"Peak Oil"– the theory that the planet is in imminent danger of running out of oil– is not, as yet, a mainstream media shibboleth. But God knows they're flirting with the idea. After all, it jibes nicely with the dare-I-say-it liberal idea that American is an arrogant gas/oil hog whose energy/foreign policy chickens are coming home to roost. New York Times columnist Paul Krugman provides an excellent analysis of the Peak Oil perspective, outlining the three possibilities: nonsense (it's speculation), maybe (it's the market catching-up with growing worldwide demand) and yes (we're fucked). Krugman's eminently sensible argument takes a swing to the left when he cites billionaire political activist George Soros (of all people) for the speculation theory. From there, it's a short trip to yup, we're screwed, and, by implication, still screwing others. "Rich countries will face steady pressure on their economies from rising resource prices, making it harder to raise their standard of living. And some poor countries will find themselves living dangerously close to the edge — or over it. Don’t look now, but the good times may have just stopped rolling." Damn! That sucks.
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Given the current prices, maybe Krugman nailed it.
In any case, that long avoided higher fuel tax is coming home to roost, except that the extra revenues now go to oil producers and refiners, and not to the U.S. Government.
Oh well, if it finally encourages us to curb consumption, that will be a good thing.
The corollary is living a good quality of life in the American desert with limited supplies of water. It can be done, but many small changes need to be made, such as zero-scaping one’s yard, not wasting water, using water/energy saving appliances, etc..
The USA has gone through past oil “shortages” or embargos; the one in 73/74, and 79/80, (and possibly 90/91, although I was currently in Saudi Arabia and Kuwait for the 1st Gulf War). President Nixon and President Carter each respectively got America thinking about and taking small steps to save fuel in their homes, cars, and lifestyles. I read somewhere that gas mileage peaked somewhere around 1982 for vehicles in the US, and then slid to where we are today.
I understand that this is 2008 and times have changed since 73, etc. But if we did it twice, we can deal with this and adjust accordingly a third and possibly permanent time.
The market, although slower to react to global conditions than we may like, has shown that it can adjust accordingly. As far as Government policy? Well that’s another story and another forum. That’s why we’ll have a new president this next January.
I am optimistic that we can and will react favorably to the global condition we face – food prices, energy prices, populations and food supplies hitting critical mass, pollution, etc. I know there are gloom and doom pundits out there that will disagree. But I believe we can and will survive and live a good quality of life – maybe in a different way and form than today – and not just in America but globally.
Like the 7 castaways (continents) on Gilligan’s Island (the world), we have to get along and work together.
Now trading at: USD118+/barrel of oil.
A few things to think about:
1. There’s a lot of talk about how China and India will be creating infrastructure and “catch up” with the industralized world. They won’t have cheap oil around to do it with – we did, and should be grateful, as usual we were first at the trough.
2. The US is in a really tricky scenario. The country is completely dependent upon foreign oil – having 4% of the world’s known petroleum reserves, and consuming 25% of daily production.
Do the math, run the progressions. This is a trainwreck at high speed down the Sierra that is actually happening – it’s not something that could happen, it’s taking place as you’re reading this.
In 1999, as Krugman writes, the world was at the teat sucking oil at USD10/barrel. The oil companies haven’t been allowed to increase the price of gasoline at the pump relative to the increase in the price of oil, but instead they have been compensated with obscene profits – arguing that they needed the money to “find more oil.”
They haven’t found any. I have a bet going that the world won’t see barrels/day figures over 92 million barrels, and that we are unlikely to break through 90. Projections for economic growth are stating that we need to see 120 million barrels/day in 2012 …
(We’re at 87-86 million bds/day now.)
http://www.theoildrum.com/files/oildrum_graph_1.png
Do the math. Run the progressions
The country that’s in the worst possible position right now is the US – due to the unwillingness of the present administration to really tackle this issue, and instead to pretend it wasn’t there, or could be fixed with military adventurism.
25% of the world’s daily production of oil – that’s the US requirement. The world is screaming for oil, and there are growth economies better placed to afford the new price levels than the US, with its rapidly evaporating dollar. You’d almost think that someone had planned this as an economic assault against the US, exploiting a self-inflicted weakness, the consequences are potentially that dire.
Maybe backyard Oil/Gasoline hoarding tanks will be to the 2010s as Fallout Shelters were to the 1950s….I think I’ll start digging.
The trouble with all of this “what will happen” analysis is that it (perhaps necessarily) assumes the world is static. There is some oil price at which the US will be energy independent, through some combination of behavior changes and switching to alternatives. And I don’t mean solar/wind – I mostly mean coal. We gots a lotta coal in this country. Building lots of coal-fired plants to support a greater use of electric vehicles isn’t politically palatable at the moment, but at some oil price the political winds will shift.
As an aside, I think the notion that growing economies are “better placed to afford the new price levels” is silly. As something gets more expensive, the people with the highest incomes are the best positioned to bear the higher cost – it’s just basic logic. The marginal consumer in China or India might see their income grow much more quickly than the marginal consumer in the US, but that income is growing from a much lower base, and a much lower living standard.
To put it another way, the US consumer has much more “cushion” to alter his behavior and reduce his standard of living before it becomes so low as to threaten his very survival. When food prices go up in the US we shop at Costco instead of Whole Foods. When food prices go up in rural China and India, people starve. We are lucky to be in the position we’re in, not unlucky.
I don’t understand the disconnect in the Krugman’s argument; on the one hand he seems to think that there is not going to be much more oil in the near or intermediate future but he also believes that “For one thing, I don’t expect growth in China to slow sharply anytime soon”. So how exactly is China going to grow as fast as it did the last few years with oil at these prices? Is their economy going to be built on rice instead of oil? But even rice is going up fast, may be even faster than oil.
@brownie
Growing economies. Their problem is that the infrastructure changes they need to do will cost them more, due to the higher price of oil.
Their advantage is that their currencies reflect manufacturing related income – they are the nations we have outsourced our own manufacturing to. They are actually better poised to compete for available oil with hard currency gotten from selling commodities and manufactured products that the world needs. (What the world doesn’t need is bankers.)
The cushion you’re speaking of doesn’t mean much to someone sitting with a house in distant suburbia that they can’t sell at a price that recovers what they paid for it – because people are now looking for homes closer to their places of work …
But yes – we could have begun preparing before we had the knife at our throat, now we have to prepare, no matter what. Major changes are required.
I know that I’m often “the sky is falling” voice here, but the sky is actually falling when it comes to the world’s energy equation.
The higher prices are bringing about the changes we need to make. We are not running out of energy just cheap energy. We have mountains of shale rock and vast amounts of tar sands. It simply is not cheap energy.
I’m not going to dismiss the whole notion of running out of oil, it’s obviously going to happen sooner or later.
Using that graph as a barometer, how can we believe a projection saying there needs to be 120 million barrels/day in 2012? From 2003-2004 there was an increase from 77mil to 83mil, roughly an 8% gain. But, from 2004 to 2008, there has only been an increase from 83 mil to 87 mil, only a 5% increase over 4 years. So, we are led to believe that 1) industrialization in these emerging markets has ceased and plants sit idle since there’s not enough oil and 2) there needs to be a 50% increase in oil production over the next 4 years? Why are eggs $4/dozen right now? Are we running out of chickens too?
