July 02, 2009
Charlie Maxwell On Peak Oil By 2015

Charles T. Maxwell, senior energy analyst at Weeden & Co., has been analyzing the oil industry for longer than most of us have been alive. Well connected and respected within the industry, his opinions can not be portrayed as coming from the fringe. Maxwell believes world oil peaks by 2015 and we are headed for a 10-12 year financial downturn as a result.

A lot of people have said that the year 2015 is too far out for the peak. But I built a big margin in there because I thought we might have two recessions. I didn’t dream that we would have one really big one. So I’ve still got 2015 out there. But if you said to me last July, when do you really believe the peak is going to come, I would have said 2013. I started years earlier by estimating 2015 and I happily held to that view as I saw the recession begin to develop because I could see that we would probably push it off a little bit.

For your purposes, I’ve got 2008 for the peak of non-OPEC-not really a peak, it’s a plateau, but we’re falling off it now. And then 2011 for the peak of the top 50 listed companies, the ones that dominate the stock market, so the stock market investors will say the oil industry has peaked because their stocks have peaked. And then I’ve got 2013 for the peak of black crude oil and then 2015 for the all-liquids peak, which I take to be ultimate peak oil. And that would include gas-to-liquids, coal-to-liquids, NGLs. And it would include both synthetic and natural crudes.

Solar costs too much, ethanol is a loser (I totally agree), and Maxwell even thinks ultimately we are going to be disappointed by wind.

If you look at solar power, it’s terrific, so terrific, so fast growing….that without a subsidy, no one will use it. So it’s not very attractive, and people don’t admit that. And I think it’s the same thing with ethanol, which was a loser from the start. And I think it’s the same thing with wind energy. I think wind energy is going to turn into a huge disappointment because so many hopes are being pinned on it.

I have two main questions about wind: How fast will wind's costs fall? Also, how much can long distance DC power lines allow wind from different areas to back each other up? The second question really has two components. The first relates to the cost effectiveness of really long range (thousand or more miles) transmission of electricity. Will superconductors help? If so, how soon? The other component relates to wind: how uncoupled are wind patterns in areas many hundreds of miles apart? I think the jury is still out on that and I've yet to see the published study using real world data from enough locations far enough apart from each other and over years of measurement. I'm taking a skeptical view of large scale baseload wind power.

A partial shift toward electric cars will lessen the problem with wind's intermittency. But we still need baseload power. We could free up more natural gas for use in transportation by building up more baseload nuclear power. Granted, nuclear power won't help us in the 2010s. But it could make a much bigger contribution in the 2020s.

In the second part of his interview Maxwell looks at the fuels we have to turn to as major sources when oil production starts declining yearly across the globe. He sees natural gas, coal, nuclear, and conservation as the main energy sources we can hope to turn to as substitutes. Note that he doesn't see wind and solar as major alternatives in the 2015 time frame. Leave aside the long term potential. What happens in 2015, 2016, 2017? We all eat in the short run.

In effect, by 2015 we’ve got five fuels that we’re talking about here: oil, gas, coal, and nuclear. And the fifth one we’ll call a “fuel,” which is energy efficiency and conservation. It acts like a fuel. It gives you more work done at lower energy volumes. So in that situation you have really got Hubbert’s peak operating to keep you from using the oil alternative. The obvious easy answer politically is to import more oil, but there’s not going to be any place to import more oil from. And the costs are going to be higher and higher, so we’re stalled out on that one. But you go on with oil; you don’t stomp on oil because that would increase the size of your problem immensely, very quickly, and without any reasonable basis. You just can’t emphasize it because it isn’t a solution; it’s just a maintenance story.

Maxwell correctly sees the main problem with nuclear is build times.

So then you go over to nuclear and you don’t have the time.  You can try to summon up anything you want but if you don’t get it for 10 years…the vulnerability is going to be right here between 2011 and 2021.  That decade is going to, I think, be the maximum vulnerability; that’s when we’re going to take it on the chin.  So nuclear can’t get there in time.  We should be doing something on nuclear for days ahead, but it won’t help us during the upcoming decade unless we started it today and we aren’t going to start it today because the public is not yet ready for it. 

France is really in the best position to assure affordable electric power going to the Peak Oil era. Already 80% of France's electric power comes from nuclear power and the French are building another nuclear reactor at Flamanville. For a variety of reasons few of the French oppose nuclear power. On nuclear power I think the French are wiser than Americans overall.

