July 05, 2008
IEA Sees More Rapid Decline In Existing Oil Fields

The latest International Energy Agency Medium-Term Oil Market Report (MTOMR) has an important change from previous reports: The IEA has increased their projected rate of production decline from existing oil fields.

Supply growth deriving from a concentration of new project start-ups during 2008-2010, allied to weaker economic growth, sees potential spare capacity rise in excess of 4 mb/d. However, this expansion slows from 2011 onwards when global demand growth recovers, leading to a narrowing of spare capacity to minimal levels by 2013. Since the 2007 MTOMR, significant downward revisions have been made to both non-OPEC supplies and OPEC capacity forecasts. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream -- to assure that the market is adequately supplied,” stated Mr. Tanaka.

Contrast that 3.5 mb/d needed increase from new projects with the Saudi promise to increase production by a half million barrels per day.

Keith Johnson of the Wall Street Journal asks where are those millions of replacement barrels of new supply going to come from?

So where’s that fresh supply going to come from? As the IEA noted, Saudi Arabia is the only country with a glimmer of spare production capacity—and the jury is still out on that. Increased domestic drilling, the U.S. energy agency already said, would be but a hiccup in the global market. Non-OPEC countries, from Norway to Mexico, are expected to chip in just 1.2 million barrels per day of new crude by 2013, IEA head of market analysis Lawrence Eagle said—or less than half the global shortfall.

We face a future with less oil. Therefore we need to change our lifestyles and change our industrial processes and infrastructure to use less oil. Are you preparing for this future? If so, how?

BTW, if you have been wondering why diesel costs more than gasoline in the United States when for years the opposite was the case: The US exports diesel to Europe and also to Latin America and the Far East (China). Europe's tax and regulatory regime favors diesel. So Europe has more gasoline but less diesel than customers demand. At the same time, Latin America and China are using more diesel to generate electricity (not the cheapest way to generate electricity btw). Will this trend continue? China's demand for diesel electricity seems short-lived. But what about Latin America?

Update: Also see Khebab's Oil Megaproject Update (July 2008).

Share |      Randall Parker, 2008 July 05 01:59 PM  Energy Fossil Fuels


Comments
odograph said at July 5, 2008 3:16 PM:

I've got a Prius, and 3 bicycles. I know how to garden. I can live a simple life and be happy. I have a positive attitude - that is, I neither require nor fear peak oil.

(Distrust those woh reject peak oil as anathema to their lifestyle, as well as those who embrace it as self-affirmation.)

jb said at July 5, 2008 3:59 PM:

We face a future with less oil. Therefore we need to change our lifestyles and change our industrial processes and infrastructure to use less oil. Are you preparing for this future? If so, how?

By considering how rising oil prices affect my lifestyle, and making tradeoffs that I made differently before.

Again, this is Econ 101. What's more, you regularly post evidence that rising prices are causing exactly what you say needs to happen (a reduction in the use of oil).

K said at July 5, 2008 5:15 PM:

As painful as rising oil costs seem the best law is supply and demand.

Otherwise you will get Law with the capital "L" and the government will decide. There will be a billions words of statute and regulation and fairness. And the rich and influential will still get all they want.

In fact some insiders will get sweetheart allotments from the government and resell them to the public at a higher price.

Future news story:

Several Congressmen were unaware they profited by such schemes.
"I thought my rich friends were honest. I did watch my servants pretty closely." said one. He added "I am the victim in all this."

Randall: You are on the right track. A person should try to deal with energy savings himself and realistically expect little from government or institutions. It is amazing how much we acquire that we don't need and often don't use. And how quickly we forget it when it is gone. And how well we feel after defeating a bad habit.

With that in mind I think cutting house energy costs with insulation and efficiency is a good shot for most.

All things being equal: when you must choose between equal savings by one of two ways, say home costs v. car costs, you should choose the mature technology such as a better furnace or AC, double paned windows. A rapidly improving technology such as car mileage tells you to wait, if you can, because cost will fall.

Randall Parker said at July 5, 2008 6:20 PM:

jb,

If you wait for prices to tell you that you must make some change then in some cases that change will be much more difficult or expensive (or even impossible) to make. For example, someone who decided a year ago to buy a Prius got it cheaper and sooner than someone who decided a month ago.

What people need to do is to look more moves ahead. Someone who needs to move in from a rural location will find moving expenses higher if they wait till gasoline is $6 a gallon. Heck, moving costs are already higher.

K,

Yes, the best we can hope for from governments is to not make the problem worse than it needs to be.

All things being equal: Gotta be careful on that one. Oil costs will go up faster than electric costs. So if you have 2 ways to save the same number of dollars per year based on today's prices but one involves using less oil and the other involves using less electricity then you should choose the one that involves using less oil.