Oil is trading at $118/barrel because the dollar sucks right now. It sucks because we as a country have overborrowed on everything, inflation is rampant, and our government’s solution is to lower interest rates, print more money, and give it to people to “stimulate” the economy. The very notion that giving people larger amounts of cheaper money to ease this current burden doesn’t make any sense at all. People get all excited now that they have an extra grand in tax rebates to spend on things that are more expensive BECAUSE they were given that extra money.
We’ve created our own perfect storm. Hopefully enough people are going to be hurt by this whole fiasco that they’ll start practicing some financial responsibility.
Eventually the dollar is going to rebound and commodity prices will ease. Maybe by the time that scenario comes around people will be diligent enough to keep pinching pennies and not forget what they’ve gone through.
Stein, I disagree with your implicit assumption that manufacturing = ability to buy oil. Granted, my macroeconomics has never been as strong as my microeconomics, but I just don’t follow that logic.
And in any case, like I said, the world is not static. If you believe that high energy and food prices will persist even as the US consumer is cutting spending, then in the next few years exporters of manufactured goods (like China) will suffer, while exporters of agricultural goods (like the US) will benefit.
To be clear, I think the US economy is going to suffer terribly over the next little while. But I think decoupling is a myth and the rest of the world, especially emerging markets, will suffer even more, and I feel fortunate to be writing this in New York rather than Beijing.
The US is in an enviable position energywise, we are just unwilling to make the sacrifices (so far) neccessary to cut down on our wasteful behavior. People won’t willingly cut back without an economic incentive/disincentive.
US oil consumption hit a peak in 1978 and then collapsed in the face of rising oil prices, dropping 25% by 1982. We didn’t reach the 1978 level again until 1998!
We could easily go through a similar reduction or an even greater reduction, given our current wasteful habits. Without even resorting to Hybrids, EV or other tech, just imagine if every SUV was replaced with a 4 cylinder car when the SUV needed to be replaced?
The country needs a real energy policy complete with steep fuel taxes to wean us off imported oil.
The US has options to reduce wasteful energy consumption and also has substantial land for food production. We are better suited than almost anywhere to survive a rough patch.
The poor countries are in for a world of trouble. If your entire $1 a day income goes to paying for food, what happens when the food price doubles?
Based on what I think I know of economic theory, increased prices for goods should be mitigated by increased supply, as the incentive to produce more is greater.
Energy prices have been climbing like mad for years put production is stagnant. To me, that sounds like we hit a production ceiling.
Whoops my bad for posting a full quoted article, sorry, Robert and everyone. I’ll follow the rules…
Here’s the link to the article in question.
http://news.goldseek.com/DailyReckoning/1208544137.php
And my commentary.
So, it may be seen that by his reckoning against the value of historical, real money (gold), the British have essentially not improved their real standard of living since 1971, and Americans have had their real standard of living cut in half since then (largely due to coming off the gold standard, combined with the increasing cost of oil and foolishness with regards to spending more than one earns).
As for oil, it isn’t that the world is exactly running out. It’s more like, we’ve tapped the easy to reach stuff and now the last bits of oil energy are hugely expensive to get to (to the point of eventually not being worthwhile), in places inconvenient for the end-user, with political elements constantly getting worse re: oil and energy, and also a failing “alternative” energy source known as ethanol from corn, which is simply causing huge problems worldwide. As in, worldwide, an average 40% increase in the price of food over the last twelve months. No butter for any price, in Japan. Reports of stores rationing rice and wheat in the east and west coasts of the United States. Food riots all over the world, over price increases and shortages.
Yes, indeed, ethanol and the big food conglomerate companies-moving-to-ethanol are definitely to blame, as are the imbecilic politicians who backed ethanol with our tax dollars.
Everyone in the world should see this particular video about global warming, by the way. Yes, it all relates. Because, IF we are going to be going into a mini-ice age (which will cause even more crop failures), as some are predicting is very possible, the price of oil is going to be kind a moot point, when we’re sitting around with grumbling stomachs (or shooting each other to steal what little food there is left).
Bah! You are listening to Krugman? That fool hasn’t been right about anything in a long time, if ever.
The sky is not falling! The world will never run out of oil! Also, there is much more oil to be found, as can be seen from Brazil’s recent find and Russia’s attempt to claim subarctic land. Also there are many alternatives to oil which will become viable at a certain oil price. Why should we bother conserving now? We’ll have plenty of time to do that when the time comes. As oil prices rise we’ll naturally change our habits anyway. The system will self regulate. There is no need to cede these resources to China and crush our own faltering economy more now.
As oil prices rise we’ll naturally change our habits anyway. The system will self regulate. There is no need to cede these resources to China and crush our own faltering economy more now.
Beside the peak oil and environmental arguments, I disagree with this assertion on an international political level.
China is using all its influence to secure supplies of oil. This is costly, not only in terms of cash, but also regarding its standing in the world and its future need to protect those investments.
Look at the mess in the Middle East, the undemocratization of Russia, the Chavez regime in Venezuela, the insurgency in Nigeria, and that gives a pretty bleak picture of most of the places where oil is produced. The U.S. would be very well inspired to reduce its consumption in order to open up its international policy and be freer to pursue international goals it sets, as opposed to protecting its oil supplies.
Also, since the world WILL run out of oil at some point, working on other sources of energy may be a good idea. Europe got smart for that, and realizes it’s an important area of future economic growth, something the U.S. is largely missing on due to its refusal to contemplate changes in oil supplies.
Why should we bother conserving now? We’ll have plenty of time to do that when the time comes.
Not to start a flame war, but it’s exactly this kind of reasoning that created the economic crisis we’re in right now and led to “our own faltering economy”.
Regulate oil like a utility, and not a commodity. Classifying a good or service as a “utility” acknowledges a certain inelastic demand (re: water, heating oil, electricity, plumbing, etc.).
In some ways, there is no such thing as “inelastic demand.” If the price of electricity were $3,000/month, then most of us would go without it. With most commodities, if the price of one becomes too high, the consumer substitutes a comparable product (eating spinach instead of lettuce). However, in the classic case, spinach and lettuce have similar nutritional values.
However, there is no substitute commodity for oil. The consumer’s only choice is to use less of it (so instead of substituting food with similar nutrients, you just eat less). However, the economic impact of using less oil ripples through the economy.
In the long run, it all evens out. In the short run, people in the U.S. suffer tremendously – falling home values, inflation, travel expenses, etc.
@AKM,
The world will never run out of oil. At some point it will become too expensive and no one will use it.
Also, I agree to disagree with you regarding our need to conserve oil.
Hey Guys. This running out of oil stuff is nonsense. Here.
http://www.youtube.com/watch?v=dYZ1-h-OpLA
There’s enough oil in the Canadian tar sands to last over a 100 years.
In other news, Stephen Harper, Canada’s current Prime Minister who specializes in economics and who’s father runs the tar sands in Alberta, is building nuclear power plants to reduce the emmissions that occur from producing the oil as well as reducing the overall cost of production. Then us Canadians are going to sell it you. And your going to sell it back to us. True story.
-AttV
@guyincognito:
The thing is, you and I believe in the free market. Some people don’t, and those are the ones that want Americans to make the painful sacrifice in quality of life without considering that Americans may already have to make sacrifices because of the mortgage crisis. They just want to pile on the American consumer.
