"Higher oil prices will make people ... live closer to jobs."

That would have an even larger secondary benefit. Someone who commutes an hour each direction and who's time is worth $50/hour essentially pays $100 each workday even before factoring in gas costs. Traffic is an under-discussed massive economic sinkhole.

Mthson: I can't say I agree with your accounting but I understand what you say.

Traditional rail presents a choice. Tracks eat up huge amounts of real estate and make life unpleasant. But roads do the same. For both reasons I think it rather insane to build anything but underground corridors in urban areas. Subways cost more. I understand that. But many have been operating for over a century and they work - sometimes you get what you pay for.

Here in Phoenix they are continuing to push freeways and light rail which will, IMO, make the quality of city life worse rather than better. The usual pattern in US public transportation is to always overrun costs, deny it by juggling accounts, ask for more bond money, blame Washington for not paying local costs, and be amazed when rider estimates prove too high (not that they were ever phony to begin with).

Rather than making people live closer to jobs we should consider what will make jobs .... live closer to people.

Today most of our 'big time' cities are kept that way by the ruthless political grip of downtown interests. Typically the state capitol is there, across the street from the county courthouse, a block from city hall, somewhere nearby is the board of education, the biggest public hospital, and the central jail, certainly a state university campus, and probably a medical school. It is all within a half mile of the freeway interchange, and the central library, the public art mueseums, the music and convention centers, and the etc. etc. etc. That makes it sensible that law offices will be there. And the largest hotels, ad infinitum.

So, I would really like to see the favoritism to city centers slowly evaporate. Lacking that I would advocate better transportation plans. But changes like that would disturb those who have constructed the present to their benefit.

The hard limit to the price of oil is how much someone is willing to pay it for use it.
Currently, one of the bigger user of oil is China.
The GDP/barrels is around 80$, they earn 80$ for every barrel of oil they use.
More the price of oil grow, more business in China (and elsewhere) will need to raise their prices or go out of business or shift to another energy source or another business. So this put an hard limits to how high oil can go.
If they are rational, they will not buy 150$ barrel oil to produce at a loss. Nor, many, will buy 80$ oil barrels to produce at loss.

Zoning is the main reason people live so far from jobs. Unfortunately, regulators are economically uneducated and don't
understand this. Two worker households also contribute substantially to commute time.

Oil is mainly used for transportation and people are willing to pay a lot for transportation, although it economically is a loss. But so is any consumption unless used for producing something.
Given that peak oil has occured about a year ago, imho, there should be no surprise that oil prices are at 70 dollars/barrel without a hurricane in sight.
Oil at 200 $/barrel will crash a large part of the economy and make food prices skyrocket, for instance. What will happen is not a fight between Chindia and the west but that poor people anywhere also in Europe and the US will be locked out of the economy, the rest will pay $200 for the declining supply of oil. We live in a more global economy which has given us a decade of prosperity by now.
If I am right, this will be the biggest opportunity in history to make a large sum of money due to the magnitude of the changes coming over us. My money is since five years in oil/energy (in Russia) and I am already extremely pleased.
I would welcome a discussion about what will happen with respect to e. g.:
large cities vs small
countryside vs city
inflation or deflation
job loss or job creation (with less pay but still a job e. g. in railway building or solar cell installation and so on)
less aid to poor countries combined with VERY high food prices leading to mass starvation ?
house prices in different locations (interest goes up ?, inflation ?, no investment alternatives except alt. energy ?, location-location-location this time near work, ... )

I have no clear idea about these things, though suburbia seems like the worst place to be in.

There's definitely a major resurgence in industrial freight in the United States as of the past couple years. The rail companies are definitely looking at doing something with all the money that's now available to them. Even thought the US probably has the best industrial freight rail system in the world, there's a large need for infrastructure improvement, especially in a finer mesh of bi-modal hubs in smaller cities. Investing in these areas is a no-brainer since few companies have the right-of-ways and economies of scale that the big 4 rail companies have.

Good information on the train versus truck hauling fuel measures, I didn't realize it was 3 or 4 to 1! The truck option is a more precise way to get goods where you want without as many intermediary steps. On the other hand it is more costly in oil terms. I've always liked the idea of heavy use of trains like Lyndon Larouche's ideas:).

