Summary: this brief analysis of Matt Savinar‘s Life After the Oil Crash. Are we doomed? Probably not. My title is, of course, fun but absurd. Peak oil is too vast a subject, the range of expert opinion too wide, for any blog post to pose as more than a introduction — showing one perspective of the many possible. Still, I believe this makes a good case for betting that peak oil will not result in depression and war. But it could easily mean two decades of severe economic pain. Please see the conclusion for caveats, and the links at the end of the post for more information.
Ponder this excerpt from the widely cited Matt Savinar‘s Life After the Oil Crash.
“Are We ‘Running Out’? I Thought There Was 40 Years of the Stuff Left”
Oil will not just “run out” because all oil production follows a bell curve. This is true whether we’re talking about an individual field, a country, or on the planet as a whole.
Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up.
In practical and considerably oversimplified terms, this means that if 2005 was the year of global Peak Oil, worldwide oil production in the year 2030 will be the same as it was in 1980. However, the world’s population in 2030 will be both much larger (approximately twice) and much more industrialized (oil-dependent) than it was in 1980. Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin. As a result, the price will skyrocket, oil dependant economies will crumble, and resource wars will explode.
The issue is not one of “running out” so much as it is not having enough to keep our economy running. In this regard, the ramifications of Peak Oil for our civilization are similar to the ramifications of dehydration for the human body. … A loss of as little as 10-15 pounds of water may be enough to kill him. In a similar sense, an oil based economy such as ours doesn’t need to deplete its entire reserve of oil before it begins to collapse. A shortfall between demand and supply as little as 10 to 15 percent is enough to wholly shatter an oil-dependent economy and reduce its citizenry to poverty. …
Savinar has great confidence about his vision. No hedging with “if” or “maybe.” Before booking flights to New Zealand or Tasmania, let’s consider this carefully.
Contents
- These forecasts seem very confident. Are they credible?
- Time
- The magic of prices
- Energy efficiency
- The global effect of high oil prices
- Update: where is Matt Savinar today?
- Conclusion
- For more information about peak oil
(1) These are confident forecasts. Are they credible?
Does Savinar subscribe to the Psychic Hotline? Energy forecasts — esp. those warning of Peak Oil — have been notoriously wrong for many decades. Has the future suddenly become clear as glass? Let us parse the third paragraph on this home page.
“In practical and considerably oversimplified terms, this means that if 2005 was the year of global Peak Oil, worldwide oil production in the year 2030 will be the same as it was in 1980.”
It was an evil day for humanity when Johann Carl Friedrich Gauss “invented” the bell curve. It applies to many phenomena, but not to ALL phenomena. There is a strong basis to believe the global production curve will be asymmetric. Just to mention one, the graph should be of “liquid fuels” not oil, as substitutes for petroleum (e.g., biofuels, coal to liquids) were insignificant on the way up – but might be significant on the way down. Also, 2005 may have been but probably was not the peak year (see section II below).
“However, the world’s population in 2030 will be both much larger (approximately twice) and much more industrialized (oil-dependent) than it was in 1980. Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin.”
How wonderful that the author understands so much about the technology and economy of 2030. No doubt he is a billionaire, as his technology and biotech bets made in 1986 must have paid off nicely.
“As a result, the price will skyrocket, oil dependant economies will crumble, and resource wars will explode.”
Sounds ominous. Can we see his forecasts for 2008 written in 1986? Did he predict the USSR’s collapse, the two Gulf Wars, the Rise of China, and the economic growth of the past five years (perhaps the fastest global growth since the invention of agriculture)?
The actual experts that I read tend to be more modest in their predictions. In fact, I suspect an inverse correlation between expertise and over-confident rhetoric. For example, Robert Hirsch’s writing sound nothing like those of Savinar.
(2) Time
Peaking, political or geological, might have already occurred, or might occur during the next ten or twenty years (almost certainly in the next 40 years). We do not have the data necessary for more accurate forecasts (e.g., data on Saudi reserves).
Short-term fluctuations are common in the record, so the plateau in oil consumption since 2005 tells us little — especially as we do not know the cause. It might result from …
- geological — we cannot bring on new production faster than decline of existing fields
- transient — new developments have not yet caught up with rising demand), or
- political — Middle Eastern producers can produce more, but choose not to. See these posts: definition of political peaking, and its announcement. It is almost as painful as geological peaking.
As oil prices have risen over the past five years, the adaptation process has already begun. We just need time. Among the three forms of peaking, Savinar assumes the worst case — a “strong form” of peaking in which a peak occurs soon (before the adaption process has run far), with a short plateau, followed by a rapid decline (he calls a global 3% annual decline rate “conservative”, because many fields have declined at faster rates, which does not take into account the difference between “one field” and “all fields”).
That is, of course, possible — but not, as Savinar implies, certain. Even that scenario would not mean the end of civilization, just severe economic pain during the ten or twenty year-long adaption process, for the reasons discussed below.
(3) The magic of prices
Savinar assumes that rising prices will wreck civilization, with no other effects. Changing prices are information in motion for a free market economy, signaling changes in the environment and forcing people act. The author ignore these mechanisms.
A. Substitute other things for energy. Substitute efficiency for convenience (use car pool or buses instead of driving alone to work or play). Use higher cost goods from local suppliers instead of cheaper but distant goods. Substitute rail for truck transport. Take local vacations instead of trips to Disneyland, Las Vegas, or Europe. Wear light clothing instead of air conditioning; wear sweaters to reduce your heating bill. Tele-conferencing for meetings.
B. Make investments (capital expenditures) to increase energy energy efficiency. Insulation. More efficient motors. Hybrid cars.
C. Make investments to substitute other forms of energy for petroleum. Replace gasoline and diesel vehicles with electric cars, trucks, farm vehicles. Solar panels replace diesel generators. Electricity and water can replace natural gas in the production of fertilizer. Convert coal to liquid fuel.
D. Innovation: higher prices spark innovation, both new ways to do things and new technology. Here is just one of a thousand examples (none of these are magic bullets, their collective impact is impossible to foresee). “Making the World A Billion Times Better“, Ray Kurzweil, Washington Post (13 April 2008) — Read his Wikipedia bio! Excerpt:
Take energy. Today, 70% of it comes from fossil fuels, a 19th-century technology. But if we could capture just one ten-thousandth of the sunlight that falls on Earth, we could meet 100% of the world’s energy needs using this renewable and environmentally friendly source. We can’t do that now because solar panels rely on old technology, making them expensive, inefficient, heavy and hard to install. But a new generation of panels based on nanotechnology (which manipulates matter at the level of molecules) is starting to overcome these obstacles. The tipping point at which energy from solar panels will actually be less expensive than fossil fuels is only a few years away. The power we are generating from solar is doubling every two years; at that rate, it will be able to meet all our energy needs within 20 years.
As stated above, all these things take time — but can in aggregate produce large changes in energy use.
(4) Energy efficiency
Savinar assumes that reduced oil consumption means less economic activity. History shows this is not necessarily true. Oil prices rose from $1.80 in 1970 to $36.83 in 1980 (Arabian Light oil price, as posted at Ras Tanura). Global oil consumption peaked in 1979 at 66,048 million barrels/day, then the magic of economics did its work:
- Consumption dropped by 14% through 1983. Four years of declining oil consumption — yet civilization survived!
