Peak Oil and Dire Consequences
Sep 7th, 2005 @ 10:25 am › Thomas E. Woods
We’re in for some radical changes in our lifestyles, says this article in The American Conservative. The age of cheap energy — and with it, the age of commuting (in automobiles), agribusiness, and anything else that depends on cheap transportation — is over.
I haven’t been able to get the piece out of my mind since reading it yesterday, so I thought I’d submit it to the attention of the Mises blog and see what readers think, especially those who know more about natural resource depletion than I do (and that would be just about anyone).
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50 Responses
It might make sense to start building nuclear power plants again if these natural gas (and gasoline) prices are going up a little bit more. That will reduce foreign energy dependence, and it might be a good enabler for fuel cell technology.
http://www.netcastdaily.com/fsnewshour.htm
This link has many interviews with guest experts with cheerful sounding books under their belt such as ‘High Noon for natural gas: The New Energy Crisis’, ‘The End of Oil: on the edge of a perilous new world’ and so on… so don’t expect to come away feeling warm and fuzzy.
Do you suppose that anyone in Washington is rethinking the massive federal subsidies in the interstate highway system, which created (or at least heavily promoted) the suburb-and-commuter car-dependent lifestyle?
Consumers may make choices from among the various viable alternatives regarding housing locations, vehicles, etc. But these choices are all heavily influenced by the heavy hand of government planning that created the array of choices in the first place.
I’m a broken record on this, but the government’s massive, decades-long subsidization of oil — http://washingtontimes.com/commentary/20030722-093718-6082r.htm — is largely to blame for keeping gasoline prices down at the pump and thus literally fueling automobile culture and all the myriad problems associated with it. And had consumers been paying the true cost of gasoline all along, we would long ago have weaned ourselves not only of dependence on foreign oil but on oil itself.
That said, when you couple this article with the fact that we have also become an “Empire of Debt” — http://www.lewrockwell.com/french/french35.html — it’s clear that the American welfare-warfare state is in its twilight. And simply put, what Kunstler says about the decentralization and re-localization of agriculture is going to be true about everything else, including and especially political power.
We are on the verge of entering a devolutionary age, in other words, with political power passing first from Washington to the states, then from the states to smaller and smaller polities that will be “electronically linked,” to quote the late Marshal McLuhan, as globalization is replaced by the global village.
The idea always struck me as a chicken-little scenario rooted in a failure to understand how the price system works (provided that it is allowed to work). Some people just go for this apocalypse stuff. In any case, the popular version was demolished here.
Oil peak, smoil peak, is our “Empire of Debt” — http://www.lewrockwell.com/french/french35.html — sustainable or is it not. I say it’s not and that the collapse of the American welfare/warfare state is already underway. Paul Krugman can blame the Bush administration for its abysmal failure in handling the Katrina catastrophe — http://www.nytimes.com/2005/09/05/opinion/05krugman.html?n=Top%2fOpinion%2fEditorials%20and%20Op%2dEd%2fOp%2dEd%2fColumnists%2fPaul%20Krugman — but the truth is that it’s not a failure of this or that government but of government itself, of the state, the democratic form of which is proving no more viable than its predecessors.
It’s time to give true freedom a try.
Well, first it would be a good idea to seperate oil and gas prices, because gas is going up due to its link on oil.
Second, Oil is not short in supply, because there are enough oil sources yet to be drilled in (Alaska and Arctic (which is melting)). Also, the supply from Europe and Middle East will hold at least for several decades. With the rise of the oil price, new alternatives will be looked into.
Especially the automobile is on the verge of a transition from oil to alternative sources: Hydrogenium, Hybrid- and Agricultural Diesel will bring new substitutes and motors that are (then) comparable in price.
I doubt that oil will be run out (all of the sudden) just because psychotic wall street analysts want to make quick money on a no-shortage.
All of the oil wells in the Gulf stream will be operational in a at least 6 month and there is no possibility that a Hurricane can “destroy” any oil ressources. They can hinder the process of digging, but the oil ressource is still there.
I don’t think there is much to be itchy about for the next 20 years or so..
Government keeps gas prices down at the pump? LMBOROFUIMP! Between Federal excise taxes, State excise taxes, and Clean Air Act requirments, about 1/3 of the cost at the pump is due to government! Not to mention all the regulatory taxes paid by producers, gas stations, truckers, etc.
