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Softpanorama Energy Bulletin, 2010

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The best find of the year was German Military Study Warns of Potential Energy Crisis

This week a study on peak oil by a German military think tank was leaked on the Internet. The document shows that the German government is closely studying the issue of peak oil, and is aware of the potential for serious consequences as oil production declines. The study is reminiscent of the Hirsch Report, commissioned by the U.S. Department of Energy, that warned of the risks posed by peak oil.

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[Nov 30, 2010] Europe and China is this deja vu all over again

China is vulnerable because its energy sector is bloated and miserably inefficient, even worse than the US's and far worse than Europe.
Nov 30, 2010 | Econbrowser

steve from virginia

Hmmm ...

Backwards, every time crude oil punches above $80 the peanut butter hits the fan. Eurozone countries are vulnerable because of the cross-border currency peg and the resulting debt overhang(s).

The PIIGS are also energy hogs, being as underwater from an energy standpoint as they are from an credit standpoint.

China is vulnerable because its energy sector is bloated and miserably inefficient, even worse than the US's and far worse than Europe.

China is also in the pre- pre- pre-stage of out and out hyper-inflation. Yup, this will cause stox will fall ..

[Nov 30, 2010] LIGHTSTUNNEL

thelightsinthetunnel.com

Economists Jeff Rubin and Benjamin Tal have suggested that soaring transportation costs resulting from high energy prices alone may be sufficient to reverse globalization.

They point out that once oil reaches a price of $150/barrel, the additional transportation costs are essentially equivalent to the tariffs that existed in the 1970s.43

In a world with automated factories and high energy costs, there will be clear incentives toward distributed manufacturing. It will make sense to locate factories as close as possible to consumers and/or to the natural resources used as inputs in the production process.

[Nov 14, 2010] Has the World Already Passed “Peak Oil”

False prediction: In this scenario, crude oil production "never regains its all-time peak of 70 million barrels per day reached in 2006," said IEA’s World Energy Outlook 2010.

Nov 10, 2010 | nationalgeographic.com

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

The year 2006 may be remembered for civil strife in Iraq, the nuclear weapon testing threat by North Korea, and the genocide in Darfur, but now it appears that another world event was occurring at the same time — without headlines, but with far-reaching consequence for all nations.

That’s the year that the world’s conventional oil production likely reached its peak, the International Energy Agency (IEA) in Vienna, Austria, said Tuesday.

According to the 25-year forecast in the IEA's latest annual World Energy Outlook, the most likely scenario is for crude oil production to stay on a plateau at about 68 to 69 million barrels per day.

In this scenario, crude oil production "never regains its all-time peak of 70 million barrels per day reached in 2006," said IEA’s World Energy Outlook 2010.

In previous years, the IEA had predicted that crude oil production would continue to rise for at least another couple of decades.

Now, because of rising oil prices, declines in investment by the oil industry, and new commitments by some nations to cutting greenhouse gas emissions, the new forecast says oil production is likely to be lower than the IEA had expected.

End of Cheap Oil

The projected flat crude oil production doesn’t translate into an immediate shortage of fuels for the world’s cars and trucks. IEA actually projects that the total production of what it calls “petroleum fuels” is most likely to continue steadily rising, reaching about 99 million barrels per day by 2035.

This growth in liquid fuels would come entirely from unconventional sources, including "natural gas liquids," which are created as a by-product of tapping natural gas reservoirs.

(Quiz: “What You Don’t Know About Natural Gas”)

The consequences for the world’s energy consumers of this increased reliance on natural gas liquids and other unconventional fuels are stark.

"The age of cheap oil is over," said Fatih Birol, IEA chief economist.

"If the consuming nations do not make major efforts to slow down the oil demand growth, we will see higher oil prices," Birol said, "which we think is not good news for the economies of the consuming nations."

IEA was set up by most of the world's industrialized countries after the 1970s world oil crises to analyze the world’s energy situation and advise them on policy.

The closely watched most-likely scenario, which the IEA calls the "New Policies Scenario," assumes that countries stick to the commitments they have made in the past couple of years to cut greenhouse gas emissions.

But even under IEA’s so-called “business-as-usual” scenario, without the projected efforts to cut fossil fuel pollution, oil production would be significantly lower in 20 years' time than the IEA had forecast even just a few years ago.

Oil production might rise marginally under the "business-as-usual" scenario, the report said, but supplies would be short enough to send oil prices soaring to double today’s level.

Fighting Decline

A major reason for the rising prices and flatlining production is that for "the currently producing fields of crude oil, the production will decline," Birol said.

Today's active oil fields produce about 70 million barrels per day, but by 2035, he said, "they will produce less than 20 million barrels per day of oil."

Just to keep crude oil production flat would require much more production from new oil fields — including those discovered but not yet developed, and others still to be discovered.

The IEA forecasts that Saudi Arabia—the largest producer—would boost its production by 50 percent, and that Iraq would nearly triple its production.

Maintaining this plateau would require massive investment in the oil industry, the report estimated, about $8 trillion over the next 25 years.

Also, in the IEA's main scenario, production from "tar sands," also known as “oil sands,” found mainly in Canada and Venezuela, would triple in the next 25 years.

However, these unconventional sources are generally more expensive and harder on the environment, the IEA said.

Tar sands "mining operations have a large impact on the landscape," the report said, requiring forests to be cleared, and large "tailing ponds" to collect the toxic runoff from tar sands processing.

Tar sands have a bigger climate footprint than conventional oil, with larger greenhouse gas emissions for the whole life cycle, from "well-to-wheels," the new report said.

Barrel for barrel, the IEA said, oil from tar sands would create 5 to 15 percent more emissions of carbon dioxide (CO2), the principal greenhouse gas causing global warming.

Looking at the reasons for the plateau in crude oil production, “it’s clear that it’s a mixture of above-ground and below-ground factors,” said Guy Caruso, former head of the U.S. Energy Information Agency, and now at the Center for Strategic and International Studies, a think tank in Washington, D.C.

“It’s partly geological resource limitations,” Caruso said. “There’s decline that we’re fighting in the older fields,” in which production has fallen faster than had been expected.

But there are also “areas like Venezuela, Iraq, Kazakhstan, and Nigeria, where we know the oil is there,” but political turmoil and other issues have kept production far below the potential, he said.

When all the factors are taken into account, the trend is toward rising oil prices, Caruso said. Oil-consuming nations can cope with this if the price rises smoothly, but he added, “what economies have a hard time dealing with is a spike like we had in 2008, when oil reached nearly $150 a barrel, and then dropped back down again.”

Related:

[Nov 14, 2010] Is 'Peak Oil' Behind Us

Quote: Over all, oil prices should continue to climb in coming decades, reaching $135 per barrel by 2035, a price level that some economists believe contributed to the global economic collapse of 2008.
Nov 14, 2010 | NYTimes.com

Peak oil is not just here — it’s behind us already.

That’s the conclusion of the International Energy Agency, the Paris-based organization that provides energy analysis to 28 industrialized nations. According to a projection in the agency’s latest annual report, released last week, production of conventional crude oil — the black liquid stuff that rigs pump out of the ground — probably topped out for good in 2006, at about 70 million barrels per day. Production from currently producing oil fields will drop sharply in coming decades, the report suggests.

The agency does not see energy doom on the horizon, however. By its estimation, after a short dip in production, crude production will reach an “undulating plateau” of about 68 million barrels per day between 2020 and 2035.

Yet strong demand growth from China, which the report estimates is now the world’s largest energy user, and elsewhere will require liquid energy supplies to not just hold steady, but to climb by more than 20 percent.

Meeting that additional demand will fall entirely on unconventional oil sources like Canada’s tar sands as well as increased production of natural gas liquids. A major boost in these energy sources should be able to meet demand, but that is far from certain, Nobuo Tanaka, the agency’s executive director, told reporters in London, according to the Associated Press.

“Recent events have cast a veil of uncertainty over our energy future,” Mr. Tanaka said.

The I.E.A.’s stance that 2006 will be the year global supplies of conventional oil reached their ultimate peak is a more pessimistic take than its previous assessments. In 2008, the organization projected that conventional oil production would continue to slowly climb for several more decades.

Its current estimate that enough new oil will be found to keep the oil supply roughly steady for the next 25 years is hardly ironclad, however, a point the report acknowledges in the executive summary. “Will peak oil be a guest or the spectre at the feast?” its authors ask.

“The size of ultimately recoverable resources of both conventional and unconventional oil is a major source of uncertainty for the long-term outlook for world oil production,” it concludes.

Over all, oil prices should continue to climb in coming decades, reaching $135 per barrel by 2035, a price level that some economists believe contributed to the global economic collapse of 2008.

Some experts found the report’s projections troubling.

“It’s a perfect storm headed our way — a steady rise in global demand for oil crashing up against an increasingly limited supply of economically recoverable oil,” William Chameides, professor of environmental science at Duke University, wrote on his blog.

margaris, Sat, 11/13/2010 - 17:32
#725300

Fossil oil permitted the developing of our industrial civilization. Nothing else. Its the main driver behind everything.

Not many people know or accept how much energy and resource depletion really happens in our civilization. Did you know it takes more oil to build a new car than the same car is going to use up for driving in its whole life?

To build a car from scratch it takes like 10'000s of different steps all of them consuming very much oil and even more clean water.

[Nov 06, 2010] Cheap money won’t fix this economy

Nov 05, 2010 | The Boston Globe

123:

Stimulus for our economy and climate change.

HOW WE COULD CREATE JOBS?

Properties of water actually cooling the atmosphere, because of huge energy needed for evaporation and transportation of that energy to clouds level, where this energy close to space and go to space more easy.

In atmosphere we have not only water vapor but also water droplets in form of fog, clouds and particles, which mostly responsible for visibility. Wind help evaporate these droplets and cool the air. Any windmills will reduce speed of wind and it will help raises of temperature. Windmills energy is expensive. Windmills disaster not only for economy, but also and for environment.

Clouds are reflecting to space most of direct sun radiation. These properties of water also help cool the atmosphere.

The best tools to evaporate water on continents are trees. In famous Reagan slogan “trees are more pollutant than automobiles” we have part of truth. Forest reflects only 3-5% of direct sun radiation. Why in this case we need forests? It is only because of evaporation, which cool the atmosphere and mild climate everywhere. Efficiency of photosynthesis and solar cell approximately the same around 1%. Other part of sun energy heated the air. If in case for trees this energy evaporates water and cools the air in case of solar panel it heats the air and increase possibilities of climate change. Trees collect sun energy during hundred years without any batteries.

In huge power plants we are losing 80% of energy-heat energy in vain. Building small power plants all across USA we could use wood energy and if we will use as electricity as heat wood will bring more useful energy than coal and oil right now. Of course we could use mix of wood, coal, natural gas and oil product in environmentally save proportion, especially if we will solve all gases from oven in water to watering trees. It will be together with ash the best nutrition to grow forests. It will be close to zero emission of GHG by power plants.

Real efficiency of movement 1 person (weight 200 Lb.) in car (weight 4000 Lb.) is less than 1%. Changing our transportation systems, our electricity production, raising the forests as source of energy could provide 100% of employment, make our country energy independent, and fight climate change with help of USA, Canada, and Mexico. North America is located between Atlantic and Pacific Oceans and influence climate from France to Japan.

The Oil Drum Discussions about Energy and Our Future

theoildrum.com

The Oil Drum Discussions about Energy and Our Future TOD:Campfire TOD:Europe TOD:Canada TOD:Australia/NZ TOD:Net Energy Frequently Asked Questions Mission Statement Staff Bios Reader Guidelines Archives Peak Oil Overview Peak Oil Update Oilwatch Monthly This Week in Petroleum Tech Talk

Highlights from Seventh Advances in Energy Studies Conference in Barcelona Posted by Gail the Actuary on October 27, 2010 - 10:20am

Topic: Environment/Sustainability

Last week, I participated (as an invited speaker) in the 7th Advances in Energy Studies Conference in Barcelona, Spain. Other invited speakers were Charlie Hall, Joe Tainter, Marcel Collel, and Seth Blumsack. Other Oil Drum staff members at the conference were Ugo Bardi and Dave Murphy--Ugo as one of the speakers, and Dave as the second author on Charlie Hall's presentation. Dave also asked lots of good questions!

In this post, I give a few highlights of the conference. The full agenda can be found here.

There's more… (1861 words) | Comments (48)

Cheap natgas threatens Nabors joint venture IPO

(Reuters) - Nabors Industries Ltd said on Wednesday a planned initial public offering of oil and gas joint venture NFR Energy was not feasible at current U.S. gas prices, which the CEO said were "horrible."

..."Maybe in our business you've got to be optimistic," said Isenberg, 80, who over the past three years took home a total of $147 million in salary and bonus. "But I'm not still personally buying any gas futures."

There's more… (3986 words) | Comments (171

The Generalized Hubbert Curve Posted by Gail the Actuary

October 26, 2010

This is a guest post by Steve Mohr and Geoffrey Evans. Steve is a recent Australian PhD. He and Geoffrey Evans also wrote Forecasting coal production until 2100. We also published a summary of Steve's thesis, Projection of World Fossil Fuel Production with Supply and Demand Interactions.

It is important to know the timing of when a resource will peak. It is ideal if a model of the likely production could be determined quickly, easily and accurately. The Hubbert Curve has been used frequently in the literature because it is quick, simple and, as shown with US oil production, accurate. But there is a problem, what to do with production statistics that do not conform to the Hubbert curve e.g. world oil production?

Solutions exist, but are not ideal, for instance, the disruption could be ignored and a Hubbert curve used anyway, but that tends to generate a poorly fitting model to the data. Alternatively a multiple Hubbert Curve technique could be used, but then the fitting is more complicated and the justification that production should follow the path becomes more difficult.

There is a solution: The Generalised Hubbert Curve[1], which is defined as:

There's more… (130 words) | Comments (96)

Curtain Being Pulled Back from The Oz of Gas Shales

October 25, 2010

The technical success in tapping natural gas shale formations has turned the perception of the role of gas in the future energy supply of the United States on its head. Where natural gas was once thought to be too valuable to be burned under boilers powering electric generation facilities, gas is now so ubiquitous that we are considering not only burning it in every energy market but also exporting it to world energy markets in the form of liquefied natural gas (LNG). The gas shale revolution has changed the American energy market, which can now be summed up as "from fasting to feasting." But is that view certain? There's more… (2685 words) | Comments (170) \

Tomorrow interviews David Murphy on Economic Growth Posted by David Murphy

At the most recent ASPO-USA conference, I gave a presentation as part of a panel hosted by The Oil Drum. The subject matter of my post was taken from a recent paper developed by Charles Hall and me on peak oil, net energy, and economic growth. A much abridged version of the paper can be found in this post. After the conference, Jane Van Ryan from the American Petroleum Institute (API) asked to interview me for her weekly podcast for the Energy Tomorrow blog. You can listen to the interview by clicking below, or alternatively, I have copied the transcript of the interview below the fold. The interview is 15 minutes long for those who would like to listen.

The Oil Drum recognizes that API (and hence Energy Tomorrow) is funded by the oil and gas industry. But the interview here relates to my research, which is not funded by such interests. I think the interview serves a useful purpose, because it makes my work accessible to a wider audience.

There's more… (1775 words) | Comments (103) | ShareThis| Permalink | Without comments | PDF version Drumbeat: October 25, 2010 Posted by Leanan on October 25, 2010 - 10:35am Topic: Miscellaneous

IEA: Unclear If Oil Reserve Growth Will Contribute to Future Supply

Recent increases in oil reserves in Iraq, Iran and Venezuela are "good news," but it remains unclear whether they will contribute to future supply, Nobuo Tanaka, executive director of the International Energy Agency, or IEA, said Monday. "To have more reserves is certainly good news, because it gives us a more precise prediction of costs and necessary investments," Tanaka told Dow Jones Newswires at an energy conference in Moscow. "But the issue is how much investments will happen to develop these reserves, how this will increase production capacity.

"Until then, we're not sure whether it will contribute to future supply," Tanaka said.

There's more… (4123 words) | Comments (215) | Permalink | Without comments | PDF version

A Primer on Reserve Growth - part 2 of 3 Posted by Rembrandt on October 24, 2010

This post was originally written by Rembrandt in 2006.

This post is the second part in a three piece series about the phenomenon of reserve growth in already found oil fields. Insight in future reserve growth, which is often attributed to advancement in technology, is crucial in determining the peak of conventional oil production. For those not familiar with reserve growth it would be best to read part 1 first:

1. General introduction to reserve growth, what can we learn from the worldwide recovery factor of conventional oil fields?

In this second part various scientific studies about reserve growth in the United States, the North Sea and Russia are analysed. The third part will look at the reliability of the estimate from the United States Geological Survey in their World Petroleum Assessment 2000 with respect to future reserve growth.

There's more… (3934 words) | Comments (25) | ShareThis| Permalink | Without comments | PDF version Drumbeat: October 24, 2010 Posted by Leanan on October 24, 2010 - 10:34am Topic: Miscellaneous

Is the 'bidding game' on for oil reserves estimates?

October 23, 2010

The "bidding game" seems on. First Iraq, then Iran and now Kuwait — the trend is catching up. Iraq apparently made the first move. Earlier the month, Baghdad announced it is raising figures of its proven oil reserves by a quarter — from 110 billion barrels to 143 billion barrels, surpassing Iran and putting it behind only Saudi Arabia in terms of conventional crude, and third after Venezuela if unconventional reserves are counted.

There's more… (1047 words) | Comments (166) | Permalink | Without comments | PDF version Drumbeat: October 23, 2010 Posted by Leanan on October 23, 2010 - 10:49am Topic: Miscellaneous

Rare-Earth Furor Overlooks China's 2006 Industrial Policy Signal

China’s curbs on rare-earth exports may owe more to a 2006 policy to create fewer, larger companies than a knee-jerk response to trade and territorial disputes. A directive that year tagged mining among the pillar industries the government wanted state enterprises to dominate to enhance returns and global competitiveness. This year it started closing down private mining companies to consolidate the industry around a handful of producers led by Inner Mongolia Baotou Steel Rare Earth High-Tech Co.

Global repercussions from the overhaul drew attention in July when the government said it would cut export quotas 72 percent in the second half of the year. China accounts for more than 90 percent of worldwide production of the metals, used in components for Toyota Motor Corp. hybrid cars, Lockheed Martin Corp. radars and General Dynamics Corp. tanks.

“It’s not a new policy,” said Peng Bo, an analyst at Shenzhen, China-based Guosen Securities Co. “China, as a supplier of 97 percent of rare-earth demand, feels a need to control both production and exports and doesn’t want to sell at dirt-cheap prices.”

There's more… (1356 words) | Comments (118) | Permalink | Without comments | PDF version A Primer on Reserve Growth - part 1 of 3 (Revisited) Posted by Rembrandt on October 23, 2010 - 10:48am in

The Oil Drum: Europe Topic: Supply/Production

This is a post by Rembrandt that was originally published in 2006.

The difference in vision between so called "optimists" and pessimists" with respect to the peak in world oil production is often caused by a view of future technological development in the oil industry. This development influences both conventional and unconventional oil production. Only a part of the oil in an oil field can be produced. It is claimed by oil companies and various institutes that technological advancement will increase the recoverable amount, thereby postponing the peak in conventional oil for several decades. In essence this means that the amount of recoverable reserve increases over time due to changes in technology, economy, insights. But also expected recoverable reserves increase over time due to past underestimates. This is why the term is called "reserve growth".

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The Oil Drum Drumbeat October 14, 2010

October 14, 2010 | The Oil Drum

mcain6925

Yes. The date at which it is broadly accepted that oil production is in decline is far more important, IMO, since that's when any serious actions can begin. From current production (say, the EIA's 85.5M bbl/day number for 2008), I'd guess that point would be when we cross 80M bbl/day. Laherrere's (PDF) pessimistic all-liquids forecast dated 2008 puts that around 2018, his middle forecast about 2030, and his optimistic about 2040 (followed by a long plateau at about that level that doesn't begin declining again until 2060). Plus or minus a couple of years for this date doesn't affect the long-term outcome; plus or minus ten might.

There may be a chicken-and-egg problem with convincing people. Will they believe that the economy is crappy because oil production is in permanent decline, or will they believe oil demand has fallen that far because the global economy is so crappy? Laherrere's "soft crisis" view has production declining to 80M bbl/day at about 2020, but recovering to 85M or so, with the terminal decline crossing 80M again around 2035.

And the ELM factors confound the problem when looking at an individual country. Total oil "production" in the US -- domestic production plus imports -- may decline sooner and more rapidly. Complicated analysis problem.

Darwinian

The EIA yesterday released the latest issue of the International Petroleum Monthly with the data for July. Total world C+C production was up 399,000 barrels per day with most of it from Norway. Norway production, recovering from June maintenance was up 253,000 bp/d in July. They still have heavy maintenance in August and September when their production numbers will be back down near their June figures.

Saudi Arabian production was up 100,000 bp/d in July while Canada was up 92,000 bp/d. The biggest loser was Iraq, down 100,000 bp/d.

Non-OPEC was up 385,000 bp/d to 42,325,000 bp/d. That is still 290,000 bp/d below their peak month but it does look like non-OPEC might set a new production record in 2010, average for the entire year. So far the record production was in 2004. It will be close. But that does not change the fact that non-OPEC has been on a plateau for seven years, 2004 thru 2010. The non-OPEC peak month was December of 2003. Though July production was only 290,000 barrels per day below that record, I doubt that this monthly record will be broken.

I am not sure what to make of the EIA's numbers. The EIA only has data for OPEC crude only production through June. But for June they put OPEC production, crude only, at 29,530,000 bp/d. However OPEC, in their Oil Market Report, reported they produced 29,075,000 bp/d in June. That is 455,000 bp/d less than the EIA says they produced.

Ron P.

German Military Study Warns of Potential Energy Crisis by Robert Rapier

September 2, 2010 | The Oil Drum
This week a study on peak oil by a German military think tank was leaked on the Internet. The document shows that the German government is closely studying the issue of peak oil, and is aware of the potential for serious consequences as oil production declines. The study is reminiscent of the Hirsch Report, commissioned by the U.S. Department of Energy, that warned of the risks posed by peak oil.

The document warns of the potential for regional shortages, market failures, and a shift in political power toward those capable of exporting oil. This report describes potential outcomes that require planning and preparation. The scenarios outlined in the paper are exactly the kinds of drivers that lead me to advocate for greater regional energy self-sufficiency. The report clearly lays out just how vulnerable Europe will be because of its continuing dependence upon Russia for both oil and gas, and notes that Russia will be in a very strong political bargaining position as a result.

The report can be accessed from the popular German paper Der Spiegel in this story: Bundeswehr-Studie warnt vor dramatischer Ölkrise. The report is so far only available in German, and while Ich spreche ein wenig Deutsch (I speak a little German), I am not fluent enough to capture the essence of the report. (Der Spiegel has summarized the report in English now: Military Study Warns of a Potentially Drastic Oil Crisis).

However, I have a friend who is both fluent in German (his native tongue) and passionate about peak oil outreach. Given a week, I could probably translate the report. My friend (who didn't want to be identified) did it overnight. Below is his translation of the major points in the report.

Peak Oil

Implications Of Resource Scarcity On (National) Security

Center for German Army Transformation, Group for “Future Studies”

July 2010

1. Introduction

The focus of the document is on the topic of finite resources, using Peak Oil as an example. The report is part of a series of publications focused on the long term (30 years) with the intent to enable the Ministry of Defense to take action early.

In the past, resources have always triggered conflicts, mostly of regional nature. For the future, the authors expect this to become a global problem, as scarcity (mainly of crude oil) will affect everybody.

The authors confirm multiple views on Peak Oil timing and concede that there will be Peak Oil eventually. The study isn’t about positioning the problem on a timeline, but instead about the consequences of a peak. They expect major consequences with a delay of 15-30 years after the peak has hit.

The report refers to the uncertainty of reserve statements mainly in OPEC countries based on the quota allocation method within OPEC but also refers to the possibility of better extraction technologies.

They suggest that it has become urgent to understand those consequences of an eventual peak now in order to have enough time to adapt.

2. The Importance of Oil

2.1 Oil as a driver of globalization

95% of all industrial outputs is dependent on oil as a fuel and/or as a chemical base for polymer production etc. Oil has become a key driver of modern lifestyle and globalization.

Substantial oil price increases poses a systemic risk, not just for obvious things like transportation, but equally for other subsystems.

Thus, internationally, but equally nationally, there is a vital interest in securing access to oil, which is currently possible on world spot markets, with OPEC being cooperative due to a mutual dependency between key actors (and a massive presence of the U.S military in the Gulf region).

Yet, on the other hand, regional conflicts can always at least partially be attributed to resources, such as in the Caucasus region, the Middle East or in Nigeria. They may also fuel conflicts due to the wealth they create (such as in Africa).

The report sees – within a timeframe until the year 2040 – a changed international security layout based on new risks (including transport risks for fuels) and new roles of actors in a possible conflict around the distribution of increasingly scarce resources.

2.2 German energy security.

The term is defined narrowly as “reliable energy supply”, and then extended to include environmental objectives, technology transformation of societies, planning for energy demand and the long-term planning of a national strategy, tied in with international organizations.

This expansion of the view is seen as required based on the globalization of energy markets. However, the report then narrows in scope again to the possible risk from a supply shock, focusing on the key suppliers of oil: Russia, Norway and the U.K. It is noted that both European partners are already past their peak and that Germany is increasingly dependent on Russia, which currently is reliable but not necessarily so in the long term. Given the expected decline in German energy consumption, the Russian share will likely be 40% by 2025, with the Middle East, Africa and sources around the Caspian Sea making up for the increasing gap from declining European production.

3. Possible Scenarios After Global Peak Oil

This chapter looks at gradual changes (3.1.) and the risk of disruptive changes (3.2) past a certain tipping point.

3.1 General interdependencies driven by Peak Oil

3.1.1 Oil as a deciding factor in international relationships

With increasing scarcity, producers are increasingly in an advantageous position, both from high revenues and access to cheaper oil when compared to spot market prices. This partly reverses the trend to free oil markets which took place after the '70s shocks, and gives those countries more control over the supply chain, with a risk of monopolies and nationalizations, and of “political pricing.”

Further, oil producers use increasing amounts of their production internally at lower prices, which increases domestic consumption and inefficiencies, accelerating the problem. [The authors miss out on the fact that high oil prices also bring more wealth to the country which AGAIN increases resource consumption].

The report then looks at increasing “strategic” moves by key actors including the Chinese CNPC (China National Petroleum Corporation), which tries to grab the sources that are still available (particularly in Asia and Africa), but often at relatively unattractive conditions.

Overall, the authors expect a reduction of “free market” mechanisms in oil trade, and a rise in more protectionism, exchange deals, and political alliances between suppliers and customers, which could lead to significant geopolitical shifts. Equally, the authors expect this interdependency to shape foreign affairs of oil importers, making them more tolerant towards rogue behavior of suppliers out of sheer need.

Overall, higher volatility and loss of trust are seen as possible outcomes in a world where oil supplies are limited, increasing the need for “oil related diplomacy” and thus increasing the risk of moral hazard among all actors, which in turn decreases overall global supply security.

The report then refers to already existing actions of the German government to tie close economic relationships with energy suppliers, and to the tendency of consuming countries to reduce oil dependency, trying to steer clear of risks of future supply shocks.

The Middle East is identified as a very dangerous region with high external involvement from many players and thus a very unstable overall situation.

Overall, the report expects a reduction of the importance of “Western values” related to democracy, and human rights in the context of politically motivated alliances, which increasingly are driven by emerging economies such as China – likely leading to double standards. Emerging economies are equally expected to receive higher recognition in international organizations, particularly those with strength in resources (such as Russia).

3.1.2 New security risks based on additional/alternative energy resources

New conflicts are potentially arising from oil exploration in international or disputed ocean waters, where multiple issues arise, particularly around the Arctic Circle, with further geopolitical risks for conflict.

Also, the shift to natural gas is reviewed as an extension of the “oil age”, because it might be able to replace crude oil as a bridging source until new solutions are found. The risks for problems from transporting gas (pipelines) and the related issues (as seen between Russia and its neighbors during the past years) are highlighted.

Equally, nuclear power as a potential source is highlighted – emphasizing the risk for safety and the proliferation of nuclear technology. This would also require an increasing shift towards electricity.

Equally, the competition between biofuel and food production is highlighted, showing the limits of biofuel outputs to compensate for reductions in oil availability, and also showing risks for water supply and soil degradation from excessive use.

Overall, the authors see a trend to increase the energy autonomy of entire regions from external supplies, both in the ability to generate alternative fuels (from biofuels and coal), but particularly in electricity generation.

3.1.3 A shift in roles between private and public actors

Based on the increasing importance of oil, governments are becoming more relevant in securing the benefits of oil, both on the supply and on the demand side. This puts a higher emphasis on political negotiations and deals, and increases the risks for nationalizations of resources and key exploration activities.

Exploration licenses are seen as a key area where bidding wars (including non-financial commitments) might emerge. Equally, increasing pressure to renegotiate or revoke already existing licenses might emerge. Ultimately, each country will try to secure sufficient oil to maintain its standard of living.

On the other hand, private enterprises are seen on the rise in protecting infrastructure and ensuring production and transportation security in less developed regions, particularly if weaker countries become unable to keep their own services up.

The dependency on oil-related infrastructure (pipelines, refineries, harbors, key pathways on oceans) will increase, and thus the risk. Damaging infrastructure through hostile acts (sabotage, war) might become an attractive target for groups or countries with a tendency to use violence. The same is expected for electricity and natural gas-related infrastructure – they all might require higher protection.

Generally, the focus of risks is expected in the region which the authors consider the “strategic ellipse” (a term used for the region East of Europe reaching from Saudi Arabia in the South to Russia and former Soviet Union countries in the North), because a majority of oil reserves are located in this area.

3.1.4 Economic and political crises as a consequence of the transition to “post-fossil” societies

A number of risks of higher oil prices are seen for modern economies, particularly in transportation. Security risks are seen in resulting systemic crises.

A first direct consequence of higher oil prices and lower availability of fossil fuels is a possible reduction in transportation capacity, equally in individual transportation and in freight forwarding. This might lead to another “mobility crisis” for societies that heavily depend on cars and trucks.

Higher cost in commercial transportation markets might severely affect current supply chains, and no alternatives are in sight (electric trucks don’t exist yet). Food particularly might become a critical issue for countries that are a) highly dependent on imports and b) are susceptible to price-increases of food products, particularly affecting Africa, parts of Asia and Latin America, and the Middle East.

High oil prices would further affect almost all aspects of society, as it will also influence the cost of chemicals and all products derived from them, which might substantially alter the nature of value chains and make certain things uneconomical – ultimately leading to higher unemployment during a transformational phase away from an oil based economy. This might particularly affect the German car industry.

Limits in availability might also strengthen regulatory efforts, encourage the allocation of energy (oil) by rationing schemes and possible other actions limiting free markets.

Additionally, the changes and likely reduction in standard of living might render societies less stable and make them more attracted to extremist political positions and even trigger changes in government systems, as trust into key actors in politics will diminish. This might be a particular risk for the relatively young democratic countries in Eastern Europe.

3.1.5 More selective intervention – key actors overwhelmed

Overall, more expensive transportation and increasing problems “at home” might reduce the ability of larger countries to intervene internationally (politically and/or with military action), and also lower the readiness to provide help to poorer countries. The focus will be more on a country's (energy) interest for itself and not so much on an ideal of transferring Western values. The gap will likely not be filled by NGOs, as they will be affected by similar limits.

Overall, international institutions will be weakened, as they will have less resources to provide help and support, and it becomes equally possible that help will be attached to direct (energy) needs of the donors.

3.2 Systemic risks after reaching a “tipping point”

In addition to the gradual risks, there might be risks of non-linear events, where a reduction of economic output based on Peak Oil might affect market-driven economies in a way that they stop functioning altogether, leaving the possibility of a relatively steady downward trajectory.

Such a scenario could develop through an initially slow decline of trade and economic activity, combined with higher stress on government budgets from lower tax income, higher social cost and growing investment into alternative technologies.

Investment will decline and debt service will be challenged, leading to a crash in financial markets, accompanied by a loss of trust in currencies and a break-up of value and supply chains – because trade is no longer possible. This would in turn lead to the collapse of economies, mass unemployment, government defaults and infrastructure breakdowns, ultimately followed by famines and total system collapse.

4. Challenges for Germany

4.1 Risk of new dependencies for Germany

Oil as a new factor of global power would create significant dependencies for Germany, and in order to avoid supply issues, strong ties with suppliers are a must, but equally a diversification of supply relationships, taking into account that a supplier might intentionally reduce capacity to accomplish political objectives.

Among the key supplier countries is Russia (supplying 35% of German oil imports), where reliability risks are prevalent, given past experience. Natural gas, as a possible temporary substitute, bears the same risk (37% comes from Russia). Thus, a diversification becomes essential.

4.2 Focus of politics on supply relationships

Germany needs strong and reliable ties to Russia and other Caspian Sea countries. This might create some challenges in international relations, particularly with smaller Eastern European countries [like Poland]. Thus, intensifying relationships to the Middle East might be equally relevant. However, all those relationships have an inherent risk of being instruments in conflicts, which puts a certain limit on treating all foreign partners the same.

4.3 More pragmatic foreign policy

The need to mitigate supply risks might require some compromises on foreign affairs topics (such as human rights). Equally, more active diplomatic efforts will be required with a focus of energy security in mind. This is more difficult given Germany’s reluctance to engage in political power play due to its history, but needs to be tackled in order to deal with the challenges ahead. The authors don’t want to encourage military solutions, but suggest a strong preventive development of political and diplomatic initiatives to tackle the problem.

4.4 Importance and freedom of industrial nations reduced

All industrial nations that depend on energy imports will become more dependent on new partners, both in emerging economies and supplier countries. This requires a new focus in foreign affairs, sometimes giving up standards in negotiations with countries that have different cultures and political systems.

4.5 Help in stabilizing supplier countries at risk

Some supplier countries (and surrounding regions) might be destabilized by the force of higher resource prices. This is an area where Germany needs to help by providing support for nation building and conflict resolution on the national and international level. This is in conflict with the lower economic power likely to result from Peak Oil, which might make interventions less likely and requires new approaches of “stabilization with lower effort.”

4.6 Growing conflict potential concerning the Arctic Circle

Germany might have to take positions in case of an upcoming conflict regarding resources in the Arctic Circle, where multiple countries (including Russia) have open claims for accessing oil and gas fields. This requires further research.

4.7 Nuclear technology proliferation

The risk for nuclear technology proliferation and thus more countries with the potential for nuclear weapons (and the risk for terrorists having access to nuclear material) is growing due to the proliferation of nuclear technology for energy generation. Equally, risks for terrorist attacks and accidents on German soil are rising. Both scenarios require more surveillance, intelligence and preventive action.

4.8 Higher conflict potential regarding critical infrastructure

Energy delivery infrastructure for all sources including electricity will have a higher importance in an oil constrained world, thus, securing its reliability, security and availability becomes mission-critical. International cooperation is needed to secure large international supply paths (pipelines, sea routes).

4.9 Larger “energy regions” change international alliances

The expectation of stronger connections between suppliers and consumers across continents creates different settings for current international alliances and security risks. DESERTEC (a large power production system in Northern Africa based on CSP) would require different settings even for military strategies.