BTW, electricity prices are now going up faster than the core rate of inflation and faster than incomes. But gasoline and diesel are going up much faster. So is natural gas. I am wondering when we will reach a point where electricity without heat pumps is a cheaper way to heat than even natural gas. That might already be true in some parts of the United States. But I haven't done the calculations lately.

Ken said at July 5, 2008 7:14 PM:

Is the IEA leaving it's little alternative reality where oil prices are just hitting the $100 mark in the 2030's? As for the place of regulation - seems to me the market is not very good at anticipating what plenty of Pundits have seen for years and decades. Markets may somehow deal with the downside of dependence on oil after the fact of supplies peaking as demand surges. Actually those most personally involved with oil supply are probably shouting with joy at their good fortune. Relying on them to instigate significant infrastructural change to deal with the downside of fossil fuel dependence seems like wishful thinking. Still, I am Australian and we tend not to enter the world with such a strong innate distrust of govt's as Americans. Fear of Regulation is a less potent political hot button to press.

K said at July 5, 2008 7:29 PM:

Agreed: all things being equal is treacherous. I think the latin is 'ceteris paribus' but I haven't read any in a long time. (And looking everything up takes the fun out of it.)

The key figure is estimated total cost. It can't be known. And personal satisfaction is hard to quantify.

For the last two years I have told young couples to buy fine wood furniture (provided they prize fine wood furniture). Furniture from China and SE Asia is still a bargain and I don't expect that to continue. Good wood is limited, furniture is heavy, transportation cost is rising, and the dollar is still overpriced on hand finishing labor from developing nations.

So I could put furniture - of all things - ahead of buying a Prius for some, not for many. I certainly wouldn't endorse a tax credit for buying fine furniture yet I do for buying a hybrid.

The person concerned about the morality of it all can ponder if furniture workers paid $5/day need money as much as autoworkers paid $200. And whether a tree suffers more when butchered than iron ore does when incinerated.

Frivolity of the day: The highest return on investment is to use a sewing kit. Ten dollars for thread and buttons saves $100/year. And that's if you have no kids. Bonus: The pleasure of hearing a spoiled child complain about five minutes of stitching is priceless.

Randall Parker said at July 5, 2008 7:53 PM:

Ken,

Yes, the IEA is showing signs of connecting with reality. I am surprised. I figure it would take even higher prices to lead them to reality. The IEA and US Energy Information Administration really are purveyors of the conventional wisdom. They do not lead. I am still waiting to see when the EIA decides that the conventional wisdom has become Peak Oil Imminently. Some of the big international oil companies (Total, ConocoPhilips) are already hinting strongly at this. Maybe the EIA is waiting for ExxonMobil to join in and then it'll be okay to tell people what they needed to hear years ago.

When I first started writing about Peak Oil I got a lot of criticism for being loony. As oil prices have gone higher and higher that criticism has become scarce. I still have a few commenters who think the market can cause a huge surge in oil production. But they are dwindling in number.

K,

I think if people really get thrilled at the idea of driving a Prius and can afford to get one then they should. If they are thrilled at the idea of spending $40k on solar panels and have that much disposable income then they ought to take the plunge. But other people need to look at their own economic picture and choose the most cost effective ways to change their lifestyles.

Agreed about the wood. But the hand finishing labor: 60% of the people in India still work on the farm. That's a huge number of people who in theory could be freed up for doing manufacturing. Granted, if there's not enough oil to run the tractors that farm automation might not happen. But India still has a big supply of people who could do hand labor who are poorly paid now.

Mark Plus said at July 5, 2008 8:30 PM:

One barrel of oil can do work equivalent to the output of five human slaves working full time for a year. The U.S. consumes 7.5 billion barrels of oil a year, so that means our current lifestyle requires the equivalent of nearly, what, 38 billion slaves from oil alone, not counting energy from coal, nuclear, hydropower, etc. Losing about 0.8 percent of that oil in a year would require finding 300 million human slaves to take up the slack.

We won't see slavery return right away until we can squeeze all the remaining energy waste from our economy. But I don't see how we can avoid mass forced labor, and worse, in some thinkable post Peak Oil scenarios.

And despite survivalist fantasies to the contrary, I don't think the numbers favor most of us becoming slave owners in the new regime of declining oil supplies. A lot of us might have to prepare for the future by trying to find reasonably benevolent feudal lords who won't abuse us.

Fat Man said at July 5, 2008 8:35 PM:

I am campaigning for nuclear power.

HellKaiserRyo said at July 5, 2008 11:46 PM:

Slavery... I unfortunately cannot argue against that, and studying human nature, I find it an extremely likely possibility in the post-peak oil scenario. We can all forget about political ideologies that condemn it because human nature trumps that rhetoric.

