This is the second post in a series examining “urban legends” about energy that comfort Americans. These comforting myths about unconventional and alternative energy sources provide excuses for avoidign the hard work of gathering information, analysis, planning, and executing programs necessary to prepare for the multi-decade transition through peak oil to the next era (whatever that will be). {The opening was re-written to better show the structure of the series}
These five myths are:
I. Our massive reserves of unconventional oil.
II. We’ll run crash programs to solve peak oil, just as we mobilized for WWII.
III. Demand creates supply, by raising prices.
IV. Oil is Oil, even if it is not oil
V. Demand creates supply, from new technology.
Unfortunately, we can rely on none of these. Certainly they are not substitutes for intense research and planning, which is how they are used today. As I have described at length in previous posts, we know astonishingly little about our available energy resources, consumption patterns, and alternatives. Nor has the available information been collected, analyzed, and used for models and simulations — the foundation of good planning. News reports said that the recent satellite interception by the USAF cost $125 million; one-tenth of that could fund a multi-disciplinary project that would help plan a sound future for America’s energy supply. Instead we rely on inspired guessing.
Side note: what is our source of information about the monthly volume of Saudi Arabia’s oil exports? Please place your answers in the comments.
Chapter II — We’ll run successful crash programs to beat Peak Oil just as we mobilized for WWII
The massive mobilzation during WWII has important differences from crash programs to prepare America for face Peak Oil. Crash programs are probably necessary, but are no panacea.
- The economics differ; today’s mobilization might make things worse — unlike WWII.
- There may less potential innovation available.
- The causes of innovation are mysterious, and cannot be relied upon.
To sum this up, we turn to one of great rules of history: past performance is no guarantee of future success.
1. It is not 1940 — few idle resources
We rapidly and easily mobilized for WWII because WWII followed the Great Depression. Very roughly, a quarter of our resources – people and manufacturing capacity – were idle. The adaptation to WWII stimulated the US economy (esp. as the bombs produced landed elsewhere).
Crash programs to prepare for Peak Oil will operate in a fully functioning economy (at least, I hope so). Allocating resources means diverting people and funding from something else. Either consumption — consumer spending and government services — or investment (construction, R&D, etc). This will prove more disruptive to the economy than employing idle workers and re-starting empty factories during WWII. That is, large-scale crash programs — however necessary — will make things worse in the short-term (until they produce results).
2. It is not 1940 — no decade of massive underinvestment in everything
Also, WWII followed a decade of underinvestment during the Great Depression. Unlike today, there were no venture capitalists beating the bushes for good ideas to fund. So there had been an accumulation of “idle” technology, as a field long left fallow produces a good harvest when planted.
3. What do we know about innovation?
There is a large literature about this subject, one of such vital importance to our society. And it, unlike so many other subjects, has a wealth of hard data on which to work. Here is a nice summary of what we know, from “The structure of invention“, W. Brian Arthur, Research Policy, March 2007 — Excerpt:
A significant difficulty that all theories face is that modern research shows that the actual process of invention varies greatly from historical case to historical case, so that universalities appear not to exist. Some novel technologies issue from an individual working alone, others from several groups working with independent ideas. Some derive from huge programmatic investment, others from private shoestring effort. Some emerge from years of trial and are marked by a sequence of intermediate versions that do not quite fulfill the goal, others appear whole cloth as if from nothing. “Attempts thus far to present a general interpretation of all technology change have foundered on the great diversity and complexity of that change,” says Constant (1980). As a result, in modern times the idea of “invention” has assumed a status like that of “consciousness” or “mind,” something we can speak of but not quite articulate. Textbooks hurry past it without explaining what it is.
About the conditions that foster inventive activity we are much better informed. We know that novel technologies are shaped by social needs; that they respond to economic opportunities, perceived risk, and factor price changes; that they cumulate with the accretion of cultural and scientific knowledge; and that they can be catalyzed by the exchange of information within networks of colleagues.
Sometimes massed effort can overcome all obstacles. But not all problems can be solved by a Manhattan Project. Software development illustrates this, where resource inputs often have little to do with time until completion. The relationship is certainly not a linear relationship; sometimes an inverse one. Some inventions must await the right time in history, irrespective of when we need it.
Conclusion
How fitting that this mysterious process has become an object of near-religious faith in our culture. Much as primitive peoples prayed to the Gods for rain, we put our faith in the upsurge of inventions, hoping for machines to appear to meet our current needs. Just in time.
Afterword
If you are new to this site, please glance at the archives below. You may find answers to your questions in these.
Please share your comments by posting below. Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
For more information from the FM site
To read other articles about these things, see the FM reference page on the right side menu bar. Of esp relevance to this topic:
Some posts about unconventional and alternative energy sources
- Links to articles and presentations of some A-team energy experts , 11 November 2007
- The most dangerous form of Peak Oil , 8 April 2008
- The three forms of Peak Oil (let’s hope for the benign form) , 23 April 2008
- The world changed last week, with no headlines to mark the news, 25 April 2008
- Fusion energy, too risky a bet for America (we prefer to rely on war) , 4 May 2008
- Peak Oil Doomsters debunked, end of civilization called off , 8 May 2008
- When the King of Saudi Arabia talks about oil, we should listen , 2 July 2008
- Red Alert: the Saudi Princes have annouced the arrival of Peak Oil , 11 July 2008
- Good news about oil, but for our grandkids – not us , 14 July 2008
- The secret cause of high oil prices , 6 August 2008
Here’s an alternative that certainly isn’t an urban legend, let market forces do their job. As you mentioned this isn’t 1940, we live in a globalized world with other major players consuming an abundance of energy, creating more supply will not be the end-all to this issue. As long as oil remains in the triple digits consumers and manufacturers will have to make tough but necessary choices to more efficiently utilize their energy use. Not just hybrid vehicles, but also lighter, more fuel efficient vehicles will solve the demand issue faster than any Manhattan project effort would.
.
.
Fabius Maximus replies: Why not let market forces do their job? This worked great during the 1929 – 1932 period! Too bad we did not try it during WWII, instead of that socialist war mobilization thing.
Free-market capitalist systems handle some things well, and some things not so well. That is perhaps the primary insight of Keynes, and why Keynesian economics dominates the field (for all its faults). Peak oil looks like one of the “not so well” things, as it structurally has many characteristics of a war.
The market forces can do OK on some areas, where you have a clear roadmap. But without a clear roadmap, they fail.
EG, I’m actually rather comfortable about electricity for peak-load over the next decade+, being capable of being fixed by market forces, because of the market forces on solar. There are several companies, with a variety of techniques (bulk on glass plates, reel-to-reel printing), that already have solar systems down in the <$6/W installed, and clear roadmaps that can get it into the <$2/W installed range, combined with production thats already ramping up into producing a GW of solar cells a year from a single plant.
At $6/watt, it makes sense for some purposes, eg, industrial use in the CA desert etc, when combined with current tax credits. At $2/W, it becomes a “Put solar cells in every WalMart parking lot and on every roof south of the Mason/Dixon line” level of economic sense.
The problems however, are base-load generation capacity and liquid fuel generation.
Base load capacity there are two options: nuclear power and energy storage. We seem unwilling to build nuclear power plants.