- Consumption equaled the 1979 peak again in 1993 (see the BP Statistical Review for details). During this period the global economy (GDP) increased at roughly 3%/year, slightly below the post-WWII average (using IMF data). Fourteen years of GDP growth with no increase in oil consumption!
Looking at the current world, at $120 oil prices are up 6x from the 1990’s average. Almost certainly that price shock has created substantial efforts to change energy use, whose results might have not yet appeared in the data. But they will appear, I suspect. Sooner than people expect.
(5) The global effect of high oil prices
Unlike the author’s implied assumption, money spent to buy oil does not disappear. Oil producers invest or spend it. Hence rising oil prices shifts wealth and income around the globe, not destroy it. To the extent that oil producers save more than oil consumers, this has a net slowing effect on the economy. But nothing like the Armageddon described in doomsters’ forecasts. This reduced growth in GDP slows the growth in demand for oil. If prices rise so that real global GDP slows to 2%/year (very roughly), oil demand no longer increases. If oil prices rocket high enough, global GDP will actually fall (historically a rare event, except during wars).
To put this in perspective, oil prices have risen from their 1990’s average of $20 (West Texas Intermediate) to $120 during a period of record or near-record (depending on whose numbers are used) growth in global GDP.
Why have rising oil prices not wrecked the global economy? The consensus 5 years ago was that every $10 increase in oil prices slashed at least 1/2% off real global GDP growth. Answer: energy consumption per dollar of GDP has declined — a lot. In 1950 the US used almost 20 British Thermal Units (BTU) to produce $1 of GDP. In 1970 it was 17.44 BTU. Today it takes 8.78 BTU. (From The Gartman Letter, 7 May 2008, based on data from the EIA and Dr. Mark Perry of the University of Michigan)
This is not because we “no longer make things.” US manufacturing as a % GDP has been flattish for a generation.
(6) Update: where is Matt Savinar today?
Savinar is an attorney (see his bio). At one point one of the best known peak oil doomsters, Matt Savinar has retired from Life After the Oil Crash and now offers astrological consultations.
(7) Conclusion
Much of this post is over-simplified for brevity and suitability for a general audience. Also, I may have incorrectly represented Matt Savinar’s assumptions. On the whole, however, I hope this post shows the weak and speculative basis of “end of civilization” and “die-off” scenarios about Peak Oil. Given all this, I find this discouraging: (from Savinar’s “about” page)
LifeAftertheOilCrash.net, averages 15,000 visits and 50,000 page view per day. It is assigned reading at multiple university courses around the world.
Unfortunately there is an information shortage about Peak Oil. There is too-little good research (Hirsch and his peers are grossly underfunded), and even less reliable information for the public. Neither is a good indicator of our readiness for peak oil.
The faster we prepare, the easier the transition will be to peak oil. Other nations already have strong programs in motion to prepare for peak oil. We are among the world’s laggards. Civilization will continue even if America falters as a result of peak oil, just as it survived the fall of the Spanish Empire. We have the ability to adapt, but so far lack the will and awareness of the need.
Over-dramatizations like “life after the crash” are part of the problem, in my opinion, not part of the solution. They are too easily dismissed, and unfortunately the awareness of peak oil often gets dismissed with them. Equally unfortunate, their facile certainty about the future discourages the need for research and modeling about our energy resources and consumption — necessary to efficiently marshal and apply resources for rapid mitigation programs.
No matter how well and rapidly we prepare, horrible things still might happen. Civilization, indeed human life itself, depends on Fate. Soon and fast collapse of oil production, super-bug pandemics, larger asteroid or comet impact, massive climate changes, eruption of a super-volcano, or a supernova exploding within 50 light years … the number of high impact – low probability scenarios is legion. But we live our lives in defiance of these things, not in fear of them.
As TE Lawrence said (in the film) “Nothing is written.”
(8) For more information
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about oil and an archive of my articles about Energy & Peak Oil. Here are other resources about Peak Oil. Here are some of special interest:
- Important: Recovering lost knowledge about exhaustion of the Earth’s resources (such as Peak Oil).
- When will global oil production peak? Here is the answer!
- The three forms of Peak Oil (let’s hope for the benign form).
- Prepare now, for oil prices will rise again.
I went to the BP Energy Statistical Review of Energy 2007 report. Did a few manipulations that reinforced my statements that the issue we face today is ‘peak exportable oil’.
That is the difference between production and local consumption for oil producing nations.
Take Iran, Production is steadily growing, though still well short of its peak prior to the Shah’s overthrowing and the Iran/Iraq war (as a historical reminder Iraq started it and was backed, totally by the US/EU, the US fought and destroyed the Iranian Navy, and both supplied arms, intelligence and of course, chemical weapons precursors to Iraq).
In 1990 the proportion of local consumption to production was 41%, in 2006 62.4%. Oil production increased by 50%, but consumption by 76%.
Now for the rest of the world: (Net means the difference between production and consumption) for just the oil producing nations..
• Total North America: Production basically flat or very slowly declining. Net: declining rapidly because demand is growing so fast.
• Total S. & Cent. America: Production peaked in 1998. Net: slowly declining.
• Total Europe & Eurasia (inc Russia and the ‘Stans): production peaked in 1987, then declined then rose to peak again in the last 3 years. Net: actually steadily improved until 2004, since when it has slowly declined.
• Total Middle East: production has steadily risen since 1985 to above its peak in 1977, when it collapsed (took until 1998 to exceed that again). Net: the proportion of local consumption to production has gone from 19.9% in 1990 to 23.1% in 2006. Over the period production has risen by 40%, but local consumption has risen by 70%. Need to invade and impoverish more nations boys.
• Total Africa: All the efforts to keep Africa poor (DOHA, etc) is working. Production has increased, so has local demand but at a slower rate. The proportion of local consumption to production has dropped from 24.1% in 1990 to 22.9% in 2006. Africa has increased production by 51% since 1990, but its consumption (by the oil producing nations) has only risen by 41%! More diseases are needed there, plus more wars, more bombing, the French help there greatly. Now if we just totally destroy the South African economy, yes!
• Total Asia Pacific (inc Australia which peaked in production in 2000): production levlled off in 2000, but the Net position has declined dramatically. In 1990 local consumption was 85% of production, now it is 176%.
According to BP, for the whole world: Net Exportable Oil peaked in 1998!
Now that’s not quite the whole story, the World’s consumption (all producers and consumers) exceeds production in BP’s report. They state various reasons, but my guess is under reporting of production by some OPEC members. The ‘deficit’ happened in 1981, levelled off at about 1.5M barrels per day for some years, has increased a bit, with big peaks in 1999 and 2002 and now seems to be in 2M bpd region.
Plus there are no consumption figures for Iraq now! Which is probably is responsible for the recent rise.
The reason for my hypothesis is that it was so constant for so long, not a random affect caused by random errors in reporting production/consumption, but a systemic bias, Iraq consumption was pretty low anyway and is a heck of lot lower now.
Even allowing for this you have to come to the conclusion that we are at, have just passed or nearly at ‘Peak Exportable Oil’.
I have all the data and charts, email me if you want them.
