's gross domestic product and all I could come up with was the guesstimate of just over $32tn, which equals 80 Hurricanes of 2005. But those numbers are deceiving, because there's what one might call "discretionary" GDP and "non-discretionary" GDP. Massive hurricanes hit the discretionary side, whereas oil investment only partially hits the discretionary side.
I was wondering about that because it seems clear that the credit crunch and the subprime crisis might only be about $300bn in total (1% of the world's GDP and, interestingly, about on a par with the world's retail drug trade each year) but that probably hits the discretionary side far more than the non-discretionary side. Combine that with a significant hurricane season in 2008 (if that happens) and you kind of wonder how well the world economy will cope.
But, how much of the world's GDP could be described as "discretionary"? I don't know, because I don't think that any work has been done on this. Rule of thumb numbers put it at about 10% in the US, but it would be far less in the third world. So, let's guess at 8%. That gives us a discretionary world GDP (money that can be diverted from A to B) of $255bn every year.
If the credit crunch came to $300bn, and if we amortize that out over, say, five years, then that still leaves us with very little leeway against even a moderately serious hurricane season. But if we were to get an earthquake in a highly populated area of California, or if there were a repeat of the, er 1933? hurricane that hit New England, then that would wipte out discretionary GDP as sure as eggs is eggs.
So you THEN get the situation where you have to take money from where money can't be taken (i.e., the situation in Britain during World War II). The other option is to go onto a war footing and to increase GDP. That is, everyone works harder (another strategy used in World War II).
But, it's one thing fighting the Germans; it's a bit harder to explain to people that you are at war against a GDP crisis.
__________