Randall, I need to be assuaged... do you have any new news items that show significant progress on cheap algae oil/ solar to prevent such a scenario from happening. If those technologies mature, I sincerely hope reproductive rights will be curtailed. (Reproductive rights in the context of having more than two children, not access to abortion and contraception.) I think giving up that right is a small price to pay to avoid resource depletion and slavery.

Nissl said at July 6, 2008 2:14 AM:

As far as my personal preparation for peak oil, I'm starting to plan my next move (will make it as soon as I can change jobs in 8 months) to a location with good public transportation and interesting places to bike to. I'm also saving my money to buy whatever EV/PHEV car the market picks as a winner around 2011-12. On my gloomier days I've been pondering spending $1000 to stock up on a year's worth of food rations, just in case there are trucker strikes or other disruptions to the food supply here in the U.S.

As far as the future of oil supplies, I expect the U.S. report that will be released this fall will revise estimates of future production downwards to fall generally in line with the projection at the oil drum - peak in the 2010-12 timeframe. I anticipate that most of the oil decline will initially be absorbed by the personal transportation sector, which accounts for 60-70% of usage. The other 30-40% of current use can be supplied by the market winner in biomass conversion tech (range fuels/choren/LS9/biobutanol etc.) - that's about how far it'll scale in the U.S. with current agricultural waste. Electricity should not be much of an issue from the point of view of peak oil.

We could be in for some rough years during this transition. U.S. oil demand is down 4% from last year and is going to have to fall at about that rate for the next decade or two one way or the other. Neither electric transporation nor biomass is quite in position to scale yet, probably still 2-4 years away. I'm sure we will have a nasty recession or two this decade due to our lack of planning.

john said at July 6, 2008 7:41 AM:

Mark, your logic is flawless:

'One barrel of oil can do work equivalent to the output of five human slaves working full time for a year. The U.S. consumes 7.5 billion barrels of oil a year, so that means our current lifestyle requires the equivalent of nearly, what, 38 billion slaves from oil alone, not counting energy from coal, nuclear, hydropower, etc. Losing about 0.8 percent of that oil in a year would require finding 300 million human slaves to take up the slack.'

You might have said that one barrel of oil can do the work of 10 lipstick wearing baboons with fat vaginas, and losing .8 percent of our oil will require finding 600 million lipstick wearing baboons with fat vaginas.

And you wonder why peak oil types have credibility problems...

odograph said at July 6, 2008 8:13 AM:

The barrel of oil think is probably false. It hinges on what you use the oil for. What's the number thrown around? 70% of our oil imports go to transportation, mostly personal. A barrel of oil (42 gallons) would be distilled and broken into a number of outputs, but let's be really generous for a moment and say that you can get 42 gallons of gasoline out of 42 gallons of crude. How far can you drive? With the average US car, at about 23 mpg, you can drive a little less than a thousand miles. A human can bicycle that easily (70 miles per day) in two weeks.

So if you are talking about driving a person around in a car, a barrel of oil does the equivalent of two human work-weeks.

Now, this is where we can turn our heads around to the critical fact about oil and lifestyle. It isn't the energy as much as the time we can compress as we use it. With a bit of coffee and an early start, I can do a thousand miles in a car in a day. Oil buys us fast usage more than just power usage. Think of a bulldozer and pick and shovel. The pick and shovel may do the work of a barrel in a week or two, but that's a long time to wait for a swimming pool ...

I expect as we slow down, walk, and bike, that a lot of barrels will fall out of the economy, far more per hour walked/biked that those crazy "five human slaves working full time for a year" rubrics predict.

odograph said at July 6, 2008 8:19 AM:

BTW John, your baboon fetish disturbs me.

Randall Parker said at July 6, 2008 8:39 AM:

HellKaiserRyo,

Solar power isn't going to help us much unless we have a way to use it for transportation. Though solar will reduce the demand for natural gas for peak electric demand and therefore free up natural gas for CNG cars. So cheap solar will help some.

What matters:

1) Better batteries. I read with considerable interest the comments coming out of GM about batteries they are testing. So far I can't tell whether one of the two competing batteries will make the grade and at what cost.

2) A scalable affordable biomass method of making liquid hydrocarbon fuel. The two main contenders are biodiesel algae and cellulosic technology. I'm hoping for a breakthrough on the algae front since it would have the smallest environmental impact. But none of the press releases coming out of algae energy companies include cost estimates or other indicators that they've made substantial breakthroughs.

I expect things to get worse over the next 5 years. Beyond that I can't tell whether technological advances at least stop the decay in living standards. How far and how long will living standards drop before reversing? I can't tell yet.

odograph,

Another way of putting it on substitution with human labor: We can't use pedaling humans to power a BMW 750iL at 80 mph. Human labor can not substitute for most oil uses.

odograph said at July 6, 2008 9:44 AM:

"Another way of putting it on substitution with human labor: We can't use pedaling humans to power a BMW 750iL at 80 mph. Human labor can not substitute for most oil uses."

