Peak Oil

[ralfy]

Everything is limited, Income is limited for most people, consumption is limited: you can only live in one house at a time, you can only eat so much, have a finite number of cars, TV's, etc, etc. Own too many houses and the cost of maintenance exceeds value, if everyone owns many houses, they cannot be rented. The market is saturated....that's why many economists recognize the principle that population grown is the main driver of economic growth. And why nations which have stabilizing population growth are trying to stimulate birth rates through economic incentives or rely on immigration. But living on a finite planet, this is not sustainable in the long term. Given perpetual growth, at some point demand exceeds the environments ability to supply the demand.

The global market is not even close to saturation:

"The rise of the global middle class"

http://www.bbc.co.uk/news/business-22956470

The problem is that physical limits of the earth cannot support such growth. Meanwhile, the current middle class can only earn continued returns on investment, higher income, promotions, etc., if more goods and services are sold to an expanding market. Finally, production has also led to environmental damage and global warming.

- - - Updated - - -

So you are backing away from the $35 prediction?
Funny that many non-investor people are already heavily betting on price of oil staying this low or going lower since the demand for SUVs and light trucks is increasing. Suckers, the lot of them!


Not really. The price of oil is not a random walk, it's based on a physical commodity with its own complicated mechanisms. Including the negative feedback mechanism I explained before.

Regarding the current action, a natural move would have been to pentetrate the previous major low of 50.55 from Jan 2007; January 2007 had a high of 60.05. Although action yesterday held above that 50.55, the violence of the reversal down leaves the seriousness of that move in doubt. It shows heavy sellers at prices over 50. That's a little negative, but maybe if oil stabilizes for a month you're bet has a snowball's chance.

My bet has a snowball's chance in a freezer. Also:

If you win, the humiliation of losing to a mind of your caliber will be extreme, but fortunately this possibility is many months away.

The insult aside, you seem to have an overinflated sense of your own mind's caliber. Especially since you completely ignore the fundamentals and solely focus on technical analysis.

Market price is a pretty good thing to look at.

Consider the price action since we made our little bet. Oil went down four dollars or so to 44, then it went back up 8 dollars to around 53 (+4 on the original price), down 5 dollars back to 48 or so, back up 4 and now is back down 4. In other words it has gone up about 4 and gone down about 4 since we started. Isn't that exactly what I said? The chances of it going to x+y are about the same as it going to x-y - in this case y = 4.

The price will continue to move up and down and probe the minor highs and lows. If it probes 44 again and breaks that, your thesis is in peril. There is no law that says oil must stay above 40, 35, or whatever. There is a law that it cannot go below zero.

Your bet is saying something like you can flip a coin and it will come up heads three times in a row, I simply took the other side.

I also have told you exactly what has to happen for your bet to have a chance. Oil has to consolidate above $50 or so this month and hopefully make a move above $60 relatively soon. You would have approximately an even chance of winning if it reaches about $67.

The bigger problem is that oil production cost is close to or higher than current oil prices, and producers have operating costs and debts to consider.

 

[ralfy]

These problems have to do with things other than oil price. The oil price spike ($147/bbl) in July 2008 triggered the worldwide financial crisis but did not cause it.

I didn't argue that they had to do with oil price. I argued that the economy did not "work" as oil prices went up. Examples are given in my post.

High debt levels public and private, high levels of entitlement spending, housing bubble etc. were all real causes. As you say, other commodities other than oil are similarly affected. If oil was the primary cause you'd expect it to behave differently than other commodities.

I didn't argue that oil was the primary cause.

All that said, we did manage to weather the last crisis without collapse, contrary to prophecies of Peak Oilers. Again, go and read some of the writings on peak oil from a decade ago about 2015. Or go read the FRDB threads from a decade ago. There was a lot of pessimism about what life in 2015 would look like.

No, we didn't. The government issued bailouts to banks that were responsible for the crisis. Guess what the banks did?

Or decreasing the oil intensity of the economy.

Which will take decades:

http://www.businessinsider.com/131-years-to-replace-oil-2010-11

Even the IEA acknowledges the difficulty of this transition in its 2010 Outlook report.

 

[ralfy]

Modern industry is complicated sure. And if we were in danger of running out of these resources anytime soon you'd have a point. But we aren't. We do not need to eliminate all fossil fuel use within a decade or two. But electric cars (as well as plug in hybrids) will do a great deal to reduce oil use for transportation.

The problem isn't running out of resources but production not meeting demand. And electric cars, like many other manufactured goods, require significant fossil fuel inputs for mining, manufacturing, and even shipping. This does not include the infrastructure needed to distribute energy.

