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Why Peak Oil Will Never Lead To $500/bbl Crude Oil
- Sapslzr 17y ago"Collapse" a pretty good documentary on the subject
- RyanMcGreal 17y agoIt's more basic even than this. Market demand for oil collapses (read: recession) long before it gets anywhere close to $500/bbl.
- pw0ncakes 17y agoIt could certainly get to $500/bbl, but it's unlikely that it would. Before reaching this point, it would have wrought misery on the world economy, as you've described (and "recession" is an understatement).
- w00pla 17y ago> Market demand for oil collapses (read: recession) long before it gets anywhere close to $500/bbl. Above $80 a barrel, alternative fuels (such as liquid fuels from coal) becomes profitable. I sincerely expect that this will expand extremely rapidly in the next 15 years.
- CWuestefeld 17y agoAnd resources such as natural gas are at very low prices right now, due to recent development of huge deposits such as the Marcellus Shale. In the medium-to-long term, I think that substitutability between oil and natural gas would go a long way, once oil prices get to a point where oil looks less attractive. While I'm not entirely unconcerned, I don't think there's any reason to panic.
- RyanMcGreal 17y agoWhen demand becomes tight, the price driver is not so much the cost to produce as it is the rate of production. Can we produce five or ten million barrels of oil-from-coal a day? Can we replace a two or three percent annual drop in oil production rates through some combination of conserving and replacement without recessionary demand destruction? I'm not so sure.
- nostrademons 17y agoWe'd switch to more mundane substitutes long before oil got to $500/bbl. Just the spike to $130/bbl in 2006 saw people switching away from SUVs to Priuses in droves. If that were sustained for any length of time, everyone would be driving a plug-in hybrid to work. The technology exists today, and the production capacity would ramp up pretty quickly. If every switched from a 20mpg car to a 50mpg car where the first 100 miles of each trip was free, it'd more than make up for anticipated oil production declines over the next 50 years.
- RyanMcGreal 17y agoThat might work if the developed world was driving the increase in fuel consumption, but that hasn't been true for quite some time. North American oil consumption is already going into decline, but global demand pressure is coming from the developing world - China, mainly, followed by India - as well as all the oil-producing countries with nationalized industries and artificially low domestic prices (Venezuela, most of the Middle East). Those consumers will not be buying plug-in Priuses; and with consumption growing rapidly in the oil exporting countries, once they pass their national production peaks their export rates will decline faster than their own production rates.
- nostrademons 17y agoThey have the same price constraints that the developed world does. If oil goes up to $500/bbl, we'll see one of three things happen. 1.) They'll substitute more efficient yet more expensive cars for gas guzzlers, as the TCO of a gas guzzler goes up. 2.) Efficient, cheap, yet small cars will start being developed for emerging markets. (This is already happening a bit - consumers in Beijing tend to drive much smaller cars than consumers in Houston.) 3.) They won't buy cars at all. There's no innate reason beyond price why consumers in developing companies can't buy plug-in hybrids. And if price is the governing factor, they simply won't buy cars as well. Either way, it puts downward pressure on oil demand and hence serves to limit prices.
- pw0ncakes 17y agoNo one with any credibility actually believes he can forecast the price of oil. Oil is very inelastic in the short term, which is why small drops in supply lead to massive price increases. The long-term effect of unavailable or expensive oil will be "demand destruction"-- many of those who currently use oil will either move to alternatives or go out of business-- and political fallout with unpredictable results.
- Retric 17y agoYou can manufacture oil for around 100$ a barrel from coal. So the chances for inflation adjusted oil above 200$ / barrel lasting for more than a few months within 50 years is tiny. The best way for current suppliers to maximize profit is to occasionally spike prices, and then drop them before alternatives start to diminish demand.
- pw0ncakes 17y agoWhat are the inputs into this manufacturing process? The $100/bbl figure is meaningless, unless we know what the specific inputs are and how stable their prices and availability are. Energy of some sort is obviously a major input, and it's unlikely that oil will spike without having a similar effect on the overall energy market. So the fact that oil could be manufactured from coal at $100/barrel now doesn't mean that we'll be able to do so when we need it most.