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Fabius Maximus replies: You can torture the numbers as long as you want, but they will not confess. First, a wave of new capacity is coming on-stream in the next few years — a response to the increase in prices over the last five years. It takes a LONG time to re-start the exploration and development machine, after two decades of downsizing.
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Brazil’s new and very deep offshore fields will require drilling over a thousand wells. Today there are less than 50 platforms capable of such work — in the entire world. Everything takes time.
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Equally important is political peaking. Just because the Saudi’s or Russia can increase production does not mean that they will, that it is in their best interest to do so. Political peaking has different long-term implications than geological peaking, and the peak oil community has ignored this — mindlessly treating all evidence as evidence of geological peaking.
As a gneral point, in alogical world, the high tech ‘advanced’ countries would develop greater energy efficiency and alternative sources (note when I say alternative I mean all sources, including fission nuclear, arguably the biggest potential contributer for the next 50 years or so).
This would reduce demand and, by selling it to the oil producing nations, help the trade deficit in oil (coal/gas, etc). Throw in some carefully designed carbon credits and taxes? Win-win situation. The whole world uses less oil (and coal, etc) saving it for future generations. We all get wealthy. And we don’t all sink or fry from global warming.
{I should add that the proof that the human race in the future never invents time machines is that they have not come back to kill us all for wasting all those resources. QED.}
However we are stupid, and seem to be getting stupider every day. So we won’t.
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Fabius Maximus replies: A post up later today explands on your theory. However, perhaps future generations of the 23rd century do not understand the concept of “wasting resources.” Their zoos are filled with “extinct” animals (like dinos, from genetic engineering). Their asteroid mines and orbital factorys have limitless resources. Catalytic chemistry, like our bodies use, made production methods efficient, with only minor by-products. Their grade-school teachers find explaning the concept of “pollution” almost impossible.
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Their big challenge, fierce debate, is how to manage the transition from fusion (safe, proven, but old technology) to zero-point energy. Risky, expensive — and do we really need star travel?
“As a gneral point, in alogical world, the high tech ‘advanced’ countries would develop greater energy efficiency and alternative sources …
This would reduce demand …”
There’s this little island nation called Japan, its major export is animated cartoons…
Yes, they are investing in cleaner, more sustainable energy, along with a lot of good tech ideas. No, it’s not making enough of a difference in terms of reducing demand.
Had a quick look at Japan’s oil consumption. It peaked in 1995 and has declined ever since.
1995: 5.8M bps, 2006 5.2M bpd. 8% down. And Totoya is the biggest car manufacturer in the world and Japan has a massive export surplus.
In world terms that’s not a big deal, but imagine if every Western nation has reduced oil consumption by 8% over the same time?
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Fabius Maximus replies: You missed the point in my discussion of growth in GDP vs. oil consumption. Their annual growth in real GDP since 1991 has been in the 1 – 2% range, which implies near-zero change in oil use. GDP rose 1%/year for the 1992 – 2003 “lost decade’. No exactly a model for others, let alone the world’s poor but rapidly growing emerging nations.
Fabius,
Outstanding post! I am in your courtyard as to where we stand. My issue is lack of leadership. Our nation has too many “cheerleaders.” I am conservatively optimistic, in that if we begin the transition, this can be less painful. The problem, we are not. But, rising gas prices may be the wake up call we need. Also, I see what other nations, like Germany are doing with solar, and that could set good examples for us. Finally, for the first time I can remember and my research has uncovered, a few of the nation’s leaders are actually talking about the damaging effects of overpopulation publically, instead of avoiding the issue out of fear of insulting religious and special interests.
So, the key, as you point out, is strong leaders. I heard last night on CNN some pundits talking about what this nation needs is strong leaders telling the truth, and not thinks like the gas tax holiday.
Maybe there is hope for our nation.
Don
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Fabius Maximus replies: I agree on all points. Japan and Germany have been the most active in solar. Denmark and Spain in wind turbines. China is aggressively working all options, esp nukes, solar, and coal-to-liquids (CTL). From memory that have almost two dozen CTL plants working or in the pipe; they stopped at that point from concern that they have insufficient coal to fuel more.
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The US is historically slow to address challenges, but among the world’s fastest to respond once we recognize the need. The clock is running.
“torture the numbers “, “mindlessly treating all evidence ” is not what I do.
True political peaking is an issue, BUT, people follow money. Like the differece between the total World production and consumption, there is a gap, by dodgy numbers of producers producing more than they were supposed to do under their OPEC agreements.
If Iraq, Iran, Brazil, ‘stan whasoever, could increase production at current $120 a barrel they would do it today! Sheer greed would make them do it. No there is no loyalty between them. OPEC countries for decades stabbed each other in the back, agreeing to limit production, then renaged (Saddam was one of the biggest, oh how we miss him now).
They can’t produce any more (+ or – a World wide couple of million bpd).
Fine, Brasil has these ‘great deposits’, offshore in several km of water. But the energy equation is poor. How much energy, as a fraction of the energy extracted, will it take to get a barrel out of there, 10%, 25% …?
The peak oil argument is not just geology it is about net energy. Yes we will have oil in 2200, but it will take more eneregy to extract it than you get from it, we will still do it of course for the plastics, chemicals, drugs, etc.
The bottom line is we have to use less oil for energy. The ‘developed’ countries can do this easier than others. Reducing consumption by alternatives, and efficiency is the ‘low hanging fruit’.
I won’t disagree that Mr. Savinar has staked out significant turf deep in the realm of the worst-case scenario for Peak Oil. I would like to address a few points that, in my opinion, make it more likely the U.S. will suffer a significantly rough transition period that at times will be more akin to the worst-case scenario.
1. Mr. Savinar’s data is based, in part, on M.K. Hubbert’s analysis first presented in 1956 in his paper “Nuclear Energy and the Fossil Fuels”. One of the scenarios presented in his paper provided a timeframe that matched up with Peak U.S. production in 1970/1971. He was ignored at the time. His estimate of world Peak was off for the very reason you cite above – the world got a lot better at using oil in the 1980’s and 1990’s, so there is hope there, though the trend towards increasing demand is still in place due to rising demand from China, India, et al – coutnries that had taken themselves out of the market due to socialist and autarkic economic policies in the 1980’s.
2. U.S. Oil production, as reported in EIA numbers, does follow – roughly – a gaussian distribution (some use a logistic curve, but there’s not a big difference here), even the spike due to bringing Alaskan oil onstream doesn’t alter the general trend. And the U.S. is one of the greatest oil regions ever exploited, and has been exploited with the best field management and most transparency of any region. Ditto the North Sea. The curve is a valid model – not reality – but model to give us guidance.
3. Depletion rates have been significant due to the use of secondary and tertiary recover processes such as waterflooding, gas injection, etc. 3% depletion would be great, considering we are seeing 4% – 10% in the U.S., North Sea and Mexico. We are waiting to see how Kuwait and Russia will deplete. Depletion rates will be magnified due to restrictions on exports (which you mentioned) and as modeled in the “Export Land Model”, so we can expect turmoil there.
4. U.S. infrastructure is heavily dependent upon cheap transport fuels. The political will does not exist at the moment to face the reality of this massive mal-investment. Will it come? Or will it descend into populist pandering (i.e. the Gas Tax Holiday)? That will be a key.
