April 22: Earth Day or Peak Oil Day?
April 22, 2005 5:34 PM   Subscribe

Today the Saudi Oil Minister announced that they are setting aside OPEC production quotas. Is the end for OPEC? More importantly, when the Texas Railroad Commission did the same thing in 1971, it signaled the peaking of US oil production. Oil prices keep rising, and the Main Stream Media blames it on tight refinery capacity. But simple economics tells us that this should actually cause crude prices to drop. So what is happening? Is this the peak of global oil production? President Bush is concerned, and he is hosting Crown Prince Abdullah at the Crawford Ranch this week. Leading Oil & Gas investment banker Matt Simmons thinks that the peak is upon us, and even the Saudi Oil Minister admits that they probably won’t find any more light, sweet crude…
posted by DAJ (81 comments total)

 
> Is this the peak of global oil production?

...and the end of the world as we know it? One can hope.
posted by jfuller at 5:56 PM on April 22, 2005


IS that it? The Guardian's John Vidal paints a pessimistic picture.
posted by MrMerlot at 6:02 PM on April 22, 2005


There appears to be a lot of new demand from places like China. If it persists then who needs quotas to keep prices up? The quotas have greatly stabilized world oil prices for the last quarter century. If this extra demand actually overcomes the quota system we can look forward to some pretty wild volatility in the future. Volatility is probably worse than high prices in terms of its negative effects upon the economy and family budgets.
posted by caddis at 6:05 PM on April 22, 2005


I'm going to turn this into an AskMe post: Why is it that gas prices are so low in the US as compared to other countries? Do other countries tax the hell out of it? Does our government artificially keep the price lower? What gives?
posted by goatdog at 6:11 PM on April 22, 2005


Goatdog:

I only know the basics for UK vs. US: In the US the cost of gas at the pump is almost all gas cost, and very little tax cost. That's why rising crude prices have large impacts in US gas prices. In the UK, the cost (roughly $4/gal at the pump) is almost all tax, and it's my understanding that the level of tax even adjusts in opposition to crude oil prices to some small degree to help even out the crude price flux... which seems like a good idea--as caddis pointed out, volatility that can be very damaging as well.
posted by DAJ at 6:18 PM on April 22, 2005


Some interesting related reading

The 1973 Oil Crisis and the 1979 Energy Crisis

We did have a far amount of warning, like 25 years is enough to do lots. But let's be optimistic and think it's just another "free market" behavior that is going to spur another production of sophisticated models explaining why, when, who and what and that the price will return to a less severe level.

Even if it hall happens, what's preventing us from doing anything possible to reduce the absolute quantity of oil consumed ? No matter what the market will say, there must be a limit to the oil avaiable. Even if the limit is far from being approached, it only makes sense to reduce dependence from an handful of countries and it only makes sense to rationalize consumption (tax gas guzzlers out of the space thus pushing hard on innovation or rationalization). Also from a consumer point of view reducing our depedence on the will of an handful of corporations again makes a lot of sense.
posted by elpapacito at 6:51 PM on April 22, 2005


No matter what the market will say, there must be a limit to the oil avaiable.

Why...why...that's crazy talk! How dare you suggest that a finite resource may actually one day come to and end after a century's worth of setting fire to it. Go back to Leningrad, godless pinko.
posted by Jimbob at 7:00 PM on April 22, 2005


Ahh the light, sweet crude...
long I have dreamt of it's cool caress
is there anything finer?
posted by kuatto at 7:07 PM on April 22, 2005


Umm if you read the linked article, Bush hosted the Crown Prince on April 25, 2002. In fact, if you read it, refers to Powell and Arafat...

Poor effort, sorry.
posted by theducks at 7:08 PM on April 22, 2005


Ahhhh, crap. Here's the correct link, to the meeting between President Bush and Crown prince Abdallah in Crawford Texas on April 25, 2005. Sorry for the mix up:

http://news.ft.com/cms/s/fb44193c-b278-11d9-bcc6-00000e2511c8.html
posted by DAJ at 7:27 PM on April 22, 2005


Oil refineries process crude oil--and they process at a very constant rate all year long.

No, they don't. It takes only a brief glance at the pretty pictures in the EIA's weekly report to see that this isn't true, and that refinery inputs have generally gone higher over the last year, in the US. And the numbers are now heading up towards the seasonal peak. In the rest of the world, I expect there is a somewhat larger increase. What does this tell us? Simple, it's Econ 101: Jeff Vail is an idiot.

It will be most interesting to see how high Saudi production can go.
posted by sfenders at 7:46 PM on April 22, 2005


What's most remarkable is how much effect the Peak Oil story is having on markets and politics. True or not, now or later, no one really knows, but the effects of the story are real and happening right now today. I've been following it since it was just a tiny Internet meme that no one had heard of and now its all grown up and mainstream. Just one word: Plastics.
posted by stbalbach at 8:15 PM on April 22, 2005


The Saudi's big worry is that higher prices will lead to increased production elsewhere. They've been steadily loosing their traditional role as the swing producer who controls both prices and production (the two are loosely coupled).

The big nightmare in the oil industry is prices high enough to bring a bunch of new producers on line. These new producers have to recover exploration and drilling costs faster than established wells and will tend to pump as fast as they can to do that cost recovery.

The result is a short term shortage followed by an increase in production and fall in prices. And the oil industry gets very unstable if prices fall too low.

There is a big fallacy in the Peak Oil nonsense (much of which has been pushed by conspiratorialists like Mike Rupert.) The price of oil can rise high enough that synthetic fuel from coal (like the Germans produced during WWII) becomes cheaper. Some of the modern refinery processes (like hydrogen reformers) already use this principle to increase the octane rating of distilates.

And a shift to synfuel would likewise send OPEC into a death spiral.

So the Saudi's have an intense interest in preventing prices from rising too high.

And because of the synfuel angle, the peak of oil production doesn't have to coincide with a peak in petrochemical fuel consumption.