Gas may be cheaper at the pump in the U.S., but it is only because the foreign countries typically have even higher tax burdens on fuel.
The one place where gasoline IS subsidized directly by the U.S. feds is in Iraq, see LRC column by Ron Paul dated 9/7/5.
Bill R.,
If you’d read the article, you realize that a gallon of gas would now cost upwards of $8 if the military costs to secure the flow of it from the Persion Gulf, and related factors, were included in the pump price.
I call that subsidization, taking nothing away from the grotesqueries in Iraq.
I have read the article, further, I copied into Word and searched it. The word “eight” is not found in it, neither is the word “gallon.” I also searched for “gas” and variants thereof, like “gasoline,” another word NOT FOUND in that article. Your claim appears to be just that, YOUR claim, and not one in the article. It is certainly not contained in the article ….
I have read the article, further, I copied it into Word and searched it. The word “eight” is not found in it, neither is the word “gallon.” I also searched for “gas” and variants thereof, like “gasoline,” another word NOT FOUND in that article. Your claim appears to be just that, YOUR claim, and not one in the article. It is certainly not contained in the article ….
Just read most of the article.
I concur with what Jeff Tucker wrote. It’s a chicken-little scenario, in which the global economy will grind to a halt and we’ll go back to more self-sufficient economies with less imports.
I would never claim to be a prognosticator, but I would think the following things would happen:
1) Oil/geology technology will continually evolve as the price system is telling the producers to produce more. The result will be that more oil will be found in more far-flung (middle of the ocean) and dangerous (more than 10,000 ft. deep) locations.
2) This constant discovery of more oil will keep the price from reaching atmospheric levels, but I don’t imagine it falling back to the levels of the late 1990s.
3) With the ever slightly rising price of oil a fixture of the economy, more wind farms (currently they’re the most feasible form of alternative energy besides nuclear/coal/hydrogen) will be set up. Concurrently, there will be an incentive to introduce economically feasible alternative sources of energy (due to the high price of energy), and I believe technological advances in wind, solar and hydrogen will keep occuring.
4) More wind and solar farms will be set up with better technology, and the percentage of the country’s energy derived from carbon sources will slowly decline. This continual switch in energy sources will shield us from a cataclysmic shock if oil all of the sudden spikes to a huge number.
What I’m predicting does not really focus on the gist of the article, namely that the era of long-range, cheap transportation is dead as well as the huge farms. Since people demand products from all over the world now, I can’t imagine the global economy falling off kilter. Producers and suppliers will find a way of delivering their products to whomever demands it. And there will be manufacturers there ensuring that they have the safest and cheapest transportation. Sorry, I can’t imagine us going back to the dark ages; I’m always going to want my German cars and French cheese. And huge farms will probably replace some of their consumption of oil with bio-diesel fuels and use more wind/solar power. They have the land for it.
The author also argues that most of our economy is based on suburbia, in that the residential construction/mortgage lending/insurance/mortgage-backed securities power the economy. I might touch on that later, but our economy is based on a lot more things than that.
There are lots of new technologies that can generate alternate forms of energy. Coal can be synthesised into combustible liquid via the Fischer-Tropsch process. New types of batteries (lithium ion) have already been tested and can propel a car at freeway speeds for over 300-miles.
If oil prices rise over the longterm future, entrepreneurs will merely be enticed to develope and market the alternatives. And don’t be surpised if unsubsidized technologies developed without state assistance emerge as the prefferred energy technologies.
Harry Valentine
These are some excellent comments. Thanks, Jeff, for the Featherstone link; I must have missed that piece back when the term “peak oil” didn’t mean anything to me (i.e., before yesterday).
Bill R.,
To clarify, this is the article I made reference to — http://washingtontimes.com/commentary/20030722-093718-6082r.htm — which was written when gas was under $1.50 a gallon. It specifically states that “When all of the elements are taken together, they demonstrate just how expensive imported oil really is. When added to the most recent nominal price for a barrel of imported oil, they raise its ‘real’ price to between $101.40 per barrel and $103.24 per barrel. This translates into a pump price for gasoline of between $5.01 and $5.19, or from $90.18 to $93.42 to fill an average gas tank.”
