I was in a Christian bookstore earlier today and noticed a couple of titles ringing alarm bells and tying fears of economic collapse and the end of oil to end-times prophecy. One of the reasons I love economics is that it forces us to be honest with ourselves about our beliefs. The well-worn objection to the “we’re going to run out of oil” thesis is that anyone who truly believes this should be loaded up on oil futures: falling future supply will ostensibly mean much higher prices, so anyone with better knowledge than other market participants about what is going to happen to the oil market can profit handsomely by acting on this knowledge. Yes, this depends on specific institutional conditions like well-functioning markets, but it highlights the fact that the social institutions and the incentives they generate are what matter, not the quantity of crude petroleum in the Earth’s crust.
In May, lots of people had a hearty laugh at the expense of Harold Camping, who had prophesied that the world would end on May 21, 2011. As I pointed out at the time, markets can help us “(p)rove all things” and “hold fast that which is good.” Specifically, superior knowledge relative to other market participants means profitable opportunities and, as Michael Munger points out in this EconTalk podcast, a golden opportunity to correct others’ mistakes. Are we to trust the superior wisdom of someone who is unwilling to act on it? One might be claiming to do so by publishing books and articles sounding the alarm bells, but as we all know, talk is cheap.
I also wondered how many of those laughing at Camping and his followers “nonetheless nod sagely, furrow their brows, and reach for their checkbooks whenever professional doomsayers in the environmental movement like Lester Brown and Paul Ehrlich warn of overpopulation, the end of oil, and the end of prosperity in spite of track records littered with doomsday predictions that failed to come true.”
The effect on flesh-and-blood human beings is not to be discounted. First, people have limited time and energy with which to worry about the end of the world. Second, as Christmas approaches, we do well to realize that Ebenezer Scrooge was wrong about the “surplus population.” As long as we have the institutions right, we aren’t going to run out of oil and we aren’t going to have “too many” people. The tragedy is that people who are attempting to change the institutions so as to conserve oil or curb population growth through non-market channels are undermining the very mechanisms that make society resilient to population pressure, political uncertainty, and other problems.
Doomsday prophecies crop up with distressing regularity. Here’s an idea for a graduate student looking for a paper or dissertation topic: look at the track record of alarmist books in the ECONOMAGEDDON genre. This might be a useful line of inquiry because ideology matters for the formation of economic and social policy. Paul Ehrlich’s The Population Bomb, for example, probably remains as (inexplicably) influential as it is (explicably) wrong. This would admit a potentially interesting test of the track record of Christian versus secular economageddon books. Do those who claim divine authority have a better track record than those who don’t?
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I agree, but haven’t a lot of libertarians lately been advocating the “stock up on supplies, get to the bunker” mentality lately?
I think our current situation is described implicitly by Carden’s reference in his first paragraph to a well-functioning market economy, a facet of our modern economy we can no longer assume and hence the reason why libertarians et al. are taking stock and stocking up. It’s not the end of prosperity—only its abbreviation, while this era of unprecedented social experimentation plays out.
Unfortunately Art Carden is probably right (pun intended). After the remaining US “middle class” is crushed and most can’t afford to own private cars there will be a fuel surplus.
Peak Oil is not a doomsday prediction so much as it is an energy issue. Given that the resource is finite and non-renewable, it is just a fact of the supply that it will run out eventually. I seriously doubt that we will ever run out of oil, but we will likely see a situation where we are no longer able to extract oil from the Earth using less input energy than we are able to extract and refine for use at the end of the chain. EROI is the more likely obstacle in the viability of oil as an energy source. A collapsing economy that leaves the population unable to afford oil as an energy source is just another possibility, but only if the train goes off the tracks. If nothing changes, we will likely realize EROI as the unavoidable obstacle.
http://www.theoildrum.com/node/3786
Usually when somebody cries wolf about running out of oil, I point out that the US has an estimated 600 year supply of coal, and that coal can be converted to fuel, and even when that runs out, CO2 can be pulled from the air and reformulated into fuel by nuclear power plants at an estimated cost that’s about 3 times the cost of fuel now, and that nuclear fuel sources can be made to last 1000′s of years. Methane can also be reformulated into regular fuel, and there are huge reserves of it around the globe.
That usually shuts them up.
