Wednesday, July 17, 2013

Peak Oil is dead! Long live Peak Oil!



One of my favorite websites, The Oil Drum, is shutting down, and I am mad! Everyone is attributing the shutdown to the death of the "Peak Oil" meme, which in turn is attributed to fracking. The first is probably true; Peak Oil mania is over. But the second is false. Fracking has not killed Peak Oil. It just hasn't fit the narratives that many of the Peak Oilers spun.

The thesis of Peak Oil is simple: Global oil production will soon peak and begin to decline. But there were two possible stories that the Peak Oilers told about how this would happen:

"Good Peak Oil": In this case, we find something that's better than oil, and switch to that, just like we once transitioned away from whale oil. In this case, oil prices and production would both fall.

"Bad Peak Oil": In this case, we don't find something better than oil, and as oil becomes more scarce, the price would go up, while oil production and overall economic activity both contracted.

What we got was neither of these. Or more accurately, we got a little bit of both, coupled with something else that doesn't fit with either story. What happened was this:

1. Global demand for oil increased, due to growth in emerging markets, pushing up oil prices in the 2000s - from around $20 to over $100, a five-fold increase.

2. At the new higher price, it became economical to tap expensive oil sources like tight oil (fracking), deepwater oil, and oil sands.

3. Even at the new higher prices, it has not been economical to increase "conventional" oil production. Instead, all net production increases have come from "unconventional" sources. And most of that "unconventional" production is not actually "oil" at all, but "liquids", which includes things like natural gas liquids.

4. There was a several-year lag in the mid-2000s where global oil production plateaued even as prices increased. This culminated in a dramatic spike in oil prices in 2007-8 which then subsided due to the global recession and the dramatic increase in unconventional oil production.

5. Oil prices are still over $100, even as global growth has been slow. Meanwhile, oil usage in rich countries has declined significantly.

This story does not easily fit with either of the Peak Oil scenarios. But it has important elements of both.

First of all, the peak in conventional oil, coupled with a dramatic surge in unconventional oil, looks a lot like the "Good Peak Oil" scenario, in which technology produces a new alternative energy source, and we switch to the new thing.

But the seemingly permanent increase in oil prices, and the fall in oil demand in rich countries, fit the "Bad Peak Oil" story. It indicates that the world is hitting oil supply constraints.

(And of course what the Peak Oilers missed was unconventional oil itself. Some of them missed the technology entirely, while others merely failed to anticipate that the industry's terminology would switch from "oil" to the more weaselly "liquids".)

So what happened was NOT that we switched to something better than oil. We switched to something worse than conventional oil: unconventional oil, which is more expensive to extract and/or to refine into usable products. This has left us permanently poorer than we would be if conventional oil hadn't hit global supply constraints. Filling up your gas tank is twice as expensive now, in real terms, as it was two decades ago. And that looks unlikely to change. In the wider economy, increased transportation fuel costs may be a main driver of the Great Stagnation, which manifests most clearly in the stagnation of transportation technology since the 1970s.

Basically, what happened is this: Scarcity attacked humanity, and Human Ingenuity battled back. Through heroic efforts, doomsday was averted. But Ingenuity did not win a smashing victory, as it did when we switched from wood to coal, or from whale oil to oil. Instead, humanity was forced into a fighting retreat, with Ingenuity executing a brilliant rear-guard action and forcing Scarcity to call off its pursuit...for now. But humanity has lost ground.

And Scarcity may not wait very long before launching another attack. Future increases in shale oil production (including tight oil and oil shale) is likely to be a lot more expensive than the low-hanging fruit we have picked thus far. Coupled with continued rises in developing-country oil demand and continued decline in conventional oil fields, this could cause another rise in oil prices. That will bring back the "Peak Oil" meme, which only seems to interest most people as an investment story. But sadly, The Oil Drum will not be around to chronicle the return of Peak Oil.

In the meantime, whatever you think of the predictive prowess of the Peak Oilers, the policy implications of the permanent transition from cheap oil to expensive oil are the same. Humanity is running out of high-quality, fungible, energy dense transportation fuel, and there is no substitute on the horizon. Creating a substitute - be it biofuels, batteries charged by cheap solar, or whatever - is going to take a lot of research, which is going to cost a lot of money. And realistically, the only entity that will put up that kind of money is the government.


Update: On Twitter, Kate Mackenzie suggested I mention climate change. In the heyday of the Peak Oil meme, some people did suggest that Peak Oil would save us from climate change. But this was always a complete fantasy; the numbers clearly don't add up. Electricity generation produces enough CO2 to cook the planet without needing help from dirty transportation fuel. The real hope for stopping global warming lies in low-carbon electricity generation - switching from coal to gas in the very short term, then switching to solar a few years later.

Update 2: Karl Smith disagrees with my post. Matt Yglesias effectively rebuts K. Smith with a single graph, writing "The good old days of genuinely abundant liquid fuel really do appear to be behind us." Exactly.