And as for energy storage: I don’t see any technology that allows you to store electrical energy for $.2/ W-h, able to be manufactured at the 10 GW-h/year range per plant, which is what’s needed to store the solar energy for base-load operation. For reference, the Prius battery pack is less than 2 KW-h and costs at least $2K+, so we need an order of magnitude improvement on our electricity-storage technology to meet the energy storage requirement needed to make solar (or wind) viable for base-load use!
The market can’t mysteriously come up with a solution that is an order of magnitude better than what is currently available, when there are already huge economic pressures to come up with a solution!
And the big elephant is liquid fuels. Our transportation infrastructure is all centered around liquid-stored energy, as generic hydrocarbon crap. Now you can take basically any carbon crap + energy and make generic hydrocarbon crap through Fisher/Troph synthesis: you take carbon monoxide, hydrogen, and mix together with the right ratios. But doing it economically is a big other story.
So, no, you can’t count on the market solving our problems.
In the 18th century, the greatest national security problem facing England was how to determine a ship’s longitude. This directly impacted a ship’s ability to navigate safely and effectively. So Parliament responded by offering a 10,000 GBP reward ( a princely sum in those days ) for whoever solved this problem.
Read Dava Sobel’s Longitude: The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time
By analogy Congress could offer a billion dollar reward to whoever developed effective solar power. That would require a clear definition of precisely what constitutes “effective solar power.” It also would require a robust silencing of the “drill, drill, drill” crowd. Neither seems politically likely, but both seem technically feasible.
.
.
Fabius Maximus replies: Governments around the world, esp. Europe, are already following your advice. A super-accurate clock was a military requirement, with few commercial applications visible, so government subsidy was needed. Solar has not been a competitive power source, so its development has subsidized (at both the manufacturere and user level) by governments.
Now solar conversion systems are a major market already, with massive private funds being invested. And subsidies can be tapered off, perhaps shifted to the next emerging power technology.
Duncan: The problem with prizes is they only make sense when you don’t have an economic incentive already.
And doing naval coordinates is a classic example: The market for navigation in those days was very small: a few hundred warships (because for merchant ships, get to the lattitude and go east/west is sufficient). So the prize was used to make a market. These days, we believe in pork to Lockheed/Martin to do the same thing.
This would be irrelevant for energy production and liquid fuel generation.
There are already HUGE economic incentives for $2/W installed solar cells. The market capitalization of First Solar is already 17 BILLION, and they are currently in the $5/W installed cost range and only about 1/2 a GW/year current protuction IIRC.
There are HUGE economic incentives for energy storage at $.2/W-h. Anyone who gets even close will be looking at a $10B company in no time at all, if not $100B.
When there are already huge ecomonic incentives, prize money doesn’t help.
But it was market forces that got us out of our last oil crisis, amongst other factors the Japanese flooded the US market with relatively inexpensive fuel efficient vehicles that the American public eagerly purchased, making the Japanese Auto Industry the behemoth it is today. The exception to this is unlike the previous crisis, we won’t see energy prices decreasing any time soon due to the globalized nature of our economy. While government incentives in pursuit of alternative energies will be helpful, it will inevitably be how Americans spend their dollars for energy that will solve this issue.
.
.
Fabius Maximus replies: Yes, I agree that “market forces” usually work. Events such as wars and peak oil are — fortunately — rare. The 1970’s oil crunches were just warm-up events, as OPEC took control of the oil market from the Texas Railroad Commission.
“While government incentives in pursuit of alternative energies will be helpful, it will inevitably be how Americans spend their dollars for energy that will solve this issue.”
I admire your faith. I do not share it, nor does this address my historical examples.
Sorry Fab,
II is not a myth when phrased more usefully: higher prices induce higher supply. We absolutely do know this, for a repeatedly verifiable fact. Unfortunately, the higher supply comes on line with an uncertain time lag, and the amount of higher supply is not linearly dependent on the price increase.
We are not even close to the begining of exploiting our $140/bbl oil, although the only <$20/bbl (cost of production) oil available in big quantities is in Saudi Arabia. Right now I’m thinking a better way to think of Peak Oil is as a series of different $-Oils: $20, $40, $60, $80, $100, $120, $140 oil.
Peak $20 Oil was long ago, the prior Hubbert predicted Peak of Oil production in the US was in 1970, not so long before the 73-74 first oil shock.
The world is perhaps now working mostly on $60 & $80 Oil, so when the price goes up to $140, there are huge profits. But also big incentives to start cranking up $100 and even $120 Oil. But as this production does start up a bit, a drop in price back under $120 means the investor speculators lose.
Finally, price also affects demand — higher prices reduce demand thru painful, angry at the politicians, life-style changes. The growth of demand fluctuates with the price.
(A mostly unremarked upon second order effect is that, after every price shock upwards and change in lifestyle, the elasticity of price-induced behavior change goes down. When one has already changed to save on easy things, higher mpg car, using a bike more, it takes a higher price increase to generate savings similar to prior savings.)
A very topical issue is that, as house prices and wealth are going up, the increase in gas prices doesn’t seem so bad — but when house prices are going down, the same gas price increase seems much, much worse.
.
.
Fabius Maximus replies: This is discussed in detail (not just the single line) in the next post of this series, going up on Monday. I suggest you hold your comments until you read it. Let’s address the point #1, discussed in this post.
Here is the brief version, essential to understand this series, as I do not review this background: The consensus of geologists has long been that conventional oil production will peak; the question is when. I know of nobody — outside the fringe “hot oil” folks — who believe conventional oil supplies will not peak. Even optimists like the US Geological Survey (USGS) believe in peak oil. See their publication “The Big Rollover” (L. B. Magoon, USGS, 2000), perhaps the best one-page description of peak oil.
For more information on the dynamics of Peak Oil see Robert Hirsch’s reports posted at the FM Reference Page on “Peak oil and energy – studies and reports“. He is one of the world’s top energy experts, with an amazing bio; he discusses all this both clearly and deeply.
Sure oil production will peak. But you are wrong about the market. Sure there will be painful, even very painful, adjustments as the price of oil goes up, driving demand down, bringing on other alternative sources of energy. But market forces can and will handle it.
Since I have zero faith in government(s) to do anything in an acceptable manner, I advocate letting the market work. And peak oil will then come about because each year we pump less oil, because we need less oil.
If gas hits $8 a gallon, then you have already seen peak oil, because the damand will go down yet again.
.
.
Fabius Maximus replies: That’s an interesting, if somewhat detached, viewpoint.
“If gas hits $8 a gallon, then you have already seen peak oil, because the damand will go down yet again.”
I agree. But a rapid double of gas prices in our already slowing US and world economy might mean a deep and long recession. Or worse. You might consider that a “solution.” I do not, and would prefer a bit of planning and preparation to avoid this outcome.
Fabius –
You say: Why not let market forces do their job? This worked great during the 1929 – 1932 period!
I ask: Was the 1/3 cut in the money supply during this period a “market force” or something else? The history, the REAL history of this period reveals that the market was devastated by the total ineptitude of the Federal Reserve.
.
.
Fabius Maximus replies: The factors causing the great depression are still unknown, due to our limited understanding of economics. However, the Great Depression was a global event. Citing US only public policy decisions hardly captures the complexity of the event.
The best energy policy is for the government to get the f*** out of the way and let the petroleum producers, nuclear industry, and alternative energy industries do their things. This means eliminating restrictions on exploration, drilling, oil shale extraction, construction of nuclear plants, etc. It means taking away the power of enviros to stall or kill via lawsuits every single energy project that anyone proposes (including, most recently, solar energy projects in California).