Also, Jupiter, Saturn and many of their moons are partially composed of methane.
There is also an almost unlimited supply of hot air in Washington DC.
That is unless David C shuts them up.
David, oil prices rose over 1200% from 1999 to 2008. Gasoline exceeded $11 per gallon the UK and Germany.
Some of the people who predicted and expected such things also predicted the resulting consequences for budgets of businesses and individuals, for global trends in lending and borrowing, as well as in real estate pricing and stock market pricing. Peak oil was never a prediction that we would run out of oil immediately. Peak oil was a prediction that supply would peak, which happened in 2006 as predicted, and that the rocketing of demand in Indo-China combined with the plateauing and then decline of supply would be reflected in prices, which is what has happened.
That, in brief, is what in 2004 I called The DominOIL Effect. The fact that there was some hysteria in the speculative spike in oil prices is no different generally than the similar spikes in gold in 1980 or recently, or in real estate or stocks in 1929 or 2007 (and today), and so on. In fact, since gold is not even a primary functional tangible, and since real estate is not subject to such major fluctuations in supply, anyone moderately intelligent would expect that the degree of hysteria for fuel would far exceed those, which it has so far.
Oddly enough, the basic information may not often “shut up” people who prefer to believe that nothing new is happening. Since I have been publicly forecasting the decline of real estate since 2003, I have encountered lots of cases of dismissive irrational exuberance. In a 2006 video, I detailed how the coming mortgage credit deflation would devastate many major financial institutions, as began in 2007 (in the US). Again, I encountered lots of irrational exuberance in regard to those same stocks that soon fell even more than 90%, like FNMA and AIG.
It is notable to me that people would invest their attention in “analysts” with such poor track records rather than in forecasters with demonstrated competency. Perhaps many people simply would rather follow the exuberant propaganda than study the evidence, which might result in them adapting their behavior and benefiting from emerging developments. The resistance to adapting is even more notable to me when it comes from people affiliated with Austrian Economics and the LVMI. Well, too bad for you and all the better for me…!
For an alternative point of view, may I suggest the documentary “Crude Awakening” (available at Amazon Instant Video).
I found most of the arguments persuasive. I did find a few things that were fuzzy:
1)It did not say when we would run out of oil – it could be that we have already started. On the other hand we may have another 150 years.
2) Their claim that man made global warming predictions were real has since been shown to be false. In any case it is contradictory to hold the opinion that we will ruin the planet by the end of the century if we continue burning fossil fuels at the current rate and then claim that we will run out of oil by 2050.
3) Tar sands in Alberta are not economic. The oil can be produced by burning natural gas. The energy content of the oil is several times higher than the energy consumed by burning the natural gas. (Note that the same can not be said for the production of ethanol from corn.
I haven’t seen the film, so I can’t comment directly on its claims, but I can comment on some of the points you raised. I don’t know anything specific about tar sands in Alberta, so I’ll only address the first two of your points:
1. We’re never going to run out of oil. It can’t happen. It will become too expensive to extract oil long before we ever run out of it.
2. Man-made climate change has not been disproven. Whilst there are some scientists who have expressed doubt over the science of climate change, the theory itself has not been proven to be false. Also, to suggest that it is contradictory to suggest that the planet will still warm even if we stop using fossil fuels demonstrates an understanding of climate science which is facile at best (no offence). CO2 stays in the atmosphere for a really long time. Therefore, the effects of present-day CO2 emissions will be felt for a long time. Even if we stopped using fossil fuels completely tomorrow, the planet would still warm substantially over the next 50 to 100 years (for what it’s worth, more recent science suggests that methane emissions have a much worse effect than carbon emissions, but that’s beyond the scope of all of this). Man made or not, there is literally nothing we can do to stop climate change; we passed the point of no return a long, long time ago.
“there is literally nothing we can do to stop climate change…”
It has been changing for millions of years, and to assume that we can “stop” it is really arrogant.
Great Strawman. You make your point on Global Warming (now Climate Change) by asking someone to disprove it. Classic Strawman tactics. The reality is Man made global warming has never been proven—–NEVER. In order to do so, scientists would need to know the weather in the future absent man.
So if man where not here, what would the weather be like on July 4th, 2055? Surely you can prove that!
Quoting: “Whilst there are some scientists who have expressed doubt over the science of climate change, the theory itself has not been proven to be false.”