Update 3: In the comments, Robert Frey makes a VERY important point about conditional vs. unconditional prediction:
Arguing that a peak oil prediction was foolish or inaccurate because it was not realized is a bit like arguing that an inoculation program was unnecessary because the epidemic never occurred. The geologists who made such predictions were not fools. Their models were well thought out and carefully validated. They understood the conditions and limitations of their prognostications and saw themselves not as doomsayers but as agents of change. We owe them gratitude and not disdain.
YES. Exactly. If physicists predict that an asteroid is going to hit Earth, and so in response we send a bomb and successfully divert the asteroid, you hail the physicists as heroes, rather than deriding them as Chicken Littles. This is something that too many economists and economics an finance commentators tend to get wrong when talking about "predictions". Thank you.

69 comments:

  1. Don't forget the impact of improvements in energy efficiency and conservation. Part of the story of the recent decline in oil use in the rich countries is that higher prices do create incentives for simply using less. You buy a Prius instead of a Tahoe. You take the bus instead of driving. You turn down the thermostat, and buy compact fluorescents to replace your incandescent bulbs. There is room for LOTS of improvement in this way, and it will be a big factor in how the demand/supply/price story for energy works out.

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    1. 100% agree on conservation. Look at new car offerings this year vs. 2001. 4-cyl Nissan Altima, hwy mpg:
      2001 - 26
      2013 - 38
      http://www.fueleconomy.gov/feg/Find.do?action=sbs&id=32611&id=16671

      New CAFE standards are making a significant difference.

      The US can probably cut oil use in half by combining better mileage for comparable cars, choosing smaller cars, driving less (total miles driven is down), better transit options, and plug-ins. Similar things will happen around the world, but will not really cause oil prices to fall, merely will keep them from rising too much.

      CFL's don't really impact oil - coal is the primary fossil fuel for power, and coal isn't scarce yet.

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    2. The cost of solar cells is approaching 50 cents per watt, which makes solar electricity competitive with coal. When you factor in transportation and disposal costs, it is less expensive to build a five megawatt solar plant than a five megawatt coal fired plant.

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  2. Maybe I never gave the Oil Drum a true chance but I knew one of the guy writing there and, while I liked him a lot personally, his view was too much 'doom is coming, doom is coming'. Even when he had to recognised that we wouldn't have a 'Peak oil' but an 'oil plateau'...

    He even was trying to get the subprime crisis fitting in by arguing that the root cause was people choosing to fill their tanks rather than repay their mortgages...

    So maybe Doomsday is still in our future. But I think a stagflation-like episode for oil consumers and yet more riches for oil producers/transformers is more likely...

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    1. Actually there is quite a lot of academic work that shows high oil prices did actually cause the GFC. The BS, hubris and dishonesty made it much worse. And we are at Peak Oil now. It will take a few more years, but production, including "liquids" will start to decline soon, most likely before the end of this decade. What amazes me is that anybody would argue with the basic premise of Peak Oil. And oil is essential to our economy. As long as production doesn't increase our economies will remain stagnant.

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  3. What you describe is exactly the scenario set out on Jevons the coal Question - relating to shortening supplies of coail. He believed we would have to switch to something worse given tecnologies in 1876, in fact we shifted to something better, but there is no apriori. Many have raised the analogy with oil now in that all of the current alternatives are more expensive and so this hots growth, this wont last forever as technologies such as solar edge towards grid parity.

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  4. Malthusian predictions of collapse due to the effective exhaustion of an essential resource—peak oil being the case at hand—fail to account for (1) the attenuation in demand hrough changes in user behavior, and (2) technological advances which either create substitutions or open up new sources. In other words, they fail to account for the adaptive evolution of demand and supply. However, when taken in their properly qualified form, these predictions have often proved to be quite accurate,

    For example, early peak oil predictions about domestic oil production by then extant sourcing and extraction methods turned out to be quite accurate. This was an observation of some value becuase it provided important guidance to political and industrial decision makers as to how to direct efforts to overcome what was a real and serious issue. Thus, peak oil didn't happen because the peak oil prediction itself (THIS wiil happen given THAT doesn't change.) provided the motivation and insights needed for us to get out ahead of the problem and deal with it.

    One may argue, of course, that these adaptations and innovations would have happened anyway through the magic of the invisible hand, but the evidence suggests not. Standards and incentives to change user demand through a variety of efficiency standards occurred much earlier than they would have otherwise. Massive investments of producer capital in technological advances and their implementation would have been made much later had not the wolf of peak oil not been at the door.

    Arguing that a peak oil prediction was foolish or inaccurate becuase it was not realized is a bit like arguing that an innoculation program was unnecessary because the epidemic never occurred. The geologists who made such predictions were not fools. Their models were well thought out and carefully validated. They understood the conditions and limitations of their prognostications and saw themselves not as doomsdayers but as agents of change. We owe them gratitude and not distain.

    One thing I do agree with you strongly: It cannot go on forever. As Jared Diamond amply illustrates in his book _Collapse_, sometimes Malthus is right. Unless you believe in some loony notion of abiotic oil, it is clear that we are approaching the end of the line. Let's hope that these dire predictions serve their purpose and spur us on to the actions required to falsify them.