4.10 Peak Oil for armed forces

Armed forces would also be significantly affected by fossil fuel limits, as they are very dependent on oil products. Significant investments in alternative energy procurement technologies (biofuels, coal-to-liquids - Fischer-Tropsch) and applications (electric and hybrid vehicles) would be required, with long transition times. Further, local energy-independence of stationary troop infrastructure (like military bases) using more renewable sources would be beneficial. The long term objective would be to fully convert Germany’s armed forces to only use renewable energy sources by 2100.

4.11 Crude Oil as a systemic risk

For scenarios which end with a complete destabilization of societies, Germany is at a significant risk given its strong participation in a globalized economy. Being still able to act requires a number of basic infrastructures to keep functioning, both for the country and its armed forces. Work is required to look into redundancy, high-resilience of infrastructure and local self-organization approaches.

5. Summary

The report sees significant risks arising from an unavoidable peak in oil production, which go beyond gradual shifts in energy systems and economies. This will likely lead to economic change and new geopolitical risks that affect much more than just what we can anticipate. The overall ability to describe exact outcomes is very limited, as many scenarios are possible, and further research is required.

Overall, more emphasis needs to be put on understanding and shaping international relationships with respect to energy security, anticipating and integrating the ongoing shift to different players in a resource-constrained world.

In any case, Germany has to identify and implement alternatives to the current transportation technologies that require oil, and put a similar emphasis on avoiding other dependencies, for example concerning rare earths.

For armed forces, Peak Oil creates significant risks, both from a mobility standpoint as well as from dependencies on other societal services. Understanding those risks requires further analysis and likely a very different approach in the future.

In general, more preparation is required for society and the army to make sure that problems are recognized and solutions are actively implemented.

Christoph-R on September 2, 2010 - 10:18am

I agree. Some of what they say is very optimistic.

This for instance:

"Auf Grund der engen wirtschaftlichen und politischen Verbundenheit mit Norwegen und Großbritannien sind diese als besonders zuverlässige Lieferanten zu betrachten. Beide Staaten haben ihre nationalen Peaks bereits überschritten, könnten aber nach Schätzun-gen des BGR noch mehr als 25 Jahre lang die gleichen jährlichen Mengen an Erdöl för-dern wie 2008."

"Because of the close economic and political ties with Norway and the UK these are regarded as particularly reliable supplier. Both countries have already exceeded their national peak, but could, based on the BGR estimates, supply the same annual amounts of oil as 2008 for another 25 years."

I like Khebab's graph on page 82. It looks like TheOilDrum is taken seriously by governments.

Singo

But then again...

"Investment will decline and debt service will be challenged, leading to a crash in financial markets, accompanied by a loss of trust in currencies and a break-up of value and supply chains – because trade is no longer possible. This would in turn lead to the collapse of economies, mass unemployment, government defaults and infrastructure breakdowns, ultimately followed by famines and total system collapse"

Is probably the most concise explanation of the possible risk I've seen for a long time

Will Stewart:

Yes, "ultimately followed by famines and total system collapse" pretty much says it all.

This is the risk (albeit of unknown probability) the Gail will not let us brush under the rug (nor would any other highly competent actuarial).

oldfarmermac:

Gail deserves a great deal more respect than she gets from some of the people who post comments.

I don't necessarily agree with every single thing she says, but I take every word seriously to the extent of thinking "she has devoted a lot of time, energy, and expertise to these words, and she may be right-meaning I'm wrong."

Our failures in reasoning are much more like to trip us up than our successes.

I don't believe it is possible to disprove her general arguments;and as I see it, the only real hope we have of her being wrong in terms of the grand scheme of futiure things is that we get VERY LUCKY INDEED in several respects-a slower than expected decline in ff production, faster then expected progress on the renewables front, pilotical success on a grand scale in implementing conservation and efficiency measures, avoiding any major wars.....

I do believe it is possible to avoid a devestating collapse, but I seriously doubt if we will get our act together and actually take the necessary preventive proactive steps.

Luke H:

OFM: As a history buff you couldn't have possibly missed the significance of

4.6 Growing conflict potential concerning the Arctic Circle
Germany might have to take positions in case of an upcoming conflict regarding resources in the Arctic Circle, where multiple countries (including Russia) have open claims for accessing oil and gas fields. This requires further research.

of course a little earlier this line

Germany needs strong and reliable ties to Russia and other Caspian Sea countries. This might create some challenges in international relations, particularly with smaller Eastern European countries [like Poland].

is one the translator certainly wanted to catch our eyes--I believe all bracketed material is original text inserted by the translator.

Well as an imperialist Yankee I've thought strong U.S. ties with Poland, Slovakia, Hungary and Slovenia -- something like a US European free trade zone commonwealth -- could serve a similar function to the handful of U.S troops in the Korean DMZ. Of course it might be understandable if some wondered about the prudence of using another hair-trigger as a stabilizing mechanism. But if big dogs started barking nearby those countries might make overtures from Uncle Sam themselves.

Merrill:

It is a summary, not a translation. The actual text is much longer.

The only reference to "Polens" is in a footnote on page 70.

Wie ansatzweise schon das Beispiel der Diskussionen und Konflikte um die Ostseepipeline zwischen Russland und Deutschland unter Umgehung Polens gezeigt hat.

As to some extent already the example of the debates and conflicts around the Baltic Sea pipeline between Russia, Greece and Germany has shown, bypassing Poland.

oldfarmermac:

Interesting possible scenario.

Could be, some day.

As Yogi sez, predictin is hard, specially the future.

When I comment on international affairs, I try to do it from the pov of an impartial and disinterested observer and point out what I think is relevant, rather than pushing the agenda of some particular faction ..

But if and when times get rough, personally I'm with you- my own survival and the survival of my kin group is more important to me than the survival of a hundred times as many people from China or Africa-or from France or Germany or even California for that matter.

If Uncle Sam gets in a scrap of any sort, I want him to win.

But it sure would be nice if he would act a little less like a CRAZY uncle and avoid more scraps!

oxidatedgem:

Gail is good at pointing out the risks, but her conclusion seems to be that we should keep on trying to get what fossil fuels we can by whatever means necessary. That includes such things as her support of fracking.

This of course ignores two things:

One that climate change is likely to be an even greater disaster for humans now and in the future than the collapse of economies from peak fuel. Even if we were able to prop economies up until some possible green alternative kicks in, we may well push the climate into positive feed back in the mean time leaving us NO out from an even worse collapse than economic/fuel collapse

Two that the longer we put off collapse Gail has maintained we put off the early deaths of many humans. I pointed out to her (which she did not respond to) that every year we add 70 million humans to planet earth. An early collapse means less total untimely deaths than a collapse somewhere down the line. If we put off collapse for just 15 years we could if present population trends continue have another billion more humans who will be faced with untimely death.

Regardless of how awful economic collapse caused by peak fuel may be the effects of putting it off by more deepwater drilling, mountain top removal, nuclear power plants, and fracking will make an eventual collapse much worse.

westexas:

Of course, the UK is already a net oil importer, and Sam's forecast is that Norway will approach zero net oil exports in about 16 years, which is actually about the same time frame that he shows Russia approaching zero net oil exports.

Russia, because of the frontier basins (which aren't really very well reflected in the net export projections), is a somewhat of a wild card, but IMO Russia's frontier basins are to Russia as Alaska is to the US, i.e., helpful, but not a game changer.

Here are the actual net export numbers for Norway & Russia (black dots, through 2006), along with Sam's projections (circa 2007), showing low case, middle case, best case (note the different vertical scales). The projected 2005 to 2015 net export decline rates are shown for both countries. Note that the 2007-2009 data points for both countries fell between Sam's middle case and best case.

Norway:

Norwegian Net Export data for 2007-2009:

2007: 2.3 mbpd
2008: 2.2
2009: 2.1

Russia:

Russian Net Export data for 2007-2009:

2007: 7.0 mbpd
2008: 6.9
2009: 7.1

Paper that I delivered on our net export work on the 2005 top five net oil exporters (principally Sam Foucher's excellent mathematical modeling) at the 2007 ASPO conference:

http://energybulletin.net/node/38948

Gail the Actuary

I think price will be very important in Russia's decision to develop natural gas fields.

If very high prices can be obtained (say 3 times current levels), Russia will be more than happy to continue to drill for gas, in even the most adverse environments. But if high natural gas prices cause economies to shift back into recession (or if importers are already badly into recession, because of oil and credit problems) then high natural gas prices will remain too low, and Russia will stop drilling in the very high priced locations.

This will really reflect a problem of inadequate EROEI / high price to extract. Importers will need to be able to pay these high prices, or the operation won't make economic sense.

It may be that China will be able to pay higher natural gas prices than Europe, because it uses less gas per person, and makes better use of what it does imports--the same situation we see with high oil prices hitting the "West" harder than China and India.

westexas:

To clarify slightly, the above charts for Norway & Russia are for oil.

Regarding Norwegian gas, I think that Rune believes that Norway may be at, or quite close, to a gas production peak.

Regarding Russian gas, the real problem is that their consumption, as a percentage of production, is quite high (72% in 2008, EIA), so any decline in production and/or an increase in consumption will have a significant impact on net NG exports. For example, assuming no change in consumption, a 5% decline in Russian NG production would result in an 18% decline in net NG exports.

As I have previously noted, I think that both the US and Europe are facing Proximal Producer Problems, with key geographically close sources of net oil exports, Mexico & Venezuela for the US and Norway & Russia for Europe, showing generally flat (Russia) to declining (Norway, Mexico, Venezuela) net oil exports. And of course, then we have "Chindia" out there bidding for net oil exports, wherever they can get them.

Even if we include Canadian net oil exports, the combined net oil exports from Canada, Mexico & Venezuela (three of the top four sources of US oil imports) fell from 5.0 mbpd in 2004 to 3.8 mbpd in 2009 (EIA).

jonathan.s.callahan on September 2, 2010 - 1:30pm

Re: Norwegian gas

Norway may be at, or quite close, to a gas production peak.

An article out today titled Gas problem for Norway and Russia addresses the issue of gas prices and their effect on production from Norway and Russia and has the following:

Lower prices on natural gas mean lower budget revenues for both Norway and Russia. It could also cast shadows over planned new field projects, including in the Barents Sea.

...

According to NRK, budget cuts are underway already in 2011.

At the same time, Norway is in danger of running out of available hydrocarbon resources. The country’s oil production has dropped 40 percent since the peak in 2001 and also the finding of gas reserves have stagnated.

Another Norwegian article concerning the fall in revenues due to low gas prices came out yesterday:

Norway's oil and gas wealth disappears

The low gas revenues could force severe cuts in welfare, and give the government far less room to maneuver.

My understanding is that Norway is on track to produce at its current level for perhaps a decade before decline sets in. If prices are low during that time, reducing funds for exploration, the descent from peak production rates could be steep.

Here's the chart for Norway from the Gas Trends databrowser:

Jon

(Note: the Gas Trends databrowser is a new, in-development databrowser that focuses only on natural gas. Both BP and EIA data are available as well improved graphics for blog posts.)

Rune Likvern:

Hello,

Just to follow up on Jeffrey’s comment.



The diagram above shows developments in actual Norwegian natural gas production (sales) between 1996 and 2009. Further it shows my forecast of Norwegian natural gas production/sales towards 2020. My forecast is developed by using data for individual sanctioned fields as reported by NPD for estimated original recoverable reserves (NPD data as of end 2009, remaining recoverable reserves (NPD data as of end 2009) and R/P ratio (Reserves over Production).

NOTE! The black (High case) and red (low case) lines in the diagram shows MOE (Ministry of Oil and Energy) and NPD (Norwegian Petroleum Directorate) forecast as published in MOE’s Factsheets for 2009.
There are revisions to MOE’s forecast in their Factsheets for 2010 which now shows a high of around 130 GSm3/a and low of around 100 GSm3 on Norwegian sales gas volumes by 2020. In other words MOE has revised down its forecast towards 2020.

As of end 2009 NPD’s estimated remaining recoverable natural gas reserves for NCS stood around 2 040 GSm3 of which 70 % were in Ormen Lange, Snøhvit and Troll. Presently these 3 fields are facilities restricted.

Volume of commercially undeveloped natural gas on NCS is presently low and is as of now expected to have a small impact on my forecast. Volumes of some of these discoveries range from 30 GSm3 to 50 GSm3.

High hopes had been pinned to the recent drilling in the Gro prospect, which turned out as a disappointment and made NPD revise down their estimate of recoverable reserves.



The above diagram shows development in Norway’s natural gas production by some individual fields and group of fields as reported by NPD (Norwegian Petroleum Directorate) for the period January 2001 and as of June 2010.
The diagram shows a small growth in Norwegian gas sales as of June 2010. This is less than what I have in my present forecast.

Recently the seasonal off take of Norwegian natural gas shows less variation. Growth in sales has recently come from Troll and Ormen Lange and the diagram shows that new developments (included in the yellow columns) on NCS are not able to fully offset declines from Gullfaks South and the Sleipner area.

I plan for (and works with) to have future post(s) on TOD on historical and forecast developments for Norwegian crude oil and natural sales gas production.

westexas:

The following article covers the ban on Russian wheat exports, but the "FELM" (Food Export Land Model) premise is the same as the ELM, i.e., domestic demand is generally satisfied before a product is exported--and therefore any production declines result in steep, and generally accelerating, decline rates in net exports.

http://www.ft.com/cms/s/0/5f6f94ac-b6bc-11df-b3dd-00144feabdc0.html
Fears grow over global food supply

Russia announced a 12-month extension of its grain export ban on Thursday, raising fears about a return to the food shortages and riots of 2007-08 which spread through developing countries dependent on imports.

The announcement by Vladimir Putin came as the UN’s Food and Agriculture Organisation called an emergency meeting to discuss the wheat shortage, and riots in Mozambique left seven dead. . .

“This is quite serious,” said Abdolreza Abbassian, of the FAO in Rome. “Two years in a row without Russian exports creates quite a disturbance.” Dan Manternach, chief wheat economist at Doane Agricultural Services in St Louis, added: “This is a wake-up call for importing nations about the reliability of Russia.”

steve from Virginia:

With increasing scarcity, producers are increasingly in an advantageous position, both from high revenues and access to cheaper oil when compared to spot market prices. This partly reverses the trend to free oil markets which took place after the '70s shocks, and gives those countries more control over the supply chain, with a risk of monopolies and nationalizations, and of “political pricing.”

All of the above is an assumption, that physical shortages will automatically result in one way price action with advantages to producers. The price of oil is restrained by the upper bound effect where costs/unit output beyond a certain level triggers business slowdown. This is an economic law of gravity that cannot be overturned either by manipulation, or autocracy.

The conceptual basis of Net Exports (outside of the EROEI differential) is that producers are industrialized as much as consumers. Producers are dependent upon the stream of goods and services emitting from oil consuming nations. When consuming nations fail due to oil shortages so will producing nations. When producing nations reach the same level of industrialization as current consuming nations they will either be net energy importers or indistinguishable in their level of demand from their energy customers.

'Free markets" is not an issue: there have never been free markets in crude, anywhere since the end of WWII when authority was given to the Texas Railroad Commission to fix prices.

Producing nations may indeed have oil but lacking final customers may as well not have any at all. Like other participants in the USA- style consumption paradigm, producers confront the fate identical to that faced by USA real estate lenders/speculators, USA jobless and USA small businesses since 2004. When there are no customers with money all businesses are eventually ... out of business.

Oil prices matter ONLY to waste- based consumer industrial economies with large fixed investments mortgaged to inexpensive inputs. The shift to conservation economies will be just as destructive to oil producers as it will be to their customers. Reference various remarks by Saudi oil ministers on this subject. Producing countries have corrupt and ineffective governments and few functioning social institutions. Loss of incume will lead to revolutions rather than toward economic superpower status. What is happening in Mexico currently is a good example of what is to come to other producers as they either lose production ability or customers.

Mexican economy is damaged both by the loss of oil income, a large shrinkage of drug income due to the recession in the US as well as the shrinkage of remittances from Mexican workers in this country.

Producer countries are run by autocrats (Russia, Venezuela) or mafias (Mexico, Iraq, Angola, Yemen, Mexico, Nigeria) or militants/radicals (KSA, UAE, Iran). They are all dependent upon the flow of western 'growth' in the form of funds/credit along with Western luxury/consumer goods (and food) to keep order. 'Destroying the West' makes sense to US business executives (which have done just that) but the status quo is very important to both (oil) users and pushers.

westexas on September 3, 2010 - 10:10am

What is happening in Mexico currently is a good example of what is to come to other producers as they either lose production ability or customers.

Relative to their 2004 production peak, here are the five year rate of change numbers for Mexican total liquids production, consumption and net oil exports:

Production: -5.0%/year
Consumption: +0.8%/year*
Net Exports: -14.1%/year

*Mexico has shown some recent year over year declines in consumption, but in order for the net export decline rate to be at or above the production decline rate, consumption must fall at the same rate as, or at a faster rate than, the production decline rate (their 2009 consumption decline rate was only about half their 2009 production decline rate, relative to 2008). Here are the 2008 to 2009 rate of change numbers for Mexico (EIA):

Production: -6.1%/year
Consumption: -3.3%/year
Net Exports: -12.5/year

I'm afraid that "Net Export Math" is relentless.

In simple percentage terms, a 22% decline in production from 2004 to 2009 resulted in a 51% decline in net oil exports. Here is the EIA net exports chart for Mexico:

--- deleted ---

Incidentally, Mexico has basically started the transition to net importer status. As David Shields predicted, because Mexico no longer produces enough of the right type of crude oil for their domestic refineries, Pemex is looking at importing crude oil in the near future.

step back on September 4, 2010 - 7:20am

Incidentally, Mexico has basically started the transition to net importer status.

But the peak-"theorists" are nonetheless still Chicken Littles making silly noises about pieces of the sky coming down on our technologically always-advancing civilization. ;-0

_______________________________

Incidentally, reports are just incoming from Cornucopia Breaking News: Captain Nemo has just surfaced near Brazil shoreline and says he found 2 new Saudi Arabias a mere 20,000 leagues under. Once again, the good news just can't stop itself from gushing in. BP is capped. Nemo has been found. What more can one wish for?

RockyMtnGuy:

I was editing some Wikipedia articles on oil production about the time that Mexican oil production peaked, and it was perfectly obvious from the publicly available information that their oil production was about to peak. I ran into a lot of interference in editing articles because Pemex, their state oil company, was in a total state of denial about what was going to happen to their production.

Most of their production came from the Cantarell field. A few years before they had started the biggest nitrogen injection program in the world to maintain production, and while production rates had increased, the water interface was approaching the gas interface as the oil layer became thinner and thinner. What happens when the water layer reaches the gas layer and the oil layer goes to zero? I'll give you three choices 1) production crashes, 2) production crashes, 3) production crashes.

Pemex was in a state of total denial about this, and refused to admit it. They also pointed to their other big oil fields as having the potential to replace it. Pemex is a huge bureaucracy, but they have neither the capital nor the technical expertise to develop those fields. Mexico could bring in American oil companies (which have both the capital and the technology), but then the Mexican oil industry would begin to resemble a gazelle carcase being torn apart by a pack of hyenas, and the Mexicans would never allow that given their history with US oil companies. So their other oil fields are just going to sit there as their production continues to decline.

The thing is that Pemex has a monopoly on Mexican oil production, and has all the geological data, production data, capital planning data, and marketing data to predict what is going to happen to their oil production with considerable accuracy. However, they lack the internal honesty to admit the truth to themselves, so their crash in production came as a complete surprise to them.

So, that's it for Mexican oil exports. My bigger concern is that Saudi Arabia's Ghawar field is starting to look like Mexico's Cantarell field (world's biggest water injection project, frantic drilling of horizontal wells), and Saudi Aramco is starting to behave like Pemex. If that's the case, Aramco would be the last organization to give you realistic projections of future production. If Ghawar was about to crash, Aramco would be the last organization to admit it. At least with Pemex the company had to publish their basic data. In Saudi Arabia all the data is a state secret.

westexas:

As I said in prior years. . .

(1) IMO, the decline of the two largest producing fields in the world--North Ghawar & Cantarell -- represented two warning beacons heralding the onset of Peak Oil;

(2) The key difference between Saudi Aramco and Pemex is that the latter company has admitted to the decline in production from their largest oil field.

davidk on September 2, 2010 - 12:31pm

Hi All,

Russia will want to sell it's gas, and its most direct strategic interest is not to see western Europe go to the wall. However, it may have no choice.

With credit/ monetary problems/ lost discretionary income/ general infrastructure risks, and general 'systemic uncertainty I don't imagine Russia will be doing much investing.

But current in-production gas is interesting.

A severe systemic shock would force a major drop in electricity and heating demand in Europe. Even assuming that monetary stability could be maintained, the revenues due to Russia from Europe would drop very significantly. But the fixed operating infrastructure, from Russian production to European distribution pipelines to national electricity generation to grids were developed in the expectation of high(current) demand and real revenues. If the (real) revenus drop enough, they may fall below the current production and fixed operating costs. The whole system may lose its economies of scale and effectively become unviable.

Also, as this infrastructure represents some of the most specialised and complex supply-chain dependencies on the planet. Therefore they are at most risk from failures in the supply-chains that re-supply the infrastructure.

Losing monetary stability just adds insult to injury!

The report has various voices running in different directions. Some of the strategic conclusions, and risks outlined in the report seem to be in direct contradiction. Still, good to see it even (maybe especially) in its unedited state.
David

Matt on September 2, 2010 - 12:19pm

On exports/imports:

3/9/2010

Australian crude oil imports could decline by 5% in next years
http://www.crudeoilpeak.com/?p=1843

Just a simple trend analysis.

jg_ on September 2, 2010 - 5:22pm

3/9/2010
Australian crude oil imports could decline by 5% in next years
http://www.crudeoilpeak.com/?p=1843

Interesting link.

I can agree with this

Rail development and conversion of our truck fleet to CNG/LNG have become ever more urgent.

but this claim, left me scratching my head..
A 5% decline in crude oil imports would endanger the medium term viability of one of Australia’s oil refineries. Such a decline rate would also be too high to be offset by fuel efficiency improvements or electric car transition programs as assumed by the RTA in their final report on the M2 widening.

Refining capacity is surely very elastic : After all, they refined MUCH less than what is used now, in the past.

Perhaps they meant viability in the narrow, reduced profit sense ?

wotfigo:

Matt. I live in Australia and read your reports.

You do a fantastic job. Thank you.

Once again in the recent Australian elections the political parties and the MSM never once acknowledged the issue. And Abbot as you pointed out is completely ignorant. (and IMO not just on PO either).

Keep up the good work. some of us are listening - and making plans for an oil deprived future.

Cheers.

drillo:

In fact this contradicts BP data (see data browser), according to which UK is a net importer since 2006.

Maybe here also the original source from German geological service BGR is wrong, which says:

"The most important supplier of crude oil in 2007 was the CIS with 42%, with the lion's share of 32% from Russia. Behind this the North Sea states of Norway and United Kingdom follow with a share of 29%."

But I think that apart from this detail the Bundeswehr study is excellent!

Cliff Barns:

I think the imports from the UK are due to the pipeline system. A lot of Norwegian oil seems to go to the UK first and then to Germany.

Looks like the UK is taking a firmer grip on that oil. Seems like that this year the UK changed their transit status and buy the norwegian oil and sell it than to germany.

Here are the statistics from "Deutsche Mineralölverband" for the first six month of 2010.

UK 6.555.358 tons + 29.3%
Norway 4.373.451 tons - 42.7%

http://www.mwv.de/cms/upload/pdf/statistiken/aktuell/10_AMS_2010.zip

the full report ( exel ) imports are on page 2.

dspady on September 2, 2010 - 1:21pm

Apparently the definition of peak oil is in an Appendix. Do they define the ONSET of peak oil. Some argue that we will have a rise in production (which we have seen for the past few decades more or less) and then a plateau and finally a drop. Well, if the plateau is more or less the top level of production, even if it lasts a few years before production drops, then the ONSET of peak oil might be construed as the time when the plateau was initially reached.

This would allow for an alternate interpretation of the "15-30 years after the peak has hit"; i.e. we are already several years into this time period.

Don

Alfred:

Here is a Google translation of the full report

Will Stewart:

Actually, what you have translated is Der Speigel's article, not the full report. The english version of the Der Speigel article is now available, as updated at the top of this TOD article. Your helpfullness ia appreciated, though :-)

I have Google-translated portions of section 3.2, and it pulls no punches;

3.2 Systemic risk in excess of the "Tipping Point"

The Peak Oil may have dramatic consequences for the global economy. The extent of these consequences will be - not only, but can also - by a decline in growth measured in the global economy. The following discussion will show that there exists on the scale of potential, peak-induced growth costs a tipping point at which decides whether the impact of the peak remain analyzable ex ante or not.

The phenomenon of tipping points in complex systems is known from mathematics has long been under the term "bifurcation". In recent times, particularly in the area of climate research pointed to possible "tipping". Tipping Points are characterized by the fact that when they reached the system stops responding proportionately to changes, but chaotic. Have such a small change in temperature to such a point a dramatic effect on an ecosystem. The Gulf Stream would not proportional to global warming more slowly, but stops suddenly. Similarly, the monsoon sets in at some point and is not just weaker.

Intuitively, it may be rather obvious that a phase of slowly declining oil production also leads to a slowly declining economic output. The Peak Oil would simply turn back the level of prosperity for a while, during which then technological solutions could be found. This intuition is deceptive: economies move within a narrow band of relative stability. Within this volume turschwankungen-conjunctivitis and other shocks are possible, but the operating principles remain the same and provide a new equilibrium within the system. Outside of this volume, however, this system reacts chaotic.

In contrast to climate research can be in economics, at least one boundary of this volume identify clear: An economic tipping point is where is shrinking - for example, in consequence of the peak - the world economy on indefinite time. In this case, a chain reaction would be the result, destabilizing the economic-based and broader security policy so that all derivatives beyond the analytical frame-work.

The combined capacity of conventional and non-conventional oil drops.

- 1 The Peak Oil occurs and the decline of conventional oil flow can be at least in the foreseeable future not fully captured by non-conventional oil. The term "foreseeable" is of particular significance here. It leads ultimately to a loss of confidence in markets.

In the short term the world economy reacts proportionally to the decrease of the oil-supply.86

- 1 Rising oil prices reduce consumer spending and output. There will be emphasis on youth-ones.

- 2 The rising share of transportation more expensive all traded. The trading volumes are falling. For some of them just break off one-revenue sources, others can no longer afford essential foodstuffs.

- 3 Budgets come under extreme pressure. The expenses of Sicherstel-ment of the food supply (increasing cost of food imports) or social (rising unemployment) compete with the required skills necessary investments in Erdölsubstitute and Green Tech. The revenues are reduced by the recession and the necessary tax relief drastically.

In the medium breaks down the global economic system and any market-based economy organized.

- 1 The economic agents realize the permanent need of a sustained contraction and shrinking world economy ausgehen.88

- 2 Tipping Point: In a shrinking economy, either for an indefinite time savings not invested because companies make no profits for an indefinite period not longer able to pay cost of debt to equity shareholders or profits auszuschüt States. The banking, stock exchanges and financial markets overall break together.

- 3 The financial markets are the backbone of the global economy and an integral component of modern societies. All other subsystems have co-developed with the evolutionary economic system. A disintegration can not therefore be analyzed under the current system. It would set an entirely new system state.

To illustrate yet to be theoretically plausible outlines some consequences:

Banks lose their business base. You can pay interest on deposits, because they can not find creditworthy companies.

loss of confidence in currencies. The belief in the value-preserving function of money is lost. It only comes to hyper inflation and black markets, then to a tauschwirtschaftlichen organization at the local level.

collapse of value chains. Labor processes are based on the possibility of trade in precursors. The processing of the necessary transactions without money is extremely difficult.

Unbound monetary collapse. If currencies lose their value in their country of origin, they are no longer exchangeable for foreign currency. International value chains collapse as well.

Mass unemployment. Modern societies are organized labor and have throughout their history ever differentiated (specialized). Many professions have to deal only with the management of this high degree of complexity and nothing more with the direct production of consumer goods. The suggested here to reduce complexity of economies would in all modern societies, a dramatic increase in unemployment.

State bankruptcies. In the situation described State Revenue break away. The possibilities of the debt are limited.

collapse of critical infrastructure. Neither the physical nor the financial resources for the maintenance of adequate infrastructures. The problem is compounded by the interdependence between infrastructure and with different subsystems.

famines. Ultimately, it will provide a challenge-to produce food in sufficient quantity and distributed.

The illustrated sequences show that the energy supply of the economic cycle must be secured. The power supply must be sufficient to enable a positive economic growth. A shrinking indefinitely economic performance represents a highly unstable state, the inevitable end to a system collapse. The security risks of such a development can not be assessed.

A conversion of oil supply is up to the entrance of the Peak Oil is not in all world regions equally be possible. It is likely that a large number of states not in a position to make the necessary investments in time and in sufficient amount. A high level of systemic risk in view of the degree of globalization in Germany so in any given case, and regardless of one's own energy policy.

Matt on September 2, 2010 - 10:32am Permalink | Subthread | Comments top

The report mentions that continent based electrification (e.g. DESERTEC) will become important and that current alliances may have to change due to the geographic location of renewable energy sources and the routing of transmission lines. Protection of electric grids will become a new task.

The main challenge for armed forces will be that global conflicts arising from declining oil production will require a continuation of higly mobile air-borne intervention but that this may actually no longer be viable.

The report has to be seen in the context of the current debate on the size of the German Army, the draft system and also in relation to Afghanistan. President Koehler resigned over some remarks he did when visiting German soldiers there.

German President Koehler resigns over Afghanistan comments
http://www.dw-world.de/dw/article/0,,5634608,00.html

'I No Longer See Any Military Point' in Conscription
http://www.spiegel.de/international/germany/0,1518,713548,00.html

Merrill on September 2, 2010 - 11:48am

The main challenge for armed forces will be that global conflicts arising from declining oil production will require a continuation of higly mobile air-borne intervention but that this may actually no longer be viable.

Consider Afghanistan. It is only practical to put a small number of troops in that country since it is several hundred miles of bad road from the coast. US power is realistically limited to areas that are readily accessible by sea-borne logistics. If the Afghanis were being supplied with modern anti-air and anti-armor missiles (as we did when they were fighting the Soviets), the enterprise would collapse in weeks.

On the other hand, there may be less reason to do all these highly mobile air-borne interventions. If the logic is that we reduce danger to the homeland by "fighting them over there, so we don't have to fight them here", then a world in which international air transport and movement of people is sharply curtailed due to lack of jet fuel is likely to be much less dangerous.

In the powered down future, only a small number of people who have legitimate reasons for travel and have been fully vetted by both governments will be arriving at Ports of Entry.

Armies will once again take up their traditional roles which are to maintain internal order and to prevent the peasants and soldiers of the neighboring countries from crossing the border.

Gail the Actuary:

People in Northern Africa will have more and more need for electricity themselves. How willing will they be to continue to export large amounts through DESERTEC?

jg_:

People in Northern Africa will have more and more need for electricity themselves. How willing will they be to continue to export large amounts through
DESERTEC?

Simple: The exported numbers will swamp local demand - certainly in the short term.

Of course, as local wealth builds from the Energy Revenue, there will be an upward local move in consumption, at least amongst the elite few on the inside.
Even then, that is still not likely to be a significant percentage of the exports.

So far missing from this debate, is the nature of the tail, and how that can flip current political will.

If the decline threatens to be drastic, then Coal will be back on the table very quickly, as most of the Gas flows in the EU, are being used to displace Coal.

Political will shifts very quickly, when pushed.

Smart countries will be careful how they 'retire' their coal capacity.

pc :

What carefull retiring?

There is a large surplus in generating capacity (the 2nd graph shows generating capacity vs. annual peak demand, green vs blue). Germany has almost double it's annual peak demand in generating capacity and is expected to grow that number to about 2,5x over the next 6 years. Other countries also have sufficient capacity to meet peak demand and have plans to greatly expand as well.

So especially Germany has a great freedom to choose it's energy source for generating electricity. Moreover it has a large share of renewable sources which require no fuell and it operates a lot of Lignite plants that source their fuell locally.

jg_:

What carefull retiring?

I did use quote marks :)
Your graphs are interesting (need to be opened in separate window, to see captions)
and coupled with an earlier link
http://tonto.eia.doe.gov/country/country_energy_data.cfm?fips=GM

These Show Coal usage has declined to a plateau, mostly met from local production.
- but your data shows plans for quite a bit more coal.
Perhaps that is because the increase in Natural Gas is largely imported, and the supply risks are considerable ?

The peak capacity graphs seems a strange data focus, as they do not break out the renewable portions of that - so of course, the Peak ratios will accelerate.

More useful would be to know the area under the curves, and how much renewable displacement is occurring.

The EIA data shows Coal flat, and NG in decline since 2003, with Electricity steadily upward, so it would seem the NG decline is renewable displacement ?

If we take your German Oil value of -16.6%/11yrs, that's a half life indicator of ~4 decades. It's likely to be slower than that, due to the first reductions being easiest from the Elasticity Effect, but it gives an indication of a tolerable tail rate.

pc:

This is off course capacity and it's not said that these are running all the time. Actually I expect quit a large share to be running very little, because these are old uneconomic plants.

Renewable electricity is now at about 18,6% of non privelidged electricity.


http://polderpv.nl/EEG_impact_BRD.htm < very good source on the German renewables market!

As explained in this report by the Fraunhofer Institut, a increasing share of renewables in the electricity mix will call for a larger share of middle and peak load:
http://www.bee-ev.de/_downloads/publikationen/studien/2010/100119_BEE_IW... (German)

As can be seen here, only nuclear and lignite plants are run as baseload, while coal, NG and others provide the middle and peak load:
http://www.transparency.eex.com/en/Voluntary%20Commitment%20of%20the%20M...

The same website also shows actual wind and solar power generation:
Wind: http://www.transparency.eex.com/en/Statutory%20Publication%20Requirement...
Solar: http://www.transparency.eex.com/en/Statutory%20Publication%20Requirement...
(Both are 2h delayed.) That website is very good resource. It also shows predicted wind and solar generation and lists of generating unit >100MW, generating units <100MW and unavailability.

As for renewable capacity:
There was about 26,387MW of wind capacity at the end of the second half of 2010: http://www.wind-energie.de/fileadmin/dokumente/statistiken/WE%20Deutschl...
There was about 13,183MW of solar capacity at the end of june 2010: http://polderpv.nl/PV_weltmeister_2010_prequel.htm

There's one more factor involved in Germany's electricity supply robustness: It's very strongly interconnected. At the end of 2004 (it has been expanded since then) it had 18GW of export and 16GW of import capacity with 8 of it's 10 neighbouring countries. (See page 18 of the Fraunhofer report.) Germany has a baseload of about 40GW. This means it can also import electricity directly from other countries where it's available, next to the ability to choose from a wide variety of fuels for it's powerplants.

Norway for example doesn't only have a lot of oil, but it also has a lot of hydro power. Poland has coal. The Alps have hydro. The Netherlands still has roughly 1,200 Gm³ of NG in the Slochteren field. France has surplus nuclear during the night. These resources are now largely allocated, but I can imagine a scenario where Germany can trade the output of it's (renewables-)industry for power.

