PEAK OIL: Going Mainstream

[lomiller]

Your lack of satisfaction notwithstanding, my response was to ask how well that applies to the peak of US production, and what cheaper energy source it was that replaced all that domestic oil. Your answer: imported oil.

At that point I decided to overlook some details which I felt unnecessarily complicate the matter: imported oil was not cheaper than domestic oil during the years that followed the peak of US production.

Are you suggesting that in 1970 it would have been just as cheap to extract oil in 500m of water in the Gulf of Mexico as it was to import it?

 

[Dymanic]

Are you suggesting that in 1970 it would have been just as cheap to extract oil in 500m of water in the Gulf of Mexico as it was to import it?

No. The energy cost of extracting oil from a pre-peak conventional onshore source will always be lower than that from any other source. All other things being equal (that is, to the extent that the price is not being artifically manipulated), this lower energy cost will be reflected in the market price.

If you are genuinely interested in identifying the point at which our viewpoints diverge, then before we proceed to the next non sequitur I wonder if you'd care to ignore yet another request (I believe this will be the third) that YOU clarify YOUR position. Are you a cornucopian? Do you believe that as long as we continue making fuel tanks the fuel will appear? I do hate to put words in other people's mouths. I consider that quite rude. But I've mostly been left to filling in the blanks. "We can't possibly be at peak oil, because we don't yet have a cheaper energy source". Is that an accurate paraphrasing of your stance?

It might help if you would at least show the curtesy of answering simple questions when asked. For example, I would still like to hear your answer to this:

Have YOU compared the actual production numbers to see how they compare to Hubbert's curve? I would describe that as a reasonable fit, but not perfect (the main discrepancy being that the actual decline was initially somewhat steeper than Hubbert predicted). Would you agree? If so, would you agree that it would also have been a reasonable-if-not-perfect fit if the actual peak had been flatter rather than sharper?

 

[lomiller]

No. The energy cost of extracting oil from a pre-peak conventional onshore source will always be lower than that from any other source. All other things being equal (that is, to the extent that the price is not being artifically manipulated), this lower energy cost will be reflected in the market price.

Offshore drilling didn’t begin in earnest until OPEC started to ramp up prices in the 70’s. Increases in North Sea oil production in particular played a key role in forcing OPEC to back off it’s price targets, and helped bring prices back down in the 80’s. This resource wasn’t particularly viable from a financial perspective until OPEC pushed up prices in the 70’s.

Alaskan oil production kicked off for much the same reason, it wasn’t cost effective to build the infrastructure to get the oil there until OPEC pushed up prices. Oil sand production in Canada began at much the same time for the same reason, and expanded greatly in the early 1990’s when the first Gulf War pushed up prices. It’s much smaller in scale but serves as another example is the Hibernia project off the cost of Newfoundland which wasn’t financially attractive until oil hit $40 in the wake of the first Gulf War. More recent deep water production off the cost of Brazil isn’t financially attractive below $80 a barrel. Etc, etc.

If you are genuinely interested in identifying the point at which our viewpoints diverge, then before we proceed to the next non sequitur I wonder if you'd care to ignore yet another request (I believe this will be the third) that YOU clarify YOUR position. Are you a cornucopian? Do you believe that as long as we continue making fuel tanks the fuel will appear?

I believe that as long as people are willing to pay what it costs to fill those tanks there will be fuel to put into them. This cost will go up as we move to more expensive sources of oil, but as long as oil remains cheaper then competing technologies people will be willing to pay and increasing investment will offset the higher cost of the resource being tapped.

There is no simply shortage of oil left to be if the price of oil is sufficiently attractive. The “cap” to the price of oil will not come from lack of demand it will come when oil becomes more expensive then replacements like battery/electric, bio fuels, etc.

 

[JoeTheJuggler]

It is literally impossible for consumption to exceed production; you can't burn what hasn't been produced.

That's exactly my point! That's why it will be problematic even though it wasn't problematic back in the 1950s when we were on the upside of the production curve.

But, like it or not, our entire economy is deeply dependent on uncontrolled consumption of petroleum. Efforts to increase CAFE standards, for example, have met with tremendous resistance, and have not resulted in a decrease in oil consumption in the U.S.