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    1. There is always the chance, that frozen methane gives us a bit longer to find alternatives to fossil fuel. But it is the double whammy with global warming that is the real issue. With such a full world, how will we cope with flows of climate refugees. History, doesn't provide us with much evidence that it will go smoothly.

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    2. Mr. Frey,

      Peak oil did occur, just about exactly as Mr. Hubbert predicted. He did not say "world production of oil will begin to decline in 1970". He said domestic onshore production of oil would begin to decline.

      And it began to decline within six months of his predicted date.

      The Earth is a finite ball, and oil can occur only in certain types of sedimentary rocks; you don't drill for it in granodiorites. As the price it brings in real terms spirals higher more of the unconventional sources like tar sands and tight shale will be economically viable.

      BUT. EVEN. THEY. WILL. RUN OUT!

      There's no escaping that humanity needs to shrink to a billion people max over the next century, and invest heavily in renewable energy sources. Otherwise it's back to muscle power. There is no escape.

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  5. "So what happened was NOT that we switched to something better than oil. We switched to something worse than conventional oil: unconventional oil, which is more expensive to extract and/or to refine into usable products."

    It is not only more expensive in terms of money cost (read labour and materials), but also in environmental terms. And those may be even more important.

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  6. My understanding is that current technologies have already put a cap on how much "damage" Scarcity can cause humanity. At around $8 per gallon, we can synthesize most of the various components of crude oil from genetically engineered algae. That will make us poorer, no doubt, but still pretty darn wealthy.

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    1. There is a big difference between energy at, say $0.10 per kilowatt hour and energy at $1.00 per kilowatt hour.

      If we are willing to put energy into the process we can synthesize "gasoline" out of a wide range of plant or animal material. Put in enough energy and you can suck CO2 straight from the atmosphere and turn it into jet fuel. That gives us high energy density for transportation. Think of artificial gasoline as a "battery" technology. The efficiency and potential scale of those processes are the problem. Algae farms will use space and clean water.

      Solar may pull off a miracle but modular nuclear reactors running on thorium seem a more likely solution to the coming energy squeeze.

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    2. I haven't been able to find anything about $8/gallon algae biofuel, but if true then that wouldn't even mean the end of cars. It's just that everyone who didn't want to spend a ton of money per month on fuel would be driving cars in the 35-50 MPG range, which covers you for most urban driving.

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    3. Two words: Peak Algae

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    4. Two words: Peak Algae

      +1 :-)

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    5. That is the question. How much are we going to manufacture and how much substitute away from.

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  7. Meanwhile, the Earth intercepts only one trillionth of the energy radiated by the Sun. There's plenty of energy out there, but our short-sightedness on space exploitation means it's going to waste, diffusing into the interstellar void.

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    1. It's a reminder that there's no lack of energy, per se - it's just what forms we want that energy to come in. And as others have pointed out, once you've got your energy, and the willingness to pay a higher price, you can get your liquid fuels one way or another.

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  8. o. nate10:22 AM

    There's also the slim possibility that the world will get serious about global warming and do something to limit carbon-based fuel use, which would accelerate the move to a non-oil alternative.

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  9. Martin10:36 AM

    Long-run tradeoffs between efficiency and innovation notwithstanding, a comprehensive carbon price would help to switch to less carbon-intensive energy sources (or just reduce consumption, if we are very unlucky). Government investment in R&D is surely warranted, but the present way of picking "technology winners" way ahead of the market seems to do little to nothing to avoid either the exploration and exploitation of unconventional, very carbon-intensive ressources (and thus does nothing to provide a solution to their eventual finiteness) or the global BAU emissions trajectory.

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  10. Two parter:

    I had a conversation with an Austrian friend on inflation that mentioned those two forces, scarcity and human ingenuity as components of inflation. (Conversation is a bit much, there was derp on his side.) I refer to the three forces affecting inflation as increasing scarcity, let's call it Malthus, human ingenuity, let's call it Watt, and the conventional Keynesian forces.

    I think when you draw back and look at the big issues in your last few posts I think they can be explained by Malthus and Watt and their ongoing battle for the future of mankind: The uniqueness of Japan and the absence of strongly visible Peak Oil, along with Krugman's ongoing puzzlement at the Keynesian Forces' failure to bring American deflation.

    The conversation started with him quoting the usual idiots at Shadow Government Statistics and inspiring me to take a detailed look at the CPI-U components.

    I made a variety of FB arguments explaining that the CPI-U blip of late 2011 and early 2012 was entirely Malthus. Food and Energy shortages, that is, Malthus had been making a ruckus in the run up to the crisis as well. I call this fundamentally inflationary force Malthus because it is aggravated by more numerous humans competing for increasingly scarce resources, just as the pessimistic reverend expected.

    Imagine an island with 100 people and a fixed money supply of 100,000 coins that undergoes a drought and a bad harvest. The supply shock increases the price of grain in those coins, although there's nothing that an Austrian could call an increase in the money supply happening. That's Malthus. Importantly, an island with a stagnant or shrinking population will experience less Malthus than one with a growing population.