Maxwell sees a bright future for natural gas from shale fields. Maxwell is responding to the much brighter prospects for extracting the massive amounts of natural gas in the shale plays. The Haynesville shale in Louisiana, Barnett shale in Texas, Marcellus shale in the US Northeast and other shales can be accessed with horizontal drilling and hydrofracturing. I'm beginning to think that the T. Boone Pickens Plan for powering cars with natural gas makes sense. Electric cars will have a role too. But existing cars can be converted to natural gas (especially if legislative and regulatory bodies decide to allow it) pretty quickly and for far less money than existing cars can be converted to electric power.

In a nutshell, I do not see a viable alternative to natural gas powered cars. Biodiesel algae looks too long term. The energy returns from corn ethanol are too low (and we do not have enough land to grow enough corn anyhow). Conversion of coal to liquid costs much more and is too dirty. A shift to more electric powered cars makes sense. But the time to make the transition is too long and the costs too high for electric powered cars to be the main transportation response to Peak Oil.

I do not see mass transit as a solution for most people because even in Europe with much higher fuel costs and more subsidized mass transit 85+% of passenger miles traveled are still by car. Mass transit takes more time because it is not door-to-door. For people with lower budgets or shorter distance traveling needs conversion of bicycles to electric power could pretty cheaply keep a lot of people going to work.

Maxwell expects an economic crisis that lasts from 10 to 12 years as we start to respond to Peak Oil too late. That sounds about right to me. The economy will shrink as the amount of oil available to drive it declines every year. To do the massive capital investments needed to develop alternatives a larger fraction of a shrinking pie will need to be allocated (whether by market mechanisms or government fiat) toward developing alternatives and investments in efficiency. One can claim we already have many of the technologies we need to adjust to Peak Oil. I would agree. But capital build lead times are long and turn-over in auto fleets and other equipment that uses energy takes many years. Few people or companies can afford to just junk all their cars, trunks, and other equipment and replace it with stuff that runs on electric power and natural gas.

Maxwell sees $300 oil as inevitable. I am less sure. Writing from Switzerland Francois Cellier argues that demand destruction will keep oil below $200 per barrel in the long run. Though even if that's a long term upper limit one can still imagine spikes above that price. So when world oil production starts declining at 4-5-6% per year how high will prices go? Possibly if the US dollar goes into a major decline against some other currencies $300 per barrel would be possible. Though I suspect that the dollar's value will be a lot less if and when that happens.

What do the alternatives cost? Electric power derived from a number of sources is going to play a larger role as in energy-intensive applications as oil gradually fades from the scene. The Institute for Energy Research has a report Levelized Cost of New Electricity Generating Technologies which you can view as a graphical of expected comparative costs for the main methods of generating electricity in 2016. Note they have wind and solar as still far more expensive than natural gas or coal with carbon capture and storage (CCS). But if low carbon dioxide emissions at the lowest possible cost is your goal then nuclear beats fossil fuels with CCS. Also, wind isn't far above the costs of nuclear, natural gas and coal. But it is not dispatchable (i.e. only generates when the wind blows - now when you want it to).

Some of my own policy recommendations:

  • Regulatory agencies should make conversion of cars to run on natural gas easier to do legally. The cars will probably pollute less on natural gas. So let people pay aftermarket suppliers to make the conversions and then do spot tests to see if any models of cars are problematic on natural gas. Encourage car companies to provide engine calibration files where necessary for conversions.
  • Governments should start buying natural gas powered cars and hybrids for their fleets. Phase out the purchase of plain gasoline vehicles.
  • Use loan guarantees to restart the nuclear power industry.
  • Utility regulators should prod electric utilities to convert remaining oil-fired electric power plants to the most efficient coal or natural gas designs.
  • The US Department of Agriculture (and similar departments in other countries) should look for policies that will bring natural gas to more farms to replace diesel and gasoline for water pumps, crop drying, and other energy intensive applications.
  • Mass transit money from governments should go to natural gas, hybrid, and electric powered buses and trains. Phase out less efficient vehicles and migrate to electric power to the extend practical.
  • Standards for home and commercial building energy efficiency should allow people to build and buy homes certified to higher energy efficiency levels. Then mortgage providers can factor in lower utility costs when considering ability to make mortgage payments.

