The Paradox: How Cold Fusion will cause Oil Prices to Rise (Oaklandthinktank)

The following post has been submitted by Oaklandthinktank

If Rossi demonstrates his device publicly, in October, or whenever any of the players in the market makes a convincing demonstration or begins selling a working device, the price of oil, natural gas, and coal will leap upwards. The reason is simple: to pay down their debts.

Most of the financing for fuel extraction happens with debt, and the proven reserves are the collateral. A public acceptance of cold fusion would drive down the value of those proven reserves, but the debt doesn’t go away. Those fuel producers would need to continue paying debts, yet, they would have an expectation that future prices will be dramatically lower.

To pay those debts when fuel is cheap, they’ll need plenty of cash on hand. That necessitates an increase in prices, before cold fusion saturates the market. Get all the cash, now, so that debts can be paid, later.
Some fuel extra ctors have more debt than others, but they all have some debt. The *faster* a cold fusion device could saturate the market, the *more* those extractors will have to charge. Consider: you have $10 billion in debt, that you expect to be able to pay over 30 years at current prices. If cold fusion prices you out of the market in 15 years, your debt burden has doubled – you’ll need to charge more, today, to have enough cash in 15 years.

Yet, if cold fusion prices you out in 10 years, your debt burden triples. And, if one producer has lower production costs, compared to others in the fuel market, they will survive longer, before being priced out. They might have a 15 year timeline before cold fusion takes enough market to make their oil unprofitable, while high-cost producers ha ve a 10-year timeline – Saudi Arabia, compared to Venezuela, for example. The Saudis don’t *need* to raise prices as much as Venezuela, because they have a longer time until they are priced out of the market, and thus, a lower annual debt burden. However, the Venezuelans will be raising their prices, because of a 10-year timeline… so, the Saudis might as well match those prices. The market price will increase according to the debt burdens of the most-quickly-priced-out producers. Lower-cost producers will be happy to take that windfall, before fuels become dirt cheap.

And, as each fuel producer is priced-out of the market, the price will fall to match the debt burdens of the next highest-cost producer. They will step-ladder prices downward, matching the portion of energy that cold fusion supplies. Suppose, 15 years after a public device, that only the Saudis are still pumping oil, albeit with only tiny profits; natural gas producers are still somewhat profitable. Only when cold fusion threatens to completely supplant that remaining fuel production, would price at the pump finally collapse.
So, my prediction: natural gas producers, already a low cost operator, will see a huge windfall from the oil-spike. And, expensive oil will simultaneously deliver more value to solar and wind. Not that anyone would plan to build new wind farms, when they could just wait for the delivery of their Quark – the existing wind farms would see a larger profit.

And, worth considering: if the Quark X is as spectacular as Rossi claims (and, I have a peculiar feeling that he has found the winning design… moire imply that special conditions can allow this sort of thing), his device could saturate the market *very* quickly. Many fuel producers would be confronted by this: “I need to make enough money in the next five years, that I can pay back all these debts. I’ve been operating at a 5% margin, at $50/barrel, which barely covers my debts. To pay the debts within this crimped timeline, my barrels will need to pull six times as much gross. That’s still only $62.50/barrel. I can do that. But, I could also make a profit, because the *last barrel* sold sets the price for all the barrels… how much profit could I really get out of this, before it folds?” Stock prices will tank, unless the barrels become *very* expensive. And, most cons umers will still need to buy the oil, because cold fusion wouldn’t be saturating the market, yet. The faster cold fusion can replace oil, the more likely that fuel producers will gouge prices, as a last-ditch effort to walk away with cash in their pockets.

– Oaklandthinktank