All this, the fact that germany has 17GW of baseload nuclear and 14GW of locally sourced Lignite baseload, make me believe that the German grid won't be hard hit by a peak-oil scenario. (That's relative to other impacts such a scenario has.)

jg_ :

Thanks for the great links!

This is off course capacity and it's not said that these are running all the time. Actually I expect quit a large share to be running very little, because these are old uneconomic plants.

- and cyclic energy has a high peak:average ratio, which is why I was expecting the peak data to include that somehow.

AlanfromBigEasy:

What is privileged & non-privileged electricity ?

Also Switzerland has/will have 12 GW of pumped storage, Austria could build much more pumped storage (as could Norway and Germany itself).

I could foresee two cycles/day for pumped storage. Up with Nuke (mainly French today) Midnight till 5:30 AM, down for morning demand, up with excess solar PV 10 AM till 3 PM (depending on time of year), down for evening peak.

Extra wind in the winter to help offset reduced solar.

Best Hopes for using Pumped Storage to balance supply with demand,

Alan

pc :

There's some roughly 500 major electricity consumers in Germany that are exempt from paying the full feed-in "umlage". Instead they pay a fixed rate of 0,05ct. (Every non-privileged consumer pays an "umlage" of about 2ct per kWh on top the normal price to finance the feed-in tarifs. And if I'm not mistaken the privilidged consumers have to meet certain renewable energy targets by them selves (largely by importing cheap hydro).)

http://polderpv.nl/EEG_impact_BRD.htm

TIWAG (Tiroler Wasserkraft AG) is currently expanding the Silz generating group and has plans for more expansion at two other sites, but Austria is fairly dense with hydro power and the strong environmental laws also make it difficult to expand much. Currently Austria is a net importer of electricity. It finances this by selling it's abundant peak-capacity and buying back cheap baseload from Germany.

Norway on the other hand has much more potential to expand it's hydro capacity. It currently meets >99% of its electricity demand with hydro. Moreover it has huge wind potential that could be very well combined with the available hydro capacity.

The EU is stimulating market integration of the electricity markets. That's why a 1GW connection between NL an UK is currently being build (almost finished), why a second connection between NL and NO is planned, a connection between NL and DK is planned, a supergrid on the North Sea is planned, why new cross border connections and expansions are planned.

The market coupling of entire west Europe is scheduled for this autumn. After that the intra-day and day-ahead markets of Germany, Denmark, Sweden, Norway, Netherlands, Uk, Belgium, Luxembourg, France, Switzerland and Austria will be coupled. This means that the cheapest producer will determine the price in all these countries as long transport capacity is available. If transport is full for a certain period, then the prices for the two regions will be determined separately.

A couple of weeks ago there was an article on TOD explaining why plain wind without pumped storage can be used as baseload. I don't think there's much need for more pumped storage at this point. Certainly not as markets are integrated more.

jg_ :

Instead they pay a fixed rate of 0,05ct. (Every non-privileged consumer pays an "umlage" of about 2ct per kWh on top the normal price to finance the feed-in tarifs.

Interesting numbers; I also see 2.7ct penciled in for 2011 - on a 5ct budget, that's trending to be quite an increase.

How much 'push-back' aka squealing, is coming from those users ?

oldfarmermac :

If it ever gets built ,I am cynical enough to expect all but the portion of the juice needed to support the local elite( the ones with bugout houses in in London and Paris and New York) to get exported;the commoners will be left in essentially the same situation as they are today .

biologist :

One interesting detail in the original report is hidden in the table of contents: They go from the introduction right into the discussion of the effects of peak oil - no detailed explanation of what this is. Peak Oil is explained in an appedix - does this mean they see Peak Oil as a given, as generally known and accepted, and the appendix is for those few latecomers who have not been convinced yet?

Gail the Actuary:

Maybe it is too easy to get bogged down in the details, and to start picking arguments--maybe efficiency will save us, maybe new technology. They may want people to actually get as far as what they consider important.

jg_ :

Maybe it is too easy to get bogged down in the details, and to start picking arguments--maybe efficiency will save us, maybe new technology. They may want people to actually get as far as what they consider important.

It all depends on the shape of the tail of finite oil.

Efficiency will certainly help, but there is also what I'd call elasticity, which is discretionary energy use. That is significant.

Elasticity has the fastest response time, then Efficiency needs a finite time, to replace current fleet, with new fleet, or shift usage.

The numbers here are the half-life of the fleet-miles, and the change made in the new purchase. The USA has the most 'fat' in their change potential, as they are coming from the least efficient position.

New technology always helps, but unless something truly disruptive gallops over the horizon, new technology will deliver incremental gains.

It can certainly change the shape of the tail :
Better oil extraction is being worked on all the time.
Gas is getting far more mobile.
Wind turbine tech is always improving,
Solar PV tech is moving all the time. We now have many GW scale solar factories being built.

The infrastructure to move personal transport to more electric, is also ramping, but that is not something that can accelerate a lot more.
Double ? - perhaps. Factor of 10 ? - Unlikely.

It's the old adage, that with nine women pregnant, you don't get a baby a month.

Of course, Coal reserves are very large, and desperation may yet drive a jump in coal focus.

creg:

biologist

in europe PO is much more known about, & accepted. i forget which country a friend was visiting, but there was a exhibit in a museum he visited...he was shocked to see such.

Nessus:

The U.S. Army released a report a few months ago that said essentially that somewhere between 2012 and 2015 there would be no surplus oil production globally which means no excess capacity and no "buffer" to absorb sudden demand increases. Looks like the riders on this "roller coaster" will at last be aware that the plateau of the last hill reveals a long way down with no remaining track...

lb262:

It was in the 2010 JOE report from the US Joint Forces Command (US military warns oil output may dip causing massive shortages by 2015)

Interestingly, the USJFCOM relied on a study made by Glen Sweetnam, then Director of the International, Economic and Greenhouse Gas Division at the Energy Information Administration:

Meeting the World’s Demand for Liquid Fuels

And around May, Glen Sweetnam became Senior Director for Energy and Climate Change at the National Security Council (White House).

Gail the Actuary :

Does anyone have Glen's current e-mail address (spam protected)? Or e-mail me with it.

Will Stewart:

From the 2010 JOE:

The central problem for the coming decade will not be a lack of petroleum reserves, but rather a shortage of drilling platforms, engineers and refining capacity. Even were a concerted effort begun today to repair that shortage, it would be ten years before production could catch up with expected demand. The key determinant here would be the degree of commitment the United States and others display in addressing the dangerous vulnerabilities the growing energy crisis presents.

A severe energy crunch is inevitable without a massive expansion of production and refining capacity.

While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India.

At best, it would lead to periods of harsh economic adjustment. To what extent conservation measures, investments in alternative energy production, and efforts to expand petroleum production from tar sands and shale would mitigate such a period of adjustment is difficult to predict.

One should not forget that the Great Depression spawned a number of totalitarian regimes that sought
economic prosperity for their nations by ruthless conquest.

And note that the above is the best case scenario. They don't talk about the others...

Aniya:

Thanks, Nessus, lb262 , Gail (does this mean you’ll ask Glen Sweetman to do a guest post?) – And Will for bringing up this report.

Re: “At best, it would lead to periods of harsh economic adjustment. To what extent conservation measures, investments in alternative energy production, and efforts to expand petroleum production from tar sands and shale would mitigate such a period of adjustment is difficult to predict.”

Re: To focus a bit, here is one critical topic:
“To what extent…investments in alternative energy production…would mitigate…is difficult to predict.”

It’s especially “difficult to predict,” if one does not try to predict it.

As far as I understand it, (and I’d be happy for references to the contrary), no one/group/study/government, etc., *anywhere* has done the kind of “top-level” analysis required to assess the feasibility of the following:

1) transferring most functions of industrial economies and global industrial civilization from an LTF base to an electrical base;

2) Using “alternative energy production” to supply that electrical basis; and, then,

3) taking up the limits of growth in general, and the limitations of the interdependence of LTF functions and electrical functions (eg., diesel for heavy equipment to maintain roads, roads required for maintenance of the electrical grid, etc. ), and how this impacts the prospect of such a change-over.

Gail the Actuary

No. I wouldn't ask Glen to do a guest post. I met him at an EIA conference a few years ago and have corresponded with him when he was at the EIA.

oldfarmermac on September 2, 2010 - 11:26am

Just to keep things in perspective-I just burned maybe a pint and a half of diesel ripping up about a thousand square feet of grass sod running to a brushy, shrubby briar patch-a place that we haven't gardened for five or six years. If the tractor and implement had been parked closer, it would have taken no more than a pint, but it took a third as long to drive there and back as it did to do the actual work.

The heavy spring tooth cultivator-essentially a small six foot chisel plow-ripped out the roots and briars and brush and carried everything to the end of the patch beautifully, where it will rot and eventually be reincorporated into the soil.

Resting this spot for five years means that most of any pesky insect eggs, nematodes, fungus, blights, weed seed, or whatever formerly present will have diaappeared.

Working this ground up for a garden by hand would have been at least a week's backbreaking work for a young tough man.

Just to keep things in perspective.

Being one of the few regulars here who take right wing principles and politics seriously, I have always made a practice of following the news as it relates to national security and military affairs-in short, to history.

(This does not necessarily mean that I agree with any current right wing policy and/or position-but rather that that I take the principles involved seriously-just as i take ecological principles seriously.)

I have yet to see anything written by any military think tank that does not evaluate the the overall oil and energy situation as evolving into a grave crisis within the near to middle term.

Some argue that declining demand in a crashing economy will mean that oil will get ever cheaper.

Maybe so.

But the less oil available, the higher the utility of the last marginal gallon of supply.

The utility of that pint of diesel to me in terms of personal labor and the opportunity costs or value of my time could easily be as much as two hundred fifty to five hundred dollars, considering that the tractor and implement are sunk costs, and what I would have had to pay a laborer to do the job.

I expect the last few dregs of oil that reaches consumers to fetch ungodly prices, limited only by the costs of whatever biofuels are available, or the cost of running electrically powered machinery.

Daddy says that if we still had a mule and the right implements, he could have done the job in less than a day when he was young.

oldfarmermac:

Folks who have only limited space do have some good options and strategies available to them to help with pest and disease control.

Probably the best single one, taken all the way around, it to avoid inadvertently introducing any pest or disease to your plot-meaning to be very careful about where you obtain your seed, transplants, mulch, and so forth, and being careful if you loan or borrow your tools to make sure they leave clean and return clean-hose them off well and leave them out in the sun for several days if there is any doubt.

If your nieghborhood is not too heavily urbanized to support a good population distribution of birds, you can encourage species that are helpful, such as purple martins.

Modern gardening gurus often have very little good to say about plowing, especially deep plowing, but if your land is reasonably level, autumn plowing is a very good way to both bury undesirable insect eggs and seeds deep enough they will rot and die, or bring them to the surface where the birds and winter frost can get at them;and it should not be forgotten that plowing offers a great opportunity to rapidly incorporate any avialable organic materials such as grass clippings and fallen leaves into your soil.It is better that such materials are composted first, but so long as you don't apply too much in any given year, plowing them in is fine and probably the single fastest way to build up depleted soil.

Any any land you have under your control that cannot be cultivated can be useful if maintained in a near natural state, as it will help provide a habitat for a useful local mix of predatory insrects and pollinators.

You can control some pests rather well by growing certain crops only early or late in the season, as the pests that are the worst ones are less troublesome at those times.

Old true breeding varieties of common crops have a lot going for them , but the truth is that you can often do a lot better with hybrids that are quite resistant to many diseases-at the cost of purchasing your seed of course.

In the end, you may simply have to give up on some crops if you do bnot wissh to use chemical controls-or even if you do.

But you can probably manage pretty well just by doing as much rotation as you can within the limits of your space, local climate, and preferences.

If you live within the US, your state govt almost certainly has many many useful publications available at nominal cost for hard copies or free on the net that outline your most likely available local options on a regional basis, crop by crop.

These publications still tend to be oriented towards bau agriculture , but in recent years there are more specifically written for the needs of the smal and/or organic grower every year.

NoFreeLunch:

Thanks to OFM and RG. Very good suggestions. I have looked at university extension office publications in years past (I live in Oregon) and have found a surprising amount of bau type information. I'll have to look again.

I hope this is an indication that I'm doing something right - I have TONS of bees, birds and squirrels visiting my yard now (although the darn squirrels eat many of my vegetables before I do), where before it was pretty barren.

If things get bad enough after the oil/financial crash, I figure those pesky squirrels might be tasty squirrels.

Todd on September 2, 2010 - 5:07pm

I know a number of extension agents in several counties in CA. They are all glad to talk to home gardeners...in the off season. The people I know all specialize in some particular aspect of AG so they guy who is into wine grape research might not actually know much about home gardening.

I'd suggest checking out if your area has a Master Gardeners program. I took it in DE years and years ago. Besides learning a lot you will also get to know extension personnel on a personal basis and this never hurts.

Todd

ReservoirGuy on September 2, 2010 - 2:17pm

Check this guy out

http://en.wikipedia.org/wiki/Masanobu_Fukuoka

Seagatherer on September 2, 2010 - 2:41pm

For a smaller garden - hand removal of pests will help a lot. Insecticidal soaps & oils are very useful too & can be made at home. Hot pepper & garlic is useful as a repellent (though I have no direct exp. w. hot pepper & garlic solutions)
I personally stock Neem oil concentrate (Japanese beetles,fungal diseases, etc)(pretty much unlimited shelf life IMO) and BT (cabbage looper, hornworms, etc)(unsure of shelf life, a few years anyway).
For what it's worth, I think that a good pesticide (the above are approved for organic gardens, and are all I use, except for potatoes which need Spinosad due to multiple pesticide resistant Colorado Potato Beetle)), used only when necessary, could prevent starvation in a pinch. With a little luck, you can go without. Sometimes though an entire crop can be wiped out in 2-3 days.
PS I know I'm not OFM - but maybe this is of use to you.

NoFreeLunch on September 2, 2010 - 4:15pm

Thanks Seagatherer,

Stocking up on some essential organic pesticides is a good, prudent idea. I have a small stock of organic fertilizer (Steve Solomon's 'complete organic fertilizer' ingredients) but I hadn't tumbled onto the idea (duh!) that I could do that same with some organic pesticides.

I read many of the pests only become problematic after a number of years of accumulation and growth - I wonder if the judicious use of pesticides for one season 'resets the clock' on pest accumulation?

DelusionaL on September 4, 2010 - 10:28am

NFL -
There are a couple of things that will help you. Part you can read about the oher through direct observation.
Disease and insect control basics follow a triangle. Taking disease for example - you need 1) disease, 2) susceptible host plant 3) correct environment conditions. Most chemical applications try to remove/reduce disease. Hybridization tries to reduce susceptibility. Knowing the parameters( temperature, moisture and humidity, time of year) when disease gains traction will help with control efforts. Realizing that diseases are likely always present gives you the right frame of mind. Disease requires all 3 of the triangle to become a problem.

Insects have a triangle as well. 1) Insect, 2) Host 3) environment. I assume insects are always there - you need to decide what level "threshold" population is tollerable. Most insects have a preferred "food". I have given up on cherry trees because of borers. Prunes, apples, pears, are all fine. Temperature plays a big role in life cycles of quick to reproduce insects like aphids. Insects eat other insects. Many people point to ladybugs, I'm more skeptical about them. 1) Ladybugs fly and 2) They may prefer the taste of some bug you don't have and leave.
On the other hand using a broad spectrum miticide can kill your predatory mite population and make matters worse than you can ever imagine ;-(
You can try to control insect populations or plant something they really love somewhere close by, wait until its infested and pull it out and burn it. I often joke if you don't like deer in your yard plant strawberries along a busy road nearby, same kind of idea.

2 brick method of bug control - 100% effective, never allows resistance to build. Take a brick, place a bug on top of it and hit it with the other brick. Kinda slow.....

oldfarmermac on September 2, 2010 - 4:40pm

Seagatherer, your suggestions are good ones, especially for those of us who have more time than money and can therefore effectively pursue labor intensive techniques such as removing pests by hand.

I haven't thought about it for some time, but my deceased mother had a couple of very pet turkeys which she let into her family's gardens when she was a kid;the turkeys caught and ate a considerable number of bugs and catepillars, but they required close monitoring as after a few hours they were apt to start pecking ripening tomatos and such.

I can't vouch personally for just how much it will help with pest control, but running a few chickens on a garden plot in the off season definitely seems to help with weeds the following year and obviously helps with soil fertility.

Whenever I happen to see a blacksnake I can catch easily, I transport it to a place on the farm or near the house where it will be helpful in keeping down rats and mice.

Another technique that can be very heplful in controlling various sorts of rots and fungus is to grow things on trellises, where they will dry faster after a rain and the air circulates better in hot humid weather; you can support a large squash or even a pumpkin off the ground in a mesh bag of the sort that is used to ship onions and cabbages, or on a couple of small pieces of scrap lumber.This can save a good portion of pumpkins from rotting in excessively wet weather.

Pruning fruit trees so that air and light penetrate well into the interior of the tree is a practice I reccomend highly.Ditto thinning fruit to the point that limbs do not press tightly one down on another cutting off the sunlight and free flow of air.

What I have found is that virtually all the techniques I have run across will work, depending on energy of the gardener and local conditions, with the exception of a few that are diametrically opposed to the basic principles of plant ecology.

You can't for instance grow sun loving crops in a seriously shaded spot such as between close spaced fruit trees or in a partially wooded area and get a worthwhile yield-not by my standards of a worthwhile yield at least.

But you can often grow early or late season crops in such a place during the summer-for instance kale doesn't like the summer heat here , but it does really well early and late;and it does grow fairly well during high summer in a spot that gets only a few hours of full sun in the late afternoon or early morning and diffuse sun the rest of the day.

Will Stewart on September 2, 2010 - 12:31pm

The heavy spring tooth cultivator-essentially a small six foot chisel plow-ripped out the roots and briars and brush and carried everything to the end of the patch beautifully, where it will rot and eventually be reincorporated into the soil.

An excellent device for clearing that kind of brush. Any need for a subsoiler at this time?

Working this ground up for a garden by hand would have been at least a week's backbreaking work for a young tough man.

Hence the PO adage about having 12 'oil slaves' at our disposal currently.

Daddy says that if we still had a mule and the right implements, he could have done the job in less than a day when he was young.

:-) No doubt!

Merrill on September 2, 2010 - 12:47pm

If I recall correctly, it has foot pedals that allow you to shift the tines right and left in order to keep the row centered if the team doesn't straddle the row exactly.

Lynford on September 2, 2010 - 1:19pm

You have to feed the mule all year. One must keep that mule working all year or it is a serious loss.

A thousand square feet is 1/42 of an acre. OTOH the mule provides some manure to fertilize the garden next year.

Beware of thinking animal driven farming is good for much of anything other than feeding about a third of the population we presently have.

Will Stewart on September 2, 2010 - 1:34pm

You have to feed the mule all year. One must keep that mule working all year or it is a serious loss.

Feed is indeed an important consideration. Grass here grows about 7 months out of the year, though, with hay for the remaining months. Grain supplement is preferred during the more strenuous working times, though light work (light cultivation, a lot of wagon work, riding, etc) does not require such supplementation.

Beware of thinking animal driven farming is good for much of anything other than feeding about a third of the population we presently have.

I'm also wary of thinking that the population will continue to grow or even remain at the current level.

oldfarmermac on September 2, 2010 - 4:52pm

We do have a subsioler and I use it at long intervals in the orchard where it is nescessary to run a lot of trips down the rows with the truck to haul the fruit out and the tractor to mow and spray.

The orchard is in a grass sod, and it appears to grow about as well in any one spot as another, except directly where the wheels run;and it grows pretty good there too.So that's where I use it-directly in the spots the wheels usually run.

I don't make many trips at all over garden ground with the tractor, and since it has flotation tires with a huge footprint, especially in the rear, it doesn't compact the soil much, considering that the organic content is high and the soil is springy and resilient.

joule:

In my view, this German study is one of the more concise, straightforward, and common-sense appraisals of the overall oil situation that I've seen in a long time.

To amplify upon some comments I made yesterday, I think one of the more certain of the predicted outcomes of an ever-tightening oil supply situation is that free and open oil international markets will be largely replaced by bilateral energy/security arrangements: i.e., you ensure us a reliable supply of oil at a reasonable price, and we in turn will provide military protection and will help keep your regime in power. Of course, money will still change hands and it will not be an all-or-nothing sort of thing, but there will be an implicit understanding that oil will always flow in the right direction and that the 'customer' will in turn make sure that no one messes with the 'supplier'.

These alignments are already forming (e.g., US and Saudi Arabia + UAE, versus China + Iran + Venezuela + Africa?). This will further push the world into opposing power blocks, but this time based on energy supplies rather than politics and ideology. Of course, these relationships will be inherently unstable and subject to all sorts of stresses, both internal and external. A recipe for perpetual low-level armed conflict. I'm afraid that Iraqs and Afghanistans are going to become a way of life.

On another note: I do however take issue with the notion that economic hardship and more expensive energy supplies will reduce a major power's ability to intervene in other country's affairs. In any country the military will get first crack at the available oil, right down to the very last drop. Also, I envision the following chain of causation: economic hardship => domestic political instability => desperate rulers => foreign military adventures as form of distraction and means of retaining power. History is replete with examples the mindset: when all else fails, start a war. How often has lack of money ever prevented a war?

Finally, at the risk of nit-picking, I also question the statement in Item 2.1 that 95% of all industrial output is dependent upon oil. This would only be true if 'dependent' really means partially dependent and that the transport of industrial raw material and product is considered part of 'industrial output' rather than transportation.

With the obvious exceptions of the petrochemicals, plastics, and rubber industrial sectors, most heavy industry is not terribly oil-intensive. Just examine the energy consumption in such major industrial sectors such as iron & steel, cement, textiles, glass & ceramics, pulp & paper, and almost all heavy manufacturing. These industries mainly rely on coal and natural gas, either as used directly as a fuel or as used indirectly in the form of electricity.

Anyway, this German study should be an eye-opener for many mainstream people who have been disdainful of all the doomerish pronouncements put out by those fringe peak oilers. When a group as conservative as the German military comes to more or less the same conclusions, it certain adds much credibility.

Gail the Actuary:

I think that there is a very major chance that the powers that be will find themselves out of power. In some cases, this may mean a very major disruption--new constitution, new national boundaries, military may be entirely different. I am not sure the report wanted to even mention this issue.

drillo:

And they didn't mention the most drastic tool for a strategic "demand destruction":
Nuclear War

pondlife

I think the West will quickly be out of spare parts if they annoy Asia

Grautr:

The US might have outsourced a lot of its manufacturing but the production of military hardware was not one of them. This then gives them even more reason to start a war if the economy is in decline.

pondlife on September 2, 2010 - 4:40pm

Electronic parts could dry up quickly during a war

Merrill on September 2, 2010 - 12:40pm

A key question is whether the great powers can keep the Middle East divided and alligned individually with different great powers, or whether a new alignment forms in the area between Pakistan, Turkey, and Sudan.

I don't envision a bipolar US - China world. Instead it is more likely to evolve towards a multipolar world with US, EU, China, and a new Middle East alignment as the great powers, with Japan, India, Malaysia/Indonesia, Brazil, and Russia as a second tier. Japan may align with China, Russia may align with the EU, and the UK may align with the US instead of the EU.

joule on September 2, 2010 - 12:59pm

Merrill -

I don't think it will be a bipolar US-versus-China world either .... I just gave that as an example. I do think, though, that multiple blocks will form, but the exact make-up of those blocks is open to speculation. I also think it will be a somewhat fluid situation, with countries joining and quitting the various blocks for various reasons.

However, any way you slice it, it does not bode well for a peaceful, stable world. This is old-fashion zero-sum competition, which leave little room for mutually beneficial cooperation. It does not make one feel very hopeful.

Merrill on September 2, 2010 - 1:29pm

We have the dissolution of the Soviet Union and the reorganization of Russia, the reforming of the Chinese government and economy, and the creation of the EU and euro. This parallels the global political power shifts that occured around 1870 including the opening of Japan, the Franco-Prussian War and the emergence of the unified German Empire, and the unification of Italy.

The end of the dotcom bubble, caused by overinvestment in technology venture and preparations for Y2K, parallels the Panic of 1873, caused by overinvestment in speculative railroad ventures.

We are now in a period analogous to the 1880s decade. The French invade Tunisia because of attacks on them in Algeria. The British take over Egypt because of attacks on foreigners. The British send Lord Gordon to Khartoum with bad results. The Triple Alliance is created between Germany, Austia-Hungary, and Italy. A bomb kills one policeman and injures many more at Haymarket Square. George Eastman, the Steve Jobs of his day, patents the hand held camera.

By 2040, when the oil truly runs out, we will hear the Guns of August again.

jonathan.s.callahan on September 2, 2010 - 1:35pm

Thanks for the historical comparisons!

"History may not repeat itself, but it rhymes a lot." -- Mark Twain

ROCKMAN on September 2, 2010 - 4:07pm

I agree with you joule. I've rattled on before about a MADOR strategy (Mutually Assured Distribution of Resources) developing between the US and China. Not so much a formal treaty but more along the lines of a symbiotic relationship. Just seem to make sense for the largest consumer country to at least cooperate passively with the largest producing country. Add the monetary link between the two countries it seems an absolute necessity for each to see the other maintain stability if not prosper. China needs to US to buy its exports. The US needs to borrow the money back from China so it can continue to "spend its way to prosperity". At least that's what "they" say.

Of course, if such stability does develop between the US and China it will only last as long as there's enough of the pie to split between the two of us.

Pav on September 3, 2010 - 5:15am

You are right that the US is the first market for China's export, but it is only 17.7% of the total !

ROCKMAN on September 3, 2010 - 8:50am

pav -- Thanks. I knew the EU has a good bit of China import but didn't have any numbers. I made the point before that I thought Walmart could have a greater enfluence on China's human rights issues than any govt: if WalMart threatened to cut Chinese purchases 50% I suspect their govt would go into an real panic.

NatResDr on September 2, 2010 - 11:43am Permalink | Subthread | Comments top

Here are three related items:

Most interesting perhaps is the report of the UK Industry Taskforce on Peak Oil and Energy Security, advising how the United Kingdom should prepare for an "oil crunch":
http://peakoiltaskforce.net/download-the-report/2010-peak-oil-report/

Glen Sweetnam's declining liquid-fuels scenario was not widely reported in the US but was covered in a long article in Le Monde. The "energy gap" graphic is useful:
http://petrole.blog.lemonde.fr/2010/03/25/washington-considers-a-decline...

In 2005 energy-policy think-tanks in the US staged an "oil shockwave" wargaming scenario. The wikipedia article includes a link to the original report:
http://en.wikipedia.org/wiki/Oil_Shockwave

majorian on September 2, 2010 - 11:44am Permalink | Subthread | Comments top

It's good that the German report portrays Peak Oil as a military threat rather than merely economic which is how Peak Oil is generally considered on TOD.

It is interesting, arranging the geopolitical dominoes.

It is important to remember that the US entry into WW2 was triggered by the July 1941 US oil embargo of Japan(in part retaliation for the occupation of French Indochina in 1940, which was to cut off military supplies from getting to China, which Japan had been continuously fighting from 1937).

It is imperative that the West addresses Peak Oil seriously, not thru 'markets'. Reducing demand and substitutions will only go so far. You need to add to supply with unconventional oil(bitumen, heavy oil and oil shale). Deep offshore oil(est. 60 Gb) is too environmentally dangerous to expand.

73% of the world oil shale(409 Gboe) is in the USA.
66% of the world bitumen(550 Gboe) is in Canada
95% of the world extra heavy(297 Gboe) is in Venezuela.

http://pubs.usgs.gov/sir/2005/5294/pdf/sir5294_508.pdf

http://energy.cr.usgs.gov/oilgas/addoilgas/wechonb.pdf

Grabbing OPEC oil will probably lead to Iraq type quagmires(reduced rather than increased production).

The EU-27 imports 93% of its oil and it is basically impossible to alter that relationship.
The entire OECD imports 78% of its oil per IEA 2007.
The US imports 70% of its oil.
China imports 48% of its oil.

The best way for Europe to secure access and to moderate prices is by developing unconventional oil where it actually exists.

However, this seems to be a minority view at TOD(just me).

Rhisiart Gwilym on September 2, 2010 - 1:22pm

Or you could start getting serious about getting off goddamned fossil hydrocarbons altogether, starting with serious efficiencies and economies of use. Massive savings there, as soon as we want to do it properly.

It would also help if a lot more of us took on board the realism-inducing spell which John Michael Greer offered to his Green Wizardry students just recently: 'There is NO brighter future ahead.'

Once we stop pussy-footing around that steadily-dawning understanding, and embrace it, and thus start doing what's necessary to prepare for a future that can't and won't resemble the present and the recent past more than slightly, then we might start to get somewhere.

Looking for delusional ways to shore up current hydrocarbon use-rates is a mug's game. They're going down, whatever we do. So too are per-capita energy use rates from any conceivable replacement sources. Even governments and militaries are beginning to accept and think about that reality now. The important idea is to get used to it, and to spread the word, whatever initial outraged-denialist responses it kicks up for the time being. Evolving realities now on the very near-term horizon will soon cure those delusions.

Meanwhile, the people who are already in the realist camp can join up with the ever-growing grass-roots, sleeves-rolled-up throng who are doing the sort of thing which the Green Wizards (as one example) are striving to do: Archive, preserve, and learn to use and to transmit to the future, all the appropriate technologies, skill-sets and practical knowledge bases which are currently rather eclipsed from public notice, but which are sure as hell going to be coming back into widespread use again in the near future, as the Age of Gross Over-Abundance (for the Pampered Twenty Percent) dwindles in history's rear-view mirror.

Robert Rapier on September 2, 2010 - 1:48pm

It's good that the German report portrays Peak Oil as a military threat rather than merely economic which is how Peak Oil is generally considered on TOD.

I have portrayed it as military threat for as long as I can remember. I gave a presentation in Italy over the summer, and my comments about what happens when militaries are deprived of oil got a lot of people's attention. One guy afterward said "Are you telling that you think the U.S. military would just go in and take someone's oil?" He paused for just a moment, and then said "Wait, what am I saying?"

One of the things in the report that should alarm Eastern European countries is Germany's realization that they may have to toss them under the bus to curry favor with Russia. Poland may be more aligned with Germany than Russia, but guess which side Germany will take if it's a matter of getting their oil cut off? The report spells that out pretty clearly.

RR

Will Stewart on September 2, 2010 - 1:55pm

...guess which side Germany will take if it's a matter of getting their oil cut off?

And natural gas...

Christoph-R on September 2, 2010 - 2:05pm

The NordStream gas pipeline does not bypass Poland by accident.

Merrill on September 2, 2010 - 2:24pm

In response, no doubt, to Anglo-American attempts to keep Russia and Germany separated by a Poland and Ukraine who are more or less at odds with Germany and Russia and under the sway of NATO as much as the EU (the pipelines from Ukraine pass by L'viv and into Hungary and Sovakia, thence up the Danube Valley).

Nick on September 2, 2010 - 2:25pm

I have portrayed it as military threat for as long as I can remember.

The US military and government have been acutely aware of this since WWII. Roosevelt struck the mutual-aid agreement with Saudi Arabia right after WWII; Truman (IIRC) called Israel an unsinkable aircraft carrier; Eisenhower assisted in the overthrow of democracy in Iran in 1954 both to reverse BP nationalization and repel Soviet influence; Carter proclaimed the Carter Doctrine to repel Soviet; Reagan assisted Iraq in it's war against Iran; and Bush I & II invaded Kuwait & Iraq.

wotfigo on September 2, 2010 - 5:46pm

The US military and government have been acutely aware of this since WWII

Actually been going on since World War 1.

Germany aligned with the Ottomans to gain access to the Palestinian oil fields then under British control

The "winners" of the war, namely Britain, divided up the collapsed Ottoman empire in the Middle East into the strategic mess we are still paying for today.

See "Blood and Oil: The Middle East in World War 1" http://www.janson.com/dvdcatalog/2010/03/01/blood-and-oil-the-middle-eas...

The take home message from all this is that if you want to keep using someone else's oil then be prepared to fight and die for it.

Luke H on September 4, 2010 - 3:57pm

The take home message from all this is that if you want to keep using someone else's oil then be prepared to fight and die for it.

Substitute the word 'water' for 'oil' and multiply that by 100 or 1000 fold at least. No shortage of hotspots in the evolving situation.

majorian on September 2, 2010 - 4:34pm

I have portrayed it as military threat for as long as I can remember. -R^2

Then why do you continuously bash the idea of energy independence?
Even some independence from imports is better than none.

Or are you a neo-Con i.e. that the US should 'regime-change'
oil-rich countries to maximize world oil production?

Our Iraq experience, Chavez, Bin Ladin, and Iranian politics shows that we would increase the price and decrease the flow of oil that way.

Iraq has taught us the limitations of military power to produce oil.
If you want to keep military power you need to produce your own oil.

Robert Rapier on September 2, 2010 - 8:06pm

Then why do you continuously bash the idea of energy independence?

What planet do you live on? How do you get so mixed up? When have I ever bashed the idea of energy independence? I have bashed delusional thinking on energy independence, but I am all for as much energy self-sufficiency as we can possibly muster.

Go look at my book review for Gusher of Lies. Even then I said that I thought Bryce was wrong for saying we don't need energy independence.

Ryder on September 2, 2010 - 2:37pm Permalink | Subthread | Comments top

It's possible that report was leaked to serve notice to the Obama administration that they have to come up with something or risk losing the empire.

Heading off that possibility was one of the main reasons for the invasion of Iraq. Cheney et al. believed not only that America's oil addiction must be fed but also that the ability to control the oil market is central to bolstering US status with allies. Obama may be backing away from that role vis a via Iraq withdrawal & Iran and the Germans are saying that if you do that, you lose our support for Israel and eastern Europe over Russian... you lose the empire.

Obama's turn.

In fact this report's leak may have been timed to light a fire under Bibi's ass. (Shook his hand once in the late 80s).

Merrill on September 2, 2010 - 2:43pm

The Cheney/Neocon doctrine didn't take into account that the passive-aggressive defense beats the hyperkinetic offense. The US military is superb at blowing things up and killing people, but it does so at very great expense. The expense cannot be decreased without taking higher casualties.

The American public has no stomach for taking higher casualties. Therefore, the US military cannot wage and win an economically profitable war.

Therefore, the sole superpower strategy based on control of oil markets by the Anglo American champion companies backed by technologically superior military and clandestine services is a failing strategy.

Nick on September 2, 2010 - 2:47pm

The US would have been far better off, in the long run, if it had trusted in democracy in Iran, instead of squashing it for short term gain.

I'd say that's Obama's strategy in Iraq.

oldfarmermac on September 2, 2010 - 5:07pm

Speaking strictly as an armchair student of history,and military history in particular, I would argue that if it weren't for two facts, we would have had no trouble whatsover subdueing Iraq.

The first one is that while we are no doubt the big bully nieghborhood cop of the world for the time being, we are actually pretty nice guys as such cop bullies go, and we have based our strategy on not killing off more than a tiny percentage of the local population, for us wiping the country as empty as the Empty Quarter of the Sahara technically would be as easy as taking candy from a baby.