On oil many are thinking we have no options because it would be very hard to bring online so much supply to meet global demand. But remember you can also go after the consumption side. With plug-in hybrids even with a small all electric range you can reduce gasoline use by 70-80%. As most people's driving is short trips. We aren't far away from plug in's arriving, and the higher oil goes the more pressure there is.

An investment I like is food, especially meat producers. The market doesn't like them much, but it seems to me they will make money with rising prices.

aa2,

Raise the cost of fuel and several things happen with transportation:

1) The difference in goods prices at places of origin (e.g. ports, factories, farms, mine openings) and at retail places goes up.

2) The difference in price of goods near rail depots and other places goes up. The added truck energy cost makes places further from rails more expensive.

Combine 1 and 2 and some places in the US become much more expensive. Places that are the origins for the most number of commonly purchased goods become cheaper. It strikes me that a Mississippi river port near an industrial city, near farms, and near a major train freight depot is a lot cheaper for goods than a lot of other places.

3) People want to move closer to jobs.

4) People want to choose jobs closer to home.

5) People use more fuel efficient means of transportation.

What might happen as a result?

A) Poor people might get pushed out of inner cities by more affluent people. People with money and live and work in a densely populated area and only get further away for vacations and long weekends.

B) People will migrate away from rural areas - unless they are farmers or miners or lumberjacks.

C) People will buy hybrids, small cars, motorcycles, and in a couple of years they'll buy electric cars.

D) Companies will site facilities based more on transportation costs. That means closer to big rivers, oceans, and trains.

Mats-Erik Pistol,

One can live in suburbia and yet have only a 1 mile commute to work. Or one can have a 60 mile commute. It isn't hard to mix some office space in between tract home sections along with what else we see in suburbia: gas stations, banks, restaurants, shopping centers, and the like.

Also, pluggable hybrids will make 20 mile commutes quite feasible and cheap even if the price of oil goes to $200 per barrel (which I do not expect to happen even once Peak Oil hits).

What I want to know: Can economies reorganize around expensive oil more rapidly than happened in the 1970s? Seems possible. We have a lot more technology that'll help. We have easier substitutes to phase in, particularly the Lithium batteries that sound like they've finally gotten good enough for automotive use.

What I also want to know: What types of adjustments will be hardest to make as a result of Peak Oil?

I'm wondering which uses of oil are hardest to find substitutes for. Plastics and rubber?

Engineer-Poet's "Blade Runner" truck & rail concept that he posted on his ergosphere blog?

webpages:
"Dualmode vehicles, the ultimate in intermodal transport" and "Dualmode Transportation Concepts"
by Jerry Schneider, Civil Engr. Prof. Emeritus, U of Washington, Seattle

What types of adjustments will be hardest to make...?
My comments sort of assumes we won't have an economic disaster that screws us all.)

Existing engines in cars and trucks are the use of oil that it will be hardest to substitute for.

The chemists are marvels at making artifical materials from natural gas when oil is unavailable and from coal when they don't have NG and from biomass when lacking all of the above. Costs would soar, the screaming would horrify, but it would get done.

Replacing your car or a truck with something fueled by H2 or EV or biofuel or CNG or ethanol is easy. Replacing 200 million or more will keep you busy far into the evening.

Conversion of existing frames will prove more expensive that mass production of new vehicles.

Vehicles have many constraints that often don't apply to other mechanisms. The weight must be kept down. They must start and run on hot days and cold, with slush pounding them from below and rain from above. They must be durable and not too expensive to purchase or operate. They must climb hills and stop quickly. They must have excess capacity - room for more passengers and some trunk space. They must be protect passengers from the elements and collisions. Yet replacement must come.

Changes that have not been mentioned. The complex, nearly bulletproof packaging of every small item will become rare. Far more clever packing of large items will replace solid styrofoam slabs. Carpet and artifical wood flooring will give way to tile which requires some energy but almost no materials to produce. PVC piping will be less used but copper will be far too expensive to replace it. Some sort of iron piping with a new durable lining will be developed. Trash will be picked up less often and recycled more throughly. Residential mail delivery will be every other day or twice a week. Business mail delivery may also be less frequent. Junk mail, tons of nearly useless paper, will decline.

