New one about Peak Oil

[LightinDarkness]

It's not hard to see why oil producing nations or oil companies might have strong political and/or economic motives for fiddling with estimates of the size of remaining reserves, and I wouldn't be too quick to dismiss as conspiracy theory any speculation about that.

Actually, it kind of is hard to see. As is the problem with all conspiracies of this magnitude, the number of people having to keep "quiet" about it would preclude this sort of thing from actually happening, as the number of players involved in a conspiracy goes up the likelihood of it being maintainable decreases.

There would in fact be strong political and economic motives to announce it and quickly rush to the "next big thing" in energy, whatever it may be. Keeping it quiet is not only impossible due to practical reasons, but because doing so would preclude getting free money from world governments out of the deal by stirring hysteria and panic over peak oil and the need to switch to another energy source.

Additionally, because data about oil reserves is open to researchers, both in the industry and academia, it would be impossible to hide it. Every major company involved in getting oil and distributing it has a vested interest to keep on top of the data and if peak oil were any time soon we'd see a much larger shift in public company budgets towards R&D on alternatives.

 

[BenBurch]

What is the controversy?

Logic dictates that any finite resource will reach a point where recovery gets more expensive and harder and output declines.

There are no exceptions to that.

It's just a matter of WHEN.

Its also entirely true that you NEVER run out of any resource like that, but it becomes too dear to use for most purposes.

This even applies to resources that can in principle renew, such as Sperm Whale Oil. (Complicated there because the resource may disappear if the total remaining gets small enough.)

 

[RecoveringYuppy]

That's not clear; some geologists believe that the conditions for formation of oil were specific to earlier stages of the planet and that oil can no longer be produced.

Yes, that's true. Plant's "inventing" cellulose prior to anything being able to digest it is suggested as such a stage I think (though maybe that one applies to coal more than oil).

 

[RecoveringYuppy]

Additionally, because data about oil reserves is open to researchers, both in the industry and academia, it would be impossible to hide it. Every major company involved in getting oil and distributing it has a vested interest to keep on top of the data and if peak oil were any time soon we'd see a much larger shift in public company budgets towards R&D on alternatives.

How do you rule out the possibility that current R&D budgets are sufficient? I tend to think that's the situation.

 

[lomiller]

What is the controversy?

Logic dictates that any finite resource will reach a point where recovery gets more expensive and harder and output declines.

It doesn’t follow that just because subsequent production is harder that overall production will drop. Each generation of semiconductor process technology is more difficult and more expensive then the last, but they have continued on the exact same trajectory for 50 years.

For oil production to drop one of two things has to happen, either supply has to disappear, or demand has to disappear. Since there is plenty of oil left in the ground the peak oil can’t be a supply based phenomenon, this leaves us with demand. Higher prices may moderate demand but oil is relatively price insensitive so barring a complete collapse of civilization the only way for oil use to drop quickly is for it to be replaced.

 

[drkitten]

How do you rule out the possibility that current R&D budgets are sufficient?

Because R&D budgets are never sufficient. There's always a possible breakthrough that someone is too cheap to fund.

Just as a simple example -- I don't think there's a lot of private funding for fusion generators. Boatloads of public funding, but little from companies. Of course, there's a reason for it. Fusion is classic "blue-sky" research where the chance of a breakthrough is extremely low, and it costs a lot. But that's exactly what people would be scrambling to fund if they saw a wall coming.

But having said that, the problem of companies and countries lying about their petroleum reserves is well-known. Read any of the industry reports and you'll see the complaints. The exact amount of petroleum reserves is typically a fairly closely guarded secret, for the same reasons that the number and yield of nuclear weapons are.

 

[drkitten]

For oil production to drop one of two things has to happen, either supply has to disappear, or demand has to disappear.

This is just ... wrong.

Elementary supply and demand -- shift the supply curve and the equilibrium point will shift. If you lower the costs, supply (and therefore production) will go up as prices go down. If you raise the costs, supply will go down and prices go up.

