Consumers are in for a one-two-three-four punch in energy costs this winter.
1) The price of gas will remain high over the winter and spike upward again next summer, but oil demand is relatively inelastic - people stuck in sprawl need to drive everywhere whether they can afford it or not, and it's not easy simply to replace a gas-guzzling vehicle.
2) The price of natural gas will be some 38 percent higher this winter than it was last winter. North American natural gas is in peak production now, and will plateau over the next several years, even as demand continues to grow. It will cost a lot more to heat those big suburban homes.
3) The price of electricity is going up. Ontario already doesn't produce enough electricity to meet peak demand, and has to import it from the US. However, nearly every US power plant built in the past twenty-five years has been ... you guessed it, natural gas fired, and natural gas is in peak production.
In Ontario, the price of electricity is reguled below market value, but that will change once Ontario deploys its planned smart meters. Ontarians are paying 5 cents per kilowatt-hour for the first 750 kilowatt-hours, and 5.8 cents after that. However, it's costing nearly 10 cents per kilowatt-hour to purchase.
4) Finally, the price of every consumer item that uses oil, gas, or electricity for its production (read: everything) is going to go up as well.
That's pretty much a textbook recipe for a recession, whatever the delusional econoptimists might say. Worse, even if the recession temporarily squashes demand for these energy supplies, the underlying supply constraints will rear their ugly heads again in a few years when demand rebounds.
To the extent that our economy runs on cheap oil, cheap gas, and cheap electricity, we're in for very rocky times ahead for the forseeable future.
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