The other primary fact is television and resultant secondary fact following that the American public won't stand for us commiting a massacre so long as the pictures come into our living rooms..

Merrill on September 2, 2010 - 6:13pm

The third factor is the reaction of other governments and their publics. A more ruthless domination of Iraq and Afghanistan would make other governments even less cooperative than they are, and the US would become a pariah state in the eyes of the world.

Even with current levels of force, we have to emphasize various noble goals and objectives to make our position more palatable to the world.

joule on September 2, 2010 - 6:21pm

oldfarmermac -

I would agree that it would be have been no trouble 'subduing' Iraq by essentially destroying it. But that was not the original purpose. Rather, the goal was to install a US-friendly puppet government that would be willing to 'cooperate' with the US in terms of both favorable terms for US-based companies to access its oil reserves and the use of Iraq as a base of operations for increased dominance of the Middle East.

Looks like it hasn't worked out too well on either count.

As for TV, the Pentagon realizes all too well the importance of controlling the media, a lesson they learned the hard way with Vietnam. This is why reporters are now 'embedded' into military units so that the Pentagon can control what is reported and what images get seen on network TV. As a result, the only place an American is likely to see images of civilians being massacred is by viewing Al Jazerra or Wikileaks. It make take a while, but eventually the truth usually gets out.

oldfarmermac on September 2, 2010 - 8:43pm

hi Joule. You and Merrill have made excellent follow up points.

I agree with Merrill totally and with you to a very large extent;but there are always going to be some reporters around from someplace to get some of the truth out, and it tends to find its way here to the states ;the military can't control what we learn to the extent a lot of people think it can.

I made my comment simply because I don't like to see erroneous arguments go unanswered;such arguments can cause folks to come to unwarranted and dangerous conclusions.

At some point we or some other country may well be willing to simply wipe out the citizens of any country in possession of resources we see as critical to our own survival-or maybe just to our prosperity.

I hope this never comes to pass of course, but the fact that it COULD can't rationally be dismissed.

joule on September 2, 2010 - 9:48pm

oldfarmermac -

I have no doubt that there are certain people who would have few qualms about wiping out vast swaths of Africa and Latin America to provide resources and 'lebensraum' for presumably superior white Christians. I'm sure such people can easily find ways to rationalize this stance, no doubt including selective interpretations of the Bible. And I don't think I am exaggerating when I say this. Just look at how the genocidal slaughter of over a half million people in Rawanda hardly made a blip on the radar screen of the mainstream media. It's only those lesser people over there and not us better people over here. Studied indifference.

If I recall correctly, even that great humanitarian, Henry Kissenger, once said something to the effect that it should be the policy of the Western world to reduce the population of the Third World. However, he did not elaborate as to how this might be accomplished.

Genocide is hardly a Twentieth-Century innovation, as it has been practiced (albeit on a much smaller scale) since we came down from the trees. Since then, tribes have been routinely slaughtering rival tribes, a practice that has steadily escalated, with the Holocaust being the pinnacle (so far). While perhaps the stuff of conspiracy theories, there are claims that certain countries have performed research into race-specific germ warfare. Whether such would be effective is an entirely different question (just be sure you really know who your ancestors are before you unleash race-specific pathogens), but the attempt, if true, is rather chilling.

oldfarmermac on September 3, 2010 - 12:16am

We are a down right disguisting sort of ape when you get right down to it, aren't we? :(

Personally I don't put any stock in the rumored creation of diseases specfic to racial groups but of course I can't say such rumors are unfounded.

It seems much likelier that someone working on germ warfare systems would simply try to have a supply of antibody on hand to vaccinate the local friendly population just before or shortly after turning loose thier dog.This would greatly simplify the job of the technicians running the program;and the fact that such dieseases haven't yet been set loose among us is eloquent testimony to the difficulty of creating one.....

But of course the next breakthrough in nanotech or microbiology or genetics could make it easy....

Paulo on September 3, 2010 - 12:06am

Thank you for this comment J. Mine was too strident and I am glad I read on to find this. When I see CNN and when I sheepishly recall watching the imbedded journalists during Shock and Awe fame, I am reminded of Stepford Wives. I am also ashamed to have believed what they said.

"You can't handle the truth", .....what a line from Jack N. A Few Good Men. Nobel prize for Daniel Ellsberg.

Paul

jonatan on September 2, 2010 - 7:52pm

Not a bad idea...

Some of the "provinces" of the New Roman Empire may indeed be starting to panic... in particular when they take a look at what is happening in the "New Rome".

The Occidental World (led by the US) is currently relying on a highly mechanized army (and on private and public mercenaries: not paid the same salaries) for its defense and for securing all the critical strategic resources, in particular oil, that it needs to maintain its standard of living.

In that regard, it is important to note that the operation of such a highly mechanized army is highly dependent on the availability of oil...

The day that massive quantities of oil are no longer available to power this highly mechanized army is the day when all those who are currently pressing at the gates will simply flood in and take over.

JB

Nick on September 2, 2010 - 2:44pm Permalink | Subthread | Comments top

This appears to be a very early draft. For instance, the coverage of transportation needs to be greatly expanded - the idea that electric transportation doesn't exist is remarkably unrealistic - there are both electric trucks and rail (rail is obviously better for long distances), and water shipping can and will move away from oil.

They need to light a fire under the move to standardize and expand rail in Europe, which is moving very slowly at the moment. Right now trucks carry the majority of European freight, unlike the US.

It's time for Europe to kick it's oil addiction, as it is for the US.

ChrisCook on September 2, 2010 - 6:55pm Permalink | Subthread | Comments top

I believe that the instantaneous direct connections of the Internet change everything, not least in terms of market architecture.

I wrote my conclusions about the shape of a networked Market 3.0 around ten years ago, and everything I have seen since then reinforces my optimistic view of the transformational role of the emerging Knowledge Economy.

I have made a couple of presentations re global energy markets and strategy to defence/intelligence oriented Think Tanks, as well as giving evidence post-'Spike' to the UK parliament's Treasury Select Committee.

This recent presentation was to a seminar at the UK's principal defence think tank on the subject of the potential effects of renewable energy on global energy security generally, and the Middle East and Iran in particular.

I see the potential for technology transfer in exchange for carbon fuels, essentially at nil cost to producers, the technology being paid for with the energy value of the carbon it saves.

In my view the first requirement to implement such a market model is the 'unitisation' or 'monetisation' of energy. So we will see (transitional) carbon currencies based on the intrinsic energy value of carbon rather than intrinsically worthless carbon in C02, and a gradual move to other energy currencies and to energy accounting using an energy benchmark or unit of measure.

Secondly, the requirement is for networked dis-intermediated markets within a global collaborative framework agreement. There is no reason whatever why energy producer nations and consumer nations such as China and India could not impose such 'peer to peer' markets on the 'Anglo' nations whose financial intermediaries collectively have been directly responsible both for the shit we are in and for our ludicrously dysfunctional energy markets.

Existing intermediaries such as IOCs will become service providers or go out of business. In fact we have been seeing a transition of IOCs towards a service provider model for many years now. The advantage for IOCs - and credit intermediaries aka banks for that matter - of a P2P model is that capital requirements for service provision are minimal compared to those for intermediaries.

The way I see it NOCs will be able to raise the necessary capital simply by 'unitising'/ 'monetising' future production and selling it to energy investors and/or exchanging it directly for technology. This monetisation of oil has been pretty much exactly what has been going on in the oil market overtly (Shell/ETF Securities) since 2005, and probably opaquely before that (BP/Goldman); and currently in all probability right now by Saudi Arabia.

jg_ on September 2, 2010 - 7:51pm

I believe that the instantaneous direct connections of the Internet change everything, not least in terms of market architecture.

Yes, I can agree the Internet is going to be important.

I wrote my conclusions about the shape of a networked Market 3.0 around ten years ago, and everything I have seen since then reinforces my optimistic view of the transformational role of the emerging Knowledge Economy.

Err, you seem to have missed the collapse, that resulted from the virtualization of trading, and the illusions that can thus be too easily created ?!.

Given the fundamentals of human greed, and the complete trust in the intangible, you thus create something that is unconditionally unstable.

If you decouple from reality, and have no designed-in stability, there can only be one outcome.

joule on September 2, 2010 - 10:51pm

CrisCook -

I'm afraid I don't quite understand some of the jargon you've used in this comment.

First, I'm not quite sure what you mean by 'peer to peer markets'. Or is this just another name for some sort of bilateral arrangements rather than outright sales?

Second, what exactly takes place when one is 'unitising/monitising' future energy production? Is this just a form or selling energy futures, or something more elaborate?

Nor do I quite get this notion of exchanging technology for energy. Given the instantaneous direct connections of the internet and the sea of information the world is now swimming in, it is very difficult these days to maintain a proprietary technological edge for very long. Technology has become sort of a commodity that one easily buys by the pound. This is why countries that were not so long ago considered Third World have been doing things like putting satellites into orbit.

As a general comment, as far as markets go I would have to say that an argument could easily be made that instantaneous communications has made things worse rather than better and has been responsible for some of the recent financial crises. It has made large-scale speculation and manipulation much easier, and has injected a level of unreality into the markets, such as in the form of high-speed algorithmic trading, credit default swaps, and all sorts of other financial games that have little bearing on actual physical goods changing hands. If everybody had to do these things in longhand using a quill pen, a lot of this gaming the system would not have been possible, or at least not as easy.

What is it that I'm not seeing here?

KLR on September 2, 2010 - 6:57pm Permalink | Subthread | Comments top

Given the expected decline in German energy consumption

Germany average YOY shifts in petroleum consumption, 2000-2008:

Total -29.86
Gasoline -25.04
Jet Fuel 5.03
Kerosene -0.04
Distillate -7.49
Resid 3.03
LPG 2.06
Other -6.97
ResidBunker 1.86
DistBunker -0.1
Dist-Bunker -7.39
Dist-Bunker-Gas -32.43

Data from EIA, who provide separate numbers for resid and distillate use as bunker fuel, hence the "Dist-Bunker-Gas," which shows that they are overall utilizing less transportation fuel over time. 2000 is an appropriate choice for a starting point as Germany has seen double digit declines in gasoline in this year and every year since, owing to the switchover to diesel powered vehicles and other forms of transport.

The gain in resid is unusual, as this has been first choice among many other industrialized nations for phasing out unneeded petroleum consumption. Germany's increase in its use would be indicative of its strong dependence on exports, I'd imagine. Over the full range of EIA data, 1984-2008, resid averaged -4.76 YOY.

Germany declined -132.29 in total consumption for 2009. Curiously enough 2007 showed an even sharper decline of -220.83, owing to a big loss in distillates - high fuel prices discouraging motorists?

Nick on September 3, 2010 - 12:37pm

According to the EIA http://tonto.eia.doe.gov/country/country_energy_data.cfm?fips=GM , German oil consumption peaked in 1998. It has fallen from 2,923.0 Kbpd in 1998 to 2,437.0 kbpd in 2009, for a decline of -16.6%.

Meanwhile, German GDP has grown during the same period from €1965.38 bn to €2409.10 bn ( http://en.wikipedia.org/wiki/Economy_of_Germany ) for total growth of 22.6%.

That tells us something about whether it's possible to grow economically while reducing oil consumption.

jg_ on September 3, 2010 - 5:04pm

That tells us something about whether it's possible to grow economically while reducing oil consumption.

It does show nicely, that they are not tightly coupled.

Of course, the Oil reduction is in what I'd call the Elasticity Zone, the real test will be if they can continue on that trajectory.

Germany was the worlds largest exporter.

Nick on September 3, 2010 - 5:07pm

the real test will be if they can continue on that trajectory.

Yes, they'll have to start moving from diesel cars to EREVs, and they'll have to get serious about moving from trucks to rail for freight.

normk on September 2, 2010 - 8:16pm

Germany declined -132.29 in total consumption for 2009. Curiously enough 2007 showed an even sharper decline of -220.83, owing to a big loss in distillates - high fuel prices discouraging motorists?

I remember reading something about bargain prices for heating oil at that time. People stocked up and didn't have to buy as much later on.

MrEnergyCzar on September 2, 2010 - 9:08pm Permalink | Subthread | Comments top

I've been weaning my family off of oil for several years and made some short videos showing people what they can do... I attached one here....

http://www.youtube.com/watch?v=PUCl1TruUfo

MrEnergyCzar

ruby on September 2, 2010 - 9:32pm

In accordance with the Senate of Berlin, the power company Vattenfall has announced plans to increase the production of biomass energy – by employing tropical wood as source material for new german power plants. One million tons of timber will be needed and Liberia's rubber plantations are supposed to fill in, without thinking about the impact on the environment, the encouragement of rubber cultivation, the prospect of an ever increasing market demand for tropical timber.
>
>
>
> http://www.rainforest-rescue.org
>

Arthur Robey on September 3, 2010 - 11:08am

All the more reason to hope that LNER can offer us abundant energy.
1 cupfull of petrol (Gasoline) will raise 1 tonne through 1 km.

1 cupfull of deuterium will raise the same mass through 4 million kms if the effect due to the weak force.
If it is due to the strong force it will raise the mass through 8 million kms.

Arthur Robey on September 2, 2010 - 11:30pm Permalink | Subthread | Comments top

I cannot imagine that any of this comes as a startling revelation to the Bundeswehr.

My impression is that the aggression of both Germany and Japan in WW2 were to secure oil.

I also believe their failure to secure oil contributed significantly to their defeat.

So why the public fanfare?
Was this fruit "stolen" so it tastes sweeter?
For whom was it intended and for what reason?
Is it pap for the chattering class(us)?

SharkMan on September 3, 2010 - 4:45am Permalink | Subthread | Comments top

I hope this is not a re-post, if it is pls delete the earlier post. It was here and then gone when I went back to proof-read it. Poof!

Let us not forget Iraq's WMD's. They did have them. They were not chemical or biological or nuclear, (at least none were found), but economic. Saddam wanted to start trading oil on the Euro instead of the Dollar. So the US took him out. Iran is now considering(or maybe already is, I'm not sure) doing the same thing. Will the US go to war again over the Petro Dollar? My guess is yes, though Iran is a much harder fight then Iraq and war there will put the US and Russia at odds once again. How would the US do in an even fight with technology comparable to it's own? The Russians will supply Iran with state of the art equipment (Stealth).
I'm glad I'm too old to be drafted.
They will no doubt call the war's cause the nuclear threat that Iran poses (to us in the US? nope, to Israel), but maybe that threat is only as real as Iraq's WMD's? Even if Iran get's the bomb, would they be stupid enough to use it? As they are religious zealots, some think they might, but a politician is a politician all around the world so putting your country and your power at risk with no gain is not usually done. Religion is a mask that politicians around the world use to gain support, but when the chips are down, they do what is best for their own gain, not their religions gain or the good of the people. Kinda off topic but... Economics makes our world the way it is as much as physical reality does. What is the real value of a perfect diamond? If I had 10 Hope diamonds think of how much research I could fund? Will it get me to work or feed me?
This is not the forum to talk about fears of the next big war, but a pre-emptive strike against Iran from Israel is almost a given in the next six months. Back on topic, what would such a war that could disrupt the entire middle east do to PO forecasts? Not a pretty picture.
Was the Iraq war over the petro dollar? Maybe not, but I think it was certainly a factor.

Edit: This is only my opinion, so I did not sight sources and back up my statements. What source can I sight for "Religion is a mask that politicians around the world use to gain support, but when the chips are down, they do what is best for their own gain" except my own personnel observations. What are your personnel observations on this subject? :-)

Will Stewart on September 3, 2010 - 9:26am

With Cheney out of the Oval Office, war footings have changed considerably. However, the nuclear capability of Iran is another aspect altogether...

treeman on September 3, 2010 - 5:05am Permalink | Subthread | Comments top

I am enjoying how the posters on this thread are dancing around the reality of what basic instincts we would revert to with the loss of cheap energy. "Back to fighting like cats in a sack" as Monbiot says.

The worries of what the "world opinion" might be will disappear. Tribes decimated other tribes in the past to retain sufficient resources, whether they be monkey hunting grounds, corn cultivating areas, or whatever. We will do the same.

As someone who has smelled the odor of wartime reality, I am sure that we will use any and all at our disposal to retain our way of life. Our militaries will commandeer whatever they need.

As tribes we continue to retain the ability to separate ourselves from others in order to justify this necessary wartime activity. Today it is countries and races and religions. Or if those are not conveniently in play, we find other differences to exploit. Doubt me? How about how Canadians refer to the "Newfies" or those in Holland relegate the Frieslanders to positions of inferiority. The Belgians do the same to those in the north. It is hard wired in us, after thousands of years of fighting off those who would take our food or other important resources. It is why we stayed at less than 1 billion for thousands of years.

We don't need to do it now, we have cheap energy to allow us the largess we enjoy, but we still do it, and we will do it again as the largess shrinks. Don't kid yourself. We are nothing but intelligent coveting apes.

SharkMan on September 3, 2010 - 5:29am

North American anthropology has shown waves of new people coming here and being wiped out or assimilated. Some things never change...As to the last part of your post... Intelligent? I see no evidence of that! :-)

Edit: I have "Thin-telligence" I look out for me and mine only and screw the rest of the planet. That seems to be the BAU train of thought.

ROCKMAN on September 3, 2010 - 9:06am

treeman -- Interesting perspective. And let's not forget those pesky Texacans and their alledged right to withdraw from the union.

The Texas Rail Road Commision still has OPEC like power to restrict oil production in the state. The "allowable' has been set monthly at 100% since the 1970's. But the TRRC meets every month and votes on the allowable.

If they meet one month and decide for whatever reason they want production from all Texas oil wells to be cut 50% all they have to do is pass the vote. And then sit back and wait for the Mother of All Legal Battles with the feds. And lets not forget that Texas and La. have a huge percentage of the US refinery capacity. One day either state may decide the pipeline systems transporting products to the NE are unsafe and decide to impose a moratorium on shiments. Of course, it would take rather extreme circumstances to come to that point. But the worse case scenario of PO could be extreme. Not a pleasant thought picturing the US Army facing the Texas National Guard at the state border some day.

joule on September 3, 2010 - 11:23am

ROCKMAN -

You know, I used to dismiss all of these people advocating state secession from the federal government as just a right-wing fringe element engaged in delusional wishful thinking. But it appears that the notion is beginning to get some traction, particularly since issues like immigration, drug legalization, and rejection of federal authority in certain state matters are getting increased attention. Increasingly tough economic times naturally increases resentment of the federal government. The result will be increasing doubts about the government's very legitimacy. That combined with a growing ugly mood out there, could serve as the catalyst for some sort of defining event involving a showdown between federal marshals and local law enforcement.

Maybe official outright secession won't take place, but rather an understanding the the feds will keep their noses out of things in places like Texas, California, or Arizona and will not challenge local laws.

There are of course some very thorny issues associated with a state actually seceding. Do the residents of such a state still receive Social Security and Medicare benefits? Will, the FBI no longer investigate racketeering in the state? What about homeland, security? However, I think a growing number of people will decide they'd be better off being cut loose from the federal government, whom they view as one big parasite.

Will Stewart on September 3, 2010 - 9:33am

All good points. One minor quibble I have (and it's not your fault);

I am sure that we will use any and all at our disposal to retain our way of life.

I would replace the last 3 words with one - 'lifestyle'

The American Way of Life centers around freedom of speech, democracy, family, community, volunteering to improve the quality of life for others, self-determination, and a host of other principles the Founders communicated in the Declaration of Independence and other writings.

Large houses, gas guzzling cars/SUVs, energy hog TVs, obesity, and other hedonistic practices are lifestyles. Let's help to keep the distinction aboveboard.

Merrill on September 3, 2010 - 10:34am

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Perhaps you underestimate the importance that Americans place on the pursuit of Happiness.

Will Stewart on September 3, 2010 - 11:38am

I don't, I merely made the point distinguishing lifestyle vs. 'way of life'.

Merrill on September 3, 2010 - 4:36pm

Since the "pursuit of happiness" is in the Declaration of Independence, the hedonistic practices are clearly part of the American Way Of Life.

Will Stewart on September 3, 2010 - 4:39pm

We'll agree to disagree about the semantics.

ReservoirGuy on September 3, 2010 - 11:22am

Yes "treeman" you are absolutely right. A deeper reading of past history and critical analysis of recent times show that we are just Overeating Apes :-)

Luke H on September 4, 2010 - 4:30pm

meat eating apes with big brains that can make almost all portions of the planet their habitat--not many other ape species that far from the tropics these days.

We will only learn so much about ourselves studying apes--the hominid diverged from the apes maybe seven million years ago, a very significant portion of the 35 million years or so apes have diverged from monkeys.

I mean we do have that reptilian brain core but how much about ourselves to we learn from studying lizards--well then again maybe we can learn a lot about ourselves from lizard

couldn't find a pic of stacey the lizard but what better way than to bow out
'Nice Dreams'

AlanfromBigEasy on September 3, 2010 - 9:50am Permalink | Subthread | Comments top

Some suggestions for German Public Policy

Look seriously at what needs to be done to move freight from truck to electrified rail. This is the MOST critical issue facing Germany !

Wind can be expanded somewhat (now 7%, perhaps 8% of generation), solar has more potential (now 2%, potential perhaps 25% of total generation, but at the wrong time !). Limited geothermal and bio-mass possible. Hydro is about 3% and lots of small & very small hydro might grow that to 4%.

Germany is a leader in conservation and efficiency, but more can be done. Certainly another -10% in demand for the same economic activity (some is already scheduled with existing programs, see outlawing incandescents, step by step and appliance standards).

Beyond that, build much more pumped storage to reduce the need for natural gas and start working on more nuclear. The quickest is to sign a long term agreement with EdF and have them start on, say, 3 to 5 EPRs not far from the Rhine. Luxembourg is another possibility. Perhaps a few more in Poland with joint Polish-German ownership (Germany owns half of four EPRs in Poland = 3.2 GW for Germany & 3.2 GW for Poland). And then look at more German reactors.

Significantly expand natural gas storage (keep at least 1 years worth of reduced demand on hand) and LNG import capacity. Make a deal with Dutch and/or Norwegians to buy gas in the ground and leave it there.

Look to Copenhagen and Amsterdam for models on how to increase bicycling. Promote eBikes and eTrikes.

Expand the already excellent tram system. Basically build on the edges, fill gaps, etc. as much as possible.

Steadily remove lanes from autobahns, highways and major streets. Get people and freight out of oil-burning vehicles.

Pressure VW, BMW, Daimler Benz, Opel, D-Ford to build electric cars and trucks (for local delivery).

Increase gas, diesel and aviation taxes significantly (perhaps phase in over next 6 or so years to allow people to adjust). Three euros/liter and then four, and five "later".

Sweden and Germany are the two world leaders in efficiency standards for new construction, and research leaders as well (PassivHaus). Still, very good can still be improved and retrofitting existing construction can become a priority.

Best Hopes for Germany,

Alan

Will Stewart on September 3, 2010 - 10:28am

All good points, though if I can offer a slightly different perspective on one aspect of one point;

Geothermal resources in Germany are actually quite good.

http://www.businessweek.com/globalbiz/content/jun2008/gb2008063_168366.htm?chan=top+news_top+news+index_global+business

http://www.renewableenergyworld.com/rea/news/article/2008/06/geothermal-electricity-booming-in-germany-52588

jg_ on September 4, 2010 - 6:03pm

Most points are valid, but there are a couple of strange ones...

Steadily remove lanes from autobahns, highways and major streets.

Why ? That's a LOT of cost, not to mention the good-will train-wreck, of trips taking longer, and the removal of something already paid for...

Increase gas, diesel and aviation taxes significantly (perhaps phase in over next 6 or so years to allow people to adjust). Three euros/liter and then four, and five "later".

Be very careful giving this sort of advice :)
Politicians love any excuse to hike taxes, and flat taxes are very inefficient, and also waste good will.

Smarter is a differential system, that pushes consumers.

Example: A small impost is added to fuel, used to finance faster-migrations to the desired fleet. Be it Hybrid, or higher Electric, whatever, but it needs focus, and needs a tangible target.

Taxes just get passed on, and nothing changes.

Indeed, overtaxed buyers can afford to upgrade LESS often, so the Politicians can easily deliver a result worse than useless.

RockyMtnGuy on September 5, 2010 - 10:20am

Steadily remove lanes from autobahns, highways and major streets.

Why ? That's a LOT of cost, not to mention the good-will train-wreck, of trips taking longer, and the removal of something already paid for...

He missed Part 2 of that solution: and replace them with electric rail

A well-designed 2-track light rail transit system has the capacity of about 16 lanes of freeway, so it can solve a lot of congestion problems. Take 2 lanes off a 6-lane freeway, drop rail tracks into them, add the other necessary infrastructure, and you have the equivalent of a 20-lane freeway. See the Transportation Research Board's Highway Capacity Manual and Transit Capacity Manual for the details.

And then there's the equally necessary Part 3: Introduce congestion pricing on the roads.

The problems with traffic jams and inadequate money to maintain roads are really just Tragedy of the Commons type of problems. The problem arises because freeways are free - people don't pay enough money to drive on them. Just put tolls on the roads, set a price high enough, and the problems will go away. If oil supply is a problem, just set the price even higher and use the money to replace road lanes with electric rail tracks. It's Economics 101.

It's really a no-brainer solution, but it appears to be politically infeasible in the US given the power of the automobile and petroleum lobbies. Americans think they have a constitutional right to free driving and free parking. However, it has been tried other places, and does work. So, Americans will have to continue driving on congested freeways burning gasoline they cannot afford, while people in other places will take the electric trains. I've been many of those other places, and they are quite pleasant places to travel - if you don't want to drive.

Luke H on September 5, 2010 - 2:40pm

I've been many of those other places, and they are quite pleasant places to travel - if you don't want to drive

But were those places built out to a massive 'auto only' accessible sprawl first? Canada blew me away with packed bumper to bumper traffic exiting Winnipeg (the eastbound lane to Winnipeg was pretty much empty and our French speaking Gray Goose hockey playing driver finally just kept up in that one forcing his way in to the westbound as needed to make time) for scores of miles on Easter weekend back in the mid 1970s. Has Canada made a significant switch to light rail or is it still trying to follow our unenlightened lead. Well its an oil exporter so for the moment 'no worries' I guess but that can come back and bite you before you know it.

The closing lanes to put light rail on the freeway is one thing--but a truly user friendly public transport system to feed the big light rail lines is the real challenge. Nick would of course say 'Volt' to the rescue--I'm thinking that assumes the kind of economic growth we've been swaddled in, and that is hardly a given.

A country by country world graphic of road miles, or maybe road lane miles, per capita (broken to paved and unpaved would even be better) and rail (broken down to light and heavy) miles per capita side by side might be most instructive--Nick that's your cue hope you are still monitoring this thread ?- ) Alan are you still out there? Those seem like numbers you just might have handy.

Nick on September 5, 2010 - 5:52pm

The closing lanes to put light rail on the freeway is one thing--but a truly user friendly public transport system to feed the big light rail lines is the real challenge.

Yes. Buses require a lot of fuel. Trolleys are more efficient, but they require more infrastructure. And, both are very labor-intensive, especially as system density falls at the edges, as I discuss below.

Nick would of course say 'Volt' to the rescue--I'm thinking that assumes the kind of economic growth we've been swaddled in, and that is hardly a given.

Rail is a much nicer way to travel, but I see no indication that it's cheaper than personal vehicles: personal vehicles are self-service, so they're more work for the passenger (and less safe), but cheaper to operate. IOW, no bus or train drivers. System costs are heavily dependent of utilization, so empty return trips, low-utilization night and weekend routes raise costs dramatically. The need for high utilization makes expanding a system into low-density areas very expensive.

In turn, that means that dramatically raising the use of mass transit means moving people out of existing housing into new, expensive urban transit-oriented housing. That's very, very slow and expensive.

So, EVs are the most practical route for most travel.

Luke H on September 5, 2010 - 6:16pm

no argument that the EV is the best candidate for more or less a continuation of BAU but again:

I'm thinking that assumes the kind of economic growth we've been swaddled in, and that is hardly a given

We will see how it plays--9.6% officially unemployed last number I heard, and we're adding more fed debt by the second. The only project I've been on lately that wasn't being constructed with government dollars was a refinery turnaround. Don't know exactly what that means--pretty small sample size--but from my peep hole it does affect the view.

Nick on September 5, 2010 - 6:18pm

Well, things are painful right now, it's true. Getting back to strong growth in the US does look difficult at the moment.

My point was that rail is even more expensive than EVs, so it will be even more impacted by a bad economy.

Luke H on September 5, 2010 - 7:03pm

I think you are right on there. Any idea where there might be a decent easy to read graphic comparing miles of road lanes per capita at least in the more developed world? Wikipedia has an okay chart (kilometers) but I'm thinking that if done by lanes rather than road length the US system would be significantly more than 5 times the size of Canada's.

Nick on September 5, 2010 - 7:10pm

hhhmmm, I'd just be googling.

The US DOT puts out annual books which are available online, which are mighty useful.

Here's one way to start: http://www.bts.gov/publications/

jg_ on September 5, 2010 - 4:45pm

Part 3: Introduce congestion pricing on the roads.

The problems with traffic jams and inadequate money to maintain roads are really just Tragedy of the Commons type of problems. The problem arises because freeways are free - people don't pay enough money to drive on them. Just put tolls on the roads, set a price high enough, and the problems will go away. If oil supply is a problem, just set the price even higher and use the money to replace road lanes with electric rail tracks. It's Economics 101.

Your part 2 has some merit,
but Part 3 suffers from the common flaw of reflex solutions:

It fails to think things through.

If you want to move away FROM oil, you have to ensure there IS something to move TO.
Not ALL users can move at the same time.

Whacking on taxes/prices, with no pathways, is worse than useless.
You have mow made those users poorer, and now less able to afford mitigation.

It's as dumb as trying to fix a brain tumor, by constricting the flow of blood to the whole brain. In the strictest sense it works, but the collateral damage will not get the intern that does it, a pass mark!

So Simplistic Economics 101 needs to go in the trash, and be replaced with Practical Policy 607.

If you want the fleet to move away from oil, increases prices a little, and recirculate that money to push new buyers onto the best-mitigation solution at the time.
That differential design is working quite well with many countries Grid systems.

The recent oil spike shows, that price is actually a poor/clumsy usage driver: You get a large wealth transfer, and a slight consumption change.

The other danger of Economics 101, is Politics 101 has an even lower entry requirement, and there, 'Excuses for new taxes' are seen as a gift from heaven, and never carefully analyzed. So you get the tax, and nothing else happens.

Ibon on September 3, 2010 - 12:25pm Permalink | Subthread | Comments top

You have to put yourselves a moment in the place of the institute that wrote this report. They go out and gather already existing data as well as already existing analysis. This is just all rehashed once again with a few specifics added related to its impact for Germany and its military. There isn't much in this study that is either original data or original analysis. We are analyzing to a certain degree a report that has taken data from reports we all previously reviewed. We are all chewing on regurgitated cud of recycled data that we have already previously discussed.

The real good news is only that it is published by the Spiegel and that we see the evidence that data is reaching and penetrating more into existing institutions around the world.

But as Nate and others have often commented on there is a grand canyon that lies between the endless analysis and the applied mitigation by institutions.

Maybe because I read german and know the culture quite well that reading this had no mystique for me.
It's just another report with the same old data.

Luke H on September 4, 2010 - 5:04pm

yeah but it corralled comments from some TOD's most informed, informative and readable posters--for that reason alone it is a most worthwhile post. The gardening discussion was well worth the price of admission in and of itself ?- )

still couldn't agree more with your point

"But as Nate and others have often commented on there is a grand canyon that lies between the endless analysis and the applied mitigation by institutions"

BTA on September 5, 2010 - 4:34pm Permalink | Subthread | Comments top

Related to marktes, the study explains that in the medium term a tipping point can be reached, where the whole economic system collapse.

This tipping point is, where all market participants realise that the economy will shrink for long time. At that savings are not invested anymore, because companies wont make any profits. The companies are unable to repay their depts. The banking system and the stock market crash.


In einer auf unbestimmte Zeit schrumpfenden Volkswirtschaft werden Ersparnisse nicht investiert, weil Unternehmen keine Gewinne machen. Unternehmen sind auf unbestimmte Zeit nicht mehr in der Lage, Fremdkapitalkosten zu zahlen oder Gewinne an Eigenkapitalgeber auszuschütten. Das Bankensystem, die Börsen und die Finanzmärkte insgesamt brechen zusammen.

They also state that after hyperinflation, money might lose its function as basis for trading. And at payment in kind it is difficult to keep the komplexity of modern production chains.

That brings me to my questions:
- How do you think, a working financial system could look like at a continiously shrinking economy?
- Is a gold standard a sufficient prerequisite for trading at constant oil deplation?

Nick on September 5, 2010 - 6:11pm

Keep in mind: this is not an independent, authoritative study. It's a literature search of possible risks, some of which are pretty flaky.

There's really no reason to think that PO will cause long-term financial decline.

[Aug 15, 2010] Drumbeat- August 14, 2010

BP spill may cause sea change for energy industry

Not long ago, federal officials were hailing the Gulf of Mexico as America's best source of future crude oil and natural gas.

But the disastrous BP oil leak has complicated that view and may have a greater effect on the energy industry than any incident since the 1969 Santa Barbara oil spill, which led to the Environmental Protection Agency and a 27-year moratorium on most offshore drilling.

Experts predict that energy production will slow and regulation will increase along with the cost of drilling in deep water. Better technology will have to be developed. New projects may require rigorously tested emergency plans. Government oversight will be overhauled.

"The days of easy oil are over," said Michael Klare, program director at the Institute for Policy Studies in Washington. "Only the tough crude remains, in unfriendly parts of the world or in difficult places where the technology and the regulations have not caught up. There are bound to be greater risks."

Why is the Oil Price is Rising?

On August 4, 2010, in Commodities, by Tim

The now-plunging U.S. dollar has certainly been an important factor in the recent rise in oil prices, but one of the other funnier explanations over the last few weeks has been the odd logic that stocks are rising, so the economy must be improving, so there will be higher demand for energy sometime down the road. On CNBC a short time ago, Jessica Hoverson of IMF Global talks about some other reasons for crude oil now approaching $83 a barrel.

What’s really funny here in 2010 is that, after a gain of almost 80 percent last year, the oil price is still anywhere near $80 a barrel given the now-incessant talk of deflation, a weak U.S. job market, slowing growth in China, and overflowing crude oil stockpiles.

Letters - The Oil Spill as a Teachable Moment

July 23, 2010 | NYTimes.com

Re “4 Oil Firms Commit $1 Billion for Gulf Rapid-Response Plan” (Business Day, July 22):

Testimony at Congressional hearings by heads of these same four oil companies showed that paying lip service to safety and environmental protection while at the same time committing almost no intellectual or material resources to advance the decades-old technology used in a crisis is endemic to the industry.

Now these companies insult our intelligence by expecting, after what happened in the Gulf of Mexico, that we will once again be lulled into believing that they have suddenly reprioritized employee and environmental safety over company profits.

Establishing and enforcing strict federal regulations denying permits for deepwater drilling without innovative, materially supported spill contingency plans already in place is the only way to ensure the adoption of new industry practice standards.

If our elected representatives are allowed to delay or dilute legislation supporting this type of regulation because of lobbyists and campaign contributions, we should expect to see many more of these catastrophic spills.