“the world won’t see barrels/day figures over 92 million barrels…(We’re at 87-86 million bds/day now.)” -Stein X Leikanger
This is an important fact. There are so many variables in this economic equation that we must control for some of them. Daily production is one which may be reasonably held constant since most people agree that production will only be maintianed at current levels at best. I watched an interview with T. Boon Pickens who explained that almost immediatly an individual well’s production begins to drop. New sources of oil will constantly be found but overall production levels will remain steady. T. Boon Pickens agrees with the ~90mb/d production level. Scary stuff…
I’m not terribly worried about increasing my standard of living, it’s pretty damn good right now.
And I believe this energy/commodity crisis is one that will succumb to the pincer maneuver of innovative ways of replacing commodities (like oil) or using them more efficiently, and reducing non-value added consumption of low cost, low quality goods from places like China, the crap of unknown quality that pollutes the WalMarts and Big Lots stores.
There’s enough oil in the Canadian tar sands to last over a 100 years.
100 years is not forever.
The thing is, you and I believe in the free market. Some people don’t, and those are the ones that want Americans to make the painful sacrifice in quality of life without considering that Americans may already have to make sacrifices because of the mortgage crisis. They just want to pile on the American consumer.
Hold on. Is it the same free market that creates subsidies for biofuels? That plans of rescuing people up to their necks in mortgages that they CHOSE to sign?
The free market never existed and cannot exist, no more than perfect communism can, simply because the assumptions it relies on cannot exist in practice. In particular, it requires humans to think as homo economicus (economicii?), i.e. to have perfect access to information and take rational decisions. Only then will the free market make sure that our individual interests will work toward improving the common good.
Obviously, we cannot have this full access to information. And even when we do, we take irrational decisions more often than not.
In particular, the concept of externalities had not been theorized by free market thinkers, as far as I know (smith, Friedman, Ricardo,…). The idea is that some of your decisions will have a strong negative (or positive, actually) impact on others, even though they have no say in the matter and no capacity to avoid it.
If I build a pig dunk burning plant in my backyard, it will certainly have a negative impact on my neighbours. It’s probably forbidden, for that matter (which is anti-free market!). Similarly, if I decide to drive an 18-wheeler to work, I’ll pay for fuel, but my neighbours will pay the external price of a 100-decibel engine starting every morning, and the whole area that of a wasteful use of fuel.
I don’t believe in strict government intervention, such as CAFE, but in smart one, such as increasing fuel taxes.
As I pointed out (maybe in another topic), the current price of fuel is the equivalent of a fuel tax, except that is goes into the pockets of oil producers and refiners. Not good.
Is that 100 years at current consumption rates around the world? Because in less than 5 that consumption is going to go up rapidly thanks to China’s and India’s growing economies and vehicle ownership. So that 100 years goes to what, 75? 50? 25?
Well, one can learn quite a LOT from the other planets. We see that “Global Warming” has affected Mars and other planets as well.
http://news.nationalgeographic.com/news/2007/02/070228-mars-warming.html
This is, not by any means, the only article on the subject. Look it up if you want further proof.
So, when you FINALLY WAKE UP to the TRUTH that your leaders (politicians, “captains of industry”, Al Gore, etc.) LIE to you …and do so repeatedly…
What do you make of it when you realize that “HEY, there are “FOSSIL” fuels on Saturn’s Moon- Titan? What gives? I mean, are there DEAD DINOSAURS on Titan???”?
http://www.spaceref.com/news/viewpr.html?pid=18410
Hydrocarbons, it seems, are NOT so scarce and rare as to only be generated from “eons and eons” of highly compressed (and dead) dinosaurs.
If you want to read up on how a mass-marketed Brainwashing/manipulating can and DOES take place, here is a WONDERFUL little gem of an ebook. Enjoy.
You have been taken for an emotional and expensive ride…suckers:
http://www.edwardjayepstein.com/diamond/prologue.htm
You have been taken for an emotional and expensive ride…suckers:
Kwaanza: Are you insulting your fellow posters? I hope I’m reading your post incorrectly.
We are not going to run out of oil. That Paul Krugman says we are is meaningless to me.
We may run out of cheap oil, but heck – if (and when) I buy a Cayman S the cost of gas will be background noise. (Even if it’s $10/gallon).
No, that was not “me” talking, that was the voice of those doing the screwing.
:)
Please wake up to the fact that oil is a MONOPOLY…and each time you fill up your gas tank you are paying MONOPOLY (ie, extortion) prices.
In Venezuela, gas is about 20 cents a gallon I believe.
http://www.nytimes.com/2008/02/01/business/01cnd-exxon.html
So…how would you like it….rough or easy? The choice is yours :)
We may run out of cheap oil, but heck – if (and when) I buy a Cayman S the cost of gas will be background noise.
I’m sorry, but comments like these completely miss the point.
If oil becomes expensive to the point that it is no longer a dependable, affordable commodity, it is effectively the same as having run out of it. Our economies require access to affordable oil for them to function — not just for your cars, but also for manufacturing and commerce.
Expecting our lives to remain the same with expensive oil would be like expecting to keep your family well fed with truffles and caviar. That’s the kind of sea change that would drown a lot of us.
Ah, the famous Canadian tar sands. At the end of the short lived 1000 year Reich, the Germans were extracting their fuel from tar sands, and were at the same time trying an end run for the Rumanian oil fields.
Extracting oil from tar sands is an environmental nightmare, energy inefficient compared to alternatives and increasingly more and more politically unpalatable.
Yes, when pressed to the wall we’ll start extracting that, but compared to poking a hole in the ground and having oil emerge, going for tar sands is going to do something very, very serious to your commute, and to the entire housing infrastructure of the US. To be explicit: expensive fuel will make houses far from places of work worth as much as a farm in the Dust Bowl in the 30s.
Fuel costs are already taking a toll on the housing values in outer suburbs.
http://www.google.com/search?q=fuel+costs+outer+suburbs&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
Man, nothing brings out the conspiracy theorists on all sides like oil…
As an aside, oil is (was?) generally formed from plankton and algae, most certainly not from dinosaurs.
Someone up above mentioned “piling it on” re. the “Mortgage Crisis”, the “Oil Crisis!!”…etc.
Well, take a good hard look at this…the “DOLLAR CRISIS”:
http://www.gata.org/node/6035
Just what in the HELL is Greenspan’s interest in the Gulf States monetary policy???
The point I’m trying to make is this: You “American” way of life is under attack…by the very people who CLAIM to serve YOUR best interests.
Yes, your elected officials, your politicians, your “experts” such as the guy who authored the above article…these people WANT to see you suffer. They WANT to see your way of life greatly reduced.
Why on EARTH is Greenspan urging nations to DUMP the dollar???
It’s because it’s all engineered:
http://www.thought-criminal.org/2007/08/15/cfr-stacks-the-deck-with-both-democrat-and-republican-presidential-candidates
Wake up and smell the gasoline fumes.
And …oh, I almost forgot, we also need to “pile on” on a “Global Warming” tax …for you, for your children…for EVERYBODY.
This is the modus operandi of a Globalist…someone who WANTS to see nation states destroyed only to be replaces with THEIR solution…Gobal Governance.
If you don’t believe me, take a good look at the EU and all the articles Robert has written on the insane taxation going on over there.
@CarShark :
I can’t say I share your religious faith in “free markets,” anymore than I believe that humanity is blessed with endless good sense and benevolence. To me, a totally “free market” is akin to an eighteen-wheeler without a driver and a brick on the gas pedal. When the rig smashes into other vehicles, busts through the guardrail and takes out a convenience store before bursting into flames, we call it a “market correction.” See the current mortgage crisis as a small example of under-regulated markets.