With oil at $100+, there are sure to be massive profit opportunities for energy providers using many different technologies. But the only way to know which are viable (as oppose to pipe-dreams like fusion) is to eliminate the subsidies and let the “greedy capitalists” get to work.
.
.
Fabius Maximus replies: Thank you for re-stating myth #V. Please read it when posted next week. I look forward to seeing your rebuttal.
First of all we don’t know when true peak oil will hit or if it has already hit. My guess it is coming soon but not here yet (because geo politically there are still lots of areas on the planet under explored and developed–and high prices have a way of opening such areas up). We may have another 10 or 20 or even 30 years, but obviously the more out you go the less likely that is.
I do not discount your concerns, but to focus on the negatives really do not fix the problem either. We need to be optimistic and realistic about this problem. It’s real, it’s coming, and we need to deal with it–seriously deal with it. If reality gets us away from cap and trade and more emphasis on alternative engergy research and development, conservation, available alternatives, and more exploration–I suspect we will be okay.
.
.
Fabius Maximus replies: That is an interesting approach. Fortunately for you, your family’s doctor uses a different method: correct diagnosis must preceed cure. And cures must be based on a realistic understanding of the disease, otherwise we’ll use quack nostrums. Like those I describe in the world of energy.
What you write may make sense if you treat West Texas, light sweet crude as the only available oil. The United States has more oil in the ground, as oil shale, than has been used since the invention of the internal combustion engine. Canada has similar vast resources available in oil sands.
The cost of getting the oil out of the ground and refining is higher than what flows out of the ground in Arabia but it is available and improved technologies are coming on line. It’s a hackneyed phrase but “the stone age didn’t end because we ran out of stone.” Our current petroleum age will end when clean nuclear energy is widely adopted. The market will pour more resources into new technology as the price rises. Current research on fusion reactors and clean fission reactors will be on line well before we run out of oil.
One major barrier to R&D spending and serious (multi billion dollar) commitments oils shale is the belief that oil prices will drop and make those investments untenable. The House of Saud controls the global price of oil and one of their primary goals is to keep new sources off line.
.
.
Fabius Maximus replies: Thank you for restating the myths that this series discusses. Please read them; I welcome your rebuttal. Shale oil was discussed at length in Part I, and will be again in part IV (from a different perspective).
We will keep burning fossil fuels until it is uneconomical to do so. And, even if we stop in the US, they will keep burning it in the BRIC countries, giving them a price advantage on their energy costs.
Like it or not, fossil fuels are still fairly plentiful and relatively cheap. The most likely alternative fuels in the middle term are kerogen and heavy oil, a little more expensive but still relatively cheap and massively plentiful. Spending billions or even trillions on fantasies like hydrogen when there is still so much cheap and plentiful fossil fuel just will not happen.
Not a regular reader, so maybe you’ve already established this to your audience’s satisfaction. You’re assuming peak oil theories are correct and imminent? There is such a long history, starting at least with Malthus, or predicting the end of one resource or another, that one doubts the peak oil theory today based simply on experience. Sure, oil is finite. But at $100/barrel alternative sources of oil such as tar sands and shale become much more competitive. And as technology improves then the price competitiveness of alternatives improves.
.
.
Fabius Maximus replies: You ask two critical questions. Will global production of conventional oil peak? When? There is broad agreement among experts on the first. There is a wide range of forecasts about the second, since reserve data are state secrets in Russia and many OPEC nations (esp. Saudi Arabia). However, the consensus (or average) forecast date for years until peak oil have been shrinking at an alarming rate since 2002, for several reasons.
For more information on the dynamics of Peak Oil see Robert Hirsch’s reports posted at the FM Reference Page on “Peak oil and energy – studies and reports“. He is one of the world’s top energy experts, with an amazing bio; he discusses all this both clearly and deeply.
Fabius,
I could not disagree more with your point II. The U.S. is the most mature (ie. most intensely explored) oil province in the world. In the figures released this week, U.S. oil production has increased 2.9% year over year. Demand for the composite of all petroleum products is down 3.5%. The market works brilliantly.
Now, it would be nice if energy costs in the U.S. were lower. However, we lack the magic wand to achieve this. Yes, oil will eventually peak, but as oil prices increase, more and more alternate energy sources become viable.
.
.
Fabius Maximus replies: I do not understand why this trivial factoid is a rebuttal of my discussion about the utility of crash programs. Global production of conventional oil has been flat since 2005; for all liquid fuels there has been a slight increase. Since GDP is up (from memory) over 10% since then, price has skyrocketed to adjust demand.
“Yes, oil will eventually peak, but as oil prices increase, more and more alternate energy sources become viable.”
As I — and many others — have said countless times… That is true but totally irrelevant. Peak oil is the transition between reliance on conventional oil and unconventional/alternative supplies.</em>
The time until that happens is the key. It is a race between oil production and development of new sources and the decline of conventional sources. There is no guarantee that this will be seemless and easy. Without some effort on our part, other than relying on the magic of the “invisible hand”, it might be long and painful.
Pingback: ZEITGEIST
«Why not let market forces do their job? This worked great during the 1929 – 1932 period!»
It is well established that the Fed turned a natural economic correction into a 15-year depression. Nonetheless, this fact does not get a whole lot of airtime becuse it severely undermines the economy-dragging “solutions” that Roosevelt created:
1. Social Security
2. Massive takeover of government over infrastructure (Tennessee Valley Authority and their ilk)
3. Unions – National Labor Relations Act
Ironically, many of these economic yokes survive based on the very myth that they “rescued” the country —FDR’s socialist propaganda still effective 80 years later.
.
.
Fabius Maximus replies: The factors causing the great depression are still unknown (or indispute), due to our limited understanding of economics. However, the Great Depression was a global event. Citing US only public policy decisions hardly captures the complexity of the event.
Dude, you are not looking at this the right way.
Oil has many, many uses. However, there are a wide variety of substitution products available at different prices, depending on the use. It just so happens that oil is currently the cheapest alternative for many uses, even at $140 per barrel. What is most damaging is wild price swings, that prevent people from making rational economic decisions.
Whether it’s oil shale, nuclear, solar, conservation, etc. the economy has many, many places for upside in each of these areas. This is purely an economic issue. There is nearly unlimited energy available at a certain price. The invisible hand will do its job. Jimmy Carter’s gas rationing lines won’t work.
.
.
Fabius Maximus replies: I have no idea what you are saying. If Gwahar peaks tomorrow, then declines at 10% – 15%/year — like the UK’s North Sea fields and Mexico’s Cantarell — oil prices will probably zoom to the moon. Since economic impacts are largely a function of the rate of change, this might tip the already slowing world economy into a global depression.
On the other hand, building new sources — unconventionals, altnernatives, nuclear, etc — takes years or decades.
“There is nearly unlimited energy available at a certain price.”
This is misleading as it ignores TIME. “Over decades or even generations, there is nearly unlimited energy available at a certain price.” The two statements are not even remotely similar, despite the similar wording.
“The invisible hand will do its job.”
True but meaningless. Everything — wars, famines, plagues — works itself out eventually. As John Maynard Keynes (founder of modern econoics) wrote in 1923:
“In the long run we are all dead. Economists set themselves too easy, too useless a task if, in tempestuous seasons, they can only tell us that when the storm is long past the ocean is flat again.”