Ah, didn't that just happen? VMT is down, and bicycle sales are up.

Saying they are not equivalent is technically true but also missing the biggest opportunity we have for an energy transition. I mean, "walkable communities" do displace cars. More than opportunity ... people are literally voting with their feet.

Le Docteur said at July 6, 2008 10:54 AM:

Oh for Pete's Sake. Why do people keep buying into this crap? Think. Whatever this crisis is (and it seems to be a demand-upon-production squeeze -- 30 yrs of absurd worldwide regs coupled to the China/India growth rate caused the price desynch) it is not Peak Oil. Just check use vs reserves and we aren't even at 1/3rd utilization and the denominator is still growing. I'm old (sigh... rejuvenation tech anyone? anyone? please) enough to remember the morons screaming in the 70's. Cyclical stupidity I guess. I think RP is way too generous buying into this.

In the 5-yr and 10-yr time horizons we will be awash in energy. Why? Because large sums are being deployed into finding more oil and alternatives. There is technology coming down the pike, for example, that will generate thousands of barrels a day converting low-quality coal to high-quality coal on the average daily fueling of coal plants. Anyone want to guess at how much coal there still is? Think in terms of trillions of tons.

Like so many geo-politically caused crisis, it is the creation of problems that do not exist in reality. I'm one step away from believing the conspiracy theorists that this is an excuse to create the oceanic methane hydrate industry with a UN-jurisdictional tax to fund the UN.

Randall Parker said at July 6, 2008 11:00 AM:

A November 2000 article from The Onion shows Americans know what needs to be done:

WASHINGTON, DC–A study released Monday by the American Public Transportation Association reveals that 98 percent of Americans support the use of mass transit by others.

We clearly need to get other people off the road.

Of the study's 5,200 participants, 44 percent cited faster commutes as the primary reason to expand public transportation, followed closely by shorter lines at the gas station. Environmental and energy concerns ranked a distant third and fourth, respectively.

odograph said at July 6, 2008 11:03 AM:

Sorry Doctor, but you are guilty too. You have picked an outcome. You have predicted a 10-year future.

Humans can't really do that, though they love to delude themselves to think they can.

Note above that I said above "I have a positive attitude - that is, I neither require nor fear peak oil.

(Distrust those [who] reject peak oil as anathema to their lifestyle, as well as those who embrace it as self-affirmation.)"

odograph said at July 6, 2008 11:04 AM:

Randall, yes I think the path to better funding for public transportation is to pitch it "for other people."

Le Docteur said at July 6, 2008 11:43 AM:

Odograph -- get over yourself. Free markets (and crippled ones) follow predictable patterns. Oil is the second-most common fluid on the planet. It is impossible as a matter of science to be at Peak Oil. Which brings to the next point, which is there will be a Revolution unless the politicians get out of the way and let us get to the energy. The Chicken Little's out there that cause Tulip-mania are the same ninnies blathering this time around about Peak Oil. This is an artificial crisis caused by poor political control systems that should never have been allowed to dictate when and how people look for oil, let alone where and when to build a refinery.

This means that geo-political control of oil is on its way out. Which means a free-market. Which means investment in the area will continue until marginal cost exceeds marginal return. Which means we will be awash in oil/energy in the time it takes to build extra infrastructure to deploy to the new level of required productivity. Eg. 5 years. Since humans tend to overshoot, the 10-yr mark will show glut.

odograph said at July 6, 2008 12:15 PM:

Myself? Does the title "Expert Political Judgment: How Good Is It? How Can We Know?" ring any bells?

Or of course the recent popularity of Nassim Taleb and his "Fooled By Randomness" and "Black Swan" fall in this vein as well.

So back atcha! Doctor Nostradamus

Randall Parker said at July 6, 2008 12:33 PM:

Le Docteur,

The OPEC stated oil reserves are works of fiction. They ramped up their oil reserves in the late 80s for reasons other than scientific understanding. Matthew Simmons and others have explained this. I've linked to some of the explanations. Just look at graphs showing stated reserves for assorted Persian Gulf countries. The graphs are absurd. Sudden huge ramp-ups over a couple of years and then flat reserves for years as lots of oil got produced and sold.

The OPEC countries insist upon hiding the data they use to make these claims. At the same time, retired people who used to serve in high positions in the Saudi and Kuwaiti oil industry tell a very and dismal different story that is a lot more consistent with what Matt Simmons says.

The late 70s: Well, some boys cried wolf and now people do not believe men crying wolf when there really is one.

