More answers about Peak Oil! (or just better phrased questions)

Summary of Part I in this series about Peak Oil

  1. Peak Oil is coming, very likely sometime in the next 20 years. It could happen today. This will force a major transition in the global economy; as a “crash program” for adaptation will take roughly two decades. We need to start now.
  2. We need much more data and much better analysis in order to develop national policies to prepare for Peak Oil.
  3. The rulers of Russia and especially the Middle Eastern states have the missing data needed to accurately forecast the date of peak oil. They might not see it as wise to share this information with us.
  4. The CIA could have — should have — obtained this data during the past two decades. If this data shows that peak oil lies in the distant future, that would explain the American government’s failure to take even minimal steps to prepare.

Note: these articles do not forecast oil prices or the date of peak oil.

Summary of this chapter

Part I generated a large volume of emails, more than anything else I have written. Here are some frequent comments with my replies. More in part III.

1. We have excellent data and analysis – see The Oil Drum!

I gave gentle replies to the first fifteen or so emails about this, suggesting that more exhaustive work by teams of relevant analysts might be desirable before making national policy on an issue of this magnitude and complexity.

As that seem unpersuasive to some correspondents, I turned to asking…

Do you take your children’s medical tests (e.g., blood work, MRI’s) to “The Medical Drum” website for analysis by folks who say they are doctors, nurses, medical technicians, dentists, geologists, actuaries, and so forth? If not, why would you rely on a blog for data and analysis about one of the major global challenges of this century?

The Oil Drum and similar sites feature articles which range from creative and brilliant to fanciful and even delusional. It’s the nature of blogs. Unfortunately their non-experts readers have difficulty distinguishing the wheat from the chaff in this flood of content.

Who would rely on articles from sites like this as the basis on which to design our national energy policy, directing the expenditure of tens of billions of dollars – affecting the prosperity of 300 million people?

Compare these blognotes with, for example, the thousands of pages of studies required to build a large housing development, to get a new drug approved for human use, or to change a single aspect of Federal tax policy. The difference is several orders of magnitude in depth and scale.

Blogs provide issues such as Peak Oil and 4GW with important source of creativity and energy, gathering data and insights that would otherwise never be tapped. Blogs and the internet are a valuable mechanism improving America’s Observation – Orientation – Decision – Action (OODA) loops.

This is not nearly enough. We need data and tools like those used to manage the US economy – compared to which the resources allocated to this kind of energy research are tiny. These draw on vast time series of data, run through hundreds or thousands of equations. They are not perfect, but the economy might quickly crash if economists had to rely on the sketchy tools used by energy analysts.

Making the comparison worse, economists first developed their predecessors, the National Income Product Accounts (NIPA), in the 1930’s. Since then their worth has been well demonstrated, so the failure to apply these tools to energy is especially odd.

2. Oil prices are rising therefore Peak Oil is immanent!

Here we see the fallacy of looking at a single economic phenomenon (oil) in isolation from larger contexts.

First, oil prices have not soared in terms of real money as they have in US dollar prices. By real money I mean expressed in a currency other than the rapidly devaluing US and Zimbabwe dollars.

Second, the prices of most industrial commodities have increased 2003. When a wide range of industrial commodities rise in price (especially vs. gold) we can examine each individual commodity to determine specific reasons for the rise. Fruitlessly, as there is probably a common casual factor. In this case, all have strong price elasticity to rising global GDP. This is easily understandable, as demand increases far faster than mines can be expanded or new mines (or oil fields) developed.

In the most recent cycle (roughly since 2003) copper has increased slightly more than Brent oil. (The sensitivity of copper prices to economic growth has earned it the nickname of Dr. Copper.) This alone should give pause to those forecasting an immediate peak in oil extraction.

There is another chapter to the typical business cycle. What often happens after several years of very rapid economic growth? Rising inflation. Inflation pushes up prices of most commodities. Along with many other signs of increased global inflation, starting last fall agricultural products began to rise faster than those of industrial metals, especially soybeans and wheat (US corn prices had already spiked due to demand for ethanol).

None of this proves that rising oil prices do not signal the approach of peak oil, but this does suggest the causes of oil’s price rises are more complex than the story told on many Peak Oil websites.

More importantly, this indicates that some of those writing about peak oil suffer from some degree of analytical myopia, failing to put their data in wider contexts of time and the global economy.

Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information about Peak Oil

  1. When will global oil production peak? Here is the answer! (1 November 2008)
  2. The most dangerous form of Peak Oil  (8 April 2008)
  3. The world changed last week, with no headlines to mark the news   (25 April 2008)
  4. Peak Oil Doomsters debunked, end of civilization called off  (8 May 2008)

Here is an archive of my articles about Peak Oil.