    Another important concept is something that old man Smith could have pointed out, I think, which is that removing Food and Energy from CPI-U doesn't actually eliminate Malthus from that inflation measure. Every other product in the CPI-U contains as some portion of it's price energy that was used to drive machines or food that was used to feed human workers, and a significant increase in the real price of both raises the real percentage of the cost of those commodities that is taken up by these scarce resources. To the extent that Erickson has any point at all, he seems to be sensing the Malthus of milk. In America, Malthus is limiting the ability of the Keynes forces to cause headline deflation, at the same time that it is debilitating to the standard of living of the poorest Americans.

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  11. 2nd part:

    Malthus is inflationary. Watt is deflationary.

    SGS are correct that CPI-U would be different without the hedonic quality adjustments since 1990 or so. They're idiots to think that we shouldn't be making hedonic quality adjustments. The thing is, that once you accept that hedonic quality adjustments should be being made, the CPI-U sequence from prior to 1990 needs to be subject to the same adjustment. And that will mean a huge lowering in historic inflation, especially during the period where Krugman noted so much of our increased quality of life came from: 1900-1950.

    When you compare the cost in 2013 dollars of my writing this note telling a tenured economist how to do his job to what it would cost in 1913 technology, it's a gap of several 100 if not several 1000 to 1 in favor of 2013 technology.

    And there you have the long term Japan situation and our missing Keynesian deflationary force in the USA. The stagnant population growth has let Watt get the upper hand over Malthus on an almost constant basis in terms of technology alleviating scarcity there. There's less competition for locally produced resources, and they keep using them more efficiently. Meanwhile, in the USA, Peak Oil hitting at exactly the same time as the Housing Bubble meant that Malthus and Keynes are partially masking one another's baneful effects.

    Which is a worrisome problem. Supposing Watt does pull off another spectacular upset over Malthus in solving the Peak Oil problem like coal over wood. Suppose growing prosperity and better health care really do bring world population growth to a halt by 2050 or sooner. It's going to require an awesome battery of Keynes Force caused inflation to counteract Watt run rampant without Malthus holding him in check.

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    1. arguably, Watt is doing his thing all over the sectors whose business is basically information...

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  12. I think there's just too many possible alternatives once conventional gasoline starts getting really expensive. Natural gas, biofuels, arrangements of electric charging stations for electric cars, fuel cells - you can even run cars on compressed/liquified air if you're willing to spend the electricity to do it, although it's not any better than running your cars off of batteries.

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    1. Where do you think electricity comes from?

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    2. Coal, gas, nuclear, solar, wind, biomass, hydroelectric, geothermal - whatever works.

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  13. Anonymous12:49 PM

    That is *not* the simple version of "Peak Oil." There is no "soon" in the definition. The concept of Peak Oil is that "Global oil production will [at some point] peak and begin to decline." The concept is basically incontrovertible based on current prominent theories of time and space.

    The interesting question is whether or not the Peak Oil moment will be reached soon. No one knows. But everyone has guesses based on incomplete information and an uncertain future. Anyone who expresses confidence on the matter is probably a charlatan, a confidence man or deeply delusional about his or her own abilities of prognostication.

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    1. If you want to split hairs, there is a way for Peak Oil to never happen in tandem with the prominent theories of time and space.

      It involves continuing to use oil at less than the rate it is being formed geologically. That means cutting back the usage to a millionth or ten millionth of the current rate, and gradually tapering back as fossil bearing sediments stop being formed. The sun kills you eventually one way or another, but you technically never run out of oil.

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    2. Anonymous8:54 PM

      When we extrapolate almost any current rate, it becomes unsustainable. Such as endless population growth. Eventually we become a giant ball of humans expanding outward at the speed of light. You see population so seldom mentioned it is good to see other commenters bringing it into the discussion. We forget that existing oil is one of the numerators, and number of humans is among the denominators. Acting sooner is better.

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  14. Wind/solar/ocean currents/geothermal/nuclear/algae/methane hydrates.

    CO2 capture/suctioning to stop runaway global warming.

    I'm betting on Watt, and regular productivity-pushed "good" deflation (juiced by Keynes/monetary policy) isn't a bad world to live in.

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    1. I'll agree, but it's pretty clear that the powers that be don't much like Keynesian juicing, monetary or fiscal.

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  15. bjdubbs6:55 PM

    So even the peak oil nutters are throwing in the towel? Oil to $125.

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  16. And realistically, the only entity that will put up that kind of money is the government.

    Can you expand on this? Why wouldn't greedy capitalists looking to develop and profit from the next big technology fill the breach?

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  17. "Why wouldn't greedy capitalists looking to develop and profit from the next big technology fill the breach?

    The payoff is uncertain and long term. With budgeting processes that target a 20% internal rate of return and large sums of money required it is unlikely that very many companies will enter the fray.

    When we lost Bell Labs we might have lost the only private sector organization that really did fundamental research (and they did it because they were allowed to pass the cost with a mark up to captive customers of AT&T).