A similar sort of shift in production occured in England in the 1700's when iron production shifted fuel from charcoal to coal. The deforestation of Merrie Olde Englande (Peak Charcoal) didn't cause a slump in iron production. Instead, it boomed.
posted by warbaby at 8:17 PM on April 22, 2005



DAJ - your $4 per gal is way off...
3.785 litres to the US gallon (every day)
1GBP = 1.91USD (today)
Average Litre Cost as of April '05 (According to AA motoring Trust) = 86p

.86 * 1.91 * 3.785 = $6.21 per gallon

73.4% of the cost of fuel in the UK is duty.

posted by BadSeamus at 8:30 PM on April 22, 2005


Awesome warbaby.
posted by tomharpel at 8:32 PM on April 22, 2005


The result is a short term shortage followed by an increase in prouction and fall in prices.

Well, we'll see. I don't think so. Decline rates are getting rather steep, and people who seem to know where it's at tell me that new production soon won't be able to keep up... That short-term shortage could be 20 years or more.

But this "Peak Oil!" call was still a bit premature... we probably have at least six months or so before the oil supply can't keep up with demand, and most likely another year or three after that before production actually starts to decline. Plenty of time to start digging up all that coal, eh?
posted by sfenders at 8:40 PM on April 22, 2005


Sfenders: you should source your data. You claim that refinery production has generally gone higher, either in production or capacity over the past year. Well, in the latest EIA weekly report, that you reference, on page 3 is the "pretty picture", wich shows both operable capacity and gross inputs to the refinery system IDENTICAL to those of January 2004. Perhaps that's why you didn't link to the report, and just made some unsubstantiated claim?

Bottom line: the article's logic holds--if capacity and inputs to the refinery system haven't changed, then price rises are most likely due to a decrease in crude supply. Inelasticity of domestic demand ensures that inputs remain at maximum operable levels, and prices rise. Which Econ 101 class did you take???

Warbaby: you seem to doubt the peak oil hypothesis. Maybe you could explain to us how you are better qualified to assess the situation than Matthew Simmons??
posted by DAJ at 8:42 PM on April 22, 2005


More like, interesting, warbaby. But how much synthetic fuel was Germany actually producing compared to the gas we consume today? I'd bet not much. And I'd be right. The article I just linked, by the way, does not explain to me how we'd get the industrial infrastructure (Nuclear, wind/solar or hydroelectric energy and not petroleum-based power to produce the fuel, right? Probably nuclear would be best? And how long does it take to set up a nuclear plant?) up fast enough to handle a severe crisis. And it is also written under the assumption that Congress will have enough money to handle the job. And what happens with the soldiers and equipment in Iraq in the interim, etc.? Then, can my more recent vintage (2001) vehicle, which I'm thinking was designed with a bit more technical precision than your standard issue WWII-era vehicles, handle this fuel?
posted by raysmj at 8:56 PM on April 22, 2005


The article I meant to link.
posted by raysmj at 8:58 PM on April 22, 2005


Worry, whine, gripe, cower, whine...lighten up, Francis!
posted by davidmsc at 9:19 PM on April 22, 2005


daj: I don't doubt the basic hypothesis that there is a finite amount of oil and it will be exhausted at some point in the future. However, I seriously question the unexamined assumption that there are no substitute fuel technologies. As I said earlier, peak production of oil doesn't necessarily imply a drop in consumption.

My qualifications are my five years experience working in petrochemical engineering, several undergraduate years in the history of science and technology and twenty plus years in research and analysis. In the runup to the Iraq war, I spent a year reading up on the international oil market and the history of Saudi Arabia.

One of the old fart engineers I worked with was heavily engaged in synfuel and oil shale in the 1970s. Those technologies are pretty well understood, they are just not as cheap as oil. That looks like it will be changing in the future. Think about the charcoal / deforestation example from the 18th century.

Simmons is just parroting what he's reading in mainstream sources, it's not like he figured any of this out. I've only glanced at his PowerPoint stuff, but I didn't see anything that looked like critical analysis or deep thinking. Of course, by the time anything gets filtered through PowerPoint it looks either simplistically superficial or just plain gibberish.

He and I disagree. We both have reasonable track records in research and analysis.

The critical point where the analyses diverge is the question of whether other fuel feedstocks can be brought on line. I've worked with people who've built pilot plants that say yes.

On preview:

raysmj: The Germans had a very efficient process but only a few small plants. So their quantity of production is sort of a red herring. Hydrogen reforming (which makes big hydrocarbons out of little ones) is old hat technology. The article you reference says the US could use synfuel as a step towards energy independence. Good reference.

There is a future for nuclear, but nukes make electricity, not vehicle fuel. And vehicle fuel is the critical deal.
posted by warbaby at 9:25 PM on April 22, 2005


DAJ: you should source your data.

Well, I thought it was pretty obvious, but...

Refinery crude oil inputs, January 2004 was 14816, vs. 15201 in 2005. By what measure exactly, is that "exactly" the same? Percent utilization varied from 88.6% to 97.1% in 2004. Gasoline production was up slightly y/y in January, but looks to be lagging a bit behind where it should be in the past two months. (Staring at these numbers is telling me that gasoline supplies will be tight this year.)

Anyway. Year over year, January crude oil inputs were up by almost 400,000bpd. That represents about 4% of crude oil imports. Hardly an insignifcant change. That doesn't necessarily represent the trend, but it's not all that far off. Can you find any statistics, data, supporting analysis, or actual evidence of any sort whatsoever that global crude oil production is lower this year than it was last? I rather suspect not. US numbers are not so enough there, of course; you'd have to look at global data, detailed versions of which are a little harder to come by. The US numbers just serve to illustrate that crude oil imports and refinery inputs are far from constant. US imports are up compared to a year ago, and it's basically known to everyone on the planet by now that the amount of oil shipped to China is up compared to a year ago. It's just total nonsense to suggest that demand has been constant.