5. The alternatives will certainly (hopefully?) cushion the far side of the peak – be they CTL, more deepwater, tar sands, oil sands, etc., but they are low flow and high capital cost.
There are many solutions (solar, wind, nuke, etc.), but there is no acknowledgment from leaders at the Federal and State levels that Peak Oil Mitigation is a critical policy issue. Will it take gas lines and food riots (due to high prices – we can grow vast amounts in small plots once we wake up to the need) to rouse the country? I hope not. Once roused, I am optimistic that mitigation efforts will rapidly be implemented. It is just that will we have a robust enough capital investment structure to pursue the programs that are needed in the face of the retirement of the Baby Boom generation? By that I mean, we are heading into this with a weakened banking system, horrible balance sheets for average Americans and a massive debt load on the Gen X and Gen Y citizens.
Mr. Savinar, while perhaps a bit over the top, is at least providing one service – he is articulating how bad it can get if we decide to continue to run the U.S. like a bunch of drunken college kids on Spring Break.
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Fabius Maximus replies: I believe you miss the key points of this post. There are extensive expert discussions of #1 – 3, which are outside the scope of this blog. However, to repeat:
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#1: Hubert’s methods are one of many methods to estimate peaking, true. But the debate over peak oil about the date of peaking. Estimates run from 2005 to 2050. The critical data needed for these estimates are state secrets of the oil exporters.
#2, 3: Just because individual fields have production declines in the low double digits (e.g., Cantarell, North Sea), that does not mean the post-peak world will. It is not a valid extrapolation. Adding substitutes into the mix makes this even less likely.
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#4: The point of this post was not that peaking will be a pain-free or even fun experience, but rather the specific and extreme forecasts of the “life after the oil crash” site — and the even more extreme “die-off” forecasts.
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#5: I totally disagree. IMO Savinar is providing a dis-service. Like the repeated failed predictions of peaking over the past 20 years, his over-the-top forecasts discredit the more responsible and grounded experts warning of peak oil. As I have discussed in previous posts, much of the poor response to peak oil warnings imo results from the actions of the peak oil community. I suspect this is because so many in that community use “peak oil” as a cover to express their pre-existing political views about our society.
Ref: Japan, they had a depression for nearly 10 years. Due to a massive speculation boom. At one time, Tokyo was valued at more than the entire US. Since then they have suffered asset deflation.
But despite they they have, what a trillion, in assets, huge trade surplus? They also have the lowest $ of GDP per energy in the developed world. After the 70’s they really got into efficiency. There’s a chart on the Oil Drum worth looking at.
Also they have not skimped on the people, they have high average incomes, the best health statistics in the world, fair unemployment numbers (better than most, e.g the ‘true’ US numbers). By US (or even Australian standards) their CEO’s are paid rubbish and taxed like wounded bulls.
They’re doing ok, and their reducing population helps as well.
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Fabius Maximus replies: You are missing my point, which was quite simple. They did not increase oil consumption because their GDP increased slowly. QED.
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Increasing energy efficiency is of course a factor in the relationship between change in GDP and change in oil consumption, and why the relationship is not 1:1 (it, of course, varies over time).
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Going beyond that exceeds the scope of this discussion (e.g., CEO pay in US and Japan). However — reducing population helps, assuming their fertility levels recover before their culture goes extinct. If not, then they’ll be just another failed society, a footnote in the history books of the new society living on those islands.
Peak oil will change so many behaviors (including reproductive) that all linear growth consumption assumptions are worthless as they are based upon outdated/changing behavior models.
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Fabius Maximus replies: That sounds pretty dogmatic to me. Do you have some research to support this, or are you speaking ex cathedra?
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Why should models change, and in what way? If they are robust, they should roughly account for changes in resource prices. I doubt that builders of econometric models, the best of which have thousands of equations, forgot this factor.
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On a technical level, peak oil means chaning some assumptions in current models. For example, the price – supply curve for oil will radically change shape. The assumptions are always changing as the world changes, but usually incrementally.
In 1981 I graduated with a PhD in enhanced oil recovery. At my job interview with Shell in Houston, I asked my interviewer what was up with the “Oil Crisis”. His response was that there was no oil supply crisis, there was however an oil price shock hitting our economy. “At $30.00 a barrel tar sands make sense.”He said. “This doubles world reserves. At $50.00 a barrel, shale oil makes sense, easily doubling world oil reserves again. At $70.00 per barrel, coal gasification makes sense and world reserves expand by a factor of five to ten.”
Since then, our options for energy have greatly expanded. Add hydrate methane, and direct conversion of cellulose to liquid fuel, as examples.
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Fabius Maximus replies: I strongly agree. The question is timing. Oil production can — and might — change faster than capital expenditures for research and development can create new supplies, resulting in a period of economic distress. It is a question of timing and magnitudes.
Several months ago Time Magazine had a graphic that showed that today, we know of world-wide in-ground oil deposits in an amount greater than the amount of known in-ground oil deposits that we knew of 20 years ago. What this meant was that not only had we found, during that 20-year period, new oil in an amount equal to all the oil consumed over those 20 years, we had in fact found even more oil than that. Looking for new oil is an effort that costs money, and it appears that companies only have an incentive to spend that money to the extent called for by their long-term corporate planning goals — so, for example, once a company is aware of in-ground oil deposits sufficient to satisfy its needs for the next, say, 50 years, the company no longer spends money looking for new oil.
Thus it is incorrect to take the amount of oil known as of a given date and assume that it represents the totality of the oil mankind will be able to obtain. (There was a similar example of this logic error back in the early 1990s when there was a scare that we were running out of places to store trash and waste, because the landfills and dumps were filling up. The apparent problem merely reflected the fact that municipalities typically plan trash storage for, say, 50 or 100 years, and had secured known storage adequate for those periods, and it was a happenstance of urban planning and management trends that lots of these facilities were filling up at about the same time. Municipalities easily solved the problem in the normal course of their renewed long-term planning, and we have not read of landfill scares for some 20 years).
If there really is a shortage of oil in our future, the signal we should be looking for is whether the cost of exploring for new oil is rising vis-a-vis the amount of new oil discovered by those efforts.
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Fabius Maximus replies: Agree. Peak oil is a transitional phase, from conventional oil sources to unconventional sources — polar, deep sea, heavy oil, bitumen (oil sands), kerogen (oil shale), coal to liquids, biofuels, etc. Unconventional sources are in general far more expensive to build and operate. Hence a conventional source can be opended far faster and at greater flows than unconventionals.
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Hence the transitional period is a race. When will oil conventional supplies peak? How long will the plateau last? How fast will they subsequently decline? How quickly can unconventional supplies be opened? And how quickly can the economy adjust — as described in this post — to higher prices.
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None of these are easy questions to answer. Unfortunately, we are doing almost no research on these questions. As seen on both sides of the peak oil debate, both sides prefer inspired guessing. That does not help, imo.
Oh, and one last thing. THE AMOUNT OF TOTAL ENERGY DISSIPATED BY MAN ON EARTH IN ONE YEAR EQUALS THE ENERGY HITTING EARTH FROM THE SUN IN ONE HOUR. There are about 10,000 hours in a year.