Absurd worldwide regs? What are you talking about?

odograph said at July 6, 2008 12:36 PM:

I guess as an aside, I could point out (as does Taleb) that the EIA and similar institutions continually "do over" their predictions, without any shame. I like this quote from a GM spokeswoman, circa only 2005:

[…] Sherrie Childers Arb, director of environment and energy communications for GM, said it’s wrong to assume higher oil prices.

“Our indicators show that oil will go down, not up,” she said, pointing to information she gets from the federal Energy Information Agency, which is part of the Department of Energy.

By 2010, the agency expects a barrel of oil to fall to $26, she said.

Why was her prediction bad, but yours now good? Is it a "do over?"

Randall Parker said at July 6, 2008 12:38 PM:

odograph,

I emphatically do not believe that mass transit will make a big contribution to reducing our oil demand. As I have previously stated:

Before you get excited at the prospects for mass transit options such as commuter rail and buses check out Europe's experience with substituting mass transit for cars. At the following link see Figure 3: Overall mode share of distance travelled (%) in 2003 where it compares many European countries for public transport use. In spite of gasoline prices more than double that of the United States at least 80% of passenger miles traveled on the ground in Europe are done by car (with Denmark, Austria, and Ireland as exceptions). Driving smaller hybrids and living closer to work will do more to cut fuel usage than will mass transit.

America is less densely populated than Europe. If that is all Europe can accomplish with high gasoline prices and mass transportation subsidies for light rail and buses why should we expect to do more?

Again, look at that table. Think about it. Then tell me how mass transit is going to be a solution. The only way it'll work is if we all move into cities and spend a lot more time getting from A to B. I say people will shift to scooters, bicycles, and electric vehicles first. Abandoning your suburban house costs more than driving an electric car.

odograph said at July 6, 2008 12:47 PM:

I'm not sure how high you are setting the bar there Randall.

Speaking of predictions ... what was your call for the fall in US miles driven, and gallons US gasoline consumed, for 2008?

Were you one of those who said (even as GM was predicting lower gas prices) that Americans would never give up their SUVs? I certainly heard that one in PO circles.

I think what we have here is a much more dynamic situation that many like to admit. I don't know what will come out it, but trading factoids on American population density doesn't seem like the right path to me. After all, it has never been a path, there never has been a path, to a reliable 10, 20, 30 year prediction about American society, culture, technology, energy, etc.

On the other hand .. we CAN observe change, reduced driving, bicycle sales, LEED trendiness ... no prediction required.

Randall Parker said at July 6, 2008 1:05 PM:

odograph,

I was one of the people arguing that of course people will give up their SUVs and that in fact they already started to years ago. I argued that the people who claimed otherwise had an ideological axe to grind with the SUV drivers and wanted to see the SUV drivers in the worst possible light.

I've had this argument even recently with Nick G. when he said that people didn't finally start to give up their SUVs until this spring. Wrong. Truck-frame based SUV sales peaked in 2000. See the comments at that link where I lay out some of the data.

Predictions on gasoline consumed and miles driven: I do not venture into exact numbers on that because I lack a detailed model that would let me predict. I can say that people will use less gasoline and drive fewer miles this year, next year, the year after that. But the details on how demand destruction will take place are hard to know. How much will people cut back by moving, vacationing less, changing jobs, getting permission to work from home on some days, shifting to 4 day work weeks, etc? Too many people and organizations making too many decisions based on too many considerations to know.

I also do not know how much Toyota, Ford and GM will ramp up compact and subcompact and hybrid vehicle production this fall (Honda adjusted the most rapidly btw). The more they can ramp up the less of the change comes from fewer miles driven.

I think it is easier to point at likely correct predictions on future oil production since there are very talented and knowledgeable petroleum
engineers and physicists chomping the numbers. Based on all their chomping I would expect we have already peaked or will peak in the next 4 years. We might already have hit Peak Exports even if we haven't yet hit Peak Production.

BTW, Mercedes sales are up 8% in the 1H 2008. Rich people around the world are not feeling the bite of high gasoline prices. Daimler and Chrysler are heavily diverging.

odograph said at July 6, 2008 2:06 PM:

OK, that all (oops,most) sounds good. We see change, we don't really know how far it will go. You see some impediments to us "becoming" Europe. I see those same factors, but also a lot of people testing out possible US futures. I seriously think it is too soon to call.

I struck "all" to "most" because no one has a record of correct predictions on future oil production. Would you like to hear my prediction on why? It is often forgotten that production is an economic number. Go back to Tetlock/Taleb .. no one has ever successfully predicted economics, or production, a decade hence.

(People often start with the idea that oil production models must be scientific, given that Hubbert was a geologist & etc. ... but they are actually hueristics in the economic domain.)