Now... while "supply" in the sense of the actual amount produced has gone up, I do agree that "supply" as in the shape of the supply curve, has also shifted to make oil more expensive. But you need to look much deeper than just the fact that prices went up to find any actual evidence of that. And demand growth is by far the larger factor.
posted by sfenders at 9:33 PM on April 22, 2005


warbaby: To make vehicle fuel, however, you need electricity - as in, for a refinery or whatever. They don't run themselves. You don't have chimpmunks running on conveyor belts that make gasoline, in some sort of mouse trap scenario. The point of the German capacity comparison in the article was in re to expense of producing the fuel. And we have major fiscal problems at the federal level now, and the logistical ones here would be nightmarish, I'm guessing (especially considering how much we already have going on in the world).
posted by raysmj at 9:38 PM on April 22, 2005


but nukes make electricity, not vehicle fuel. And vehicle fuel is the critical deal Ships can be propelled by nuclear fuel this would help in a transition period by freeing up traditional oil for petro/deisal transportation. About 90 - 95% of world trade is carried by ships.
posted by adamvasco at 9:46 PM on April 22, 2005


raysmj: The refineries hereabouts all went off the grid in late 2000 when Enron screwed up the electric rates. We put in big banks of portable generators. Some of the refineries have cogen plants and are net producers of electricity.

It's really a question of relative cost. If hydro power is cheaper than combustion power, we'll burn salmon instead of carbon. The technology for all of this is really old hat. The questions are economic, not physics or chemistry.
posted by warbaby at 9:50 PM on April 22, 2005


warbaby: Simmons is just parroting what he's reading in mainstream sources, it's not like he figured any of this out. I've only glanced at his PowerPoint stuff, but I didn't see anything that looked like critical analysis or deep thinking.

What gives you that idea about Simmons? His work is relatively unknown to me, but he certainly gives the impression that he went to some trouble to get all of all those hard-to-find reports from Saudi Arabia that are the basis for his book. More often I see the mainstream parroting and/or misinterpreting him, as in that Bank of Montreal analyst report that was going around last week. I wouldn't think the PowerPoint fluff is representative of his work... I hope you aren't dismissing his opinion based just on that.

However, I seriously question the unexamined assumption that there are no substitute fuel technologies. As I said earlier, peak production of oil doesn't necessarily imply a drop in consumption.

That there are viable substitutes doesn't necessarily imply that they can or will be developed quickly enough to avoid a drop in consumption.
posted by sfenders at 9:56 PM on April 22, 2005


sfenders: Production doesn't drop quickly when a producing field plays out. The decline in production is actually slow compared to the speed with which you can build an industrial plant or refinery.

I just skimmed Simmons' PowerPoint presentations linked from the FPP -- and like I said -- he's not saying anything much different from what I've been reading from other people in the field. This isn't news to the industry.

To recap, the Saudis are acting to keep prices down because if they go to high, more sources (including synfuels if prices go high enough) will come on line. Their big worry is a production overhang causing a price crash, not a rapid decline in production.

price crashes are a big upheaval in the oil industry. That's when companies with liquidity problems get gobbled up in hostile takeovers. Hell, the refineries here have been changing hands so rapidly the operators joke about having their company patches velcro'ed onto their nomex. heh.
posted by warbaby at 10:19 PM on April 22, 2005


warbaby: Who pays for converting all refineries to cogeneration systems? Are they totally self-sustaining in the first place? Wouldn't converting coal into synthetic fuel take an enormous amount of energy? And what ran the generators in California? Diesel fuel?
posted by raysmj at 10:20 PM on April 22, 2005


"daj: I don't doubt the basic hypothesis that there is a finite amount of oil and it will be exhausted at some point in the future. However, I seriously question the unexamined assumption that there are no substitute fuel technologies. As I said earlier, peak production of oil doesn't necessarily imply a drop in consumption."

warbaby - yes, and let me add : the idea that there is some sort of "energy" bottleneck is absurd. The current energy inefficiencies in human industrial systems are such that those processes could be run on a fraction of their current energy budgets. And, petrochemical energy liberated from the earth's crust is merely a form of bound Solar energy. But, that Solar energy can be directly tapped.

Really, the problem lies between human, and overly thick, skulls.
posted by troutfishing at 10:44 PM on April 22, 2005


Okay, yeah, production won't drop all that quickly... but it just has to stop rising rapidly to cause some very high prices and ensuant economic dislocations. If Simmons is right that supply might not be enough to keep up with the expected rate of demand growth for even this year, that's already going to be a little uncomfortable. That's one more thing the Saudis claim to be worried about, though it would have to be pretty catastrophic to cause any significant decline in demand for oil.

The decline in production is actually slow compared to the speed with which you can build an industrial plant or refinery.

Well, I hope you're right on that. These guys disagree, but I really don't know.

("ensuant" ? why do I even know that word?)
posted by sfenders at 10:46 PM on April 22, 2005


warbaby: nuclear makes electricity, electricity can crack water, hydrogen can run vehicles.

So is the economics of that crap? I dunno, but if I were an energy zsar I'd give that a serious look over syn-fuels. A very, very serious look.
posted by teece at 11:24 PM on April 22, 2005


About 90 - 95% of world trade is carried by ships.

vs.

In the last two decades more than 200 supertankers and container ships more than 200 metres long have been sunk by severe weather cite

Ships /can/ trade volume for fuel capacity though, so some sort of solar -> hydrogen cycle may be economical.

One thing we're missing in this debate is peak oil means the end of CHEAP energy for the foreseeable future. Good thing we've built our cities around efficient use of energy these past 25 years, huh?
posted by Heywood Mogroot at 11:50 PM on April 22, 2005


?So is the economics of that crap?

here on mefi I calculated that the US electrical grid would have to double to support the 100% conversion of gasoline to battery power. It would have to quadruple to support hydrogen, since electrolysis is 50% efficient.

