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US Peak Oil Adaptation: Prognosis in a Credit Crunch
Stuart Staniford, The Oil Drum
In this post I want to start exploring a hypothesis that is worrying me a lot. Specifically, the possibility that the emerging financial/credit crisis could cause a near-term collapse in demand for energy, energy prices, and investment in energy infrastructure. That in turn could lead to an even poorer failure to adapt to peak oil than we have seen so far, resulting in great difficulties once the economy begins to recover from its credit problems. I’m not claiming to have conclusive evidence for this hypothesis, I am not sure of its truth myself, and this post will only be a beginning of exploring the issues.
Let’s first review the situation to date. I began worrying that we might be essentially at peak oil already back in November 2005. This was the date of Ken Deffeyes’ famous prediction based on Hubbert Linearization, but my concern was based as much on the plateauing of the monthly oil production series in spite of high prices. As more evidence emerged, I firmed in my view that peak oil is probably about now.
A couple more years of data have not changed the picture much.
… Now private investment today includes things like research and development in alternative technologies, venture capital funding of clean-tech startups, installation of wind power or solar power sites, laying down of new railroads, new nuclear power plants, coal-to-liquids plants, development of new oilfields, etc. Recall also the correlation I pointed out between fuel economy changes and economic growth – in a depression, it’s a safe bet that average fuel economy of the fleet would simply degrade as few people bought cars and the existing fleet got older and less efficient. In short, whatever your preferred method of mitigating or adapting to peak oil, you can pretty much kiss it goodbye during a major meltdown of the financial system.
This, of course, will not make peak oil go away. Credit crunches and even depressions, as extremely painful as they may be, are inherently temporary. After a suitable time, the offending debt somehow gets written off and offending assets are repriced and the economy resumes growing. However, when this one passes, peak oil will still be there waiting for us. And whatever time we lose in investing in all the things we need to do is an opportunity lost forever. …
(20 August 2007)
The Economics of Oil, Part I: Supply and Demand Curves
Robert Smithson, The Oil Drum
This is a guest post by Robert Smithson, a portfolio manager at a London based investment fund.
This is part one of a two part article on the economics of oil price demand. The second part looks at the economics of peak oil, and how the oil fits into an overall energy demand curve.
…The market for oil is unusual, because – in the short-term – both demand and supply are highly inelastic. Irrespective of what petrol costs, your car cannot easily switch to another fuel. Ships and aeroplanes cannot move from diesel oil and kerosene for their propulsion. If it’s freezing cold, and you need to heat your house, the only option may be to pay more for heating oil. Likewise, if the price of petrol was to halve, you would not drive twice as far, or turn the thermostat up from 22 to 44.
The result is that the short-term demand curve looks like this: [GRAPH]
In other words, a large change in price only has a small impact on demand.
Supply of conventional oil is also relatively inelastic, although for a different reason. The actual cost of pumping a marginal barrel of oil is relatively low, once the capital expenses of prospecting and building an oil rig (and associated infrastructure) has been put in place.
…The result of this is that the oil market is one where small changes to the supply or demand curve cause large changes to the clearing price.
…But this analysis misses one key point. Oil demand and supply may be inelastic in the short-term, but in the long-term, they are remarkably elastic. Hurricane Katrina does not cause a long-term change in consumer behaviour; but if long-term expectations for oil prices rise, then both the demand and supply curves will shift.
Nowhere is this clearer than in the study of the results of the 1970s oil shocks.
…The lesson here is simple: there is no “over” or “under” supply, there is only the price at which the market clears. And over the long-term, high oil prices will tend to encourage consumers to either reduce energy consumption or shift to other forms of energy. Similarly, investment in either inhospitable areas or in developing technologies will result in greater quantities of oil or synthetic crude coming on to the market. Each boom in the oil price sows the seeds of its own destruction.
Robert Smithson is a portfolio manager at a London based investment fund.
(19 August 2007)
Peak Oil Booklet – Chapter 4: What Should We Do Now?
Gail the Actuary , The Oil Drum
We know that peak oil will be here soon, and we feel like we should be doing something. But what? It is frustrating to know where to start. In this chapter, we will discuss a few ideas about what we as individuals can do.
1. What will the first few years after peak oil be like?
It is hard to know for certain, but a reasonable guess is that the impact will be like a major recession or depression. Many people will be laid off from work. Gasoline is likely to be very expensive ($10 a gallon or more) and may not be available, except in limited quantities after waiting in line for a long time. Fewer goods of all types will be available in stores. Imports from third-world countries are likely to be especially unavailable, because of the impact of the oil shortage on their economies.
