New one about Peak Oil

[lomiller]

The problem is that investment wants to take the shortest path to the money. It won't make a large scale shift toward alternative technologies as long as oil remains viable as the primary source of energy. But when investment does make that shift, the energy demand will increase.

A more likely scenario is that the energy being put into new oil production will be put into alternative energy production instead.

Basically what I expect to see is higher oil prices driving more and more investment (money and energy) into keeping oil production near current levels until the alternatives become a better bet and then the efforts will switch rapidly. Oil production will then decline as existing capacity gets used up at the same time as alternatives ramp up to take the slack.

 

[drkitten]

A more likely scenario is that the energy being put into new oil production will be put into alternative energy production instead.

Basically what I expect to see is higher oil prices driving more and more investment (money and energy) into keeping oil production near current levels until the alternatives become a better bet and then the efforts will switch rapidly.

That's simply not going to happen. Higher oil prices will reduce demand, even as previously uneconomic fields become economic. Trying to maintain production near current levels at higher prices will result in an excess of supply over demand, lowering prices below the equilibrium price, which in turn will result in actual loss to the investors in the excess production.

The return on investment (ROI) for oil production is therefore likely to see a gradual drop; as the ROI drops gradually, ROI in alternative methods will similarly increase gradually and we'll see a graded shift from oil to alternative energy sources.

 

[drkitten]

The problem is that investment wants to take the shortest path to the money.

Not at all. Investment wants the shortest path to the most money.

There's a reason that venture capitalists exist; VC funders are interested in long-term funding of investments with an extremely high ROI.

Mutual funds, on the other hand, tend to be interested in short-term funding of investments with "acceptable" ROI. And there are a whole range in between; we can, for example, distinguish as Morningstar does between "income" funds (where short-term gains are paramount) vs "growth" funds (which attempt to maximize ROI consonant with preservation of capital) vs. "VC" funds (which essentially want to maximize ROI and don't give a hang about capital preservation).

It won't make a large scale shift toward alternative technologies as long as oil remains viable as the primary source of energy.

Sure it will. Because people are going to realize that while oil is short-term viable, it's not long-term viable. This will mean that the VC funds will shift to alternative energy. When people start to question medium-term viability, the growth funds will shift to alternative energy. The future isn't here "all at once," and there are lots of piles of money that are specifically looking at horizons five, ten, or twenty years in the future (or even longer).

 

[JihadJane]

Solar, wind, geothermal, nuclear, fusion, antimatter, magic pixies,.... take your pick.

Personally, my favorite is to tap into the hot air from ignorant Web forum posters.

Do you have any figures on whether these sources can offset the projected decline in fossil energy sources or are you just hoping?

 

[drkitten]

Do you have any figures on whether these sources can offset the projected decline in fossil energy sources

I do.

The total human energy consumption is approximately 1.6 x 10^13 Joules/second.

The amount of energy the Earth receives from the sun each second is approximately 1.74 x 10^17 J/s.

The amount of energy in the identified U-238 reserves is approximately 2.9 x 10^22 J.

The total energy output of the sun is approximately 3.86 x 10^26 J/sec.

The rest is just engineering.

 

[Dymanic]

Because people are going to realize that while oil is short-term viable, it's not long-term viable. This will mean that the VC funds will shift to alternative energy.

Will they? An awful lot of them sure don't seem to be seeing it now. What the hell do you think it's going to take? I'll tell you what I think: I think it's going to take oil ceasing to be short-term viable for them to see that it isn't long-term viable. It just seems to be human nature.

If that IS what it takes, then by the time they realize that it will be too late, because it isn't just about ROI, but also about EROEI; the rest isn't just engineering. It's engineering plus the energy resources to go from drawing board to reality.

The future isn't here "all at once", but there's nothing guaranteeing that the post peak rise in oil prices will be nice and steady and predictable, permitting a nice smooth graded shift toward alternative sources. I think there is a lot more reason to predict that the global energy economy will respond more like an overloaded washing machine entering the spin cycle.

 

[drkitten]

Will they? An awful lot of them sure don't seem to be seeing it now.

Really? Where do you think all the wind farms and such are popping up from? For that matter, Boone Pickens isn't exactly a low-profile VC investor. Look at what he's doing with alternative energy.

What you're not going to see is a tremendous development of alternative energy infrastructure that doesn't work -- which is (unfortunately) what we would be building right now. There's a lot of R&D going into alternative energy that's a precursor to building the actual power plants.

What the hell do you think it's going to take?

Time and a closer inspection. The progress is out there; it's just happening in labs instead of out in the field.

The future isn't here "all at once", but there's nothing guaranteeing that the post peak rise in oil prices will be nice and steady and predictable,

No, there are no guarantees. On the other hand, that's the way the smart money is betting, because that's the way the rest of the resource exhaustion curves have tended to go.