-The Mortgage Crisis
-The Global Warming Crisis
-The Oil Crisis
-The Dollar Crisis
-The Terrorism Crisis
-The Gun Crisis
Have I forgotten anything? Anyone care to add to the list?
(The Gun Crisis is in regards to the kids who chose to go on a murdering spree in Chicago…we, of course, need to re-evaluate your right to protect yourself, not that I own a gun, but if you do, good for you…you’d better hide them, else they will confiscate them as the did in Katrina. Katrina…yet another CRISIS :).
All this is happening NOW!!! Oh what a Feeling!!!
:)
ttac2000: “The country needs a real energy policy complete with steep fuel taxes to wean us off imported oil.”
I know it is not intended as such, but implicit in this statement (and most statements arguing for government intervention) is an incredible arrogance and great contempt for average Americans. This view essentially supposes that most citizens are too unsophisticated to do what is in their (eventual) best interest, and that without the intervention of a benevolent government the economy would fail. Our economy (and yes, we are in a periodic contraction, though not a ‘crisis’ as I’ve seen it described) is still the envy of the world, and it is so in spite of government. Can any of you name one thing that the government does well? Social security? Medicare? Education? The cleanup after Katrina? The nebulous idea of ‘energy policy’? Alleviating the problems in the subprime mortgage sector (which I must add were caused in no small part by the government)? Anything? Given the governments’ history of failure why should we look to it to solve any problems?
Further, the government has prevented oil exploration, the building of nuclear plants, and the building of new coal plants. It has foolishly supported through incentives an economically inviable fuel, causing cascade problems in the global food market. The government is largely responsible for our current energy problems! Why then would the solution be more government intervention?
If left to run its course, the market will adapt to whatever energy reality is presented. The market has an enviable record of adapting to change. The government has a lamentable record. To which should we entrust our economic future?
Pch101:
If oil becomes expensive to the point that it is no longer a dependable, affordable commodity, it is effectively the same as having run out of it. Our economies require access to affordable oil for them to function — not just for your cars, but also for manufacturing and commerce.
Good point, but I have faith in markets to adjust.
Admittedly, there is potential for chaos from our political class. Regarding that, I think electricity markets will be a leading indicator of potential damage. We may be looking at 2nd world type brownouts regularly.
BuckD: “See the current mortgage crisis as a small example of under-regulated markets.”
Um, no. The ‘crisis’ was aided and abetted by government. Government regulation (not to mention competition with government backed GNMA and implicitly backed FNMA) forced many lenders to lend money to subnormal risks. Housing prices were artificially high in parts of the country due in large part to environmental regulations forbidding the building of new housing. Government had its hands all over this ‘crisis’. Further, those that made the foolish loans are suffering the natural consequences of their actions, and those that borrowed more than they could afford are similarly suffering. This is hardly a crisis.
I love this site when we write and talk about cars. I was a bit chagrined to see an editorial by the lunatic Paul Krugman quoted here, leading to politcal replies like this from Stein X:
“The country that’s in the worst possible position right now is the US – due to the unwillingness of the present administration to really tackle this issue, and instead to pretend it wasn’t there, or could be fixed with military adventurism”
In typical BDS fashion, the fault for the US oil problems is laid at the doorstep of Bush. As if the previous administration had everything in hand. Or mouth, whichever.
As for Krugman, the man is a known leftie liar and couldn’t present a proper analysis of his own nose hairs with a funhouse mirror and a set of needlenose pliers. IMHO of course. Now, back to cars.
So how exactly is China going to grow as fast as it did the last few years with oil at these prices? Is their economy going to be built on rice instead of oil? But even rice is going up fast, may be even faster than oil.
I think they’re completing a new coal plant every week. They will also probably do a lot of wind, and solar.
We probably have enough of a wind and solar resource (the midwest and the southwest respectively–and only fractions thereof) that if we decided to build windmills the way we decided to build planes in wwii, and with plug-ins, our situation could change dramatically in the next ten years. Or less.
First, Krugman is not to be trusted. He excels at appearing to make a reasoned argument while he sucks you in so he can then make a big leap that you will go along with in the end because of the credibility he just built with the oh so reasonable argument.
Second, much more oil has been found. We know where a lot more is, and we know that with much more certainty than we used to know until after we drilled a lot of holes. Unfortunately, we can’t “prove” the reserves, or the reserves don’t count due to SEC rules (For example, oil shale cannot be included in oil reserves, even though there is another Saudi Arabia’s worth of the stuff in Alberta alone.)
Third, increased influence gained by Wall Street financial types and their Harvard MBA cousins have done a good job of weeding out the kind of men that used to populate the oil companies upper to mid management. These guys were all engineers and geologists who had a fatal flaw – they always wanted to find and produce more oil. No problem could not be solved by finding and producing more oil. They would produce at a loss if people let them.
Now the financial types want short term gains at no risk, and they have put a big halt to exploration at the larger integrated and independent firms. One of the largest independents in the world, Anadarko, went from having one of the largest exploration groups, to practically none, over the last few years. Formerly run by a bunch of oil men, they are now run by an MBA and a New York money man.
So, Krugman really needs to do some more research. He will find that between New York and Washington, a lot of the problems are either produced or worsened by the very people who our economy depends upon to ensure we get best use of our resources – investors and regulators.
I remain puzzled as I observe that not just on TTAC, but on other car sites as well, it seems impossible to be a liberal and a car nut at the same time. Am I so alone to be both?
In any case, the following statements seem fairly noncontroversial to me:
•Oil supplies are not infinite.
•For practical purposes, we’ve already reached Peak Oil. Otherwise the Saudi Crown Prince, who has an enormous vested interest in propping up the Bush Administration, would have kept his promise by now to open the spigot. This tells us that just as many experts suspect, he doesn’t have an unlimited spigot to open anymore.
•The countries that are still building modern infrastructure actually have the advantage over the established ones, because they can build a new infrastructure that reflects the new economic realities. In other words, it’s too late for America to unbuild its suburbs, but it’s not too late for China and India to avoid imitating them.
•Alternative energy sources will definitely emerge to defuse this “crisis,” because they’re as readily available as they’ve always been. However, this does nothing to mitigate the certainty that cheap gas is toast — and that, unless we can capitalize on our agricultural output, the American Era is ditto.
•This is the Golden Age of automobiles. Enjoy it while it lasts, which won’t be much longer.
@tonycd: I’m more or less with you (and actually salivate all over VW’s 1.4 TFSI engine!)
Housing prices were artificially high in parts of the country due in large part to environmental regulations forbidding the building of new housing. Government had its hands all over this ‘crisis’.
Further, those that made the foolish loans are suffering the natural consequences of their actions, and those that borrowed more than they could afford are similarly suffering. This is hardly a crisis.
The first sentence strikes me as singularly uninformed, since it’s simple supply-ad-demand-cum speculation that drove housing prices higher, in a country where there’s more than enough room to build more houses.
This said, the second point does makes sense.
There is no shortage of oil in this world. The US alone has access to 300-700 BILLION barrels. A lot of that is in North Dakota…but add that to what is in the Gulf and in Alaska…and we are the most oil rich country in the world. The Saudis only have about 260 billion barrels in reserve.
Not only would we rid ourselves of foreign oil, our national debt would be GONE!
AKM: “it’s simple supply-ad-demand-cum speculation that drove housing prices higher”
I agree fully, however if the government influences supply, and supply determines price, then government plays a role in price (isn’t deductive logic fun). I’m not saying the government is solely to blame or even mostly to blame, but (in California in particular) environmental regulations preventing new development artificially held supply below where the market would have had it.