What happens in the meantime — the lives of us and our children — is the issue.
Probably the best “crash program” would be to crash the artificial obstacles to tapping our oil, natural gas, nuclear energy and even wind power.
Relatively little innovation will be needed to make cars that run efficiently and comfortably on oil, natural gas and electricity — all three, together or separately.
But we can’t bring those energy resources on line, not because we have too few people and too little equipment idle and available for the job, but because irrational government rules are in the way. Government is keeping the most obvious of our energy solutions in “idle.”
.
.
Fabius Maximus replies: Again, the key factor in solution is TIME. Our fleet of cars and trucks changes very slowly. We can hardly afford to trash them and buy new fuel-efficient ones. As the DOE-sponsored “Mitigations” report shows, changes in car fuel efficiency are powerful but slow to have effect — since the car fleet turns over so slowly.
A question — when in the last century haven’t we believed we had either passed or were about to pass the “peak oil” point? Every past prediction saying we would run out of oil by date X was pretty much a statement that peak oil had been reached.
I remember seeing a cartoon from, I believe, the 1920s of the wise father telling little Sally that oil would run out in a few years (I’ve been looking for that cartoon ever since — if anyone can find it, would love a pointer).
This Reason article on Peak Oil Panic (http://www.reason.com/news/show/36645.html) documents the following:
——-
Predictions of imminent catastrophic depletion are almost as old as the oil industry. An 1855 advertisement for Kier’s Rock Oil, a patent medicine whose key ingredient was petroleum bubbling up from salt wells near Pittsburgh, urged customers to buy soon before “this wonderful product is depleted from Nature’s laboratory.” The ad appeared four years before Pennsylvania’s first oil well was drilled. In 1919 David White of the U.S. Geological Survey (USGS) predicted that world oil production would peak in nine years. And in 1943 the Standard Oil geologist Wallace Pratt calculated that the world would ultimately produce 600 billion barrels of oil. (In fact, more than 1 trillion barrels of oil had been pumped by 2006.)
During the 1970s, the Club of Rome report The Limits to Growth projected that, assuming consumption remained flat, all known oil reserves would be entirely consumed in just 31 years. With exponential growth in consumption, it added, all the known oil reserves would be consumed in 20 years. These dour predictions gained credibility when the Arab oil crisis of 1973 quadrupled prices from $3 to $12 per barrel (from $16 to $48 in 2006 dollars) and when the Iranian oil crisis more than doubled oil prices from $14 per barrel in 1978 to $35 per barrel by 1981 (from $45 to $98 in 2006 dollars).
——-
From my perspective, there is no meaningful definition of “peak oil”. There is:
– Cost of acquiring the next X barrels of oil
– Demand for oil
– Current price of oil
– Current price of alternatives to oil for particular uses
These factors (and many others no doubt) intertwine and cause demand, price, and whether it’s worth acquiring the next X barrels oil to fluctuate. As the cost of acquisition goes up, the other factors will respond.
To get back to my original question: When haven’t we believed we had reached peak oil?
.
.
Fabius Maximus replies: Are you kidding?
“A question — when in the last century haven’t we believed we had either passed or were about to pass the “peak oil” point? Every past prediction saying we would run out of oil by date X was pretty much a statement that peak oil had been reached.”
Easy to answer: never, if one looks at
expert opinionconsensus of expert opinion.“I remember seeing a cartoon from..”
Cartoons are not a reliable source of information.
“During the 1970s, the Club of Rome report The Limits to Growth projected that, assuming consumption remained flat, all known oil reserves would be entirely consumed in just 31 years.”
As I recall, this is an urban legend. While some participants in the project made wild predictions, the Club report itself made modest and only long-term forecasts.
A couple of random points in response to your post: First with regards to free markets… You are assuming that in the U.S. oil discovery is in a free market. Part of the run up in oil prices is due to the complete and utter lack of a U.S. oil policy. There are cultural and legal issues in the U.S. which prevent us from finding new oil. Harry Reid, Speaker of the House, has stated that “oil is a great evil.” Many of the likely areas of large deposits in the U.S. are off limits because of laws. Further, any new attempt at finding oil will be litigated. Lastly one needs to go no further than turning on the boob tube. Before long you will be assaulted by one of the inane commercials from either Exxon or British Petroleum. Do they defend their product and discuss the many benefits that oil brings to our society? No. Do they discuss what they are doing to find new oil? No. Do they brag about the technology they are developing to extract more oil? No. They basically discuss the need to move away from oil and then they discuss what they are doing to find alternative energy sources. They have completely ceded the field of battle.
Where free market forces are allowed to operate, oil production has gone up. Production of oil from the Canadian oil sands has doubled since 2000. In the U.S., fortunately, the natural gas market is not viewed the same as oil (quite possibly because Nancy Pelosi has stated and apparently believes that natural gas is not a fossil fuel (and hence not evil)). And what has happened to U.S. natural gas production. While oil production in the U.S. has gone down every year for the past few decades, natural gas production is at a 30 year high. We are right now awash in natural gas in this country. We have so much here, the prices is about half of what it is in Europe. Unfortunately you can’t really store the stuff. However, this production increase has implications. You may have seen the commercials by Boone Pickens and Aubrey McClendon (the CEO of Chesapeake gas) to switch over to natural gas as a transportation fuel away from gasoline and diesel. So this is an example of market forces causing adaptation.
Lastly, I’m not sure I understand your conclusion. You state, “Much as primitive peoples prayed to the Gods for rain, we put our faith in the upsurge of inventions…” Hopefully you don’t believe this statement. We know that the scientific method “works” and we know that praying to the Gods does not work. If your point is that we should be more proactive then OK, but if not the scientific method then what?
.
.
Fabius Maximus replies: As usual, by the numbers…
(1) “You are assuming that in the U.S. oil discovery is in a free market.”
Looking at liquid fuels consumption of 85 millino bpd and growing, what happens in the US is far less important than the production rate of the remaining giant and supergiant fields. US production has been in decline, and even aggressive drilling seems unlikely to substantially change that. Certainly not as a fraction of global production.
(2) “We know that the scientific method ‘works’…”
I refer to inventions. More specifically in the context of providing what we need, when we need it. You refer to the “scientific method“, a very different concept. I agree that over time solutions will be found. In terms of us and our children, the next 20 years — the time frame of peak oil, plus or minus — innovation might have a minor role. Esp if we passively react to events.
“but if not the scientific method then what?”
Innovation is but one form of adaptation. Substitution and development of alternatives also have a role, perhaps a far greater one. Public policy can be decisive in all three areas.
I have to agree after reading Amity Shales (sic?) book that the Depression was more of a government failure due to Smoot-Hawley, initial raising of taxes by Hoover, the Fed, and FDR socialistic policies.
Others have also pointed out that the government, courts, and lawsuits by far-left NGO’s are a limiting factor in energy production. No new coal plants allowed , no new refiniries allowed, no offshore drilling allowed, no drilling in ANWR, no shale oil drilling when a large part of Utah was declared off-limits to exploration, no nuclear power plants, high tariffs on non-US ethanol, environmental impact reports that take more than 10 years, etc. All of the above are definitely not market failures, but (our) governmental failures. It is a wonder the light switches still work.