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Fabius Maximus replies: Great illustration. There is a wealth of energy all around us. It just takes time and work to harness it. Economic shocks are largely a matter of timing — and how well we respond. Policy errors can have very bad effects!
See this link, refering to Saudi Arabia’s King Abdullah intention to restrain oil production {snip — I have written two posts about this, the most recent being The world changed last week, with no headlines to mark the news“, which has links to the original Saudi news stories.}
This is political Peak oil, though in truth the very concept of OPEC or any cartel is to create artificial supply constraints. As far as the USA, we also create supply constraints via “eco” shenanigans. What the real supply possibilities are is pure speculation, one way or the other.
The people of Mr. Savinar’s ilk cannot lose, however, for they have “good intentions” and therefore it does not matter if they are wrong, inaccurate or exaggerate matters.
As far as Japan, OldSkeptic must be somewhat of a Utopian to believe that the Japanese will somehow magically replace all their workforce with robots to replace their nonexistent youth. They have certainly skimped on military spending in face of the hostility from China. In reality, the American public has and will be expected to pay taxes to support a US military presence to protect the few million remaining octogenarians from the Chinese.
Savinar is just another modern-day Malthus. To rely on linear projections of doom without factoring in human innovation and resourcefulness fueled by our self-interest is folly. The sky is not falling, Chicken Little… the sky is not falling.
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Fabius Maximus replies: From a long-term perspective, yes. Let’s not make the opposite error and understate the danger. From a short-term, failure to prepare might mean a decade or two of economic distress. Perhaps worse than anything since the 1930’s. There are alternative sources of energy, but they will not magically appear just because we need them.
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Time, money, work, wisdom — we have the necessary things for a smooth transition through peak oil. But that guarantees nothing. Mistakes, complacency could have unpleasant consequences.
Admit it, Fabius, we are doomed. Doomed, I tell you.
Fact: The world uses a lot of oil, about 82 million bpd.
Fact: There is a finite amount of oil. (The total mass of the Earth bounds oil’s mass from above.) Let’s call the unknown but finite mass of oil, X, in barrels.
X/82 million bpd is finite, if X is finite.
Therefore, we will have to use less oil at some point in the future — or even now. But we use a lot of oil. But we won’t always do so. So, we are doomed. QED. Can’t you see that?
Indeed, we are as doomed as England was when it was effectively deforested a few centuries ago. As proof, I submit that every Englishman who was alive to see the defeat of the Spanish armada is now dead. And we will also be dead some day. So, we are doomed.
That is, we are doomed unless rising prices encourage conservation, efficiency, and discovery of new sources of energy. Indeed, as oil gets more expensive, lots of energy sources–wind, solar, tidal, geothermal, nuclear–become cost effective. If oil is expensive enough, won’t everyone have a windmill and solar panels on his/her roof? And doesn’t the Earth contain several times as much coal as oil? If oil is really expensive, won’t it be cheaper to clean up and liquify the coal? And won’t technology make even more sources of energy (e.g., fusion, orbiting solar) available in the future?
Then we can go on indefinitely, I guess. Nevermind.
Good post though. — Third-rate-economist
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Fabius Maximus replies: Great comment, although I am not sure what you are saying.
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However, it is always useful to have reminders of our motality. Each of us will die. Our society will eventually die. In time the sun will burn out. Life takes place in defiance of these facts!
My comment was intended to restate your point that the Malthusians forget about the ability of humans to invent and adapt and ignore the usefulness of prices to shape behavior. I will admit that my comment was opaque and meandering. Apologies.
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Fabius Maximus replies: True, but it is an important point! And well-expressed, too.
It’s never a good bet to bet against human nature and the profit motive.
The concept of Peak Oil and the supposed resultant imminent collapse of human society simply ignores human history since the beginning of the industrial age. It was just announced publically a few weeks ago that Brazil has discovered a massive new oil deposit offshore that rivals the size of the Saudi reservoir. The great uptick in oil prices this year has spurred tremendous new capital investments in finding new oil reserves world-wide. Who are we to say now that we have gotten anywhere close to the point of “peak oil”, given what is already evident. It will be years before the effects of today’s oil profits reinvestment produce results … perhaps we are still hundreds of years from the point of “peak oil” …. but it was certainly not in 2005.
Plus, of course, the relatively high price of oil today spurs capital investment in producing alternatives to oil … as several respondents above indicate, there are the tar sands, shale deposits, and massive coal deposits world-wide yet to be exploited in ever-more environmentally-friendly means. Plus wind energy alone is physically capable of generating at least 20% or more of today’s electrical power needs. Plus newer, more efficient fission nuclear plants, plus there are very promising advancements in bio-fuel development, both for producing ethanol as well as hydrogen fuel for vehicle use. Not to mention advances in thin film photovoltaics which promises to greatly lower the cost of solar power. Few or none of these advances in energy technology would have been funded as they are today if oil still sold for $30 a barrel.
And just think: today’s technological advances in energy production took a mere handful of years – from when oil sold for $30 to when it sold for a mere $70 a barrel last year – to become evident. It is indeed exciting to contemplate what will come from the most recent increment in oil prices from $70 to $120+ a barrel.
It is entirely plausible that today’s high prices for petroleum are actually the best thing to ever happen to weaning the world from its excessive dependence upon petroleum, and in lessening our dependence upon the bad guys in charge of Iran, Russia, and Venezuela who have cornered the market for oil.
Would that all this had happened decades ago.
Are the oil prices in part IV adjusted for inflation at some period’s constant dollars?
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Fabius Maximus replies: No, but inflation is only a small part of this 20x increase over 10 years.
‘“torture the numbers “, “mindlessly treating all evidence ” is not what I do.’ – Oldskeptic
Actually, that’s exactly what you are doing. You ignore that BP doesn’t have access to the data from other companies (these are closely guarded secrets), that North America’s decline has been by political choice and not field depletion (Texas, California, Florida, Colorado-Wyoming, etc all hold tremendous oil reserves still), and you’re in with the Luddites that refuse to incorporate technological improvements when they calculate oil usage rates. Truth be told that there is a tremendous amount of oil on earth as we’re finding it now in places we simply didn’t think it could be found in the first place (Brazil’s new find for example).
It boils down to Malthus always being wrong because he was a short-sighted nitwit. Supply changes are not linear, they’re based on innovation. Being in year 35 or so of “30 years left of oil” you’d think the chicken-littles would at least beat a different dead horse.
This current oil price-per-barrel isn’t a signal of declining reserves, it’s a signal created by political meddling from three decades of inept kleptocrats in Western capitals.
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Fabius Maximus replies: “it’s a signal created by political meddling from three decades of inept kleptocrats in Western capitals.” Or political peaking, smart moves by the small group of nations holding the bulk of the world’s conventional oil reserves. See “The world changed last week, with no headlines to mark the news.”
We will never run out of oil. We will run out of oil at a price. We are out of $3 a barrel oil, not much $10 a barrel oil left and at $60 a barrel we have huge reserves world wide. The only thing keeping the $60 a barrel off the market is the fear the big oil producers will flood the market with $15 a barrel oil and ruin their investments in the $60 a barrel oil.