Similarly, whilst there are some scientists who have expressed doubt over the science ofe fairies in the garden, the theory of their existence in my garden has not been proven to be false. Applying your approach, the conclusion must be that such fairies exist.
Sione
No scientist believes in ofe fairies…
“Man-made climate change has not been disproven. Whilst there are some scientists who have expressed doubt over the science of climate change, the theory itself has not been proven to be false”.
From a scientific perspective it has – at least for the computer model that predicted the change.
Measurements of CO2 in the atmosphere have been increasing by about 3ppm per year over the last 10 years. The temperature change forecast by the model has not occurred. (Which is why the Climategate scientists were trying to falsify the data.) So the computer model is WRONG.
Preliminary data from CERN indicate that the sunspot model/cosmic ray/cloud formation hypothesis is correct. If this is the case then there is no net temperature increase that needs to be explained – CERN is also predicting superluminal neutrinos, so I would have to say that the jury is still out on this one.
Research by Lindzen and Choi using actual satellite data also shows that the expected global warming from an increase in CO2 in the atmosphere is about 1/4 of what is being predicted by the climate computer model.
However Anthopogenic Climate (warming,change,disruption, or whatever the current in-word is) is not really a science but rather a political or religious belief, and can not be disproven.
Indeed. I love how these “models” and “scientists” have the audacity to claim they KNOW when the temperature will rise, when C02 emissions will reach a certain level, etc, when the weatherman can’t even predict rain next Tuesday!
Nice, you gotta love these eco-fascists.
Just because I accept the possibility of anthropogenic climate change does not make me an eco-fascist. On the contrary, I’m as libertarian as they come.
Science is not political.
how would investing in oil futures over 40 years compare to returns on the S&P 500?
Oil was $2 per barrel in 1971, $11 per barrel in 1999 and $149 in 2008, and $100 right this minute (but also in the 30s in late 2008). So, oil is more volatile than the S & P, which actually has not been around for 40 years. Basically, it all depends on when exactly you measure the two things to compare them.
First of all, a lot of people are invested in oil for the long-run because they expect it to grow scarcer and scarcer. I don’t understand the claim that they’re not, because they are.
Second, the market is sending us price signals. In the last three decades, we’ve gone from oil in the teens to oil in the $140s. Supply and demand is not telling us that there are infinite amounts of oil to exploit.
And third, if Art Carden believes that people must buy long futures to prove their points, then may I inquire if Dr. Carden has bet that oil will fall back down to $13 a barrel in the future? If not, why not based on his own criticisms?
A price increase does not necessarily indicate a reduction in supply. Demand has increased considerably in the past three decades. Even if this wasn’t the case, it does not follow that there are not infinite amounts of oil to exploit. It could simply be the case that the oil that is available is more and more costly to produce. We use up the cheap and easy to pump stuff first. It’s like any other resource really.
We haven’t explored 99% of the possible places on Earth to find oil. We drill about 3 miles into the Earth while the crust extends for up to 30 miles. We don’t even touch huge expanses of land in the far north and south. We barely drill in the 75% of the Earth that is water. Even if the worst case scenarios occur and proven reserves will only last a few decades, we likely have many centuries worth of oil that has yet to be found. The only reason we haven’t bothered looking in these places is because it’s not cost effective.
Also, price inflation plays its role—compare the long-term price of oil in terms of gold, and you’ll find that their relationship is stable relative to their respective prices in US dollars. I’m sure there’s more in this vein, but my point is that pricing things nominally in terms of a fiat currency greatly distorts the picture. Your third paragraph is flagrantly strawman. Carden at no point suggests that reserves or production will dramatically improve, merely that the “peak oil” hypothesis is largely trumped up and ignores basic economics.
Vedran, actually, it was not 3 decades. Oil was $2 per barrel in 1971, $11 per barrel in 1999 and $149 in 2008.
The problem with your argument is that you assume that the price of oil has risen because of traditional supply and demand factors, when in fact, it has risen due to a host of other reasons not at all related to supply and demand. Example: OPEC shortages and price controls, massive fuel taxation in the USA and Europe, etc.
There is a lot more at work in a market (especially a government controlled market that is manipulated at numerous levels by governments throughout the world) then simple supply and
demand.