Money may not have the same value as previously–opinion is divided as to whether deflation or rampant inflation will be a problem. Investments, even those previously considered safe, are likely to lose value. Things we take for granted–like bottled water, fast food restaurants, and dry cleaners–may disappear fairly quickly. Electricity may become less reliable, with more frequent outages. Airplane tickets are likely to be extremely expensive, or only available with a special permit based on need.
2. If a scenario like this is coming, what can a person do now?
…5. Are there any reasons why steps such as those outlined in Question 3 might be too little to handle the problem?
Besides the decline in oil production, there are a number of other areas of concern. Hopefully, most of these will never happen, or if they do happen, will not occur for several years. If they do happen, greater measures than those outlined in Question 3 are likely to be needed.
• Collapse of the financial system. Our financial system needs growth to sustain it, so that loans can be paid back with interest. Once peak oil hits, growth will be gone. Economic growth may even be replaced with economic decline. It is not clear our financial system can handle this.
• Collapse of foreign trade. Many factors may come into play: The cost of transportation will be higher. Airline transport may not be available at all. Fewer goods are likely to be produced by the poorer countries of the world, because of power outages related to high oil prices. Rapid inflation/deflation may make monetary transactions more difficult.
• Rapid climate change. Recently, scientists have discovered that climate change can take place over a very short period of time–as little as a decade or two. Temperature and precipitation changes may cause crop failures, and may make some areas no longer arable. Sea levels may also rise.
(18 August 2007)
We hope to post a revised version of this chapter at Energy Bulletin in a few weeks. Other chapters by Gail Tverberg are available at Energy Bulletin and on her blog.
Peak oil – less faith
Mary King, Trinidad Express
…Recently we in T&T [Trinidad and Tobago] have been told that our reserves of natural gas have declined and that unless we find more gas we have some 12 years left at the present production rate. I do not know if this takes into consideration that production rates will decline with consumption and that even before the gas runs out we will be unable to meet the present level of demand.
In spite of the reported doublespeak by our Government, they acknowledge this present reserves constraint and the only difference in opinion is-PM Manning, the Good Shepherd of our economy, assures us that HE knows that there is gas out there and we will find it; there is no uncertainty, no need to worry. Others think that while there may be more gas out there, there may well be commercially little more, given the big dud well of bpTT and the recent reluctance of Big Oil to take up contracts to explore new blocks. Given this legitimate uncertainty others have joined this column in calling for the creation immediately of the on-shore economy.
We need, a priori, some conservation/exploitation plan that will support our local needs (Chavez has no intention of allowing Big Oil in T&T to exploit his resources) in the event that we do not find any more gas. This is the fundamental failure of our present leadership in government-to level with the people, to put them under stress to find ways to develop an alternative economy.
The conflict is between our faith-based Government, led by a religious man, and others who are demanding that the running of our economy should reflect this UNCERTAINTY, which requires the development of adaptive economic stratagems to cover various “what if” scenarios. Coupled to this faith in new gas finds our Government still sees itself as a facilitator to Big Oil and is preparing to offer more lucrative incentives to them to go drilling, unfortunately subscribing in its one-dimensional vision to the view that increasing reserves is a function only of investment.
With its faith that we will always have gas, our Government, in attempting to maximise cash flow, has become a profligate spender, saved virtually nothing and we are now in a position of high inflation, with little capital resources, no proven reserves to drive expansion and attract loans for local added value development.
(20 August 2007)
Conservationists Cannot Escape the Laws of Energy
Warren Brown, Washington Post
…when it comes to energy use and conservation, trade-offs are inescapable.
Consider America’s affection for gasoline-electric hybrid cars. Many in the media and in politics have hailed the devices as the answer to energy conservation and environmental stewardship in the transportation sector. In truth, they represent energy consumption and environmental problems in a different guise.
For example, current nickel-metal hydride battery gas-electric cars supposedly have a useful battery life of eight years. In the prime of their useful lives, they save gasoline in urban traffic where their electric power systems carry most of the workload. But when their batteries die, when they become entropic, the cars are practically useless until the dead batteries can be replaced. And those dead batteries have to be buried somewhere.
In terms of what engineers call “well-to-wheel energy costs,” gas-electrics actually are more energy consumptive and environmentally stressful than the traditional gasoline-powered cars and trucks they are supposed to replace. It takes lots of energy to design, develop, manufacture, transport and install nickel-metal hydride and lithium ion batteries. And, again, once their energy is used, once those batteries have become entropic, something has to be done with them.