Seems my “upwards of $8 a gallon” was a bit high (except where stations have been charging over $4), but the point remains the same, peak oil or not.
Now watch the madness continue as nominal prices are suppressed further with ridiculous “price gouging” legislation that substitutes as government price controls. Let’s face it, the market is so distorted that it’s ludicrous to call it one — which is why, contra Harry Valentine, I don’t expect any unsubsidized technologies to develop on their own.
I can see both sides, but would note that Robert Prechter’s Elliott Wave International is looking for falling oil prices (because of a/the deflationary depression from the credit collapse).
I don’t see a long term energy shortage if the market works – we will have nuclear or other sources. There are two problems – one is the inelasticity of supply – it takes years to build a power plant or a refinery, and with that (if no one wants to invest) regulation or subsidies that favor oil.
William Lind has noted that the automobile has an effective subsidy over trains. With oil climbing, I would like to have had light rail or something similar with jitneys, but between the municipal or county bus systems and taxi badges, we won’t see it.
I have read a number of articles and books on the issue of “peak oil”: the hypothesis that we are running out of petroleum.
I have also read some material from very knowledgeable researchers contending that carbon fuels will continue to be our primary energy source in the 21st century.
Added to this, I have done a some reading about alternative energy sources.
What are my conclusions from this:
1) Petroleum is becoming scarcer. It will continue to be available, in lesser supply, but at a higher price, for quite a while (decades).
2) Alternate oil sources such as shale oil and tar sands will make some contribution, but not as much as many people expect because it takes a lot of energy to extract and process the oil.
3) Coal will become more important over the century, because it is still plentiful. It may be used in various forms such as gasification to reduce air pollution from its use.
4) Alternate energy sources such as solar and wind energy will not make nearly as much contribution as their supporters contend. Most sources of alternative energy are much too expensive and don’t scale very well.
5) Agricultural sources of energy such as bio-diesel and ethanol are not economic unless low-energy agricultural sources are used. We could import ethanol from Australia, for example, and this might make economic sense. But is not politically possible — the farm lobby wants a subsidy. Bio-diesel is available only in relatively small quantities, primarily based on the amount of available agicultural waste. Once the waste is used up, it becomes much more expensive.
6) Nuclear energy will make a contribution, but not in the US. China and other countries in Asia, plus some countries in Europe, are building many new plants. But politics and regulation in the US will prevent any significant expansion here. An example: a small town in Alaska proposed a few months ago to install a new small automated nuclear plant for electricity from Toshiba. The NRC had never heard of it, and said it would cost millions to certify it for use in the US.
I think we will see energy continuing to be freely available for transportation and other uses, but at a higher price. This will probably result in a gradual re-organization of our metropolitan areas, with locations closer to the central city becoming more valuable, and outer areas far from transit hubs, etc. becoming less valuable. This trend is already starting to become evident.
There is no reason to believe that people living in this environment will be or will consider themselves any less affluent or comfortable. They will simply use somewhat less energy to accomplish their goals. Wasteful practices will be reduced or eliminated. This is true of many places in Europe, but there it largely results from regulations rather than the free market.
I am not worried as long as markets are allowed to operate, and deliver the needed price signals. But few markets in energy, transportation, and residential and commercial real estate are actually free markets. Every one is subsized, taxed, or regulated; most likely all three.
So is the danger a shortage of energy? Of course not.
The danger, as all readers of mises.org should know very well, is government.
tz,
I don’t know about you, but my car won’t run on “nuclear or other sources,” and as for a credit collapse keeping oil prices low, so does a depression, which is likely what our “Empire of Debt” — http://www.lewrockwell.com/french/french35.html — is heading toward.
Jeffrey Tucker,
I’m neither a global warming nor a peak oil Chicken Little, but when it comes to the American welfare-warfare state, the sky does appear to be falling. Please explain otherwise.
In this debate, one often hears the claim
that alternative fuel sources require, for their
extraction, more energy than they would generate.
Why is this supposed to be relevant? Isn’t the
relevant issue whether the extraction process
is cheaper than its outputs in a *monetary*
sense, rather than an energetic sense? It seems
to me that these two senses of profitability are
being conflated, and it is unclear why there
should be any relation between the two.
What am I missing here?
Dan
In this debate, one often hears the claim
that alternative fuel sources require, for their
extraction, more energy than they would generate.