LOL. This stuff reminds me of the USGS telling people back in the 1800′s that we were going to run out of oil soon!
My advice- just ignore these doomsday idiots, if they think the world is going to end and we need to hand over all our guns and freedom to them to save the world, they can just **** themselves.
There needs to be some kind of moratorium on articles that address a girl named Virginia. Poor kid.
I don’t remember ever saying we were going to run out of oil. I just have this thing about hydrogen.
You can’t talk about oil consumption without also considering the fact that the government lays out all the roads and freeways, mandates the design of neighborhoods, the sizes of lots, and controls the locations of all the houses and businesses. They control things down to the number of driveways that can exist on any given stretch of road.
Government has destroyed the pedestrian-friendly town. It doesn’t exist any more, except in a few isolated areas where towns were built before the age of Land Use Planning. We live in our cars now.
Oil prices will (eventually) be allowed to respond to changing levels of supply, and the costs of various forms of extraction/synthesis as the easy-to-reach oil is consumed. But the layouts of the modern American sprawling freeway-and-strip mall “town” (which affects oil demand)
will change at a glacial pace, if at all. Most won’t change until towns are abandoned.
Government is not responsive, and often aggressively anti-responsive.
Since most of the oil is strongly controlled by governments (Saudi, Russia, Iraq, Venezuela, Norway and so on), there might be good reasons to assume that oil production and oil prices are directed by political agendas, not by profit motives on free markets.
A politician will maximize oil output during his term. That’s the only way he can profit from controlling those oil wells. He cannot sell his office and cash in now on what would have been produced in the future when oil is more scarce and more expensive. A stock holder could sell future profits for a present value, but with oil the producers are politicians, not owners. They have a horizon beyond which they don’t care. Couldn’t that explain a scenario where oil is overproduced now and running quickly into a stop with shortage and drastically higher prices?
Also, private oil well owners might have the feeling that governments will quickly socialize their wells if prices would increase. It has happened many times before, and governments start wars in order to take control over oil. So private oil well owners too could have strong incentives to maximize output now. Or never.
I find it odd sometimes that folks assume that political agendas are distinct from profit motives. What’s the difference!?!?!
As for profit motives IN FREE MARKETS, there are functionally no free markets. That is what political agendas assure. I figure that eventually even Austrian Economists would figure out that one of the first things that happens when a new market is created is that some profit-motivated political agendas are instituted and expanded to monopolize or at least leverage the opportunity.
The moment that crude oil was identified as useful, there were immediately issues about secrecy and security. Soon, fences were put up and guards were hired (including law enforcement thug mercenaries). Would it be a surprise if propaganda first said oil was worthless (when JP Morgan was trying to buy it all up and suggest to people that they should sell him oilfields very cheaply), then wonderful, and then running out (I think the 1920s was the first time that the API issued a warning about impending shortages to drive up prices)?
After the US and USSR rose to be superpowers, then propaganda came out that it was the political system of the US that put the US in such a placement. However, the official political system in the US is not so unique worldwide, is it? What separated the US and USSR from the rest of the world was that they were the #1 and #2 producers of oil in the 20th century. Now, as Saudi Arabia is #1 and the other OPEC nations are rising, is that seriously supposed to be a surprise to anyone? The power of OPEC was already opened flexed by 1973.
ARAMCO (the Arab American oil partnership) has been the most powerful commercial organization (or nearly so) for a LONG time. Obviously, the media and public school systems do their job to distract the masses from that, but again I am not aware of any credible argument against the rise of the influence of ARAMCO. That would kind of be like arguing against the rise of influence of OPEC as a whole or against the rise of influence of fossil fuels like oil, coal, and natural gas.
Also, as to the idea that politicians always maximize oil output, that may not be true. When the US and OPEC were conspiring to destabilize the USSR by increasing oil production to drop prices and reduce the USSR’s trade surplus, that was actually quite unusual. In contrast to what you wrote, maximizing profits sometimes means reducing output, as in the case of the DeBeers diamond cartel. Their tactic is not to increase production, but to monopolize production in order to keep it extremely low, thus driving up prices. For the oil cartels to do the same is… quite predictable.
A odd thing came up in a interview with a Saudi oil expert I heard on NPR. He was a adviser to the royal family during the time period when OPEC manufactured the oil crisis, ostensibly to raise prices.