I'm not surprised that trains are seeing more cargo being thrown their way. My neighbor is owner/operator of a semitractor-trailer. Every day M-F he hauls a tanker of fuel 200 miles to Indianapolis, then drives home. Considering a semi gets around 6 to 8 mpg, that struck me as an incredibly inefficient way of transporting freight.
Another thing that should be looked at to save fuel is increased telecommuting and working at home for America's office jockeys. I'm sure Randall has covered this before.
In addition to people moving closer to the cities, we may see a revival of small towns. It used to be a town of 1500 or 2000 people could have 1 or 2 grocery stores, a car dealership, and viable clothing and dry good stores. Now many small towns just have some bars and convenience stores while people do most of their shopping in town.
High gas prices plus telecommuting may revive smaller towns.

K,

Just because something will become more expensive does not mean that people will stop using it. Take styrofoam for example. Maybe it is so cheap that a doubling of its price would not reduce its use by much.

Also, suppose styrofoam becomes more expensive. Well, competing wood-based products will become more expensive too due to higher processing costs which will come as a result of higher oil prices.

What we are going to find is that some things have pretty comparable substitutes for slightly higher prices than what people are paying now to use petroleum-derived products. But for other things the substitutes may be so inferior that large price increases on petroleum will have little effect on usage.

Tile: Aren't some tiles cooked in their manufacture? That takes energy. How does that amount of energy compared to the energy for making formica or carpet?

Higher oil prices will change relative prices. But unless we know a lot about the industrial processes involved in making assorted goods we aren't going to be able to guess how relative prices will change.

A $200 per barrel oil translates into roughly $8 per gallon gas. It is just slightly more than the amount the Europeans (and some other countries' citizens) pay. Does it wreak economic disaster? No. At worst, it is some inconvenience.
I used to live in a counry that had $6 gas (when in America it was around $1), 120% tax on imported vehicles, 18% VAT, draconian income tax and a host of other inconveniencies. Do you think its roads were empty from cars? No. In fact, to get to work in a business district meant for some people to wake up at 5:30 trying to beat the traffic. Economic stagnation, you say? 5-6% annual GDP growth hardly qualifies as that.
On other topic: LNG/CNG conversion for a car in not a big deal. People can even do it themselves. I have a friend who did it for his 1959 vintage car. So, I wonder how clever it is to use natural gas to extract oil from Alberta's tar sands, refine it into gasoline and use the gasoiline in cars, instead of using LNG directly.
I personally consider buying an LNG car for my personal use. The problem is that my house doesn't have natural gas hookup. Naturally, I can order an installation of an underground propane tank, but I wonder how expensive the natural gas from that tank will be. Does anybody know?

Randall: Don't disagree with anything you just said. Nothing I predict is certain. And the relative economics of substitute materials is even more uncertain.

Tiles are indeed hardened by direct heat. But that is about the only cost. We are talking about something made from dirt. Granted not just any dirt, but certainly not rare dirt.

In contrast carpets are often made from artifical materials such as nylon. The material is expensive, manufacturing - even though well automated is has many stages, and the resulting carpet is bulky which increases transportation cost. Formica, artifical stone, and artifical wood flooring also requires chemical, complex processes and energy inputs.

We are speaking of perhaps 50M processes and I have no intention of debating steps or whether some carpets are all wool and thus natural.

"Higher oil prices will change relative prices. But unless we know a lot about the industrial processes involved in making assorted goods we aren't going to be able to guess how relative prices will change."

So what? We guess about how things will change every day. Some guesses are wild-assed and some are well considered. Unless you prefer a "Let's Never Err Blog" you will be burdened by speculations and uncertainty and errors at "FuturePundit".

Numbers matter. As it turns out, fuel cost is a minor part of freight charges. A typical semi-tractor gets 6 miles per gallon of diesel fuel, and hauls 56,000 pounds of cargo. At $3/gallon, that is only $9 per 1000 pounds per 1000 miles. A typical freight charge for 1000 pounds might be $350. So the cost of fuel is a relatively minor factor in deciding the outcome of competition between trucks and trains.

Randall, here's some data.