Lorne M said at July 6, 2008 3:29 PM:

Randall,

I think we are tremendously fortunate that we've experienced this sudden risen in oil prices at this time. I think we are in a bit of a sweet spot for pricing. They went up far enough and fast enough to get everyone's attention but current prices really aren't all that crippling to most people. Every time I'm passed on the highway by someone doing 80mpg I think gas still isn't too expensive yet. I haven't heard anyone suggesting a return to the 55mph speed limits of the 70's and 80's either.

What this means is that people are really adjusting to higher pricing in a myriad of ways; smaller cars, better gas mileage, more talk of mass transit and massive investments into alternate fuel technology.I believe the Saudis when they say they don't like these prices.When oil prices rise rapidly it attracts attention and spurs action. It's the frog and hot water analogy at work. Frog jumps into hot water jumps right out again, frog jumps into cool water and the temeperature rises slowly they sit comfortably in place and they're slowly cooked.

Rapid increases that sting, but don't cripple, hastens the day when the price of oil becomes irrelevant because new alternatives have become available,

Randall Parker said at July 6, 2008 4:14 PM:

Odograph,

Part of my argument is that Europeans are not as "European" as our leftists imagine them to be.

Production as an economic number: I think the biggest constraints on oil production are geological, not economic. We have some bottlenecks now with offshore drilling equipment and some other categories of equipment. But the biggest limits on oil production are due to dwindling amounts of oil left in the ground.

The Peak Oil theorists make the argument that we are limited by flow rates. Deep under ground we can not make the oil flow along faster than some speed limits imposed by geology. The oil isn't in huge taverns. It is embedded in rock. It can't seep out to uptake pipes fast enough to maintain fast flow rates. So we are going to experience declining production long before we run out of oil.

I do not think Hubbert's theory is a heuristic in the economic domain as much as it is in the geological domain. Again, it comes down to rates at which oil can travel underground.

Lorne M,

We are better off with an extended plateau because during the plateau prices rise by large amounts, but not as far as they will once production starts declining. So we have time to begin making adjustments before things become extremely critical. But if we can already hit nearly $150 per barrel now imagine what it'll be like once production starts declining.

There's a ceiling on oil prices based on what percentage of the economy can realistically go toward buying oil. I wish I knew what that ceiling is. The short term ceiling is higher than the long term ceiling. But whatever that ceiling is it becomes higher as Asian economies grow.

People making adjustments: Still not fast enough. Cars do not turn over fast enough and car companies can't adjust their production mixes fast enough. Light rail projects take years to build. Inefficient housing lasts decades or centuries. I do not think we can adjust fast enough to avoid big declines in living standards.

Chiguy said at July 6, 2008 8:49 PM:

I agree with you Randall-

Change in behavior will be ad hoc, at best. By the time prices are high enough to elicit *substantial* change, it will be too late. The feedback mechanism cycles between rising energy and "adjustments" will become too fast to react to. They probably already are too fast to react to. A month ago I heard $150 a barrel of oil by the end of the year- we are in July and almost there already.

Lorne- Everything costs energy to make/run- this is what people underestimate. I don't see how constructing a fleet of hybrids will *save* us energy in the long run. Cost and energy are not interchangeable. The only logical "choice" is to curb consumption with what we have NOW in absolute terms...not make a whole bunch of new stuff, THEN conserve. Buying Priuses, for instance, means you STILL are using gasoline/energy (not to mention all the energy that went into refining the materials to make the car and its exotic battery system with its components made of increasingly rare materials which require oil to refine). Prius owners may even consume MORE GAS in the long run- do you know? The goal needs to be to consume less ENERGY OVERALL...NOT to save money to maintain current levels of consumption in the context of an ever-expanding economy.

Can an economy grow using LESS energy overall?

Also, what the hell are people going to heat their houses with? THAT is where the reality is going to set in for most people in the West (as opposed to those who are currently starving in the developing world from supply constraints in food grown using fossil fuel fueled inputs/machinery who already are aware of this)...

Randall- the other point is that someday, the energy used to GET oil will exceed the energy we get out of it. Money and its value, an increasingly more abstract abstraction, actually becomes irrelevant at some point. If it costs 300 dollars to get 1 barrel of oil- people may still get the oil. If it costs 1.000000000000000000000001 barrels of oil (or the equivalent energy of) to obtain 1 barrel of oil, regardless of the price it is not viable. How do you account for this issue? How can one tell when we reach that point?

My question is, are not the biggest constraints to the economy overall "geological?" What is there left to exploit? We are depleting everything (environment, resources, etc) at completely unsustainable rates.

Barring some sort of nuclear fusion coupled with star trek replicator technology, the human race is in for some serious downsizing starting in the next generation or two. What else is there left to exploit?