He had strongly advised against raising the oil prices because it would hurt Saudi’s competitiveness. The deal is that Saudi Arabia has so much oil that they could continue to produce the oil at cheap prices for a very long time and reap in huge profits. They could out produce most of the OPEC nations. So it was in their interest to have as much oil in the market as they could produce.
His contention was that OPEC raising the price of oil was actually a result of Kissinger (I think that was the guy) influence on the OPEC nations. He convinced them to restrict the production of oil to raise their profits and protect their natural resources for the future. However his true ‘secret’ motivation in manipulating OPEC to raise prices was to break the monopoly of OPEC.
The Kissenger and the rest of the USA government-type insiders knew that oil reserves was very widespread across the world. However nobody could produce the oil as easily as OPEC nations could. So as long as oil production remained high and prices low then OPEC had their ‘monopoly’. As so soon as OPEC restricted production and drove up prices then all of a sudden it became economically feasible for a huge number of other nations to produce oil.
This broke OPEC’s monopoly and broke OPEC’s political influence over the production of oil. If you look at were oil comes from you’d see that while OPEC is still producing the majority of oil, it has no were near the same market share it once had.
Nowadays the price of gasoline is influenced far more by our domestic refining capacity then by world wide oil production…
Greg, oil is believed to be the liquid remains of plants and animals, I believe. So it only makes sense to look in places likely to have had lots of plant life, since animals need plants to eat. The deep oceans are unlikely ever to have had enough plant life for oil to have formed. Oil rigs at sea are still on continental shelves, which would have been dry land during the Ice ages. Therefore, much of the world seems unlikely to ever have oil reserves under it- the Pacific Ocean should not have any reserves. So your exploration argument doesn’t seem feasible.
Still, the basic idea is right- we won’t run out of elements. Here is another idea- we harvest plasma and build any elements we like! Plasma-particles are protons and electrons, superheated, and ejected by the Sun into space. I have already proposed elsewhere that humans should be able to collect protons and electrons, cool them down, and turn them back into useable hydrogen gas for spaceships, in space. We could even use solar energy to do it. If we ever learn how to control neutrons, or how to get protons and electrons to merge into neutrons, then we should be able to form any atom we want, in whatever quantities, from plasma and sunshine! This could be the biggest business in space- manufacturing elements.
I’m not much into geology either. But I think you’re a bit off in the time scale. Oceans and oil were formed in different epoques. Also, oceans are full of life. Probably, most of the oil are remnants of oceanic life. Finally, it is believed that a great majority of the bio mass lives inside the rocky mountains deep down there under the surface of the Earth. It has been suggested that oil might consist of their fossils, rather than of fossils which have ever seen the light of day on the surface.
Generally, it’s a bit difficult to believe that we have discovered most oil by now already. It would seem natural that there is more and more to be discovered at a gradually increasing cost of development. I don’t really see that one big leap which some peak oil proponents seem to want to warn us about.
You do realize that the Earth has looked wildly different in the past, due to plate tectonics? Even if your thesis that very little life exists in the oceans (false), not all (or even a majority) of the current ocean area has always been ocean. We know there was once a giant inland ocean over the central US, and yet we still find a large amount of oil there.
You do realise that carnivorous fish eat herbivorous fish, which eat sea-plants, and the sea-plants are attached to land, even when underwater? They also need sunlight, so seaweeds are near continents and islands- therefore most of the fish in the oceans are close to the coast.
Nuke
Did you read what he wrote? Or are you just being obtuse because you can be?
Sione
Malthusian constraints were valid for all but the most recent period of human existence. Humility suggests that with the State’s kind help, it’s not impossible that they again come into play.
Anyone who thinks they know anything about peak oil (particularly peak-oil denialists) should take a read of this: http://www.theoildrum.com/node/8585
Anyone who thinks they know anything about the petroleum industry isn’t reading ‘The Oil Drum’. Sorry, Jack. Peak oil theory was born from a hysteria that managed to explain nothing about the phenomenon it observed.
The reality is that technology development over time has opened up the possibilities for exploration, which is borne out in the fact the proven oil reserves have gradually increased over time. We are more likely to run out of ways/means to get to the oil than we are to run out of it, but that doesn’t mean we will run out, either.