Got any good energy policy ideas?

Share |      Randall Parker, 2009 July 02 05:01 PM  Energy Policy


Comments
T. J. Babson said at July 2, 2009 6:23 PM:

No mention of Canadian oil sands.

From Wikipedia:

Many countries in the world have large deposits of oil sands, including the United States, Russia, and various countries in the Middle East. However, the world's largest deposits occur in two countries: Canada and Venezuela, both of which have oil sands reserves approximately equal to the world's total reserves of conventional crude oil. As a result of the development of Canadian oil sands reserves, 44% of Canadian oil production in 2007 was from oil sands, with an additional 18% being heavy oil, while light oil and condensate had declined to 38% of the total.[6] Because growth of oil sands production has exceeded declines in conventional crude oil production, Canada has become the largest supplier of oil and refined products to the United States, ahead of Saudi Arabia and Mexico. Venezuelan production is also very large, but due to political problems within its national oil company,[7] estimates of its production data are not reliable. Outside analysts believe Venezuela's oil production has declined in recent years,[8] though there is much debate on whether this decline is depletion-related or not.

Oil sands may represent as much as two-thirds of the world's total petroleum resource, with at least 1.7 trillion barrels (270×10^9 m3) in the Canadian Athabasca Oil Sands and perhaps 235 billion barrels (37×10^9 m3) of extra heavy crude in the Venezuelan Orinoco oil sands.[9] Between them, the Canadian and Venezuelan deposits contain about 3.6 trillion barrels (570×10^9 m3) of oil in place, compared to 1.75 trillion barrels (280×10^9 m3) of conventional oil worldwide, most of it in Saudi Arabia and other Middle-Eastern countries.

Engineer-Poet said at July 2, 2009 7:32 PM:

Natural gas to farms is a huge infrastructure cost for little benefit.  It makes more sense to run wires to pumps than NG lines.  Farms already generate huge amounts of potential energy as biomass; farmers should be encouraged to e.g. bale corn cobs and excess stover during harvest, convert this to bio-oil, supply their own needs and sell the excess.  Dynamotive is converting bio-oil to hydrocarbons, so there may be a solid use for this; in the mean time, it could be burned in powerplants as a carbon-neutral alternative to coal, or in burner inserts in wood stoves or pellet stoves.

There's an idea:  bio-oil as a replacement for wood pellets and propane.  Convert oil-burning furnaces to biofuels produced from material that can't even make wood pellets.

BTW, I'm not sure that a nuclear renaissance needs to wait until 2021 to start.  The Molten Salt Reactor Experiment was built in 4 years from a standing start, and little of the technology had been proven (only the aircraft reactor experiment had been done before).  All that's done now, and further research since.  If we put an effort on a war footing, we should be able to have a pilot-scale MSR in 2 years, a commercial-scale version a year or two after that, and production of 1 unit per working day inside of 5 years.  If we built 1.25 GWe per week, we could replace the coal-fired fraction of the US generating mix in 3.5 years.  Start them on Pu reclaimed from PWR fuel (save the U for the CANDU fleet) and run them on thorium thereafter.

Randall Parker said at July 2, 2009 7:49 PM:

T. J. Babson,

Flow rates. There's a limit to how fast the oil sands are going to get extracted. They run into water supply limits and other limits. Canada's tar sands oil production could amount to 3.3 million bbd by 2025. No revolutionary change there.

Canadian oil sands production could grow by 175% to 3.3 million b/d in 2025, despite across-the-board cancellations or postponements of projects since last fall, the Canadian Association of Petroleum Producers said Friday.

A few extra million barrels per day isn't going to amount to much when we are losing that amount per year in the rest of the world.

Venezuela's production is declining. Venezuela's internal consumption is growing rapidly due to low internal prices. This fits with a larger model where exporter internal consumption is growing fast and reducing the amount of oil available for exports. Petroleum geologist Jeffrey Brown calls this the Export Land Model. Venezuela's exports peaked in 1996 or 1997. See the graph of their production and exports at that link. With Hugo Chavez nationalizing assets of foreign oil companies that trend is going to worsen.

Venezuelan oil exports to the US fell to an 18 year low.

Figures from the Energy Information Administration (EIA) at the United States Department of Energy show that Venezuelan oil shipments to the United States fell in April to what’s reckoned to be the lowest recorded level for 18 years.