    We know that so far, the unsubsidized private sector has not found solutions to these problems and does not appear to be making a sufficient effort to give much hope they will find solutions. Given the stakes for mankind we should probably be spending on the order of a trillion dollars per year globally on the search for energy alternatives.

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    1. Well, we can count on the Japanese.

      With their islands being bereft of virtually any energy source and their populace now being hostile to nuclear, they have both the incentive and the will to try to capture methane hydrates.

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    2. Anonymous4:02 AM

      great! that will really seal our runaway climate fate. it seems rat monkeys will shit the bed to any extent to avoid the hassles of living legitimately on planet earth like any other animal. our species truly deserves its now inevitable and completely avoidable die off fate. my only consolation is it will be in the lifetime of most of the guilty individuals that caused it. thats you - if you still use a car, travel by plane, are not vegetarian or have more than one child.

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  18. Perhaps we should start talking about "Peak Energy"? Eventually - if we never develop fusion - we'll have to revert to whatever energy we can extract from the Sun (okay... even that is variable, since we could eventually start building a Dyson Sphere...)

    Anyway... this was startling: "And realistically, the only entity that will put up that kind of money is the government."

    I mean, I think "the govt" would be wise to fund this research, but I think Noah is being short-sighted. What the past years have demonstrated is that as energy prices increase they clear the way for investment in alternative energy technologies. Remember that capital paid for energy doesn't land in "The Earth's" bank account and disappear. It lands in the pockets of people (eventually) who then use (some of) it to find ways to beat the market price.

    I wouldn't be surprised to see 50 years in the future that we never developed a significantly better "battery", per se. Rather, the future might arrive in a radical new shape via harnessing proteins that are able to put the entire CO2+H2O -> photosynthesis -> sugar -> methane -> CO2+H2O -> photosynthesis cycle into arrays of, oh, I dunno... carbon nanotubes - all "powered" by sunlight, waste-heat, and CO2-rich air (via a slow burn of some plastic and mulch?) inside an otherwise sealed vessel. That is, until the National Ignition Center gets its game together.

    In short, I think it's less important to dwell on the role of govt in this research as it is to find ways to push the capital that is paid for energy toward research that might be the new revolution. Even if that means being the banker of the world's oil despots.

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  19. Anonymous9:24 PM

    So the moral here to me is that biological systems, including the economic ecology of intelligent species, are complicated. Who could have known? It will be interesting- slightly- to some extraterrestrial observer to see if our species evolves past the "stupid pet tricks" phase of intelligence.

    I travel to southern Germany regularly, where many new farm buildings have asymmetric larger south-facing roofs covered with PV arrays and no-account dorfs are building biomass power plants. The biggest problem with windmills is they're running out of space that doesn't conflict with aircraft navigation, established rare species sanctuaries and such. After Fukushima I was listening to a radio news program as the left-wingers and right-wingers were discussing shutting down nuclear power plants early, basically quibbling over the details of adapting their national energy policy to new developments and issues. If that doesn't make you embarrassed to be an American, you're still in the "stupid pet tricks" phase.

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  20. Anonymous11:43 PM

    Noah,


    Here is oil price chart from 1990 through 2008.

    http://bespokeinvest.typepad.com/.shared/image.html?/photos/uncategorized/2008/05/21/oilparabolic1.png

    Note the oil price only took off only after Iraq war and occupation of Iraq. Even then, somehow oil collapsed to $50 in Jan 07. Then, the irrational parabolic rise to near $150 that was to correct to ~$60 or so in post financial crisis recession. This is when Saudis stated that they would be happy if oil were to be between $70 and $80. One can make many conclusions from this chart except that price driven by supply and demand.

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    1. Someone's gotta pump the oil, and someone's gotta buy it!

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    2. Anonymous11:20 AM

      And both - pumping the oil and buying of it - can be manipulated, especially by destabilizing countries and regions.

      Taking oil from $20 or so to $140+ is a manic behavior. You should really look into the future contracts during Bush/Cheney admin.

      I have profited from this manipulation but the cost to others has been way too high - paid in blood, disabilities, reduced opportunities for the next gen like you and poverty.

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  21. Great article. Treading the middle path between extremist Peak Oil or Anti Peak Oil views is relatively difficult, but that's where reality lies.

    Arguably the recession we have just had was the result of oil scarcity: fast global growth, especially in EM -> oil constraints in the early 2000s -> increased prices -> increased inflation -> increased interest rates to counteract inflation -> all round decreased spending power -> decreased ability to meet too much debt -> missed payments -> defaulted loans... And then you are off the races for a recession. So, perhaps the Peak Oilers were right, but overestimate the result - not so much guns and beans, as just a painful recession.

    http://grandemotte.wordpress.com/2013/04/10/debt-and-oil/

    Even today oil use in the west remains subdued, and that's not efficiency - we're doing less, with an economy running on QE looking (for the moment) better than it actually is.

    Arguably, the rise of Unconventionals over the last few years (or decade if you were watching carefully) has at least partially saved the day. Where would we be without the technology? Higher oil prices? A deeper recession? It is fascinating. The technology is a real American story, and something that came from left field for most peak oilers (and those in the industry).