Why is this supposed to be relevant?…
What am I missing here?
The law of conservation of energy, perhaps?
That energy has to come from someplace, and you have to pay for it, too. This, of course, assumes that the energy used and produced comes in interchangeable form (like, liquid fuel).
If the energy used is in less useable (compact, transportable, etc) form than the energy produced then this conversion has economic sense: in fact, all refineries, coal mines, power plants take in “more energy” than produce.
The confusion arises mostly from the incorrect use of the term “energy” (which, as the physical laws say, is always preserved (except for very brief periods of time at quantum scales), and cannot be “spent” or “produced”). What is meant is “negative entropy”, which means, broadly, an order (as opposed to entropy, or disordered states). What the “energy” industry does is, basically, concentrating the negative entropy at some locations, at the cost of increasing entropy overall.
Energy (and mass, as they are the same), is the Nature’s hard money. Cannot create more of it, and what all the particles, objects, etc, in the Universe do is redistribute it from concentrated places (like stars) to the featureless space. The total amount of energy on the Earth remains, roughly, constant – because otherwise the temperature of the planet would rise or fall.
What life, intelligence, economy and industries do is create eddies in this flow of energy, and use these eddies to maintain islets of lower entropy. By doing so they accelerate the main flow.
Starting from this analogy and following the physical reasoning one may make an interesting observation that the hard money is literally a repository of energy, and that devaluing money literally makes each note lighter (having less mass)
I’m actually working on a paper right now researching the question of whether oil and its directly associated costs to consumers would be cheaper or more expensive in a free market. I know it’s popular to proclaim that oil is subsidized and that we “truly” should be paying $5-$7/gallon, but the facts in my mind, just don’t add up to that conclusion. Let’s take the article someone posted above (http://washingtontimes.com/commentary/20030722-093718-6082r.htm), that gave three reasons for the price to be higher, followed by my reasoning why these would be *lower*:
1) The cost of defending the oil rich nations to ensure the oil flows: I seriously doubt it’s even necessary to defend the oil fields. Let’s say we let revolutionary Arab socialists take them over. Would their leaders stop selling the oil just to spite the evil capitalists? No, they’re not that stupid. Oil money can buy them a lot of nice things, and it’s extremely difficult to resist the temptation of what you can do with that money. They might try to sell it at a higher price, but they’re limited by the global market. But let’s assume it is necessary. Even if the private oil companies had to pay for the defense, they could hire mercenaries much cheaper, and they wouldn’t have to “negotiate away” with higher tributes the fact that they “support Israel” because they wouldn’t “support Israel”. So that cost would go way down.
2) Diverted investment and lost jobs: Classical broken window fallacy. The workers are just doing *different things*. Total “job loss” = zero.
3) Cost of “oil shocks”: I have no idea what they’re counting as a cost here. Yeah, oil shocks cause bad things to happen when you react to them by doing stupid things like, I don’t know, wage and price controls. Cause of those costs: not the shocks themselves.
Strangely enough, it doesn’t mention what I thought would be the biggest costs: compensating the victims of pollution. But even that I don’t think would add much compared to current taxes. It might initially as capital gets relocated to areas where the externality costs are lower, but after that, it wouldn’t make much of a difference. So at this point, I can’t help but count to 10 every time someone comes up with another “we’re not paying enough for oil” argument…
I’m not going to even try to explain entropy, but I will say a word or two about sprawl. The Kunstler article lays much of the blame for our admittedly fuel-intensive economy, and thus it’s impending collapse, on the “sprawling” of American land development. Some of the commenters here seem to concede this point and to agree that the inevitable outcome will be an eventual re-densification of metropolitan populations.
This view seems to account for the costs of sprawl without accounting for the benefits. 92% of metropolitan population growth from 2000-2003 occured in the suburbs ( http://www.publicpurpose.com/pp-80pop.pdf ), suggesting that a significant majority of people want to live in the suburbs. It is true that this demand is skewed by governmental policies encouraging suburban-style growth, but obviously many people see life in suburbia as their best option.
What are the benefits of sprawl over more dense development? Single family homes offer a sense of independence, privacy, and security that urban apartments lack. A small patch of private green space right outside your back door is better than an expansive public park a subway ride away. A street that kids can ride their bikes on is better than a street overrun with buses and cabs. Quiet is better than noise. Clean air is better than smog. Privately owned property is better than public or rented property. Smaller local governments are better than grotesque urban governments.