Total petroleum exports, which included some oil products, averaged 891,000 barrels a day (bpd) in April this year, marking a decline of 19.43 % from 1,106,000 bpd the preceding month, and well down on the 1,189,000 bpd recorded in April last year.

Crude oil shipments to the United States dropped in April to 803,000 bpd, from 949,000 bpd in March. More significantly, perhaps, April crude exports were significantly below the 1,019,000 bpd recorded in the same month last year.


John Moore said at July 2, 2009 9:48 PM:

A friend comment to me that he wonders who will pay to dismantle all the windmills after they go bankrupt when wind is found to be unworkable.

As we drove across the midwest on our storm chase trip (speaking of wind), we saw wind farms going up all over the place.

I'd much rather see nuke plants. The biggest problem with nuke build time is the NRC and NIMBY's.

Nick G said at July 3, 2009 12:18 AM:

Here's an easy policy change: 1) have Fannie Mae include energy costs as part of their mortgage guidelines, and 2) require Real Estate Multiple Listing Services to include energy costs as a prominent part of property marketing.

cancer_man said at July 3, 2009 1:17 AM:

Sort of cool to have Randall be the FuturePundit guy yet not have a clue
with respect to emerging energy technology nor basic economics.

Makes it more fun.

Josh said at July 3, 2009 3:59 AM:

Peak oil was back that-a-way, click thru my name to see my post on the subject.

JAY said at July 3, 2009 4:36 AM:

Peak oil will hit shortly after peak sand.

Randall Parker said at July 3, 2009 9:02 AM:

Josh,

Certainly Per Capita Peak Oil consumption has already occurred in many nations and I think it has occurred globally as well. The United States is below its 2004 per capita peak oil consumption and much further below it than report in that link last summer. I'm not sure if Peak Oil Exports has occurred yet. But Peak Global Production is more important because after it the decline starts and then severe changes start happening to how we all live.

John Moore,

I expect the wind turbines to generate enough revenue to pay their maintenance costs. They only pay their production costs due to a production tax credit in the United States. However, if you look at the link I provided for comparative costs of electric generation sources for 2016 wind does not cost enormously more than cheaper electric power sources.

The thing one has to keep in mind about both wind and solar is that their costs are highly variable. Solar is much closer to being cost competitive in Phoenix Arizona than Seattle Washington or Vancouver BC or Edinburgh Scotland. Similarly, wind can't compete in the US southeast because wind levels are low there. Yet there are places where wind blows faster and more consistently.

John said at July 3, 2009 10:54 AM:

Randall - thanks so much for your blog - I enjoy reading it - as you might guess I disagree with peak oil. The first time we were going to have peak oil was over 200 years ago (think about why I chose that point in time!!). The theory has its proponents whenever the price of oil rises. One economist - I think it was George Reisman made a case for peak oil in 980,000 years. I read his analysis and found him to be far more pessimistic than I. He assumes linear increase in technology which to me does not acknowledge the reality of exponential growth in technology. As you must know by now - peak oil proponents assume no advancement of technology.

Randall Parker said at July 3, 2009 11:27 AM:

John,

I've read George Reisman (and lots of other Objectivists btw). But I do not see how his skill set is relevant to this question. The people to listen to are petroleum geologists and others who work in the field. They have the amount of knowledge needed to tackle the question.

Peak oil 200 years ago? I have no idea why you chose that time. Peak whale oil was in the 1870s or 1880s if memory serves.

If we aren't getting near Peak Oil then why did oil field discovery peak in 1965? Why is the yearly discovery rate well below the yearly consumption rate?

Onshore peak oil production happened around 1981. No price spike has gotten us anywhere near that peak since then. Then the move was into near offshore. Then deep water. We are running out of places to go. Though perhaps Antarctica has some big fields.

Peak Oil proponents do not assume no increases in technology. I really think you are attacking a strawman as constructed by assorted Panglossians. Try reading the Peak Oil theorists rather than the Panglossian attacks on them.

Engineer-Poet said at July 3, 2009 11:49 AM:

Note that the Panglossians (such as CERA) take lots of money from interests like Saudi Arabia.  Cui bono?  Think about it.

Wolf-Dog said at July 3, 2009 2:28 PM:

$200 per barrel oil would virtually guarantee major breakthroughs in the development _AND_ manufacturing of electric cars.