I agree with P71_CrownVic. We here in America need to get real about our own supplies of oil, particularly the reserves in Alaska that liberal democrats refuse to allow us to access. Not to mention their obstinate refusal to allow nuclear plants to be built, which would reduce demand for oil and coal. Yet they push the idea that we should use FOOD as fuel, and look how quickly that has caused a problem with food supply, to say nothing of the destruction of the Gulf of Mexico that is now beginning to take hold.
DRILL OUR OWN OIL. What is so hard about that to understand??? ANd now, with terrorists and blackmailers destroying pipelines in Africa and sinking oil tankers in the middle east, good grief, the Exxon Valdez is childs play compared to this new mentality, also small potatoes RE: what that pig Saddam did in the first gulf war.
DRILL OUR OWN OIL.
P71_CrownVic:”There is no shortage of oil in this world. The US alone has access to 300-700 BILLION barrels. A lot of that is in North Dakota…but add that to what is in the Gulf and in Alaska…and we are the most oil rich country in the world. The Saudis only have about 260 billion barrels in reserve.”
You neglect to mention the fact that much of that oil is locked up in complex shale formations and extremely expensive to access, even at today’s prices. The oil is absorbed inside of rock which is less porous than a dinner plate. Basically to get any of it out you have to drill horizontally into the formation and fracture the rock. After you do all this, you only get a small percentage of the oil present in the rock. We have been under a republican president for the past 8 years. If it were economically viable, we’d be all over it. All the cheap easy to access oil in the US is gone, its not a simple matter of drilling more wells. US oil production peaked in the 1970s and has not risen despite increasing prices, there’s a good reason for that, and its not because of OMG LIebruls!!!
If we flap our arms superduperfast we can fly.
but (in California in particular) environmental regulations preventing new development artificially held supply below where the market would have had it.
While it may be true in itself, notwithstanding the usefulness of environmental regulations for our quality of life, isn’t the current problem that we have too many houses on the market, many having been built for speculative purposes? Neither population nor income increased fast enough to justify this excess supply of homes. Typical speculative market. So based on that, those environmental regulations probably did nothing to precipitate the crisis.
I sory I don’t have the link for this anymore but you should be able to find this if your interested. The article was about Brazil’s major oil find:
While the potential Brazil find could add significant supplies to a global oil market many see as tight, it would likely take the better part of a decade before any of oil finds its way to market. The site will need to be studied further, and drilling platforms must be designed, built and transported before it can start producing oil.
However, it does cast new doubt on peak oil theory, which postulates that world oil demand will soon outpace supply.
It is impossible to say whether or not more 33-billion-barrel oil fields exist under the sea, Evans said.
“Nobody really has data on what’s out there in the middle of the ocean,” Evans said.
—
Well I think that sums it up nicely. Nobody knows for sure. Call me stupid, but here is an idea: We know we have oil in Alaska, we have oil (or the chance for oil) off the coast of FL and CA (the Chinese are already going after it). So lets get it. And while were at it lets shoot the speculators who keep pushing the price up. This is not a free market anymore.
TonyTiger:
“…Yet they push the idea that we should use FOOD as fuel, and look how quickly that has caused a problem with food supply”…
It’s not just liberal democrats pushing this. The president and other Republicans from farm states are all over it like flies on sh!t. I can almost excuse the local elected officials but I’m just dumbfounded that Bush is going along with this. I don’t think of him as a Republican anymore and now I’m starting to believe the Bilderberger/Illuminati/Free Masons/secret society du jour conspiracies.
Aye, aye, aye….so little confidence; such dim memories.
So we have disruption and discomfort in multiple supply markets right now. As Krugman to his credit points out, we’ve been through this before. Now, oil is only just a bit above its previous real-dollars price of 1981, yet our ability to afford this peak is improved compared to that crisis time when inflation was running close to double digits, along with unemployment in the US, and roughly double our levels of both in Europe. Mortgages in the US were ~13.5% and new car loans were in the 15% – 18% range. Meanwhile, in the US we now drive a unit of economic growth on less than half the energy required to do same in 1973.
Nevermind that Cambridge Energy Associates projects there is around 3X (maybe more) recoverable oil in the ground than all that has been pumped to date. Nevermind that Brazil recently announced discovery of a new offshore oil field that may hold as much as 33 billion barrels. Nevermind that vast untapped deep water fields will come online from the US portion of the Gulf of Mexico and someday off the eastern seaboard and our Pacific coast. We’re not close to running out of oil, but extracting it from where it lies will be progressively more expensive. Economic and environmental factors will shift energy consumption elsewhere long before the planet’s oil is gone.
Then there’s shale oil reserves in the US, which if fully recovered are up to 12X the total oil reserves of Saudi Arabia. But it’s going to be expensive to get. Oil will have to rise to the neighborhood of $200/barrel for shale oil to be economically viable. But that’s OK. We can stand $200 oil. If nothing else changes, $200 oil derived from US land and refined in US facilities will yield gasoline that is cheaper than it is in most of Europe today.
And I haven’t even mentioned the potential for liquid coal from base material for which we’re also richly endowed, nor Canada’s oil sands.
Long before we have to burn all those combustibles, rising hydrocarbon energy source prices will move more energy funds into solar power exploitation. While battery chemistry progress comes slowly, the combination of electric vehicles (both pure and hybrid) and increasing solar exploitation + revived nuclear power will moderate our hydrocarbon demands and you will see the US halving again the energy inputs needed to drive a unit of economic growth.
I haven’t mentioned expanded natural gas reserves, (responsible) bio-fuels and that vexing hydrogen-as-battery equation.
Buildings alone are the number one energy consumer in the US. There’s a lot more leverage there in reducing energy needs than there is in the entire transportation fleet, for us. We’re not even remotely close to wringing obtainable improvements in energy efficiency from our buildings. The car is already on the mend and it’s a one-way street, even if the government doesn’t lift another finger to nudge progress along.
We’re also nowhere close to maximum agricultural efficiency globally. American farms are on the forefront of extreme productivity, currently too petrol-intensive but that will moderate both in machinery gains and bio-engineered pest control and improved genetic hardiness of crops. China’s agriculture can, should, will be progressively upgraded in productivity terms and they’ll find additional arable land to cultivate. The US is still holding back arable land from production. To the extent that climate change drives continued warming, Canada will gain growing season. Africa remains hugely underdeveloped with respect to agricultural efficiency. Russia and Latin America too. And worldwide human population is on track to peak at around 9 billion and then track downward on a long curve, if we keep the wealth distribution machine going.
Our limits aren’t planetary, they’re social, political, attitudinal inhibitors to creative execution against known phenomena.
We may not see $10 oil again, but so what? Oil and other commodities will moderate as the supply side inevitably corrects and lags demand side correction. Our energy dependencies will be diversified and if they’re not, it will be because oil proves plentiful and affordable enough to continue its role. The dollar will once again be worth more. We will manage Iraq down to a sustainable commitment. The US automotive fleet average fuel efficiency will begin climbing again. We’ll assemble several pillars of economic stability on which to build a new platform for sustained growth.
Certainly we are in a period of temporally restricted disruption with local variables, amplified by the insecurity tax put on oil by speculators who cannot quantify risk of spontaneous disruption to supply caused by multiple instabilities in the Middle East. The adjustment will be painful for some, even personally devastating for many. Look past that, focus on coping strategies, and we’re far from hosed.