Here are other resources about Peak Oil.

10 thoughts on “More answers about Peak Oil! (or just better phrased questions)”

  1. You now have and will have only bad information to work with!

    In 2006 the Wall Street Journal had this clue:

    “Exxon Mobil Corp., the world’s biggest oil company, last year said that its own calculations showed it had succeeded in adding 1.8 billion “oil-equivalent” barrels to replace the 1.6 billion barrels it had pumped in 2004. In other words, by Exxon’s calculation, it had replaced more than 112% of the oil and gas it had pumped out of the ground the year before. But using the SEC rules, the oil giant actually fell behind, replacing only 1.3 billion barrels, or 83%.”

    This 30% too high reporting is an example of the best information; data from state oil, (Russia, Mexico, Middle East) is much worse.

    I trade oil, the dollar value is the sum of all the fears and the harm. The exact date of the peak is not relevant.

  2. confusedponderer

    Fabius Maximus,
    what immediately struck me when I read your last (or first, depending on the angle) three posts is the context of dollar devaluation and the rising oil prices that raise the question to what extent this is sustainable.

    Add to that that American on an average consume roughly twice what a European consumes. American consumption is not discouraged through taxation. I think the US consumption will remain high as long as it is cheap on the US market, with this waste exacerbating the problem of sustainability. That means, in a sense Europeans, living more efficiently, are somewhat better prepared. Also, the stronger Euro helps Europe buy oil cheaper than Americans as long as the dollar remains weak, a thing that passes the American buyer unnoticed when he compares gas prices in Europe and the US.

    And of course, if the dollar devaluation is a sign of a creeping inflation that would then accelerate the emergence of unsustainability.

    Peak oil will be bad enough for Europe, but for the US, even though they do have some oil reserves of their own (including Canada and Mexico’s) it will hit much harder.

    Of course, that leaves out of the equation wars to control other oil sources, but as Iraq showed that’s not all that easy. Mind, I’m not from the “they’re there for the oil” crowd. Oil is only one factor of many that made the US invade Iraq. Oil wars are also only feasible to the extent the budged allows for that. I think of the US deficit there.

    You, anyone, able to put that into a larger context?

  3. The response analysis is much more muddled than reports like the DOE would indicate. The lagged response characteristic is correct, but the response will include systemic changes. The DOE analysis and most of the others look at the responses with the bias that the system will not change. They look at making the components more efficient. But the system will change in response.

    For example, transportation use is dominant in the US. The systemic change that is already underway is the examination of the question: “Does this need to be shipped?” The various logistical management systems make rapid savings by eliminating 5-10% of shipping as unnecessary. Then there are slower improvements as distribution methods, suppliers, and manufacturing locations are adjusted to reflect shipping costs. All of this is underway, and generally not measured. It is very hard to measure. The publicly visible version of this is the rise of “work from home”. It is now common. A transition to 20% work from home days is equivalent to a fuel economy improvement of 25%. This kind of use reduction is also very hard to measure. It is happening, but quantifying the effect is difficult.

  4. fabiusmaximus2000

    All good points. The US Dollar’s loss of value will increase the prices American’s pay for oil — beyond the increases experienced by other nations — and sparking increased conservation. Which, as rjh3 says, takes time. For large changes, such as altering the US auto fleet, decades are required.

  5. confusedponderer

    Now the obvious follow up is what happens if the Dollar crashes, for whatever reason (take housing bubble, credit bubble, another great depression), before the US have managed to adapt. That’ll hurt bad.

  6. re: peak oil

    If one is truly interested in “fossel fuels,” one might want to read some information on the so called “other hand.” Here are three books to read:

    1) for the lay man: Black Gold Stranglehold by Jerome R. Corsi and Craig R. Smith, 2005,ISBN-10: 1581824890, ISBN-13: 978-1581824896

    2)The Deep Hot Biosphere : The Myth of Fossil Fuels (Paperback) by Thomas Gold (Author), Freeman Dyson (Foreword), 1999, 2001, ISBN-10: 0387952535, ISBN-13: 978-0387952536

    3)The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy (Paperback) by Peter W. Huber (Author), Mark P. Mills (Author), 2006, ISBN-10: 046503117X, ISBN-13: 978-0465031177

  7. fabiusmaximus2000

    Gold believes that oil has a abiotic (non-biological) origin. His work has very little support among geologists and petroleum engineers. I recommend reading “A Critique of Thomas Gold’s Claims for Abiotic Oil” by Jean Laherrere:

    Note that even if true, it might not be relevant. Oil formation over eons by biological processes might mean only that after Peak Oil our distant descendents will again be able to use oil (for a brief time, assuming they are not tapping quantum “zero point” energy for their needs.

