Petroleum Prices and GCC Spending
Submitted by
CalculatedRisk on Fri, 03/21/2008 - 9:17am (198 comments)
in
Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 37 members and 169 guests online.
Currently online
- curious
- Blackhalo
- nova
- Citizen AllenM
- BarleyReturns
- Bad Dawg Bobby
- Mike in Long Island
- steelhead
- josap
- ResistanceIsFeudal
- 1 currency now -yogi
- MaryAnn
- poic
- sporkfed
- MattFea
- gabyjan
- Gatsby
- dr munch
- Rajesh
- dryfly
- Antipodes
- robin-lv
- aleister perdurabo
- RATM
- Lobbyist Ben Dover
- GiezCubed
- JBR
- sdtfs
- staunch
- shill
- Dickeylee
- NorthStar
- traderwalt
- CitizenPither
- Gary
- eek
- wafdof
Recent Recommendations
But could oil prices fall sharply?
I can't help worrying that all of Russia and large parts of the Middle East are going to resemble mid-80s Houston sometime not too long from now (comparatively speaking, anyhow).
OT: Sorry to be off topic, but - First!
No, actually, this is a stunningly good article from the headlines on yahoo news from the Christian Science Monitor (yep, since Fox owns the WSJ, we need to go to the CSM for a good economic article)!
Yahoo! 404 - Page Not Found
an excerpt
--For too long, experts say, Japanese regulators coddled ailing banks, hoping the problem would go away. The government tried to pump money into the system, but without demanding better management. Credit became largely unavailable to firms that could have used it productively.
--That broke the rules of bank rescue.
--"If the government must bail the bank out it should basically wipe out the management and wipe out the shareholders," says Mr. Beim.
--It sounds tough, but that's the point. It sends a signal that bad management won't be rewarded. And it conserves the bank's remaining resources and taxpayer money to restore sound lending for the economy.
--Swedish regulators quickly determined that they would follow that path, as some of their largest banks collapsed in the early 1990s.
(and further OT, this one is also a must read)
Yahoo! 404 - Page Not Found
Interesting ideas. It is difficult to apply any standard supply/demand rules to something that is priced by a cartel (some openly avowed members and a number of willing cooperators).
It seems to me to be a tragedy that some of the countries with such windfall wealth have done so little with it, except for rewarding a few of the elite families. When the resource is gone, they will have nothing to show for it.
The other price question worth exploring is: what is the maximum oil price that does not encourage too-vigorous development of alternative energy sources?
So there is a possibility that what has looked like peak oil to some observers (something I believe is coming), was actually GCC countries investing by not extracting oil. If oil prices start to fall, and with rising expenditures (see first graph again), the GCC countries might increase production - causing prices to fall further.
Couple of other observations - that sort of "investment" could backfire if it spurs investment in alternatives like corn and vacuum energy.
Also regarding "And given highly inelastic demand..." I think easy credit, futures contracts, and oil tanker rentals may be severely distorting the oil market, so I would tend to reject any preconceptions about supply or demand.
In any case, I think it's better to move away from having an economy that's dependent on the quantity of things that have died in the past for its future.
Majority of Americans think economy will turn around in 2009 - Mar. 21, 2008
The problem with Americans is that they are foolishly optimistic. They need to have that mercilessly beaten out of them. Then in the future they might be more sensible and wiser.
It seems to me to be a tragedy that some of the countries with such windfall wealth have done so little with it, except for rewarding a few of the elite families. When the resource is gone, they will have nothing to show for it.
Did you see the Economist's cover story on Russia?
Looks like they may be going on their own US-style consumption binge (relatively speaking, once again).
It seems like windfalls have a way of destroying real economic productivity.
The problem with Americans is that they are foolishly optimistic. They need to have that mercilessly beaten out of them.
Now if only our Fed chairman were more like Jim here we could make some real progress.
Kind of the way I feel about drilling in ANWAR. In say, 50 years that oil is likely to be worth MUCH more. Until then we can store it in the cheapest method possible: leaving it where nature put it.
Interesting theory. If I'm reading you correctly, there are some self-limiting aspects to the current recessionary period.
BTW, some have argued (Stratfor comes to mind) that, due to geopolitical issues, both the Saudis and the Venezuelans have been lagging on much-needed infrastructure maintenance and repair and this has contributed to production shortfalls. If this theory holds, there might be profound implications down the road if prices fall enough that these production gaps need to be filled...
Interesting.
What's happened to the U.S. economy?
Good comment thread: What's happened to the U.S. economy? - Boing Boing
from Zuzu
From about 2001 - current the United States has funded a comprehensive restructuring of domestic government agencies (i.e. Homeland Security) with new and far-reaching "anti-terrorism" programs (e.g. Federal subsidy of enlarged state and local police, USVISIT, etc.), funded an invasion and ongoing active occupation of Iraq (at a cost of about $1 billion per month), while at the same time cutting taxes, and in September 2007 Congress raised the debt ceiling $9.815 trillion. The U.S. Government went from an ostensibly balanced budget in 1999, to a mind-boggling increase in spending, while at the same time collecting less revenue (i.e. taxes). How do they afford it? They increase the supply of money and credit through the Federal Reserve. This is a stealth tax. By debasing the fiat currency of the dollar, they spend the new dollars on the military-industrial complex to "keep us safe"*, which dilutes the value of the dollars we save in our bank accounts (or that we negotiated with our employers to earn in our paychecks), but all of the other goods and services are still just as scarce, so more dollars are needed for the same value to exchange for them, which is inflation.
(*Recently "keep us safe" has been extended to including bailing out financiers such as Bear Stearns and soon Lehman Brothers.)
The "Three Trillion Dollar War" or whatever you want to call it was all paid with inflation, which explains why the price of gold went over $1000/oz, why oil and food prices are up, but people are still generally acting as if dollars are worth what they used to be worth before the new money was created. (Arguably his is also why the Federal Reserve ceased publishing M3 data in March of 2006, and why the Department of Labor and Statistics has redefined the Consumer Price Index (CPI) to exclude energy (i.e. oil) and agriculture from its "basket of goods" estimation of dollar purchasing power.)
The economic crisis the United States can no longer ignore is the unwinding of this inflation. However, economists who speak on television or for politicians will tie themselves in knots and circular logic to avoid ever saying the word "inflation" -- it's like a taboo. So first they pitched this problem as a "sub-prime mortgage crisis", until now the problem is obviously not contained to just that market sector. Recently I've heard people start saying "contagion" like when the Asian Tigers melted down from their inflationary bubble in the 1990s.
But the crisis is simply that the Bush-Cheney administration has spent more money than God by borrowing and printing it (i.e. creating inflation), which in the central banking system of fractional reserve multiplies several times over into even more inflation. This creates an enormous market bubble -- that so-called "economic recovery" Bush has claimed in his speeches of yore. So this bubble didn't even feel like a bubble so much because the "improvement" was marginal over the pre-existing recession from the previous dot-com bubble and housing "foam" created by Alan Greenspan. But soon all of that inflation is about to collapse.
jim a writes:
Kind of the way I feel about drilling in ANWAR. In say, 50 years that oil is likely to be worth MUCH more. Until then we can store it in the cheapest method possible: leaving it where nature put it.
jim a | 03.21.08 - 3:00 pm
Maybe by then we'll get lucky, and it will be worth what it was in 1800.
Oil prices fall and we defeat Iran internally without firing one bullet. CIA just needs to get the oposition government ready to campaign.
From fig 1, it looks like the tailspin may not start until oil takes a 30+% hit. Am i right?
defeat them at what ! ?
i think i've got a nasty virus ... google is redirecting me to google.es
The road map is fairly clear. Solar will reach critical mass through a combination of technological improvement and government policies. The demand for peak NatGas electrical generation will fall and take out NatGas prices on the margins. Oil is sure to follow.
Peak Oil or even limits to oil are such fundamentally flawed ideas that they don't even rise to the level of being wrong. Thank you Dr. Pauli. This is ostensibly and nominally a macro econ blog so this should come as no surprise. At worst we are running lower on very cheap oil. It concerns me that people manage to look at the history and track record and assumptions of Peak Oil and not laugh.
The dirty truth about government spending is that it never turns down very much. There can be a leveling or even a small decrease but the basic level of services are impossible to cut. Therefore the oil producers are building a trap that will lead to a political crisis in their countries. Load up the 747 momma we gota get out of town and move to California!
Wally said: "When the resource is gone, they will have nothing to show for it."
Other than the rabble battering the gate....
Rob dawg writes: Peak Oil or even limits to oil are such fundamentally flawed ideas that they don't even rise to the level of being wrong.
Hmm, this could only be said by someone who doesn't understand what peak oil is.
At worst we are running lower on very cheap oil.
Well that didn't take long - a simple demonstration that you don't, in fact, know what peak oil is.
REBear, I'd think a 30% decline would have a huge impact on the GCC. Just government spending according to Ziemba's numbers will require $50 oil this year.
I suspect a 30% decline (to $70 oil) would be enough to cause problems in the GCC - and help the U.S. economy and trade deficit.
I started this post thinking - why do governments always rachet spending to match revenues? Say goodbye to Gray Davis, and Hello to Arnold. At least that wasn't violent.
Best to all.
The dirty truth about government spending is that it never turns down very much. There can be a leveling or even a small decrease but the basic level of services are impossible to cut.
I think in a political sense that's probably true, but if those services depend on something that's going away or fundamentally limited in supply, reality can have a way of working it's magic. That's also when wars tend to start.
I am getting more of the sense though that government spending is a one way street. I think that's why it's so important to be wary of government spending -- not that we don't need government, but when government starts utilizing resources poorly it can be very hard to stop.
I probably should have said that spending cannot be cut very much without a total collapse of an economy. If there is any credit left at all, the government will borrow to maintain the basic level of bread and ciruses. My goodness, that sounds like the good old USA!
Rob - I have a good friend in the oil and gas business. He has been VP of production at several smaller domestic companies (S&P midcap 400 size). He doesn't find the idea of Peak Oil wrong.
I spent a considerable amount of time studying the question a couple years ago, and while there are a bunch of nuts who have involved themselves in the question, there are also a number of thoughtful and credible experts who think we are at or near peak world production.
It's very difficult to predict what the economic response to ever decreasing oil production volumes will be, and I suspect much higher prices will encourage remarkable ingenuity. That said, I'm not looking forward to the process.
Unfortunately, OPEC can cut production if required to protect the price range of oil that they need. It wouldn't require much cutting at all, and I think they've shown the willingness to do exactly that. I would not expect them to allow another drop to $50/barrel ala 2006.