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Fabius Maximus replies: Another comment by someone who did not read the post.
Welcome, Instapundit readers! Please read the post before commenting. This is not a discussion forum about Peak Oil; there are hundred other sites for that. This is for comments, pro or con, on this specific post.
This post is one chapter in an extended analysis of peak oil. See the links at the end for previous chapters.
See the “About” page for information about this blog.
Important note about the Comment Policy: comments must be civil, legal, brief and relevant (max 250 words). Too-long comments will be edited down or deleted.
Fabius – I’m afraid I don’t understand your comment above about commentors, and that your post above is “not a discussion forum about Peak Oil”.
Coulda fooled me, but it sure sounds like your post IS about Peak Oil, and what we should do “to prepare for it”.
Comments like mine, that essentially say, “Peak Oil … what Peak Oil?” directly address the point of your post … in other words, if there is no Peak Oil today or in the near future, they why do we need to prepare for it? “Peak Oil” is something that has never happened, and if it ever does happen, will most likely be rendered irrelevant because other sources of energy (new oil reservoirs, plus alternative energy sources) will more than make up for eventual declines in oil production by today’s current oil kingpins in Saudi Arabia, Venezuela, and Russia.
With all due respect, Fabius, your plea for us to “begin preparing for Peak Oil” is akin to Jimmy Carter begging us to put on wool sweaters and get used to the idea that our best days as Americans were behind us.
Again, with all due respect, I’m not buying your premise or your prescription, any more than Americans bought the same stuff same from Jimmy Carter 30 years ago.
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Fabius Maximus replies: I suspect you read my comment too quickly.
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“your post above is ‘not a discussion forum about Peak Oil’.” A post is not a forum. I said this — meaning this BLOG — is not a forum for discussion of peak oil. As it says on the masthead, this is about geopolitics.
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“sure sounds like your post IS about Peak Oil” As I said in the summary, this post discusses one aspect (or scenario) about peak oil. The subject is so vast that limitations are needed, or the discussion loses focus and meaning.
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“if there is no Peak Oil today or in the near future, they why do we need to prepare for it?” Good point, and a valid subject (of course) for discussion. It is just not the topic of this post.
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“because other sources of energy (new oil reservoirs, plus alternative energy sources) will more than make up for eventual declines in oil production” An interesting theory, but this depends on when production from conventional sources peaks. If it peaked in 2005 — or now — then the answer is no. We will have a painful transition until the adaptive mechanisms I describe have time to work. Still, I doubt this means the end of civilization. Much depends on the date and nature of peaking.
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” any more than Americans bought the same stuff same from Jimmy Carter 30 years ago.” I do not understand your point. Many major historical events were preceeded by warnings decades in advance. Such as the Civil War and WWI. Too bad that folks did not listen.
“Neccesity is the mother of invention.”
* We have low-cost solar cells coming available that are as cheap as coal.
* We have advanced batteries or battery substitutes (ultracapacitors) coming available that store as much energy as batteries but take 1/10th the time to charge and last forever.
* We have algae-based biofuels coming available that produce 10,000 gallons of oil per acre – conservatively.
* We have waste conversion technology that turns discarded organic material into diesel fuel.
* We have a prototype nuclear fusion reactor, the Bussard Fusion Process WB-7, that is demonstrating fusion at the rates predicted for sustainable energy production.
In short, any ONE of these technologies would solve the so-called “Peak Oil Crisis”. What we lack is the political will to push forward on these. Only when the “movers and shakers” can’t afford to drive SUVs to the deli for lunch will anything get done.
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Fabius Maximus replies: Unfortunately none of those technologies are here today. Nor are they certain to arrive in time to help. Unlike pulp sci fi, innovations do not go from the lab bench to mass deployment in a single bound. This is tech-religion, faith in devine tech. If conventional oil production did peak in 2005 — either from geological or political peaking — than we must rely on the tools we have today. Not the imaginary tools of the future.
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That is why we need modeling of the various scenarios, and operational planning — not this inspired guessing — if we are to survive and prosper.
In essence I’m saying the same thing as any number of people on the coments board except I’m not solely relying on innovation and price based demand destruction to reduce end demand. I think many of the demographic trends observed in Europe will repeat in the rest of the developed world resulting in reduced population growth and reduced economic potential. The extent to which I am dogmatic is a function of my agreement with your ex cathedra statement.
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Fabius Maximus replies: (1) Demographic trends move so slowly that I doubt they will affect peak oil dynamics, unless peaking occurs late in the forecast range.
(2) “function of my agreement with your ex cathedra statement.” What statement of mine? Please explain. I try to avoid such, but sometimes they slip out.
Good post. However, I disagree with the ‘other nations are doing much better planning long-term for this’ trope. Well, let me clarify that: I am not sure that we would be better off with more “planning” given the mixed history on that front, especially in the past few decades.
Case in point: Amtrak. The Northeast Corridor, which is the one area where passenger rail actually might make real sense, has been invested in quite heavily, and I will admit that the Acela is a lovely ride for $120 or so each way from Boston to NYC. Meanwhile, there is a bus service that has big executive seats, wifi, and gets you from downtown to downtown in about the same time, that costs half the price, and there are several shady Chinatown bus companies that do the trip for under $25, in about the same time. Given the weight of US rolling stock, I would not be surprised if even the sooty old Fung Wah Bus has a lower carbon footprint. I believe a 35MPG car with one occupant is more energy-efficient than the average commuter train once load factors are taken fully into account.
Meanwhile, the US rail freight system is the envy of the world. We move about twice as much fright by rail as by truck, while the opposite is true in the EU. Given geography, maybe this is optimal for both places.
Anyway, the US has done some Grand Schemes well. The Interstate Highway system, for instance, and the railroads of the 19th century. The Air Traffic Control system developed around the same time as the highways might also qualify. More recently, though, the record is much more mixed. I live in Boston, home of the Big Dig, which was a very sound idea that was mismanaged in more ways than can be counted, and the FAA has struggled mightily and arguably failed in every project to upgrade the ATC system of the past 20 years, with the future outlook just as grim. And of course there is the Census debacle we are now hearing about.
While government has always had a sizable element of nincompoopery, in the past you could rely on a few places (like the FAA) to be run and staffed by genuinely qualified technocrats and engineers. Their kind seems endangered or extinct in all but a few places, like certain public works departments in Earthquake-prone California, where the cost of failure is vivid enough to outweigh the soft baloney of diversity, sensitivity to local communities, etc.
In the short term, I would expect any “long term” energy plans to be full of similar piffle and free-ponies-for-everybody, c.f. Ted Kennedy’s opposition to a wind farm 10 miles offshore from his house on Nantucket. Unlike Ayn Rand, who imagined the lights going out for good, I think the citizenry will react sharply once the issue comes into clear focus, and sweep away the BS with extreme prejudice, just as the right-thinking Upper-East-Side liberals of NYC fully supported the first term of Rudy Giuliani’s draconian reign.