Indeed, they’ve been saying “we’re running out of oil” essentially since it was discovered that it had industrial uses.
Also, the Russians had very, very intriguing things to say about what oil is and where it actually comes from.
JFF
Ah yes. The deep hot biosphere…
They seem to have had some success as well.
Sione
I’m not saying we’re ever going to run out of oil. If you’d read the article I linked to you’d have known that
As with any finite resource, there will come a time when we will produce more of it than we ever have – or ever will. That is all that is meant by the term ‘peak’. It has nothing to do with running out.
I used to believe that the world will run out of oil and gas. However, after reading Art Carden’s well argued and impeccably supported article to the contrary, I’m now a convert. Thanks Mr. Carden, for putting my mind at ease.
I’m still worried, not because I think we will run out of oil, but because governments are very likely to cause artificial problems in the supply of oil. One serious problem with doomsday prophecies is that, by acting on them, people are actively working to bring them about, thus creating self-fulfulling prophecies. Of course, we are never free from economic constraints, but economic incentives that have been distorted by political intervention will send wrong or mixed signals and create unintended consequences that are difficult to escape. That’s what we really have to worry about.
> I’m still worried, not because I think we will run out of oil, but because governments are very likely to cause artificial problems in the supply of oil.
Are you joking?
We have always had access to massive amounts of oil. Oil is NOT a scarce resource. It’s a finite resource, but that is different. There is just huge amounts of it all over the place. We are always discovering new oil and discovering new ways to economically get existing oil.
The ONLY REASON WE HAVE PROBLEMS AT ALL is because of government interference. It is purely politics that is causing our problems. There is absolutely zero reason technical reason why oil wouldn’t be as cheap now as it was in the 1960′s.
The oil problem is a government problem. Always. Completely artificial from the beginning. What you are worried about has been the sole cause of all our oil problems for the past 50 years!
So let me rephrase that, then: I’m still worried that governments are very likely to cause artificial problems in the supply of oil, as they have done in the past. Better?
Michael:
You can extend oil to all energy. The UK is predicted to have rolling blackouts by 2017. This is because they have not replaced the nuclear plants that need to be decommissioned. Also, the North Sea oil and gas production is going into decline. If this comes to pass, this will be almost entirely due to the action (or rather inaction) of the UK Government.
> So let me rephrase that, then: I’m still worried that governments are very likely to cause artificial problems in the supply of oil, as they have done in the past. Better?
Yeah sure.
@ Art
Move on to what? In 2005, I ridiculed the Chief Investment Strategist of a major US bank for dismissing the emerging risks and opportunities in relation to rising fuel prices, consumer budgets and spending and borrowing, credit markets, real estate pricing, financial institutions, and overall stock prices. My warnings showed up in the marketplace. His free dismissals were extremely expensive for the people who followed them: http://www.financialsensearchive.com/fsu/editorials/2005/1217.html
As for US (like you and I) “running out” of oil, that would only be if we personally run out of money (or guns) to acquire some. There is obviously plenty of oil available. However, given that prices of gasoline exceeded $11 per gallon in 2008 in the UK and Germany, there were at least proposals for rationing in those countries.
It’s not that humanity is running out of oil. It’s that when gasoline is $5 or $10 or $20 per gallon, that can reduce consumption “slightly.”
The oil cartel may be running UP prices- and why wouldn’t they- but we still have the practical realities to deal with. The state government of Alaska, the leading oil-producing state in the US, has been thriving while other states are facing major budget issues. The province of Alberta, the leading oil-producing province in Canada, has been thriving while other provinces are facing major budget issues. OPEC nations have been thriving while leading oil-importers in the EU have been facing major issues financially, politically, and socially- rather like Japan since it’s peak in 1989. Have you ever considered that 22 years is a rather long time to call something a “recession?”
“In May, lots of people had a hearty laugh at the expense of Harold Camping, who had prophesied that the world would end on May 21, 2011.”
Why does Harold Camping get singled out for ridicule for predicting something that did not happen?
Why do Ben Bernanke, Paul Krugman, Barack Obama, Paul Ehrlich, the Global Warming crowd, get a pass when their predictions do not come true?
More to the point, why do Peter Schiff, mises.org, the Global Warming Skeptics not get credit when their predictions do come true?
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