You are mistaken.
The Achilles heel of the electric car is storage. Batteries still have much lower energy density than gasoline or diesel. However, battery technology has made large strides forward in the last 20-30 years (early GM EV1 still had lead-acid batteries!) and more research is ongoing. At the same time, hydrogen is developed as an alternative energy storage medium for electric cars (a reverse electrolysis reaction generates electricity).

Low-torque engines will have difficulty handy roads with high includes as well as very rough train and heavy loads.

Also, think of heavy machinery used for mining, container ships, etc.

Just because a lot of electric cars we have today are "small cars" doesn't mean that that's the only use of electric motors. I already linked to a bulldozer that uses an electric motor. So yes, a future with all-electric mining equipment is certainly possible if needed.

Given prototypes, etc., anything is possible. But that's not the same as feasible.

Also, don't forget the fossil fuels needed to manufacture and transport components overseas.

Given that, the only way you can disprove my argument is to show an extensive mining, manufacturing, and shipping system that produces everything from small cars to container ships using only electricity. Don't forget petrochemicals needed for many products and components and lag time.

Petrochemicals are a small percentage of total worldwide use of oil and gas and thus are viable even if oil/gas production drops a great deal, as long as oil/gas use for energy is reduced over time. Thus petrochemicals are really a red herring.

The point isn't that petrochemicals make up a small component of oil and gas. It's that it's a significant percentage of manufactured goods, including the plastics used for electric cars and various gadgets. And don't forget shipping.

Well limited amounts of easy to extract oil relative to demand means we need to increasingly go after more difficult oil as the time goes on.
That is not limited to US shale or Canadian oil sands but even in Saudi Arabia where ageing fields require increasingly complex and costly extraction methods.

That's my point. And a global capitalist economy needs the opposite.

Right. Low hanging fruit gets picked first.

Yes, and that's all proof of peak oil.

And how is that playing into the peak oil thesis?

It has nothing to do with peak oil. Peak oil refers to the fact that at some point oil production reaches a maximum rate.

It's the interpretation of the data which can be very problematic.

No, it's not. The peak is shown clearly.

Isn't this going against your thesis? We can lower oil consumption while still growing the economy.

That's not the point of the article. Read it carefully.

Again, it's the alarmist interpretation of any results that I have a real problem with.

One more time: what I presented is an article that refers to a study which validates forecasts made in a previous study.

Don't compare it to a documentary.

"We are nearing collapse" is not a prediction?

The point is that the trend lines have so far been validated.

 

[DBT]

The global market is not even close to saturation:

I didn't say it was. My reference to market saturation was made in regard to perpetual economic growth, specifically in relation to the comment I was responding to - ie - 'stable population numbers' - which as I said, being finite in terms of demand, cannot sustain perpetual economic growth.

For that matter, nor can the planet sustain perpetual population growth or perpetual economic growth.

 

[DBT]

A steady state economy can only take place if all factors are static, including population, energy returns, etc., and that no other problems (from natural disasters to wars) take place. Unfortunately, this does not happen in the real world.

A 'steady state economy' does not mean the absence of fluctuations and adjustments in response to given conditions.

 

[ralfy]

You sound like a broken record.
World oil production was 72 MMbbl/day in 2006. In 2013 it was 75 MMbbl/day. Doesn't sound as if we peaked exactly.

Conventional production peaked in 2005:

http://crudeoilpeak.info/world-crude-production-2013-without-shale-oil-is-back-to-2005-levels

The average is 73.4 Mb/d. That's why we've been resorting to shale oil.

Also, don't forget that the effects of peak oil can take place even before production peaks.

And yes, oil is a finite resource and increasingly difficult to get out of the ground and into a usable form. Which is why I fully support development of alternatives to oil going forward.

That's why conventional production peaked in 2005. That's also why we're been using unconventional production to make up for that.

The problem is that both have low energy returns. A growing global economy needs the opposite.

Id did not increase significantly. The point is that it continued even as oil prices tripled.

Your point being?

With high oil prices, demand should go down. It did not except outside the U.S., EU, and Japan.

You are just repeating yourself rather than responding to what I wrote.

Reserve estimates are based on assumptions regarding future technologies that may maintain production. Rate on flow, on the other hand, refers to actual extraction, and can be seen in light of demand. More details here:

http://resourceinsights.blogspot.com/2013/04/the-only-true-metric-of-energy_28.html

Which is related to oil depletion. At least in Hubbard's model it is.