If we don't drastically reduce consumption by choice now, we will be forced to by the drop off in production later. If we haven't made substantial progress by 2020 or so (and not this nibbling about the edges we've done so far), we're in for a rude awakening.

 

[Dymanic]

Alaskan oil production kicked off for much the same reason, it wasn’t cost effective to build the infrastructure to get the oil there until OPEC pushed up prices.

OPEC was formed in 1960. Why was it more than a decade before it was able to wield the sort of power that could cause the price of oil to quadruple?

I believe that as long as people are willing to pay what it costs to fill those tanks there will be fuel to put into them.

I don't disagree with that, as far as it goes; but I believe you could say the same thing about luxury yachts: as long as there are people willing and able to pay what it costs to build them, there will be yachts for them to buy. In that sense, there will never be a significant shortage of luxury yachts. Even if there were, it would arguably not be a major blow to global economies. If the price of yachts quadrupled, or if it increased a hundredfold, the number of people willing and able to buy them would drop off considerably -- but billions of people across the planet would not care, even if they noticed.

Oil is another matter. Because it is of vital strategic and ecomomic importance, an increase in price has an immediate impact on everyone not living a totally self-sufficient lifestyle. When products made from oil become luxury items affordable only by a privileged few, or tightly rationed on a priority basis, the quality of life implications extend to everyone; not merely the privileged few.

Evidently, my question was too vaguely worded. I'll rephrase:

Do you believe that as long as people continue to be willing (and somehow able) to pay ever-increasing prices for the fuel to fill ever-increasing numbers of tanks, there will continue to be ever-increasing amounts of fuel to put into them?

 

[drkitten]

I believe that as long as people are willing to pay what it costs to fill those tanks there will be fuel to put into them. This cost will go up as we move to more expensive sources of oil, but as long as oil remains cheaper then competing technologies people will be willing to pay and increasing investment will offset the higher cost of the resource being tapped.

There is no simply shortage of oil left to be if the price of oil is sufficiently attractive. The “cap” to the price of oil will not come from lack of demand it will come when oil becomes more expensive then replacements like battery/electric, bio fuels, etc.

So you don't think that "mere" price increases are sufficient to cause a drop in consumption?

Because the empirical evidence disagrees. For example, oil consumption dropped radically in summer 2008 and then again in 2009.

Or to put it another way, people are demonstrably not willing to pay what it costs to fill the gas tanks a Hummer, which is why the Hummer line no longer exists. (Hummer sold fewer than 10,00 vehicles in all of 2009 -- not by coincidence, the same year that we had the drastic drop in oil consumption.)

 

[Chaos]

So you don't think that "mere" price increases are sufficient to cause a drop in consumption?

Because the empirical evidence disagrees. For example, oil consumption dropped radically in summer 2008 and then again in 2009.

Or to put it another way, people are demonstrably not willing to pay what it costs to fill the gas tanks a Hummer, which is why the Hummer line no longer exists. (Hummer sold fewer than 10,00 vehicles in all of 2009 -- not by coincidence, the same year that we had the drastic drop in oil consumption.)

There´s isn´t, technically speaking, one demand for oil - there are so many things oil is used for, and the demand for oil for different uses varies in elasticity. So it is quite plausible that some sort of demand react only very little to a price increase, and/or with a delay, even to the point where the effect of a price increase is lost in normal variations of demand.

For example, I imagine that, in a cold winter, the demand for oil for heating shows little price elasticity, whereas usually, in an urban area with good public transport, demand for oil for private transportation shows much more elasticity.

 

[lomiller]

OPEC was formed in 1960. Why was it more than a decade before it was able to wield the sort of power that could cause the price of oil to quadruple?

How/when they gained this pricing power doesn’t change the fact that it caused the development of resources that would have been left alone at lower prices.

Do you believe that as long as people continue to be willing (and somehow able) to pay ever-increasing prices for the fuel to fill ever-increasing numbers of tanks, there will continue to be ever-increasing amounts of fuel to put into them?

Never at any point have I said there will be an ever increasing amount of fuel put in them.

In fact I think production/consumption will stay relatively flat for a prolonged period of time. During this period I expect prices to increase in order to offset the higher cost of the resources being developed. Eventually when oil prices get high enough we will stop burring the stuff for energy and move to alternatives resulting is a rapid decline in both production/consumption. This type of plateau is decidedly not a Hubbert peak which was my original point.