Read circuses above. Bad typing by partially blind retired economist. Or is that redundant?
REBear, I'd think a 30% decline would have a huge impact on the GCC. Just government spending according to Ziemba's numbers will require $50 oil this year.
I suspect a 30% decline (to $70 oil) would be enough to cause problems in the GCC - and help the U.S. economy and trade deficit.
I started this post thinking - why do governments always rachet spending to match revenues? Say goodbye to Gray Davis, and Hello to Arnold. At least that wasn't violent.
I recall reading how budgets in some of the DC suburbs assumed an 8% rate of house price appreciation and went from there.
These were responsible budgets because 10%-15% appreciation was generally considered far more realistic. They had a little wiggle room built in for those occasional extra spending surprises like maintenance of abandon swimming pools.
The spec money can leave very quickly. Even if it did I don't see why prices would go/stay under 60-65/barrel very long. It took years to create all of this extra demand in the EMs...can it be erased over a short period of time?
Probably no more easily than we could abandon/substitute oil here in the states.
I actually find this post to be some true good news. It seems plausible and would really help our economic situation. We absolutely have to get that trade deficit in positive territory for a bit.
Oil is a finite resource and it is used for many valuable things, like plastics. Seems a shame to keep burning it up in power plants and vehicles when there are viable alternatives.
The spec money can leave very quickly. Even if it did I don't see why prices would go/stay under 60-65/barrel very long. It took years to create all of this extra demand in the EMs...can it be erased over a short period of time?
Who in the early 80s would have every forseen $8/bbl oil in the late 90s?
I can imagine it was completely unthinkable at the time.
As the U.S. economy weakens, there is waning demand for oil in the U.S.:
OPEC has seen this movie before in the 70's and I don't believe they will slit their own throat again. If the price starts fall they will cut production and why sell a valuable resource for a currency that is purposely being depreciated anyway.
CR,
Great post.
What happened with the 1974-80s boom was they all increased spending even more dramatically than now and then found it very difficult to cut back, that forced them to keep producing heavily in a falling market, ultimately driving the price into the ground.
I've been working on a spreadsheet. You can kind of divide the top 15 economies into three groups: big net consumers (US, UK, Spain, Italy, France), big net exporters (China, Japan, Germany, Korea, ASEANs) and then the commodity economies (Russia, Australia, Canada, Mexaco, Brazil...)
The commodity countries as a whole consume almost as much as they export. Australia is fetching record amounts for coal, wheat, iron, etc., but their trade deficit is almost as bad as ours (%-wise)!
Look at the top consumer countries, all expected to slow appreciably. If commodities fall, even moderately, that group will have to slow consumption, so are Germany and China going to grow by exporting to each other?
If it happens like that, a really large, world-wide excess production capacity will become apparent. Steel production is growing just absurdly.
Then commodities will really fall, and around it goes again.
Diesel in LA last night: $4.37 gallon
Prices jumped with the start of the war in Iraq (March 2003) and never quite came back down.
ac,
Thanks. The psychology of oil producing countries now resembles tech stock holders during early 2000.
IMO, beyond a certain point, cutting oil production will fail to hold oil prices. War at that point is inevitable
Ministry of Truth writes:
Oil prices fall and we defeat Iran internally without firing one bullet. CIA just needs to get the oposition government ready to campaign.
Ministry of Truth | 03.21.08 - 3:10 pm | #
Why do we need to "defeat" Iran? To suck up to Israel? Or the Neocons?
Solar is the future.
There are a number of positive externalities from high oil prices, which is easy to forget when you're being shaken down at the gas pump:
1) encourage investment in renewables (solar, tidal and wind)
2) discourage waste and overconsumption
3) encourage better transit planning
4) discourage sprawling development
I just wish we had a gov't with the balls to consistently tax gas appropriately, a la Europe, instead of letting Mr. Market hand us our asses over the past 30 years. Our transit infrastructure would be the envy of the world if we had responded to the oil shocks by raising our gas taxes to parity with Europe's.
By Jed Horowitz
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Standard & Poor's Corp., in a continuing sign of loss of confidence in investment banks' eroding profitability, put Goldman Sachs Group Inc. (GS) and Lehman Brothers Holdings Inc. (LEH) on negative outlook on Friday.
Although the rating agency didn't change ratings on Goldman's AA- and Lehman Brothers' A+ senior debt, it brought its view of the likelihood of a precipitous decline in profits at the firms during the next few quarters to the same negative levels it had previously assigned to Merrill Lynch & Co. (MER) and Morgan Stanley (MS).
The outlook changes are appropriate in spite of the fact that recent actions by the Federal Reserve have instilled confidence in the capital markets, S&P added. A negative outlook implies a one-in-three likelihood of a rating downgrade over an intermediate period of about two years, S&P said.
"We believe that negative rating outlooks are broadly appropriate for the independent securities firms, reflecting the potential for a more substantial decline in profitability from capital market activities," S&P said in a report whose principal authors are Managing Director Scott Sprinzen and analyst Diane Hinton. "Our current expectation is that net revenues could decline 20%-30% year-on-year," adjusting for write-downs.
Moody's Investors Service continues to rate Goldman Sachs and Lehman with stable outlooks, and has no plans to respond to S&P's change. "We remain comfortable with the outlooks," said senior vice president and lead securities industry analyst Peter Nerby.
S&P didn't change its debt ratings on Goldman or Lehman. It had previously said rating downgrades would be likely if it believed that companies' balance sheets were being overloaded with assets that were deteriorating in value. Investment banks have written down more than $100 billion of securities and loans since the middle of last year, and are still finding it difficult to sell the assets to large investors.
The 20% to 30% decline in profitability will erode investment banks' "margin of safety" this year, but S&P said it expects to sustain current debt ratings because of the Fed's move last week to let investment banks borrow directly from the central bank at low rates against some of their battered securities.
"Nonetheless, we see some possibility, were there to be persisting capital markets turmoil and sharply weakening economic conditions, that financial performance could deteriorate significantly more than we now assume, which would call the current ratings into question," S&P said.
The agency downgraded Merrill Lynch's senior debt to A+ on Oct. 24, 2007, and put Morgan Stanley on CreditWatch with negative implications on Dec. 19, 2007. During a conference call, Sprinzen said S&P expects to decide within 30 days on whether or not to change Morgan Stanley's AA- rating. The firm, in many ways, has the best business diversity of the five large investment banks, he added.
However, the "virtual collapse" of Bear Stearns Cos. (BSC) last week " highlights the extent to which securities firms are exposed to capital market sentiments and explains the Federal Reserve's actions to support the U.S. securities industry directly," S&P said. The Fed arranged for JPMorgan Chase & Co. (JPM) to buy Bear, which S&P rates BBB, at a fire-sale price of $2 a share and guaranteed the bank against $30 billion of losses on Bear Stearns' problem assets.
Lehman's business model is closer to Bear Stearns' and less diversified than the other three firms, but Lehman's funding capability and liquidity are among the strongest on Wall Street, Sprinzen said. Lehman and Morgan Stanley in their fiscal first-quarter earnings earlier in the week demonstrated strength across their businesses, while Goldman - the most profitable broker - had higher write- offs than in the past. Merrill Lynch doesn't report its first-quarter results until April.
Without Lehman's net write-down of $2.4 billion, he added, net income would have been about flat with a year earlier and "we wouldn't expect a recurrence of such charge-offs in coming quarters," he added.
Indeed, S&P has no great concerns in the near - or even long - term about profitability or funding for Goldman or Lehman and is relatively confident about core businesses at most firms. "We are not saying there is some fundamental flaw or business disadvantage compared to what we've seen before," Sprinzen said. However, he repeated that the capital-markets environment remains so volatile and uncertain that the agency's across-the-board caution on investment banks is justified.
"We don't feel it hurts to have negative outlooks even on the best-positioned players," he said.
A Lehman spokeswoman declined comment on the outlook change. Spokesmen at Goldman Sachs did not immediately return calls for comment.
S&P released its report on Good Friday, when U.S. markets are closed and brokerage firms are operating with skeleton staffs. S&P did not deliberately correlate the negative news on its paying clients to avoid riling the markets, an official said, but rather felt it important to publicize its revised views as soon as possible after analyzing firms' fiscal first-quarter results. Goldman and Lehman reported Tuesday and Morgan Stanley followed on Wednesday.
MLM writes:
Rob - I have a good friend in the oil and gas business. He has been VP of production at several smaller domestic companies (S&P midcap 400 size). He doesn't find the idea of Peak Oil wrong.
I have friends in the Real Estate business whould were convinced RE prices could never go down. your point?
Look. I've been doing this for more than a dozen years of traceable internet searches. Peak Oil was dreamed up by some academic type engineers. The kind that can prove to you that Nuclear powered airplanes are a good idea. Any sustained period of $100+ oil and everything from thin film photovoltaics to gym sock distillation start making sense. We used whales because they were cheap and plentiful until they weren't cheap or plentiful. We switched away from coal because oil was cheaper and more plentiful. Did we run out of coal?
NYT on Wednesday had a long article about the tremendous abundance of coal in the US.
It still provides much of our electricity . . . major environmental impacts though, both from emissions and mining practices.
The annual decline rate is probably around 6%. We lose 4.5 to 5 million barrel/per day in production. New fields must come online all the time just to maintain output.
Nice try. Also, the majority of the developing world subsidizes prices for its consumers, including China. So demand won't be that negatively impacted from slower global growth. If demand is going to fall, it must come from the U.S, which it has recently.
Oil production will increase as prices fall? I'll believe it when I see it.
So basically trying to regulate sovereign wealth funds investments is a bad idea then, since it will decrease their expected return and make them invest more into lowering production.
Hm.
China, India other ex-Third Worldies subsidize oil. Once that stops, look out below.
ac,
Thanks. The psychology of oil producing countries now resembles tech stock holders during early 2000.
IMO, beyond a certain point, cutting oil production will fail to hold oil prices. War at that point is inevitable
I mean come on, what bigger hint do you need than a palm-tree-shaped island?
wouldn't this help China econmically and inflationary too? If theory holds true plus Post Bush - oil seems more likely to fall then rise..
Rob Dawg,
Why does the character of your energy arguments remind me so much of Seb's "no recession" arguments...?
The era of limitless economic growth based on an endlessly expandable supply of cheap oil is just about done...and the scale of the effort to transition to the alternatives is decidedly non-trivial. If we as a society do not make some significant policy changes to prepare, the magnitude of the economic dislocations will be much worse. As others have noted, the problem will solve itself but we won't much like how that works out...