Related <> not the same. More details here:

https://en.wikipedia.org/wiki/Peak_oil

Both supply and demand are a function of price. If prices rise supply will increase while demand will decrease. Note that these happen over time - some effects are shorter other longer. It takes short time to open wellhead chokes but much longer time to drill new wells and even longer to develop a brand new field. It takes a short time to reduce miles driven for non-essential purposes but longer to switch to a more fuel efficient car and even longer for a city to expand public transit.

Not in this case. The price tripled, but conventional production remained in a plateau. Instead, we used shale oil to meet consumption.

The demand went down for the U.S., EU, and Japan, but rose for the rest of the world. The net is a consumption increase even as the oil price tripled.

Or it just needs higher prices.

Which the world cannot afford, as seen during the last few years, unless more QE takes place.

What percentage of total oil savings is that?

You can check studies like GREET for more details:

https://greet.es.anl.gov/

Also, fresh water, copper, iron ore, and many other material resources are needed, and these are also prone to issues connected to physical limitations.

Much less than would be used otherwise.

Actually, much more, especially with more features and more units needed for a growing middle class.

 

[ralfy]

It's a major weakness of the model that predicts catastrophic consequences due to oil peaking. Higher prices are a result of oil getting more scarce, yes, whether or not it technically peaked yet or not.

The model doesn't predict "catastrophic consequences" but the fact that oil will become "more scarce."

No, they are not based on that premise. In fact, increased production costs are an integral part. Increasing price unlocks more supply precisely because then higher production cost oil can be economically produced and thus enters the market.

The problem is that the U.S. shale oil (the new supply that has been unlocked) has steeper decline curves, and thus entails greater risks. Hence,

"Junk Bonds Backing Shale Boom Facing $11.6 Billion Loss"

http://www.bloomberg.com/news/artic...funding-shale-boom-face-8-5-billion-of-losses

That's why the argument is based on the premise that production costs have not gone up.

Well there are two aspects to it. The results of oil peaking is very much a part of it and what people talk about when they discuss "peak oil". Perhaps we should distinguish between lower case "peak oil" which is the mere fact of a finite commodity like oil peaking and upper case "Peak Oil" which is the model of catastrophic consequences of the actual peak oil.

That's what I've been trying to do. Peak oil is a scientific fact, not a theory. When production will peak, and the effects of production not meeting demand, production dropping, replacements having low energy returns, etc., are based on related matters.

 

[ralfy]

That's what I said, sort of. Hubbard's original peak prediction was 1995 but he adjusted it by ten years, to 2005. Today, in 2015 we are already 10 years past even this adjusted peak date. 2005 + 10 = 2015. And given the steepness of his curve (as can be seen in your video) we should already be down about a third compared to peak production. Yet, we are not. Even when only looking at conventional oil we are on a sort of extended plateau, which is definitely not part of Hubbard's model.

Conventional production peaked in 2005, as confirmed by the IEA.

The chart is not supposed to be seen as an accurate depiction because it's a curve based on a formula:

https://en.wikipedia.org/wiki/Hubbert_curve

Nothing is ever fixed.

But we need forecasts, anyway. And Hubbert got it right for U.S. and world conventional production peak.

And don't forget production per capita. See my previous posts for more details.

Petrochemicals are just a small fraction of oil and gas use. As far as mining, most equipment runs on diesel because that is still the most cost effective solution. It is not a technological necessity though. And we did not need QE because of oil.

The problem is not petrochemicals as a fraction of oil and gas use but a component of manufacturing, food production, etc. And not just a component but one that will require retooling to replace. Imagine removing petrochemical use for thousands of consumer goods used today. Here's a partial list:

http://www.ranken-energy.com/Products from Petroleum.htm

A chart referring to various products:

http://www.afpm.org/petrochemicals/

 

[NobleSavage]

The model doesn't predict "catastrophic consequences" but the fact that oil will become "more scarce."

No, they are not based on that premise. In fact, increased production costs are an integral part. Increasing price unlocks more supply precisely because then higher production cost oil can be economically produced and thus enters the market.

The problem is that the U.S. shale oil (the new supply that has been unlocked) has steeper decline curves, and thus entails greater risks. Hence,

"Junk Bonds Backing Shale Boom Facing $11.6 Billion Loss"

http://www.bloomberg.com/news/artic...funding-shale-boom-face-8-5-billion-of-losses

That's why the argument is based on the premise that production costs have not gone up.