So you don't think that "mere" price increases are sufficient to cause a drop in consumption?

Because the empirical evidence disagrees. For example, oil consumption dropped radically in summer 2008 and then again in 2009.

Or to put it another way, people are demonstrably not willing to pay what it costs to fill the gas tanks a Hummer, which is why the Hummer line no longer exists. (Hummer sold fewer than 10,00 vehicles in all of 2009 -- not by coincidence, the same year that we had the drastic drop in oil consumption.)

Your link doesn’t mention 2008 as far as I can see, it does discuss 2009 in which case most of the decline can’t likely be attributed to the financial crisis and ensuing recession. In addition it cites a total drop in consumption of only 1.3%. The fact that this is the greatest decline since 1982 seems to support the idea that oil is very price inelastic and it will take very high prices indeed to make people stop using it.

Yes this paints a pretty grim outlook for places built around the automobile with little accommodation for any other type of transportation. I’m not saying it’s a good thing just that it’s something I think is likely.

 

[Dymanic]

How/when they gained this pricing power doesn’t change the fact that it caused the development of resources that would have been left alone at lower prices.

It certainly contributed to the push to develop those resources, but things are not quite so simple; there are some reciprocal relationships involved here. The reason that the US was not able to effectively respond instead by increasing production from sources that would have been profitable even at lower prices was that there was no remaining surplus production capacity in its mature oilfields. That fact was itself a contributing factor in BOTH the increase in OPEC's pricing power AND the push for development of less than optimal sources. It's important to note that even with that development, added to what we were already producing, and no matter how high the price of oil has gone or how hard we have flogged the ground in the years since 1970 (including the opening of Alaska's North Slope), we've never matched the output seen in that peak year.

Are you satisfied that we have put to rest the notion that the peak of US production was a result of competition from cheaper imported oil?

Never at any point have I said there will be an ever increasing amount of fuel put in them.

Never said you did. That's why I posed it as a question. I appreciate that clarification (even if getting it was like pulling teeth).

In fact I think production/consumption will stay relatively flat for a prolonged period of time. During this period I expect prices to increase in order to offset the higher cost of the resources being developed. Eventually when oil prices get high enough we will stop burring the stuff for energy and move to alternatives resulting is a rapid decline in both production/consumption. This type of plateau is decidedly not a Hubbert peak which was my original point.

A lot would seem to depend on just how prolonged a period of time we're talking about (and on how much volatility "relatively flat" might allow for). If it's relatively brief, it could easily conform reasonably well to an ideal Hubbert curve (at least, to a person perhaps less inclined than you are to insist on strict adherence to that). If it goes on long enough, it might begin to look more like one of the cornucopian scenarios (the "undulating plateau" variety).

At least we do seem to be homing in on the point where we disagree. I don't discount the possibility of some kind of a plateau, but I don't see any good reason to expect it to be either stable enough or long enough in duration to facilitate a smooth transition to an economy based on alternatives. We might have had a shot at that if we had started laying the groundwork twenty or thirty years ago, but the attitude then was: party on; we'll cross that bridge when we come to it. That attitude appears to be widely prevalent now, even though oil industry analysts are saying that we've reached that bridge, or will soon, or have already crossed it -- and we still don't have a plan.

I think we're in for one hell of a ride.

 

[lomiller]

It certainly contributed to the push to develop those resources, but things are not quite so simple; there are some reciprocal relationships involved here. The reason that the US was not able to effectively respond instead by increasing production from sources that would have been profitable even at lower prices was that there was no remaining surplus production capacity in its mature oilfields. That fact was itself a contributing factor in BOTH the increase in OPEC's pricing power AND the push for development of less than optimal sources. It's important to note that even with that development, added to what we were already producing, and no matter how high the price of oil has gone or how hard we have flogged the ground in the years since 1970 (including the opening of Alaska's North Slope), we've never matched the output seen in that peak year.

US oil production does not exist in a vacuum. If the US were forced to use only oil it produced itself US oil prices would be much higher then they are today and the rate at which less conventional (offshore, deep water, oil shale, etc) sources are developed would be greatly accelerated.