Once the light switches stop working in a couple of states in the next 5-10 years due to the lack of power infrastructure, then the government might get out of the way and allow the market to work.
Nicholas:
Re: The problem with prizes is they only make sense when you don’t have an economic incentive already.
This would be irrelevant for energy production and liquid fuel generation.
The items you discuss are backed up by patents and other forms of intellectual property, whereas my proposal would leave the discovery in the public domain. Intellectual property simply is another form of prize money. Whether one wants to provide prize money via intellectual property or the public domain is a political question – not an economic one.
When ol’ retired Geologists and associated fossils come out of retirement and are working 12-15 hour days and are not only awash in resources and cash but hope…I don’t think we have to worry about “Peak Oil” for a long time.
We already know of great fields off of California that the government and the eco-terrorists won’t let us pump (no drilling required, the holes are there already) we also know that there is much more oil in the southern ocean fields and they are betting it is even better off of the east coast of North America.
That is not counting the oil fields up north which look very promising, but awaiting our government to get their collective heads out of their collective ass.
Also, calling what the Oil guys do- “inspired guessing”, is a great dis-service to them. They don’t guess anymore, and haven’t for decades. It is an established Science and is getting better each year.
Theory and economics be dammed. Just let the Oil Field people alone and worry about your solar, atoms and wind. Dig more coal if you like, but remember the government won’t let you build new plants.
Talking about plants, you want a refinery in your back yard. No, then let them use retired, closed military bases for new refinerys.
Enough. Papa Ray, West Texas (you know, where there is still sweet crude), USA
.
.
Fabius Maximus replies: I admire your faith, but am glad you are not driving the national policy car. Faith is a poor navigation aid. Akin to painting the windshield black and driving on the highway.
“When ol’ retired Geologists and associated fossils come out of retirement and are working 12-15 hour days and are not only awash in resources and cash but hope…I don’t think we have to worry about “Peak Oil” for a long time.”
That’s an interesting reply to the actual work of geologists and other energy experts, who are increasinly expressing concern about our oil replies — as seen in the reports by the major energy agencies (EIA, IEA, etc).
“Also, calling what the Oil guys do- “inspired guessing”, is a great dis-service to them. They don’t guess anymore, and haven’t for decades. It is an established Science and is getting better each year.”
I suspect you are referring to the exploration and production business, and are correct. My posts concern forecasts of global energy supply and demand, modeling scenarios with different mixes of supply, demand, capex, etc. I had to disiillusion you, but on this level many key aspects of the global energy puzzel are guesses. Reserve and production data are national secrets, for instance (have you answered my question about the source of the Saudi monthly production numbers?).
Our experts could do much better if adequately funded. They have nothing like the tools used for econometric modeling, based on the National Income and Production Accounts developed in the 1930’s. With a few million, multi-disciplinary teams could produce a foundation of data and analysis on which America could set a national energy strategy with good odd of sucess.
It really isn’t a question of hoping for some radical new technology to pop up that no one has ever thought of before. We already HAVE a couple of dozen technologies for replacing fossil fuel. It’s really a matter of finding the best of these and applying it. The “crash course” involves rapidly building the production and distribution infrastructure necessary to exploit these technologies as oil reserves peak and and begin to decline.
If, for example algae-based oil proves a cost-efficient replacement for oil there’s the matter of building sufficient bioreactors to keep up as oil production declines. IF we can’t, prices rise. If we can build them faster, prices decline towards the “crossover point” between the cost of oil and algae-oil.
.
.
Fabius Maximus replies: This is discussed in chapter V, and in a later chapter about biofuels.
“HAVE a couple of dozen technologies for replacing fossil fuel. … If, for example algae-based oil proves a cost-efficient replacement ”
Not really. We have many technologies in early stages of development. Large numbers in the lab. Or in the early pilot plant stage (algae-based biofuel, from the last I read, and the polywell fusion plant). These are not proven to commercially work on large-scale. Many technologies fail to make the leap from lab/pilot to commercial. Also, even for those that do it often takes many years or even decades.
Hope is not a strategy.
We are the Saudi Arabia of coal. Sasol has proven that they can take coal and turn it into diesel @ ~$35 per barrel equivalent. As consumers complained and complained about rising prices, nobody moved in a big way to take advantage of this obvious proven technology until very recently. They are now beginning to do so (look up Peabody Energy for example). They started announcing publicly within 6 months of the EIA (a US government body) publishing new predictions that over the course of time necessary for new plants to recoup their initial expense, oil prices were predicted to remain above $40 a barrel.
Without that EIA prediction, any CEO that went into Fischer Tropsch plants was risking a shareholder lawsuit and possible personal liability if things went wrong. Once the EIA came on board, the money came off the sidelines and they’re moving as fast as the regulatory state permits them to bring new supply online.
The free market works just fine and if you’d been paying closer attention, you’d have known that no crash program was necessary for energy independence, just 70 year old technology that’s been patiently perfected over the course of decades.
However, the Bush administration has made some quiet investments and goals that would bring us into a better future than one of Fischer Tropsch plants turning solid coal to liquid fuel. There’s been a quiet push for a 2010 hydrogen car (Bush mentioned it in a couple of State of the Union speeches, the “Freedom Car”) powertrain and there’s a DoE announced goal of $3 gallon of gas equivalent for hydrogen production. Several companies have announced that they’re well on track to making those goals. So what we’re facing is not a never ending energy crisis but staving off economic turmoil while the scientists, engineers, and capitalists fix things.
We’re probably at $4gge (untaxed) today which means that with our current tax structure if we hit $5/gal gasoline we’re likely to start seeing substitution even given current technology. The US economy would hurt, but would adjust and survive at that price. The EU certainly does at gasoline prices that are much higher (their tax structure is different). Any discussion of the future of energy without discussing these price ceilings is just not to be taken seriously.
.
.
Fabius Maximus replies: By the numbers…
(1) “We are the Saudi Arabia of coal.”
Probably not. Part I listed several reports challenging this. We have large reserves, mostly estimated only roughly. Since 1940 we have increasingly been mining lower grade coals, so (as with oil) pointing to large volumes of low-grade coal is misleading. How much of that is anthrocite; how much have the BTU’s of kitty litter. Saudi Arabia has vast amounts of easily available and high grade conventional oil. Perhaps we are the Canada or Venezula of coal, like them having vast reserves of low-grade ore.
“Sasol has proven that they can take coal and turn it into diesel @ ~$35 per barrel equivalent.”
As has been extensively discussed, these cost numbers must be treated carefully. It depends on the assumptions used for the initial capital investment, cost of the the coal, transportation and refining costs. Most of the estimates I have seen give “all in” costs of more like 2x that for new plants. Note they will need extensive equipment to control pollution, far more than in Sasol’s old and small plants.
Also note that China the only nation with a large-scale coal-to-liquids program, with aprox 30 (from memory) coal to diesel or methanol plants planned or under construction, has been slowing their development over the past year. See “China halts coal-to-liquid projects“, 29 August 2008, and “Sasol Abandons Plan For Chinese Coal Plant“, 2 September 2008.
“There’s been a quiet push for a 2010 hydrogen car”
Billions have been poured into this with little to show for it. Large-scale commercial use of hydrogen as an energy storage medium is unlikely in our lifetimes. For details see the hydrogen studies in the FM reference library on “Peak oil and energy – studies and reports“.