    But... it really isn't the cornucopia many would have you believe.
    For starters, US Unconventional supply hasn't actually led to an increase in non-OPEC production. It seems to have simply offset conventional(cheap)oil field declines elsewhere.

    http://grandemotte.files.wordpress.com/2009/11/non-ope-liquids.png

    The most worrying thing though, is that Unconventional oil reduces our future warning time regarding "peak oil". Conventional fields around the world are declining at about 4-6% p.a. That gives us time to think, plan, and change, if we found the will. In contrast, Unconventional wells decline at around 50% per year. That means that when the drilling stops, and it will, we will have very, very little warning before oil becomes scarcer, and scarcer, and scarcer. We've kicked the can down the road but are hardly dealing with the problems (sound familiar?).

    It has been interesting to watch oil history unfold over the last decade of so, especially from where I sit as an exploration geologist. And it continues to be so... what happens next? Well, some things are a given: the conventional oil fields will continue to decline, and we haven't found anything worthwhile for ages; the world will continue to grow in the absence of constraints. Unconventional oil technology will be applied elsewhere. But how much time have we bought, and has it distracted us from the true alternatives?

    http://grandemotte.wordpress.com/2013/04/11/unconventional-decline-rates-in-the-us-50-per-annum/

    http://grandemotte.wordpress.com/2013/04/15/future-decline-rates-why-they-matter/

    http://grandemotte.wordpress.com/2013/06/19/bakken-production-to-top-1-million-barrels-per-day/

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    1. Oops, typos, sorry...

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    2. Anonymous10:55 AM

      Very balanced comment.

      two details - shale wells, oil and gas, decline very fast, but other 'unconventionals' like tar sands do not decline as such, so much as they are mined out. They are more like coal in that respect, low energy returns, manpower and physical resource heavy, polluting, difficult to transport. Ramping up production will take decades.

      US Shale gas has already gone through its primary bubble and is about to enter sharp decline. US shale oil will peak in a few years time. Then peak oil will be back on the agenda.

      Globally, natural gas will probably peak in 10 -20 years, and then decline very fast. The total energy reserve in NG is less than in oil.

      70% of all energy used by industrial society comes from fossil fuels. 35% of that comes from oil. We can and are learning to use energy more efficiently, but efficiency measures suffer from diminishing returns, population growth, and Jevon's paradox (at least whilst the energy supply is rising). It will be extremely difficult to redeploy and expand other energy sources to replace falling net energy from oil fast enough, and even if we manage that, we will be hit by peak NG soon after.

      Shale oil is a short term blip in the global oil production curve. Tar sands will enable a fat tail in the decline section of the curve.

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    3. US Shale gas has already gone through its primary bubble and is about to enter sharp decline. US shale oil will peak in a few years time. Then peak oil will be back on the agenda.

      This seems quite likely. Scarcity is still nipping at humanity's heels!

      Globally, natural gas will probably peak in 10 -20 years, and then decline very fast. The total energy reserve in NG is less than in oil.

      Of this I am not sure at all, since methane hydrates are huge and we're near being able to frack them on an industrial scale.

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    4. The price of solar cells is also falling very fast.

      Then there's always nuclear, though that takes a lot of planning and investment.

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  22. Excellent post. Thank you. I too am sorry to see TOD go. It's the end of an era, and you have done a great job of describing what happened.

    ReplyDelete
  23. KJMClark1:21 PM

    Production is still stagnant:
    http://earlywarn.blogspot.com/2013/07/monthly-oil-supply-graphs.html

    The whole "peak oil is dead!" concept is funny. Shale oil is supposedly booming, but world production is still stagnant. So we have flat production despite some increases for one country, while we have continued growth in demand in China and India. If it weren't for Europe sinking deeper by the year into depression, we'd have rising prices and everyone would still be concerned about peak oil.

    I made a point for a long time at TOD that this would be resolved through economics, so we shouldn't ignore the economists. But Yergin isn't an economist, and any real economist will point out that the way an increased demand/stagnant (or falling) supply situation gets worked out is *either* through increased production *or* demand destruction. We haven't seen increased production. So we're seeing lots of demand destruction - mostly in Europe, but also in North America.

    I'll stop being concerned about peak oil when Brent drops below $50/barrel for reasons other than someone's economy crashing.

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  24. The Oil Drum is a very valuable resource in an arena where most information will cost you a pretty penny but I don't think that hydraulic fracturing technique invention was driven by the prognostication at that cite, so I think your analogy regarding inoculation is a bit stretched. There is some seriously good work on archive on the Oil Drum, but quite a bit of the talk was imminent doom and survivalism which I'm not sure served those readers who didn't take it with a grain of salt all that well.

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  25. Anonymous4:13 PM

    The next step is when prices are consistently high enough to support biomass conversion using the Fischer Tropsch process. Changing World Technologies built a pilot plant in Missouri to convert turkey slaughterhouse waste into petrochemicals and it seemed to work well enough for a larger plant to be constructed in Ireland.
    Imagine using our problems as a means to solving other problems; the FT plants can convert all manner of organic and inorganic waste materials into a range of hydrocarbons, including things that count as hazardous wastes, while potentially sequestering CO2 in the form of carbon black.