Why do you expect oil exhaustion to be unique in recorded history in how it behaves?

 

[lomiller]

That's simply not going to happen. Higher oil prices will reduce demand, even as previously uneconomic fields become economic. Trying to maintain production near current levels at higher prices will result in an excess of supply over demand, lowering prices below the equilibrium price, which in turn will result in actual loss to the investors in the excess production.

You are assuming population is fixed, which isn’t the case. Even if individual demand drops global demand can increase as population increases. Furthermore, even if global population stopped increasing the number of people participating in the oil economy is still going to go up due to economic growth in China/India.

 

[Dymanic]

Where do you think all the wind farms and such are popping up from?

Maybe I'm just not seeing all that as being very significant at this point compared to investments that depend on (that assume) a continuing steady supply of cheap oil.

Why do you expect oil exhaustion to be unique in recorded history in how it behaves?

Because never before have so many depended so much on a single resource.

 

[drkitten]

You are assuming population is fixed, which isn’t the case.

No, I'm not.

 

[drkitten]

Maybe I'm just not seeing all that as being very significant at this point compared to investments that depend on (that assume) a continuing steady supply of cheap oil.

That's right. That's because there's a lot less VC investment than there is short-term investment. This shouldn't surprise you. That's exactly what this model predicts; increasing investment in alternative fuels over time.

But what you're really answering is "maybe you didn't look hard enough."

 

[BenBurch]

Actually an engineer friend of mine and I did look into building a prototype agro-robot.

The concept was a small 40 kg solar-powered machine to walk rows of crops to took for insect pests and weeds and kill them mechanically. It would condense water from the air and use extremely high-velocity water drops to cut weeds at the soil line and to damage insects and larvae to the point where they would quickly expire.

We found many problems with the idea we just could not see our way around.

 

[Dymanic]

That's because there's a lot less VC investment than there is short-term investment. This shouldn't surprise you.

No, it's pretty much what I had in mind when I talked about investment wanting to take the shortest path to the money (treating "to the most money" as implicit). That's just what I'm saying: we're not seeing short-term investment in long-term solutions, but there aren't any good short-term solutions. We don't seem to have the ability to steer away from this brick wall; we'll just have to go ahead and slam into it and then see what we can build out of the wreckage.

But what you're really answering is "maybe you didn't look hard enough."

With some things, it seems like you'll always find more no matter how hard you look, and no matter what perspective you take, there will be others which might arguably be just as valid.

Peak oil is a Wicked Problem.

 

[lomiller]

No, I'm not.

Are you suggesting increasing price will always cause demand to drop even when other demographics forces are creating new consumers of the product? If so I disagree.

 

[JihadJane]

I do.

The total human energy consumption is approximately 1.6 x 10^13 Joules/second.

The amount of energy the Earth receives from the sun each second is approximately 1.74 x 10^17 J/s.

The amount of energy in the identified U-238 reserves is approximately 2.9 x 10^22 J.

The total energy output of the sun is approximately 3.86 x 10^26 J/sec.

The rest is just engineering.

Fantasy engineering?

 

[Hindmost]

A more likely scenario is that the energy being put into new oil production will be put into alternative energy production instead.

Basically what I expect to see is higher oil prices driving more and more investment (money and energy) into keeping oil production near current levels until the alternatives become a better bet and then the efforts will switch rapidly. Oil production will then decline as existing capacity gets used up at the same time as alternatives ramp up to take the slack.

That's simply not going to happen. Higher oil prices will reduce demand, even as previously uneconomic fields become economic. Trying to maintain production near current levels at higher prices will result in an excess of supply over demand, lowering prices below the equilibrium price, which in turn will result in actual loss to the investors in the excess production.

The return on investment (ROI) for oil production is therefore likely to see a gradual drop; as the ROI drops gradually, ROI in alternative methods will similarly increase gradually and we'll see a graded shift from oil to alternative energy sources.

I have to say, I think you are both wrong on this. Or at least not completely right

Higher oil prices will continue into the future, unless there is just a complete depression. In the short term, production will be held high by enhanced recovery. The countries that need the oil revenue will continue to attempt keep production high. There is reasonable evidence that enhanced oil recovery accelerates the downside of oil production. The ability of "alternative" energies to replace oil will be limited because of many factors including population growth, the laws of thermo, water, etc. You just can't replace 400 quads that easily. There won't be an equilibrium price because there isn't an infinite supply. There is a baseline energy need that won't be eliminated through higher prices per barrel.

I work in nuclear power and right now, we are expecting break even in the US as far as capacity is concerned...it takes a bunch of money and a bunch of time to get them online and nuclear is the most favorable from an energy density viewpoint. Right now, the "free market" has already caused some utilities to delay their nuclear plans.

This is just not an easy issue that "innovation" and "free market" forces are going to solve with current thinking and without a fair amount of difficulty across the world. Oil infrastructure provide 80-85% of the worlds energy needs and that will decrease at about 1 to 2% a year when we go over the peak...which is a very fuzzy peak.