Let us return to why differences with WWII make a crash action improbable.
Oil is essential for transport, hence the impact of peak oil constitutes a big logistical problem. WWII was a huge logistical problem too.
Some crash solutions in WWII were surprisingly successful precisely because they relied on obsolescent, but still well-known approaches, not on hypothetical novel developments nor on recently available technology.
First case in point: the Liberty ships — coal-fired, steam-powered, thus using a propulsion technology that was well on its way to obsolescence. On the other hand, every engineer had studied it, every sailor had worked once with it, every naval yard could build boilers, and coal was easier to find than oil-derived fuels.
Second case in point: the Soviet army in 1944. How to move riflemen through difficult terrain at a speed commensurate with the one of tanks? The Stavka did not launch a crash programme to invent the first 4×4 all-terrain truck; rather, it organized shock armies around mixed cavalry-mechanized brigades — basically putting tanks and cossacks together. Cavalry was largely considered obsolete by then; for the effects, see “Destruction of the German army group Center”.
Are there any older, deployed, but scalable technologies, with enough people still acquainted with them that we could quickly resort to as a replacement for oil? I always thought modern sailing ships were the way to go, but revamping the technology, training the skippers, and adapting harbours will take a long time. On land? Railways, but again, this would require a prolonged endeavour to cover countries with tracks (esp. the USA, which has been neglecting or even dismantling that infrastructure for decades). In the air? Nothing.
To put it in another way, in WWII there was a fallback option: one’s parents’ technology. That is why the aforementioned crash programmes in the USA and the USSR worked out. Nowadays, this possibility no longer exists because we use the same technology as our parents.
.
.
Fabius Maximus replies: These are all useful comparisons, with which I agree. As I said, we probably will need crash programs.
They do not touch upon the objections that I listed, suggesting that we should not expect the extraordinary success of the WWII mobilization — and should not rely on crash programs as a panecea. The single largest factor for the success of our mobilization during WWII was that it was preceeded by the great depression. This allowed an extraordinary trouch to peak growth in a short time. I very much hope we do not have a simialr “opportunity.”
I spent most of the 1980’s running all over the west looking for unleased oil properties to be leased to be combined into units. I was always told by the geologists that the Overthrust belt held more than a trillion barrels of oil. And that the main problem was that it would cost $30 a barrel to get it out of the ground and it couldn’t compete with $5 Mideast oil. As we speak at this time most of this oil is about to come on line. I was in Vernal Utah a few weeks ago and I have never seen such activity in the recorders office there and talking with prople in the industry it is much the same all over the west. What Peak Oil problem.
.
.
Fabius Maximus replies: It is a matter of scale. We use aprox 85 million bpd of oil, and the giants and supergiants that supply much of that are declining (North Sea, Cantarell) or near peaking (e.g., Burgan, Gwahar). Replacing that takes a great many smaller fields, and there is no evidence that US deposits can replace them. This has been extensively studied, with fairly uniform conclusions. See the FM reference library to see some of these.
Fab
I’m surprised that nobody really directly addressed what I thought was your most interesting point — what do we know about innovation? You cite Aurthur’s “The Structure of Invention” which might well be considered to be a companion piece to Kuhn’s “The Structure of Scientific Revolutions” in highlighting the role that fundamental shifts in scientific paradigms could play in the subject of the peak oil problem.
Thomas Gold, renegade scientist par excellence that he was, laid out his case for the abiogenic theory of oil in his “The Deep Hot Biosphere” If Gold is right, and he has been right before, all of our ideas about the origins of oil are completely wrong and therefore projections of future oil production are radically incorrect. It is conceivable that the earth is a physical system that continuously produces hydrocarbon products.
In this view, massive investments in alternative energy sources might simply amount to building a better dog to bark up the wrong tree. You don’t have to agree with Gold (or Khun for that matter) to appreciate the fact that human institutions do not produce these kinds of insights. They oppose them before they eventually accept them.
It is an open question as to what kind of public policy might provide a friendlier environment for the next Copernicus to be heard, but it is a question that should at least induce a sense of intellectual modesty when debating these matters.
.
.
Fabius Maximus replies: I absolutely agree. The world would be a different place after a breakthrough in “how to innovate more successfully” — something like the invention of the modern factory (from assembly line to modern process control) did for manufacturing.
As for Gold… He might be correct, and irrelevant to us. Although he has little evidence for it, perhaps oil fields are recharged over geological time. That will not help us. Oil deposits in unconventional locations would be wonderful, but none of consequence have been found. So this is a fringe theory, such as are found in every science.
What always amazes me about the people who tout the free market system as a solution to the liquid fuel transportation problem is that they ignore the fact that the government controls the transportation sector. The government decides to build roads and airports, or not to build roads and airports. These things don’t exist naturally. So now the Bush administration supports using the general tax revenue to pay for highway construction:
“US seeks $8 bln from Congress for highway funding“, Reuters, 5 September 2008.
The problem with this is that the lifespan of the highways could exceed their usefulness.
If innovation fails, before the oil prices stop us dead, we could electrify the railroads, hang trolley wires and electrify the buses, or skip building the highways entirely, and just lay track. I believe I have seen pictures of delivery trucks with trolley poles as well.
If we were really progressive we could build high speed electric railroads like France, Japan, and now China. High oil prices would not stop transportation.
The rub here is that it assumes one has capital one is willing to invest rather than sending it abroad to purchase oil.
Easy to answer: never, if one looks at expert opinion.
Are you honestly saying no expert in the last century has ever wrongly predicted that oil would run out by X or that we had reached peak oil already?
.
.
Fabius Maximus replies: Due to the volume of comments on this post, I dashed answers off. What I meant to say (now corrected) was “consensus expert opinion”. “Expert opinion” is so vague as to be meaningless.
There is always a distribution of expert opinion, and therefore there are those in the long tails saying things mostly ignored by the mainstream. While interesting and sometimes entertaining, the media often gives absurdly great attention to these small minorities. Which is why I so often refer to consensus opinion as a better guide.
A small number of fringe doomsters have been warning of peak oil — arriving real soon — for decades. See Peak Oil Debunked for examples (many, many). Looking at the reports from major institutions — a better indicator of expert opinion — one sees a different picture. Only recently have they been concerned about peak oil.
Ignoring mainstream experts in favor of fringe opinion is a common phenomena. Such as we see here with absurd comments that economists have for many months been falsely predicting doom and gloom for the US economy. In fact, The consensus economic forecasts have been far too optimistic for well over a year. The opposite is in fact true: the consensus economic forecasts have been far too optimistic for well over a year. For more on this (including actual forecasts) see here, here, and here.
Non-Oil Transportation using existing technology, a significant part of the solution.
* Electrify and improve/enlarge freight railroads.
* Urban Rail on a Crash Basis
* More Transportation Bicycling
* More Walkable Neighborhoods (TOD)
Please read these long articles before commenting:
* http://www.aspo-usa.com/index.php?option=com_content&task=view&id=168&Itemid=91 Posted as ASPO-USA, registration required.
* “Multiple Birds – One Silver BB: A synergistic set of solutions to multiple issues focused on Electrified Railroads“, Alan Drake, posted at The Oil Drum, 15 July 2008.