If we've got nukes, we can just go battery power. Battery power is great, once the greaseheads learn they can get immense torques at low vehicle speeds they'll be all over it. Might have to add a 5.3 engine sound system going VOOM VOOM to keep the idiots happy, tho.
posted by Heywood Mogroot at 11:53 PM on April 22, 2005


Despite crude rising, gasoline prices at the pump are lower now than they were in the 1980's, in real dollars:



If that graphic doesn't work then it's from the New York Times story: "Oil's Lesser Role in U.S. Economy Limits Damage From High Prices" (registration, blah blah blah)

To comment on the last peak oil thread where somebody brought up "why aren't cars more fuel efficient?" Cars are the most efficient they've ever been, horsepower-for-horsepower. Consumers are just demanding more horsepower (more cars than ever are over 200 horsepower, and that new Mercedes produces a NASCAR-esque 450 horsepower). My first car was an 1982 Accord (I'm dating myself here) that had a whopping 75 horsepower. Now I drive a 1996 Accord and it gets double the horsepower (I think it's 145 ponies) and almost the exact same miles-per-gallon. When I'm merging onto I-280 I thank Honda for finding a way to double my power without cutting into fuel efficiency. I know it's a tangent, but the other thread is archived.
posted by thedevildancedlightly at 1:29 AM on April 23, 2005


Whether or not peak oil is blown out of proportion right now (I don't think it is), this is quite the blow to the knees of OPEC.

Very interesting.
posted by blacklite at 1:36 AM on April 23, 2005


And a shift to synfuel would likewise send OPEC into a death spiral.

How cheaply can we make synfuels? The canadian tarsands are looking at, what, $30/bbl, and that's with cheap & available natural gas feederstock.

OPEC is going to be doing very well regardless how well we economize, since the end of CHEAP OIL is over, and the Gulf still has the lowest cost at the wellhead (though of course our occupying the #2 nation does alter the balance somewhat).
posted by Heywood Mogroot at 3:47 AM on April 23, 2005


gasoline prices at the pump are lower now than they were in the 1980's

actually, right now here in California a gallon of gas costs the same in real terms as it did at the peak in 1981, ~$2.70.

I know the API wants us to believe that Gasoline is a bargain but the fact is the major internationals are pulling in consistent 15% net operating margins under the present administration. This isn't an ass raping, but it is a significant income flow from the public and less shall we say connected sectors of the economy.

But the fact of peak oil, if it is real, is that the system will be tightening up, not slackening after the 1981 shock. And it is important to note that the 1981 gas shock hit the economy pretty damn hard. The proof of peak oil is whether or not prices decline from their current peaks like they did in previous shocks. Where's your money on this proposition?

Consumers are just demanding more horsepower

All bow to the Invisible Hand, Wise And Good. Amen.

But you do bring up an interesting point wrt traffic safety. I'd like to see technology applied to make traffic streams move more efficiently. Where is your Invisible Hand working on this, conservatives? Will it be left to the satanic Democratic State to intervene in the holy Free Market's affairs to get your divine force off its ass?
posted by Heywood Mogroot at 4:07 AM on April 23, 2005


(The Athabasca tar sands are profitable at $20/bbl apparently, but that does count a prodigious use of natural gas that is unsustainable over the long term, plus techniques will be necessary to get at the deeper stuff where most of the reserves are... the funniest thing I've read in a while is that digging up our existing blacktop and reprocessing it for oil would be more cost-efficient than the Albertan tar sands...)
posted by Heywood Mogroot at 4:26 AM on April 23, 2005


Heywood - you realize net margin alone is a meaningless metric of profitability?
posted by JPD at 4:30 AM on April 23, 2005


Huh? I'm talking net not gross here...
posted by Heywood Mogroot at 4:44 AM on April 23, 2005


There is a big fallacy in the Peak Oil nonsense (much of which has been pushed by conspiratorialists like Mike Rupert.) The price of oil can rise high enough that synthetic fuel from coal (like the Germans produced during WWII) becomes cheaper. Some of the modern refinery processes (like hydrogen reformers) already use this principle to increase the octane rating of distilates.

And a shift to synfuel would likewise send OPEC into a death spiral.,


Let me get this straight. You are claiming that producers that ONLY have to remove the oil from the ground are going to do worse than producers who have to add emergy (Howard Odum - eMergy)?

De-nile is not just a river in Eygpt.
posted by rough ashlar at 5:17 AM on April 23, 2005


One thing we're missing in this debate is peak oil means the end of CHEAP energy for the foreseeable future.

No, some of us have got that idea down.
posted by rough ashlar at 5:18 AM on April 23, 2005


More on 'emergy'

That's way out of my brainpower league from casual inspection, but it does look interesting. I note that apparently there is a greater energy input from geotherman than solar. This kinda makes sense to me, since the amount of heat energy in the earth is truly mind-boggling, while the Sun's 1kw/m2 isn't so hot, really.

Related to this is Odum's study of ROI of solar:

"H.T. Odum's eMergy calculations show that the only forms of alternative energy that can survive the exhaustion of fossil fuel are biomass (burning wood, animal dung, or peat), hydroelectric, geothermal in volcanic areas, and some wind electrical generation. No other alternatives (e.g., solar voltaic) produce a large enough net eMergy to be sustainable. In short, there is no way out."

(from usenet)

But I still think solar has a role to play in reducing peak daytime demand which happens to occur near noontime, especially in areas with high annual insolation %s.
posted by Heywood Mogroot at 5:38 AM on April 23, 2005


warbaby: you make extracting coal seem like the easiest thing in the world, but right now, in appalachia, coal extraction means blowing away whole mountains, and dumping the overburden in the rivers.

http://boston.indymedia.org/usermedia/image/2/4926_1_EPSN0042.jpg
http://boston.indymedia.org/newswire/display/34907/index.php

and there's still the larger problem of the increasing co2 input into the atmosphere.

I don't know, i guess this is off -topic, or exploding the topic, but what prices never include are the long-term costs of energy production.
posted by eustatic at 6:08 AM on April 23, 2005


Ravaioli: But we know that it takes millions of years to create an oil well, and we can't reproduce it. Relying on oil means living on our capital and not on the interest, which would be the sensible course. Don't you agree?

Nobel Laureate Friedman: If we were living on the capital, the market price would go up. The price of truly limited resources will rise over time. The price of oil has not been rising, so we're not living on the capital. When that is no longer true, the price system will give a signal and the price of oil will go up. As always happens with a truly limited resource.

Ravaioli: Of course the discovery of new oil wells has given the illusion of unlimited oil …

Nobel Laureate Friedman: Why an illusion?

Ravaioli: Because we know it’s a limited resource.