More directly to the post perhaps the best example of two paths the GCC states are taking are Dubai and Abu Dhabi - where Dubai is growing exponentially and residents there generate more waste per capita than anywhere else in the world - and Abu Dhabi which is investing in alternative energy and building the first zero carbon footprint city on the planet.
The Christian Science Monitor has been an award winning newspaper for decades. In today's world, it stands head and shoulders above most major outlets. It's not a religious tract handed out at airports.
Peak oil and insiders... gee, I dunno... I don't argue with 'deniers' ... check out Matt Simmons' site... CEO of the largest energy only investment bank in the world. Simmons makes all his speeches and presentations available online for free.
Simmons
Also, check out theoildrum.com a lot of industry geologists, oil industry folks post there. The comment sections are fascinating... there is also a basic tutorial on the home page. If its about energy, they've likely addressed it several different ways.
Also, if you can get to a bookstore, order 'Twilight in the Desert' by Matt Simmons... shows the history of oil exploration in the Middle East, Saudi Arabia, and why there's a lot less oil there than we imagine. Hundreds of references, graphs, etc.
You might also reference 'The Hirsch Report', a study of oil peaking - commissioned by the DOE. Can't recall where it resides now, but google it and you will be rewarded.
Conclusion of most 'real analysts'? Peak oil is here, its real. Will Americans believe? Not until they start seeing spot shortages of gasoline...
The solution? Conservation first, because it's way too late to do major mitigation (solar, wind, coal to oil, etc), without 'severe economic disruption.
If you want to pretend it doesn't exist, fine. I don't argue with people who think it's a good time to buy a house, either.
Any sustained period of $100+ oil and everything from thin film photovoltaics to gym sock distillation start making sense.
Go run the numbers on replacing 80 million barrels of oil a day with gym socks, then get back to me.
We used whales because they were cheap and plentiful until they weren't cheap or plentiful. We switched away from coal because oil was cheaper and more plentiful. Did we run out of coal?
I don't know if we've hit peak oil or not. But, I don't really think it's relevant in either case.
There are a lot of alternative energy sources that could be brought on-line for less than $100 dollars a barrel. Coal to liquids and natural gas to liquids is one of my favorites.
SASOL is already buildings some large NG to liquids projects in the Middle East to take advantage of NG that is currently flared or pumped back underground to keep up well pressure.
But, peak oil debate has taken on dogmatic overtones. If you point out that SASOL is already doing something like this it quickly degenerates into a debate about "peak everything" and EROEI.
Problem is that the generation currently in charge wasn't the generation that put most of the energy infrastructure in place. Now that we're finally bumping up against the limits they can't wrap their mind around the idea that it's possible to actually do something that large in scope.
I'm guessing they are waiting for Apple to invent iFusion.
"Problem is that the generation currently in charge wasn't the generation that put most of the energy infrastructure in place"
Kicker | 03.21.08 - 4:14 pm
The generation that put most of the energy infrastructure in place is still around, they just all got laid off in 1984 and had to change careers. Boom & bust in high tech is nuthin' compared to the oilpatch
I find the the passion in the anti peak oil arguments puzzling. The evidence for peak oil seems pretty compelling. The peak oilers aren't saying it is going to dry up completely tomorrow. Even if it is not eminent, the earth is clearly finite and therefore so are oil resources. We will have to address it a some point. The benefits of diversifying our energy usage and conserving seem obvious especially given our uneasy relationships with many of our suppliers. Why the hostility to this idea? It makes no sense.
From CR's post:
If oil prices start to fall, and with rising expenditures (see first graph again), the GCC countries might increase production - causing prices to fall further.
Or somebody from OPEC might drop a hint of possible reductions in production levels, thus causing the price of oil to skyrocket again. I think this is a more likely scenario.
"Peak Oil" has validity -- in terms of the current methods of finding and producing oil. "Peak Oil" means, we're half-way through the low-hanging fruit.
There are other ways to get oil; possibly more expensive, possibly environmentally damaging. The question is not, when will oil run out, but, "Should we move to alternative methods, and when? And, who's paying for it?"
Personally I want to get off the carbon energy bandwagon for other reasons. But in the strictest sense, we're not "running out of oil."
I think that the oil sands are profitable above $50 per barrel ... if this is correct, the middle east producers will have a hard time lowering prices below $50 in order to put the oil sands producers out of business.
If you point out that SASOL is already doing something like this it quickly degenerates into a debate about "peak everything" and EROEI.
I pointed out above that under the big Peak Oil tent there was many a nut taking shelter. EROEI is one of the more idiotic concepts to grace the debate.
Coal and gas to liquids are great ideas, and SSL is on my list to look at after the price of oil tanks in the next year or two.
But it's fair to say that the size of the potential problem compared to the size of the current response is more than a little disquieting.
Or somebody from OPEC might drop a hint of possible reductions in production levels, thus causing the price of oil to skyrocket again. I think this is a more likely scenario.
There's only so much people can pay for oil and remain economically viable. I think the basic argument is that if oil prices remain too high it can create a demand death-spiral leading to a collapse in the market for oil.
Oil producers can only squeeze so hard until they kill their customer.
WestsideGeorge:
Go to theoildrum.com and read about oil sands... they're more or less a scam like ethanol... takes more water and natural gas to cook the oil out of the rock, than the (low grade) oil is worth.
Nice dream !
Saudi Arabias Crude Oil Reserves Propaganda
March 4, 2008
The Oil Drum | Saudi Arabia's Crude Oil Reserves Propaganda
IMO oil prices will not fall below $90/bbl for multiple reasons but esp the BS nonsense that Saudi Arabia has been spewing for years.
Oil producers can only squeeze so hard until they kill their customer.
Of course this is true. I meant that since they control the spigot, they can maintain a price level that doesn't kill the world economy but supports their level of government spending.
Here's the wiki on The Hirsch Report.. some basic conclusions:
Hirsch report - Wikipedia, the free encyclopedia
World oil peaking is going to happen, and will likely be abrupt.
Oil peaking will adversely affect global economies, particularly those most dependent on oil.
Oil peaking presents a unique challenge (it will be abrupt and revolutionary).
The problem is liquid fuels (growth in demand mainly from transportation sector).
We are of course, in the "Late initiation" stage.
Be good.
I think they are being rather smart, to the extent they are spending money on capital projects like infrastructure and investsments in non-energy sectors, or even funding their pension plans. They know they need to shift their economy to something broader than oil...
Besides, capital spending is mostly discretionary. I'd be interested to know the expense portion of their spending.
MLM writes:
Any sustained period of $100+ oil and everything from thin film photovoltaics to gym sock distillation start making sense.
Go run the numbers on replacing 80 million barrels of oil a day with gym socks, then get back to me.
Go to my blog and see where I did this in Aug 2006 and stop acting so smug.
What you are doing is classic dismissal as incompetent/uneducated anyone who disagrees.
Go to theoildrum.com and read about oil sands... they're more or less a scam like ethanol... takes more water and natural gas to cook the oil out of the rock, than the (low grade) oil is worth.
And yet oil sands producers continue to pump out record profits....
Kicker - interesting argument but I don't buy it simply because energy projects today are often much larger and lumpier it is an era of mega-projects, e.g. deepwater oil platforms that are all or nothing investments multi-billion dollar investments, LNG liquefaction facilities, with associated ships and regas terminal(s), etc.
Bob Dobbs - exactly, anyone interested is encouraged to read up on M. King Hubbert and the Hubbert curve. The issue is rate of production, not exhaustion of supply.
WestSideGeorge - rate of production and limits to expansion are the first issues with respect to the oil sands substituting for other sources of supply. There will be production there for a long, long time but it won't come close to replacing conventional oil.
Mr. Dawg -
Peak Oil is a religious cult. Entirely sensible people pick up factually-challenged stuff like the Long Emergency and take it as gospel. Then they feel they have been reborn from software engineer to know-all geologist/economist. Never mind that supply n' demand stuff, they scream, we are running out of oil, now. Then they go onto try to figure out how they're going to survive on vegetables grown using their own excrement as fertilizer.
I have some friends who are engineers at a Natl' Lab who are so incredibly jazzed about the latest solar -- only problem is that companies licensing their stuff tend to be overseas. D'Oh!
Oasis Economies
by Joe Saddi, Karim Sabbagh, and Richard Shediac
Surrounded by tension and unnoticed by many observers, the nations of the Middle East are building their own kind of sustainable prosperity.
Five years ago, Dubais Palm Island didnt exist. Where there are now three human-made land masses the largest the size of a major city arranged in the shape of a tree, five years ago there was merely the sparkling blue water of the Arabian Gulf. Then the government of Dubai decided to accelerate the diversification of its economy, from a purely oil- and trade-based system to a business and recreation hub designed to lure investors and tourists.
A few miles south, Abu Dhabi, the capital of the United Arab Emirates (UAE) and the worlds wealthiest city, is experiencing an even more dizzying rate of growth. The US$3 billion, gold-domed Emirates Palace hotel was completed in 2005, ready to welcome visitors to the scores of world-class museums, universities, and hospitals that are slated for construction, at an estimated cost of $200 billion over the next 10 years. These fast-paced developments are part of the UAEs reinvention of itself as the cosmopolitan crossroads of a sleek new Middle East.
All this is one piece of a still broader story. In the past five years, the Middle East region has consistently been transforming into a hotbed of new private enterprise. The government-controlled monopolies of the past, such as the Saudi Telecommunications Company, are being deregulated and exposed to competition. Research and development in high technology is booming; enterprise zones have attracted the likes of Hewlett-Packard, Cisco Systems, and Microsoft. Local companies are investing in streaming video and other technological applications. Manufacturing, too, is on the rise. Driven in part by growing demand from China, the regions petrochemical sector is exploding, with more than 190 projects currently operating across the Gulf; its $28 billion biotechnology and pharmaceutical manufacturing industry has enjoyed double-digit growth each year. Many consumer packaged goods companies are opening factories in the region, in part to serve its growing middle class and in part to export goods to Europe and the rest of Asia. In short, the region once an end consumer in the world market has begun to transform itself into a supplier. All of this translates into unprecedented opportunities for investment.
Please take a moment to log in or register...
Connect the dots folks... this is where Dick Cheney will be retiring.
But Bush will be off to his compound in Paraguay.
And the US middle class ( what's remaining of it ) will be holding the bag !