    ReplyDelete
  26. Michael Lardelli7:35 AM

    The Peak Oil concept is simple but so many people have tried to redefine it that confusion has resulted and this article just makes it worse. It is completely unfair to judge predictions based on conventional oil for not predicting the peak of world oil production when the definition of "oil" is regularly expanded. If you look at conventional oil it turns out that the reality of production RATES has actually been worse than the pessimistic predictions of the "peak oilers" (discussed in Aleklett's book "Peeking at Peak Oil"). Now shale oil is coming online for a brief time but the maximum rate of shale oil production can only ever be a small fraction of current conventional oil production meaning that this brief extension of the total oil production plateau will soon end. Peak oil has always been about production RATES not reserve sizes and anyone that suggests that unconventional can, in some way, substitute for conventional oil production rates is being disingenuous or is just ignorant.

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  27. Anonymous11:40 AM

    I quit reading Karl Smith's blog because of his energy posts. It was quite literally rage-inducing to read his assessment of the oil, gas, and petrochemicals industry that were so misinformed as to be wrong. In another context, for example, his contention that we could economically produce ethanol from ethane would have made me shoot milk out of my nose. He has no idea what naphtha is, nor what the definition of liquids means.

    This is quite possibly the first time I have ever encountered a situation in which an otherwise smart person will try to become an amateur expert and fail so utterly and totally to grasp even basic concepts, but continue anyway.

    ReplyDelete
  28. Anonymous1:08 PM

    FWIW, the technical problems for solar, battery, and grid stabilization have all been solved (check out the work of Nerode/Kohn); the remaining problems are economic or business problems. Which unfortunately are much, much, much harder to solve.

    ReplyDelete
  29. hh, things happened as Julian Simon would have predicted yet somehow those who deny the insights of Julian Simon are right? Whatever. The Peak Oilers were wrong. The doomsayers will continue to be wrong because they view the world through a steady state lens.

    ReplyDelete
    Replies
    1. Anonymous4:31 AM

      you are as deluded as julian simon was. conventional oil has peaked or is declining. and 'scraping the barrel' non conventional oil barely makes up for that decline and will itself inevitably peak after the low hanging fruit has been picked. the decline rates of non conventional oil and gass are staggeringly fast. how was that getting anything wrong. there is still a plateux of all liquids production compared with what is required for growth, hence recession. peak oil can never be wrong by definition. its a mathematical certainty on a round planet, because we are using a finite resource laid down millions of years ago, 10,000s of times faster than its created. moreover, the irrational pursuit of exponential economic growth on a finite planet means we will use up any resources faster than they could ever be replaced, until die off occurs (best bet is around 2030 - the way things are going thats on target). its a mathematical certainty collapse of industrial society will occur because the rats in a grain store mentality of the right wing and capitalist psychopaths won't allow the wisdom of the very few clever human rats on earth to control our numbers or anything else, and so we will eat out our food source and foul our living space with an exponential growing amount of waste products. eventually, when the detritus energy that provides phantom support to 7 billion rat monkeys declines to a critical point, no amount of 'substitution' or last minute conservation will work as we have already overwhelmed the legitimate carrying capacity by some 6 x. by then it could be over 10x. game over.

      Delete
  30. http://www.wired.com/wired/archive/5.02/ffsimon_pr.html

    ReplyDelete
  31. If I hopped in a time machine, flew back to, say, July 2000, and told you that on July 19, 2013, WTI would be $109, you'd have crapped your pants in horror and dismay.

    Prices steadily going up (ie: what we see now) is what Peak Oil looks like. What's the mystery here.

    @Anonymous 1:08pm: do these Nerode/Kohn fellows have a city-sized working model of their battery? No? Then the solar/battery problem isn't solved.

    ReplyDelete
    Replies
    1. Anonymous10:24 PM

      Yes, I just *told* you the economic/business problem wasn't solved.

      The technical problem is solved. (No new manufacturing facilities required, it's just a different class of designs. It's been validated by top materials scientists and top quantum physicists.)

      The problem is getting the business problem solved. In short, finding a financier who won't try to steal the whole thing, and while trying to steal it, be unable to actually hire people who can actually implement the design. Managing to get the manufacturing operation actually going. Stuff like that.

      On top of the problem that our financiers are mostly rapacious jerks, there is the problem that people aren't going to believe that the technical problem is solved without a "city-sized working model". Which could be built a few months... with finance.

      Like I said, the business/economic problem is not solved.

      Solving technical problems is much easier than solving business/economic problems.

      Delete
  32. "Creating a substitute - be it biofuels, batteries charged by cheap solar, or whatever - is going to take a lot of research, which is going to cost a lot of money. And realistically, the only entity that will put up that kind of money is the government."

    It is also going to take a lot of energy and physical resources which are needed up front. The Problem is, 'Momma Nature's Energy and Resource Bank' doesn't do credit.

    Ironically I just noticed the comment above: "Solving technical problems is much easier than solving business/economic problems."