Nobel Laureate Friedman: Excuse me, it's not limited from an economic point of view. You have to separate the economic from the physical point of view.

vs:

Economists are trained to believe that we will never "run out" of a commodity. This is because as prices increase, we will use less-and-less of it, but there will always be some available at some finite price. Practically every economics textbook teaches this. But every economics textbook is wrong because "energy" is fundamentally different from every other commodity. There is no substitute for energy. Energy is the prerequisite for all other commodities, so if we "run out" of energy, we will "run out" of everything else too.

By definition, energy "sources" must produce more energy than they consume, otherwise they are called "sinks". By definition, energy sources have "run out" when they consume more energy than they produce. This universal energy law holds no matter how high the money price of energy goes. Economists completely miss this basic energy law and have misled government regulators all over the world.
posted by Heywood Mogroot at 6:34 AM on April 23, 2005


very interesting thread everybody, thanks
posted by matteo at 6:45 AM on April 23, 2005


Around the year 2005, global oil production will "peak", and the spike in oil prices will quickly exacerbate other major problems facing industrial agriculture.[52] Food grains produced with modern, high-yield methods (including packaging and delivery) now contain between four and ten calories of fossil fuel for every calorie of solar energy. It has been estimated that about four percent of the nation's energy budget is used to grow food, while
about 10 to 13 percent is needed to put it on our plates. In other words, a staggering total of 17 percent of America's energy budget is consumed by agriculture!

(usenet post from gloom-n-doomer Jay Hanson)



(pessimistic dieoff.org diagram of how the Invisible Hand will 'save' us)
posted by Heywood Mogroot at 7:00 AM on April 23, 2005


This has been an interesting thread.

I keep seeing comments that suggest people think Peak Oil is some sort of instantaneous catastrophe. Nope, it's slowly sliding over the peak of a bell curve. The first derivative is zero at peak. It's like listening for a dripping faucet to stop -- a great occupation for paranoids.

It used to be Y2K, now it's Peak Oil. Hypothetical disaster de jour.

From the Guardian article cited upthread:

"Don't worry about oil running out; it won't for very many years," the Oxford PhD told the bankers in a message that he will repeat to businessmen, academics and investment analysts at a conference in Edinburgh next week. "The issue is the long downward slope that opens on the other side of peak production. Oil and gas dominate our lives, and their decline will change the world in radical and unpredictable ways," he says.

"long downward slope" - long, as in slow change, as in doesn't happen fast.

Did anybody notice Texas implode castastrophically in the late 1970's? Me neither.

And as for the question of where does the money come from? Like always, it comes from the workers. You don't honestly think the plutocrats MAKE money, do you? They just find ways to take other peoples' money.
posted by warbaby at 8:42 AM on April 23, 2005


The very concept of peak oil is aggravatingly simplistic. As an emotional term it has some vague "let's panic" meaning, but at an intellectual level--nothing.

Yes, there is a maximum amount of one kind of oil that can be pumped economically. And this means that those who can less afford it will have to cut back. It also means that the biggest consumers can get discounts on major oil contracts, while smaller consumers have to pay "retail" on the spot market.

But as you will see in the oil producing countries of the middle east, there is an almost frantic effort to diversify their economies, mostly to air hubs and tourism. These are not the actions of 'peak oil' producers. This is done with the anticipation that oil demand will soon shift from the first world that can pay premium prices for it, to the third and fourth world that cannot. Relegating oil to a much less valuable commodity status.

And, surprise, the US oil companies are both cutting back the number of refineries to the bare minimum--not something you want to do if you think that demand may suddenly drive the price sky high. You would want to be able to produce as much as possible, radically increasing your profit margin.

The main assumption is that new fuel cell technologies will so radically diminish the amount of oil required, while producing so much more energy per barrel of whatever fuel, that there will be a collapse in prices. Between America, Japan and western Europe, an explosion of both centralized and decentralized energy production could first affect the oil markets within a year, and devastate them in five years.

Even the Chinese will have bypassed the problem, not with fuel cells, but with a huge number of easy-to-build modular pebble-bed nuclear reactors.

In the short run, the developed world will reduce its oil demand to almost exclusively vehicles. This will crash the spot (marginal demand) market, leaving only the bulk market where oil right now is in the $30/bbl range. And this price can only be maintained with 100% demand on the bulk market. At less that 100%, it is a buyer's market, and oil could plummet to around just barely greater than production costs at $12/bbl.
posted by kablam at 8:49 AM on April 23, 2005


> we probably have at least six months or so before the oil supply can't keep up with
> demand, and most likely another year or three after that before production actually
> starts to decline. Plenty of time to start digging up all that coal, eh?

Sounds like it's time to dust off my scheme of farming whales for oil and start the first round of financing. This is neither an offer to sell nor a solicitation of offers to buy, that is made only by the prospectus.
posted by jfuller at 8:58 AM on April 23, 2005


as in slow change, as in doesn't happen fast

I don't know what the future holds, nobody does, really.

Did anybody notice Texas implode castastrophically in the late 1970's?

Umm, yah?

Didn't "W"'s investors lose their shirts when his Bush Exploration Oil company went essentially bankrupt and was bought out by Spectrum 7, which in turn was driven into the ground until bought out by Harken, which was then driven into the ground until it hooked up with the Bahranians (when W's dad was Pres).

Didn't real estate pancake in Texas?

Wasn't a large part of the S&L debacle resultant from this disaster, which we are still paying off?
posted by Heywood Mogroot at 9:06 AM on April 23, 2005


"Emergy analysis, or its 1970's precursor, told Howard Odum that oil shale would never work out. It told him that solar energy would not be useful except in special situations- space heating or water heating in warm climates- where it was worth spending excessive emergy in labor and materials to collect some heat at the right place and time." cite

ah. OK then. Good to see my intuition about the sunbelt was right, or at least not contradicted by Odum...
posted by Heywood Mogroot at 9:11 AM on April 23, 2005


the US oil companies are both cutting back the number of refineries to the bare minimum--not something you want to do if you think that demand may suddenly drive the price sky high. You would want to be able to produce as much as possible, radically increasing your profit margin.