* “Ready-to-Go Urban Rail Projects as a Medium-Term Response to America’s Oil Problems“, Alan S. Drake, , May 2007
A lot can be done in a decade, especially if ever rising oil prices make oil based transportaton less viable. Best Hopes, Alan Drake
.
.
Fabius Maximus replies: I agree, these are imporant elements of our adaptation to peak oil. Thank you for posting these articles.
In reality no once expects a radical change in the world’s energy market and infrastructure. Oil , Nuclear energy , Gas , And Hydro will remain the main sources of energy for at least the next 30 years. And While oil production may peak , additional capacities available will always slow the Transition from Oil to Alternative. And you can’t ignore the Huge interest of Oil companies and countries and technological challenges.
Even with every MYTH and invisible hand at work global demand is sharply increasing , and even a slow down in US demand which is unlikley will have any longterm effect.
It is more about established life-styles than about sources. If the per-capita energy consumption in the US was comparable to that in Europe and Japan where Public transportation takes precedence to private cars.
And Also the increasing demand for Polymers and Plastics is a factor.
The last oil prices spike may have nothing to do with Real production and consumption , but more to do with Risks and Speculation , and always remmember the same way the oil prices went UP , speculator out of fear will get them down , at least on the short term.
short-term Price fluctuation in the oil industry is more about risks, specualtion, and events than supply/demand.
.
.
Fabius Maximus replies: This is not correct:
“In reality no once expects a radical change in the world’s energy market and infrastructure.”
Just as a start, review the studies at the FM reference page “Peak oil and energy – studies and reports“. Esp note Robert Hirsch’s reports summarizing the range of expert opinion regard the date of peak oil and the subsequent production decline rate.
Over a 30 year horizon a large fraction of experts are worried, and that increasinly concerns the major energy agencies (e.g., EIA and IEA). The question is the date and nature of the transition to other energy sources: fast and hard, slow and easy.
“short-term Price fluctuation in the oil industry is more about risks, specualtion, and events than supply/demand.”
That is a theory. As you will see in from the quotes in this post — the International Energy Agency and an independent expert — not everyone agrees. I show an alternative theory in “The secret cause of high oil prices“, one that requires few mysterious dynamics — just simple supply and demand.
If there’s anything nuttier than killing in the name of God, it’s the rally cry: “let market forces do their job,” the cry of fundamentalist Milton Friedman wannabes everywhere. Some people smoke waaay too many dollar bills.
Even George Soros has recently admitted the reality gap between how markets are supposed to work, and how they actually work in real life:
According to my theory, prices in financial markets do not necessarily tend toward equilibrium. They do not just passively reflect the fundamental conditions of demand and supply; there are several ways by which market prices affect the fundamentals they are supposed to reflect. There is a two-way, reflexive interplay between biased market perceptions and the fundamentals, and that interplay can carry markets far from equilibrium. Every sequence of boom and bust, or bubble, begins with some fundamental change, such as the spread of the Internet, and is followed by a misinterpretation of the new trend in prices that results from the change. Initially that misinterpretation reinforces both the trend and the misinterpretation itself; but eventually the gap between reality and the market’s interpretation of reality becomes too wide to be sustainable.
The misconception is increasingly recognized as such, disillusionment sets in, and the change in perceptions begins to influence the fundamental conditions in the opposite direction. Eventually the trend in market prices is reversed. As prices fall, the value of the collateral used as security for loans declines as well, provoking margin calls. Holders of securities must sell them at distressed prices to meet the minimum cash or capital requirements, and such selling often causes the market to overshoot in the opposite direction. The bust tends to be shorter and sharper than the boom that preceded it…This sequence contradicts the conventional view, which holds that markets tend toward equilibrium and deviations from the equilibrium occur in a random manner.
This sequence contradicts the conventional view, which holds that markets tend toward equilibrium and deviations from the equilibrium occur in a random manner.
What the free market is best at, is pushing sales of things based on inventions that just happened to occur. The invention of the transistor, based on semiconductor science, led to computers, software and internet. In 1947, nobody would have felt a pressing need for any of these applications.
The fact that a need becomes apparent, c.q. for the substitution of fossile fuels, does by no means guarantee that humanity will make the required inventions at all, let alone in time. The postulates of free market economy are by no means laws of nature.
The free market is much better at creating artificial needs, than at relieving real ones. It supplies myriads of sports shoes all over the world, but does not solve the problem of the hunger in the world. Implying that making sports shoes is easy, producing food is not. Producing energy falls in the category: not easy!
.
.
Fabius Maximus replies: I think that underestimates the effect of free markets, focusing on the trivial — or perhaps even false — (“creating artificial needs”) and ignoring its primary role: allocating resources to meet our most important needs. That is not to say that the resulting allocation will be optimal, just better than other systems we have developed to do this.
Nor can the free market produce immediate results. An allocation to investments in energy technology might not produce major results for decades. It is not a “just in time” mechanism.
As with any complex problems there is some truth to the various comments above. I see no hope for any Crash Program, because it turns this back into a “they” problem. When the problem is something that “they” will solve, “I” don’t have to do anything. I don’t have to think. I don’t have to change. I don’t have to act. “They” will solve it for me. This will not work. But it doesn’t matter who sponsors the change. Anything that makes it “their” problem will fail.
I do find your disbelief in the free market surprising. Effective dynamic allocation of scarce resources is one of its strengths. Consider recent events:
1) Starting in 2005-2006, the per capita vehicle miles traveled began to drop. This is likely in response to gasoline and diesel prices rising above $2/gal. The mass media, government, et al have only started to notice this in 2008, and still have taken no significant action. So the free market was at least 3 years ahead.
2) Also starting in 2005-2006 the public shifted its purchasing percentages so that the percentage large cars and trucks began to drop, small cars began to rise. Again, several years ahead of the mass media and government responses.
The free market reaction might not be perfect with 20/20 hindsight. It was tracking the reality that from 1983 to 2004 oil prices were regularly hitting new record low prices. As soon as that changed, the buying practices changed.
Other free market reactions include:
3) The transition from T12 to T8 and T5 fluorescent lighting is presently at about 50% of installed lighting. The T8 and T5 lights are 20-30% more efficient than T12. The improvements have progressed at roughly the depreciation and renovation rate for offices. It does not usually make sense to replace lighting fixtures for the energy savings alone, so the T8 (which can use a T12 fixture) is progressing rapidly with older buildings. T5, which can have better designed fixtures, are going in for new and renovated offices. This is driven by two forces: a) the free market desire to save money on electricity bills, and b) the legal pressures to prevent these improvements. The biggest legal problem is with rental space. Under the commonplace legal system, the landlord is responsible for permanent fixtures and the tenant pays for the electricity. The property taxes increase when you renovate. This makes it harder to justify improvement, because there is a mismatch between investor and beneficiary. There has been no action by government to help with this. The money involved is enough that tenants and landlords are working out deals.
Past “crash programs” have performed poorly. During the 1970’s there were crash programs for solar hot water, wind power and photovoltaics in the US. The beltway bandits did their part to siphon away the money. Massive corruption, fraud, and mismanagement also took place. The net effect was a huge waste of money that was halted around 1981.