Susan Hunter
St. Johns, Fla., July 22, 2010

To the Editor:

Your insightful perspective on the calamity in the Gulf of Mexico (“A Spill Into the Psyche,” Week in Review, July 18) invites a broader consideration of the oil spill’s symbolic significance.

The flawed and fragile deepwater well is like the dirty needle in the arm of an addict, an uncomfortable reminder of America’s ever more desperate dependence on oil.

BP’s halting and incompetent response demonstrates the nature of corporations — amoral and rapacious in pursuit of profit.

We are reminded what poor stewards of the planet humans are, from corporate executive suites to the world’s humblest farms.

We saw the shortcomings of governmental regulation as well as, ironically, the pressing need for more.

The BP spill is a case study of unchecked market forces at work, and a harrowing preview of life in an overpopulated world.

Mark Miller
Los Angeles, July 20, 2010

To the Editor:

Re “The Corrosive Legacy of Oil Spills” (front page, July 18):

Earlier this year I visited the site of an early Mexican oil spill. In 1908, the Dos Bocas well on Mexico’s gulf coast turned into a gusher that caught fire. At night, the light from the fire could be seen at a distance of 200 miles. The well spewed oil at a rate of about 100,000 barrels a day for two months, before finally burning itself out.

Today, 102 years later, oil continues to come to the surface of the crater caused by the blowout. Large tar balls can be found in nearby soil. The smell of hydrogen sulfide pervades the area.

Philip Russell
Austin, Tex., July 19, 2010

The writer is the author of “The History of Mexico: From Pre-Conquest to Present.”

To the Editor:

Re “Big Oil’s Good Deal” (editorial, July 12):

You are right: Big Oil is getting away with enormous and unjustified bailouts from the taxpayer in the form of various subsidies. But both The Times and the Obama administration are not addressing the most outrageous giveaway.

Not only do American taxpayers subsidize ExxonMobil, BP and so on, but we also subsidize Saudi Arabia, Venezuela and the other nations from which we import oil.

We treat a third of the royalties paid to such countries by the oil companies as if they were taxes paid in the United States, and the value of this arcane, little-understood fiction means that over the last decade more than $10 billion flowed from the United States Treasury to the oil companies and the countries where they extract oil.

There is no possible justification for American taxpayers’ subsidizing the production of oil in other countries. Congress should take away the giveaways the Obama administration has flagged — and then it should finish the job and take Big Oil and the Organization of Petroleum Exporting Countries off welfare completely.

Carl Pope
Chairman, The Sierra Club
Washington, July 13, 2010

President’s Obama’s War on Error

Alex Tabarrok at the NY Time Room for Debate:

Carbon Taxes, by Alex Tabarrok: President Obama lost his cool last week when — sounding like the old president — he said he was looking for some “ass to kick.” He didn’t regain any lost cool in Tuesday’s oil speech, which also made him sound like his predecessor: “Make no mistake: we will fight this spill with everything we’ve got for as long it takes,” he said, emphasizing “We will make BP pay….” Call it President’s Obama’s war on error.

Turning to energy, the president called for innovation and hard choices but offered little new or courageous thinking of his own. ... Most important, nowhere did the president mention two hard ideas that the public must accept if we are to move to a cleaner energy future: nuclear power and carbon taxes. Nuclear power is among the cleanest sources of energy, power plants can be built when and where needed and the combination of nuclear-generated electricity and hydrogen can serve virtually all of our energy needs. Is nuclear power safe? Oil spills and coal-mine disasters should remind us that safety is always relative.

The oil spill isn’t really a new event. It’s simply another reminder that not all of the costs of oil are reflected in the price; whether it’s climate change, environmental disaster or the financing of anti-American governments, cheap oil is a lot more expensive than it appears at the pump. A tax on oil — and carbon more generally — would make the price of oil better reflect its true costs thus making our choices more realistic and rational. Moreover, a carbon tax would do more than any other policy to spur energy conservation and innovation.

No one likes taxes but Al Gore was right when he said we should tax burning not earning. A tax shift — not a tax increase — away from labor and toward carbon would increase the incentive to create jobs and to use less carbon. Both changes would be welcome at the present time.

We needed bold but unfortunately the president mostly gave us old.

I was on the fence before and not really sure whether to go with the seemingly emerging consensus that nuclear power is the answer to our energy needs, there were always nagging doubts, but the problems in the gulf make me hesitant to embrace nuclear power despite assurances that the risks are minuscule. Should nuclear power play a large role in the solution to our energy problems?

Posted by Mark Thoma on Wednesday, June 16, 2010 at 03:24 PM in Economics, Environment, Taxes | Permalink Comments (46)
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Lyle said...

There are other reactor designs that are much safer than the plumbing nightmares current reactors are. High temp gas reactors for example are more overall efficient, and use helium gas to cool a pebble bed, if the helium stops the reaction stops. But they are new and as usual conventional thinking goes with what they know. Then there are the designs that are never refueled out there. Why we should still be building what amounts the the same reactor design that was used in the 1950s is less than clear.

Reply Wednesday, June 16, 2010 at 03:56 PM

Branimir said...

Nuclear may play a role. How big a role and what the tradeoffs are is not a matter of opinion but a matter of - arithmetic. The best place to start is reading Sustainable Energy - without hot air by David MacKay. It's freely available on the web but I recommend getting a paperback and reading it cover to cover. http://www.withouthotair.com/

Reply Wednesday, June 16, 2010 at 04:08 PM

James Aach said in reply to Branimir...

I've seen a number of nice comments about Dr. MacKay's book. I would also like to suggest my own book: "Rad Decision: A Novel of Nulcear Power", which is free online with no adverts (and I get no royalties from the paperback).

Having worked in the US energy sector for over 20 years, I'm concerned about the vast knowledge gap in the public and the press and academia regarding the real world problems in producing cheap electric power. Achieving a better understanding of our energy present will surely help us develop a better energy future. For a free, realistic portrait of this generation of US nuclear plants, I suggest my "Rad Decision: A Novel of Nuclear Power." It is written as a thriller to avoid reader boredom - and that seems to be working, judging from the comments I've received at the website. Why not hear what someone in the bowels of the industry has to say? Online or in paperback. See http://RadDecision.blogspot.com


“I got to about page four and I was hooked, I couldn’t put it down.
… It was very easy to read, the characters were well described, and they were vibrant.”

- DAVID LEVY, noted science author and Parade Magazine contributor. You can hear David Levy's interview with the author of Rad Decision at http://www.letstalkstars.com/recent_2010.htm


"I'd like to see Rad Decision widely read"
- STEWART BRAND, founder of The Whole Earth Catalog.

Reply Thursday, June 17, 2010 at 08:23 AM

dw said...

this isn't an oil spill. its a blow out. there is a big difference. one is easier to control. guess which one? the spill. the other is really hard. on dry land. and near impossible under water.
there are many choices for better energy. nuclear sure sounds better. and they have newer plants that are more modular than the custom built plants we have now. there is also a navy project researching a fusion type reactor that has been successful so far. its just not the really high science ones that seem so popular. there is also a method that some fly by night organization (called ....MIT) that found a way to generate hydrogen using solar energy, by which they tried to replicate what ...plants do

Reply Wednesday, June 16, 2010 at 04:09 PM

Will Neuhauser said...

Yes, they align similarly: small chance of hugely bad disaster. Nuclear has also had liability caps. At the very least, lift them and let the market price the necessary insurance so the cost is more accurate.

Reply Wednesday, June 16, 2010 at 04:19 PM

brian holt said in reply to Will Neuhauser...

I've heard rumor, and so I don't know this for fact, but I was under the impression that no insurance company would consider covering a reactor because though the chances of disaster are small, the size and magnitude of a disaster would be impossible to cover.

Reply Wednesday, June 16, 2010 at 05:23 PM

Zephyr said in reply to brian holt...

There is not enough insurance supply to cover the potential magnitude of a nuclear catastrophe.

Reply Wednesday, June 16, 2010 at 11:38 PM

Ches said...

Living in the nuclear state of New Mexico it is easy to see the problems with nuclear. Los Alamos labs continually have accidents even though there are more PHD.s than just about any where else on earth. Maybe they aren't so smart. Contamination from Los Alamos is threatening the aquifer leading to the Rio Grande and the drinking water supply for Santa Fe and Albuquerque. The canyons around Los Alamos are full of toxic waste that may never be cleaned up. Uranium mining companies want to use in situ leach mining in aquifers that whole towns and rural areas depend on for their only source of water. These companies assure us that the chemicals they will inject into those aquifers to free up the uranium will not effect that water. Oops, wait, didn't BP say the same thing about deep water drilling? Health problems devastated the Navajo miners who worked in the uranium mines in the 50's and 60's. We have trucks driving on our highways carrying radioactive waste to the Waste Isolation Plant near Carlsbad. Now nuclear power companies are eyeing those same salt beds to dump their spent waste, and more trucks carrying nuclear waste. I could go on but we have already sacrificed the gulf for our energy greed. The record is clear in New Mexico how we have sacrificed our state to the nuclear industry. One last point- do we want yet another centralized energy system vulnerable to break down, waste from transmission lines, and sitting ducks for terrorist attack? And nobody would put up their own money for such a venture. It is only with taxpayer guaranteed loans that we will even think of such a thing. Come on folks, lets think out of the box. Isn't that what The University is for?

Reply Wednesday, June 16, 2010 at 04:21 PM

Bruce Wilder said...

If you think "peak oil" is a constraint, you should take a gander at "peak uranium".

Personally, I'm fine with nuclear, as part of the mix, but I don't think that it is realistic, to expect it to be a really huge share of energy production.

We're going to have to pretty much eliminate carbon emissions from both power generation and transportation, by 2050. That's a tall order. We can't really exclude anything. Nuclear could be useful, but it's not enough, by itself.

Reply Wednesday, June 16, 2010 at 04:31 PM

Sasha said in reply to Bruce Wilder...

'If you think "peak oil" is a constraint, you should take a gander at "peak uranium".'

Thorium. Not fully ready for production, but well worth pursuing.

Another possibility is extracting uranium from sea water. It's unclear what it would cost, but that may not be a big problem because fuel is such a small part of what it costs to run a reactor. Even a many fold increase in fuel price may not be a big deal.

Lastly there are more efficient reactors and reactor fuel cycles. The current "once through" stuff is grossly inefficient.

I'm not saying that "peak uranium" isn't something we should worry about, just that it's not necessarily a show stopper.

Reply Thursday, June 17, 2010 at 03:42 AM

Michael Cain said in reply to Bruce Wilder...

'If you think "peak oil" is a constraint, you should take a gander at "peak uranium".'

If we stay with thermal neutrons, enriched fuel, and a once-through fuel cycle, absolutely. If I get to change one of those, I would go for fast neutrons because of the enormously higher burn-up rates achieved (a factor of anywhere from 60 to 140, depending on whose numbers you prefer). Granted, you would probably want some form of reprocessing to go with that, so you could breed enough fissile fuel in one load to provide the "spark plug" for another load.

The biggest hurdle to adding substantially to the US nuclear fleet may be that private companies will be unable to obtain the necessary insurance to build and operate new plants. And the notion of federally owned and operated plants -- or even the federal government acting as the insurer -- is a tough sell in an era where private sector solutions are preferred.

Reply Thursday, June 17, 2010 at 04:18 PM

Fred C. Dobbs said...

The current design of nuclear reactors, in the way they use fuel, is very inefficient, costly, wasteful, dangerous. Newer technology is efficient, costly & dangerous, so, much improved! Since we need energy, in vast quantities, this may be the way to go.

This 'newer technology' is basically the 'breeder reactor', which the French have been working on for decades, still unperfected, but very efficient in the way it uses uranium. It just happens to produce & use highly-enriched fuel. You can imagine how politically incorrect this is, so much so that we couldn't call it breeder-reactor technology if we were to go ahead with it. BUT, it consumes what would otherwise be nuclear waste, so it deserves serious consideration.

Reply Wednesday, June 16, 2010 at 04:34 PM

Fred C. Dobbs said in reply to Fred C. Dobbs...

'The current “once-through,” or open, nuclear fuel cycle uses freshly mined uranium, burns it a single time in a reactor and then discharges it as waste. This approach results in only about 1 percent of the energy content of the uranium being converted to electricity. It also produces large volumes of spent nuclear fuel that must be disposed of in a safe fashion. Both these drawbacks can be avoided by recycling the spent fuel—that is, recovering the useful materials from it.

Most other countries with large nuclear power programs—including France, Japan and the U.K.—employ what is called a closed nuclear fuel cycle. In these countries, used fuel is recycled to recover uranium and plutonium (produced during irradiation in reactors) and reprocess it into new fuel. This effort doubles the amount of energy recovered from the fuel and removes most of the long-lived radioactive elements from the waste that must be permanently stored. It should be noted, though, that recycled fuel is today more expensive than newly mined fuel. Current recycling technology also leads to the separation of plutonium, which could potentially be diverted into weapons.' ...

http://www.scientificamerican.com/article.cfm?id=next-generation-nuclear

Reply Wednesday, June 16, 2010 at 04:52 PM

Squidward said...

Coal fired power plants emit more radioactive uranium and thorium each year than the Three Mile Island accident released. This is due to trace amounts of U and Th in coal, not to mention all the mercury.

From the Oak ridge national laboratory website:

http://www.ornl.gov/info/ornlreview/rev26-34/text/colmain.html

"Partly because of these concerns about radioactivity and the cost of containing it, the American public and electric utilities have preferred coal combustion as a power source. Today 52% of the capacity for generating electricity in the United States is fueled by coal, compared with 14.8% for nuclear energy. Although there are economic justifications for this preference, it is surprising for two reasons. First, coal combustion produces carbon dioxide and other greenhouse gases that are suspected to cause climatic warming, and it is a source of sulfur oxides and nitrogen oxides, which are harmful to human health and may be largely responsible for acid rain. Second, although not as well known, releases from coal combustion contain naturally occurring radioactive materials--mainly, uranium and thorium."

No energy source is without its draw backs especially when trying to produce a significant portion of our energy needs. Nuclear should be a larger piece of the pie. The French seemed to have figure it out, I don't see why we can't.

Reply Wednesday, June 16, 2010 at 04:44 PM

Not a valid comparison said in reply to Squidward...

This is silly. Add in Chernobyl, then redo the calculations.

Reply Wednesday, June 16, 2010 at 04:49 PM

Squidward said in reply to Not a valid comparison...

Chernobyl was graphite cooled soviet era technology. We don't even use that reactor design.

There is nothing silly about the toxic chemicals released from coal combustion.

From Scientific American

http://www.scientificamerican.com/article.cfm?id=coal-ash-is-more-radioactive-than-nuclear-waste

"The result: estimated radiation doses ingested by people living near the coal plants were equal to or higher than doses for people living around the nuclear facilities. At one extreme, the scientists estimated fly ash radiation in individuals' bones at around 18 millirems (thousandths of a rem, a unit for measuring doses of ionizing radiation) a year. Doses for the two nuclear plants, by contrast, ranged from between three and six millirems for the same period. And when all food was grown in the area, radiation doses were 50 to 200 percent higher around the coal plants."

If you like coal fine, but as I said no energy source is without its drawbacks.

Reply Wednesday, June 16, 2010 at 05:47 PM

ken melvin said in reply to Not a valid comparison...

And calculate the area.

Reply Wednesday, June 16, 2010 at 06:30 PM

alan said...

There are so many problems with nuclear in competitive markets, it is hard to figure out where to start. Let's start with pricing. Nuclear HAS to stay on -- too expensive to shut down and restart. So they are always going to bid one penny under the marginal cost of the next cheapest fuel. If nuclear were profitable and competitive the US would be building them. The only way it works is through government intervention in power market pricing structures and government amelioration of externalities (eg in France allowing breeder reactors in civilian power production).

Reply Wednesday, June 16, 2010 at 05:10 PM

gordon said...

Before asking whether nuclear power should play a bigger role, one should ask what exactly "our energy problems" are.

Have a look at this page from the Rocky Mountain Institute as a start:

http://www.rmi.org/rmi/Energy

Reply Wednesday, June 16, 2010 at 05:32 PM

Ches said in reply to gordon...

Thanks for that link Gordon. These folks are smart, can tell us what is wrong currently, and have answers for the future. Oh, and they are not on the take, not paid off by corporate interests.

Reply Wednesday, June 16, 2010 at 05:44 PM

This comment has been deleted.

Wednesday, June 16, 2010 at 05:59 PM

gordon said in reply to gordon...

All right, quattrocento then.

Reply Wednesday, June 16, 2010 at 06:00 PM

gordon said in reply to gordon...

proof of life?

Reply Wednesday, June 16, 2010 at 08:44 PM

gordon said in reply to gordon...

If Ches liked that link, he/she might like the book "Natural Capitalism" (Hawken, Lovins and Lovins, 1999).

Link to the site (some of it is downloadable):

http://www.natcap.org/

There is a summary here (Harvard Bus. Review article):

http://www.natcap.org/images/other/HBR-RMINatCap.pdf

I get particularly upset when people forget about subsidies when discussing the cost of energy:

http://www.globalsubsidies.org/en/subsidy-watch/issue-6

http://www.iisd.org/publications/pub.aspx?pno=281

http://www.foe.org/green-scissors

A couple of other recent links which happen to be handy:

http://www.washingtonsblog.com/2010/05/is-it-true-that-alternative-energy-is.html

http://www.washingtonsblog.com/2010/05/nows-time-to-switch-to-alternative.html

Reply Wednesday, June 16, 2010 at 09:39 PM

Careful Collapse said...

A 2004 MIT study on the future of nuclear power - http://web.mit.edu/nuclearpower/pdf/nuclearpower-summary.pdf

The impression I get is that waste management is the biggest danger with nuclear power.

Reply Wednesday, June 16, 2010 at 05:43 PM

TA said...

Do you have an alternative?

Reply Wednesday, June 16, 2010 at 05:50 PM

Alan said...

It's one thing to read the persuasive and credible Messrs. Brand or MacKay, for example, and appreciate that France gets some 3/4 of its domestic energy from nuclear power (though French achievements won't necessarily be endearing to John Q. Public); it's another to see your children's school designated a "risk school" due to its proximity to a nuclear power facility. A map in your local phone directory listing evacuation routes is the opposite of reassuring. What is sorely needed is a substantive evidence-based public discussion of the pros and cons of each type of power generation.

Reply Wednesday, June 16, 2010 at 05:52 PM

Brian R said...

Oil and water:

Is the goal cutting carbon emissions or reducing oil imports, or reducing oil consumption or finding a crude oil replacement? Politicians and environmentalists and Joe Six-pack whom mix the questions all the time and provides no realistic solutions.

Nuclear, hydro, wind, solar, coal, have nothing to do with oil alternatives. Electrical power generation, which does not have a supply problem in the US, just a carbon emission problem, does not help us travel from point A to point B. Replacing 600 coal plants with so called green tech means nothing to OPEC and the oil industry. It will be several decades (2050) before the masses drive all electric vehicles, in the meantime there is only crude oil and internal combustion engines.

The only real alternatives to oil is bio-engineered algae, and of course various blends of bio-fuels. Algae is the only one that can be made to replace all current crude oil, something bio-fuels can never do. Their measure on carbon emissions is not known, but the only game in town for crude oil alternatives.

Nat gas, and Hydrogen fuel cells have their place in transportation fuel alternatives, but are unlikely to scale up, like a true replacement fuel. Algae crude require little infrastructure changes since it can be refined in current facilities into whatever product you need.

Higher gas taxes, higher CAFE, public transportation, trains, are all useful in reducing demand, but will not make much of a dent in the 26m BBld the US consumes in crude oil. Just Algae.

Anyway, current large scale nuclear is DOA. Smaller, modular, and/or traveling wave reactors is the future in that field.

Reply Wednesday, June 16, 2010 at 06:26 PM

Barkley Rosser said...

Thorium breeders. Yes.

Reply Wednesday, June 16, 2010 at 07:30 PM

demandside said...

It is absolutely essential to put a price on carbon that reflects its cost in environmental degradation, if not geopolitical dislocation. If there are real economists reading this blog, they should see that.

The discipline is failing again when it doesn't stand up like climate scientists or medical professionals. This is a threat to society caused by a huge distortion in the energy market. Something that is very costly, life-threateningly dangerous, is treated as if it is cheap and safe.

In term of waste production, oil and coal deposit their waste directly into the atmosphere in the amount of thousands of tons a day. The waste from nuclear is a tiny fraction of that. Not having looked very closely, I won't make a claim for nuclear beyond that.

But in terms of economics, a price on carbon which relates to its actual cost would squeeze out the excess profits to oil companies and set a more stable target for alternatives and innovation.

The Cantwell-Collins CLEAR proposal is a very good mechanism. Permits to sell are auctioned to fossil fuel producers, a price collar gradually increases over time to allow for adaptation, the revenues are 75% rebated to citizens directly and so hold the consumer harmless. But the price on carbon is established.

Economists who dither on this essential point are ethically challenged.

Reply Wednesday, June 16, 2010 at 07:31 PM

Bill Jefferys said...

The case for nuclear is not nearly so clear from a green perspective, even with regard to reducing CO2 emissions. The following transcript is from a recent "Ockham's Razor" on Australian National Radio (can also be downloaded into iTunes and iPod/iPhone and listened to on the way to work):

http://www.abc.net.au/rn/ockhamsrazor/stories/2010/2910830.htm#transcript

The important point to notice here is that although uranium produced from high-grade ore will result in net reductions in CO2 emissions over an entire life-cycle, that resource is in short supply (see transcript for figures). When that runs out, and it would be soon if a large commitment to nuclear ware made, you are constrained to use low-grade ore, and the estimates on CO2 emissions are that the life-cycle emissions from such fuel sources would be greater than from natural gas fired plants.

Presumably, breeder reactors could change that equation; but that's a much trickier proposition technically.

Reply Wednesday, June 16, 2010 at 07:44 PM

Greg said...

Replacing part of the payroll tax with a carbon tax or pollution tax would be a great idea.

It would directly correct the externality of pollution and, if used to supplement Medicare and Medicaid, would even help compensate for the health problems caused by pollution.

Moreover, it would make the idea of a carbon tax more viable politically by bundling it with a tax cut for almost all Americans.

Reply Wednesday, June 16, 2010 at 08:03 PM

Patricia Shannon said...

You think that business can be counted on the maintain safety standards even at the cost of some profits? You think that individuals will maintain continual attention to possible malfunctions when things have been going ok for a prolonged period?

People usually get into positions of power because they are optimistic. That same characteristic leads to lack of safeguards against problems.

To think that things will be different in the future is another instance of over-optimism.

Reply Wednesday, June 16, 2010 at 08:10 PM

Ohm said...

"Nuclear power is among the cleanest sources of energy"
Really!? What is nuclear waste?

http://en.wikipedia.org/wiki/High_level_waste

....Or is the intend to set up Nuclear production on the moon?

I dislike fossil fuels - as they are not regenerative and pollute, but nuclear processes yield wastes that cld be life threatening/paralyzing upon single contact.

Green Energy ought to mean Solar, Geothermal, Herbal, Bacterial, whatever - but nuclear: Yikes.

Reply Wednesday, June 16, 2010 at 08:27 PM

Patricia Shannon said...

We don't "need" nearly as much energy as we use.

Reply Wednesday, June 16, 2010 at 09:09 PM

Zephyr said in reply to Patricia Shannon...

We are energy gluttons, and inefficient too. But even if we sacrifice nothing in use, we can reduce our use significantly with better efficiency.

Buildings are an area of massive energy consumption. There is much room for greater efficiency in our homes and other buildings.

Reply Wednesday, June 16, 2010 at 10:24 PM

gordon said in reply to Patricia Shannon...

Yes. Here is a lovely little snippet from Geo. Monbiot (Sept. '05) about how regulation of building standards is fluffed by Govt. in the UK (Zephyr will appreciate this):

"At a conference organised by the Building Research Establishment, I witnessed an extraordinary thing: companies demanding tougher regulations, and the government refusing to grant them(5).

"Environmental managers from BT and John Lewis (which owns Waitrose) complained that without tighter standards that everyone has to conform to, their companies put themselves at a disadvantage if they try to go green. “All that counts”, the man from John Lewis said, “is cost, cost and cost.” If he’s buying eco-friendly lighting and his competitors aren’t, he loses. As a result, he said, “I welcome the EU’s Energy Performance of Buildings Directive, as it will force retailers to take these issues seriously.”(6) Yes, I heard the cry of the unicorn: a corporate executive, welcoming a European directive.

"And from the government? Nothing. Elliot Morley, the minister for climate change, proposed to do as little as he could get away with. The officials from the Department of Trade and Industry, to a collective groan from the men in suits, insisted that the measures some of the companies wanted would be “an unwarranted intervention in the market”.

Reply Wednesday, June 16, 2010 at 11:15 PM

gordon said in reply to gordon...

And the link is:

http://www.monbiot.com/archives/2005/09/20/a-world-turned-upside-down/

Reply Wednesday, June 16, 2010 at 11:17 PM

Abe said...

Current nuclear reactors produce waste that remains highly toxic for several thousand years. The greatest folly of the last 30 years is that no attention or resources were given to designing safer reactors, for which there are several theoretical foundations, from thorium-based (http://en.wikipedia.org/wiki/Thorium_fuel_cycle) to traveling-wave (http://en.wikipedia.org/wiki/Traveling-wave_reactor). The latter has attracted a host of venture investors including Bill Gates. This should have been done by the government after the first oil crisis!

If Obama is serious about energy (and he doesn't seem to be serious about pretty much anything including his own re-election), he should announce a massive research program into these designs. This is real and achievable. But he hardly has the will to go against the oil lobby.

Reply Wednesday, June 16, 2010 at 09:11 PM

Michael Pettengill said in reply to Abe...

Not paying attention, are you.

Who did Obama appoint to head DOE?

Have you bothered to read his book, listen to his campaign speeches on energy, legislative speeches on energy?

But the problem is a true energy policy can't be reduced to "spill baby spill" like Palin leads the chant.

Reply Wednesday, June 16, 2010 at 11:58 PM

hix said...

Nuclear power should be government run with stereotypical rule obsessed bureaucrats in charge if its done at all. Private companies or public ones with a private sector mindset (like Vattenfall or the modern EDF) are no good idear.

Reply Wednesday, June 16, 2010 at 09:41 PM

gordon said in reply to hix...

Hooray!

Reply Wednesday, June 16, 2010 at 11:29 PM

ken melvin said...

Lord hates a coward, said the fool a he lay his head across the block. The big thing at play of late in DC is that of the hardened tested leaders against the novice, think a bit about Kennedy and Khrushchev. The question is, did he give them reason to respect them, the decision making process that they are most familiar with, and exhibit the command presence requisite the leadership role?

Reply Thursday, June 17, 2010 at 05:41 AM

ken melvin said...

Ein anderen zeite: The question is, did he show the proper respect for the decision making process that they are most familiar with, and exhibit the command presence requisite the leadership role?

Reply Thursday, June 17, 2010 at 05:47 AM

djt said...

With so many massive institutional failures in the last ten years, both public and private, unleashing something like nuclear power seems foolish. Among industrialized nations, the US has the lowest percentage of people that accept the theory of evolution. We score poorly on tests of all types when compared to the literacy and education of those in other countries.

And someone is seriously proposing to unleash nuclear power on this rabble?

Yes, the US is innovative and is rich, but I simply don't trust our institutions; the ethics of those that gain power; and the Republican party not to allow regulatory capture of any regulatory body should they get into power.

I worked on the Yucca Mountain project and it was the only thing I've worked on in my engineering career with a Gantt chart that extended until 2132! That is right - 2132!

Countries with the highest percentage of people that accept evolution generally also use nuclear power.

Many of the comments in this thread say "we should develop" or "there is hope that new fangled method xyz" is the answer. If it is working in a lab now, it won't be in widespread commercial use for 20 years if ever. Implementation of technology is complex and difficult. The energy sector is not the software or internet sector.

Conservation is not only free, but much conservations saves money. It's known. There's no new technology. Everyone can do. We can start this afternoon. Yet somehow half our population thinks conservation is for sissies.

I'm all for moving taxation from productive things like labor to wasteful things like pollution. If income taxes were replaced tomorrow with a carbon tax, US fossil fuel consumption would drop in half in 5 years I bet.

Reply Thursday, June 17, 2010 at 10:47 AM

Patricia Shannon said in reply to djt...

Sad but true.
That some people equate conservation with "sissies" is so weird. Insisting that you simply must have every comfort & luxury your little heart desires is what is sissified and effete.

Reply Friday, June 18, 2010 at 02:14 PM

Michael Cain said...

A one paragraph analysis, and a prediction.

The developing countries require reliable baseload generating capacity. Renewable resources are, on some scale, intermittent (eg, ask SW China or Venezuela about hydro). Most of the developing countries do not have the national (or transnational) grids to make renewable power baseload-reliable, or to accommodate the large scale of nuclear that is common today. China can deal with a 1.5 GW regional power plant; most developing countries cannot. Ideally, the developing countries would like a much smaller plant that requires infrequent refueling and a minimum of on-site adjustment.

In less than a dozen years, they will be able to purchase factory-built reactors in the 100-200 MWe range, most likely delivered with a fuel load good for 20-30 years, to be swapped out and returned to the factory at the end of that interval. Some subset of Russia, Japan, Korea, China, and India will be selling those devices.

The US may or may not adopt such an approach for its own electric generation capacity. But if it is not producing such a product for sale to developing countries, US opinion regarding proliferation risk and nuclear waste handling will become increasingly irrelevant.

The Right Honourable Stephen Harper

P.C., M.P., Prime Minister of Canada
Office of the Prime Minister

Dear Prime Minister:

I am sure you are aware of the recent U.S. Department of Defense Joint Forces Command report warning about Peak Oil. The DoD’s report reflects a seminal moment for the both the world and the U.S. government, for it is the first time that a U.S. government agency has officially acknowledged the imminence and danger of Peak Oil. Few national governments have publicly addressed the issue, yet the evidence of Peak Oil from studies by highly credible experts indicates that it is long past time that national governments engage officially and publicly in a Peak Oil debate, followed quickly by comprehensive action.

To quote from the DoD’s report:

By 2012, surplus oil production could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 mbd”.

The report further warns that alternative energy technologies are not viable in the short run given the capital cost required for their installation at considerable scale. The U.S. DoD’s conclusions potentially confirm the worst fears about Peak Oil, that the window for an orderly transition towards a post hydrocarbon economy is closing quickly as the peak may already have arrived. The U.S. Department of Energy, which one would expect to be leading on this issue, remains in official denial (although there appears to be unofficial/non-public action). The media also remains silent, which is an astounding feat given the grim SOS delivered by the DoD. The Obama administration has not commented and the DoD states that its report should not be viewed as official government policy. Yet, even if the DoD report is likened to scenario planning it portends a serious and unaddressed economic threat.

Few other government’s have made any official public pronouncements regarding Peak Oil. However, in February 2010 the U.K. Industry Task-Force on Peak Oil and Energy Security issued its second report:

“The Oil Crunch: A Wakeup Call for the U.K. Economy”

Notably, several large British corporations were sponsors of the task force, including Sir Richard Branson’s Virgin Group. The report received significant public attention and, as a result, Lord Hunt, the U.K. Energy minister has been forced to respond. Note that the widely cited industry report British Petroleum Statistical Review also now dates an oil peak (by 2020 at 91 billion barrels per day production). That the BP annual industry report takes this position is no less a watershed moment than the U.S. DoD report.

Only has the Swedish government stood alone in publicly preparing a strategic Plan for Peak Oil. Former Prime Minister Goren Persson proclaimed Peak Oil a threat in 2005 and formed a committee tasked with preparing a strategy to make Sweden fossil fuel independent by 2020. Other than these examples, we have had a few Peak Oil murmurs from the International Energy Agency and some top oil industry executives warning about looming and sustained oil shortages, although many couch their concerns in what must frankly be called denialist language…it’s a veritable Kabuki dance, the same one performed by those in positions of responsibility in the bubble buildup that turned into the global financial crisis (see National Governments Remain Silent on Peak Oil, a previous post at Sticky Feet). In Canada, perhaps the strongest and most credible voice on Peak Oil has been Jeff Rubin, the former Chief Strategist and Chief Economist at Canadian Imperial Bank of Commerce (CIBC). Jeff is the author of “Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization“.

In the wake of the global financial crisis, policy makers and bankers have explained their failure to address the brewing crisis by rationalizing that no one recognized the existence of a credit bubble. This rationalization is demonstrably false – the public record reveals many experts issued warnings but to no avail. Now, with an oil crisis brewing, policy makers and energy industry insiders are repeating the same mistakes. They are generally absent from the debate. Where they do engage it is to label Peak Oil proponents phony Cassandras and to publicly issue comforting words about how technological advances are growing recoverable oil reserves and ushering in alternative energy technologies. These statements offer false comfort:

(a) Honest energy industry experts will acknowledge that improvements in technology have had more impact in increasing the speed at which we extract oil from wells rather than on any significant affect on increasing recoverable reserves. Some people may tout the excellent results of enhanced oil recovery (EOR) technologies on particular oil fields, but this success does not extend to every well. It should also be noted that much of the “modern” technology that is called EOR has actually been in use for 30, 40, 50 years or longer.

(b) Those individuals who point to such data as increases in proven reserves and years of remaining reserves to seed doubt about Peak Oil either do not understand reserve reporting and how reserves are assessed over time or are being blatantly dishonest. This issue is inside baseball stuff – “conservative” financial accounting/reporting versus economic/geologic estimates of recoverable oil. Financial reporting by design shows proven reserves rising over time (portions of probable and possible reserves are shifted into the proven category as drilling activity enables more precise estimates of how much oil will ultimately be recovered). These financial/accounting figures are the main focus of financial markets when public oil companies report annual and quarterly results. The rules were written so that oil and gas companies would not report inflated reserves, but it works well for them as once they “bank” reserves, guaranteed increases in reported proven are baked in. The second data set, economic/geologic estimates of recoverable oil, tends not to shift significantly over time; yet, these are the relevant figures for reserve assessment on a macro level, and they indicate the arrival of a peak. Only the date is a quibble, which is due to the poor data provided by some countries (for example, in the 1980s and 1990s several OPEC member countries showed significant one-time increases in reserves without providing any justification; the best analysts, among them industry insiders, consider these phantom reserves and attribute the magical increases to political factors associated with quota allocations; these OPEC reserves have not been adjusted for the more than 125 billion barrels of production in the intervening years and, today, perhaps 300 billion barrels of reserves reported by OPEC are phantom, representing about 25% of the remaining global reserves of approximately 1,260 billion barrels; I noted that a March 13, 2006 report on Peak Oil by our Parliamentary Information and Research Service fell into these analytical traps, so the caliber of information on which Members of Parliament are basing decisions is discouraging).

(c) Many people point to the increasing production of the Alberta oil sands and other non-conventional oil reserves, such as shale, as devastating to Peak Oil. This is not true – Peak Oil estimates factor in supplies from these resources, appropriately recognizing the long, slow lead time for ramping up production, a reality that was confirmed when projects in Alberta faced labour shortages and enormous capital cost increases in recent years.