? Big Oil wants to meet demand, nothing more. The current refineries are obviously meeting present demand, and as prices rise further demand growth will in fact be depressed. People won't be making so many 500 mile trips this summer if gas is $3/gal, I can tell you that. Man, I need to check the prices of used RVs now...

The main assumption is that new fuel cell technologies will so radically diminish the amount of oil required, while producing so much more energy per barrel of whatever fuel, that there will be a collapse in prices.

huh? Hydrogen fuel cells are 85% efficient for transportation, once you get the Hydrogen, but producing the hydrogen, and delivering it to the vehicle, is the tricky bit, energy-wise.

eg. the energy density of hydrogen is so low that trucking it to the corner distribution center is a non-starter.
posted by Heywood Mogroot at 9:25 AM on April 23, 2005


I can't wait to see the cultural implications of decreased oil supplies. All those red state folks are gonna have to start thinking about moving back to the cities. Gonna have to give up those acres of unused land. Gonna have to learn how to live in peace with people that don't share your point of view.

Economists are trained to believe that we will never "run out" of a commodity.

I dunno. I'd pay good money for roast Dodo a'la King.
posted by Civil_Disobedient at 9:25 AM on April 23, 2005


It's not much of a catastrophe if that evil little frat boy in the White House survived to create the current mess. I'm talking catastrophe like a black hole that would create a real-estate shortage in Oklahoma, Louisiana and Mexico. the sort of castatrophe we were promised for Y2K but never go delivered.

I'm not talking some piddley little slump in real-estate prices.

I mean catastrophe that would make Slim Pickens soil his union suit. A catastrophe that would make a Unitarian come to Jesus. A catastrophe that would make Krakatoa look like the 4th of July in East Bumfuck.

A Texas-size catastrophe.

The sort of catastrophe people seem to be imagining for Peak Oil. That kind of catastrophe.
posted by warbaby at 9:33 AM on April 23, 2005


Great thread, folks ... especially those who provided high quality links. In that light, would you care to provide some, Kablam? For instance, on this:

The main assumption is that new fuel cell technologies will so radically diminish the amount of oil required, while producing so much more energy per barrel of whatever fuel, that there will be a collapse in prices.

Specifically: what's a realistic estimate for how long before fuel cell equipped vehicles make a meaningful dent in oil consumption (say, a couple bbl a year)?

On other points, could people comment on:

* On the "no worry" side, even if worldwide (conventional) oil production peaks by the end of the year, if it follow's Hubbert's bell-shaped peak, supply begins a slow, though later accelerating, decline. However, consumption is not likely to stop rising or even drop in a sufficiently accommodating fashion. It is my understanding that as supply gets tight, we will be treated to a period of extreme price volatility.

* Regardless, if a transition to alternate fuels is in the cards, how prepared are major industrialised countries to make this transition? How long does it take for, eg., coal derived synfuel production capacity to be able to furnish a significant (say a couple bbl a year) fraction of current consumption?

* Taking their statements at face value, Canadian oil sand producers claim to be economic at > 20 $/bl. What is the equivalent "break-even" point for coal synfuel?
posted by bumpkin at 9:50 AM on April 23, 2005


One of the best threads I followed since some time.

The oil peak is one thing but nobody, well in his mind, forecasts that the world will stop for that.

What more particularly interests me is the convergence in the foreseeable short future of a series of parameters:
+ oil peak
+ industrial globalization (China, India, Brazil,...)
+ speeding up of scientific and technological change
+ population explosion (9 billion by 2050)
+ climate change
+ water and air poisoning
+ mass extinction of human cultures
+ mass-extinction of species
+ atomization in advanced industrial societies.

One thing is for sure. The convergence of those phenomena during the next 20 to 50 years will overwhelm human comprehensibility. At one point we'll reach a "singularity": the point from where humanity can't comprehend any longer what's going on...

One of the founders of the theory of chaos, Prigogyne, was saying in an interesting interview just before his death that "the chemical reactions that occur present us with what I call "bifurcation points"--points at which choices and new solutions appear. Generally, more than one solution appears, so that at the point of bifurcation, probability and self-organization come into play".

The point of singularity is thus the point from where humanity will lose its power at rationalizing and its choices to weigh on the scale of probability will be vanishing. This is when humanity loses its ability at self-organization...

I think that to detach the oil peak question from the other parameters of the great convergence is akin to speculating about abstractions. Reality is larger than one part. How the part interacts with the other parts in the ensemble is what counts...
posted by laodan at 10:00 AM on April 23, 2005


The sort of catastrophe people seem to be imagining for Peak Oil. That kind of catastrophe.

I agree the more overwrought 'die off' arguments seem a bit detached from reality.

I do have a measure of faith in the free market, that solutions will be assembled to mitigate the worst of the crunch (not that I expect Big Oil to lift a finger, tho).

But I didn't have a car in the late 1970s (too young to drive), I am kinda curious of history will repeat with odd/even days etc.

Pump prices in Dallas have risen from $1.30 to over $2.00 in under 3 years (add $0.50+ for California prices)... this CAN'T be good for the economy.

So this is an interesting question, just wish we weren't leaving it up to Big Oil to write our national energy policy.

I don't buy Kunstler's Clusterfuck Nation treatise entirely, but I do see a lot of wasteful inefficiencies and general stupidity in the various corners we have painted ourselves into over the years.
posted by Heywood Mogroot at 10:11 AM on April 23, 2005


+ speeding up of scientific and technological change
That's what some of us are hoping will alleviate the others, i think. We're smart, creative, nimble monkeys, no?
posted by amberglow at 10:12 AM on April 23, 2005


what's a realistic estimate for how long before fuel cell equipped vehicles make a meaningful dent in oil consumption (say, a couple bbl a year)?

Here's one good link on that subject. Doesn't look all that promising for now. I think battery-powered EVs will have a much larger impact, especially if someone finally designs a battery that doesn't suck.
posted by sfenders at 10:20 AM on April 23, 2005


laodan, I can't really follow that. Gas going up to $4 or $5 gallon won't be the end of the world. People will buy fewer monster trucks and more Toyotas, like they did in the 1970s.

We'll probably see inflation hit, but maybe inflation will be a not-bad thing. It's how we eliminated our Vietnam-era debt, after all.