And cars are better than public transit. Cars offer a sense of independence, privacy, and security that public transit lacks. Cars are the only means of transportation that allow you to go from traveling 75 MPH to parallel parking in under a minute. Cars offer flexibility of movement in time and space from point to point that the rigid, scheduled, linear lines of public transit cannot come close to. This flexibility often allows access to a broader range of employment opportunities than those accessed by transit.
Cars are also cheaper than public transit, at least for now. One study claims that each new rider on some proposed transit projects would cost more than the cost of renting a luxury car for each trip ( http://www.publicpurpose.com/ut-2000rail.htm ). Centralized transit, like centralized government, is often inefficient and ineffectual. Check out http://www.publicpurpose.com for some enlightened thinking about transit and sprawl.
Of course, as fuel prices rise, individuals will reevaluate their suburban lifestyles and act according to their preferences. My guess is that if American society is heading down the tubes, it will be the cities, not the suburbs, that crumble first.
tz, free financial advice but you’d have needed deep pockets to have been following Prechter’s perma doom advice over the decades and still be solvent. Much like those who bought gold after Bretton woods and waited for the world to collapse…. they were wrong but won’t let go.
It is likely that we will see the dark side of the credit bubble but read
http://www.hussmanfunds.com/wmc/wmc050906.htm for more pragmatic approach to oil even in a downturn.
I think the behavioualists call it endowment bias, but doom sells newsletters. See Faber, Bill Bonner etc!
Why dont any of these guys have a fund with a long term awesome track record? They are always biased to play the game from the short side which in an Alan Greenspan kind of world has been like trying to climb water.
So, Jonathan, you believe that we can continue to finance our consumption by borrowing $2 billion a day from foreigners indefinitely — with wages and salaries falling farther and farther behind? Please explain.
Tim, cars are indeed better than mass transit…wherever they’re more convenient (in Chattanooga, say, but not in NYC), and suburbia may indeed be preferable to the inner city. But at the very least one needs to factor in the role of the taxpayer-financed interstate highway system (built primarily to facilitate troop movements), which essentially paid those who could afford cars to leave the city. And one has but to look at New Orleans to know what happens to those who can’t afford them. Suburban flight and inner-city hell-holes are a direct result of government policy, as is the fact that our food is no longer grown locally. Massive trucking (http://www.saferoads.org/issues/fs-trucks.htm) and water (http://www.organicconsumers.org/clothes/water122904.cfm) subsidies have seen to that.
And while you are no doubt right about privately financed (mercenary) security being cheaper than publicly financed (military) security, the plain fact is that this has not been the case in all the decades of American intervention in the Middle East. We have paid, and continue to pay, a HUGE cost for the government’s policies in this regard, and were these costs consumer financed instead of taxpayer financed, the market would long ago have come up with competitive alternatives.
Bottom line: When all such government subsidies are factored in, it is clear that neither freight nor passenger traffic would have abandoned our railroad system as they have, resulting in transit-oriented development that would be vastly different — not to mention far more prosperous and equitable — from what we now have.
Ah, an opportunity. I didn’t know how to submit this except to a blog comment.
A duck and a mime arguing about oil dependence:
Sheldon comic
Yesterday’s comic about China’s economic policy was also good.
David, you are asking to me answer a question I did not ask.
If you look at my comment again I say that I DO think we will see the dark side to this credit expansion, i.e. we’re on the same page.
When it comes to converting theory into investing for profit, timing is everything and the doomsters have been impressive in their conviction, but to date, wrong.
The decline of Rome took hundreds of years. I’m not sure I’ll live that long.
Jonathan,
I’m pretty sure you’re not going to live hundreds of years either, but more to the point, I think our borrow-and-spend-but-never-pay-back ecnonomy has a far shorter lifespan. True, the gold bugs have been wrong so far, but that’s only because the Fed has by and large been able to keep inflation at a low enough level that its insidiousness hasn’t been felt. The dollar has lost more fully 98% of its value since the Fed was created, and were there no outside world, it would be able to get away with this legalized plunder a good bit longer. But there IS an outside world, and when it decides to stop buying so much of our debt — years from now maybe, but not decades — that’s when all hell will break loose.