For a very low density item, like cement: at 80,000 lb semi capacity, 1,000 mile trip, 6.5 MPG, $3.10/gallon, $7/bag and 88 lbs/bag, the fuel cost is 7.5% of the cargo value. For a 100 mile trip, .75%.

A similar calculation for cars: 10 cars per truck, $20k/car: about $50 per car, or about .4% of value, and $5/car for the last 100 miles.

As you can see, it depends enormously on what you're transporting: for most items, transportation energy costs are not that important, and getting a rail stop very close to the end shipping point is also probably not that important.

David, a truck can make $19,600 (56 x $350) in revenue for a single, 1,000 mile trip??

K,

I'd be more convinced on carpet by a report on how the rise in oil from $20 to $70 per barrel made carpet 3 or more times more expensive. So I went digging. Here's some info on carpet price increases due to oil price increases:

Allen Kryscynski, president of Builders Carpet Outlet in Ann Arbor, Mich., says pricey oil resulted in an aggregate 10% decline in profits during the last two years. "Over the past 24 months, carpet prices have gone up about 5% every two to three months," he says. "It's all based on the cost of oil and raw materials. The manufacturers pass along the increase to us, and we're getting killed at the supply level."

...

Fertilizer prices have gone up to $9.50 a bag, from $5.50 three years ago, and Crenshaw is selectively passing along the increase.

That was an April 2005 report. So did the cost of carpet go up 50% in two years from 2003 to 2005? It is not clear. My suspicion is this guy was being very imprecise. See better numbers below.

Here's a more precise measure with paint as the object: Paint prices only go up 1% with each 10% oil price rise: (I expected more)

Paint manufacturer Sherwin Williams Co. of Cleveland, framed the impact of rising energy prices this way: For every 10 percent increase, the raw material costs for a gallon of paint go up more than 1 percent. That nudges up the retail price, spokesman Bob Wells said.

But the substitutes will put a lid on price increases. Companies in Maine are investigating use of potatoes to make plastic and corn is already being used to make plastic.

Several Maine-based companies have indicated they would be interested in potato-based plastics. And one high-tech textile manufacturer may even be interested in building the plastics facility.

InterfaceFABRIC, a Guilford-based company with three plants in Maine, has pioneered the manufacture of textiles from recycling plastics and corn. Interface now is leading the push to examine the potato as a source for plastics.

Last year, Interface received a grant from the Maine Technology Institute to evaluate the possibility of using Maine potatoes, instead of corn, to produce plastic. That grant helped fund the UMaine study. The company, which produces carpeting and fabrics found in upholstery, buys its corn-based plastics from a Midwest manufacturer.

Wendy Porter, Interface’s director of environmental management, said the company’s textiles from corn and recycled plastics are competitively priced. Based on calculations in the UMaine study, a Maine manufacturing facility could likely produce potato-based plastics at an economically viable price.

Okay, I finally found a table comparing carpet price increases with asphalt (also made from oil during the same time periods. In 2004 and 2005 carpet prices (up about 8% per year) rose less than half as fast as asphalt (up about 18% per year). The carpet price increases in 2004 and 2005 suggest that while carpet prices will go up when oil prices go up they won't go up anywhere near as fast as oil. (and I would appreciate it if someone could find the price of oil in the beginning of 2004 and end of 2005)

So, again, it is not obvious to me which goods will go up in price the most due to rising oil costs.

Greg asks:

So, I wonder how clever it is to use natural gas to extract oil from Alberta's tar sands, refine it into gasoline and use the gasoiline in cars, instead of using LNG directly.

Yes, we do not have enough natural gas left to waste it extracting oil from tar sands. Well, there is an alternative that is probably cheaper: Use steam from nuclear power to heat up the Alberta oil tar sands to extract the tar. This will save massive amounts of natural gas that can then get used to heat homes and other higher value applications.

The project would achieve a 10% advantage in steam cost even if natural gas were at USD3.25/mmbtu.

The twin 2.2 GWe reactor proposal would generate 507,000 to 634000 bbl/day in a similar configuration with similar assumptions.

