Insight and inspiration in turbulent times.
It seems to me that above some imaginary line, resources can be extracted and producers can make a profit selling them, and the economy can use them successfully. Below the imaginary line, the cost of production will be so high that if a price that is adequate for a producer to make a reasonable profit is charged, the high price will send the economy into recession.
In a world of blatantly increasing food insecurity — driven by population, dietary trends, rising oil prices, and growing climate instability — America’s policy of burning one third of our corn crop in our engines (soon to be 37% or more) is becoming increasingly untenable, if not unconscionable.
What we have learned from past oil shocks (which few people outside the peak oil community have chosen to recognize) is pretty clear and simple – that the effect of oil on the economy, on individual lives, on the world as a whole is dramatically greater than can be expected by a direct arithmetical progression – that is, the effect of oil on whole systems is something like a geometric progression, increasing in complexity and impact well beyond what one would intuitively expect.
As unrest continues to spread across the Middle East, the possibility that the price of oil — already around ten times what it was in 1998, when the peak oil movement first began to shake off its post-1970s hibernation — might spike to unprecedented and economically disastrous levels is hard to ignore. The end of the age of cheap abundant oil calls for pragmatic steps. With the help of a roll of insulation, the Archdruid explains.
As much as a quarter of Libyan oil output has been shut down, Reuters calculations showed on Wednesday, as unrest prompted oil companies to warn of production cuts in Africa’s third-largest producer.
A midweek roundup of peak oil news, including:
-Developments this week
-Saudi ruler offers $36bn to stave off uprising amid warning oil price could double
-Political unrest casts a shadow over Desertec energy project
-All eyes on Bahrain as Gulf tremors frighten oil markets
-Iran’s ‘silent’ protests
In truth, the spare capacity that the world cares about — that the oil futures market cares about — is not the inventory level. But rather, actual production capacity that can be brought on immediately. You can see the problem, from a price standpoint. If the world loses Libya’s 1.5 mbpd production for 90-120 days, and starts drawing down above-ground inventories, this only makes the inventory cushion that much thinner for any new supply disruptions. The question on the mind of the oil market therefore is not Mr. Fyfe’s 1.6 billion barrels of crude, but whether countries like Kuwait, the U.A.E. and especially Saudi Arabia or even Russia can lift supply. Immediately.
Libya is one of the smaller oil exporters in OPEC. They were producing 1.65 million barrels per day in 2010 (through October) according to EIA data. However, the very serious political upheaval in this North African country poses a genuine threat to that production.
A weekly roundup of peak oil news, including:
-Oil and the Global Economy
-World in Upheaval
-In the Congress
-Briefs
-Quote of the Week
The standard economic assumption is that, as a resource becomes scarce, prices will rise until some other resource that can fill the same need becomes cheaper by comparison. What really happens, when there is no ready substitute, can perhaps best be explained with the help of a little recent history and an old children’s story.
Consider the first 15 minutes after the Titanic hit the iceberg versus the last 15 minutes before the ship sank. In the first 15 minutes, only a handful of people knew that ship would sink, but that did not mean that the ship was not sinking. In the last 15 minutes, it was readily apparent to everyone that the ship was sinking, but by then it was far too late to try to get to a lifeboat.