Well there are two aspects to it. The results of oil peaking is very much a part of it and what people talk about when they discuss "peak oil". Perhaps we should distinguish between lower case "peak oil" which is the mere fact of a finite commodity like oil peaking and upper case "Peak Oil" which is the model of catastrophic consequences of the actual peak oil.

That's what I've been trying to do. Peak oil is a scientific fact, not a theory. When production will peak, and the effects of production not meeting demand, production dropping, replacements having low energy returns, etc., are based on related matters.

The bolded part is very true. By my estimate a lot more. However, there is a lot of solid money backing tight oil aka shale oil. It's not going to come crashing down.

 

[ralfy]

A 'steady state economy' does not mean the absence of fluctuations and adjustments in response to given conditions.

The fluctuations have to even out, which means a steady state. That can probably happen in the long term, but not useful for us.

 

[DBT]

A 'steady state economy' does not mean the absence of fluctuations and adjustments in response to given conditions.

The fluctuations have to even out, which means a steady state. That can probably happen in the long term, but not useful for us.

I doubt that we will, or can, achieve anything resembling a steady state economy. The need is not even on the political/economic radar. The World Mantra and aim appears to be economic growth forever.

 

[NobleSavage]

The fluctuations have to even out, which means a steady state. That can probably happen in the long term, but not useful for us.

I doubt that we will, or can, achieve anything resembling a steady state economy. The need is not even on the political/economic radar. The World Mantra and aim appears to be economic growth forever.

I'm not even sure what "steady state" means considering that technology is changing at an ever increasing pace. Populating isn't a problem. Whenever someone says "steady state" I think of going back to hunter gather days. As you inferred, that just isn't going to happen.

 

[DBT]

I doubt that we will, or can, achieve anything resembling a steady state economy. The need is not even on the political/economic radar. The World Mantra and aim appears to be economic growth forever.

I'm not even sure what "steady state" means considering that technology is changing at an ever increasing pace. Populating isn't a problem. Whenever someone says "steady state" I think of going back to hunter gather days. As you inferred, that just isn't going to happen.

Nothing to do with 'going back to the stone age''

It's a term used by some economists, Herman E. Daly,, Brian Czech, etc:

''Politically it is very difficult to admit that growth, with its almost religious connotations of ultimate goodness, must be limited. But it is precisely the nonsustainability of growth that gives urgency to the concept of sustainable development. The earth will not tolerate the doubling of even one grain of wheat 64 times, yet in the past two centuries we have developed a culture dependent on exponential growth for its economic stability (Hubbert, 1976). Sustainable development is a cultural adaptation made by society as it becomes aware of the emerging necessity of nongrowth. Even "green growth" is not sustainable. There is a limit to the population of trees the earth can support, just as there is a limit to the populations of humans and of automobiles. To delude ourselves into believing that growth is still possible and desirable if only we label it "sustainable" or color it "green" will just delay the inevitable transition and make it more painful.''

''A steady state economy is an economy of relatively stable size. A zero growth economy features stable population and stable consumption that remain at or below carrying capacity. The term typically refers to a national economy, but it can also be applied to the economic system of a city, a region, or the entire planet.'' Steady state economy - Wikipedia.

'' Economic growth was never a magic bullet; it is simply an increase in the production and consumption of goods and services–it can’t possibly lead to a sustainable outcome. In contrast, the steady state economy provides the means for present and future generations to achieve a high quality of life.''

DEFINITION of 'Steady State Economy;

'An economy structured to balance growth with environmental integrity. A steady state economy seeks to find an equilibrium between production growth and population growth. The economy aims for the efficient use of natural resources, but also seeks fair distribution of the wealth generated from the development of those resources.''

 

[ralfy]

I doubt that we will, or can, achieve anything resembling a steady state economy. The need is not even on the political/economic radar. The World Mantra and aim appears to be economic growth forever.

Indeed, and it's not just economic growth that is involved but the threat of a resource crunch, environmental damage, global warming, and more.

 

[NobleSavage]

I'm not even sure what "steady state" means considering that technology is changing at an ever increasing pace. Populating isn't a problem. Whenever someone says "steady state" I think of going back to hunter gather days. As you inferred, that just isn't going to happen.

Nothing to do with 'going back to the stone age''

It's a term used by some economists, Herman E. Daly,, Brian Czech, etc:

''Politically it is very difficult to admit that growth, with its almost religious connotations of ultimate goodness, must be limited. But it is precisely the nonsustainability of growth that gives urgency to the concept of sustainable development. The earth will not tolerate the doubling of even one grain of wheat 64 times, yet in the past two centuries we have developed a culture dependent on exponential growth for its economic stability (Hubbert, 1976). Sustainable development is a cultural adaptation made by society as it becomes aware of the emerging necessity of nongrowth. Even "green growth" is not sustainable. There is a limit to the population of trees the earth can support, just as there is a limit to the populations of humans and of automobiles. To delude ourselves into believing that growth is still possible and desirable if only we label it "sustainable" or color it "green" will just delay the inevitable transition and make it more painful.''