- mkn 17y ago"Energy of some sort is obviously a major input,..." Unless, of course, the chemical process that converts coal to oil is exothermic, which is not impossible in principle. In this case, the energy conversion efficiency would be less than one, but it still might cost less than changing the oil-based infrastructure so that it consumes coal directly.
- CWuestefeld 17y agoWhatever happened to that "thermal depolymerization" process, where scrap turkey guts, etc., were being turned into oil and other stuff? Several years ago I think I read that a pilot plant was being built that was (IIRC) technically successful but ran into problems with smelly emissions. Anybody know what has come of that? UPDATE: partial answer to my own question from Wikipedia: http://en.wikipedia.org/wiki/Thermal_depolymerization#Status_as_of_February_2009 http://en.wikipedia.org/wiki/Thermal_depolymerization#Status... "...He says the first generation of depolymerization centers will be up and running in 2005. By then it should be clear whether the technology is as miraculous as its backers claim." However, as of August 2008, the only operational plant listed at the company's website is the initial one in Carthage, Missouri. Changing World Technology applied for an IPO on 12 Aug 2008, hoping to raise $100 million. The unusual Dutch Auction type IPO failed possibly because CWT has lost nearly $20 million with very little revenue. CWT, the parent company of Renewable Energy Solutions, filed for Chapter 11 bankruptcy. No details on plans for the Carthage plant have been released. ...which doesn't tell us as much about the technical aspects as it does the business. It may all be tied up in the break-even point for the process, and the amount of government subsidies they've found.
- lionhearted 17y ago> Societal complexity is a function of excess energy availability That's true in it's most trivial sense, and false in any non-trivial sense. Quick examples - Qatar, Venezuela, Japan.
- randallsquared 17y agoYour Qatar and Japan examples, at least, make his point: the complexity of those cultures reflect the resource conditions in which they developed. Not sure about Venezuela. Japan, in particular, was the only place in the world where hunting and fishing could support large settled populations, if I remember my Jared Diamond correctly.
- WildUtah 17y agoJapan, in particular, was the only place in the world where hunting and fishing could support large settled populations Louisiana was more productive than Japan for wild fish and fowl. (Largely destroyed now by bad planning, pollution, and man-made environmental disasters)
- dinde 17y agoI got pretty into peak oil circa 2006, when peak was supposedly already occurring or was going to occur by 2008. It will happen eventually, but I'm not going to get into playing this guessing game again.
- RyanMcGreal 17y agoNo need to guess. Oil production has been flat around 85 million barrels a day for the past four years.
- dinde 17y agoDemand has been lower due to the global recession -- there is no indication that oil production can't go higher than ever before, once demand starts picking back up.
- RyanMcGreal 17y agoAnd what do you think triggered the global recession, if not an oil price that spiked to an economy-busting $147/bbl in the two years after production peaked at 85 mbpd?
- CWuestefeld 17y agoUmmmm... I kind of thought it was the combination of a US housing bubble in combination with poor risk management in the financial industry particularly respecting mortgates.
- RyanMcGreal 17y agohttp://research.cibcwm.com/economic_public/download/soct08.pdf http://research.cibcwm.com/economic_public/download/soct08.p...
- budu 17y agoAnd you believe that!!!
- heyrhett 17y agoWhy is bbl the abbreviation for "barrel"? Ahh, wikipedia knows: The "b" may have been doubled originally to indicate the plural (1 bl, 2 bbl), or possibly it was doubled to eliminate any confusion with bl as a symbol for the bale. Some sources claim that "bbl" originated as a symbol for "blue barrels" delivered by Standard Oil in its early days; this is probably incorrect because there are citations for the symbol at least as early as the late 1700s, long before Standard Oil was founded.
- bitwize 17y agoI thought it was just for nicer symmetry with hogshead (hhd).