    Someone drop me a line when they figure out a way for technical or economic solutions to circumvent the laws of thermodynamics...

    Cheers!

    ReplyDelete
  33. And then we have Peak Exports.

    EIA data show that what I define as Global Net Exports of oil (GNE*) have been below the 2005 rate for seven straight years, with the developing countries, led by China, consuming (so far at least) an increasing share of a post-2005 declining volume of GNE.

    Regarding Western Hemisphere net oil exports, the combined net oil exports from the seven major net oil exporters in the Americas in 2004 (Canada, Mexico, Venezuela, Colombia, Argentina, Ecuador and Trinidad & Tobago) fell from 5.9 mbpd (million barrels per day, EIA) in 2004 to 5.0 mbpd in 2012.

    So far, increasing net oil exports from Canada have only served to slow the post-2004 regional decline in net oil exports. And the US remains reliant on imports for more than half of the crude oil that we are presently processing in US refineries.

    I define Available Net Exports (ANE) as GNE less Chindia’s Net Imports (China + India). ANE fell from about 41 mbpd in 2005 to 35 mbpd (million barrels per day) in 2012, an average annual decline of close to one mbpd per year in the volume of exported oil available to importers other than China and India.

    I examined this topic in a recent paper, not yet updated with 2012 paper; you can find it by searching for: ASPO + Export Capacity Index. For more info on US oil and gas production, you can search for: Is it only a question of when the US once again becomes a net oil exporter?

    *GNE = Combined net exports from Top 33 net exporters in 2005
    Net Exports = Total petroleum liquids production + other liquids less liquids consumption

    ReplyDelete
  34. Peak oil becomes down market due to higher costs and rare availability.In earlier days it was the most effective oils that automobiles have to provide a great efficiency but with time it is outdated.

    Thanks
    Henry Jordan

    Hydraulic Seal Kits

    ReplyDelete
  35. Anonymous12:10 AM

    Ah yes, but as to your "Update 3" couldn't it perhaps be worth mentioning that the same fallacy can be true in reverse at times? Someone makes a prediction and causes a big fuss about it, clamoring to have as many people as possible join with them in some sort of "rain dance" to avert the said pending crisis.. And then when it becomes clear that nothing perilous happened or even nearly-happened, they then congratulate themselves (and their rain-dancers) saying, "Crisis averted! We did it!" Tough thing about macroeconomics and studying real-life events is accounting for the myriad factors which can essentially never be repeated and tested exactly or held constant through subsequent observations, right?

    ReplyDelete
  36. As for your HT to Matt Yglesias - you should know better than to put any faith in a commodity price chart in nominal prices!!!! A little more history would be appropriate, as well: http://www.eia.gov/forecasts/steo/realprices/

    ReplyDelete
  37. Anonymous8:22 PM

    I think peak oil has already happened. Anyone compared the price of oil a few years ago to todays' price? You might get a shock. In a nutshell. Oil is finite, whether it be from shale (which is a crock) or whatever. There is no replacement. During the great depression there were approximatley 1 Billion people and plenty of oil and natural resources hence the recovery. Today there are 7 Billion and natural resources are getting scarcer by the minute. Peak oil is dead. "No oil" is very much alive and the consequences are as guarenteed as the the sun rising in the morning. To use a well worn adage that is still highly appropriate. All we are doing is rearranging deck chairs on the Titanic. To simply dispel the work of eminent scientists and physicists because a red flag didn't go up with peak oil written on it is extremely purile and simplistic thinking. We know it's true hence the ongoing fear driven debate.

    ReplyDelete
  38. Employment opportunities for horizontal drilling in Oklahoma is massive. Oklahoma is all about oil and natural gas. Unemployment rate is way below than national average, and it’s because of this industry. Nearly one-quarter of all jobs in Oklahoma are tied to the energy industry. A recent research of the Oklahoma Energy Resources Board shows us the oil and gas industry was responsible for pouring more then $51 million into the state's economy and created jobs for over 300,000 people.

    ReplyDelete
  39. Employment opportunities for horizontal drilling in Oklahoma is massive. Oklahoma is all about oil and natural gas. Unemployment rate is way below than national average, and it’s because of this industry. Nearly one-quarter of all jobs in Oklahoma are tied to the energy industry. A recent research of the Oklahoma Energy Resources Board shows us the oil and gas industry was responsible for pouring more then $51 million into the state's economy and created jobs for over 300,000 people.

    ReplyDelete
  40. Anonymous12:31 PM

    Karl Smith doesn't get it and never will. He thinks ethylene hydration is viable and that the reason we don't do it isn't because the technology is too high cost but that the Iowa political caucus keeps corn ethanol in gravy. He doesn't know that there's been no ethylene hydration capacity operating anywhere for 20 years and doesn't know that it takes 5 years to build a cracker to get new ethylene capacity. He rages at the lack of ethylene-based ethanol a mere two years after the beginning of the shale boom as a sign of political conspiracy rather than real-world building constraints and uneconomical technology.

    Karl Smith doesn't get it, and I don't believe he ever will.

    ReplyDelete