Cracking post, Fabius. You might want to have a look at this story – admittedly electricity rather than transport: “EnerNoc cashes in on ‘negative watts’“, C-Net (8 May 2008) — but it’s an example of what can be done. Meanwhile, I keep meaning to stick my bonus in {snip}
Editor’s note:
*** M Simon has provided an update on the Polywell, one pathway to fusion energy. I have moved it to the 4 May post discussing the Polywell: “Fusion energy, too risky a bet for America (we prefer to rely on war)“. The post, and Simon’s comment, are well worth reading!
One point with regard to political vs geological peaking. No discussion of this issue is complete without reference to the economic analysis of oil production by Harold Hotelling from the 1930s. Dave Cohen wrote a good summary of the main ideas on The Oil Drum a few years ago: “The Extraction of Exhaustible Resources“, Jan Cohen (4 january 2006).
Hotelling’s chief result is that oil prices should, on average, climb at about the same rate as prevailing interest rates. This price path is the only one that maximizes the expected profits of oil producers. His reasoning applies to any finite resource, including oil.
While Hotelling’s model has not worked well historically, some have argued it is because in the past, oil supplies were seen as effectively inexhaustible. New oil was being discovered as fast as old oil was being used up. In the modern era this is no longer true, and therefore we should expect the Hotelling results to become more reliable as predictions of future prices. Even though most oil is controlled by countries and not private companies these days, they too have the same incentives to maximize the net value of their oil as it is extracted over future decades.
As prices rise, demand is expected to fall, hence production falls as well. This may be somewhat countered if demand rises due to a growing economy, but generally once we get into the “oil end game” that Hotelling describes, it is in every oil producer’s best individual interests to restrain production. Basically, he expects oil to be worth more in the future than it is today, hence it makes sense to hold production back so that he still has oil to sell when it is worth more. Hotelling analyzes this in great detail and as stated above his predictions are relatively simple and sound.
This, I suggest, is the reality of Peak Oil going forward. Gradually rising prices, with gradually falling production. It turns out that this maximizes the total net value of the oil to human civilization. If you were Oil Dictator of the World, the Hotelling model is exactly what you would prescribe in order to maximize total human happiness over generations. And Hotelling shows that this is precisely what will happen in an international oil economy governed by private actors maximizing their own profits. The miracle of the market in action.
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Fabius Maximus replies: Hotelling’s model does not work well for any natural resouces. It is an interesting model, but I suspect of zero utility for dealing with Peak Oil.
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For better descriptions of commodity pricing, including Hotelling’s Law, I recommend the following:
“Oil Prices“, by Robert P. Murphy, Senior Fellow in Business and Economic Studies at Pacific Research Institute (7 April 2008).
“HOTELLING’S LAW: IS IT USEFUL OR WASTEFUL?“, Julian L. Simon (7 April 2008) — By the famous economist. Wikipedia: “He is best known for his work on population, natural resources, and immigration. He was the primary proponent of the cornucopian belief in endless benefits from resources and unlimited population growth empowered by technological progress. His works are often cited by libertarians in support of their arguments.”
{snip} No partisan bashing of the Republican Party or Democratic Party, please.
Here is another detailed debunking of Peak-Oil gloomster silliness. “A Rebuttal to ‘Peak Oil’ Doomsday Predictions“, The Futurist (28 march 2008) — There are actually people, hailed as ‘experts’, who think the world of 2040 will be so poor that car ownership will be rare.
Read why $120/barrel is a good thing (written when oil was $80/barrel): “Why I Want Oil to Hit $120 per Barrel“, The Futurist (1 October 2007) — Beyond the obvious reasons, there is also an angle where high oil prices force petro-tyrants to burn the candle at both ends, where high prices cause economic growth in their own countries, which consume more oil, so their exports shrink, and revenues dry up. Notice how Chavez, Putin, Ahmadinnajacket, and Sudan are all more quiet now than they were when oil was $70.
Sadly I think the power of substitutes is highly underrated if not discounted all together by many. Before ‘coal oil’ became a substitute for sperm whale oil there were dire predictions of blackouts or shortages of lamp oil. More recently, late 70’s, there was a severe shortage of copper. Wire prices quadrupled. With months the major wire mfrs in cooperation with NEMA (us building code) came up with standards for use of aluminium as a wiring substitute. Point is, given a need, a solution is found, and for the US, it seems to happen very rapidly if the Pols can be kept at bay.
Even today that are opportunities:
* Accelerate the research in the Bussard electrostatic fusion reactor. Fact ditch the funds for the Tomkamak (sic) system and divert. Its a 10 year out technology with a lot of promise. {Ed note: see “Fusion energy, too risky a bet for America (we prefer to rely on war)” for more on this}
* Consider pebble bed fission reactors to cover the gap to fusion. Pebble bed is an already known technology. The chinese are deploying this technology.
* Expand the use of rail for long term transport rather than trucks. Its 50x more efficient per ton-mile than a Freightliner. Use trucking for under 100mi delivery. The shift will require reinvestment.
* Encourage electric or air powered cars, 1 per household for local traffic and commutes. Provide tax incentives if necessary.
* A national telecommunications act similar to the railroad act of the 1840’s to bring 100mbps broadband to every home. Provide incentives for those that can telecommute to do so. Substitute bits for petrol.
Nobody said it would be easy but it may not be as painful as many think. Yeah you may only buy seasonal food crops as the transport costs make that Dole lettuce from CA too expensive. But we Americans are a pretty inventive bunch. If Henry Ford could develop plastic car body panels from soybeans in 1932 I think we can all know that we will make it to the next energy source with only a few bumps.
Regarding comment #28 and the Hotelling economic model – it might apply, but only if there are no disruptive technologies or alternative energy sources that undercut the value of one’s oil reserves that are held back … such viable alternatives to oil completely blow up the model.
After reading up on the Bussard Reactor, courtesy of #27, this certainly sounds like a potentially disruptive technological breakthrough. If this technology proves out at the full scale as it has so far at the small demo scale, the Bussard fusion reactor would render virtually all other energy sources – including petroleum – obsolete over just a very few short years.
Even for vehicular applications, the Bussard fusion reactor would be relevant, in that it would provide an extremely cheap and practical means of converting seawater to hydrogen fuel for fuel cell powered vehicles. Essentially, the entire worldwide energy mining and production sectors would disappear, along with the thermal power industry … there would be no more petroleum or gas industry, or nuclear fission industry, no need for wind power or biofuels or any other source of power.
The only question is, with technology this disruptive, how can OPEC, the Russians, the energy industry, the corn farmers, and their armies of lobbyists etc. simply stand by and allow themselves to be driven out of existence? There just is not enough revenue available in the deuterium or boron mining business to flip to in order to make up the difference.
Could it be that today’s petroleum thugs are about to go the way of late nineteenth century whalers when petroleum was commercialized?
Hmmm …. this sounds like a great plot for a geopolitical thriller novel.
One must have more faith in free markets. When the price of a good reaches a point that consumer’s no longer find satisfactory then they will tend to seek out alternatives that approximately meet their needs. When consumer’s do this they are in effect becoming investors in these alternate solution providers. I would imagine that oil companies would react to this redirection of funds to their competitors. The oil companies could try to broaden their business scope into investments that they feel the consumers would be happy with. Or, work out a means by which the price of their product would once again fall within acceptable limits. As James Madison roughly said, the divisiveness between competing factions often lends itself to the overall benefit of the majority.