Phil
Quite interesting how every find of oil fields is touted as a panacea.
The most recent pill turns out to be more red than blue …
http://www.marketwatch.com/news/story/petrobras-cautions-more-data-needed/story.aspx?guid=%7B0A970D6A-CD5B-44DD-A438-963E16EDE3BB%7D&dist=MostReadHome
LONDON (MarketWatch) — Brazilian state-run oil company Petrobras cautioned late Monday that further exploration is needed to assess the size of its Carioca field after comments from a state official sent the company’s shares sharply higher.
It turns out that a “rogue” spokesman had a top of his head estimate as to the size of the field. That the field itself was announced to the world in September of last year, and that they have so far only sunk one well into the area, and need to pursue a large exploration programme to assess potential.
Petrobras said in a statement late Monday that the consortium is still following its exploratory program in the region after it first announced the find in September.
“On that occasion, the market was informed that more investments are required to drill new wells, the assessment plan for which is in its final preparation phase and is expected to be submitted to the NPA in the upcoming days,” Petrobras said.
The company added it’s also drilling a second well in a smaller area nearby, but it isn’t yet deep enough to have struck oil.
“More conclusive data on the discovery’s potential will only be known after the other phases involved in the assessment process have been completed, and they will be announced to the market in a timely manner,” Petrobras added.
The National Petroleum Agency also downplayed Lima’s comments in a statement. The NPA said the figures Lima cited were unofficial and that estimates on the size of the field were already public knowledge.
@AKM
I will let one of my favorite economists debate you:
http://www.realclearpolitics.com/articles/2007/08/subprime_politicians.html
My point is not that environmental regulations were the sole cause of the collapse, nor that they are an inherently bad idea. My point is that government is partially to blame for the ‘crisis’, and that therefore probably not the best bet to fix the problem.
Quite interesting how every find of oil fields is touted as a panacea.
More like it’s interesting how citation of an oil find is plucked from a series of citations as though it appeared alone. What I actually wrote was:
“Nevermind that Brazil recently announced discovery of a new offshore oil field that may hold as much as 33 billion barrels.”
Nevermind…as in meaning that the huge new Brazilian field — whatever its size — is still merely incidental to the wide array of supply solutions available. Incidentally, the 33 billion barrel figure was reported as recently as last week and while its size is not certain — and no kidding “further exploration has to be undertaken” — the field will be by any measure significant.
You’re going to see very large new fields discovered and announced for decades. They’ll be deeper and more difficult, or under deeper water, but there’s more to be found. We won’t use it all before moving on to alternatives that become mainstream.
Phil
Landcrusher :
These guys were all engineers and geologists who had a fatal flaw – they always wanted to find and produce more oil. No problem could not be solved by finding and producing more oil. They would produce at a loss if people let them.
Nonsense. Oil companies find and cap wells all the time. Then bring them into production as needed, cheapest first. An oil company which didn’t look for oil wouldn’t last long (unless they have massive amounts, like the Middle East).
Seems like peak oil is common sense. The only way to argue that a peak won’t happen is to argue that there’s an infinite amount of oil. And that would be a short argument.
The peak might be barely noticed’ or a catastrophe, just depends when it happens and how far we have moved onto other energy sources. But it will happen; just like peak whale-oil happened.
Most of the arguments against peak oil that I’ve read seem to be either “but we keep finding more oil..” or “but previous peak predictions have been wrong..”. The first one doesn’t address the question and the second one is like saying meteorology is nonsense because they can’t say exactly when it’ll rain.
Interesting discussion.
cheers
Malcolm
Phil, the Petrobras announcement linked is from last week, and corrects the wrong impression created by the rogue spokesman. The 33 billion barrels number was pulled out of thin air, they haven’t even touched oil yet with their well.
And you’re right about deep water. If I remember correctly we’re talking thousands of meters – not quite the conditions enjoyed in the Gulfs of Mexico or Persia.
The Brazilian Securities and Exchange Commission is investigating the unauthorized announcement:
RIO DE JANEIRO, April 14 (Xinhua) — Brazil’s state-owned oil company Petrobras denied Monday an earlier announcement of the discovery of a gigantic oil and gas field in southeastern Brazil.
The salt layer of the second well drilled in block BMS-9 of the announced oil field has not even been reached yet, and the huge field, if it does exist, lies below the salt layer, the company said in a statement.
The announcement of the discovery had been made earlier Monday by the director of the government’s National Oil and Gas Agency Haroldo Lima. The agency is in charge of regulating the oil and gas sector in the country.
The oil field in the Santos Basin in southeastern Brazil appears to be the world’s third-largest oil and gas reserve, bearing an estimated volume of 33 billion barrels, Lima said.
Petrobras’ statement said that the first well drilled in the area in September 2007 has produced promising results, which have been already released to the market and still need to be confirmed by further drillings.
The drilling of the second well started on March 22 and has not yet reached the necessary depth to reach the salt layer that lies above the reserve. The layer is two km wide, according to the statement.
“The exploitation activity includes the drilling of new wells, long-lasting proofs and new geological studies to ensure the broadness of the discovery, at the end of which the results will be informed to the market,” the statement added.
The Securities and Exchange Commission of Brazil, which supervises the operation of the stock market in the country, criticized the announcement by the ANP director, which prompted a sudden climb of Petrobras’ stocks on the Sao Paulo Stock Exchange (Bovespa).
The release of relevant information made by “outsiders” is “harmful” to the market’s operation, the commission said.
The 33 billion barrels number was pulled out of thin air, they haven’t even touched oil yet with their well.
The 33 billion figure was an intuitive guess, which is a common and surprisingly rational human behavior. It might not be wrong. I might even prove to be conservative. Or not. But energy fields are commonly guesstimated before the first unit is sold. Petrobras’ caution against the uttered estimate was directly driven by a need to warn against undue stock speculation, and need to align with Brazil’s SEC rules. They haven’t gone public with what they really think they have on their hands.
Seems like peak oil is common sense. The only way to argue that a peak won’t happen is to argue that there’s an infinite amount of oil. And that would be a short argument.
Yup, oil may be finite in practical terms but that doesn’t mean the planet isn’t making anymore. It just doesn’t convert other matter into oil on the time horizon that matters to us. So for practical consideration, there’s an oil peak ahead of us, sometime. Maybe this century, maybe not. The current discussion that is bending perceptions is whether we’re past peak, at peak or near peak, as though this is something knowable in real time and should affect policy. It’s not knowable in-the-moment. But if you allow for rising expense due to difficulty of extraction, and our economic ability to absorb higher energy cost than we incur today, then any notion of peak oil having passed or being present is alarmist and counterproductive to rational, calm and sustainable adjustment.
There is still whale oil to be had, but we’ve moved on. England reached “peak wood” in the 16th century and then moved to coal, but there is still wood to be had in the UK. More, actually. Peak Oil will not be the end nor even the beginning of the end for oil’s utility to man. Rather it will be impetus for migration to other sources and better-managed energy consumption. It will probably be the most difficult energy source migration man has managed to date, but it’s far from a present-day emergency, and its difficulty can be deeply mitigated by implementing a long arc of diversified alternatives until one of them emerges as a mainstream convenience.
Phil
There is no panacea to the oil conundrum. Nuclear, wind and solar need to be leveraged at a scope only the government can undertake.
Bush isn’t evil. Neither are Liberals. We need to stop thinking like donkeys and elephants.