Randall Parker said at July 6, 2008 9:58 PM:

Chiguy,

Yes, I would like to know what the energy cost is of making the NiMH batteries that the Prius uses. The batteries are expensive. How much of that expense is energy cost from mining and processing nickel for example?

Energy Returned On Energy Invested (EROEI or EROI): It is still pretty favorable for oil and I actually expect it to remain favorable until most oil fields are pretty far along toward depletion. The biggest problem is that the oil just seeps along slowly. I expect the declining rate of oil movement underground will be the thing that drives oil production down to half and then a quarter and below what it currently is. We can see that from existing oil fields in the US.

Resource depletion: The absolutely most important resource is energy. Given enough energy there are many ways to create various structures that we use. We can use wood, concrete, steel, aluminum, plastics, etc. One of the more important elements is going to be lithium for batteries. But that doesn't appear to be one we are going to run out of for a long time.

odograph said at July 7, 2008 5:15 AM:

If production were the rate of ooze it might be geologic.

(There is a lot of cognitive dissonance on the nature of "peak oil" prediction. Give it a week and think about it ...)

cancer_man said at July 7, 2008 6:57 AM:

"When I first started writing about Peak Oil I got a lot of criticism for being loony. As oil prices have gone higher and higher that criticism has become scarce."

Not loony Randall, just ignoring emerging energy technology and basic cartel economics.

The Peak Oilers keep changing the year. Why is that? Randall, if you are so confident, why not pick a year and the price of oil that year? If you are off somewhat, everyone will understand. But my guess is that you will be so far off that you won't make a prediction.

Where will oil be Jan 1, 2009?
What about summer 2012?


Nick G said at July 7, 2008 12:04 PM:

Randall, a few quibbles.

VMT market share is a good indicator of mass-transit utilization, but we should also look at per-capita fuel consumption. There, Europeans are 18% of our level. I agree that mass transit has sharply limited value in the US (especially in the short term), but you have to acknowledge that Europeans are much more efficient, and that mass-transit has contributed to that.

I wouldn't exaggerate the importance of the 2000 peak in truck-based SUV sales. Gas prices didn't start rising until 2003, so that change was unrelated. I think it's clear that a really serious response to gas prices didn't start until 2007. That was rational, BTW: the media was telling people that high prices were temporary.

"there are very talented and knowledgeable petroleum engineers and physicists chomping the numbers."

Yes, but they have limited information to work with, and often have their own biases (or desire to exaggerate, to get people to listen). Look at the silly projections that Jeffry Brown likes to make about Net Imports going to zero in just a few years. Look at his use of historical US production numbers without an acknowledgement of the problems with extending this analogy to the world: US price controls, and import competition. Look at how badly Hubbert's prediction for Natural Gas missed the mark.

"if we can already hit nearly $150 per barrel now imagine what it'll be like once production starts declining"

That neglects the difference between short-term and long-term demand elasticity. IOW, many people didn't respond to $100 gas because they thought it was temporary.

"I do not think we can adjust fast enough to avoid big declines in living standards."

We certainly can: just make all highways HOV for all lanes, and make telecommuting mandatory where possible. Will we? Who knows. No one thought the US would get into WWII before Pearl Harbor.

Randall Parker said at July 7, 2008 5:56 PM:

Nick G,

18%? Are you mixing Eastern bloc countries in for that number? The United States uses about twice as much oil per day per capita as Germany. See here an A neater table on per capita oil consumption where the US is about double Germany and France. You can click on that column and it will re-sort. Note that the Netherlands, Belgium, and Norway are close to the US in per capita oil consumption at that second link. Also, note that a lot of islands are extremely vulnerable to Peak Oil.

The contribution of mass transit: Again, it seems small. We know that a small percentage of VMT are by mass transit in Europe. So it can't help that much. If all those miles were magically energy free at most they'd cut Euro energy usage 15%.

Jeffrey Brown is not projecting net exports hitting 0 in a few years. Net exports have already started declining.

Nick G said at July 8, 2008 10:23 AM:

Randall,

You're looking at oil consumption, I'm looking at light vehicle fuel consumption. I suspect that much of the difference is the much higher market share for trucks in the EU.

Take a look at http://www.fhwa.dot.gov/ohim/onh00/onh2p1.htm, last chart - note that "Not shown in this chart is the huge increase in SUV's, Vans, and Pickup Trucks, which are increasingly used as household vehicles in both the United States and Canada."

"Germany, the U.K. and France follow each with between 3,000 and 4,000 per capita miles."

Compare that to US VMT per capita of about 10,000 (including all light vehicles). While I think that it's very difficult to compare the US and Europe, and mass transit's role is much more limited than some of it's advocates are willing to admit, we have to acknowledge that dense urban areas promote lower VMT, and dense urban areas are supported by mass transit.