- logic 17y agohttp://seekingalpha.com/article/18636-where-does-that-2nd-b-in-the-abbreviation-for-crude-barrels-bbl-come-from http://seekingalpha.com/article/18636-where-does-that-2nd-b-... Quote: In the early 1860's, when oil production began, there was no standard container for oil, so oil and petroleum products were stored and transported in barrels of all different shapes and sizes (beer barrels, fish barrels, molasses barrels, turpentine barrels, etc.). By the early 1870's, the 42-gallon barrel had been adopted as the standard for oil trade. This was 2 gallons per barrel more than the 40-gallon standard used by many other industries at the time. The extra 2 gallons was to allow for evaporation and leaking during tranport (most barrels were made of wood). Standard Oil began manufacturing 42 gallon barrels that were blue to be used for transporting petroleum. The use of a blue barrel, abbreviated "bbl," guaranteed a buyer that this was a 42-gallon barrel.
- fhars 17y agoThat quote doesn't explain why the abbreviation was used about a hundred years before stabndard oil introduced the blue barrel, as claimed by the wikipedia quote in the comment you ansered to. In fact, your quote just reiterates the claim that wikipedia said was probably false, so to make your argument you should instead show that the citations from the late 1700s are wrong. EDIT: This will be difficult, as it is quite easy to find citations for "bbl oil" from before 1850 using google books, the first I found was on p. 239 of a book called "Railway engines and cars" from 1832. So the blue barrel legend can be firmly laid to rest in peas.
- gnosis 17y agoExecutive summary: The author expects "government intervention of some kind to occur before prices get much above $200/bbl."
- SanPedroGrouch 17y agogovernment intervention is of course a euphemism for rationing. Rationing creates shortages which in turn causes steeper rationing, with the result being the economy slows to whatever pace is consistent with the limited supply of energy. For the USA that looks to be a lonnnng way down from here.
- gnosis 17y agoNot just rationing. TFA talks about price controls, nationalization of oil companies, and even outright invasion of other countries to obtain "cheap oil".
- jbooth 17y agoA combination of subsidies and taxes could align incentives well in advance without resorting to outright rationing.
- ars 17y agoYou can tax oil, if we are short of oil. But if we are sort of energy in general, then taxes won't work. Energy is the input to every single thing humans do. If you tax energy then the price of _everything_ will go up. You can't build a wind turbine without energy. If wind turbines produce less energy than it takes to make them, you are stuck. As it turns out wind turbines produce more, but not a lot more. Solar cells produce less. Even nuclear power just barely produces more than the energy used to build the plant (at least in the first 10-20 years).
- jbooth 17y agoTax oil, subsidize renewables and nuclear construction (but not operation). That'll do a lot towards building in the incentives that are currently being lost to free-rider and tragedy-of-the-commons.
- robak 17y agoPrice controls won't change anything. Did prices controls of food in the USSR kept worldwide food prices deflated? No! You see every nation in the world is competing for crude oil. If broken American can't afford it, Asians and Europeans will. The history shows us that price controls never worked. NEVER.
- robryan 17y agoI think the Internet will do a lot to lessen the effect of this when it does happen. People who can work from home probably will, when it costs a quarter to half your days wage just to make it to work it will offset any benefit you get by having a team in the same building. Also online distribution, things like books might become prohibitively expensive in the physical form and drive everyone to ebooks, all creative products really.
- synnik 17y agoBut the electricity powering the Internet is also somewhat oil-based, depending on exactly what fuels you local plant runs. It may not impact the individual homeowner, but the costs of the data centers and network providers will increase alongside oil prices.
- robryan 17y agoTrue, without any specific knowledge I would guess that power online services would still be more economical than revering back to an offline business model. Sure the costs will go up but freighting costs will go up more.
- philwelch 17y agoVery little electricity is petroleum based anymore. Depending on region it's mostly coal, hydro, or nuke.
- synnik 17y agoIt depends entirely on pricing. Most "coal" plants switch between coal and natural gas based on current market trends. And even if coal is burned, the fuel to get the coal to the plant is petroleum-based. There are a lot of complexities involved. Of course, working in the natural gas industry, I only have limited knowledge. :)
- klochner 17y agoTwo things: a) oil != gasoline http://www.ranken-energy.com/Products%20from%20Petroleum.htm http://www.ranken-energy.com/Products%20from%20Petroleum.htm b) Demand destruction doesn't preclude $500/bbl crude, it just means that when oil hits $500 there won't be nearly as many products that are dependent on it.