The price increases of the 70’s already blew the Hubbert curve by making it economical to develop Alaskan oil. A much larger price increase would have had a correspondingly large effect. (And yes significant negative consequences for the US economy as well)

A lot would seem to depend on just how prolonged a period of time we're talking about (and on how much volatility "relatively flat" might allow for). If it's relatively brief, it could easily conform reasonably well to an ideal Hubbert curve (at least, to a person perhaps less inclined than you are to insist on strict adherence to that). If it goes on long enough, it might begin to look more like one of the cornucopian scenarios (the "undulating plateau" variety).

Take current proves reserves + 50% of the oil sands. That gives ~3 trillion barrels of oil, enough to sustain current global production for another 100 years. I suspect, or perhaps more accurately hope that we stop burning oil for energy long before this but timing would need to be driven by political forces and cost of alternatives rather then resource availability.

 

[Dymanic]

The price increases of the 70’s already blew the Hubbert curve by making it economical to develop Alaskan oil.

They didn't, actually. A ways back I asked whether you had actually looked at the data to see how it compares to Hubbert's prediction. It appears that you have not done that. To the extent that the curve might be considered "blown", it would be due to actual production data exhibiting a sharper peak than what Hubbert predicted -- not the flatter one that would be expected if what you say is true and price increases "blew the curve" by making it economical to develop Alaskan oil.

Take current proves reserves + 50% of the oil sands. That gives ~3 trillion barrels of oil, enough to sustain current global production for another 100 years.

The critical thing you're missing here is that "current global production" refers to a rate of extraction. If you wanted to argue that ~3 trillion barrels (or whatever it is) would be enough to sustain some fraction of current production for some hundreds of years, that would be one thing. But to talk about sustaining that rate of production from sources like oil sands is patently absurd. If the consensus among oil industry experts were that such a thing is possible, we would not be having this discussion at all.

 

[Beerina]

I believe that as long as people are willing to pay what it costs to fill those tanks there will be fuel to put into them. This cost will go up as we move to more expensive sources of oil, but as long as oil remains cheaper then competing technologies people will be willing to pay and increasing investment will offset the higher cost of the resource being tapped.

Even that's unlikely.

The "common sense" idea buttressing the boldfaced part above derives from the incorrect feeling that we'll just suddenly run out.

As long as free capitalism can keep ahead of the curve, in the absence of government intervention, the prices could, and should, continue to drop.


Look at the current oil leak in the Gulf. It's multi-mile drilling through miles of water.

Look at the "relief" well being drilled. It's down through miles of water, a mile down into the ground, right turn, 5 more miles or something. That's the current state of the art in drilling. Even the big rigs are going bye-bye in favor of computer-stabilized drilling ships.

There is no simply shortage of oil left to be if the price of oil is sufficiently attractive. The “cap” to the price of oil will not come from lack of demand it will come when oil becomes more expensive then replacements like battery/electric, bio fuels, etc.

I'm willing to bet we'll never get off oil (or oil-like) hydrocarbons, such as certain biofuels. Technology will begin to produce such artificially as ground oil does start to dry up. In conjunction with the above, more likely than not, it will be cheaper than ever.

 

[Hindmost]

Even that's unlikely.

The "common sense" idea buttressing the boldfaced part above derives from the incorrect feeling that we'll just suddenly run out.

As long as free capitalism can keep ahead of the curve, in the absence of government intervention, the prices could, and should, continue to drop.


Look at the current oil leak in the Gulf. It's multi-mile drilling through miles of water.

Look at the "relief" well being drilled. It's down through miles of water, a mile down into the ground, right turn, 5 more miles or something. That's the current state of the art in drilling. Even the big rigs are going bye-bye in favor of computer-stabilized drilling ships.





I'm willing to bet we'll never get off oil (or oil-like) hydrocarbons, such as certain biofuels. Technology will begin to produce such artificially as ground oil does start to dry up. In conjunction with the above, more likely than not, it will be cheaper than ever.

Future energy conversion will return less energy compared to the energy input...it will cost more as a result. There is nothing on the horizon that can return energy as cheaply and easily as conventional oil. Fission and fusion have the probability of high energy return, but engineering and cost limitations are formidable.

glenn

 

[JihadJane]

Is this the Saudi's way of admitting that their oil production has peaked?