Sadly, so much of government has been corrupted by corporate interests that it will be extremely difficult to start seriously integrating new energy sources. We need a Harry Truman type who is unlikely to get corrupted. None of the 3 running for President appear to be that type of leader.
I’m glad to see RF and others finally thinking about Peak Oil which I have mentioned several times. I first became aware of it about 4 years ago. It is a life changing concept.
Anyone interested in cars who doesn’t understand what is going on with the oil supply is living in a fantasy land. Oil production per capita in the world has been declining since about 1971. Peak Oil theory postulates that at some point soon world oil production will begin to slowly decline because oil is a finite resource.
This has been going on in the U.S. since 1970. Now the North Sea has peaked. So has Mexico and Venezuela. The list of countries past peak continues to grow.
More disturbing is the Export Land Model which postulates that exporting countries, who because of oil wealth are fast growing, will satisfy their needs first and export only the remainder. This is scary stuff.
Since most U.S. oil is now imported, the country faces declining supplies and ever higher prices as importing countries bid against each other for ever smaller quantities of oil available from oil exporters.
Peak Oil theory postulates that at some point soon world oil production will begin to slowly decline because oil is a finite resource.
This has been going on in the U.S. since 1970. Now the North Sea has peaked. So has Mexico and Venezuela. The list of countries past peak continues to grow.
Well, I’ve been following Peak Oil postulates since public coverage around 1970. The trouble with US Peak is that the alleged 1970 peak only accounted for then-known deposits and technologies for recovering oil from them. Even today, many then-known deposits have been held back from development. Moreover, recovery techniques have revived some old wells once-thought tapped out, both in Texas and here in California. The deep deposits now known in the Gulf of Mexico were not factored in. Nor the full extent of fields now known off both our coasts in the US. And shale oil reserves recoverable at $200 oil prices were not factored in either. Peak Oil fails to account for most unconventional oils known today. Mexico is somewhat limited by its state oil company, and Venezuela is known to have very large unexploited reserves that are more difficult to reach than current wells there.
Higher oil prices will make it economically viable to unlock large US reserves that are completely unexploited today. Peak Oil is arguably well ahead of us, with plenty of time for transition, if we don’t panic or do something foolish like ignore what’s in our grasp.
Phil
Higher oil prices will make it economically viable to unlock large US reserves that are completely unexploited today. Peak Oil is arguably well ahead of us, with plenty of time for transition, if we don’t panic or do something foolish like ignore what’s in our grasp.
Phil
If the US is not past peak oil than why has oil production not been higher than 1970s levels even with these high prices? Technology can only do so much to recover oil. Until US production hits 1970s levels again, which it won’t, its accurate to say that the US production of oil is past its peak.
http://tonto.eia.doe.gov/dnav/pet/hist/mcrfpus1a.htm
There’s nothing magical about this, we are now producing half the amount of oil we were producing in 1970. The facts are undeniable.
The US is past its peak in oil production, oil production in the US has dropped nearly 50% since 1970 despite high oil prices. Even the exploitation of a field as large as Alaska’s north slope did not bring the levels past 1970 levels. The facts are undeniable.
The facts are undeniable.
http://tonto.eia.doe.gov/dnav/pet/hist/mcrfpus1a.htm
Tonycd,
It’s not at all hard to be a carnut and a lib. It may be tough to be a conservationist, but that has nothing to do with being a liberal, really. The alliance between the socialists and the conservationists is one of convenience only. The common cause is found among the economic and conservationist left who distrust markets and want greater regulation in hope of getting more dependable outcomes in the world. The problem to us small government types on the right is that we know that the only dependable outcome of more regulation is less progress on every front in almost every case.
As for your noncontroversial statements:
-infinite supply, not controversial
-peak oil past, not even correct. Saudi Arabia is no longer such a large part of the global reserves. Production and Peak Oil are not all that well linked. Peak Oil is a matter of reserves, not production.
-infrastructure advantage, not really controversial, but not necessarily true either.
-alternatives, not controversial to me, but a lot of folks on the left actually don’t believe it. They are a minority.
-Golden Age, not true at all. If you mean the golden age for insane hp from internal combustion then yes. If you mean for the common man to have a car, then not yet there. If you allow for cars that run on alternative energy sources, then absolutely wrong.
–
RF,
The Peak Oil debate has been around for a long time. So, what are the facts?
1. Despite high prices, oil production has trouble staying ahead of demand.
2. Looking ahead 5 years at new projects coming on line, the narrow gap between supply and demand probably will stay about the same.
3. In theory there is a lot of oil in the ground. But to produce it at low cost and sell it for a low price is a different story. The gigantic resources needed to produce ‘difficult’ oil are overstretched and tapped out.
4. Any calamity such as war, weather or sabotage can disrupt production enough to cause a big problem.
5. The oil market is not free, but highly manipulated by various governments. Ultimately, the price of oil is set by OPEC. They set it as high as they can get away with.
6. Speculators are increasingly involved in the oil market, possibly reinforcing price movements (that’s bad), but also forcing us to deal with the oil problem with urgency (that’s good).
7. The falling dollar exchange rate contributes to the rising oil price (in Euros the oil price is not rising so much).
All of this means there is only one sensible thing we can do: try to use less of it.
Therefore: lighter cars, better engines, hybrids, plug-ins, electric cars, biofuels, GTL and CNG.
Note that an economic recession can temporarily depress oil prices to give us a bit more time to work on these solutions.
Malcolm,
Nonsense back at you. Perhaps you want to come by my house in a few weeks and meet my sources? We are having a party, and there should be plenty of engineers and geologists in attendance.
Your peak oil argument is a straw man unless you have data which disagrees with the leaders in the oil industry who would all love nothing better than to prove we have passed, or are near passing, peak oil. How much do you think Exxon stock would shoot up if their reserves were suddenly believed the last ones anyone would ever find?
My house would be worth a mint tomorrow. We couldn’t spend the windfall in this town.
The US is past its peak in oil production, oil production in the US has dropped nearly 50% since 1970 despite high oil prices. Even the exploitation of a field as large as Alaska’s north slope did not bring the levels past 1970 levels. The facts are undeniable. The facts are undeniable
Production is unrelated to Peak Oil. Known reserves are relevant. Production only tells you about “peak oil” in your working or tapped wells.
The US has kept known oil reserves out of exploitation for a variety of environmental and aesthetic reasons. But further, Peak Oil as a circa 1970 idea doesn’t include vast reserves of unconventional oils like shale that require further energy price increases to become economic to extract, thus changing the supply side once again. The facts as you present them are fully disputable if you’re interested in a holistic view of energy.
In theory there is a lot of oil in the ground. But to produce it at low cost and sell it for a low price is a different story. The gigantic resources needed to produce ‘difficult’ oil are overstretched and tapped out.
We have no special right to low price. $200 oil would yield gasoline in the US priced cheaper than it is in Europe today, and open up ample new supplies. Oil is not yet expensive. Just more expensive than we got accustomed to.
All of this means there is only one sensible thing we can do: try to use less of it.
Therefore: lighter cars, better engines, hybrids, plug-ins, electric cars, biofuels, GTL and CNG.
Despite all the useless hand-wringing over oil that I don’t endorse, I do agree with this for other reasons. Especially the notion of *lighter cars!*
Phil
If the US is not past peak oil than why has oil production not been higher than 1970s levels even with these high prices?