It doesn't get any simpler than that.

 

[BenBurch]

It doesn’t follow that just because subsequent production is harder that overall production will drop. Each generation of semiconductor process technology is more difficult and more expensive then the last, but they have continued on the exact same trajectory for 50 years.

For oil production to drop one of two things has to happen, either supply has to disappear, or demand has to disappear. Since there is plenty of oil left in the ground the peak oil can’t be a supply based phenomenon, this leaves us with demand. Higher prices may moderate demand but oil is relatively price insensitive so barring a complete collapse of civilization the only way for oil use to drop quickly is for it to be replaced.

Just not similar. Semiconductors increase in performance. Oil still has the same number of Joules per liter.

Plus DISCOVERY gets more expensive too. And more uncertain.

And we saw the effects of high oil prices already here in the USA, did we not? Prices got so high that demand dropped and jobs disappeared and only came down again once demand was depressed enough that there was a glut.

 

[lomiller]

Oil, however, is quite price inelastic, so the equilibrium doesn’t shift much. Even $150 per barrel oil last year didn’t cause a much of a drop-off in demand (though the financial crisis and recession did) How much would oil need to cost to cut global consumption in half, would $500 a barrel oil do it? How much oil becomes profitably recoverable at $500 a barrel?

 

[drkitten]

Oil, however, is quite price inelastic, so the equilibrium doesn’t shift much.

Yes. but unless it were entirely inelastic, we'd still see that effect.

Even $150 per barrel oil last year didn’t cause a much of a drop-off in demand (though the financial crisis and recession did)

Actually, it did. It just takes a while for the drop-off in demand to filter through the system (the price shift isn't instantaneous). Look at how patterns of car buying changed dramatically last summer before the great finance meltdown; large cars had taken a hit well before they became unfinanceable. And large cheap cars took a bigger hit than small expensive ones -- KIA SUV's were doing much worse than Toyota Prius's.

 

[lomiller]

Just not similar. Semiconductors increase in performance.

Moores law specifically addressed the number of transistors on a chip, not the fact that until recently smaller transistors performed better.

Each generation of smaller transistors took more money and effort then the last, and from all appearances they will continue to get smaller at a very stable rate right until the point where it’s physically impossible to make them any smaller. This happened because the item was profitable enough that you could put progressively more spending into each new generations.

 

[lomiller]

Look at how patterns of car buying changed dramatically last summer before the great finance meltdown; large cars had taken a hit well before they became unfinanceable. And large cheap cars took a bigger hit than small expensive ones -- KIA SUV's were doing much worse than Toyota Prius's.

true, but how long before that's offset by growth in China and India?

 

[drkitten]

Moores law specifically addressed the number of transistors on a chip, not the fact that until recently smaller transistors performed better.

Right. Which makes Moore's law largely irrelevant in this context, because we're not talking about size of transistors. We're talking about supply and demand.

Modern transistors are capable of doing things that previous generations were not, which means that they're a different product altogether. Naturally a more versatile product will have a higher demand, which converts to a higher price.

Each generation of smaller transistors took more money and effort then the last,

... but was also more versatile and useful than the last, so the demand for the new transistors was large enough to support the increased costs.

That's not the case with oil. You can't really do any more with oil today than you could in 1965.

 

[BenBurch]

... That's not the case with oil. You can't really do any more with oil today than you could in 1965.

Unless you have three biker chicks and a plastic tarp...

 

[drkitten]

true, but how long before that's offset by growth in China and India?

Depends on how willing they are to buy $70/bbl oil, and how much they're willing to invest in conservation measures instead. China is already planning on increasing their production of nuclear power from less than 1% of domestic consumption to over 15% in the next twenty years; this production schedule could easily be sped up if oil prices rise and stay high. They could also simply cut back on production of oil-intensive technologies.

Or, alternatively, they could scale back on the nuclear plants if oil drops and stays low.