Saudi King: Halt To Oil Exploration To Save Wealth

 

[aquitaine]

We're not doomed. As the price of oil has gone up, alternatives suddenly become much more economical.

 

[JihadJane]

We're not doomed. As the price of oil has gone up, alternatives suddenly become much more economical.

Have you considered the cost of new, alternatives infrastructure, the time needed to build it, the impact of oil price volatility, and world-wide economic depression?

What alternatives do you have in mind that that can replace oil's multi-faceted role in driving industrial civilization? Can they be scaled up quickly enough to offset a permanent decline in oil production?

 

[aquitaine]

Have you considered the cost of new, alternatives infrastructure, the time needed to build it, the impact of oil price volatility, and world-wide economic depression?

What alternatives do you have in mind that that can replace oil's multi-faceted role in driving industrial civilization? Can they be scaled up quickly enough to offset a permanent decline in oil production?

Our biggest problem is transportation, fortunately we have electric cars coming onto the market now. For daily commutes battery power is enough. Charging stations are easy to build. You'd be surprised how quickly things can scale up thanks to the industrial revolution.

 

[JihadJane]

What's powering the charging stations?

 

[Dymanic]

Our biggest problem is transportation, fortunately we have electric cars coming onto the market now. For daily commutes battery power is enough. Charging stations are easy to build. You'd be surprised how quickly things can scale up thanks to the industrial revolution.

It's not that I disagree with any of that, it's just that it seems to overlook more than it considers.

Yes, we have electric cars coming on the market now -- but then, there have been manufacturers trying to market electric cars for more than a century, with very limited success (the first hybrid was built in 1917).

Yes, battery power is enough for daily commutes, if the vehicles are small enough and light enough -- but then, as long as commuting involves maintaining traffic speed on roadways dominated by multi-ton monstrosities, surviving the experience would seem to be the trick.

Yes, charging stations are easy to build -- but then, it's not a simple matter of building charging stations any more than it is a simple matter of building electric vehicles; we're talking about a need for a massively expanded electrical transmission infrastructure as well as the additional generating capacity (and don't forget: batteries).

Yes, things do scale up quickly in a modern industrial economy -- but then, that's assumming availability of affordable energy; a proposed lack of which being the very problem we need to solve.

I'm not saying that converting our transportation sector to rely more on electricity than on fossil fuels is impossible, or even impractical. I do, however see it as an enormous and very expensive undertaking, and one which becomes more difficult and expensive as the price of oil increases. It seems to me that most people accept that this is something we will have to do -- eventually. I see it as something we desperately needed to begin doing twenty or more years ago.

 

[aquitaine]

What's powering the charging stations?

Electricity, none of which comes from oil.

Yes, we have electric cars coming on the market now -- but then, there have been manufacturers trying to market electric cars for more than a century, with very limited success (the first hybrid was built in 1917).

Yes, battery power is enough for daily commutes, if the vehicles are small enough and light enough -- but then, as long as commuting involves maintaining traffic speed on roadways dominated by multi-ton monstrosities, surviving the experience would seem to be the trick.

That statement forgets the enormous progress battery capacity has made in the past 20 years, as well as the drop in the cost of manufacturing. True we had batteries 100 years ago, but they were nowhere near as good as what we have today.

Yes, charging stations are easy to build -- but then, it's not a simple matter of building charging stations any more than it is a simple matter of building electric vehicles; we're talking about a need for a massively expanded electrical transmission infrastructure as well as the additional generating capacity (and don't forget: batteries).

Yes, things do scale up quickly in a modern industrial economy -- but then, that's assumming availability of affordable energy; a proposed lack of which being the very problem we need to solve.

I'm not saying that converting our transportation sector to rely more on electricity than on fossil fuels is impossible, or even impractical. I do, however see it as an enormous and very expensive undertaking, and one which becomes more difficult and expensive as the price of oil increases. It seems to me that most people accept that this is something we will have to do -- eventually. I see it as something we desperately needed to begin doing twenty or more years ago.
Today 04:21 PM

Why would we need to massively expand our infrastructure? Even present day gas stations have electricity lines going into them. Yes we'll need to build more power plants. Cheap? No, not initially, but over time it proves its worth. I find it interesting that you talk about a lack of cheap energy, when in fact we have a source of energy that is so much more powerful than any fossil fuel: nuclear fission.