(d) While alternative energy technologies, and even under-utilized technology like nuclear energy, will play an integral part in our energy future, it is critical to recognize their significant transition barriers in terms of time and capital resources, as underscored by the DoD report. In addition, (i) most alternative technologies are not yet economically viable and so probably require comprehensive national focus; (ii) alternative energy solutions, such as solar, also face resource constraints because supplies of inputs are either not available in sufficient quantities or cannot be scaled up in sufficient time to meet an unexpected and significant increase in demand; (iii) we must recognize that some of the alternatives touted, such as hydrogen and various battery technologies, are really just power storage devices, and the energy they require must be produced elsewhere. While I am a big proponent of alternative energy technologies, I believe the sector suffers from hype – there is as much pie in the sky, wishful thinking mal-investment and politically driven subsidies that will never pay as there is reality – so no one should take comfort in the belief that alternative energy technologies will manifest themselves to save us from a disastrous outcome. They need work.

(e) Some people tout alternatives such as biofuels as good solutions, but it’s apparent that we have not comprehensively addressed how some biofuels could impact cropland available for food production in a Peak Oil scenario. Indeed, we’ve experienced food price shocks in recent years that some analysts attribute to diversion of commodities and cropland for bio-fuel feedstock. The global food price shocks were significant, yet so far less than 2% of our 87 million bpd oil consumption is represented by biofuels.

(f) From time to time a large new oil discovery is announced and is often touted as undermining Peak Oil; when these finds are reported they are given little historical context. In reality, the data shows that (i) on a global level total new oil discoveries have been on a consistent declining trend decade after decade since the 1950s and 1960s – back then annual new discoveries were nearly 60 billion barrels, whereas now we are averaging about 10 billion; (ii) on a micro level, the average size of new oil fields has also been on a significant, consistent downward trend over the same time period; (iii) since 1984 we have consumed more oil each year than found (global consumption is about 30 billion barrels per year). Only in an upside down world, such as when exuberant celebrations ensued following the recent oil discoveries off the coast of Brazil, do exceptions prove the rule. Here is an insightful graph that portrays the history of discovery and annual production at The Oil Drum courtesy of a Colin Campbell newsletter. The complete Oil Drum report is here.

When I first began researching Peak Oil 10 years ago it was considered a tin foil hat theory. That is no longer the case, as evidenced by the caliber of experts raising concerns more recently, including those listed in this letter and referenced links, and many others. It may turn out in retrospect that the fears about Peak Oil are overblown. However, the decision about whether Peak Oil requires immediate public action and engagement by policy makers should not be determined by one’s belief in one side of a binary outcome. Proper risk management practice would acknowledge the following:

(a) that the probability of Peak Oil is significantly greater than zero and

(b) the arrival of Peak Oil could have catastrophic consequences on the economy.

It is obvious that many very credible experts believe that both (a) and (b) are true. Even if one believes that Peak Oil is years away, given the very long lead time required to transition and prepare for a hydrocarbon constrained world proper risk management requires that planning for this contingency ought to begin immediately. This planning should address the following aspects, amongst others:

(a) how to shorten the time required for making alternative energy technologies viable and to hasten market adoption;

(b) how to change our overall energy mix so that we can, in the short and medium term, release some natural gas for use in transportation from electricity generation and oil sands extraction. It has been proposed that oil sands operations could be powered by nuclear energy; that idea deserves consideration;

(c) how to revamp our personal and public transportation systems and goods distribution infrastructure;

(d) reassessment of urban planning and zoning practices in conjunction with provincial and local government; in addition, a review and revamp of building codes towards the most advanced green standards so that energy savings from natural gas heating and nuclear, coal and hydro power generation can be redirected elsewhere;

(e) review of the agricultural industry and food security issues in light of a Peak Oil world that may put significant stress on domestic food producers and cause a change in international agricultural trade patterns;

(f) an assessment of the impact on the structure of the domestic and international economies, including the impact on manufacturing and international trade patterns;

(g) national security implications;

(h) an assessment of the impact on all levels of government, including on revenues and expenditures;

(i) a reassessment of public policy for mitigating global warming – Peak Oil will cause differentiated impacts on the prices and use of oil, natural gas and coal; currently, global warming policy is based on an energy mix base case that assumes increasing supplies of oil for decades into the future; the base case scenario needs to be adjusted in a Peak Oil world to project future energy mix and carbon dioxide emissions assuming sustained annual drops in global oil production; Peak Oil should not be used as a reason to avoid action on global warming – greenhouse gas emissions may not decrease sufficiently in a Peak Oil scenario that causes a shift in the energy mix towards greater reliance on coal and natural gas (especially if coal to liquids or gas to liquids technologies are more widely adopted).

(j) an assessment of the impact on the labour market, living standards and the social safety net – there is a direct correlation between the availability of cheap energy and economic growth; the reality of Peak Oil could usher in a new paradigm, one where GDP growth is zero at best and potentially decreasing annually for years to come until we complete the transition to an alternative energy driven and highly energy efficient society; under a Peak Oil scenario, the next generation may actually be the first to experience a lower standard of living than their parents, but it will be bearable if the transition is managed properly.

Grass roots Peak Oil awareness groups have cropped up in cities around the world, including in Canada. On the west coast, a few municipal governments are preparing Peak Oil action plans. However, since Peak Oil is an international scale issue what is required is a comprehensive nationally coordinated plan in conjunction with lower levels of government and other countries. Make no mistake, the effort required is greater than for the moon shot. Many years from now we may look back in hindsight and realize we were in this moment at the apex of the 50 year Oil Bubble, for that is the age of cheap oil. Will we fiddle while Rome burns?

Thank you kindly for your attention to the issue. I welcome a reply and discussion.

Yours sincerely
____________

From the author of Sticky Feet blog

Inside the box thinking. And plotting.


Cc:

The Honourable Michael Ignatieff, M.P., Leader of the Official Opposition
The Honourable Gilles Duceppe, M.P., Leader
The Honourable Jack Layton, P.C., M.P., Leader

The Honourable Jim Prentice, P.C., M.P., Minister of the Environment
The Honourable John Baird, P.C., M.P., Minister of Transport, Infrastructure and Communities
The Honourable Lawrence Cannon, P.C., M.P., Minister of Foreign Affairs
The Honourable Tony Clement, P.C., M.P., Minister of Industry
The Honourable James Flaherty, P.C., M.P., Minister of Finance
The Honourable Christian Paradis, P.C., M.P., Minister of Natural Resources

The Honourable John McCallum, P.C., M.P.
The Honourable David McGuinty, M.P.
The Honourable Marc Garneau, M.P.
The Honourable Joe Volpe, P.C., M.P.
The Honourable Gerard Kennedy, M.P.

Senator The Honourable Marjory LeBreton, P.C.
The Honourable James Cowan, Senator of the Senate.
The Honourable Libby Davies, M.P.

The Honourable Gordon Campbell, Premier of British Columbia
The Honourable Ed Stelmach, Premier of Alberta
The Honourable Brad Wall, Premier of Saskatchewan
The Honourable Greg Selinger, Premier of Manitoba
The Honourable Dalton McGuinty, Premier of Ontario
The Honourable Jean Charest, Premier of Quebec
The Honourable Danny Williams, Premier of Newfoundland and Labrador
The Honourable Sean Graham, Premier of New Brunswick
The Honourable Darrell Dexter, Premier of Nova Scotia
The Honourable Robert Ghiz, Premier of Prince Edward Island
The Honourable Dennis Fentie, Premier of of the Yukon
The Honourable Floyd Roland, Premier of the Northwest Territories
The Honourable Eva Aariak, Premier of Nunavut

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This entry was posted on Tuesday, April 20th, 2010 at 7:47 pm and is filed under Bubble Trouble, Canada, Economy, Energy Efficiency, Environment and Sustainability, International Relations, Political Economy, environmental economics, peak oil, sustainability. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.


A Narrative - The Unfolding of the Global Financial Crisis. Part 1

EconoSpeak


In 1980 a series of large US-engineered [1] increases in the global price of oil [2] led to the destabilization of the global economy, particularly in debt-dependent third world nations. The resultant inflationary-deflationary spiral (stagflation) ultimately contributed to vulnerability in the US national banking system[3],[4] . Of other notable significance was the issuance of extraordinarily large loans issued by big US financial institutions to a very small number of individuals - the Hunt and Saudi royal family[5] - for speculation in commodities.[6] The US-dollar devalued quickly. This prompted the Fed to take drastic action. It implemented a general credit squeeze throughout the domestic economy, which (in turn and along with the then usurious level of interest rates[7]) led to a record quarterly economic decline. Transnational corporations evaded this squeeze, however, through their global back-channel loan operations.

Significantly - and against the contemporary monetarists dogma of Milton Friedman - the Fed’s credit squeeze and record-high interest rate regime (predictably) failed to control the US money supply.
This inability was due to the unreliable trajectory of the velocity of money[8] and the existence of the large, concentrated[9] and unregulated Eurocurrency markets[10]. The latter were fueled by the overseas expansion of US banks and the enormous supply of petrodollars[11] . The Euromarket had increased eightfold since 1970 and was already forcing US domestic banks to bear the burden of the Fed’s restrictive policies and “shifting the responsibility of combating inflation to non-international banks and their customers.”[12] These stateless currencies[13] were largely a product US hegemonic control of the global reserve currency[14] . Their oversupply was exacerbated by a number of new developments in the global economy, for example, a mania for the discriminative deregulation of large businesses disguised as ‘neoliberalism’, bigness in capitalism[15] and uncontrolled global currency speculation. The latter was significantly worsened when floating exchange rates were introduced in 1973[16] .

Large corporations continued to borrow on a huge scale. Speculation increased through the leveraged buyouts of weaker corporations.[17] TNCs moved to reduce their costs in response to high input and credit costs and the associated poor consumer demand. US manufacturing labour was discarded through the process of automation and operations were moved offshore where ever feasible to take advantage of low third world wages[18] . Within the US family farmers were pushed to the wall. Credit was drained from more productive uses of money within the US domestic economy. The process of globalisation as well as the forced deflation in farm, forestry and labour prices covered for excessive inflation caused by debt, speculation and artificial demand around the world.

Prices for consumer items were kept down because governments negotiated below-cost royalties for their nation’s resources directly with transnational corporations. These businesses were permitted to exhaust local supplies of timber, water, minerals and nutrients and then go elsewhere. Production was stepped up to a faster pace and profits became short-term in nature. Local businesses that had to wait for resources to regenerate found themselves disadvantaged. They were forced to compete with privileged corporations that were permiited to “discount waiting time through going elsewhere.” The latter thus quickly gained a stranglehold over regional resources.

[To be continued…]

REFERENCES:
The Fake Oil Crisis of 1973
James Akins (US Ambassador to Saudi Arabia) testimony to Congress
U.S. Ambassador to Saudi Arabia, James Akins, later testified in congress on the fact that when, in 1975, the Saudis went to Iran to try to get the Shah to roll back the price of oil, they were told that Kissinger told the Iranians that, “the United States understood Iran’s desire for higher oil prices.”[51] Akins was removed from Saudi Arabia in 1975, “following policy disputes with Secretary of State Henry Kissinger.”[52]
[52] Time, The Cast of Analysts. Time Magazine: March 12, 1979: http://www.time.com/time/magazine/article/0,9171,948424,00.html
+
In 1974, when a White House official suggested to the Treasury to force OPEC to lower the price of oil, his idea was swept under, and he later stated that, “It was the banking leaders who swept aside this advice and pressed for a ‘recycling’ program to accommodate to higher oil prices.” In 1975, a Wall Street investment banker was sent to Saudi Arabia to be the main investment adviser to the Saudi Arabian Monetary Agency (SAMA), and “he was to guide the Saudi petrodollar investments to the correct banks, naturally in London and New York.”[56]

[56] F. William Engdahl, A Century of War: Anglo-American Oil Politics and the New World Order. London: Pluto Press, 2004: page 137

As quoted in:
Controlling the Global Economy: Bilderberg, the Trilateral Commission and the Federal Reserve
Global Power and Global Government: Part 3 by Andrew Gavin Marshall
Global Research, August 3, 2009
http://www.globalresearch.ca/index.php?context=va&aid=14614
+
MA Adelman (MIT, 1990)
In 1990 MA Adelman from the Massachusetts Institute of Technology wrote:

“A journalist, who was on a first-name basis with Secretary Kissinger, writes: "Nixon gave the Shah carte blanche to purchase any amount of military equipment short of nuclear weapons. This...led him to instigate the steep rise in the price of oil in 1973 to make it possible for him to finance his purchases." [Brandon 1988, p.354].”

MA Adelman observes that it wasn't credible that the Shah of Iran would have no wish for extra revenues in the absence of the purchase of arms by his Government. This, however, does not contradict Brandon's statements. Another reference to Kissinger, Iran and arms sales relating to 1974 makes it clear that the claimed arrangement between Iran and US was for the purpose of bailing out US defence contractors rather than being a response to the Shah of Iran's desire for more and expensive US armaments.

THE FIRST OIL PRICE EXPLOSION 1971-1974
M. A. Adelman
MIT-CEPR 90-013WP
May 1990
M. A. Adelman
Department of Economics and
Energy Laboratory
Massachusetts Institute of Technology
Cambridge, Massachusetts 02139
http://dspace.mit.edu/bitstream/handle/1721.1/50146/28596081.pdf?sequence=1
..\..\..\EconomicHistory\Oil_History\FirstOilPriceExplosion1971-1974.PDF
+
The Fake Oil Crisis of 1973 (QuestionsQuestions.Net)
The Fake Oil Crisis of 1973
From QuestionsQuestions.Net
http://www.engdahl.oilgeopolitics.net/1973_Oil_Shock/1973_oil_shock.html

Some "peak oil" writers have opined that the crisis of 1972-73 was a kind of "rehearsal" for what is supposedly in our very near future. It is startling to consider, in light of this, the evidence that that crisis was likely a completely contrived affair.

In "A Century of War -- Anglo American Oil Politics and the New World Order" (1992), petroleum industry expert and economist F. William Engdahl presents evidence that the 1973 OPEC "oil shock" and the accompanying oil "shortage" were secretly planned by the highest levels of the US and British elites, with Henry Kissinger playing a key role: more
[http://how-the-world-really-works.prosperitydoctor.com/output.php?ChapterID=38&BookID=5]
THIS LINK DOES NOT WORK (JUNE 2009)

A concise summary of the entire book can be found here:
http://how-the-world-really-works.prosperitydoctor.com/output.php?ChapterID=38&BookID=5
THIS LINK DOES NOT WORK (JUNE 2009)

Corroboration of Engdahl's account was provided a few years ago by Sheikh Ahmed Zaki Yamani, who was Saudi Arabia's OPEC minister at the time:

“I am 100 per cent sure that the Americans were behind the increase in the price of oil. The oil companies were in in real trouble at that time, they had borrowed a lot of money and they needed a high oil price to save them.”

He says he was convinced of this by the attitude of the Shah of Iran, who in one crucial day in 1974 moved from the Saudi view, that a hike would be dangerous to Opec because it would alienate the US, to advocating higher prices.

“King Faisal sent me to the Shah of Iran, who said: ‘Why are you against the increase in the price of oil? That is what they want? Ask Henry Kissinger - he is the one who wants a higher price’.”

Yamani contends that proof of his long-held belief has recently emerged in the minutes of a secret meeting on a Swedish island, where UK and US officials determined to orchestrate a 400 per cent increase in the oil price.
+
Henry CK Liu in 2005:
OPEC had been permitted to assume an effective cartel role only at the pleasure of the United States. The existence of OPEC serves several convenient US geopolitical purposes. It deflects political opposition to the international oil regime from the US toward a mostly Arab/Islamic organization, yet the health of OPEC is inseparably tied to the health of the energy corporations of the West that control all the downstream operations. OPEC is an example of how economic nationalism can be co-opted into Western-dominated neo-imperialist globalization….. One of the chief weaknesses of non-US producers is their exclusion from downstream operations.
The real problems with $50 oil
By Henry C K Liu. May 26, 2005
http://www.atimes.com/atimes/Global_Economy/GE26Dj02.html
_____________________

[2] The oil price increases appeared to have been engineered to counter the huge US balance of payments deficit that resulted from the Vietnam War. Economist Michael Hudson claims that “the war was single-handedly responsible for pushing the [US] balance of payments into deficit.” [See: Super Imperialism - The Origin and Fundamentals of U.S. World Dominance. Second Edition
Michael Hudson. http://www.soilandhealth.org/03sov/0303critic/030317hudson/030317.imperialism.pdf ]
______________________

[3] 'Bigness' in capitalism provides the open invitation for economic corruption because the lines drawn between ‘private’ and ‘public’ became sufficiently blurred.
______________________
[4] The US Fed requested that banks not loan for speculation but compliance was voluntary with its President, Paul Volcker, claiming that the Fed lacked the regulatory power to force compliance of the banks.
______________________
[5] “In February and March of 1980 according to former Representative Henry Reuss, the Hunts consumed about 9 percent of all new bank credit in the United States. They consumed nearly 13 percent of new business loans.
‘The World’s Money – International Banking from Bretton Woods to the Brink of Insolvency’ by Michael Moffit. A touchstone book published by Simon and Schuster, New York. 1984. ISBN 0-671-50596-3 Pbk Page 186
______________________
[6] Hunt Silver-Related Borrowings
(August 1979 – March 1980)
($ Millions)

Principal Lenders Loan balance Loan balance Loan balance
8/1/1979 1/17/80 (3/27/80)
ACL International $29.8 $80.5 $134.2
Bache $38 $43.7 $235.5
Swiss Bank Corp $70 $150 $200
First Chicago $30 $10 $100*
EF Hutton $100.5 $100
Citibank $25 $90
First National
Bank of Dallas $79.2
Merrill Lynch $54 $169
Placid Oil $110

SOURCE: Securities and Exchange Commission, ‘The Silver Crisis of 1980, October 1982.
*This actually understates the extent of First Chicago’s involvement with the Hunts. The bank had a total of $223 million in loans to Hunt interests, plus another $75 million loan to Bache which lent the money to the Hunts.
‘The World’s Money – International Banking from Bretton Woods to the Brink of Insolvency’ by Michael Moffit. A touchstone book published by Simon and Schuster, New York. 1984. ISBN 0-671-50596-3 Pbk Page 186-187.
_____________________
[7] These record-high levels of interest rates were made possible by the Carter administrations deregulation of interest rates. They did this because a prolonged period of negative real interest rates arose as a result of the oil-price-driven inflation on the 1970s. The rhetoris in government was for defending the small saver – “the very people the Democratic Party had always spoken for. This was not quite the case, as Senator Robert Morgan of North Carolina and the handful of other dissenters pointed out. “The majority of consumers, with or without savings, particularly families of low income, including one-half of the elderly families, would probably suffer a net economic loss,” Morgan predicted [13]. The “small savers” whom Democrats wished to help were actually a limited group, mostly abvove the median income. First of all, 37 percent of American families had no savings account at all. Another 29 percent had savings balances below $2,000. If these families received another 1 to 3 percent interest on their accounts, that would return at most only $60 a year in additional income. Meanwhile, as borrowers, they would of course pay higher interest rates. As consumers, they would also pay higher prices since business was a major beneficiary of the hidden subsidy of interest-rate controls. When businesses had to pay more for credit, the costs would be passed on to their customers…”
‘Secrets of the Temple – How the Federal Reserve Runs the Country’ by William Greider. Simon and Schuster, 1987. ISBN 0-671-675556-7 pbk. Pages 165-166.
____________________
[8] “M-1 was a reliable measure…only if velocity [of money] followed its predicted trend line. If people abruptly changed their spending and money-handling habits, for whatever reasons, then velocity changed unexpectedly and M-1 became grossly misleading. The government, including the Federal Reserve, could do nothing to control this wild card in the economics of money. Perople were not, after all, compelled to circulate their money at a prescribed speed. Velocity was the Achilles’ heel in Friedman’s theory – the uncontrollable variable that could throw his confident prescriptions about money totally offtrack. Nor was this insight particularly new. For years, the critics of monetarism (including those at the Fed) had pointed out that Friedman was assigning a constancy to money relationships that did not, in fact, exist. The alluring simplicity of Friedman’s doctrine – control M-1 and forget about everything else – was also its central fallacy. Except now M-1’s reliability was more than a theory for debate amongst economists. The Federal Reserve was relying on the same fallacy to regulate the entire economy….”
‘Secrets of the Temple – How the Federal Reserve Runs the Country’ by William Greider. Simon and Schuster, 1987. ISBN 0-671-675556-7 pbk. Page 480.
________________________
[9] “…The highly concentrated nature of Eurolending magnifies the dangers of failure. Whereas the capital base of all U.S. banks may be sufficient to carry the liabilities involved in the process of recycling petrodollars-- one of the major forces behind the growth of the Euromarket--recycling is largely the province of a select group of international banks. Of the 14,000 banks chartered in the U.S., for instance, only 130 participate in Eurocurrency dealings. And the ten most active, such as Citibank, Chase Manhattan and the Bank of America, account for fully 70 percent of all foreign lending by U.S.' banks. With composite capital-to-asset ratios of only 3.6 percent, there is real question whether the capital bases of these ten giant international banks have been stretched too thin. Given the intertwined nature of Eurobanking, there is even greater question whether the few foreign institutions involved are not even more precariously balanced….”
The Multinational Monitor
APRIL 1980 - VOLUME 1 - NUMBER 3
V I E W P O I N T
Regulate the Euromarket
A U.S. Congressman calls on Western governments to cooperate in supervising the $1 trillion Eurocurrency market.
by Jim Leach
______________________
[10] In April 1980, Jim Leach, reported in the Multinational Monitor that “The Eurocurrency market has expanded so rapidly in the last 'two decades that in gross size it now dwarfs every other national banking system and is about the same size as our own. Its growth is largely a function of the overseas expansion of U.S. banks. In 1960, for example, only eight U.S. banks operated international branches, with overseas assets totalling $3.5 billion. By early 1979, over 130 U.S. banks had established operations outside the country, with foreign assets of $306 billion….”
The Multinational Monitor
APRIL 1980 - VOLUME 1 - NUMBER 3
V I E W P O I N T
Regulate the Euromarket
A U.S. Congressman calls on Western governments to cooperate in supervising the $1 trillion Eurocurrency market.
by Jim Leach
http://multinationalmonitor.org/hyper/issues/1980/04/leach.html
______________________
[11] “While oil importers accumulated huge bills they could not pay, oil exporters accumulated large amounts of U.S. dollars - more than they knew how to use. These dollars were known as "petrodollars."
Is there such a thing as TOO MUCH money?
Oil-exporting countries found themselves with so much money, they could not spend it fast enough. Some had small populations; many were still at early stages of industrialization. They could not import enough from the countries that bought their oil to keep from piling up enormous dollar surpluses.”
Reinventing the System (1972-1981)
Part 4 of 7
Recycling Petrodollars
https://www.imf.org/external/np/exr/center/mm/eng/rs_sub_3.htm
__________________________
[12] The Multinational Monitor
APRIL 1980 - VOLUME 1 - NUMBER 3
V I E W P O I N T
Regulate the Euromarket
A U.S. Congressman calls on Western governments to cooperate in supervising the $1 trillion Eurocurrency market.
by Jim Leach
http://multinationalmonitor.org/hyper/issues/1980/04/leach.html
_________________________
[13] “…What is now considered the Euromarket encompasses banking activities not only in Western Europe but also in other industrialized countries and offshore centers such as the Bahamas, the Cayman Islands, Hong Kong and Singapore. There, the world's leading private banks hold deposits in and lend the world's major currencies outside their countries of origin. It is largely a -Eurodollar market: about three-fourths of the market's stateless currencies are U.S. dollars, while half of the remainder are German marks….”
The Multinational Monitor
APRIL 1980 - VOLUME 1 - NUMBER 3
V I E W P O I N T
Regulate the Euromarket
A U.S. Congressman calls on Western governments to cooperate in supervising the $1 trillion Eurocurrency market.
by Jim Leach
http://multinationalmonitor.org/hyper/issues/1980/04/leach.html
______________________
[14] “As long as Saudi Arabia accepts payment for oil in dollars, other countries must first buy dollars before they buy oil.” Thus, oil price rises tended to strengthen the US dollar’s value in international currency markets.
‘The World’s Money – International Banking from Bretton Woods to the Brink of Insolvency’ by Michael Moffit. A touchstone book published by Simon and Schuster, New York. 1984. ISBN 0-671-50596-3 Pbk. Page 166.
_________________________
[15] “Between 1950 and 1971 the 200 leading U.S. corporations increased their control of all U.S. manufacturing assets from 46 to 87 percent.” Quoted from: American Global Enterprise and Asia
Journal article by Mark Selden; Bulletin of Concerned Asian Scholars, Vol. 7, 1975
________________________
[16] The neoclassical economists and free-traders Gottfried Haberler and Milton Friedman campaigned for a regime of national fiat currencies linked to another by flexible exchange rates. Haberler the resident scholar at the American Enterprise Institute for Public Policy Research [a Republican think-tank in Washington DC] “denounced labour unions as the primary cause of inflation and urged a flood of cheap imports to undercut wages as well as the repeal of minimum wage laws and other ‘privileges’, as he called them, that workers enjoyed.”

Richard Parker’s Bio of John Kenneth Galbraith. Hardcover. Page 483. In the Chapter entitled ‘Galbraith and Nixon: Two Keynesian Presidents.”
_______________________
[17] 1981 - a large share of the funds raised by US firms in the Euromarket in 1981 consisted of mammoth loan syndications by corporate giants like Mobil, US Steel and DuPont to finance mergers and acquisitions, such as the fabled Conoco and Marathon Oil takeovers. The surge of borrowing to support M&A as it is known on Wall Street, was particularly strong in the summer of 1981

In the three years since the adoption of the October 6 [1979] measures, that is exactly what has happened. The multinationals have had access to all the credit they need, whereas small businesses, home buyers and consumers have been clobbered. Despite the astronomical rise in interest rates, new corporate borrowing has continued at high levels. Moreover, a large share of the funds raised by US firms in the Euromarket in 1981 consisted of mammoth loan syndications by corporate giants like Mobil, US Steel and DuPont to finance mergers and acquisitions, such as the fabled Conoco and Marathon Oil takeovers. The surge of borrowing to support M&A as it is known on Wall Street, was particularly strong in the summer of 1981. though only half of the credit lines were actually drawn
[‘The World’s Money – International Banking from Bretton Woods to the Brink of Insolvency’ by Michael Moffit. A touchstone book published by Simon and Schuster, New York. 1984. ISBN 0-671-50596-3 Pbk. Page 210]
__________________________
[18] "The 1979 visit of Deng Xiaoping to the US was followed in June 1980 by the equally significant encounter in Wall Street of Rong Yiren, chairman of CITIC, and David Rockefeller. The meeting, held in the penthouse of the Chase Manhattan Bank complex, was attended by senior executives of close to 300 major US corporations. A major agreement was reached between Chase, CITIC, and the Bank of China, involving the exchange of specialists and technical personnel to "identify and define those areas of the Chinese economy most susceptible to American technology and capital infusion."
The people with the endless bios - An introduction to the world we live in. Project for the Exposure of Hidden Institutions website. http://www.pehi.eu/introduction.htm
________________________
[19] ‘Globalisation and its Terrors – Daily Life in the West’ by Teresa Brennan. Routledge, USA and Canada. ISBN 0-415-28522-4. 2003 Page 15


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Labels: 1980, banking crisis, deflation, Eurodollars, euromarket, global financial crisis, globalisation, inflation, oil crisis, petrodollar recycling, petrodollars, stagflation

Barclays and Bank of America see looming oil crunch - Telegraph By Ambrose Evans-Pritchard

Feb 18, 2010

For oil markets, it as if the Great Recession never happened. Surging demand in China, India and the Middle East is making up for decline in the debt-crippled West, ensuring another global crunch within three or four years.

"The groundwork for the next sustained step up in oil prices is now almost complete. Global spare capacity is likely to be reduced to low levels within a relatively short time. The global economic crisis has postponed, but not cancelled, a crunch which would otherwise be starting to bite now," said Barclays.

Francisco Blanch, from Bank of America Merrill Lynch, said crude may touch $105 next year, with $150 in sight by 2014. "Approximately 1.7bn consumers in emerging markets with a per capita income of $5,000 to $20,000 are eagerly waiting to buy cars, air-conditioning units, or white goods," he said.

China has overtaken the US as the world's top car market. Mr Blanch expects oil demand to rise by a further 2.8m barrels per day (bpd) in China and 2.5m bpd in India by 2015, when two giants will be absorbing the lion's share of Gulf output. Consumption in the West has already peaked and will fall each year as populations shrink and we waste less, but the West no longer sets the price. Global use will increase by 8.8m bpd to 95m bpd.

Supply is scarce. Sir Richard Branson warned this month that the world faces 'peak oil' within five years. "Don't let the oil crunch catch us out in the way that the credit crunch did," he said.

Mr Blanch said output from non-OPEC states is falling by 4.9pc each year, despite Russia's reserves. Saudi Arabia and the Emirates can plug a quarter of the gap, but global spare capacity must soon drop to wafer-thin levels – leaving us vulnerable to the sort of "super-spike" seen in 2008. The wildcard is whether Iraq can quadruple output to Saudi levels this decade, a target dismissed by most analysts as pie-in-the-sky.

Painfully high prices are needed to unlock fresh supplies as reserves are depleted in the North Sea and the Gulf of Mexico. Deep-water rigs off Brazil are costly and require drilling far below the seabed. Canadian oil sands and US biofuels have break-even costs near $70. While the US, UK, and the Far East are turning to nuclear power, it takes a decade to build reactors. "peak uranium" lurks in any case.

The oil spike brought the global economy to a shuddering halt in 2008. This time the crunch may hit before the West has fully recovered. Whatever happens, the US, Europe and Japan will soon transfer a chunk of their wealth to the petro-powers. It is a new world order.

[Apr 10, 2010] Do rising oil prices threaten the economic recovery?

Ten of the 11 recessions in the United States since World War II have been preceded by a sharp increase in the price of crude petroleum. Oil had been holding around $80/barrel over the last month, but traded as high as $87 last week, leading the Financial Times to ask whether oil could give the "kiss of death to recovery." Here is how I would answer that question.

Americans buy a little less than 12 billion gallons of gasoline in a typical month. With gas prices now about a dollar per gallon higher than they were a year ago, that leaves consumers with $12 billion less to spend each month on other things than they had in January of 2009. On the other hand, the U.S. average gas price is still more than a dollar below its peak in July of 2008. Changes of this size can certainly provide a measurable drag or boost to consumer spending, but are not enough by themselves to cause a recession.

My view is that it is not just the level of consumer spending but also a sudden change in its composition that sometimes contributes to an economic recession. When oil price increases are sufficiently sudden and dramatic, we see abrupt drops in consumer sentiment, postponement of purchases of consumer durables, and important changes in the kinds of vehicles consumers buy. Because labor and capital can not costlessly shift out of the affected industries, the result is unemployment in those sectors which is an important additional factor bringing the economy down. UCSD Professor Valerie Ramey and Federal Reserve Economist Dan Vine have a very interesting new paper demonstrating how shifts in the demand for light vehicles contributed to the U.S. recession of 2007-2009 in a similar way to what we observed in earlier downturns.

If these spending shifts are indeed an important part of the transmission mechanism, we would expect the economy to respond to changes in oil prices according to a nonlinear relation. A rise in oil prices may induce some consumers to postpone purchasing a car, but a fall in oil prices does not lead them to go out and buy two new ones. Moreover, an oil price decline can induce some other sectoral adjustments such as layoffs for those who work in the oil industry. I've recently completed a paper reviewing some of the academic literature in which I conclude that the empirical evidence for a nonlinear response is pretty compelling.

I've shared before with Econbrowser readers ([1], [2]) the results if you use a particular nonlinear model that I first published in 2003 to forecast what real GDP would have done after 2007:Q3 conditional on knowing the subsequent path of oil prices. Here's an update on how that forecast is doing when you match it up with the actual values for GDP that we saw in 2009:Q4. The downturn was more severe than could be attributed solely to the oil shock of 2007-2008, but that shock appears to have been an important contributing factor, and the overall path followed by GDP up to this point is very similar to the 2-year-ahead prediction. Note that according to this model, the economic growth now being observed is not due to the decline in oil prices after 2008:Q2, but is instead simply a result of a normal cyclical recovery as the economy eventually works through the adjustments to the initial shock.

According to the relation that generated the above forecast, we wouldn't have to worry about another oil shock until the oil price series in the top figure gets back above the values of 2008:M6 or until the 2008 highs recede farther into memory. I'm not comfortable taking that particular functional form too literally. As I noted in my original paper, lots of alternative nonlinear functional forms could also fit the historical data about as well. But I do have doubts that the mechanisms that were a factor in the first half of 2008 could operate with the same force in the current environment. I'm doubtful of a renewed plunge in light vehicle sales, in part because the levels are still so low and so many purchases are still being postponed.

And with retail gasoline prices still a dollar a gallon below what consumers have recently seen, I'm doubtful that gasoline prices have the ability to induce as much consumer anxiety as we observed two years ago. Although recent increases in prices have brought energy expenditures back up as a share of total consumer spending, they're still below the 6% level at which consumers historically have started to make dramatic adjustments.

So to return to the question posed at the beginning: $87 oil is certainly not helping the recovery. But I would be very surprised if it proves to be the kiss of death.

Posted by James Hamilton at April 10, 2010 12:27 PM

Posted by: Gus Satkowski at April 10, 2010 01:27 PM

So what price kicks us over that 6% level? $100 per barrrel, or a bit higher?

Posted by: Barkley Rosser at April 10, 2010 01:48 PM

Thank you for a superb post. I would add that there currently appears to be little hand-wringing and teeth-gnashing going on with respect to fuel prices. Compare the current situation with all the hysteria and finger-pointing of 4 to 5 years ago.

In the language of the street, the public appears to be 'capitulating' as if these higher fuel prices were fully expected.

Posted by: GNP at April 10, 2010 02:54 PM

I have been pondering this myself, I wonder if a tweak to your model is required to adjust for collapsing consumer credit (the ability to draw on other dollar resources other than income), taxes and health insurance. I believe the sensitivity to higher oil is going to evoke a political response at a far lower rate than in the past. This will affect economic growth as it will require the government to ratchet back ZIRP and QE to bring energy costs back into line.

Posted by: Bob K at April 10, 2010 03:39 PM

So what price kicks us over that 6% level? $100 per barrrel, or a bit higher?

Posted by: Barkley Rosser at April 10, 2010 01:48 PM

Good question. Has anybody by chance worked out a quick 'n dirty calculator that allows benchmark oil prices to translated into (a) the cost of regular gasoline at the pump (US$), and (b) GDP energy intensity? Care to share the toys?

Posted by: GNP at April 10, 2010 04:15 PM

Barkley and GNP: My rule of thumb is that $1/barrel for crude oil shows up as about 2.5 cents per gallon U.S. retail gasoline price. However, there's not such a simple rule for going from WTI to the energy share. For one thing, the energy expenditure numbers are adjusted for seasonal factors. For another, there's a trend in income. My guess, though, is that $100/barrel would be enough to push us back above 6%.

Posted by: JDH at April 10, 2010 05:22 PM

The public has bought into the ‘peak oil’ scenario and has incorporated a path of increasing oil/gasoline prices into their expectations. The recent oil price increase is not ‘sufficiently sudden and dramatic’ to significantly dampen the increasingly positive consumer sentiment.