Basically, what you're describing is contrary both to all economic theory and to all observation. Yes, oil is a good with a fairly inelastic demand, especially over the short term. This means that the prices needs to shift a lot to have an effect on demand. So what? We've already seen that prices can, and do, shift a lot.

You suggested that global demand would be halved if oil rose to $500/bbl, but that many currently unprofitable oil reserves would be profitable at that price. Again, so what? Many oil reserves would be profitable at that price, but they'd not find buyers, by the way we've set up the scenario. If I tried to sell my oil at $500/bbl in an already glutted market, it wouldn't be profitable at all; I'd make nothing. The only way I could make money would be to drop my price and undercut my competitors, which in turn would mean that some competitors (who need $500/bbl oil to stay profitable) would close down. When the dust settles, oil would cost something less than $500/bbl (since I needed to cut prices) but something more than current prices (or I would be in business and profitable today) -- and people would be buying less oil overall than they are today, but more than they would at $500.

So the net result of this price spike is that overall production has been lowered, even if there's still lots of oil in the ground.

Which is exactly what elementary supply and demand predict. And which is also exactly what Hubbert predicted. Overall production goes down as the price starts to skyrocket and drive demand down.

 

[LightinDarkness]

How do you rule out the possibility that current R&D budgets are sufficient? I tend to think that's the situation.

Because there has been no sudden increase across the board in R&D budgets as would be required if we were about to run out of oil. R&D budgets for publicly traded companies ebb and flow with the prevailing economic climate, as expected.

Not to mention that yet again the data on oil reserves is available to academia and someone would absolutely love to get the credit for being the first person to scream "PEAK OIL!" and be RIGHT about it. Thats the kind of publication academics dream about. If there were ANY significant amount of evidence that lead to this conclusion there would be a barnstorm to get it published.

 

[lomiller]

Actually we are discussing peak oil. Supply vs demand enters that conversation, but so does investment rate which is precisely what makes Moores law work.

More precisely each new process size took substantially more effort then the last, but they continued to be released at a very steady rate due to increased in investment. Similarly, as long as oil is profitable there will be increasingly larger new investments.

Oh, and transistors do what they have always done, else they would no longer be transistors, and far from being “better” then their predecessors today’s transistors barely work at all. That’s really another topic altogether though.

 

[drkitten]

Actually we are discussing peak oil. Supply vs demand enters that conversation, but so does investment rate.

Except for the fact that it doesn't.

Your simple counterfactual assertion that investment rate is relevant to peak oil does not make it so.

I'm running out of polite ways to tell you that you're wrong.

 

[JihadJane]

...the problem with all conspiracies of this magnitude, the number of people having to keep "quiet" about it would preclude this sort of thing from actually happening, as the number of players involved in a conspiracy goes up the likelihood of it being maintainable decreases.

There would in fact be strong political and economic motives to announce it and quickly rush to the "next big thing" in energy, whatever it may be. Keeping it quiet is not only impossible due to practical reasons, but because doing so would preclude getting free money from world governments out of the deal by stirring hysteria and panic over peak oil and the need to switch to another energy source.

What if there weren't a "next big thing" ?

Because there has been no sudden increase across the board in R&D budgets as would be required if we were about to run out of oil. ...

The feared impact of Peak Oil isn't about being "about to run out of oil". It is about supply being unable to meet demand. An economic system dependent on an ever growing supply of cheap energy cannot absorb a decline in energy supply without going into recession.

I understand that Hubbert has made it clear he does not like all the crackpots who have grabbed peak oil as a vehicle for thier nuttiness.

Well, he died in 1989 and peak oil wasn't really a much discussed issue at the time so that seems unlikely. He was concerned that people were not giving the issue enough attention.
Any source for this claim?

Dream on, Doghouse Reilly!

 

[lomiller]

Well then I guess we will have to disagree because I think it’s obvious that increasing investment levels spurred by increasing oil prices could keep oil production near current levels for a very long time. This is of course, unless the cheaper alternative I mentioned at the start comes along.