I am by no means an authority on energy or free markets. But I do feel an area of instant conservation could be implemented very quickly. How many millions of Americans spend the most of their gas getting to and from their jobs? I know that is where the majority of my gas expenses come from. Now how many of us could just as easily do the exact job that we currently do from home just buy telecommuting. I think my entire office of 500 people would be able to do their jobs from home. Now do that across the globe and,
Poof we have just taken millions, maybe billions of cars off the road.
I don’t know why people say (as this article does) that “we’re not going to run the interstate highway system on electricity alone”. Why not? We use gas in cars now because it’s cheap and convenient, but if it got much more expensive it shouldn’t be THAT hard to switch everything over to electric. To deal with the range and recharge-time issues, we’d need modular *replaceable* batteries. Imagine you have a battery-powered car with, say, a 100 mile range. Normally you charge it each night at home and possibly “top off” while at work, but this weekend you want to drive 400 miles straight. So you pull into a “Duracell” station several times along the way and swap out your mostly-used batteries for some freshly charged ones. The battery keeps track of how many times it’s been charged and how long it holds a charge; the station charges you a little extra if they give you a newer battery, credits you a little if they give you an older one, and dings you for the cost of the power and physical space it takes to fill a battery pack, however long that takes. They dock your used battery in a charger and swap it with somebody else 12 hours later when it’s full.
Tah dah! Electric cars now have unlimited range. The batteries get charged at the station via solar and nuclear; gas is no longer involved.
Waiting for someone to explain why gasoline should sell for less than people are willing to pay. Should food and housing also sell for less than people are willing to pay?
Glen,
There’s an idea for a future business…
Billwald,
Nothing wrong with gas selling at MARKET VALUE – the price people are willing to pay. The injustice and the distorsion comes when a bullyish thug (the government) taxes said gas – then the price goes ABOVE what people are willing to pay normally, making them poorer. The other distorsion comes from the fact that the same bullyish thug does not allow more gas refineries so people can have the gas, again, at MARKET VALUE.
This truly is one stupid article. The author makes no mention of (or at least I did not find) the price and allocation regime that governed the U.S. oil markets during the 1970s. Instead, we get crap that could have appeared in The Nation, and all of us know that my six-year-old could give us better economic analysis than that Trotskyite rag.
Once upon a time, Pat Buchanan and his allies would have understood the damage of price controls and the vast system of environmental regulation that exists mostly to empower bureaucrats and the Sierra Club. Instead, we get leftist economics. Too bad.
Good idea, Glen! Sometimes the obvious just gets overlooked…
Glen,
It is a good idea. I read a lot and it is the first time I have seen this idea. You should consider doing a prior art search and a patent application.
It is a good idea. I read a lot and it is the first time I have seen this idea. You should consider doing a prior art search and a patent application.
Relying on government-granted monopoly? Nooo!
Much like those who bought gold after Bretton woods and waited for the world to collapse…. they were wrong but won’t let go.
Hmm…define “wrong” — the price of gold is now over 20 times what it was then, and it peaked at over 40 times in 1980. Anti-gold people said the price of gold would fall to something like $6/oz; it rose to $850/oz instead…just how high would it have to go to make you not say “they were wrong”??
I read that Kunstler piece last night and found it too negative to be realistic. Also, he covers so many of the liberal shibboleths–plugs for smart growth and public transportation, general dislike of the automobile–that it was surprising to see that piece in The American Conservative. Also, has it been determined that “peak oil” has been reached? Weren’t they saying that back in the 1970s?
That there have been no new refineries built since the 1970s is troubling, and even scandalous, but the idea that this has more to do with environmental regulations than the recognition by oil companies that the world’s oil supply is dwindling is news to me. It would be nice to see some citations.
Byron King of Agora financial is no wacko environmental, but he pulls no punches in his most recent Whiskey & Gunpower email update (http://www.whiskeyandgunpowder.com/Contributors/King.html):
“[C]ompounding peoples’ misunderstanding of the whole situation, you have talking heads (as often as not, they are economists) saying really dumb things like, ‘But in dollar terms, the oil industry is only 4% of the U.S. economy.’ To which I say, ‘Try running the other 96% of the economy without it.’ ”
Also try running it without “the foundation of the entire American transport system” — http://www.lewrockwell.com/north/north402.html.