''A steady state economy is an economy of relatively stable size. A zero growth economy features stable population and stable consumption that remain at or below carrying capacity. The term typically refers to a national economy, but it can also be applied to the economic system of a city, a region, or the entire planet.'' Steady state economy - Wikipedia.

'' Economic growth was never a magic bullet; it is simply an increase in the production and consumption of goods and services–it can’t possibly lead to a sustainable outcome. In contrast, the steady state economy provides the means for present and future generations to achieve a high quality of life.''

DEFINITION of 'Steady State Economy;

'An economy structured to balance growth with environmental integrity. A steady state economy seeks to find an equilibrium between production growth and population growth. The economy aims for the efficient use of natural resources, but also seeks fair distribution of the wealth generated from the development of those resources.''

I'm familiar with Herman E. Daly He was regularly referred to on http://theoildrum.com/ which used to be the nexus of peak oil craziness. The "return to hunter gather days" was just a knee jerk reaction. I'll do my best to come back to this thread, now is not good time for me.

 

[NobleSavage]

Ok, how long do you think it will take the various experts to agree on what an "economy of stable size" is? By the time you get that figured out we the world is going to be very different. Solar is a few years off from being price competitive with coal in all 50 states. Japan has more electric car chargers than gas stations.

No politician is going to put the breaks on growth. It just isn't going to happen unless there is a global dictator and I don't like that option.

 

[ralfy]

The problem isn't so much price as energy quality and quantity:

http://www.theoildrum.com/node/3786

and that in light of a global economy that requires continuous economic growth (according to the IEA, the equivalent of one Saudi Arabia in new oil will be needed every seven years just to maintain that; with low energy returns from various energy sources plus a growing global middle class, even more will be needed).

In which case, what will stop growth will be the physical limitations of the biosphere coupled with the long-term effects of environmental damage and global warming.

Meanwhile, financial crises brought about by more than a quadrillion dollars (notional value) in unregulated derivatives may disrupt any attempt towards a smooth unwinding.

 

[fromderinside]

Peak Oil. Quaint term. Misses the entire point though. Our limits are not governed by the amount o foil we can extract from wherever. OUr limits are governed by the amount of pollutants injected into the air by burning fossil fuels that living things can tolerate. Its like the actor playing the undersecretary of enery on Newsroom said "if we'd done that 20 years ago we'd have a chance. Now its to late."

For those who are environmentally handicapped what he said translates into "We're toast!", or, "Kiss your sweet ass goodbye".

We're in for a ride up the temperature ladder; life is the unfortunate victim of our need for stuff and comfort.

Hey, we'll push things forward a ways, but, this E ticket is a must ride and it's going to end badly, much more badly than if we'd just tried to fight it out for what fossil fuel was left 40 years ago. There will be no souls going to heaven. Every thing living on earth will be consumed by the burning we started. Mars is a place where thing just failed. Venus is a place where things never got going. Earth will be a biological cinder field.

....and that's my compassionate conservative view.

 

[NobleSavage]

The problem isn't so much price as energy quality and quantity:

http://www.theoildrum.com/node/3786

and that in light of a global economy that requires continuous economic growth (according to the IEA, the equivalent of one Saudi Arabia in new oil will be needed every seven years just to maintain that; with low energy returns from various energy sources plus a growing global middle class, even more will be needed).

In which case, what will stop growth will be the physical limitations of the biosphere coupled with the long-term effects of environmental damage and global warming.

Meanwhile, financial crises brought about by more than a quadrillion dollars (notional value) in unregulated derivatives may disrupt any attempt towards a smooth unwinding.

We can have economic growth with less energy and less physical mater.

 

[DBT]

Ok, how long do you think it will take the various experts to agree on what an "economy of stable size" is? By the time you get that figured out we the world is going to be very different. Solar is a few years off from being price competitive with coal in all 50 states. Japan has more electric car chargers than gas stations.

No politician is going to put the breaks on growth. It just isn't going to happen unless there is a global dictator and I don't like that option.

It doesn't take experts to stabilize an economy...it is the 'experts' - the politicians and their neoclassical economic advisers who try to stimulate growth. It wasn't always so.