- izend 17y agoWe will reach $500/bbl eventually after the US dollar is hyper inflated away.
- timcederman 17y agoI keep hearing about how hyperinflation is about to hit. Surely in an efficient market, if this was truly likely, its effects would already be being felt? What is the rationale behind its prediction?
- philwelch 17y agoGoldbugs think any fiat currency will eventually hyperinflate. Note this is an unfalsifiable hypothesis.
- mediaman 17y agoMonetization of massive US debt, particularly due to the present value of the future liability of social programs. If current spending patterns don't change, monetization is the only alternative to defaulting on Treasury obligations, unless we begin cutting programs (ex. military spending) to help fund those liabilities or reduce those liabilities by reducing social program benefits. Given what just happened in the RMBS and CMBS market, it's hard to claim that we live with an efficient market, particularly with respect to long-term trends.
- motters 17y agoI wouldn't be so confident about naming a particular ceiling price, but as oil becomes more expensive demand will fall and individuals and industries will move to other sources of energy. In particular within the next 5-10 years it looks as if electric vehicles are going to be a growth area, mainly driven by rising costs on conventional fuel.
- ars 17y agoElectricity is not a "source of energy". If the price of oil goes up the price of electricity goes up too. There are no other sources of energy that are really practical today. Although some are close.
- motters 17y agoThe price of electrons is not necessarily linked to oil production, since electrons can be produced in ways which don't require much or any oil. There are other eminently practical energy sources available. The main issue is that these have historically not been price competitive with oil. As oil extraction becomes more difficult the economics of energy will change.
- ars 17y agoI don't think you realize how interconnected, and interchangeable all forms of energy are. Not being price competitive with oil means it costs more energy to make then it produces. If something made more energy than it costs to make it (over 10 to 20 years), then it would be built. Why not build it? It's guaranteed profit. But, in actuality there isn't anything like that. Every single form of energy is being tapped to the maximum possible. It's the nature of capitalism. If the price of oil went up, the price of everything goes up. If the price of raw materials goes up, it costs more to build some alternate form of energy, so you get nowhere.
- motters 17y agoThe idea that capitalism is either a natural or optimal system doesn't stand up to much serious scrutiny. If you're referring to "cost" in terms of energy cost then yes there is always some amount of energy which needs to be put in to get energy out, with the result being the net energy gain. For other forms of energy, such as bio-fuels, the net energy gain is presently smaller but this does not invalidate these technologies. As the complexity of extracting oil increases its net energy gain will reach parity with other energy sources, and then begin to lag behind them. The economy - with all its foibles - will eventually back the winners out of pure necessity.
- strebler 17y agoI would like to see some sources for the "more than 100 years of oil left" claim. If it's at all based on 'public reserve levels' declared by oil producing countries, those are basically totally fabricated. http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7500669/Oil-reserves-exaggerated-by-one-third.html http://www.telegraph.co.uk/finance/newsbysector/energy/oilan... In any case, it's the first claim in the article, he should back it up.
- DanielBMarkham 17y agoDick Cheney returns to political power as an American Hitler laying waste to sovereignty in the Middle East! Very imaginative. But not very likely. I think peak cheap oil is likely within the next decade. What a person thinks happens after that says more about the person than it does the future.
- patrickk 17y ago“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” Sheikh Yamani, Saudi Oil Minister, 1962-1986
- cookingrobot 17y agoThat's poetic - but is it true?
- metamemetics 17y agoDefinately. We've had commercial electric cars since 1897 and commercial nuclear power plants since 1956.
- patrickk 17y agoWe've been here before, too, except before it was food shortages and 100s of millions dying that were being predicted in alarmist tones: http://en.wikipedia.org/wiki/The_Population_Bomb http://en.wikipedia.org/wiki/The_Population_Bomb And the solution, which apparently now sustains one third of the world's population: http://en.wikipedia.org/wiki/Haber_process http://en.wikipedia.org/wiki/Haber_process My prediction, is that like before, science will solve the problem and this will all disappear into the memory. Man's capacity to wipe itself out is far outpaced by it's ingenuity to sustain itself. Then: Cold War, oil shocks Now: Terrorism, oil shocks History always repeats itself.