So suffice it to say that King’s got my attention when he concludes that “We are confronted with Peak Oil. You have nothing else to lose. When the band starts to play ‘Nearer, My God, to Thee,’ it will be too late.”
The world’s oil supply is not “dwindling”. It’s obvious that if you take some out, there must be less there now than there was before, but these wackos have been saying for decades that there’ll be no oil left in 20 years … and when that 20 years is up, there’s more known oil in the ground than there was 20 years before. Every time. And then there’s the theory of abiogenic origin, putting a much larger amount in the ground than anyone had previously suspected, and the possibility that more is constantly being made. There are actually producing wells in places that the standard western biogenic theory cannot be there, and “empty” wells have been seen to refill themselves. And then there are the oil shales and tar sands, etc., which might be a bit expensive to use at the moment, but there’s enough oil there to support us for over 50,000 years at current usage levels.
We are not going to run out of oil. Not in my lifetime. Not in my great-great-great-great-great-great-great-great-great-great-great-great- great-great-great-great-great-grandkid’s lifetime…
Assertions that “energy is the hard currency of
nature” are metaphors, and therefore useless.
The claim of the peak oil theorists is not that
we are running out of oil as such, but rather
*cheap* oil. So, where is the following
(standard Misesian) argument in error:
On the one hand, as the price of oil rises,
factors of production that could not previously
be profitably used in the production of oil, now
can be profitably used in oil production. Thus
there will be a shift of productive factors into
the production of oil.
On the other hand, those production lines that
use oil as a factor of production will become
less profitable than they were before, and
substitutes for oil that could not previously be
profitably used in these lines of production will
now be profitably exploitable. Thus there will be
a shift away from oil in use as a productive
factor.
Since the issue of peak oil is primarily an
economic one (again, it concerns the decline of
cheap oil), we have two reinforcing tendencies
at work here: one that tends to increase the
supply of oil, and one that tends to decrease the
attractiveness of oil. This kind of transition
occurs continuously in a market economy; what is
so different about oil? Perhaps the transition
will be slow and not entirely easy, but these
economic issues are not really dealt with in the
peak oil literature.
Again I ask: where am I wrong?
Peter,
With regard to oil shale and tar sands, this article — http://www.enviroliteracy.org/subcategory.php/252.html — is instructive:
“These unconventional sources are not widely used because they are not economically competitive in comparison to conventional sources. There are considerable environmental impacts associated with extraction of oil from these sources. Extraction of oil shale and tar sands requires open pit, strip, or underground mining to recover the resources. Removal and processing of significant amounts of overburden; in Alberta, about 5 tonnes of sand and overburden is processed to obtain one barrel of oil. A hot water process is used to extract the oil, which is energy and water intensive, although the water is recycled. The tailings, or byproducts, of the process include overburden and water; the overburden can be reused as landfill, but the water may be contaminated with sulfur and heavy metals and must be contained in a settling pond. Airborne emissions from the mining operations include sulfur dioxide and other particulates.”
As for present reserves of conventional oil:
“At the beginning of the 21st century, 75 percent of global oil supplies are produced from 370 giant fields. Reasonable estimates are that there are about 850 gigatonnes of conventional oil resources with an additional 150 gigatonnes remaining to be discovered, or about 1000 gigatonnes. The U.S. Geological Survey recently estimated that there are 3 trillion barrels of recoverable oil remaining, which means that global oil production would not peak until 2037; the USGS’s estimate, however, has raised controversy. A considerable lead time is required to bring production online; for most current fields, it took several decades to bring them into production. The timing of exhaustion of conventional resources depends on many factors; if the costs of oil increase significantly, because of taxes to discourage use of petroleum for environmental reasons, or because of other political or economic factors, alternative energy sources may become more competitive. Yet for transportation uses, a viable, cost-effective alternative to petroleum will not be available in the short term.”
No, we will never “run out” of oil any more than we ran out of kerosene in the 19th century (thanks to the invention of the light bulb). But it seems highly likely that the age of cheap oil is behind us and that its continued subsidization, along with trucking and agricultural subsidies, distort the market to the point that oil’s “burn rate” (to use the term now being employed with respect to the $1-2 billion being spent daily in the aftermath of Katrina) will continue to be vastly greater than the market would allow, suppressing the search for the next “light bulb.”