Holy backward-bending supply curves, Batman!
Multiple equilibrium points!
I remember from econ class the first(?) backward-bending labor curve report, when the Navy in Greenland raised the wage rates to get an airbase built faster.
The residents had pretty low maximizing instincts, and very few outlets to spend their money. They certainly weren't socking it away in 401k's.
So -- the base took longer to get built. Classical supply-demand curve results upended.
Airbases can wait. People need to eat. Food prices are already on the 20-40% upswing worldwide.
What if the Saudi-type oil guys don't care muchly if US Americans end up standing hours in food kitchen lines when they can't afford the diminished food supplies that reduced oil supply has brought about?
"The quality of mercy... it droppeth alike...," indeed.
kicker,
Who are the oil sands producers? Thanks
What CR doesn't quite get is the CUMULATIVE impact of high (not necessarily soaring) oil prices. Even if oil just hangs around $90 per barrel for a long time, it creates a gradually and growing drain on the U.S. economy. In other words, a year of $90 oil will be a lot more draining than a few months of $90 oil.
CR has been consistently wrong on the trade deficit issue. Go back and look at some of his posts from last summer. They were predicting big upturns in the blue line. He missed the oil run-up, and he'll miss it again when oil hangs around $90-100 mostly for the next year or two. It might go lower or higher for awhile, but this seems to be the new comfort zone between producers and consumers. Over time, this range is a lethal drag on the U.S. economy.
Oil isn't why the recession will be milder. Oil is why the recession will be longer.
"And yet oil sands producers continue to pump out record profits....
Kicker | 03.21.08 - 4:36 pm | #"
I think those are called teaser rates...
Reposted from an old thread...
The US consumes about 20M barrels of oil per day. Let's assume that you wanted to convert that to the same amount of electricity.
So, 20M barrels of oil per day is around 1460GW of energy. That works out to about ~1000 more nuke plants to replace all the energy in the oil we consume per day.
And those numbers are garbage. I'm comparing a refined energy source (electricity) with a raw energy source (oil). Basically, those numbers assume that we burn up a huge amount of the electricity we generate to refine oil products which we would no longer have a use for.
It also assumes that we'd be so stupid as to replace 100% of our energy sources with nukes.
If we just converted electricity generation from coal to nukes we would free up 965 million tons of coal per year. Converting that coal to gasoline would yield 199M gallons of gasoline per day. That's about half our current gasoline consumptio
Americans dismiss peak oil. Are we surprised? Americans tend to be overly optimistic and non-realistic in all aspects of life. When I spoke of a housing bubble as early as 2005, the same Americans that oppose peak oil--without a coherent argument against it--said the U.S government would do something to prevent higher oil prices.
I just ask, are we in a capitalist system anymore? Every single time you ask an American what to do in troubling times, it seems the answer is let the guvmint fix it.
Amazing, I would think Americans would expect the free markets to work out most of the mess. Thought recessions were good and a normal part of the business cycle. Guess not. The guvmint and Bennie B are asked to place PUT under the economic system.
Sad...very SAD.
Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey.Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''
1071
What you are doing is classic dismissal as incompetent/uneducated anyone who disagrees.
No, in fact I think we are talking past each other. I have run exactly the same numbers on nukes, and come to more or less the same conclusions.
No one here said anything about "Peak Energy", just Peak Oil. Not the same thing in my book, at least.
I continue to believe it's likely that we are at or approaching Peak Oil. The question is whether we are going to start dealing with it by building nukes (photovoltaics, wind, and gym socks aren't going to make much of a dent), or not. As energyecon points out, it's a rate of production problem.
Converting that coal to gasoline would yield 199M gallons of gasoline per day
Can that be done?
Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey.Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''
The big question IMO is can hedgies drive stocks up in an environment of falling profits. Should be interesting to see them try anyhow.
REBear - Go check out ticker SSL. A stock whose time is about ready to come, IMHO.
"REBear writes:
Converting that coal to gasoline would yield 199M gallons of gasoline per day"
You forgot about the 100,000 more nukes needed to convert the coal to gasoline.
Oil prices will fall when worldwide demand drops (and it will).
Two questions then arise: will cartel members turn on each other and exceed quotas, thus spiralling the price down? And: will the US maintain any memory and discipline from the twice-taught lesson and continue to move toward alternate sources?
Americans dismiss peak oil.
Peak oil is a problem not a death warrant.
When exactly isn't going to be a problem is open for debate. How soon, how sudden, how steep the demand drop, etc are all valid points of discussion.
What we are going to do about it is also a valid topic of debate. Drill Anwar? Coal and NG liquification? Nukes? Solar? Ethanol? Wind? Tidal? Geothermal?
Efficiency is also a topic of public debate. Electric cars? Better insulation? CFL lighting?
What isn't going to be accepted by American's is the "prophets of scarcity" that seem to be so popular in some European circles.
It's worked so well over there that most of Europe now has below replacement rate population growth (especially among their educated population). They have effectively signed the death warrants for their own culture.
wally,
1: To the extent they have otherwise shut in production capacity, yes.
2: The historical percentage bet is no, but I remain hopeful.
(Hey that's a Buckaroo Banzai quote: "Yes on 1, no on 2"!)
Alberta is the oil sands hot spot. Dramatic development and increases in production. Need free medical. Move to Calgary.
solo,
I was trying understand if there is a profitable technique to make oil from coal.
"solo writes:
"REBear writes:
Converting that coal to gasoline would yield 199M gallons of gasoline per day"
You forgot about the 100,000 more nukes needed to convert the coal to gasoline."
Oh and also what about the nukes that are in danger of shutting down right now , shortage of cooling water?
solo writes:
"REBear writes:
Converting that coal to gasoline would yield 199M gallons of gasoline per day"
You forgot about the 100,000 more nukes needed to convert the coal to gasoline.
This is why there are limits to the usefulness of blogs. Two people on opposite sides come to the same conclusion that 15% of US gasoline consumption could come from 40 Nukes and some anon yahoo decides to make up a number of 100,000 instead of reading and understanding 270 is sufficient.
Kicker,
So your answer is keep increasing the population??
Like the world doesn't have enough people already.
There are 3 Billion people wanting to life style we enjoy in the US. Do you think we have enough resources to support this and for how long?
If you make oil from coal you have to figure out a way to handle the co2. That kills the project in the USA.
- Go check out ticker SSL. A stock whose time is about ready to come, IMHO.
Thanks MLM. I will check it out.
If you make oil from coal you have to figure out a way to handle the co2. That kills the project in the USA.
Never stand in the way of an entitled American looking to fuel up his or her pickup truck. co2 is negotiable, truck fuel isn't.
Kicker: "Coal to liquids and natural gas to liquids is one of my favorites."
Why liquids? The automobile economy in the US was based on bad policy . . . why convert those fuels to liquids except to fuel vehicles . . . more bad policy.
The changes we need to make are structural. Walkable development patterns, mass transit instead of more highways . . . I live in Brooklyn, and let me tell you, because most people walk to and from mass transit, stores, restaurants, church, etc. etc. etc. there are far fewer fat people per capita here.
The car culture is slowly killing us. Not just in bad economics, but in bad exercise habits as well.
Oh and also what about the nukes that are in danger of shutting down right now , shortage of cooling water? - solo
Nukes purify (but raise the temperature of) water. Gawd, I feel like the 70s never happened.
Viewing with alarm writes:
If you make oil from coal you have to figure out a way to handle the co2. That kills the project in the USA.
That makes the USA more desirable. We haven't signed Kyoto.
Km4-Bush presidency is marked by numerous peaks..Take your pick..could be a couple left..
Heck, If we converted most business meetings to web ex, cutting to 10 flights instead of 40 for me last year, let people do office work on networks at home, stop eating cherrys, plums and peaches in winter shipped from chile, don't buy 50 toys shipped from china and japan,
vacation at local national park instead of antartica, use motion detector lights in all govt and public buildings at night, increase credits for builders and homeowners who go solar, demand it on homes over 2800 feet, stop handing out plastic bags at the store x billions..etc etc etc
Oil use seems like it would drop but what do I know..why solar panels aren't on every new home in the entire US is just plain stupid!
Sometimes things make dollars and sense!
Experiment for Oil understanding...
go to your local mega store and buy
10 qts of oil
one box of 100ct straws
two bags of sand
one bag rocks(small)
50 gallons of water
two large pails
3 buckets
go into your back yard
step 1
mix 5 qts oil with sand and rocks
bury in one foot trench in your yard
step 2
fill pails with water.
open 4 qts, place plastic wrap over top. put in water
from the roof of your house, assemble straws into a long enough (pipe) to reach pails.
step 3
take last qrt of oil, place on electric warmering plate..
out it whereever it's most convenient to you.. take one remaing straw, place in open container.
Now, try to get the most amount of oil you can into from each step into the buckets..
Converting that coal to gasoline would yield 199M gallons of gasoline per day
Can that be done?
Yes, I pulled those numbers from an article on SASOL. SASOL has been doing large scale coal liquefaction since oil producers cut off shipments during the apartheid embargoes.
Few companies in the US are willing to do the same because of a rabid anti-coal lobby and concerns about looming carbon taxes.
Today, those projects are profitable. But, throw in carbon taxes and lower oil? Nobody really knows. At least, nobody is willing to gamble a few billion on a plant.
With new clean coal technology coal can be zero emissions. The end product is still C02 but with clean coal it's collected and injected into long term storage or used to repressurize oil wells.
Problem is that nobody knows how long the C02 will stay in "storage".
Rob Dawg, why would we build 40 nukes if peak oil isn't even wrong? You're not making much sense.
I eat a lump of coal for breakfast every day. It definitely can be converted into GAS in an environmentally friendly way.
You can light it too.
See, this is why I hate arguments like this... not only do you have to take a position, you have to educate your opposition.
Here's the typical process to make oil from coal. It would take years to build all the coal to oil plants needed, if we could afford them. The environmental effects are enormous. As someone said, it's all about the time, even if you think it's the way to go. This is all covered in The Hirsch Report. Much of the material in the Report has been discussed and updated again in theoildrum.com... but I know some of you want a simple answer.
This is coal to oil.
Fischer-Tropsch Archive
These are some of the discussions on the oil drum, about replacing oil energy with nuclear.
The Oil Drum | Search
Mike writes:
Rob Dawg, why would we build 40 nukes if peak oil isn't even wrong? You're not making much sense.
I know. I'm only bothering to teach to the other 95% of the class that has a hope of passing the next quiz. Go back to coloring the Dëth Tongüe doodles in your workbook.