We've actually made a lot of progress wrt pollution control from the 1970s. The progress is under attack by the current admin, but they've only got a few more years to do their damage, and hopefully much of what they do can be undone.

A little bit of conservation, a bit more celerity with alternative energy sources like nukes, and we'll be able to make bigger steps towards real progress later this century.
posted by Heywood Mogroot at 10:21 AM on April 23, 2005


If we've got nukes, we can just go battery power.

Fuck batteries. Just throw a power supply rail down the middle of the lane and let the cars draw power from that, all they can drink. You could also send information down it and use that to turn interstates into slaveways, which would be nice for long trips.

Batteries are just to get you from the electrified road to your house and back, maybe 25 klicks each way, 100 klicks tops.
posted by ROU_Xenophobe at 10:24 AM on April 23, 2005


Dunno how it slipped my mind, but one example of a conversion feedstock is biodiesel.

One number that used to tossed around for the threshold price at which coal synfuel becomes competitive was $47/bbl. But that was in the early 1990s and the dollar has devalued a lot since then.

I guess the real threshold is when the bankers are convinced. That hasn't happened yet.

Hydrogen is a boondoggle. I've ridden in biodiesel-burning cars and busses, but I haven't even seen a hydrogen vehicle.
posted by warbaby at 10:26 AM on April 23, 2005


Heywood - Net Margin does not take account the amount of capital tied up in a business, hence on a stand alone basis it is not reflective of the economic returns generated by said business.
posted by JPD at 10:35 AM on April 23, 2005


ROU_Xenophobe Just throw a power supply rail down the middle of the lane and let the cars draw power from that, all they can drink.

This has been an interesting idea on mefi (the F-Zero meme) but the problem I see is - how are the electric companies going to charge for the charge?

Also, the initial startup infrastructure costs would be enormous. Having it inground might present some safety problems. Here in Vancouver, we've got a lot of trolly busses that run on overhead electricity. It's amazing how quiet they are. Old tech, too. It works ok, but when it's very hot/cold the conducting rods slip a lot because of line slag/tightening.

Hmm, how efficient is it to beam electricity via microwaves (or other em radiation)?
posted by PurplePorpoise at 11:05 AM on April 23, 2005


Hydrogen is a boondoggle. I've ridden in biodiesel-burning cars and busses, but I haven't even seen a hydrogen vehicle.

yeah, the running cost of Hydrogen is pretty high, and it probably will only make sense for centralized fleets like city bus lines. IC is 30% efficient, and while IC engines can be modified to burn Hydrogen, the greater gains come from fuel cells, which require massive capital investment.
posted by Heywood Mogroot at 11:32 AM on April 23, 2005


Net Margin does not take account the amount of capital tied up in a business, hence on a stand alone basis it is not reflective of the economic returns generated by said business.

True to a large extent, but I'm coming from a worldview where stocks don't pay significant dividends so capital and retained earnings are more fungible.
posted by Heywood Mogroot at 11:34 AM on April 23, 2005


how are the electric companies going to charge for the charge?

RFID!

This whole smart road idea has got me nervous. It's going to be like Rush's Red Barchetta or Minority Report, breaking the law is going to be a lot more hassle-prone.
posted by Heywood Mogroot at 11:37 AM on April 23, 2005


RFID

That not a bad idea... reminds me of those electric toy car tracks with contact brushes I had when I was a kid. Changing lanes was a bit iffy, though.

As for breaking the law, I'm sure you can put some over-ride switch so you can switch from current to batteries.
posted by PurplePorpoise at 11:59 AM on April 23, 2005


"True to a large extent, but I'm coming from a worldview where stocks don't pay significant dividends so capital and retained earnings are more fungible."

Uhm that's utterly irrelevant to my point. But I am derailing a good thread. Apologies.
posted by JPD at 12:23 PM on April 23, 2005


how are the electric companies going to charge for the charge

They could invent a device that measures how much electricity a car (or home or other device, facility, or location) has used. Perhaps they could call it an "electric meter." People could check them (we could call them "meter readers"), or the cars could phone home on their own.

The hard part's the billing, I suppose, but it's not intractable. Just regulate the transportation-electric industry so there's a common flat rate for road-juice. You get a bill every month from The Mongo Electric Road Company Or Agency, and pay for the electricity you've used. It goes into the mother of all kitties, and the MERCOA divvies up the kitty to the juice-makers in proportion to how much juice they've provided.

Also, the initial startup infrastructure costs would be enormous.

Don't bring facts into it. Besides, what's a few trillion bucks between friends?
posted by ROU_Xenophobe at 12:26 PM on April 23, 2005


This whole smart road idea has got me nervous. It's going to be like Rush's Red Barchetta or Minority Report, breaking the law is going to be a lot more hassle-prone.

Why all this talk of rails? Rails will wear down quickly, with all the travelling we do. What about induction current?
posted by Rothko at 12:30 PM on April 23, 2005


Economists are trained to believe that we will never "run out" of a commodity. This is because as prices increase, we will use less-and-less of it, but there will always be some available at some finite price. Practically every economics textbook teaches this.

Oi ! Every economy textbook ? Economists do di dat ? What a pile of fuming generalization. Some economist know all too well that
there isn't such a thing as an infinite quantity of something. And let's put the complete quote of Friedman for a change
----------------------------
[Revised Quote] (emphasis mine on quote not inserted in previous post by Heywood)

Ravaioli: But there are many other environmental problems ...

Nobel Laureate Friedman: Of course. Take oil, for example. Everyone says it's a limited resource: physically it may be, but economically we don't know. Economically there is more oil today than there was a hundred years ago. When it was still under the ground and no one knew it was there, it wasn't economically available. When resources are really limited prices go up, but the price of oil has gone down and down. Suppose oil became scarce: the price would go up, and people would start using other energy sources. In a proper price system the market can take care of the problem.


Ravaioli: But we know that it takes millions of years to create an oil well, and we can't reproduce it. Relying on oil means living on our capital and not on the interest, which would be the sensible course. Don't you agree?