We have a confluence of events that won't be easy to solve.

glenn

 

[drkitten]

I have to say, I think you are both wrong on this. Or at least not completely right

Higher oil prices will continue into the future, unless there is just a complete depression. In the short term, production will be held high by enhanced recovery. The countries that need the oil revenue will continue to attempt keep production high. There is reasonable evidence that enhanced oil recovery accelerates the downside of oil production. The ability of "alternative" energies to replace oil will be limited because of many factors including population growth, the laws of thermo, water, etc. You just can't replace 400 quads that easily. There won't be an equilibrium price because there isn't an infinite supply.

I don't think you understand the terminology.

If there were no equilibrium price, there would be no sales. That's all that "equilibrium price" means -- the price at which there are enough potential buyers to buy the supply the potential sellers are willing to deliver. Today the equilibrium price is about $73.11/bbl; it will no doubt be higher by the end of the summer, because there are more potential buyers with the northern hemisphere summer.

It's in no sense a long-term or a stable equilibrium.

I work in nuclear power and right now, we are expecting break even in the US as far as capacity is concerned...it takes a bunch of money and a bunch of time to get them online and nuclear is the most favorable from an energy density viewpoint. Right now, the "free market" has already caused some utilities to delay their nuclear plans.

That's because $73/bbl isn't (yet) enough to make a substantial dent in consumption, especially compared with last year's prices and the recession that have already cut substantially into consumption. The first round of people who can cut down on their use have already done so (oil imports are down slightly between March 2008 and March 2009, for example); it is likely that another price shock will be necessary to produce another cut -- but it's equally likely that another price shock is coming.

At some point, companies will start investing in conservation and alternative energy, if only to protect themselves against future shocks. Indeed, we're already seeing that happen to some extent. The more prices rise, th emore companies will do so.

Which is exactly what supply/demand predict. Higher costs mean lower supply. Lower supply equals higher price, which in turn means lower demand. The equilibrium price shifts, to the point where less oil is on the market, at a higher price than before.

 

[drkitten]

That's just what I'm saying: we're not seeing short-term investment in long-term solutions,

That shouldn't surprise you. Short-term, there's no ROI in alternate fuels. Which is why funds seeking short-term ROI aren't interested.

But that's not the same as saying no one is interested.

If you're looking for an expert oncologist, check in a hospital, not the violin section of the local symphony.

 

[Hindmost]

I don't think you understand the terminology.

If there were no equilibrium price, there would be no sales. That's all that "equilibrium price" means -- the price at which there are enough potential buyers to buy the supply the potential sellers are willing to deliver. Today the equilibrium price is about $73.11/bbl; it will no doubt be higher by the end of the summer, because there are more potential buyers with the northern hemisphere summer.

It's in no sense a long-term or a stable equilibrium.

I understand simple economic theory. What I am saying--long term- that normal supply and demand curves won't apply. Oil is not like a plasma TV where the price kept people away. What I am indicating, is that a certain amount of energy is needed and oil and natural will no longer be able to supply that need. The price will continue to increase over time and the ability to replace that energy is not going to be an easy transition.

That's because $73/bbl isn't (yet) enough to make a substantial dent in consumption, especially compared with last year's prices and the recession that have already cut substantially into consumption. The first round of people who can cut down on their use have already done so (oil imports are down slightly between March 2008 and March 2009, for example); it is likely that another price shock will be necessary to produce another cut -- but it's equally likely that another price shock is coming.

At some point, companies will start investing in conservation and alternative energy, if only to protect themselves against future shocks. Indeed, we're already seeing that happen to some extent. The more prices rise, th emore companies will do so.

Which is exactly what supply/demand predict. Higher costs mean lower supply. Lower supply equals higher price, which in turn means lower demand. The equilibrium price shifts, to the point where less oil is on the market, at a higher price than before.

This is just short term price and demand. Yes, the price will hit some equilibrium...if Morgan Stanley stays away from the market... Longer term, there will be an inability to provide enough oil for normal market forces and the price will go vertical because alternative energies have severe limitations of energy density, complexity, water resources and population increase. There is a certain energy floor that supports essential production and services. The lack of diversity in the world's energy supply will trump economic theory.

glenn

 

[Dymanic]

That shouldn't surprise you. Short-term, there's no ROI in alternate fuels.

It doesn't surprise me. Maybe you think I'm suggesting that investors are to blame for the lack of swift movement toward alternatives. I'm not. The investors do what the market dynamics compel them to do. What I'm saying is that if we wait until the market dynamics compel them to move toward alternative energy sources, it will be too late. It may work out fine for a lot of investors; they'll make money. But for the majority of people -- whose role in the energy economy is primarily as consumers rather than investors -- it has the potential to work out very badly.