Posted by: TexFinEcon at April 10, 2010 06:41 PM

Sorry, but you are missing one VERY important point here (as mowt economists did and still do):

the oil price rise in 2008 was fuel by debt and a consumer unwilling to retreat. Therefore the exponential spike in oil price and the following sudden implosion of it: credit made it feel comfortable until the WHOLE BUBBLE BURST! Then everyone panicked.

BUT NOW look at the oil price rise. It is not exponential, it is rather logarithmic. There is no credit buffer any more. DO *NOT* compare after the credit bubble burst with the time before it burst.

And it is not only the US consumer who is now out of credit. The whole world is suddenly facing a credit crisis where governments start to outcrowd the private sector. The hardly budging oil price contradicts the recovery slope. It is now pumped up by speculative dumb money following the last peak in 2008 (in contrast to 2008) while the front contracts are again depressed by 10% y/y and thereby indicate that spot pressure is pointing rigidly down while the speculators are hard to convince that oil prices are too high.

We'll see. Germany has done a huge migration towards renewable energies during the last years. And so did many other western countries. And many will follow. Oil is not as necessary as many now seem to think....

Additionally, a lot of oil consumption growth comes from Russia, Mexico and the OPEC. That setup looks a lot like a leveraged bet on high oil prices where increasing domestic demand gets more and more funded by a diminishing oil export profit. This could get pretty ugly when thinking about the political consequences in many of these countries.

Posted by: Mark at April 10, 2010 07:09 PM

Thanks, Jim. That looks about right.

Posted by: Barkley Rosser at April 10, 2010 08:16 PM

Seems to be some kind of disconnect here. In the recession of 2002, oil did get pretty low, under $20 a barrel and it did move up significantly into the $30's in 2003, but we're talking about over $80 a barrel now, and our economy is nowhere near the shape it was in 2003. We're pushing 10% unemployment and starting an economic recovery at $80+ a barrel? I'm sorry, it looks like we're stuffed.

Posted by: Duude at April 10, 2010 10:20 PM

Our whole economy is powered by the plutonomists so it really doesn't' matter what the effect on the peasants is. Can anyone remember 2005? The oil prices were really high and it had no effect on the economy. The top ten percent account for fifty three percent of the seventy percent consumer to GDP number and it takes a lot of fuel to move those goods. I refuse to be fooled anymore by retail numbers signaling a recovery for the "Second America".

Posted by: David at April 10, 2010 11:20 PM

Professor Hamilton, thank you very much for your response to my query! This is a treasure trove of information.

It may be useful to compere this blog post with an online document by Steven Kopits, which unfortunately has the following very long URL: http://docs.google.com/viewer?a=v&q=cache:7P9dmoYg7eIJ:www.dw-1.com/files/files/438-06-09_-_Research_Note_-_Oil_-_What_Price_can_America_Afford_-_DWL_website_version.pdf+oil+consumption+U.S.+4%25+of+gdp&hl=en&gl=us&pid=bl&srcid=ADGEESinkbD0JcM91QZMxRX8YUOxnJjQIIhlu1wgadtmJu2StOlKnI8sG1uzcPYiQlSCXF5Y-ZhB_yvD3nzZcvVcR2trMTOAjiw07yzXaxj64WuhHUfMLqE1i0H57ZWvqHEKuVds-9wu&sig=AHIEtbT1jouUEPqPLnmma1QlHE4JtP1B2g

Kopits says that we have entered recession whenever energy prices have been over 4% of GDP *or* have gone up 50% a year or more. Of course, in 2009 they went up over 100% and we went from recession to recovery.

A better correlation might be 4% of GDP *and* a price move of 50% or more. Put another way, a very gradual price move, such as we have had since last June, causes consumers to alter their behavior in a way that results in a slowdown, not a recession, but enough of a slowdown that Oil consumption declines and Oil prices follow, having never crossed the 4% mark.

Have there been earlier periods that fit such a pattern? Maybe 2005-2006 is a candidate?

Posted by: New Deal democrat at April 11, 2010 05:49 AM

Sustained $85 oil may not bring us down, but there is no discussion here of why the price broke through it's previous stable level and continues to rise.

Unfortunately, it is very hard to know precisely why this is happening, but cheap money spurring speculation, along with the OPEC cuts, appear to be the main factors. Most oil analysts, me included, have given up on the idea that fundamentals alone could explain the crazy price swings we've seen since 2005.

Since the price rise is divorced to some extent from fundamentals, there is no apparent brake on the price. We'll see $3/gallon gasoline in early May (or sooner) and oil appears to be headed for $90+. In a very weak economy which is in circumstances (e.g. underemployment) never seen before in the historical time series since World War II, it is somewhat risky to model what might happen now based on that past experience.

As I wrote yesterday, I think sustained oil in the low $90s or above could be a real drag on the "recovery" this year. And we may see that price in a few weeks.

Posted by: Dave Cohen at April 11, 2010 06:16 AM

Dave,

Um, surging growth in Cbina? Apparent end of global recession with employment finally beginning to rise in the US and the Dow hitting 11,000 along with Iraq still not quite being ready to bring all those new fields into production that will offset the squeeze on the northern part of al Ghawar?

Posted by: Barkley Rosser at April 11, 2010 07:16 AM

Well, either way the U.S. economy is doomed and the rest of the world will flourish. As long as other countries, especially OPEC and other oil-rich nations, trade their oil in U.S.-denominated dollars then they won't get anywhere.

Iran was correct is banning the Dollar and using the Euro, which I believe they'll dump too soon.

I read a comment on top stating that the DOW hitting 11,000 is a good thing. That's wrong. So what if the DOW hits 11,000? It can go to 15,000 for all I care. The dollar is worthless and will forever be!

One last note, I'm always amazed at the American and Canadian perception of oil. When it's in the news, people say its scarce but when it's not then they are quite apathetic. Which is it?

P.S. Good article.

Posted by: Andrew at April 11, 2010 08:14 AM

What am i missing I have this ratio already at 5.90% in February 2010

Posted by: bill at April 11, 2010 08:52 AM

Bill: I just had the January numbers. Where'd you get the February data?

Posted by: JDH at April 11, 2010 09:00 AM

>> Does a dollar devaluation threaten the economic recovery?

There. Fixed the title for ya.

To bad we're only around half way through this structural change, Prof. Remember our discussion
about parachute packing? The damage is done,
but most of the pain is packed into the event at
the end.

Posted by: KnotRP at April 11, 2010 10:19 AM

Ah, good ole Knot. What dollar devaluation? The one you think in your head?

The recovery looks about over. The next RE resets are set to ramp up and that is a bigger threat to any "recovery" than Commodities.

Posted by: The Rage at April 11, 2010 01:40 PM

Other comments have mentioned a puzzle. The consumer began delevering in 2005, that is when household formation began to slow and when housing starts began to drop.

Yet, from 2005 - 2008 oil imports, by volume held high. I would like to know who was using all that oil.
Maybe the military, though the largest user of oil, they still only account for less than 2%. I have transportation at 60% of total, so that is mostly non-military commercial and personal transportation.

Why didn't that demand fall as the user delevered from housing? Something deeper happened that made transportation more valuable relative to housing.

Posted by: Mattyoung at April 11, 2010 07:24 PM

I'd say that the better question is: Does the pace of the recovery threaten the price of oil?

I suspect that the answer to that question is yes, and that commodity prices in general and oil prices in particular are due for a modest correction.

Global oil demand is stagnant and supplies are in balance, so supply and demand fundamentals are not likely driving a portion of the price. I suspect that part of the price is being created by speculation, just as it was during the height of the 2006-8 bubble.

We aren't likely to return to back below the $30 level -- it's not as if the entire increase in oil prices is due to speculation. But oil in the $60-70 range would make more sense, given current conditions. A rapid recovery could sustain the current price, so a correction isn't a sure bet, but a series of mildly disappointing economic news could be enough to let the air hiss out.

Posted by: Angry MBA at April 11, 2010 11:45 PM

Next to gold oil is probably the most monetary commodity. That means that it is a leading indicator of monetary weakness. The professor's analysis is spot on but not for the reasons he assumes. You have to push back and ask why did the price of oil increase or decrease. Most make the mistake of only looking at supply and demand but once again you have to push back.

Higher demand for oil for example during the prosperous years of the 1980s and 1990s actually brought out sufficient supply to satisfy demand even though it was booming. We did not have any oil crisis or price boom.

The primary factor driving the price of oil is monetary weakness or strength. The monetary strength of the late 1990s drove the price of oil down to the point of production and suppliers were just able to keep up with demand. Then the boom of 2000 with the huge rise in real estate that funded a buying binge (homes were everybodies ATM) caused demand to significantly out-run supply. Yes, high prices do create conservation and that is reflected in the price of oil moderating after 2008, but also note that the price of oil followed the price of gold.

Right now the price of oil is on the high end of its normal range relative to gold. Monetary measures and FED announcements lead us to believe that there will not be another huge injection of cash any time soon. That would lead me to believe that the price of oil will begin to moderate as soon as the gasoline peak is satisfied. Based on the current price of gold, oil should trade in a band slightly above $80/BBL.

Current pricees would seem to indicate that the professor's factor to translate the price of a bbl of oil into the price of a gallon of gasoline is a little low. It appears that $0.03 is probably closer.

Posted by: RicardoZ at April 12, 2010 06:36 AM

"Based on the current price of gold, oil should trade in a band slightly above $80/BBL. "

Ricardo, what if the price of gold moves?

Posted by: KevinM at April 12, 2010 10:15 AM

Thanks JDH.

For fun I went to newjerseygasprices.com and plugged in American average gas prices, Canadian average gas prices, as well as the price of crude oil for the 3-year time frame.

Note: I reckon the average pump prices are not weighted. The CL price is probably NYMEX WTI and not producer price data.

Please observe the following. Spot oil prices are currently higher and gasoline prices are currently lower than they were in mid-2007. What explains that? Tight refining margins?

Please note that Canadian prices given in US dollars are always about US$0.25/US gallon more in Canada than the USA. Excise taxes explain most of the gap.

Posted by: GNP at April 12, 2010 11:23 AM

On the baffling oil price rise --

Oil's moves leave traders scratching their heads

And also see my post above

Posted by: Dave Cohen at April 12, 2010 11:51 AM

KevinM,

If the price of gold has a significant move then the price of oil would follow. That is why I mentioned the fact that it appears that the FED is slowing its monetary expansion. If the price of gold declines the price of oil would decline also, even if demand remains high. If the price of gold has another extreme runup then oil would also shoot up.

Because the price of oil is a leading indicator it actually functions more than a leading indicator. Because it reacts to monetary conditions it can race up ahead of other commodities and put downward pressure on production. In this sense I agree with the professor.

My forecast was based on the assumption that the money supply will remain relatively stable and the price of gold will not fluctuate significantly.

Posted by: RicardoZ at April 12, 2010 01:42 PM

Dave Cohen,

If you understand the relationship between oil, gold and the dollar you will understand better the price of oil. For oil to rise to $90/bbl the price of gold would have to run up higher than $1,260. It topped out just a little above $1,200 in December and has since moderated to trade around the 1,110-20 range so it is doubtful that oil will rise above $90 and stay.

Gold has broken above the January highs and so we could see another surge but I don't think the FED will repeat the past two years of expansion of the money supply.

Posted by: Ricard at April 12, 2010 01:56 PM

But doesn't the market and speculators predict the future, pricing the future into today's price of oil??

Don't investors use the market to predict the future demand and invest to deliver to meet demand or provide a substitute that will meet the demand?

I think a number of old large suppliers have either pursued production without looking to the future, say the US and Mexico, or are planning for the future like the Saudis and Chavez. Chavez has decided taking a bigger share and employing more citizens is worth more over the long term even if production is lower, especially when it pushes prices up. Saudi Arabia has cut back production to support price for over three decades (before that, the US did it at the Texas RR Commission).

I'd guess production will increase to keep the price in the $80-90 range. $3+ has become accepted and I'd be surprised if the Saudis let it go over $4 in the US. The price, the economy, and CAFE standards and green auto tax incentives are going to probably have the effect they had in the 80s, reduce gas demand. Lots of places are looking to replace oil heat with geothermal - green tax incentives help drive that. These are cumulative reductions in demand.

And we've had a decade of innovators looking for the next big thing now that "high tech" has shot its load in computers, cell phones, etc. Those who got their adrenalin shot in the 80s and 90s creating radical change are looking to do the same in green. The triple whammy of oil security, high oil prices, climate change have slowly built the foundations of a boom.

Auto replacement has been delayed. Factories closed and dismantled.

So, as the economy starts growing, lots of investment will be made in vehicles and capital equipment, with a lot going toward the green option. Higher oil prices would just ensure the demand shifts hard to green, out of fear if nothing else.

And that would create winners in the green sector.

And the non-green sector, the big houses, the gas guzzlers, aren't going to drive the recovery as they have so many previous recoveries.

I think higher oil prices will produce more winners than losers, though the losers have been losing for two years and the recovery is only going to prolong the losing.

But higher energy costs have been making losers out of the rust belt for decades. After all, cleaning up the iron making was an energy issue. Detroit's old car design was an energy issue.

Posted by: mulp at April 13, 2010 12:07 AM

mulp, CAFE isn't likely to work too well since we've already picked the low fruit. About all we can do is reduce vehicle weights. And it also only works if people actually buy cars.

Those "green" taxes are anything but. Since started shooting up in 2004, fuel economy declined until well into the recession in 2008. We're looking at the wrong end. The car isn't what's inefficient, it's the transit system and the driver.

One of the EPAs most prominent pieces of advice for improving fuel economy is to avoid "aggressive driving"( http://www.fueleconomy.gov/Feg/driveHabits.shtml ). While it is technically true that aggressive driving wastes fuel, it is important to distinguish aggressive braking and acceleration from brisk acceleration. The reality is that brisk acceleration is more fuel efficient than slow acceleration ( http://autospeed.com/cms/title_Brake-Specific-Fuel-Consumption/A_110216/article.html )( http://www.nytimes.com/2001/06/07/technology/what-s-next-dashboard-miser-teaches-drivers-how-to-save-fuel.html?sec=&spon=&pagewanted=all ). What causes aggressive driving to be inefficient is the tendency to accelerate too much and then need to slow down and accelerate again to get back up to speed. It's not the acceleration; it's the braking that wastes energy. In addition, slow acceleration decreases throughput at bottlenecks like intersections, greatly reducing fuel economy by increase stop-and-go traffic, the biggest detriment to good fuel economy. According to the Pakistan Energy and Environment Management Center, a full stop consumes up to 6 times as much fuel as moving stop ( http://www.peemac.com/resource/fert/deet3.html )

During the past ten years, the fuel economy rating of our new vehicles has held steady and improved some ( http://www.fueleconomy.gov/feg/feg2000.htm ). Despite this and the fact that less efficient vehicles have largely sat in inventory since the precipitous rise in fuel prices beginning in 2005, the nation’s fuel economy has been declining (monthly data on vehicle miles traveled from the Federal Highway Authority http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm
, monthly data on gasoline consumption from the Department of Energy http://tonto.eia.doe.gov/dnav/pet/xls/pet_cons_psup_dc_nus_mbbl_m.xls ).

While focusing on improving the fuel economy of individual cars, we have neglected the deterioration of efficiency of our overall transit system. It was not until the summer of 2008, after the start of the recession in 2007, that enough drivers left the road to recover some of the efficiency lost since 2005.

Posted by: aaron at April 13, 2010 06:09 AM

For those who question the relationship between gold and oil I suggest you look at a graph of the oil price and not its volitality before and after Richard Nixon took us off of the Bretton Woods standard.

Posted by: RicardoZ at April 13, 2010 07:05 AM

Normally, as an oil and gas consultant, I would bite on a post like this, but I think it's a measure of oil prices that I don't even have time to comment. Based on the deal flow we're seeing, I'd describe the market as frothy.

Posted by: Anonymous at April 13, 2010 08:56 AM

How are we to get economic growth as net energy gain on oil keep falling with these rising prices? Is focusing on consumer attitudes toward prices really what should be done? At some point, the hard reality of less excess energy to fund the products of the modern way of life must come into view. It seems to me the stagnation in real wages over the last few decades and the huge increases in debt are actually epiphenomena in response to the lack of infinite hard resources to keep feeding the system.

I think we need to focus on the bedrock of what economies actually run on, we need large scale investment in new ways of acquiring the energy a complex society runs on, or else its just a waiting game of bailing the boat as long as you can.

Posted by: Brian Holder at April 13, 2010 12:27 PM

Interview with Bob Hirsch - The Stonewalling of Peak Oil ASPO-USA Association for the Study of Peak Oil and Gas by Dr Robert Hirsch

By • on September 7, 2009

Robert L. Hirsch is the lead author of a seminal report–Peaking of World Oil Production: Impacts, Mitigation & Risk Management—written for the US Dept. of Energy’s National Energy Technology Laboratory (DOE, NETL) and released in early 2005. He has remained very active with respect to his concerns about peak oil. ASPO-USA’s Steve Andrews tracked him down last week and posed some questions about the report, then and now. Bob will be a presenter at the ASPO-USA conference in Denver next month (October 11-13).

Question: What have been your primary areas of focus during your energy career?

Hirsch: I started out in nuclear power. Then I did fusion research and later managed the government fusion program. I spent a lot of time with renewables over the years, including managing the federal renewables program. From there I went to the oil industry where I managed long range refining research and then synthetic fuels. Later I managed upstream research and development—exploration and production of oil and gas. Still later, I spent time in the electric power industry—all aspects of electric power. And then I got into energy studies and have been doing them for a number of years with Rand, SAIC, and now MISI. That’s it from the work standpoint; from another standpoint I’ve been involved with the National Academies [of Science] in energy studies since 1979 and have been involved in almost every aspect of energy through the Academies, either as a committee participant or as Chairman of their Board on Energy and Environmental Systems.

Question: When did you first learn about the peak oil issue?

Hirsch: I learned about peak oil after I got out of the oil industry, because there was essentially no talk about it when I was involved. In the early 2000s I did a study for the DOE dealing with long range energy R&D planning. One of the six drivers that I came up with was peak oil; I had never really thought about it prior to that. It’s kind of a “tar baby”; once you get your hands into it, you can’t get your hands off of it. When oil production goes into decline, it’s going to be a defining issue for humanity. So I’ve been involved for six or seven years in analyzing oil peaking and its mitigation.

Question: How did the 2005 peak oil study for DOE’s NETL come about?

Hirsch: It was basically my creation. I was working with DOE NETL at the time, and they gave me a great deal of leeway to look into important subjects. I felt that peak oil was extremely important, so I did some study on my own and then proposed to NETL that I do a much larger study, with Roger Bezdek and Bob Wendling, who are extremely capable guys, who I had worked with along the way, and who were very pragmatic about energy and the real world. NETL accepted. I already was under contract, and they added Roger and Bob.
We coordinated closely with NETL as we did the study, so they had input and knew what was coming. But when they saw the final report, it shocked them, even though they could see what was coming. This is nothing negative about people at NETL, but when you’re thinking about other things most of the time, bad news creeping up on you doesn’t necessarily capture your attention immediately.

When the report was done, management at NETL really didn’t know what to do with it because it was so shocking and the implications were so significant. Finally, the director decided that she would sign off on it because she was retiring and couldn’t be hurt, or so I was told. The report didn’t get widely publicized. It somehow was picked up by a high school someplace in California; eventually NETL put it on their website. The problem for people at NETL—and these are really good people—was that they were under a good deal of pressure to not be the bearers of bad news.

Question: Under pressure from whom?

Hirsch: From people in the hierarchy of the DOE. This was true in both Republican and Democrat administrations. There is, I think, ample evidence, and some people in DOE have gone so far as to say it specifically, that people in the hierarchy of DOE, under both administrations, understood that there was a problem and suppressed work in the area. Under President Bush, we were not only able to do the first study but also a follow-on study that looked at mitigation economics. After that, visibility apparently got so high that NETL was told to stop any further work on peak oil.

Yes, that was terrible. And it was strictly politics and political appointees—I have no idea how far up in either administration (the current one and previous one) these issues went or now go. People in the Clinton administration had talked about peak oil, including President Clinton and Vice President Gore, and the same thing is true in the Bush administration, and the same is true, to the best of my knowledge, in the Obama administration.

The peak oil story is definitely a bad news story. There’s just no way to sugar-coat it, other than maybe to do what I’ve done on occasion and that is to say that by 2050 we’ll have it right and we will have come through the peak oil recession—quite probably a very deep recession. At some point we’ll come out of this because we’re human beings, and we just don’t give up. And I have faith in people ultimately. But it’s a bad news story and anybody’s who’s going to stand up and talk about the bad news story and is in a position of responsibility in the government needs to then follow immediately and say “here’s what we’re going to do about it,” and no one seems prepared to do that.

Peak oil is a bigger issue than health care, than federal budget deficits, and so forth. We’re talking about something that, to take a middle of the road position—not the Armageddon extreme and not the la-la optimism of some people—is going to be extremely damaging to the U.S. and world economies for a very long period of time. There are no quick fixes.

Question: How do you describe your key take-away from your 2005 study?

Hirsch: What we did was to look at a world-wide crash program of mitigation. We were interested in the very best that was humanly possible. That was the limiting case. There are lots of reasons why, under the best of conditions, things can’t and won’t go as fast as we assumed. We knew at the outset that the energy system was enormous and that the amount of oil-product-consuming end-use equipment was enormous. We knew it could not be changed quickly, and that in a number of cases, there was nothing to change it to – no alternative to liquid fuels. We also knew that energy efficiency could make a big difference, but we were surprised to learn that improving vehicle fuel economy would take much longer than we had imagined prior to doing our analysis. We found that because the decline rate in world oil production was going to be in multiple percents per year, it was going to take a very long time for mitigation to catch up to the decline in world oil production. Basically, the best we found was that starting a worldwide crash program 20 years before the problem hits avoid serious problems. If you started 10 years before-hand, you are in a lot of trouble; and if you wait to the last minute until the problem is obvious, then you’re in deep trouble for much longer than a decade. As it turns out, we no longer have the 10 or 20 years that were two of our scenarios.

Question: What was the immediate feedback from people outside of the government?

Hirsch: We briefed it to all kinds of audiences, including people in the hierarchy and at the committee level at the National Academies. We gave talks to technical and lay audiences, and have been doing so for years now. We’ve also published shorter versions in various media. Probably the biggest response we’ve received was disbelief—“this can’t happen.” And then there are number of people who agree, either quickly or after some reflection, that the reasoning is sound, both in terms of world oil production as well as mitigation. There are always some people who reject peak oil out of hand and, in fact, go on the counterattack and argue against it. I suspect that the kinds of reactions that I just described are what many people in the peak oil community have run up against.

Question: What was your impression of the National Academy of Sciences’ October 2005 workshop on peak oil? What do you think that accomplished?

Hirsch: It was useful because we attracted a cross-section of thinking, and there was some open discussion. But the discussions were nowhere near satisfying. People basically stated their positions, and there was no debate as to what was real and not real and what the evidence was and how solid it was. But that’s the character of an Academy’s workshop; they are set up, and for good reason, for people to present positions with the idea of educating and, possibly beyond that, lead to a more detailed Academy study. The Academies don’t take positions without doing detailed analysis and putting the subsequent study through a very careful review process. I think that approach has served the Academies well. But in this particular case, with governments wanting to shush up any open discussion of peak oil, there was no follow-on.

Question: At the time you published your paper, I would characterize you as being intentionally neutral about the timing of peak oil so that readers wouldn’t get stuck on that issue. Since the study was published, how has your view of the timing of peak oil evolved?

Hirsch: To begin with, I knew enough about oil production and the uncertainties and unknowns to feel, when I got into the subject, that I could not make a reasoned judgment early on. So I spent a number of years listening to what other people had to say, studying their analyses, and looking at what was happening in the real world before I came to a conclusion for myself. It wasn’t a matter of politics. It was the fact that this problem is enormously complicated, and there are lots of unknowns. For me, at least, I wasn’t about to take a position on timing without having a lot of evidence that would support my position. And so it wasn’t until about a year-and-a-half or two years ago that I began to home in on the likely timing of the decline of world oil production being sometime within the next five years.
Question: Given where we are today, if you were made energy czar, what policy initiatives would you pursue?

Hirsch: If I was involved in the government at a high level, I would argue very strongly to the president that he needs to take national and international leadership on the problem. He should do some homework to be sure that he hears what the issues are — do it quietly — and then stand up and say, “world and country, we’ve got a very serious problem and here is what my administration is going to do about it.” That’s what I would argue for because somebody has to stand up and say the emperor has no clothes. That’s going to be very difficult because people don’t like to hear bad news, and this is terrible news, and as it sinks in, markets will drop and there will be an immediate recessionary reaction, because people will realize that this is such a horrendous problem that having a positive outlook on employment and the economy is just simply unrealistic.

Question: Given where our leadership at the top is today, what should “peak oil concernists”—a phrase I think you coined back at the 2005 NAS workshop—do that they aren’t doing today?

Hirsch: I wish I knew. This is a bad news subject under any circumstances but its “badder news” in the midst of a recession. My approach is to present and argue facts and realities and try to clarify confusion. I don’t think it does any good, and it’s not my style, to argue that the world is coming to an end, to argue Armageddon. But that’s my position. Other people feel that Armageddon is indeed likely. That’s their right. I’m afraid that, no matter what any of us do, we’re not going to get the public’s attention until oil prices jump way back up again and people feel pain. That happened last year; the issue was getting more and more attention as oil prices went up because 1) people were hurting, and 2) people knew something was wrong. People’s focus and attention these days is on recessionary issues, and they don’t want new bad news added to the bad news they’re already dealing with. I wish I could be optimistic and say that there is a magic wand of some sort, but if there is I don’t know what it is.

Question: Any final thought?

Hirsch: I’ve tried to think outside the box in terms of how we get the message out and get people’s attention. I found nothing that I could do that I’m not already doing, except write a book, which we’ve just started. But other people have other thoughts, opportunities, and connections, so I would urge them to conceive of ways to rationally and reasonably get more decision-makers involved in 1) recognizing the problem and 2) helping to elevate it to the highest levels of government, so serious action can begin.

Is diesel dead - Telegraph

In recent months, though, Britain's love affair with diesel has lost its ardour. The latest registration figures show that January-October sales last year dropped by almost 16 per cent compared with 2008, down from 832,200 to 700,131. As a proportion of the total market, diesel has fallen from 43.3 per cent in 2008 to 41.5 per cent last year.

Small percentages, yes, but big numbers. It's a trend that is also replicated in Europe, where during the past 12 months diesel's overall market share has fallen from about 52 per cent to less than 46 per cent. Even in Belgium, which has Europe's largest diesel penetration, market share has dropped by almost four per cent.

So what has happened? Does this change mark the end of diesel's European conquest? There are several contributing factors to what initially appears to be the demise of diesel.

Small petrol engines

According to the official explanation, Britain's scrappage scheme has favoured petrol sales and there is a fair amount of evidence to support this.

The latest figures for UK new-car registrations reveal a rise of 31.6 per cent, the fourth consecutive month of growth, but almost all of this was down to the general public (rather than fleet managers).

To date, most of the 330,000-plus scrappage opportunists have bought small cars – and these tend to have petrol engines because diesels are more expensive and elevate prices to uncompetitive levels.

Diesel also yields smaller economy and durability benefits in a small, lightweight car that tends to do fewer miles than the national average. Simply put, scrappage favours small cars and small cars favour petrol engines.

Environment

In other words, because getting that extra diesel is more expensive and energy intensive, your diesel car might not be doing the environment any benefit at all.

One solution might be further investment in hydrogen cracking facilities to get more diesel, jet fuel and gas oil out of a barrel of crude, but that costs about £800 million per refinery.

The balance has just about worked up to now, but there is something of a crisis headed our way in the next 12 months, which is the result of the US's success in switching domestic consumers to corn-based bioethanol.

"Now with the US nearing a refining balance with their ethanol, there's going to be a whole load of surplus petrol sitting in the mid-Atlantic and there will be casualties," Hunt says.

Casualties are likely to include small "mom-and-pop" refineries on the Gulf of Mexico and those unwilling to make the required investments in diesel production in Europe.

It would be premature to be calling it the death of diesel, but one thing the scrappage scheme has done is highlight the limits of diesel's growth.

In supply and regulatory terms it would be hard for diesel to take much more of the market than it does today without getting a whole lot more expensive and presumably unattractive.

Diesel isn't dead, but it isn't likely to grow much, either.

 

Oil shortages by 2020 due to Western 'profligacy', says energy boss - TelegraphBy Rowena Mason, Energy Reporter
Published: 9:26PM GMT 10 Feb 2010

Drivers need to start treating oil as a scarce commodity and switch to green transport to avoid shortages by 2020, according to the chief executive of Scottish & Southern.

 

By Rowena Mason, Energy Reporter
Published: 9:26PM GMT 10 Feb 2010

Comments 16 | Comment on this article

 

Ian Marchant, who heads the £10bn FTSE-100 company, is among a group of corporate leaders warning that the world's demand for oil is on the brink of outstripping industry's ability to produce.

"The West has been far too profligate in its use of oil and the price is going to say: stop it now and start using your oil as a scarce commodity," Mr Marchant said.

Related Articles

The energy boss is a member of the Industry Taskforce on Peak Oil and Energy Security, along with Sir Richard Branson, the aviation and media billionaire, Brian Souter, the chief executive of Stagecoach, and Philip Dilley, chairman of engineering group Arup.

They believe that it will be very difficult for the world to produce more than 100m barrels per day of oil.

Current output is around 87m barrels per day, but demand for petrol products is likely to surge as the standard of living increases in China and India.

"It's GCSE economics that if production is constrained and demand increases from emerging countries, the price will go up and up and up," Mr Marchant said.

He urged the Government to start dealing with the problem of limited oil supply by encouraging consumers to limit their energy usage.

"We can have a debate about which year this problem will hit us, but I would rather have a debate about how we avoid it becoming a problem," he added.

The electrification of the UK's transport system is likely to prove both a huge challenge and expansion opportunity for electricity companies and network operators in the UK.

Mr Marchant believes that most consumers will probably be driving hybrid or electric cars by the middle of the next decade.

"Driving two miles is a pretty low value use of oil," he said. "One car in China adds far more value than a second car sitting in the driveway of some house in the UK."

The industry group wants the government to explore electrification of the railways and overhaul the transmission and distribution network.

Chris Barton, a member of the Department for Energy and Climate Change's energy security team, insisted that the Government is already doing enough to encourage efficiency and green transportation under plans published last year.

However, Mr Souter, the transport boss, has proposed more radical solutions than incentives to buy green vehicles. He called for the abolition of the lowest bands of tax that hit those with problems paying their energy bills and the establishment of a tax on carbon emissions.

"This would help redistribute wealth and the people using carbon would be paying for it," he added.

Last week, Ofgem, the energy watchdog, warned that lack of power plants, insecure supplies of gas and underinvestment in the grid would all contribute to "unaffordable" energy bills without more government intervention.

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Comments: 16

[Mar 14, 2010] Econbrowser The challenges ahead for world oil

EconbrowserThe challenges ahead for world oil

University of Leeds Professor Joyce Dargay and New York University Professor Dermot Gately have a new research paper suggesting that projections from the DOE, IEA, and OPEC are underestimating the challenges ahead for meeting world oil demand.

Research by Baumeister and Peersman and Hughes, Knittel, and Sperling, among others, has documented that oil demand appears to have been much less responsive to price over the last decade than it had been in the 1970s. My recent study in the Brookings Papers on Economic Activity (published version here, working paper version here) concluded that this decrease in the elasticity is one of the key factors behind the oil-price run-up of 2007-2008. The surprise to markets in 2008 was that even $100 oil wouldn't be enough to prevent world demand from growing above 85 million barrels a day, and much more than 85 million barrels a day simply wasn't going to be produced at that time.

Dargay and Gately's new paper notes how different the recent experience was from the past:

compare two decades in which the price of crude oil has quintupled: 1973-84 and 1998-2008. After the price increases of the 1970's, per-capita demand fell by 19% for the OECD and by 13% for the world as a whole. In the past decade, with oil price increases similar to those of the 1970's, per-capita demand fell only 3% in the OECD; worldwide it actually increased, by 4%.

The authors note that the overall responsiveness of oil demand to the price increases of the 1970s masks some very different developments. While there were substantial reductions in OECD use of oil for non-transportation purposes, changes in transportation demand and demand outside the OECD were much more modest.

Source: Dargay and Gately (2010)
gately1.gif

 

Those trends are even more dramatic when you look at the numbers in per capita terms.


 
Source: Dargay and Gately (2010)
gately2.gif

 

Dargay and Gately conclude:

The factors most responsible for reducing demand since 1971 cannot be repeated. Almost all the low-hanging fruit has now been picked; it cannot be picked again. The OECD has already done the easy fuel-switching, away from oil used in electricity generation and space heating.

The authors' inference is not an optimistic one:

If annual per-capita oil demand growth rates to 2030 were assumed to be held zero in the OECD, 1% in the [former Soviet Union], and at its 1971-2008 historical rate (2.54% annually) in the rest of the world, total oil demand will be 138 mbd in 2030-- about 30 mbd greater than what is projected by DOE, IEA, and OPEC.

If you have a plan for how the world might produce 138 mbd, I'd like to hear it. If not, the challenges of 2007-2008 will return with a vengeance.

Transportation adjustments will be the key. Trying to make more use of natural gas as a transportation fuel should be a high priority for the United States.

Posted by James Hamilton at March 14, 2010 06:35 AM

Comments

Coal-To-Liquids is waiting in the wings. We'll simply have to make a choice between supplying world demand for motor fuels at affordable prices, but tolerating increased CO2 emissions, or living with crushing oil prices, with the resulting cash flows to unfriendly OPEC countries. There's also the "plug-in-hybrids" solution, but affordability there will likewise depend on increasing the supply of coal-burning electric power plants.

Question: When the option for affordable, plentiful, and domestically-produced (and domestically job-expanding) coal-to-liquids technology is presented in an political context where gas is +$4 a gallon for an extended duration, how long would any commitment to CO2 emissions control in the US survive? And in other coal-reserve nations? China? Canada? India? Russia? South Africa?

For a long-term bet, in a petroleum-constrained world, I'd have to go with higher coal utilization and higher CO2 levels.

Posted by: Indy at March 14, 2010 07:20 AM

Here's the Honda Civic GX.
http://automobiles.honda.com/civic-gx/

Posted by: Cedric Regula at March 14, 2010 07:26 AM

There are plenty of unconventional sources left (see e.g. Rogner, 1997). Coal-to-liquids are profitable when oil price is above 30-35 USD/barrel. We'll run out of nature much before running out of oil.

Posted by: A.V. Suni at March 14, 2010 08:29 AM

This is not news to those who have followed the oil industry for years but maybe this series of papers will help educate those who believe that our energy intensive lifestyle can continue on the cheap.

Posted by: ronald at March 14, 2010 08:39 AM

Two new congestion pricing trials have reported, and transportation oil use seems to drop 10-15%.

I have a post linking to the trials in Stockholm and the Netherlands (above). London reports similar results.
 