It does not matter what alternative fuel or combination of alternative fuels and propulsion systems you consider. Every single one of them has some kind of trade-off. You want ethanol from sugar cane and corn to power cars? Okay. That will help reduce our dependence on oil — energy derived from the remains of animals that died ages ago. But it takes energy to produce ethanol. And producing it from feedstock means that some stock somewhere will not be fed as well or that feeding it likely will be more expensive.
You want transportation energy from compressed natural gas, propane, plug-in electrics or hydrogen? The same principle of trade-offs will apply. Something once alive, such as a gasoline infrastructure, will give way to or otherwise be diminished by transformation into the new. People whose livelihoods and values were tied to the old will be unhappy. They will fight to hold onto what was. And the new will not come free of charge.
Aware of all of this, some environmental activists have embraced the notion of abandoning cars and trucks, or of at least reducing our enormous reliance on them. They romanticize a return to “walkable communities,” a time when we grew our produce on our own land and transported it to local shops. To hear them talk, it was a time when we were all happy, when no one worried about oil.
But there were trade-offs then, too. The “cheap energy” used to sustain that bucolic past often came from slaves, indentured servants or poorly paid labor. It relied on overworked horses and other animals that, once their energy was expended, died unheralded.
Does this mean we should do nothing about energy conservation? Of course, it doesn’t. Movement is a requirement of life. Movement requires energy. No movement, no life. No energy, no movement. The world as we know it stops and becomes something else.
Energy conservation, in that light, is nothing more than an attempt to delay and manage the inevitable. It requires intelligence. It demands compromise. You can even argue that, to do it properly and fairly, it requires a certain amount of love. Essentially, it is an act of faith in something better.
(19 August 2007)
Warren Brown, automotive writer for the Washington Post, has written about peak oil and related issues several times before. -BA
Our finite planet: planning for a decline in our oil bounty
Michael Lardelli, Adelaide Review via Online Opinion
In my local supermarket in Prospect there is a wonderful photo from the early 1900’s. A tram is rolling down the centre of an uncrowded Prospect Road. When I see this image it makes me reflect on how much Adelaide’s transport has changed. Since World War II Adelaide has become almost entirely dependent on cars for transport. Why?
Australia’s petrol is cheap compared to many other nations since our fuel taxes, while considerable, are relatively low. This situation has persisted for decades and has had enormous implications for the structure of Adelaide.
Compared to European cities, where fuel taxes are high, Adelaide is very spread out. Areas built after WWII are almost completely dependent on car transport. In older areas, like Prospect, trams have been forced off the roads to make more room for cars. Would our only remaining tram-run to Glenelg still exist if it competed with cars for most of its route?
…Increasing economic activity (growth) can only occur if energy use increases. The two are absolutely linked. The economic growth of the past 100 years has been supported by accelerating use of fossil fuel energy – mainly oil. Since the late 1990’s an ever-increasing number of (mostly) scientists have been warning that the world’s oil production may soon stall and then begin to decline. We will enter a new economic epoch with very high fuel prices and a contracting economy.
Michael Lardelli is Senior Lecturer in Genetics at The University of Adelaide. Since 2004 he has been an activist for spreading awareness on the impact of energy decline resulting from oil depletion.
He has written numerous articles on the topic published in The Adelaide Review and elsewhere, has delivered ABC Radio National Perspectives, spoken at events organised by the South Australian Department of Trade and Economic Development and edits the (subscription only) Beyond Oil SA email newsletter. He gives lectures on “peak oil” to students in the Australian School of Petroleum.
(17 August 2007)
How bad is peak oil, really?
Jon Rynn, Gristmill
Recently we’ve had a couple of discussions here at Gristmill concerning various aspects of peak oil; that is, the assertion that very soon (if it hasn’t happened already) the global supply of oil will peak, and even though demand is going up, supply will start to come down, so prices will skyrocket.
It seems to me that some of the contention in these discussions boils down to the question: would it really be so bad if the oil started running out? After all, we would stop mucking up the planet with the pollution, carbon emissions, and infrastructural damage we have been inflicting for these hundred-years-plus of the petroleum age.
Wouldn’t it force humanity to live within our means if gasoline was $10 or even $20 dollars per gallon, as it will eventually be?
As it so happens, I’ve recently been investigating the question of what kind of civilization we would need to have if we wanted to live without fossil fuels, and I wanted to know how we are currently using oil in order to understand how to live without it.
(20 August 2007)
The environmental sites Grist and Gristmill have increasingly been writing on energy issues. Editor David Robertson has been tentatively dipping his toe into peak oil, writes:
I don’t do much writing about peak oil here. It’s horrifically depressing, for one thing, and for another I doubt I could add to the comprehensive work being done at the Oil Drum and elsewhere.