About building nukes, won't we get into "peak uranium"?
I believe that this country has the technical ability to mobilize a Manhattan Project type program to develop and produce a realistic alternative energies economy.
What is missing is the political will to do this.
We are energy junkies. As with other addictions one must first hit bottom before you are willing to change. that.
I actually was hoping for a full-Rubini meltdown. Not because I am a Charles Addams type but because that is about the only way we will hit bottom. And then we will be given the choice between two models to come back up. The FDR model and the Hitler model.
Kicker,
CO2 sequestration in the right kind of oil reservoirs is even better than that - it can be a miscible flood - which means that it mobilizes oil that would otherwise be left in the ground, it is the miscibility rather than the pressure per se that increases recovery efficiency from the reservoir.
How long it stays down is a function of the cement job done on the well when it is ultimately plugged and abandoned.
Thanks Kicker!
The changes we need to make are structural. Walkable development patterns, mass transit instead of more highways . . .
Personally, I would have loved that in college...
But, try to buy groceries for the family with three kids under ten in tow.
If you can't figure out a viable solution for a family of five (the minimum for above replacement rate births) then you don't really have a solution at all.
It's why I always get a kick out of those MIT cars that are the "solution" but only would be able to hold two people and a quart of milk.
Dear CR,
I am not an economist by any stretch of the imagination, and perhaps I am all wet, but how do you get any use out of or base any model on the S shaped supply curve in "Krugman: Figure 1" as it is not a mathematical function of Q. I assume that both the supply and demand curves are conceived of fundamentally as mathematical functions of Q. At least that is what is suggested to my mind by the fact that Q is plotted on the X axis. Aside from Sraffa's logical critique of the Marshallian supply curve, if economists are basing analysis on a cruve that does not represent an actual function, then there is something deeply disturbing about the intellectual foundation of all of this. Perhaps the world has followed Alfred Marshall down the path of logical absurdity.
Few companies in the US are willing to do the same because of a rabid anti-coal lobby and concerns about looming carbon taxes.
Glad to see that global warming denial still lives strong in the US.
I know we'll be able to deal with its consequences when the time comes. Look how well we've managed to get through this liquidity/solvency crisis.
Actually my prediction is, the US consumer will say screw global warming I want my cheap energy no matter what the cost, and coal will be king.
Then the fun part will start.
If you taught Katrina was fun to watch, wait for the replay coming to a coastal city near you.
And for the fly-over states folks, don't feel left out, the plains used to be a vast shallow inland sea. If you thought Mississippi flooding was bad....
And sequestration is a well-known con sold to a pliant Congress by the coal lobby, no-one believes it can be made to work, not in the quantities of carbon that are going to be produced.
In the 1970's the peakers were predicting a new ice age.
Look folks. If you are worried about global warming buy on the second street in from the beach.
Warmer or colder, it's all going to be fine.
I think we have peak worrying.
Here is a link to a report recently released by the National Petroleum Council, in response to a request from the Secretary of Energy. This is about as far as you can get from the fringes of the energy debates, from their web site:
"The NPC is chartered by the Secretary of Energy, under the provisions of the Federal Advisory Committee Act of 1972. The Council membership of approximately 175 persons is selected and appointed by the Secretary of Energy. Individual members serve without compensation as representatives of their industry or associated interests as a whole, not as representatives of their particular companies or affiliations."
This report should be read by all of you venturing an opinion here, or at least the executive summary.
National Petroleum Council: Facing the Hard Truths About Energy
If we did run out of oil, the whales are still around. If coal is too expensive could we start whale farms?
This report should be read by all of you venturing an opinion here, or at least the executive summary.
Hey man, don't try to confuse me with ur factses.
OK, I dug the ditch in the backyard and filled it with oil and rocks. I went in to check instructions on the blog and my grandson set fire to it. Where is Red Adair when I need him!
MLM - lol - thanks but the point I wanted to make was here are the facts from a knowledgeable third party...
Not 'my' facts about airily replacing huge components of the energy matrix and associated physical capital like we were ramping up bandwith by throwing on another rack of blade servers...
"Hurry, before this wonderful product is depleted from Nature's laboratory!" - advertisement for "Kier's Rock Oil," 1855
". . . the United States [has] enough petroleum to keep its kerosene lamps burning for only four years . . . " - Pennsylvania State Geologist Wrigley, 1874
"... although an estimated two-thirds of our reserve is still in the ground, ... the peak of [U.S.] production will soon be passed--possibly within three years." - David White, Chief Geologist, USGS, 1919
" ... it is unsafe to rest in the assurance that plenty ofpetroleum will be found in the future merely because it has been in the past." - L. Snider and B. Brooks, AAPG Bulletin, 1936
But, try to buy groceries for the family with three kids under ten in tow.
Kicker
You could always get a cargo bicycle with trailer.
What you are doing is classic dismissal as incompetent/uneducated anyone who disagrees.
Rob Dawg
We've been here before, we'll be here again. I've spent my career straddling two industries...petroleum (distribution side) and real estate. The only reason to own petroleum distribution outfits is to buy nice corner lots.
Oil producers spent like sailors on leave in the 70's and then the price collapsed. They are now too. Dubai will be a very expensive ghost town in ten years.
Oil is inexhaustable in any investment forecast (200 years?...forecast long enough the sun is going to exhaust itself..be real here, this is about money) because of tar sands and coal so there is a limit to the price, and when it reaches heights that reduce demand and increase production, then next lull in demand will reduce the price sufficiently to blow out the highest cost producers and the cycle takes a few years.
The first oil shortage and forecast of the "peak barrel" was way back in about 1916.
Smart oilmen ride the waves with the finesse of good surfers. Read Exxon, Conoco-Phillips, etc. They are on the outs now because any idiot can sell oil at a profit. In another decade the gov'ts with captive companies will be falling all over themselves offering concessions to the independent/sharholder owned.
Russia is going to need all the vodka it can stockpile.
So many folks here saw the real estate bubble years ago. Why is the oil bubble so opaque to you?
Look for oil at $50 a bbl within the year and gasoline below $2.00 per gallon...and I'm taking bets.
Life is good...enjoy it.
[[Yossarian wrote:
WestsideGeorge:
Go to theoildrum.com and read about oil sands... they're more or less a scam like ethanol... takes more water and natural gas to cook the oil out of the rock, than the (low grade) oil is worth.
Yossarian | 03.21.08 - 4:30 pm |
]]
Do not confuse oil sands (a la Alberta) with cold flow heavy oil with shale oil (the reference to cooking). They're all different things. Shale oil is uneconomic, oil sands and Alberta/Sask/BC heavy economic at circa 50 (obviously there is more to it, this is the very short version). There are techniques (SAGD) to improve recovery of heavy, and THAI is under test (Petrobank). In a nutshell. Shell dumped shale oil research in Australia years ago. There is a lot of oil bearing shale in the US but no economic technique to recover it (unless you want to cook mountains).
Ref carbon capture there is an interesting pilot plant project described at IEEE Spectrum: Carbon Capture Starts From Coal Plant, Advances in Lab Early days.
So your answer is keep increasing the population??
Like the world doesn't have enough people already.
How many people do you need on the earth to produce an Intel chip or a nuclear power plant?
Would we ever have gotten there if we'd decided that the population in the 1700's was enough? Even in the 1700's we were burning the worlds forests at an unsustainable rate.
What exactly is the "right" level of population?
And why should I care? When it gets down to it, most of those who argue for population control have some sort of Earth or Humanity as God philosophy.
We've got to reduce population to a "sustainable" level so we'll last long enough to "escape the earth" or "transfer our knowledge to alien species". I snicker when I read articles in the Scientific American about how a "fourth generation civilization" may be able to escape the "heat death of the universe".
I think I saw a recent article in Discover about "writing a message to Alien civilizations by "rearranging the stars."
Why do I car if somebody 10,000,000,000 generations from now is able to escape the "heat death of the universe." Just another way of grasping for eternity/god.
Seems like every religious group wants to get into family planning.
Not 'my' facts about airily replacing huge components of the energy matrix and associated physical capital like we were ramping up bandwith by throwing on another rack of blade servers.
When I started looking into the question, my number one concern was - is it even possible. Once we're only talking about degrees of difficulty, I relax a little bit about my kids' future.
Besides, it looks like the perfect opportunity for massive amounts of fiscal stimulus - and we know we're going to be getting that before too long.
MLM - that is the hopeful part.
swampfella - your recap misses the boat as the prevailing element of previous price crashes was excess supply being brought online in response to the price run up...and $50 ain't much of a bold prediction as the new low price. That was the top end of the high price range just three short years ago...
Sampfella,
Larry Kudlow will take that bet for 800 quatloos so he can finally make money off his $25 a barrel prediction 5 years ago.
Oil use seems like it would drop but what do I know..why solar panels aren't on every new home in the entire US is just plain stupid!
Sometimes things make dollars and sense!
cd | 03.21.08 - 5:06 pm
The USA should have listened to Jimmy Carter back in the late 1970's about alternative energy....because today we would have this oil crisis and oil would likely have never crossed $40 /bbl.
well that's history and crony capitalism ( with BIG Oil ) with Cheney and failed oilman Bush has made sure the USA remained way too dependent on OIL !
But it took direct intervention in Iraq for the big payoff in OIL prices.
However, it's the new emerging economic powers ( Chnia, India ) and many developing countries ( mostly Far East ) that will ensure demand remains close to oil production supply which is dropping yr by yr i.e. we already have reached peak oil and for the US deep offshore drilling in Gulf of Mexico was only predicated on ecomics of oil above about $80/bbl and there no oil extraction below 35,000 where the new finds are bing made there...because it cooks !
OT-Sacramento credit union troubles brewing? How are credit unions positioned in all this?
SAFE
SAFE Credit Union has "assumed the worst" after enduring a horrible fourth quarter, moving a hefty $21 million to its reserves for loan losses this year with the dismal economy and the hard-hit housing market. The aggressive additions to reserves pushed the area's second-largest locally based credit union to a $5 million loss for 2007. And the credit union plans to add $1 million to its reserves every month of this year. The credit union experienced a rapid deterioration of consumer loans in the fourth quarter, said Henry Wirz, chief executive officer of SAFE. "It was a very sudden change."
...
What was surprising was how many of the borrowers had excellent credit when they applied for credit, he said. "They are prime borrowers, yet in our portfolio they are becoming a higher portion of delinquencies."
This stood out-
And the credit union plans to add $1 million to its reserves every month of this year.