Simple. In large part, prices haven’t been high enough. High recent prices have made it economic to apply new technologies to revive formerly dormant wells in California, Oklahoma and Texas. Deep water oil deposits in the Gulf of Mexico are now economic to extract. Our Atlantic and Pacific coasts still hold untapped reserves. And shale oil lies completely untapped at current prices.
Shale oil reserves in a relatively compact area in the Rocky Mountains zone are estimated to be as much as 12X all of Saudi crude reserves. That shale oil will be difficult to extract, but at the right price its exploitation could easily allow American oil production to exceed pre-1970 levels. However, since 1970 to date, it’s generally been cheaper to go elsewhere for new wells.
There’s nothing magical about this, we are now producing half the amount of oil we were producing in 1970. The facts are undeniable.
Yup. Which has little to do with how much oil we have in the ground for recovery at economically viable pricing. $200 oil — still quite manageable to the American economy especially if we’re buying it from ourselves — changes things dramatically.
Phil
Phil,
What is the definition of peak oil?
It’s: the increase in demand exceeds the increase in supply (such that OPEC will dominate the oil market even more than it already does).
Note: oil reserves don’t appear in that sentence.
Oil reserves don’t matter if you can’t extract them quickly.
For instance: Canadian oil sands reserves are huge, but production from those are increasing so slowly that they barely make a blimp in the big picture.
What is the definition of peak oil?
It’s: the increase in demand exceeds the increase in supply (such that OPEC will dominate the oil market even more than it already does).
Note: oil reserves don’t appear in that sentence.
Oil reserves don’t matter if you can’t extract them quickly.
For instance: Canadian oil sands reserves are huge, but production from those are increasing so slowly that they barely make a blimp in the big picture.
Reserves ARE supply, just with a different availability horizon.
Whose definition do you want to use? Some stipulate *production.* The Oil Drum defines it as: “”…the term used to describe the situation when the amount of oil that can be extracted from the earth in a given year begins to decline, because geological limitations are reached.” Notice that can be extracted is not limited to what is produced. Oil that is extractable but not extracted, by your definition, does not factor in Peak Oil. But Peak Oil is nonsense if extractable oil isn’t the realm. “…Because geological limitations are reached.” A possible two+ trillion barrels stash of shale oil unexploited in the US is not fallow because of a geological limitation. It’s untapped because the price of oil hasn’t risen enough yet to make extraction economically worthwhile.
If the world holds back extractable oil from actual production, for environmental, aesthetic, economic or climate change purposes, then production would be artificially restricted and an artificial Peak Oil could be experienced if demand could not be constricted accordingly. If oil held back had a lead time of more than a year to bring to market, then the Peak Oil problem would be quite temporary. Peak Oil as a dire phenomenon has to be a holistic concept defined by the impossibility of expanding supply to meet intrinsic demand. Otherwise the fear of permanent price escalation driven by uninfluenceable scarcity would be either misplaced or an artifice.
Canadian oil sands production is too slow to affect current estimate of Peak Oil because the price doesn’t yet make scaled production economic or urgent. Shale oil is almost completely left in the ground today. But at the point prices support exploitation of both, any notion of Peak Oil being a present or past condition disappears and its imminence is shoved forward perhaps by decades or more.
Peak Oil alarmists use the production definition as defense of the legitimacy of their fear, but they point to Peak Oil as proof we’re running out of petroleum. You can’t have it both ways. If you relate Peak Oil to imminently finite supply, then ignoring known reserves makes Peak Oil patently false. If you include known reserves in definition of Peak Oil, then you have to conclude you don’t know enough to pinpoint Peak as an imminent or extant condition. You can’t even fix any notion of what constitutes “affordable” oil. The world has shown remarkable resilience to wide price swings that are fundamentally unrelated to actual feasible supply. Just because we haven’t pumped more doesn’t mean the oil isn’t there. Price changes everything, and price gets us closer to diversifying energy reliance even if plenty of oil remains available. Peak Oil at at $10? Sure. But at $200, peak is a different place on the calendar because supply expands. True Peak is reached when supply ceases to expand regardless of how high the price goes, due to geological limits, while demand outruns it.
Phil
@KBW
There’s nothing magical about this, we are now producing half the amount of oil we were producing in 1970. The facts are undeniable.
Not if you make up new facts, such as 33 billion barrels found off Brazil – when the drill hasn’t even breached the salt layer above the suspected reservoir.
Or when you keep pointing to Canada and tar sands.
Or when you show to oil inside the US, which is there for the taking. Why spend hundreds of billions on Iraq (which Greenspan in his memoir’s first edition clearly stated was/is “fought for oil”), when you could use that money to extract all the oil that’s there, ready for the taking, inside the US? :-)
These are straw man arguments, and quite clearly delusional. Events will reveal the unavoidable truth: we’re facing a serious challenge, and it’s going to be interesting to see how we tackle it.
(And spare yourselves the bother. Greenspan did say that. It was removed from subsequent editions. Here’s the tale of the tape:
http://www.timesonline.co.uk/tol/news/world/article2461214.ece)
Why spend hundreds of billions on Iraq (which Greenspan in his memoir’s first edition clearly stated was/is “fought for oil”), when you could use that money to extract all the oil that’s there, ready for the taking, inside the US? :-)
Isn’t that the best evidence that we’re not in Iraq for oil? Greenspan wasn’t in the Cabinet. He headed an independent monetary agency. He’s not a foreign policy nor military expert, and he wasn’t part of the administration that went to war. He’s just a once-highly-placed powerful guy who’s well-connected and has opinions about events outside his domain. Who cares whether he thinks the Iraq war was fought for oil?
Surely the middle east would be geopolitically less important to us if it didn’t have oil, but the Iraq war wasn’t fought for oil, nor because of the dubious public argument regarding WMDs. The US went to Iraq after 9/11 as a key step in re-vamping a regional policy that after 30 years of escalating terrorism was clearly not working. We had tried benign neglect, episodic engagement, bribery, massive response to an emergency (Kuwait), shuttle diplomacy, more bribery, regime support, regime change. Afghanistan was the ER operation. Iraq began intended corrective therapy. Now, while the execution of the war was outstanding, the occupation was both afterthought and disaster because the war’s planners only planned for the war to take out Hussein’s state military. Rumsfeld et al didn’t plan for taking custody of the country after winning.
A victory began to unravel the moment we declined to put enough boots on the ground for occupation, and the unraveling accelerated the moment we stood aside while Iraqis looted their own country. Firing the army only further diminished prospects for timely success. Keeping the occupation force sparse in a misguided effort to limit the war’s drain on resources and impact on taxpayers and the electorate has been faulty policy from day one. But the unspoken reason we went to Iraq was to put the American military squarely between Iran and Israel, and to engineer a democratic project in an authoritarian neighborhood. Would oil politics benefit if we were successful? Perhaps. But we didn’t plan to nor move to seize control of Iraqi oil, and we accepted risk that other states might turn off the taps in protest.
There are myriad initiatives the funds spent on Iraq could have been allocated to. But using money destined for the war and occupation instead for pulling unconventional oils out of the ground isn’t one of them. The government has never been able to bring uneconomic energy to market before the market price supported the proposition. It’s going to take roughly $200 oil to make shale oil viable for extraction. The Feds aren’t going to meaningfully develop that resource with the market price more than 40% below that threshold. The electric car + massive solar and nuclear power comprise a dream combination but government money isn’t making that happen sooner than battery and photovoltaic chemistry and economics demand either.
Phil