Nobel Laureate Friedman: If we were living on the capital, the market price would go up. The price of truly limited resources will rise over time. The price of oil has not been rising, so we're not living on the capital. When that is no longer true, the price system will give a signal and the price of oil will go up. As always happens with a truly limited resource.

Ravaioli: Of course the discovery of new oil wells has given the illusion of unlimited oil ...

Nobel Laureate Friedman: Why an illusion?

Ravaioli: Because we know it's a limited resource.

Nobel Laureate Friedman: Excuse me, it's not limited from an economic point of view. You have to separate the economic from the physical point of view.Many of the mistakes people make come from this. Like the stupid projections of the Club of Rome: they used a purely physical approach, without taking prices into account. There are many different sources of energy, some of which are too expensive to be exploited now. But if oil becomes scarce they will be exploited. But the market, which is fortunately capable of registering and using widely scattered knowledge and information from people all over the world, will take account of those changes.
-------------------------------------------

Friedman isn't a utter moron who doesn't know about physical limitations. He knows oil is limited (Everyone says it's a limited resource: physically it may be) but he also know there are other energy resources (natural gas, coke, nuclear energy, wind) that are comparatively more expensive _primarily_ because there's (wel..there was) a lot of oil being offered on market at comparatively cheap price. In a economic sense oil hasn't been a rare, expensive good to obtain and indeed it was lavishly used for plastic, chemicals, fuels. It's a fine source of hydrocarbons.

Friedman believes that the "market" (meaning anybody buying or selling something) will surely notice the day oil becomes an economically limited (more scarce, less avaiable, less easy to come by, more expensive) and take any action deemed appropriate , including raising price in the hope to contain demand and give incentive to rationalization while starting to exploit alternative resources.

Quoting Warbaby One number that used to tossed around for the threshold price at which coal synfuel becomes competitive was $47/bbl. But that was in the early 1990s and the dollar has devalued a lot since then.

Indeed when bankers/investors see potential for long-term investment and huge profit and possibility to control a new market, they'll jump on it. But as the aformentioned don't like risks, they'd rather invest in a situation in which monetary profit is more likely to happen ( therefore reducing the risk of insufficient cash flow) and that's more likely to happen when differential between cost of production + cost of sale AND market price is big...like now.

The fact that a lot of population does no longer enjoy cheap gasoline is not a cause of concern for investors, as you're going to keep coming for more oil anyway...so go ahead develop nuclear fusion if you can, or pedal on the bike baby.
posted by elpapacito at 12:42 PM on April 23, 2005


turn interstates into slaveways

I think we need to work on coming up with a new term for driverless highways. I did a bit of a double-take when I saw that one. Images of either the underground railroad or 1984 flashing through my head.
posted by thedevildancedlightly at 1:07 PM on April 23, 2005


how are the electric companies going to charge for the charge ? Billing is the relatively easy part. Every vehicle could have a prepaid smart card similar to some phones. An electronic checking system could then register milage and deduct from credit. Charges could be based on milage / engine capacity formula.
However this excellent thread seems to be slightly UScentric as this is a global as well as local problem. Energy from oil will soon be diminishing. Therefore the answer is to find viable energy alternatives at competitive prices - probably through initial government subsidy. The initiative has to be both political and economic.
The World Energy Council (though dated) gives a good global indication of energy use and resources by both countries and regions.
posted by adamvasco at 1:39 PM on April 23, 2005


What about induction current?

I've thought it would be interesting to drop loops of wire into streets near intersections -- you approach, loops of current grab the car braking it and generating current, and then the current gets converted back into kinetic energy on the other side as you pull away.

I think we need to work on coming up with a new term for driverless highways

Freedom Roads. RoboRoad -- Two And A Half Laws Ain't Bad.
posted by ROU_Xenophobe at 3:18 PM on April 23, 2005


So, I looked up some data on coal. To continue the current US rate of growth in consumption without importing more crude oil, by replacing it with synthetic fuels from coal, would require increasing coal production by 10% per year*. This in a country that is already one of the largest producers of coal. The price of coal has increased by 50-100% in the past few years from its previously stable 1990's level. I saw a couple of predictions that all the coal that's EROI-positive will be gone in 30 years at current rates of use. At the least, coal will get considerably more expensive to dig up by then.

*A very rough estimate there, but I think it's reasonable. 10% of current coal production would be ~0.3mmst coal per day, yielding ~0.8Mbbl of liquid fuels, minus some (how much is the largest uncertainty here) for the required energy inputs. According to EIA, January-March 2005 total net daily petroleum imports are up by a bit more than 0.5Mbpd y/y. Product stocks are in the same period down by almost 0.2Mbpd more than last year.
posted by sfenders at 6:54 AM on April 24, 2005


Sasol 2004 annual report says its mining operations supplied 40.2Mt of coal to Sasol Synfuels, and implies that Synfuels production was approximately equivalent to 135,000bbl/d of oil (based on 45000 barrels a day of crude that was hedged at an average price of $33.12/bbl being "equivalent to approximately 30% of Synfuels' production"). Check that for sanity against reported synfuels total turnover works out to $40/bbl, which seems not too crazy.

So that would be only 1.2bbl of product per ton of coal even if that coal is the only input. So looks like my guess at coal requirements was probably on the low side.
posted by sfenders at 9:11 AM on April 24, 2005


works out to $40/bbl

Make that $46. I mistakenly used the 160000bpd reported maximum capacity instead of the 135000 estimated production.

Anyway, that's a lot of coal.

Sasol Synfuels International is "exploring opportunities to create an installed GTL capacity of 500,000 bbl/d by 2013". This would be the largest such project in the world.

The EIA reference case projection says total oil demand would be up by something like 18Mbpd by 2015. Add some to make up for hypothetical declining oil production, subtract some to account for lower economic growth and efficiency improvements. 30 of those Sasol-sized projects using close to the entire amount of coal that's produced in the world today might come close to being enough.
posted by sfenders at 10:18 AM on April 24, 2005


Speaking of coal, a great diary on Daily Kos by a guy in the industry
posted by amberglow at 10:25 AM on April 24, 2005


I EXIST.
posted by PEAK OIL at 9:18 AM on May 10, 2005


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