What I found particularly interesting about that article (written by Brian Wang who writes the excellent Advanced Nano blog and who also writes fact-rich comments here sometimes) is the point about comparative cost. The price of natural gas has lately been running well more than double the price at which nuclear power becomes cheaper for Alberta oil tar sands extraction.

Overview: Thursday, June 28, 2007 (next release 2:00 p.m. on July 6, 2007)

Since Wednesday, June 20, natural gas spot prices decreased at virtually all markets in the Lower 48 States outside the Rocky Mountains and Northeast regions. Prices at the Henry Hub declined 65 cents per MMBtu, or 9 percent, since Wednesday, June 20, to $6.74 per MMBtu, posting its lowest level since March 19. At the NYMEX, the futures contract for July delivery at the Henry Hub expired yesterday (June 27) at $6.929 per MMBtu, falling 46 cents per MMBtu, or 6 percent since last Wednesday, June 20.

K: Thanks Randall. I gave you a rather snippy reply before.

This entire thing started when I thought of several plausible trends that others had not mentioned. It was startling that you seemed to think it was based upon any solid knowledge.

There is simply too much astir to make research practical for an individual anyway. Even top companies bet millions to billions based upon extensive and damn good analysis that proves to be utterly wrong within a short time. But they make enough similar bets that prove to be right.

Leaving aside carpets, a complex process using complex materials. I also said I thought copper would become too expensive for residential plumbing. The rough logic was that copper is needed for electricial uses. I expect electricity to become all important for vehicles. Thus vehicles will use more copper. And as more electricity is generated and more grids are built world wide more copper will also be used. Hence copper plumbing will not be competitive with alternatives.

Guessing about plumbing material is somewhat the reverse of the carpet v. tile matter. Copper is the simpler like tile. It competes with PVC and iron which are more complex just as tile competes with the more complex artifical woods and carpets. But there is no great alternative demand for tile and there is for copper.

Long dormant copper mines are being reopened in AZ. Tough work but remarkably good pay. Jobs are open.

Copper is often stripped from abandoned houses and buildings in poor areas. Occasionally you read of idiots trying it on live power lines. That is one way to to get your name in the paper.

K,

Copper is uncompetitive with PVC already for plumbing applications. It is SEVERAL TIMES more expensive and more difficult to work with. I wonder why it is still being used at all...
As to increased copper consumption for electrical applications - you might be very wrong. Fluorescent bulbs that start to become popular now may severely reduce power consumption and make even 14 GA wire irrelevant for lighting. I don't see why, for example, Australia, after outlawing incandescent bulbs, should not change its residential wiring codes accordingly.
The process will also affect the power transmission lines - upgrade for many of them may be postponed (maybe even indefinitely). And, most important (in my opinion) that generating facilities upgrade may also be postponed for several years, during which years alt energy becomes REALLY competitive with coal, or at least demonstrates that it is on track to do that.

Randall, that article on paint said that "For every 10 percent increase, the raw material costs for a gallon of paint go up more than 1 percent. "

That's raw materials, not retail price. Raw materials are likely well below 50% of retail price, so the ratio is likely about 10% oil price increase to .5% price increase.

As you note, there are a lot of opportunities for greater efficiencies and substitutions in the path between raw material and final manufactured product, so that the effect is likely even smaller than that.

Peak oil pessimists raise oil to a mythical position, and exaggerate both its importance and our dependency on it. Sure, if the Straits of Hormuz are blocked tomorrow we'll be in a world of hurt, but it's just one of many things that are essential to our economy (though it's certainly a leader in that category), and with time we can wean ourselves off of it.

Aluminum is a good substitute for copper for electrical transmission. It's also good for I/C & residential wiring, though it requires proper terminations & interfaces to copper to prevent problems. Fiber optic is replacing copper for telecom.

Aluminum and silicon are extremely plentiful. Aluminum is power hungry, but it's highly recyclable, and very cworks well with renewable electricity.

K,

Copper's price rise has been driven by rising demand. I do not think oil prices played a big role in it.

What I wonder: Is the global price rise in metals a transitory period until more mines open?

What I wonder about all the metals: Does any metal face a short to medium term production peak the way oil does? Or do all metals have lots of mines waiting to be opened to extract more of them?

I'm thinking that copper has substitutes for use in plumbing. Will nanotubes become useful copper substitutes in electrical applications?