    What happens to oil prices if the US Dollar crashes (which might be happening as we speak):
    Probably oil will be priced in terms of “real money”, so its price to Americans will rise. Note that there are two groups of central banks supporting the US dollar: Asian nations, and oil exporting nations. So a change of policy about the US dollar is connected to national policies of the major oil-rich nations.

  8. A few years ago I first heard about Peak Oil, bought an online book, found the FTW website and read a lot of their stuff there. I was puzzled by the excess of argument and deficiency of hard data. Then I stumbled onto this site: Gas Resources Corporation which has quite a few papers, both scientific and polemic, about the abiotic theory. I still don’t feel I have been able to read anything definitive, although somewhere on the site they go into a successful series of deep finds in Russia (none of which can be confirmed of course).

    On the Gas Resources site, one of the short papers in the Scientific Section goes into the Dneiper finds, entitled: The Drilling & Development of the Oil & Gas Fields in the Dnieper-Donetsk Basin

    Here is a recent one from Pravda: “Mankind will never run out of oil” (11.10.2007)

    For an entertaining and even more provocative rendering of the issue, the late Joe Vials, conspiracy theorist extraordinaire: “Russia Proves ‘Peak Oil’ is a Misleading Zionist Scam“.

    The bottom line for me is that apart from a load of charts, there is no evidence as yet that I have been able to find that the fossil fuel theory is anything more than an intelligent nineteenth century guess. I also read recently how several old fields in Texas which had been closed down have now replenished themselves and those little pumps are at it again.

    I personally remain agnostic on the issue, as appealing as Peak Oil is intellectually. However, what is of more interest to me is that it evidences just one more of far too many examples of how, although we live in the so-called modern, post-religious, faith-based ‘scientific’ and ‘fact-based’ era, all too much of what we now take for granted as established, ‘proven scientific facts’ are simply hypotheses in fancy dress. Indeed, it seems the new faith is ‘scientism’. In the fields of education, medicine and science nearly every day in the papers some new example of something we thought was established bedrock hard-core fact is debunked, whether it is the efficacy of a certain drug, how memory or the brain works, when homo sapiens first appeared and how he did so long before certain of his supposed ancestors were still walking around and so on.

    Personally, given the huge amount invested in the petrocarbon industry, which was a choice not a necessity, I definitely do not take anything at face value.

    It is interesting that Russia has quietly and steadily become the World’s Nr 1 producer.

    Another little factoid on this: coal regenerates more each year than we have ever burned. If oil too is a naturally arising inner-core ‘product’ rather than the result of crushing dinosaur bones together in some sort of geologic pestle and mortar routine (NO evidence for which exists ANYWHERE including ‘intermediate’ finds – same as with the evolution theory btw) then it is (unfortunately) quite possible that there is indeed more of it around than we now believe.

    And (unfortunately again) belief is the operative word here in our ‘scientific’ age no less so than it was in the one it replaced.
    Fabius Maximus replies: The Texas oil fields have not “replenished”. Only a fraction of the oil was pumped out. Oil have moved through the rocks’ pores so that wells can be restarted. No extraordinary theories are required to explain this.

  9. Oh duh, I thought we could get fossils out of oil and coal. Must be all those scentists must be wrong. Now going down into coal fields and picking out the fossils, the biological matter out of oil? Oh well, all the research and data is wrong.

    Don’t know why we even have scientists, though the way things are going in the US, UK and Australia we wont have any soon. Then we can all live in the wonderous universe of OZ (or UZ, Gor or whatever), where belief is everything and data is meaningless. Hey, I think I’ve got it now, I’ll just invent less CO2. There done. Food, I’ve just thought it away, infinite food for everyone. Population, heck lets have 50 billion on the planet. I suppose water will infinitely replenish as it will miraculously replenish itself.

    The Twilight zone, do NOT adjust your horizontal (and forget about the vertical).
    Fabius Maximus replies: A Gor reference! One of the wonders of western literature — millions of copies sold, but never discussed. I heard once that their publisher discovered, to their surprise, that a third of John Norman’s readers were women.

  10. Pingback: A Look at Forecasts for Peak Oil – and the End of Civilization « Föhrenbergkreis Finanzwirtschaft

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