If we did run out of oil, the whales are still around. If coal is too expensive could we start whale farms?
Hazard
sweet , back to Lahaina
not to far from kite beach, either
I have big investments in Syncrude and a few of the other major oilsands plays, so I understand how profitable this can be. Yes, there is more oil in northern Alberta than in Saudi Arabia, and yes, it is profitable at $30/barrel.
However, people have to be realistic about the level of investment, capital, and most important, time, required to bring alternative oil sources online. The Syncrude project started in the late '60s and only in the last couple of years has been producing serious quantities of crude. That's 40 years of lead time! Projected output for Syncrude in 2020 is only 40% higher than what's being produced today. There are real logistical and physical issues with increasing production any faster (you can't blame any of this on regulatory holdups or environmentalists, the Alberta government has been content to keep the rules loose). There are all these oil precursors in the ground but we're constrained by reality to retrieving it through straws.
If the Alberta oil sands are any indication, even a massive, well-funded effort to start exploiting the oil shales in Colorado and Wyoming wouldn't be able to start producing real product in significant quantities for 25 years. There's more to the story than just the canard "it'd be profitable at $40/barrel."
OT-Sacramento credit union troubles brewing? How are credit unions positioned in all this?
Most credit unions are better capitalized than banks. But, they have more concentrated risks because they are local.
They also have some back-door exposure to some of the more exotic sub-prime securities:
Feb. 5 (Bloomberg) -- U.S. Central Federal Credit Union, the non-profit company that invests on behalf of 8,400 local lenders, lost its AAA rating from Standard & Poor's after reporting a $760 million drop in the value of subprime-infected securities.
Subprime Markdowns Reach U.S. Central, Credit Unions (Update2) - Bloomberg.com
Back in the late 1990s when oil was so cheap, I filled my waterbed with it. Nothing quite like sleeping on oil. But, it was hell to clean up when the bed got punctured.
AlanY do you know how much water it takes for the conversion of tar sands into oil ?
Ahhh small scale pilot projects do not exactly translate into full scale commercial production.
Also why coal liquefaction in western USA ( biggest reserves ) will NOT see light of day !
...small scale pilot projects do not exactly translate into full scale commercial production.
Yeah, the production units are always more efficient and cost effective.
Two points:
1) The greatest demand growth lately has come from within the exporting countries themselves. Since those countries subsidize oil/gas/NG use internally, their citizenry are unaffected by market pricing. That means export supplies will continue to drop even if production was to at least maintained at current levels. Mexico may become a net importer inside a decade.
2) The break-even price of alternative forms of energy always underestimate the cost of the use of petroleum products necessary to get and/or make them. Therefore, every time the price of oil goes up, so does the cost of the alternatives. It's called the "Law of Receding Horizons".
Rob Dawg = bozo ...it's the water idiot !
so LA can either have water or shale oil, but not both?
What isn't going to be accepted by American's is the "prophets of scarcity" that seem to be so popular in some European circles.
Scarcity is already here, Americans just did not want to recognize it - that's why the current crisis is unfolding. With globalization around, incomes will slowly converge - the time of a small US population consuming 50% of Earth resources is gone.
And btw, all of this has nothing to do with the European demographics.
km4, I agree, there are additional issues people are ignoring with respect to oil shale production.
Syncrude is in many respects the optimal case: water is plentiful in Ft. McMurray, until recently Alberta was producing surpluses of natural gas, the regulatory environment is loose, and the government was willing to help fund this very large, long-term capital project through both low royalties and direct investment in the beginning.
I'm just saying that in most cases the people advocating oil shale production and the magic "it's profitable at $40/barrel" claim simply do not understand the magnitude of issues involved. Yes, water is one of them, but even if that was solved, there are dozens more. Oil shale production will eventually come on line, but it's very possible that serious production levels will not begin in my lifetime.
Kicker, I can get my groceries delivered for free, though usually we drive and load our own.
Amazingly enough, people somehow survived for many thousands of years without personal gasoline fueled driving machines . . . driving cars is not a natural entitlement, it is an unsustainable way of life we have gotten used to over the past three generations in the USA.
Now we're finding out the costs . . . and that we can't afford them.
Ms. Habenero:
I'm not going to argue heavy oil recovery on a housing blog.
For those of you mildly interested in the argument about Canadian tar sands, here's a link.
The Oil Drum: Canada | Tar Sands: The Oil Junkie's Last Fix, Part 2
Here are some SPE papers.
SPE.org Search Results
Here's an article from the lay press ..
404 - Error: 404
If you want to believe oil sands will replace light oil, fine. If you want to believe 40 nukes will replace all the gasoline in the US, fine. If you want to believe that it's just another phenomenon, and ignore folks from your own oil industry, fine.
This is a housing blog, after all... not an energy blog. Yes, they are related. But I get my energy information elsewhere.
This is where I go for housing and mortgage related issues.
...small scale pilot projects do not exactly translate into full scale commercial production.
Is a 150,000 barrels a day full scale? The technology is 60+ years old. The biggest (legitimate) question is environmental impact (carbon, mining, etc).
Coal Liquefaction. There is a well-developed process to turn coal into oil. South Africa's Sasol Co. produces 150,000 barrels of oil from coal per day. China is also bringing coal-to-oil plants online, with plans to produce as much as a million barrels of oil a day from coal by 2020.
Increasing America's Domestic Fuel Supply - Brief Analysis #590
And there are ways of making fuel from other things than petroleum. GMO algae + grass and woodchips = fuel. And these people are serious:
Technology Review: Fuel from Algae
AlanY I haven't looked closely at the water issue but if its plentiful like you say then you're probably right that commercial oil tar sand conversion is economical with oil prices of just $40/bbl
The GCC aren't lacking investment opportunities in fact they are pouring billions into Africa stepping on traditional Western turf. They are also increasing oil sales to China. Incidently China has recently built a strategic oil reserve and plans to increase military spending by 17% this year. The Saudis are assuring them that they can supply. China is also moving into Western turf in Africa and countries like Sudan are signing on with huge still untapped reserves.
As for the decrease in US domestic use it is partially offsett by the huge increase in military use. More armor means less miles per gallon not to mention the increase in air attacks. Besides for a lot of people the extra expense is not a problem. The entire infrastructure is built on the car so demand will remain and the driving season is approaching.
CNN is predicting that China will surpass the US by 2010 as the World's top oil consumer. First they brought over a quarter billion people out of poverty and now they are going to buy them cars. How anybody can see lower prices in this scenario is beyond me. As for peak oil if it really is upon us all the investment money in the world seems to be unaware of it.
REBear:
With respect to "peak uranium", I ran some numbers one time. If we could convert all electrical energy production to fission nukes tomorrow, we would run out of existing known uranium in less than 10 years. If we could replace all fossil fuels it goes down to 4 years. Now these statements come with some serious caveats:
- Breeder reactors are different and effectively a lot more efficient, so you can multiply by maybe 7-10 if all reactors are breeders. (There are other reasons for maybe not liking breeder reactors, but that is a separate issue.)
- This is existing known (proven) uranium deposits. No-one has looked really hard for deposits (in the way they have for oil, for example), and there are potentially quite a lot at higher cost per ton. Power from nukes is not so sensitive to uranium input costs (fuel cost is small percentage of total cost) so this might up the effective supply a lot, but no-one knows how much.
In any case, fueling reactors is probably not a short-term or medium-term problem, as much as anything because they are costly and otherwise difficult to build (nimby issues etc) and so it is not so likely we can/will put together enough of them to make the peak-uranium idea an issue in less than 3 generations.
More (most?) serious is the problem of what to do with the waste. The US is failing on this in a big and expensive fashion, with no reasonable resolution in sight. This plus nimby are what make nukes not much of a solution at present, but eventually they may be.
I'd rather have $4.00 per gallon gas much more than $250,000.00 median home prices.
If you want to get speculative...
Air to gasoline at $4.60 a gallon.
Los Alamos National Laboratory (LANL): Synthetic Fuel Concept to Steal CO2 From Air
I'd rather have $4.00 per gallon gas much more than $250,000.00 median home prices.
I'm not paying attention to anyone who slept on an oil-filled bed.
askin writes:
i think i've got a nasty virus ... google is redirecting me to google.es
askin | 03.21.08 - 3:13 pm
download windows live onecare...it kicks ass.
Kicker, those quantities are precisely the problem. China is pursuing enormous capital investments in this area and they only expect to produce 1 million barrels/day by 2020.
1 million barrels sounds like a large amount, but that's virtually nothing in the grand scheme of things, especially compared to a large oil field. The 12 year lead time just illustrates my point. The technology exists... none of this is new (well, some of the in-place oil sands production techniques are new), but logistics constraints rule the day.
Is this thread a continuation of the petrol dollar topic on the previous thread, i.e, potential impacts of falling oil prices...
Re: The recommended speed of the German autobahn is ...
"So many folks here saw the real estate bubble years ago. Why is the oil bubble so opaque to you?"
Well maybe because production has been flat for close to 3 years now and demand has increased. It's not that difficult a concept.
Every well peaks, every geographic region peaks and the world will peak too.
From what it looks like we are not going to produce any more than our current production level of 85 million barrels a day. That level will soon i.e. less than 5 years soon drop.
Since we do not have a viable replacement and our best idea was biofuels which have only accomplished sending food prices into the stratosphere, that kind of tells you something. That nobody really knows what to do.
Its in this context, Ive suggested, that the neoconservative adventures of the last decade needs to be interpreted. By the end of the 1990s, it was very likely clear even to the most recalcitrant members of Americas political class that trusting the free market to find a long-term solution to Americas energy dependence had failed. Its a matter of public knowledge that investment banker Matthew Simmons, one of the first voices to raise an alarm over peak oil in the 1990s, was brought in as a consultant to Vice President Cheney immediately after the 2000 election. The march to war that followed can best be understood as a desperate attempt to keep the dream of empire from collapsing completely by giving America control over Iraqi oil reserves.
Think it's any mistake that the finger prints of Texas oilmen are all over the corpse of Iraq which happens to be the most unexplored oil reserves in the world.
excerpt from Cheney's speech while he was with halliburton...
For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand. By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously in control of about ninety per cent of the assets. Oil remains fundamentally a government business. While many regions of the world offer greet oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greeter access there, progress continues to be slow. ( Bold by the auther)
The average price for tar sands crude last year was $40 a barrel and everyone is swimming in dough.