Nick,

I do not buy the civilization collapse arguments made by some peak oil pessimists. But depending on when and how quickly oil production starts declining we could experience stagnating or declining living standards for several years running.

I'd prefer a long plateau before oil production starts declining. But even during a plateau the US would experience declining use of oil as rising Asian demand bid up prices so high that we could afford less of it.

Yes, we will definitely face an economic headwind, with rising oil prices, in part due to diversion of investment from labor productivity improvement. Another serious effect is the diversion of talent and resources from other areas, like medical research. A significant portion of venture capital has moved to energy, away from biomedical. That will slow down longevity and other medical research. That's too bad.

On metals: AFAIK most of them are suffering mostly from capex lag. Copper seems to be a partial exception, as analysts are suggesting that decent reserves are running out. Fortunately, it has plenty of substitutes.

Actually, I'm more worried about climate change. I suspect/hope that will drive a phaseout of fossil fuels faster than peak oil would.

It's interesting to see actual market mechanisms respond to incipient peak oil, whether through massive influxes of venture capital or switching to alternative transporation like trains. As for figuring out when the peak is, we're pumping a bit less oil this year than last. If you believe some, such as investment banker Michael Simmons, we are already past peak as the massive Ghawar field in Saudi Arabia has peaked. If you believe ASPO, Colin Campbell's organization which has been studying the issue almost 2 decades, all liquids peak is probably in 2010 (though they've pushed it back several years already, so...). The most heavily detailed field-by-field analyses, meanwhile, seem to be coming up with answers around 2012-3, give or take a year or two. If you believe CERA and other oil-funded groups, peak won't happen until 2020 or later... right.

Watching the response of the market to high oil prices the last couple of years, more than anything else, has weaned me off of the peak oil catastrophe theories. With nuclear (breeder), wind, and solar power available that are worth millenia of power generation, and plug-in vehicles within 5 years, it's hard to see where things go so horribly bad we lose 5/6 of our population over the next century, as seems to be the typical doomster model. Sure, energy may be more expensive and intermittently available for the next half century, and we could be looking at a recession worse than the 1970's, but that hardly forecasts a civilizational collapse.

Inevitably after pages and pages of argument regarding cost and scalability, the doomers concede that there are plenty of technological solutions sufficient to plug the gap several times over, but that "the elites," whoever they are, are going to run civilization into the ground because they will derive greater profit from a series of resource wars than keeping 5/6 of their population alive as consumers. And when the "sheeple" figure it out they'll go on massive killing sprees and civilization will completely break down. Which to me, anyway, is delightfully nonsensical.

As far as how high oil prices will affect society and city designs in the future, think of what the city would be like if there was no oil.

One comment mentioned that jobs should move to people. How is moving work places out into the suburbs and spreading them around huge areas going to increase efficiency? These people have to shop, so they will either drive to a centralized location or the freight will have to be spread out around the suburbs after delivery by train in a centralized location in the city.

Americans do not understand the impact of out of control suburban sprawl. You can fit about 30 Berlins into Houston. The inefficiencies due to this are in everything. Gigantic expensive road systems, huge electric, water, communications line lengths, long drive times, etc, if you wonder why we can't afford universal health care, it has a lot to do with our out of control urban inefficiencies.

We are already seeing the effect of high gas prices, it's hard to find a city today without a urban center revitalization process occuring. People who live in city centers often don't even need cars, which is especially the case in New York. I know for a fact you can live car free in Chicago, San Fransisco, LA, Dallas, and other places with good urban rail systems; subway or light rail.

Imagine if we had no more gas at all. I would imagine that all persons making moves would head towards city centers.

This idea of moving jobs to people is only going to make things worse. Jobs need far more supplies then people, which means sending more freight out 30 miles away from delivery centers rather then just a few miles. Another problem is that a particular supply might be located in only a few stores in the city, and the company that needs it might be located 30 or 50 miles away if we have a huge sprawl type city, so the company has to make a trip to pick it up. Not only is the freight sent a long distance away from the delivery point in the city but companies have to travel long distances to go pick them up. A city center location is a perfect way to have supplies jobs and residences all located close together so that there are few inefficiencies.