David White wrote:
“But it seems highly likely that the age of cheap oil is behind us…”
Perhaps it is, but then why did you previously
quote approvingly that
“[C]ompounding peoples’ misunderstanding of the whole situation, you have talking heads (as often as not, they are economists) saying really dumb things like, ‘But in dollar terms, the oil industry is only 4% of the U.S. economy.’ To which I say, ‘Try running the other 96% of the economy without it.’ ”
This is a totally different issue. Even the peak
oil theorists do not claim that we are running
out of oil, only *cheap* oil. The former claim
is a red herring.
Dan,
What “former claim?” If cheap oil is behind us (even with government subsidies that far outsrip the current taxes it places on it), then the more the rising price of oil will impact the rest of the economy. Let it rise from 4 percent to 10, 20, or 50 percent, and imagine the impact. No, GDP won’t show it, for the simple reason that GDP doesn’t know the difference between a ham sandwich, a hammer, or a hand grenade. All GDP does is add up expenditures and spew out the total, which is why the monumentally stupid “broken window fallacy” persists. But since weath creation depends on increases in productivity, and since the costs thereof rise with the cost of energy, wealth creation — which is purely a function of productivityy — cannot but be negatively impacted.
It’s that simple.
These unconventional sources are not widely used because they are not economically competitive in comparison to conventional sources…
That’s true, but that’s only because nobody is using them currently (because there’s no need, of course). The technology will undoubtedly progress rapidly once it is needed, making them quite economically viable.
[Regarding "cheap oil" -- what is meant by "cheap"? At current prices it's still cheaper than water...]
At current SUBSIDIZED prices, it’s still cheaper than water, which assures that investment in new technologies, alternative fuels, and other modes of urban development will be postponed until, like New Orleans’ levees, the de facto price controls give way. Result? What would otherwise have been a steady trickle of price increases becomes a deluge instead, a situation that will be all the worse when (not if) foreigners stop buying our debt and the Mother of All Bubbles bursts.
pshaw…”subsidized” indeed! If it wasn’t for government interference I doubt you’d be paying $10 a barrel.
For what it’s worth, a little googling found an electric bus system currently doing something similar to my idea:
[source: http://www.electric-fuel.com/evtech/ ]
Peter,
You’re welcome to your opinion, of course, but some facts in support of it would be appreciated.
That said, I have no doubt that if it weren’t for government interference over the long haul — i.e., at least since the arrival of the modern nation-state in the 13th century — we’d have long ago advanced beyond fossil fuels to the point that there’s no telling where humanity would be today.
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Oh good!! – someone to chat with about SOLAR POWER ECONOMICS. I hope you see this and like it, and write me back at sacca9nuts@hotmail.com.
There seems to be an economic ADVANTAGE over the lifespan of a typical “solar farm”, compared to other investments in general, as per the returns.
There is a ‘solar farm’ being built in Ontario that will produce 40MEGAWATTS, or 40,000 kilowatts, constantly, on average. They refused to say what the total setup cost is, but by using the typical cost for a 10 Mw solar farm of $75 million, it would be about $300M for the 40 Mw. solar farm.
They have a contract that will pay them 40 cents per kilowatt hour [KwHr], but even at 10 cents/KwHr it will be economically viable, even profitable!!
Calcs: at 40 cents/ KwHr:
40,000 Kw. at 40c/KwHr = $16,000 per hour.
Xs 24 hrs a day, 365 days a year =
$16,000 X 8760 hrs a year = $140,160,000/yr.
Over 20 years = $2,803,200,000
So, $2.8 Billion returned over the 20 years it will be at least 85% efficient [the gaurantee on new solar panels], plus whatever extra years at less than full efficency, is a pretty good return on the $300M investment. Even if there was costs of $1M a year in maintenenace, thats a tiny part of the total.
You are the expert economist
– How does this compare to investments in general? [getting 5% or 10% growth over a year is good, isn't it?]
- and how does it compare to returns on coal fired electrical generation [which has those input costs after setup that solar or wind does not]?
So, you see I am thinking that solar farms might be the BEST investment today, and very secure too, BUT – it is being ‘squashed’ in favour of fossil fuels. Will you help me get the word out, if I am right on this?