Wells Fargo Jumbo 8%-non fha
https://www.wellsfargo.com/mortgage/rates/?_requestid=148463
Look for oil at $50 a bbl within the year and gasoline below $2.00 per gallon...and I'm taking bets.
Life is good...enjoy it.
swampfella | 03.21.08 - 5:37 pm |
I'm with you...smartest commentary on oil I've read in a long time.
luke,
Thanks. Are those numbers US specific, or does it include BRIC & Europe?
S&P, still way behind the curve and playing catchup, chasing the market south. They totally missed the boat rating BSC even though their balance sheet was, well, a fantasy. Now they are considering a downgrade of MER & GS - within 2 years. 2 years in today's market might as well be 2 centuries.
Kicker, those quantities are precisely the problem. China is pursuing enormous capital investments in this area and they only expect to produce 1 million barrels/day by 2020.
I agree, it's unlikely to be the entire solution...
My point is that it's possible not that it's an optimal solution.
The optimal solution will most likely be the result of a combination of a hundred of different small adjustments.
The real crux of the argument is will an average family in the US in 2040 be spending a higher percentage of their income on income than they do today?
I'd say no.
With respect to "peak uranium"
Run out of uranium and you can burn thorium.
And the Japanese have extracted Uranium for seawater.
Projects | Review - Issue 13
Kicker, I agree with you on your definition of the optimal solution, but it's almost certain to me that the average US family in 2040 will be spending a larger percentage of their income on energy. Even if production costs per Joule stayed the same, macroeconomic trends would push the result in this direction. But the larger issue is that energy prices and production are no longer determined entirely by medium-term market signals... unlike every other commodity. I don't even think of energy as a commodity at this point... analytically it's closer to a hybrid of a commodity and real property.
If you can't figure out a viable solution for a family of five (the minimum for above replacement rate births) then you don't really have a solution at all.
If the grocery store is only a block or two from your house, the walkable solution works.
Even if production costs per Joule stayed the same, macroeconomic trends would push the result in this direction.
I don't follow...
"Hurry, before this wonderful product is depleted from Nature's laboratory!" - advertisement for "Kier's Rock Oil," 1855
Terrible predictions made in the past have no bearing on the reality of the current situation (one way or the other)
So many folks here saw the real estate bubble years ago. Why is the oil bubble so opaque to you?
Because unlike real estate, they really aren't making any more oil.
I highly recommend the R-Squared blog to any CR readers who are interested in learning more about oil and alternatives from the engineering (rather than financial) perspective, with CR/Tanta like critical eye for unsubstantiated claims and sloppy reporting in the MSM:
R-Squared Energy Blog
Thorium reactor would be the best, when we get it working. Construction of the first reactor should start by the end of this year. I hope it doesn't blow up!
Commentbert ,
LOL
There may be a multitude of alternative sources of energy, but IMO any that come to market in the next 20-30 years are going to sell their products for the going rate (which is $100+/bbl ATM), which will be determined by overall supply and demand, which will be driven by OPEC.
Just because an alernative CAN be produced at $40/bbl or whatever, does not mean it will be sold for that. That's not how the world works.
Lord, I don't know nuthin'
but I have seen the market cap of CITIC, and I do know that the Chinese are spending two billion dollars to build a plant to build solar panels and all I see here is BS imploding, and credit constricting . . . it is some small solace to see the west texas wells pumping again with new ones active every week.
"More (most?) serious is the problem of what to do with the waste.
Luke"
Seal it in lead doped glass, encase it in reinforced concrete, bury it in a fast moving subduction zone and let nature do what it does best.
Because unlike real estate, they really aren't making any more oil.
They weren't making any more land in Japan either. Lack of supply has nothing to do with peoples' ability to pay for something.
Credit does.
[The entire infrastructure is built on the car so demand will remain and the driving season is approaching.]
My opinion is that Americans will cut back on many many things before giving up their precious personal automobiles. Dining out, vacations, new clothes, college savings, grandma's medicine, you name it.
[CNN is predicting that China will surpass the US by 2010 as the World's top oil consumer.]
If that happens that means the worst economic predictions of this blog were seriously underestimating reality.
forget what i said at 7:11
-- Former Treasury Secretary Robert Rubin called for quick government action to tackle the rising level of home foreclosures and he indicated taxpayer money will have to be used
uhhh
scratch that...
make that a Giant Friggin Leap towards
Commentbert writes:
So many folks here saw the real estate bubble years ago. Why is the oil bubble so opaque to you?
i guess it has something to do with GOM dry holes at $100million a pop...
or $500k day rates for ultra deep drillship...or faulty TLP deck's that need 500mm dollar fixes.or a $3trillion GWII. or a fast autoification of china.
shall i continue?
The difference in how oil producing countries will perform after a drop in oil prices depends on what they're doing with the revenue today. In the early 90's I worked in Venezuela and saw how they did after having spent the 70's revenues boom on consumption rather than investment. It was sad. And is even sadder today.
Dubai with its very pro-investment policies and objective of becoming the region's financial and tourism capital may be on the right road.
Oilequations I don't think you intended that response for me. I was quoting the poster who expects oil to go to $2/bbl later this year.
Lack of supply has nothing to do with peoples' ability to pay for something.
Credit does.
True, but lack of supply (and lack of substitutes) does relate to the pricing power of the seller, no?
saw that, Cmntbert...threads are very long... no offense to either, just bringing up my points that justify/explain hi price.
In the process of looking for optimal solutions - that is, ones contributing to energy independence and CO2 neutral - I've noted some promising changes in thermal solar technology.
Hamilton Sundstrand is developing a Mojave Desert commercial scale project which takes advantage of the heat-retaining efficiency of liquefied sodium.
They can produce power when the sun is not shining. It's a nice bit of engineering.
Technology Review: Solar without the Panels
Too many errors to address them all but do believe confusion over the post-1987 price regime might be corrected through a reading of the following not-so-short quote from Robert Mabro's June 2005 article in The Journal of Energy Literature:
The economic price of a commodity, a good or a service is the price that arises from the interaction of the supply of and the demand for this commodity, good or service in a market where sellers and (buyers) offer and (purchase) them. The market may be competitive or more likely suffer from some degree of imperfection. Concentration on the supply side usually restricts the volumes on offer but the price that emerges is still the result of an interaction between these volumes and the demand curve. ...
[But]
In oil, the price of a physical barrel in international trade is linked very closely to that of a futures contract. As always this price results from the interaction of supply and demand; but of the supply and demand for the item that is transacted on a futures exchange, which is a futures contract and not a physical barrel of oil.
The determinants of a transaction in the futures market include, of course, expectations about developments in the supply of, and demand for oil. In that sense there is a relationship with the physical oil world, but not to actual conditions at given points in time. It is expectations that matter as would be to some extent, but only to some extent, the case in a physical market. (The point is that in a physical market the buyer purchases a commodity, good or service because it has a place in his/her consumption or investment plans but purchases are sometimes also made or deferred in response to expectations about changes in prices or other supply conditions. In a futures market the trader will buy or sell not because he/she has a physical need for the item but entirely on the basis of expectations about subsequent price movements.)
There are other determinants for transactions on futures markets that are not related to the oil situation. This is because the futures oil contract is a financial instrument held by many economic agents (particularly hedge funds, banks, other financial institutions) in a portfolio of various financial instruments. One aim is to optimise the composition of the portfolio. Funds move in or out of a financial market, be it oil, bonds, foreign exchange etc. etc., depending on relative expectations. ...
Hence a decoupling between price movements in the futures market and the economic fundamentals of the supply of, and demand for, the physical barrel may occur from time to time.
A tidy mind will find it odd that the reference price for a physical commodity should be borrowed from a market where people buy or sell a contract that carries its name but which is only partly related to it.
(The International Oil Price Regime: Origins, Rationale and Assessment)
In short, arguments which take supply/demand as price determinant can only be correct to the extent they also deal with what has been a financializing of price, its opening to reallocating/momentum following and generating speculative pressures.
Equally, those who would use high price as proof of some near-term peak must stop assigning causality to geologic contraints and learn more about price formation as well as intra and inter-firm planning, field management, and developing recovery technologies.
I've no doubt that the multi-year world production/consumption decline (1979-83) would have been hailed as 'peak' if this propaganda had been so established at the time.
But the last 5-6 years have instead seen world production rise into a 2 year plateau which appears to have been well surpassed during 2007's last quarter.
As, other than in theory, there is no necessary and immediate production/consumption equilibrium, Overproduction happens.
juan,
Your argument regarding the '79-'83 production decline seems specious at best as that was clearly a managed decline as the swing producer shut in capacity (the kingdom went from what, 10 MMBOD to ~3 MMBOD in that time frame?) to support price targets.
Have you read Mabro's 2006 book, "Oil in the 21st century : issues, challenges and opportunities?"
Of course the "Peak Oil" debate is a religious argument. There is no incontrovertible proof that we are at peak (or that it is imminent) and any persuasive argument for a people to stop doing something "easy" and start doing something "hard" requires incontrovertible proof. And even when there is proof of some variety, doing something "hard" will be eschewed if we can do something else that is still "easier". It is simple human nature.
Here's an example. The United States oil production peaked in the 70s and has been in essential terminal decline for the past thirty years (even with the opening of the Alaskan pipeline). That is incontrovertible. It happened. Instead of doing the "hard" thing (i.e. developing alternative energy sources) we did the easier thing--imported oil from other countries.
This is why I find the "invisible hand" theories that the free market will solve all of our energy problems to be unpersuasive. The free market will develop alternatives, but only the "easier" alternatives and only those that are amenable to the modern culture of corporate research and development. Alternative energy technologies that require massive capital investment and very, very long time scales to develop will likely suffer from lack of attention as the world burns through the "easy" oil. And the more time that passes, the closer the world gets to exhausting the low hanging fruit of our energy supply.
So it becomes a rate problem. If the rate of the oil production drop is slow, then even slow-developing alternative energy technologies and infrastructure will have the necessary time to be infused into our society. No problem. If this happens, we likely won't even notice that oil production has peaked and we can all have a laugh at those cranky doomsayers of the early 21st century.
But if the rate of oil production drop is more rapid than we can replace with alternative production, then we have a problem. Everyone will have to make do with less, which at best is uncomfortable and at worst is a serious drag on progress and growth.
And if oil production crashes? Well that is a catastrophic problem. A Black Swan for sure (except at least some people aware it could happen). But sometimes the consequences of a problem are so dire that to ignore the small, but finite, probability of its occurrence is foolhardy in the extreme.