Posted by: Mattyoung at March 14, 2010 08:46 AM

Correction, Mr. Hamilton, switching to natural gas should have been a priority for the US 10 years ago, at least--and at best, natural gas would have only served as a transition fuel while other infrastructure energy sources were implemented and developed. The time for that is long gone, and now we have a very rough and possibly catastrophic transition coming. It's not just oil for gas, but we use it for everything, everything.

However, to compound problems, the US would find a shortage in other resources needed (such as silver) for let's say a power grid derived from solar power (assuming the engineering becomes feasible in time)

Anyway, still happy to see more economists getting on board the coming oil crisis, even if it is a couple of decades late.

Next perhaps can be addressed the infinite growth paradigm that your profession of economics seems enraptured by.

Posted by: Brian at March 14, 2010 08:48 AM

Here's another analysis of the world oil production
Reference Scenario in World Energy Outlook 2008:

http://www.tsl.uu.se/uhdsg/Publications/PeakOilAge.pdf

Abstract
The assessment of future global oil production presented in the IEA‟s World Energy Outlook 2008 (WEO 2008) is divided into 6 fractions; four relate to crude oil, one to non-conventional oil and the final fraction is natural-gas-liquids (NGL). Using the production parameter, depletion- rate-of-recoverable-resources, we have analyzed the four crude oil fractions and found that the 75 Mb/d of crude oil production forecast for the year 2030 appears significantly overstated, and is more likely to be in the region of 55 Mb/d. Moreover, analysis of the other fractions strongly suggests lower than expected production levels. In total, our analysis points to a world oil supply in 2030 of 75 Mb/d, some 26 Mb/d lower than the IEA predicts.
The connection between economic growth and energy use is fundamental in the IEA‟s present modelling approach. Since our forecast sees little chance of a significant increase in global oil production, our findings suggest that the "policy makers, investors and end users" to whom WEO 2008 is addressed should rethink their future plans for economic growth. The fact that global oil production has very probably passed its maximum implies that we have reached the Peak of the Oil Age.

Posted by: Peter at March 14, 2010 09:26 AM

"Transportation adjustments will be the key. Trying to make more use of natural gas as a transportation fuel should be a high priority for the United States."

I think this is the key. Right now, gas is at a 30+% discount to oil per BTU, and a gas price increase of just half that amount would bring all sorts of supply back online. A lot of wells were capped in 2009.

Posted by: Bob_in_MA at March 14, 2010 09:37 AM

Coal-to-liquids (CTL, Fischer-Tropsch) is probably dead due to high CO2 output of the production facility. Sasol has the largest operating facility in the world right now (in S.Africa) and it is the largest point source of CO2 in the entire world.

Some cost studies and projects started in the US. They were competitive with $60 oil, but when carbon capture and conversion cost was included, the price went to $100/barrel. And this technology is in its infant stages and may never prove out cost effective. Underground storage is another possibility, but no one has started anything there yet. (other than using CO2 to recover oil)

It will take CNG, hybrids, the more efficient clean diesel and electric cars to provide alternatives, and a steadily increasing CAFE mileage standard to force the gas guzzlers out of the showroom.

NG is great for power plants too, and we need 3rd generation nuclear plants as fast as we can build them.

Posted by: Cedric Regula at March 14, 2010 11:26 AM

This bodes ill for any attempt at mitigating the impending climate change problems with carbon taxes. Just as conservatives have been using the recession as an excuse that we can't afford health care reform, regardless of whether that argument makes any sense, conservatives will likewise use rapidly rising oil prices as an excuse for not doing anything about CO2 emissions, regardless of whether that argument makes any sense. The country has enormous problems facing it that can only be fixed by government intervention. Conservatives are preventing us from addressing those important problems.

Posted by: Joseph at March 14, 2010 12:16 PM

Oil and gas production offsets 270 billion man days of labor every day. We need to start thinking about this issue.

Posted by: Paul Cox at March 14, 2010 12:28 PM

Dr., do you have any insights on natural gas? it looks like the supply-demand equation is foundamentally changed against to crude oil.

Posted by: Anonymous at March 14, 2010 01:49 PM

Cedric,

The problem with hybirds is that although they intuitively sound like a good alternative, in practice they'll actually make little difference--as we can see that even over the decades as vehicles became more fuel efficient oil consumption still rose exponentially.

The other issue with hybirds is that is takes oil to extract the resources to makes vehicles, and then it takes oil to conform the resources, and then ship those resources. Then of course the entire production process for modern vehicles is oil dependent (it takes roughly 7 gallons of oil just to make a tire). Further, if we were to transition to electric vehicles, the problem still is not diminished by a significant amount in oil dependency terms. Electricity, which is vital of course to industrial society, is itself not an energy source, but a by product of an energy source--for the US much of this already is hydro and LNG dependent.

And what about nuclear power? Of course we'll have to move in that direction, but the problem here is that we're too late to make this process painless; and that's because the incubation time of creating a nuclear plant is about ten years (from permits to environmental studies to coming online0. To compound the problem here, creating a nuclear reactor is extremely energy intensive and thus requires a mass amount of energy (in the form of oil).

The oil dependence on the world, especially of course the US is quite extraordinary--the majority of our agriculture is oil dependent (from fertilizers to shipment) to where it takes anywhere from 7-9 calories of oil deliver 1 calories of food. It's estimated that if oil becomes infeasible it would collapse the agriculture in the US to the point that the US would be capable of feeding only two-thirds of its population.

Before the oil boom about a hundred years ago, the world population was about 2 billion, and now we're approaching 7 billion in about a century, and this population boom is mostly due to cheap energy in the form of oil--and so it's axiomatic that much of this population must go away when the oil does. The issue with peak oil isn't about running out of oil, but the net return on extracting that oil.

This problem was been well understood for awhile now, but as usual the can was kicked further down the road--and the only energy policy we have in place was when the Bush Administration militarized energy policy upon entering the White House (after then Vice President Cheney's NEPDG finished its assessment of the energy situation, where peak oil is true or not, US policy certainly was conducted as if it were true).

Posted by: Brian at March 14, 2010 05:10 PM

The problem is still on the supply side. Unconventional supply is incapable of offsetting the natural depletion being observed in conventional fields and does not scale up very well. Coal to liquid plants will not be cheap and will take a long time to build. Tar sands production is notoriously difficult and too capital intensive to make sense at real prices that are less than 200% higher than the current market price. Ultra deep water fields are far too expensive and too difficult to develop. Shale oil is fine at the margin but production levels are insubstantial compared to what will be required. And while methane hydrates show promise we are a long way from being in a position to count on a solution coming from that front.

What the energy optimists have missed in this story is the picture that is painted by the data. The IEA has finally figured out a more accurate depletion rate than the optimistic guess that it had been using and we are now looking at close to 7% depletion per year. Just to keep production flat we will need to find and bring on line the equivalent of the production coming from Ghawar or the US. But that will not happen because there is no incentive for producers to sink massive investments in new production when oil prices are below $100. Given the risk of a double dip recession few producers will be betting the farm on significant new exploration and development projects. While anything can happen to the price of oil in the short term, in the long term we are very likely to be seeing massive explosions in prices due to the geological factors that the optimists are ignoring.

Posted by: Vangel at March 14, 2010 05:43 PM

All data is per EIA's 2008 AER.

As of 2008, 42% of U.S. industrial energy consumption was petroleum, making up 23% of petroleum used. Residential energy consumption was 16% petroleum(fuel oil and propane), making up 5% of petroleum used. Yes, only 1% of power sector consumption was petroleum, and 95% of transportation was petroleum, so there is a lot of truth to your story. Further, some of the "industrial" use is not easily displaced (asphalt and chemical feedstocks, for instance). However, there is still a substantial fraction of petroleum use, even in the U.S, which CAN be displaced by other energy sources. Further, substantial transportation use can be conserved or displaced without a shift to natural gas.

If a shift to natural gas IS contemplated, additional physical hedging is required against the cyclical bust cycle in physical supply in that industry. We need a Natural Gas Economic/Strategic Reserve (capped wells owned by the government) to prevent recession due to gas price spikes. Making gas intercontinentally tradable (LNG terminals) is also advisable to cushion supply shocks.

Residential:A shift to pipeline natural gas and wood (or pellets) from fuel oil and propane is desirable. It's amazing how many people use fuel oil in neighborhoods that already have gas, or even in HOUSES that already have gas. Conversion would be cost effective. A shift to solar hot water in the sun-belt is desirable. A shift to ground-source heat pumps nationwide is desirable. These last two items would primarily conserve natural gas. Overall residential conservation is desirable and cost effective. This would primarily conserve electricity and natural gas.

Industrial: Most of the petroleum consumed (still gas, etc) in the industrial sector is consumed in the refinery and chemical sectors to create process heat/steam. Coal could provide this, and most such plants are located in areas where C02 injection would not require long pipeline transportation (i.e. in mature oil producing regions). Of course, the product conserved is primarily a source of gas supply, rather than liquids supply. I'm not sure how much liquids supply could be created thru reforming, etc.

Transportation:

All OTR trucking should require aerodynamic retrofits. At minimal expense, we could conserve roughly 20% of OTR diesel consumption.

Modal freight shifting from OTR trucking to rail, could save even more. Further, Trains could be converted to LNG from diesel very easily, saving yet more petroleum, though little energy.

Lifting ethanol import tariffs and/or entering into a long term contract with Brazil would displace significant petroleum. Brazil could expand production to 6mbd of ethanol given a market. To make this politically palatable, it would probably be necessary to include either quotas or subsidies for domestically produced ethanol. These should be sunsetting for ethanol production using fossil fuel to provide electricity and process heat input (2/3rds of end-use energy in U.S. corn ethanol is natural gas). Use of bio-mass (corn stover combustion) to produce corn-ethanol would give corn ethanol a roughly 3:1 net energy. Note that for Brazilian sugarcane ethanol this is about 9:1.
 

Posted by: benamery21 at March 14, 2010 05:50 PM

Great post, proffesor. You are one of the few more prominent economists to recognize and warn of the unprecedented economic challenges ahead for world oil.

Posted by: Gus Satkowski at March 14, 2010 05:55 PM

Here is an interesting viewpoint on coal:
http://i-r-squared.blogspot.com/2010/03/book-review-big-coal.html
 

China is one of the world's foremost promoters of coal to liquids. Chinese plants under construction are using a variety of different methods to gain some real data on what works best. When they make a decision they will stamp out these plants like cookie cutters.

China doesn't care what the UN thinks especially when it comes to its economic growth. Its Chinese characters mean "central country," and its mindset is that of a 7,000 year old civilization that was highly organized when Europeans were living in burrows. From its point of view the Europeans and the Japanese were the countries that forced unfair treaties on it and took part of its land until it pushed them all out. Their attempts to force it to rein in its emissions appear to it like another attempt of the colonial powers to weaken it. But now it has a human space program and a stable of ICBMs, so it need not heed them.

It had every reason to stiff the UN when it came to negotiating greenhouse gas limits. Its economic growth is such that it has to run headlong in every direction - coal, wind, nuclear, gas - to keep up with domestic energy demand. It will not restrict its fossil fuel use because there is nothing that can compete with it for low-cost power. As it gets richer it will start adding more pollution controls because the air will become too fould to breathe, but not CO2 controls.

What the United States does in terms of motor fuels is becoming increasingly irrelevant. China, India and the rapidly growing Mideast will overwhelm our consumption of fossil fuels in the coming decades, and no one is going to be able to stop them. If China can use divert some of its abundant coal resources from power generation to motor fuel at competitive prices, it will do so.

CO2 limits require that everyone play along. The Massachusetts Senate election caused the bottom to drop out of the EU carbon market and all of the US regional emissions trading schemes. And shortly thereafter First Energy bought up Alleghany Energy, which generates 3/4 of its power from coal. The value of CO2 is strictly dependent upon politics, and this purchase is like an Intrade prediction of how likely CO2 limits are.

Posted by: colonelmoore at March 14, 2010 05:59 PM

Prof. Hamilton,
This comparison of substitution from oil between the '70s and the 00's is very interesting.

In addition to the opportunity to replace fuel oil with gas and coal in the 1970s that did not exist 30 years later, I wonder about how exposure to market prices differed between the two eras.

One thing a number of observers pointed out during the 2005-2008 price run-up was that a large fraction of end users in the world (i.e. in China, Saudi Arabia and the rest of the Gulf, Venezuela, to a limited degree Russia ( http://uk.reuters.com/article/idUKL2866042720070502  ) do not see changes to the world oil price passed on to them, or at least with a great lag. Do you have any off the shelf data on whether a larger or smaller share of world consumption was thus in the '70s?

Posted by: gelboak at March 14, 2010 06:04 PM

Prof. Hamilton, a very interesting post. & thanks to Cedric Regula for the coal-to-gas background.

Did the authors discuss the effects of the below market prices for gasoline within China, many oil-producing nations such as Saudi, & India[?] ?

Posted by: bryce at March 14, 2010 07:11 PM

Brian,

With all the problems facing the world right now, I think there is a pretty good chance that in 10-15 years we will all be running around barefoot hunting rabbits for dinner with homemade bows and arrows. Not the least problem is how we get 7 Billion people back into living in trees, but I hear liberals are working on it. Plus the world population figure is estimated to go to 9 Billion.

And if some of the 5 Billion or so that are not driving cars now decide to become car drivers, that will surely swamp anything we do in the US to improve our situation.

A lot of what happens will depend on what governments decide to do about global warming. They may do nothing because it is very possible that "doing something" will collapse the economy. But the WTO already said economic sanctions are fair game with countries that don't play along with the rules, and China would be sensitive to having their exports shut off by the ROW.

China is also going full speed ahead into CTL and 3rd gen Nuclear. They licensed the Westinghouse reactor design and are building up the entire supply chain to build plants. CTL will need carbon sequestering to meet potential CO2 limits. Under the best of circumstances these projects take at least 8 years. But you have to start!

In the mean time, we really aren't running out of oil for quite some time yet. Half the oil used in the US goes to power cars and light trucks. So what we do there is significant (unless it's offset by the emerging world). We might do more with public transportation, but it is only feasible in certain places. I don't think we can afford to throw suburban America away and start over either.

In the near term the available things are higher efficiency diesel, switching to NG, hybrids, and also plug-in hybrids and all electric cars on a small scale until we can build up delivery of electricity from NG and nuclear. We also need to improve on battery technology. There is also ultra lean burn gas engines coming soon (20% better efficiency).

There is new technology, but here we are generally talking longer, or much longer, than 10 years before we can even start adopting it at commercial scale. There are promising things like effective ethanol processes (as opposed to the 1:1 oil for ethanol swap we do now) and other bio-fuel approaches like Exxon's algae to fuel project.

Almost forgot wind and solar. Here scientists think we may get as much as 10% of our electric power from these sources. But not much more.

But I won't bet we orchestrate all this smoothly.

Posted by: Cedric Regula at March 14, 2010 07:40 PM

Is the term demand an acceptable replacement of the term consumption? 'Demand' has to be one of the more abused, ambiguous terms in modern economics, hence the question.

Posted by: GNP at March 14, 2010 09:02 PM

I am completely in agreement with you.

The role of the EIA and IEA here is quite pernicious. Their demand forecasts are often accepted even by the oil majors, to which I can attest as I have discussed it with at least two of their strategy groups in some detail.

I first took on the EIA in June 2008, when I invited one of their directors to present on a panel I was moderating on the oil outlook at a marine transport conference in New York. At the conference, the EIA director and I agreed to disagree, and their long-term forecasts have not been updated materially since with respect to China and other emerging markets demand. Their 2010 Annual Energy Outlook (AEO), issued just a couple of months ago, continues to project China playing all but dead with respect to oil demand growth (3% per annum to 2030).

I have taken to challenging EIA forecasts directly in my last two industry presentations (Houston in February, Rio de Janeiro in March). I did this because my analysis in late 2007 (consistent with yours) indicated that an inelastic oil supply combined with high demand growth in emerging economies would spell major trouble for the OECD downstream (refining and distribution) sector. And yet everyone seemed surprised that OECD downstream has been hammered during the recession! You would be, if you believe the EIA. However, if you read Econbrowser from 2005 or my work from 2007, the conclusion is implicit. In any event, using EIA forecasts in 2007 would lead to incorrect strategic conclusions for 2009/2010, and that needed to be highlighted to industry players. One can believe the EIA or the High Demand Camp (Hamilton, Dargay-Gately, Douglas-Westwood), but it needs to be understood that these two perspectives imply dramatically different views of the future and different strategic responses. That's why I now have a Douglas-Westwood vs EIA slide in my standard presentation deck. (The presentations should be available on the Douglas-Westwood website or from me.)

I dwell on the EIA outlook in greater detail in an article pending at Foreign Policy (assuming it makes the cut). In it, I discuss the EIA's anti-China bias in forecasting, building on the assumptions that China is a special case and that Chinese could not possibly hope to drive as much as citizens of Taiwan, South Korea or Japan at similar levels of development.

Finally, a closing note on the EIA. I doubt the institution has any greater fan or critic than me. Their STEO (the Short Term Energy Outlook) is excellent. It called the trough of the recession perfectly--better than Econbrowser or most economists, and its short term forecasts have been very good. Hats off to the STEO team!

By contrast, the EIA's long-term outlooks, the IEO and AEO, are and have been terrible for many years. For example, in May 2007, the EIA called for $100 oil--in their high case scenario for 2030. And lo, nine months later, it was a reality! They need a big change there in long-term forecasting, probably in all of methodology, personnel and political outlook (ie, they need a little courage). If I criticize the EIA, it's not from a lack of affection for the institution, but because what the EIA says matters, and in a world where oil looks to be increasingly scarce and expensive, the EIA has to get the fundamentals right.

From the Cathay Pacific lounge at Hong Kong International Airport in slow-growing China,

Steve Kopits

Posted by: Steve Kopits at March 14, 2010 09:04 PM

Cedric,

I can't argue with you on most of your points; however, the question isn't about running out of oil, it's about the net extraction costs, that is, basically the moment it takes 1.1 barrels of oil to extract 1 barrel of oil the game is over. So yes one could plausibly argue that we have only used up half of the world's oil supply, the problem is that this is a deceptive concept--which I personally am not an expert on deceptive concepts, but I have fallen prey to them enough to make direct experience with them.

The half we've used in terms of oil supplies is what we could term all the low lying fruit; and now, obviously, being able to pick those higher lying fruits will be a bit trickier. The Saudi's have about 25% of the World's known oil reserves--now we don't publicly know much more than that because the Saudi's keep their oil reserves secret as a matter of national security. What we do know is that the Saudi's have yet to deliver on their promises to increase production for about ten years now (of course, not counting the current economic down turn recoverless recovery). Now, we have the Saudi's investing in off shore drilling, which of course is that high flying fruit.

More disturbingly, is just how fast these oil fields collapse, and so production output is very deceptive. Consider the Mexican oil field, Cantarell. Discovered in 1976, started production in 1981, was placed on nitrogen injection in 2000, peaked production in 2004 at 2.1 million barrels per day, and now it can barely produce 500k barrels per day. Even in this collapsed state, the Cantarell oil field is still one of the largest in the world in terms of production. Now with this in mind, Ghawar was discovered in '48, production began in '51; Burgan discovered in '38, went online in '48; and these are currently bearing much of the heavy lifting in oil production--the Saudi's won't admit Ghawar has hit peak production (and they have started using water in the fields to push oil up), but the Kuwaiti's have publically acknowledged their field has hit peak. All of this in the face that we have not discovered a major oil field since the 70's, and that field has collapsed. Here, we must be weary of the new oil field discoveries and the reserves that are claimed -- sure everyone was and still is making a big fuss over the large oil discoveries in Iran and Brazil, however, the reserves being claimed are projected reserves, not proven; and they continuously keep being revised downward -- just as we see the oil companies constantly revising their oil reserve holdings downward constantly. And now the new craze, or hope, is Anwar in Alaska, however, keep in mind that no infrastructure is in place for it, and to top it off: no one has any idea how much oil is really there, although they're prepared to spend money and resource as if that oil is there. If one computes the numbers, even if we drilled every known oil source in the US, the barrels produced sound like a lot, but it wouldn't even be able to supply the current US consumption for a year.

Again, peak oil isn't about running out of oil, no one argues we'll run out of oil; the argument is that production declines as demand is rising. A deceptive games that many of these energy agencies play are now playing, as you'll be surprised to find out that they're very politicized, is that they're claiming that we've reached peak demand; but this is deceptive because it ignores the the real driving force in oil prices and that's production in this case (which many economists seemingly ignore). And remember, all of this decline of production in relation to demand has been happening even as we have been introducing fuel efficient technologies over the last 30 years.

And to really put things in perspective, Exxon Mobile is currently spending $400k a day for oil exploration off the cost of Louisiana searching for oil, and this in spite of the fact that they don't know if there's even oil there.

The other question also concerning hybirds is the other necessary resources to produce them, namely, the rare Earth metals needed for their batteries--and it is very doubtful that there are sufficient quantities to transition the current amount of vehicles over to hybirds. The energy issue really is one of national emergency, which is why we saw such aggressive action by the Bush administration in oil producing regions--and although Afghanistan is not an oil producing region one must remember that in the 90's it was speculated that the central Asian countries (Kazakhstan, Kyrgzstan, Tajikistan, and Uzbekistan) were believed to have massive oil and gas reserves--and this is why the Clinton Administration was in negotiations with the Taliban in the late 90's to build a pipeline through Afghanistan.

Also, it was due to this speculation that allowed Enron to construct a massive power plant in India, on the hopes that the oil and gas would come from this region. Obvious the oil conjecture didn't pan out at all (the oil there is in small independent deposits), although the area is rich in natural gas. Anyway, my long winded and babbling point is that our energy policy should have been at the forefront in of national policy in the 90's, now it may be a matter of life and death--and, hence, this is what led the Bush Administration to militarize energy policy and literally secure US oil consumption with the US military.

Of course everything we do will help, but at this critical juncture it is vital to come up with a viable solution quickly. Certainly oil won't be an issue tomorrow, but it could be in a couple of years, and because it takes massive effort and time to get new infrastructure online, a few years is basically a few blinks of the eye.

This is one reason why we see China on such a construction bubble -- they know that their infrastructure is way over capacity, anyone knows this by just looking at the numbers, and they may not even be certain they can grow into it, and it's not just about GDP numbers.

The real reason they're on such a construction craze is that they're betting that the oil at these prices will not be available in the future to construct these projects, so better do them now.

I predict the Chinese will not have that soft of a landing, and may even face a banking crisis of their own in the near or intermediate future because of this credit bubble fueling the construction boom; yet, I suspect the Chinese government view this problem as the lesser of two evils in the face of an energy crisis.

Now, certainly, I could very well be absolutely wrong on everything I have said in the above, and in light of that one should not take anything I say at face value and should construct their own research.

Posted by: Brian at March 14, 2010 09:16 PM

PS Cedric,

I had forgot to address the wind and solar energy aspects. The 10% estimate on the energy pick up from solar and wind is also a bit deceptive. Now don't get me wrong, I'm a big supporter of the two, and I very much like the work that Matt Simmons is doing up in Maine with wind energy; however, that being said, the only way that the solar and wind estimate of compensating for 10% of our energy use is if the massive subsidies for these developments stay in place. Now, I'm all for the subsidies as well, after all, getting the engineering right is going to take a lot of resources in the hopes in pays off later. So if it will continue to need those subsides to pick up 10% this of course requires that another part of the economy pick up the cost, therefore, it's not really reducing energy output as other parts of the economy would need to increase their activities to subsidize it (it could be argued that this is not necessarily the case, and that would be true if much of the population willing takes a hit on their standard of living to support the costs of these projects).

Further, to construct these projects on a mass scale puts burdens on other resources that we have also abused and misused. For example, if we wanted to implement solar and wind energy on a massive scale, just for the US, it has been argued that we would fall short in the necessary materials like silver (which we've been running a mining/consumption deficit since 1990--and the price is still massively depressed, which the CFCT will hopefully address and cap the unnecessary concentrated short positions on the precious metals this month), as well as the need iron ore for construction; and there's some other considerations as well. However, I think these deficiencies can be compensated with increased mining (as in silver, but it takes many years to get a mine back up and running) and with massive recycling projects.

Again, this is not to be pessimistic on these projects, on the contrary, I support them greatly, but I think the reality may be dawning on us that we've begun a little too late in the game to not have to take drastic steps in the future, and possibly for the countries to be more cooperative on resource distribution worldwide, that is, before wars break out in the future over resource scarcity--however, I am not optimistic on a peaceful solution to this issue, at least that may not be the first option.

Posted by: Brian at March 14, 2010 10:02 PM

Professor,

I need to dig into the papers but something about the numbers just didn't seem right. Dargay and Gately appear to have been biased in picking the dates for their numbers.

If the price of oil during the 2000s had risen like it did during the 1970s there would have been an even greater response to the price.

It is also interesting to note that the price per bbl in gold has not changed from 1971 to 2010. Oil has traded in a 13-15bbl oil:oz gold for almost 100 years.

Posted by: RicardoZ at March 15, 2010 06:57 AM

Brian,

No doubt we are way behind on energy policy. I was in high school during the Arab oil embargo, and I have been hearing we need to do something different ever since then. It was even my first mini-career after college.

Sure there is much uncertainty over proven reserves and what new potential is out there at what price. Part of it is oil producers are targeting higher prices for oil, so at the moment they are leaving some potential production in the ground to support higher prices.

There will always be supply chain bottlenecks whenever we shift the economy in a significant different direction. That's what makes it all a roller coaster ride. Engineering and project management skills will be in short supply too.

The 10% wind and solar is a SWAG of course, but a better effort than the mainstream rose colored glasses stuff we get.

It's variable power and needs to be backed up 100% with reliable base load. (which means fossil fuel right now) It's expensive, because the costs don't amortize well and still require the old infrastructure for 24X7 power, and in the case of solar the tech is inherently very inefficient. Therefore it is heavily subsidized.

And we should also wonder whether windmill generators are our highest and best use of copper!

Some good news on the solar cell front is First Solar has a thin film process that cut cell cost by a third. But "installed cost" still doesn't go down by a third. The next evolution beyond thin film has been developed by Nanosolar. They basically are ink jetting PV material on a plastic film substrate. We have to wait and see if they can ramp that to significant production levels. Brightsource has a promising solar thermal design and has an active large scale project going with PG&E.

But changing where the world's energy comes from is the biggest challenge since Man moved out of caves, and the fact that the developed world seems to have gone nearly bankrupt before addressing this problem isn't helping much. (well, ok, Europe is ahead of us, Japan is ahead of us, and China seems to have got it into gear...Brazil too...I guess we had more than one lost decade...)

Posted by: Cedric Regula at March 15, 2010 07:38 AM

Anonymous at March 14, 2010 01:49 PM: I have some discussion of the oil-natural gas relation here.

gelboak and bryce: Dargay and Gately note that the price response in China is essentially zero. The rising share of non-OECD consumption is one of the key statistics they are pointing to.

RicardoZ: We are talking about the real oil price here, not the nominal price.

Posted by: JDH at March 15, 2010 07:50 AM

Just noticed I miss spoke here...

"First Solar has a thin film process that cut cell cost by a third"

I should have said "to a third", ie, cell cost went from $3 to $1.

Posted by: Cedric Regula at March 15, 2010 07:56 AM

I attended a conference on robotic transmission systems a couple of years ago. Many suggested that hydrogen can be extracted from coal pretty cheaply.

Posted by: aaron at March 15, 2010 08:03 AM

aaron,

That's called coal gasification. It is the first step in a CTL process. But it releases a LOT of CO2. That is also the problem the "Hydrogen Economy" had. 97% of current hydrogen production comes from fossil fuel. The other 3% comes from electrolysis (power plants).

Posted by: Cedric Regula at March 15, 2010 11:22 AM

So, if I am reading the excellent and informative comments correctly, instead of an oil shortage slowing global warming, the exact opposite may be the case (with CTL). If it comes to a head between easy short-term (short-sighted) solutions and more immediately uncomfortable but better longer run solutions, based on past behvior, it seems pretty clear which will prevail. For one example, the U.S. should have much higher gas taxes. This is no long term solution, but it is such an obvious step in the right direction, that its failure is most disheartening.

For another example, the SUV craze is simply outrageous.

Posted by: don at March 15, 2010 01:41 PM

it takes roughly 7 gallons of oil just to make a tire

Brian, this looks way too high for a tire for personal trasport (as opposed to a commercial truck) - could you provide a source?

Posted by: Nick G at March 15, 2010 02:33 PM

Don't forget "shale natural gas" as a means of achieving energy self-sufficiency (or something closer to it)! The USA has more natural gas through this source than even Russia or Saudi Arabia. Now all we have to do is stop the EPA and DOE from regulating it out of existence much like they have done to offshore and onshore drilling.

Posted by: M Thomas at March 15, 2010 07:00 PM

Cedric: one thing is for certain, it is interesting times we will be living in--after all, what would people do without their "problems", and one might even argue that one is not so easily entitled to their problems, and this could apply for a generation as well: are we not inevitably defined and measured by our problems? I suppose this may be too philosophical and off topic for an economic blog, or at least how mainstream economics defines and specializes itself today. The philosopher F. Nietzsche had once commented that the world is in a state of flux and chaos, occasionally spontaneously, but temporarily, experiencing outbreaks of structure. I don't know if this is indeed true, and perhaps it is a matter of perspective, but history does tend to add some support to this notion. Unfortunately, I'm at a loss for a real solution to this energy quandary, and so my hope is that this perplexity of mine is solely due to the limitations of my own imagination and a derivation of nothing more than my own ignorance; however, I do suspect, maybe even too dogmatically, that modern in vogue economic theory and its legion of practitioners are not properly considering resource depletion when they go to influence policy decisions regarding the economy.

Nick G: regrettably it was many years ago that I had read the research concerning oil consumption and its calculations, and I did a quick survey of the Internet to see what I could come up with and didn't turn up much (although it was a very insufficient search). Additionally, my cognitive abilities are very limited and so I must admit it taxes me quite a bit just try to remember my opinions, and so it is many times out of my ability to also recall how I derived those opinions--that is, I try not to bog down my limited cognitive abilities in memorization and instead try to reserve it for analysis. This is just to give you a background on any information coming from me, and many times my primary concern in from an investment perspective (although there are exceptions).

To further exasperate the problem, many of these research firms withhold their findings from the public (understandable so they can charge and so fund said research), but even in these reports their methodologies are not fully expressed, in order to protect it of course. As I recall the research centered around Toyota's business model and their plan to expand their business based on the Priuses model sales--so basically it was a company evaluation and I believe the research firm did not conduct the "oil" numbers themselves but referenced a University of California environmental study (and the results were foot noted).

However, let me explain what my initial impression was when I had come across this claim about 7 gallons of oil goes into producing a tire, because I share, or initially did, your skepticism. What I had first thought was that the 7 gallons was directly used to literally construct a tire; however, as has been many times the case in my life, I was utterly incorrect. To give a simplified example of my first impression it would be basically I thought there was some kind of tire mold and oil was poured into it, and so I was skeptical that a conventional tire seems too small for such a thing. I'm not saying that this is your impression, but in a very rudimentary I did, that is, until I read the accompanying footnote.

Basically it presented the raw numbers it terms of BTUs in producing a tire, and this included everything from extracting the raw material, shipping the raw material, the use of machinery, the construction of the tire factory, the human labor (they eat food that is also oil dependent), then shipping the finished tires, then putting them on new vehicles or packaging them (which is made from oil), and so on and so forth. Since most or all of these processes are dependent on oil in some form, then the notion was to do a rough estimate of energy used in BTUs and then divide that aggregate number by 5,800,000 which is the amount of BTUs in a barrel of oil. I wish I could find the original research to post the estimated BTUs for each of the processes for you to evaluate, unfortunately I can't.

I do think there is some room for skepticism because although I did not see the original research's methodology, I would suspect there was some statistical reliance and of course some guess work. However, one might argue that if this was an overstatement that may be off set by other factors. One such factor would be the energy plant that all these process relies on actually operates 24hrs a day, so even when these operations are shut down there is still energy being created because it is too costly to shut down a power plant and start it back up (not to mention it takes about a week to start one). Further, the study was conduct with US factories and since many tires are constructed in China, I suspect there is a lot of wasted energy in output due to inefficiencies and poor power grid structure (which the US has as well). These two factors were not considered as far as I know because much of it would be speculation. I further realize that many of the power plants in the US are coal driven, however, since that coal is extracted, shipped, etc through the use of oil, the offsetting of coal use may or may not be that significant.

Still, I am somewhat sympathetic to your doubts as the input of 7 gallons of oil to produce a tire may not be accurate or may be overestimated, however, my belief if that I would side with the actual number being closer to the 7 gallon mark than off. I realize everything I have said from your perspective is hearsay, and so I don't suspect that your skepticism will be fully satisfied, or if at all, and nor should it. However, knowing that I did not have the data right in front of me or that I had no where to immediately direct you, my above statements were not meant to convince you in any way as it was to influence on how we should look at the issue of oil consumption, and that is in terms of not just direct product production but also in terms of product support and other indirect uses. As always, though, one must not take anything I say at face value and should never relinquish thinking for themselves.

Sorry for the length, but as always I find it takes a lot more time to write with brevity.

Posted by: Brian at March 15, 2010 11:07 PM

M Thomas: the problem with is the shale extraction process requires massive fresh water expenditures, and currently the world is starting to feel the effects of drought, as well as many parts of North America; and this problem is predicted to worsen.

Also, personally I would advise caution here in that the research on environmental effects and cost production are extremely inadequate to justify the hopeful optimism surrounding shale gas--and so yet again the ole saying, "if it's too good to be true, it probably is," may be applicable here.

Again, shale gas may prove to be the magic bullet to fend of the energy shortage beast, but at this point, at least to me, the excitement behind shale gas seems to be a product of desperation more than fundamental analysis--again, I may be wrong, and I certainly hope I am.

Posted by: Brian at March 16, 2010 02:11 AM

Brian,
"...I do suspect, maybe even too dogmatically, that modern in vogue economic theory and its legion of practitioners are not properly considering resource depletion when they go to influence policy decisions regarding the economy."

It's easy. You just print money and then tax it back. A multiplier greater than one is what makes it all work. Do it enough and you get GDP growth, which is how we can pay any incurred debt off.

Nothing to worry about with a plan like that.

It even works with healthcare too!
 

Posted by: Cedric Regula at March 16, 2010 07:26 AM

JDH wrote:

RicardoZ: We are talking about the real oil price here, not the nominal price.

Professor,

The real price is a soft number. Any number of economists will get different measures of "real price" depending on their assumptions.

I included the fact about the relative price of oil in terms of gold has really not changed. That is the real price. But that said when the nominal price changes it creates expectations and hardships and that changes behavior. In the 1970s the general belief was that the price of oil would keep rising forever and that OPEC has a strangle-hold on the west. People changed their behavior.

Today people understand better that OPEC cannot control the price of oil beyond a very limited range. The price of oil today in real terms is the same as it has always been so people are not concerned. Energy takes up about the same percentage of their budget as it always has. But additionally, expectations of inflation are not high because the contraction has created falling demand holding down prices.

Posted by: RicardoZ at March 17, 2010 06:22 AM



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War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda  : SE quotes : Language Design and Programming Quotes : Random IT-related quotesSomerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose BierceBernard Shaw : Mark Twain Quotes

Bulletin:

Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law

History:

Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-MonthHow to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

Most popular humor pages:

Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

The Last but not Least


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Last modified: September, 12, 2016