"a lot of islands are extremely vulnerable to Peak Oil."

Yes. Hawaii and the Caribbean are already suffering disproportionately.

"Jeffrey Brown is not projecting net exports hitting 0 in a few years. "

I'm not sure what you mean. At http://graphoilogy.blogspot.com/2008/01/quantitative-assessment-of-future-net.html he says "Our middle case shows Saudi Arabia approaching zero net exports in 2031, within a range from 2024 to 2037."

That's only 23 years away, and is entirely unrealistic: it doesn't take into account the differences between KSA and other producers (KSA is much, much more carefully managed from the top-down); it projects out current consumption growth without change; and it suggests that KSA wouldn't do anything to maintain exports even as it lost all export income.

Hubbert linearization is useful, but only as a preliminary guide - it can't be elevated to the status of supernatural authority. As a very good example, Hubbert's 1970's prediction for Natural Gas in the 80's was completely wrong: he projected that NG would fall off a cliff, while it has stayed very stable for another 30 years. The same criticism applies to the ELM model - it's just a preliminary, rough guide, and needs a great deal of finetuning.

Randall Parker said at July 9, 2008 6:27 PM:

Nick G,

Regards light vehicle fuel consumption: The picture is complicated: (this is Gail Tverberg)

Figure 3 indicates that consumption during the first four months of the year dropped by -1.3% for gasoline, -3.9% for distillate, and -3.8% for jet fuels. Other products, not shown on Figure 3 include residual fuel oil, -21.6%; asphalt, -13.1%; and natural gas liquids, -5.8%. Overall consumption of petroleum products decreased -4.2%, which is a huge change. These amounts are calculated on an average daily basis, and reflect the fact that 2008 is a leap year.

Thus, what we are seeing is that gasoline, with a disproportionately low price increase, is holding up better in consumption than other products, with larger price increases. Part of this is the fact that with the lower price increase, Americans have had less need to cut back on their demand. Part of it, too, is that it has been possible to continue to get imports, even with this relatively low price increase, indicating that overseas demand for gasoline is not high, compared to other products.

Part of what is happening is that US exports of petroleum products are increasing. In the case of distillate, we have shifted from being a net importer to a net exporter (Figure 4).

As I've noted elsewhere, we are exporting diesel and importing gasoline. That partly represents rising diesel demand in Europe, Latin America, and China (and not just for vehicles in the latter 2 cases).

In Europe about 53% of new cars are diesel.

23 years and unrealistic: Yes, as export income declines the oil producers will be pressured to export more oil. But in the early stages of post-peak they will feel no such pressure as their incomes soar. Even once they feel pressure to raise internal prices they will feel popular pressure against doing that.

Nick G said at July 10, 2008 12:29 PM:

Randall,

The link to Gail's post isn't live, and I'm not sure you finished your last thought.

I wonder if European diesel is an advantage, or disadvantage: the US hybrid->plugin->ErEV->EV path seems much better in the longrun. Europe may be investing in a blind alley.

A further thought about KSA and ELM: KSA's per capita oil consumption is just behind the US's. A great expansion of consumption would mostly require industrial energy disintermediation by KSA, with continued net energy exports. In other words, they'd start refining oil, manufacturing fertilizer and smelting aluminum, but those things would be largely exported (or displace imports), so that oil & gas exports would fall, but that wouldn't have the effect of starving the rest of the world of energy.

Randall Parker said at July 10, 2008 6:06 PM:

Nick G,

Diesel as blind alley: Well, Euro car companies are embracing electric power in a big way. Mercedes said today:

"We plan an electric Smart for 2010 and for the same year a Mercedes (electric) model as well," Dieter Zetsche told Frankfurter Allgemeine Zeitung in comments to be published in the Saturday edition.

A less believable claim by The Sun has Mercedes ditching petroleum-based fuels by 2014. But since they are not ditching liquid fuels I do not believe this.

Nick G said at July 13, 2008 5:43 PM:

"Euro car companies are embracing electric power in a big way."

hmmm. I'd like to believe them, but they say the same things about hydrogen vehicles, and I certainly don't believe they really believe H2 will go anywhere.

Europeans are much more likely than americans to have just one car per household: that says to me that pure EV's will have a very uphill battle.

I think the European commitment to diesel will be very inconvenient for them.

Randall Parker said at July 13, 2008 6:12 PM:

Nick,

I see more movement toward hybrids among the Euro (and US for that matter) parts suppliers. But nowadays a lot of vehicle tech gets developed by some of the more advanced parts suppliers. Watch their announcements. I saw this with Johnson Controls when they announced a big hybrid tech investment 2 or 3 years ago for example. I've read other similar announcements but can't point you at links.

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