The free market will develop alternatives, but only the "easier" alternatives and only those that are amenable to the modern culture of corporate research and development
another way at looking at it is that the Free Market is merciless at finding local maxima but is path-dependent so cannot necessarily find Global Maxima -- ie better places to be over the long term.
A real-world example of this is the Manhattan Project that built the bomb that brought Japan to surrender, and, more recently, the rise of the HTTP-based internet.
In both cases Capitalism was incrementalist and profit-driven (eg. Compuserve, AOL), while government could afford to make bigger investments and not have to productize and profitize early developments.
Rob Dawg, it seems to me that your rudeness and arrogance is entirely unjustified by the strength of your argument.
You posted some calculations on the number of nuclear plants to provide the energy equivalent of the gasoline burned in California. So you know how to use a calculator. That's good.
To make that calcuation relevant, you surely know how to turn 20 million gasoline powered automobiles into 20 million electric cars... please advise.
I could also ask about the time needed to build 40 nuke plants, the economic effects of $5 gasoline (or higher),etc...
I'm not a "doomer", but dismissing "Peak Oil" takes more than a bit of arithmetic.
If you want to believe oil sands will replace light oil, fine. If you want to believe 40 nukes will replace all the gasoline in the US, fine. - Yossarian
My turn to be Tanta. READ WHAT WAS WRITTEN not what you wish were written. Idiot doesn't even begin to cover the sins of handwaving a complex and well researched analysis away only on the basis of poor reading on the part of the critic. You owe this blog a major apology for this nasty bit of personal attack based on your direct and inexcusable failures.
Many "peak oil deniers" on this thread don't seem to get that it is NOT the size of ultimately recoverable reserves that is the relevant metric, it is production RATE. The quantities on the good old S/D graph are flows, not stocks.
We consume 86mbbl/day. Many of the important mature producing fields are declining in daily production. That is an indisputable fact. They will continue to do so. Also indisputable. Are there untapped fields to help replace them? Of course... they are under miles of water, in impermeable rock, require massive infrastructure and energy to get at, etc etc. The technology is there to get at most of them... eventually, but how do we get past 86mbbl/day now?
We don't. We will bump along at around the level we are at for a few years (while demand in emerging economies grows relentlessly). In other words, we are around (if not at) peak now.
If you want to see what happens to price, more your demand curve out, start sliding your supply curve in, and watch what happens.
Darren writes:
Many "peak oil deniers" on this thread don't seem to get that it is NOT the size of ultimately recoverable reserves that is the relevant metric, it is production RATE. The quantities on the good old S/D graph are flows, not stocks.
Right you are Darren. Take for instance US reserves. In 1975 the US had 30 years of reserves. Since then the US has extracted more than was thought possible and still holds decades of 'new' reserves. But this time for sure the peakinese are positive that peak oil is imminent not like the last dozen times when the cry went up.
Rob, you say that you understand that "peak oil" is about production rate, not reserves, but you then proceed to write some obnoxious blather about reserves (and you top it off with a nice little fallacy of induction). We're done.
@CR: the problem with the notion that current prices are the result of a higher equilibrium with a backward-bending supply curve is the implication that there are producers standing by currently to produce substantially more output at lower prices. Where are these swing producers? Who is it that has an extra 5 or 10 mbbl/day on the shelf, ready to go? As far as I have read, everyone is going flat out now.
energyecon,
I think that I'd say the production decline was partially managed as it also involved a revolution + the relatively increasing weight of non-OPEC producers.
To which should also be added the effects of a very severe double slump recession which hit most off the world during those years and contributed, finally, to the rise of finance v. production capital as well as the now failed neo-liberal, laissez-faire, project.
Production management remains standard practice which, for some reason tends to be ignored by many in the 'peaker' community, esp. those who refuse to see other than geologic constraint, i.e. the need for proof of what can't be proven.
But just as with any particular firm or sector, no matter how carefully managed, it remains subject to pol-econ forces which it is embedded in and forever remain outside its control.
My primary point though only echoes what Matt Simmons noted in 1998, that price had ceased to be the beacon for fundamentals.
But the last 5-6 years have instead seen world production rise into a 2 year plateau which appears to have been well surpassed during 2007's last quarter.
Here's a graph of rolling twelve month average of daily world oil production (including condensates) over the past 6 years:
http://thumbsnap.com/v/TB35Xzzw.jpg
Raw data available at:
http://www.eia.doe.gov/ipm/t11d.xls
One could quibble about the time period of the rolling average, but I think in any case Juan's statement above is off the mark.
BTW, if you turn your monitor on its side and squint at it, the graph looks like a sign from the autobahn...
Darren,
Some people say 'flat out' others say
Opec Spare Capacity Keeps On Rising
[...]
The call on Opec crude next year is projected by PIW sister publication Oil Market Intelligence to be 29.4 million barrels per day, down from a 30.1 million b/d average expected for 2007. Current Opec spare capacity is rated by OMI at nearly 4.4 million b/d at end-July, excluding Iraq and Angola..
[3 Sept 2007, Petroleum Intelligence Weekly]
I say that we don't know.
Juan's statement was derived from graphs published in ASPO-Europe's Oilwatch Monthly:
http://bp0.blogger.com/_fl4GqRfOC9Q/R5_VQEZ325I/AAAAAAAAAIw/cRAzfvhkDhg/s1600-h/LiquidsDec2007.jpg
People, no reason to argue with a dawg from the exurban nation - if we need to replace oil, we'll just build forty nuclear plants to replace California's (and just California's) energy use of oil. Current world production and refurbishment of nuclear plants in the next 5 years - around 25. The American Institute of Physics -- Physics Publications and Resources
And they will be plants just like Diablo - 'The site was deemed safe when construction started in 1968. But by the time of the plant's completion in 1973, a seismic fault had been discovered two miles out to sea, a fault capable of generating a quake comparable to the 1906 San Francisco earthquake.' Diablo Canyon Power Plant - Wikipedia, the free encyclopedia
Because when it comes to reality, who cares?
And we will pay for it all in dollars, because dollars are the world's reserve currency, a safe haven in troubled times, a currency you can place your trust in.
Now, if only the rest of the world would agree with that, we are all set to replace oil for personal and cargo transportation in just the blink of an eye.
But without rail, because dawgs hate rail, especially the sort of passenger rail that Europeans or the Japanese take for granted. Oh, and who are the world's largest builders and users of nuclear power - why, the Europeans and the Japanese. Obviously a coincidence - who would imagine that nuclear generated energy would be used in an electrified rail network.
And replacing oil with nuclear will take place without much in the way of actual American production capability, because as all the dawgs know, IP is important, not the physical plant to manufacture things. Read the link - you'll notice that none of the plants currently under construction (not expansion), nor none of the modern designs being constructed, stem from the U.S. Oops - in the case of nuclear, it seems as if the U.S. lacks both that all-important future oriented IP and native production capability.
Which is just another point that can be easily dismissed by the same hand wave that conjured 40 nuclear generation plants to solve the problem of fueling internal combustion engines with oil. Or the same hand wave that dismisses the information from those actually involved in the production of oil, like Statoil. Because who trusts the Norwegians, anyways?
juan,
Your point to Darren on 'we just don't know' is well taken. And I suspect that the amount of spare capacity available will spike in the near term, though the larger driver is likelier to be demand destruction than increased production capacity. Which, along with appearant deleveraging of some speculators would exert downward pressure on prices.
Your disequilibrium observation on pricing in an earlier post was interesting, it seems that to the extent fundamentals effect pricing the long lead times of discovery, appraisal, project sanction, development and ultimate production are a structural element that virtually guarantees price cycles.
Also, you alluded to above ground issues - I suspect that they will loom much larger than potential geologic constraints over the next ten years - though there will be an interplay as always(e.g., Cantarell in Mexico).
Your primary point - yes - I believe you are correct, and some empirical evidence may be the IOC's much slower increase in upstream investment in comparison to the price increases over the last three years.
However, you verged on the polemical yourself in your initial post, as discussion of peak oil and its uncertain timing has now been taken up by the CEO's of some oil companies and ASPO was invited to participate in the NPC's recent report, 'Facing the Hard Truths about Energy.'
National Petroleum Council: Facing the Hard Truths about Energy
"EROEI is one of the more idiotic concepts to grace the debate."
Why is it an idiotic concept?
Expending significant time and energy seems unnecessary because studies have shown that (in the absence of governments) if you can make money doing it then it is energy positive.
Supply and Demand curves?
Me thinks all the pretty charts and complex economic theories went out the window back in 1931 when Governor Sterling sent the Texas Rangers to shut-in the East Texas Field. Governments have controlled oil supply ever since, and governments have many other mandates and considerations other than economics. The swing producer may have shifted from Texas to Saudi Arabia, but oil supply is still determined by government policy makers.
Peak oil will happen, and maybe then the supply and demand charts will become meaningful. Are we there yet? It all depends on whether Saudi Arabia is still sitting on some excess production capacity. But you know what, guys, the sad reality is we don't know! And you know why we don't know? Because governments lie.
Much of this discussion reminds me of this passage from Tolstoy's War and Peace:
"And all he said--that it was necessary to wait for provisions, or that the men had no boots--was so simple, while everything they proposed was so complicated and clever, that it was obvious to them that he was old and stupid and that they were commanders of genius..."
Similar sentiment has been expressed by Charles Smith
charles hugh smith-Could Oil Prices Collapse?
If the world's big oil producers had spare capacity they were "investing" in the future by not pumping, they would not be "investing" 10s of billions of dollars today on trying to bring new production online as fast as possible. The Saudis, for example, have multiple oil megaprojects (khurais, khursaniya, etc) currently in development. Those projects are plagued by cost overruns and delays.
The chances that a rational actor, with significant production capacity available today, would dump 10s of billions a year into rushing new production online is precisely zero. The world's largest oil producers simply do not have that kind of capacity. Their actions demonstrate that.
shargash,
You wield Occam's razor quite elegantly.
ca,
Thanks for the thought provoking article. Could oil prices collapse? Absolutely. But the more germane question is whether they will collapse. Here are some things to think about...
Here are my questions?
Non-OPEC oil production:
2004 49.2 MMBOPD
2005 49.1 MMBOPD
2006 49.3 MMBOPD
2007 49.2 MMBOPD
Where's the evidence that (we've already a 560% increase in price starting in 2000) non-OPEC countries can increase production?
One is reminded of the new world gold that flowed back to Spain. You would think Spain would have been rich - instead they frittered it away on useless wars they didn't win, and ultimately went bankrupt.
History does rhyme ...