Wind power did survive the damage done by the “crash program”, but not in the US. Europe acted more slowly and avoided the crash program stupidity. More recently, the US has started to learn a bit about this. European governments subsidized wind power as a geopolitical stance, to reduce dependence on other countries. But this was not a crash program. They funded a modest basic research effort, eliminated many regulatory barriers, and offered a subsidy of a few cents per KWh. (At the moment it is 1 – 1.5 eurocents/ KWh). But the subsidy is paid for power delivered. Up front, the money comes from banks and investors. You need to persuade them that your system will work. You do not get government funding. Then you get monthly checks based on actual production, with a long fixed commitment for future checks. If you made a good choice, have a reliable system, and maintain it, you keep getting those checks for ten to twenty years. If you bought cheap junk or don’t maintain it, you only get a check for the power that you generated. This eliminated the attraction for the beltway bandit equivalents in Europe. Consultants don’t make multi-million dollar investments in equipment that needs to be operated for decades. It also reduces the risk for corruption and fraud. The government is not paying initial system cost, and the buyer is motivated to get good stuff. The buying decision is not a government decision, so that source of corruption is removed. The primary fraud risk is cheating at the power meter monthly readings. This is easy to verify and control.
The US has not really learned this lesson well. We still believe in crash programs, etc. They are subject to all the risks of beltway bandits, corruption, and mass mismanagement. Only a few of the subsidy programs have followed the model of subsidizing the successful outcome rather than the initial effort.
As to whether this will deal with peak oil, I’m not sure. Investments in energy efficiency continue to pay off with ROI of 25-50%, so from a simple financial perspective it is foolish to consider large investments with lower payoffs until there is a shortage of efficiency investments. Until that shortage arrives, a small diversion into pure research (not pilot production) is sufficient. This maximizes the return on available investment capital. When a shortage of efficiency investments becomes a problem, it will be time to start subsidizing pilot production.
From what I see on the commercial and government side, there is no shortage of energy efficiency improvement projects on the horizon. Improved efficiency efforts also mean that totally new facilities are much less demanding. There are enough special situations to maintain a steady growth in new energy production sources as well. This will provide the modest demand needed to justify the pilot production of new technologies. I’ve seen some analyses that indicate that efficiency improvements alone could suffice, but they lacked backup references to let me examine their methodology and evaluate their claims.
I would like to point out that any development of any single domestic energy source inevitably runs up against a point where it becomes increasingly expensive to the economy as it reduces the availability of other resources. Take nuclear. No problem except for the expense, the safety issues and the fuel disposal. Solve those and every future plant will have no more costs to the economy than current plants. Wrong. Nuclear directly competes with water supplies similarly to how corn ethanol competes against food supplies. At some point one has to decide between these two. If you get the prediction wrong going forward nuclear becomes an intermittent energy source because water flows can only go so low and people need to drink more than they need to watch the big screen TV. Now youv’e decreased the cost effectiveness of nuclear. This fact hardly gets considered in the national discussion.
Same mining v. solar farms. Solar farms have to be located on land with no forseeable future need for resources under them or you again increase the potential future economic cost in an unforseeable way.
This concept is especially applicable to unconventional oil and coal.
This can be applied to every large facility mass energy scheme. It however is much less relevant in relation to distributed energy schemes. Put solar panels on a roof in place of shingles and its still just a roof. Use an unused source of geothermal and its just less wasted energy. Etc. the only way we will permantly cure our current energy concerns is to head toward an efficient long line national energy grid and connect it to every little source of distributed energy thats most efficient in each locality. And them move to a mostly electric society. Its the only universal energy transfer method. “Project to moon” massive facility energy schemes are not a long term fix no matter what makes them happen. They just lead inevitable to another “peak” and the same cycle starts again.
FM, have read your articles for some time with appreciation, missed them for a while and recently stumbled on your blog. Cannot possibly hope to catch up but will make effort to go through the Fixing America series. But on this topic a few points offered not as argument but different view:
1. Until there is one solitary piece of proof that oil is made from crushed dinosaurs, I remain open to abiotic theory.
2. The main reason oil was pushed over vegetable oil as envisaged by Mr. Diesel or electromagnetic via Tesla, or no less efficient steam, not to mention wood-burning (gas) as was used during WWII in Germany and Eastern Europe and Russia etc. is that oil’s distribution is far more favorable for commercial purposes since supply and distribution can be controlled. It also cannot be produced locally, which is part of the same logic. Similarly, we have favoured power-grid electrical generation for the same reason with a huge percentage of the power generated being ‘lost’ in the transfer from the station to the light bulb.
3. Given that oil has always been a commercial product, there is a vested interest in those who sell it to limit supply. The competition comes from nations who want the income so more comes on the market. Hence cartels to manage this. I am not saying there is some huge conspiracy out there, but it is an inherent bugaboo to my mind in that all of them have vested interest in containing supply to keep up with demand and no more since if we all knew there was 10x more than we thought, prices would still be at $10.00 a barrel.
4. Alternatives have existed for years in terms of cars, which use a lot of hydrocarbons if by no means all.
http://www.zevcat.com/consumer.html is a nice new entry which will go into mass production in India next year, but water cars were developed in the 1930’s (one patent by Garret who invented traffic lights of all things) and steam is still highly efficient but largely discarded because controlling supply of water is virtually impossible for commercial purposes given that each household has it coming into the kitchen sink every hour of every day. Home generation using less than we use now for the toilet is feasible, for example, and has been for decades.
6. For several decades, corporate-dominated USG has mandated low mileage (remember those monster Ford’s in the 70’s and early 80’s?), forcing manufacturers to burn double the amount necessary. Why did they do this? Weird.
7. Given that viable alternatives exist and have existed for some time, seems to me that the main reason we are dependent on it is because it makes a huge amount of money for many powerful industrialists whose sector seems to have done a very good job of getting many of its people at the higher echelons of USG administrations for many decades.
8. I think Peak Oil is a mercantilist-driven hoax just like most pharmaceuticals and hi-tech medical machines that go ‘ping!’ are hoaxes.
9. Whether or not it is a hoax, the real issue is why we think we need the stuff all the time (also not nearly efficient as advertised as fertiliser etc.) rather than how much there is of it since many alternatives exist.
10. I think the main issue to be resolved is control so that large-scale industrialists can maintain income-stream. Otherwise clearly we would be developing locally-generated sources of power without any problem at all.
11. It is not, after all, rocket science!
Pingback: A to Z Energy ETF » Blog Archive » DrumBeat: September 6, 2008
The British Empire went through a similar problem with coal. William Jevons argued in The Coal Question that future inventions won’t solve the problem because almost all past inventions were just the application of coal energy:
Coal production peaked in Britain in the 1920’s; twenty years later the empire was gone.
In my opinion the last two real inventions were Laser and the Integrated Chip, both forty years old. All other inventions since have been a refinement and application of those two. I can’t think of another fundamental invention since then.
.
.
Fabius Maximus replies: “I can’t think of another fundamental invention since then.”
Biotechnology, genetic engineering. Perhaps nanotechnology (like the others, a collection of technologies). If the polywell works, that might be the most significant invention of the past 100 years.
There is a serious debate about the pace of invention. Is it slowing or accellerating? Both sides have supporting data. Eventually we will learn which side was right.
Fabius:”Biotechnology, genetic engineering. Perhaps nanotechnology”
All applications of the IC and Laser. Is there any NEW invention since the sixties? I can’t find one.
.
.
Fabius Maximus replies: I do not understand your criteria for “new.” Most new applications build on previous ones. Is it not “new” if it uses electricity? Is it only “new” if done with stone tools?