“The only question is, with technology this disruptive, how can OPEC, the Russians, the energy industry, the corn farmers, and their armies of lobbyists etc. simply stand by and allow themselves to be driven out of existence?”
None of those parties have to worry. There are still whole economy sectors that will require petro stocks for production. Plastics come to mind in that regard. As a consumer if I had to trade a gallon of oil and go electric vs that same gallon being used for medical plastics; I would make the trade in a minute. The life you save in doing so maybe someone near and dear to your heart. So even in a fusion-electric economy the Russians, farmers and OPEC will still have a market. It will just be lacking the use of that product for transportation.
I suspect that many of those commenting do not realize the length of time required to bring a new technology from the lab bench to large-scale implementation. Esp. for big industrial plants, like fusion. It takes decades, usually two or three. There are several good studies of this, which I will post if I get the time (if anyone reading this knows them, please comment!)
Also, few innovations make the transition from lab to mass use. So we will probably (not certainly) cope with peak oil using the technology now in use.
Wonderful new tech will likely play a role in the next era. The 20th century was thee “oil glut era” — the super-giants were discovered before demand for them, so price supports were necessary. First by the Rockefellers, then the Texas Railroad Commission, the OPEC.
The 21st century will be the age of oil scarcity. Not that we are running out, but its scarcity — flat or declining production, rising price — forces changes in the global economy. New technology will — over decades or generations — change how we generate and use energy.
This post discussed the transition: will it destroy civilization?
“…. up to 400 billion barrels of light, sweet crude oil for America’s future can be pumped from under Manitoba and North Dakota. That’s more oil than Saudi Arabia and Russia put together.”
“This high-quality oil isn’t controlled by Moslem zealots, or hidden under a federal wildlife refuge. Moreover, it can now be cost-effectively retrieved with computer-directed horizontal oil wells, probably at $20 to $40 per barrel.”
“Huge Dakota Oil Pool Could Change Energy Climate Debate“, Canada Free Press (8 April 2008)
“Three oil companies have found 15 billion barrels of oil 28,000 feet under the Gulf of Mexico—boosting U.S. proven reserves 50 percent.”
“The U.S. could now start harvesting a “super giant” gas field—500 trillion cubic feet—from the Marcellus Shale under the Appalachian Mountains. Again, it would require the horizontal drilling and rock fracturing.”
“Brazil has discovered the third largest oil field in history, the Carioca, 170 miles offshore under 6,000 feet of water. The Carioca ranks behind only the Saudi and Kuwait fields discovered 60 years ago.”
“The USGS agrees the world has harvested only about one-third of the oil we’ve discovered, not to mention six trillion barrels of tar sands and huge amounts of oil shale already found but not exploited.”
“Even in North America, we are not running out of fuels. Between the Bakken, the Marcellus Shale, Alberta’s tar sands, and two centuries worth of coal, North America is rich in fossil fuels. What we now face is our own decision not to use them.”
From “U.S. Agency Carefully Optimistic On Bakken Deposit“, Canada Free Press (24 April 2008)
“Most coal today is used for electricity but the governor’s plan is to turn Montana’s billions of tons of untapped coal into a liquid diesel fuel for our cars.”
“Schweitzer wants to take coal that’s been pressurized into a gas, and then use something called the Fischer-Tropsch process to convert that gas into a clean diesel fuel, similar to what is made at a demonstration plant in Oklahoma.”
“We can produce this fuel for about $1 a gallon… ,” he said.”
From “Montana’s Coal Cowboy“, CBS (26 February 2008)
I run into this argument on a lot of blogs. There is no shortage of oil. According to the second article I cited the USGS has stated that “the world has harvested only about one-third of the oil we’ve discovered..”. That would mean that we are still on the “upslope of the bell curve” and nowhere near “peak oil” (If you buy the “peak oil” concept to begin with.)
New technologies will make latent oil resources available including trillions of barrels locked in oil shales and high viscosity deposits like tar sands. Technology will not only extend the productive life of existing wells, it will reopen wells once thought “played out”.
While Cuba and China drill 60 miles of the coast of the Florida Keys without challenge from “environmentalists”, American companies with superior technologies are forbidden from drilling off our own coast. That means the offshore potential of American waters is a question and if we were allowed to explore these waters they may yield massive oil finds.
Americans pay high energy prices not because we have to, but because we choose to. There is no shortage of energy, only a shortage of political will.
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Fabius Maximus replies: Please read something about Peak Oil before posting this stuff as if it is news, as though the many experts who have warned about Peak Oil are unaware of these things. I leave this up, although not relevant to the scenario being discussed, as evidence that no matter how many times peak oil is explained, many people just do not understand the simple math of oil peaking. Plus they comment without reading the post, in their eagerness to tell us widely known facts.
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The comments about the Bakken formation are esp bizarre. See “The Internet makes us dumber: the Bakken euphoria, a case study” for more detail. In brief, the key factor for unconventional resources is flows — not the size of the resouce — due to their high capital requirements and operating costs. The production forecasts from the Bakken are tiny compared to US consumption, on the close order of several hundred thousand b/day vs. 20+ million.
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I hate to burst your bubble, but the Bakken Formation is only a tiny fraction of that. A study released a month ago found 3-4.3 billion barrels of recoverable oil. Up 25x from the 1995 estimate, and the largest new reserve discovered in the States since Alaska. Good, but not great.
I’ve started to think that electric vehicles are a major path to energy independence. Moreso than biofuels or CTL. I have high hopes for algae-based biofuels, but the costs are still astronomically high, even at these oil prices.
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Fabius Maximus replies: Both of those have promise. Electric cars could be important in the transition to peak oil, if production ramps up fast. Algae-based biofuels await substantial innovations before commercial use.
Re #23, which you perhaps dismissed a leetle too soon in respect of solar? Evidence, I hear you demand.
Nanosolar is a good example of thin-film solar technology ramping up – production is EU-bound till EOY 2009, but their target price point is $USD0.50/watt. That’s around 10% of current silicon-based $/watt prices. So I may be Pollyanna, but this sounds pretty durned good to me…
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Fabius Maximus replies: Nanosolar’s claims have attracted considerable — and imo well-based — criticism. See Wikipedia for details. So I will wait for verification before popping a cork.
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On a larger scale, I believe alternative energy sources have a big future. Like everything else, it will take time. The shortage of polysilicon, currently limiting production of conventional solar cells, will disappear during the next few years as new production capacity comes online. There are many interesting new technologies in the pipeline. But commercial solar “as cheap as coal” is probably years off, as are the other technologies you mention.
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As I said before, these things take time. For R&D, testing, to build factories, train technicians. And repeat on ever-larger scale. Even if the things you mentioned worked today, it would take years to roll them out in sufficient scale to make a dent in the national energy statistics. Why is this so difficult to understand?
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“…if production ramps up fast. Algae-based biofuels await substantial innovations before commercial use.” From: “GreenFuel Technologies: A Case Study for Industrial Photosynthetic Energy Capture“, Krassen Dimitrov, Ph.D. (March, 2007)
As much as algae biofuels have promise their imputed costs in the $800/bbl range may limit their use to high value end products as a feed stock.
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Fabius Maximus replies: Thank you for the cite and the link!