John said at July 3, 2009 6:07 PM:

Randall - I have read some of the peak oil stuff - but I admit I can't get through it - too many erroneous assumptions. In the peak oil references I have read they start talking about over population etc. That is why I referred to 200 years ago and Malthus. I could have referred to Paul Ehrlich - but he is a late comer to the age old "doom and gloom" game. No matter how many times they are proven dramatically incorrect you always get the "wait till next year". Have you read Julian Simon? Ray Kurzweil? I must disagree about using petroleum geologists as a reference - What do they know about disruptive technologies? Perhaps you are too young to know about the dramatic changes in computer technology that have occurred over the last 40 years. I started in the 70s. In the 80s - according to most of the experts in the field - we would never be able to break 4 megabytes of memory - that reached the limits of physics and we could never go any further. If you look hard enough today you will find some that say in about 8 years we are going to reach the limits of physics and computers will not go any faster. The key point - the chip designers of the time were the ones who were saying it was impossible to go any further. I can assure you the people who will be making the dramatic discoveries in fossil fuels and fossil fuel technology will NOT be petroleum geologists.
To me the greatest danger is assuming petroleum geologists are correct. Governments will then enact laws which will cause shortages, supply disruptions and unnecessary hardships - and yes people will die unnecessarily because of the laws they enact. That is why I am hoping you open your mind more on this issue.
I will gladly read what you consider to be a good reference on peak oil; however with a caveat - I will not waste my time reading
something that mentions over population or global warming - those references indicate a lack of seriousness by the author.
One last point - the discovery rate has as much or more to do with politics than it does with geology - not sure why you would use those points of references.

Randall Parker said at July 3, 2009 6:41 PM:

John,

I understand Kurzweil's viewpoint on an assortment of subjects. Yes, I know about Julian Simon's bet with Paul Ehrlich. It is worth noting that in some time periods Ehrlich would have beat Simon had the bet just started at a different date.

Computer tech over the last 40 years: I'm well versed on Moore's Law and similar doubling times for disk and fiber optics. I've been developing embedded software for a long time.

Chip designers: No they did not say it was impossible. Moore's prediction became the default assumption in the semiconductor industry. Noone expected troubles until we hit the 2000s when the traces got so small that quantum effects mattered and heat became a big problem.

Petroleum geologists and petroleum engineers developed quite a few technologies for enhanced recovery. The oil companies have developed better seismic tech and even now are working on ways to see thru salt layers off of Brazil in deep water.

No, the oil field discovery rate on a global scale has had little to do with politics.

Global warming: Why does a reference to it indicate a lack of seriousness? CO2 does cause warming. The debate is really about the feedback mechanisms. How do the dampeners do as compared to the amplifiers?

David Friedman said at July 3, 2009 9:46 PM:

One point that isn't clear to me is why an alternative to gasoline for automobiles is necessary in the (relatively) short term. You aren't talking about oil output going to zero, only about it declining. If you are correct, I would expect to see alternative power sources substituting wherever it's easiest for them to do so. Solar or nuclear produce electricity, so substitute for generators burning fossil fuel. If electric heat pumps are an easier substitute for fossil fuel than electric cars, then the heat pumps come first and the cars keep burning gasoline.

A similar point applies to the obvious problem with solar and wind--intermittent production. If that's an issue, you use those sources of power when they are available, fossil fuels when they are not. You don't eliminate fossil fuel consumption--but you don't have to.

What fraction of all petroleum ends up being used by automobiles?

On another point--your dismissal of Reisman. I haven't read his arguments and do not know if I would agree with them. But economics is surely relevant to these questions, since it is what you need to figure out the consequences of the geologists' predictions. I think one pretty common pattern is non-economists underestimating the flexibility of market economies, which in this case means overestimating the damage done by an increase in the cost of extracting oil.

Randall Parker said at July 3, 2009 10:23 PM:

David Friedman,

3 things happen with Peak Oil:

1) Less oil gets produced each year.

2) Even less oil gets exported. The rate of oil consumption growth in oil producing states is much higher than in oil importing states. See Venezuela for an example. There's a graph with 2 lines for production and exports at that link. Also see a post I did back in 2007 about increasing domestic consumption of oil exporters as well as the Wikipedia Export Land Model page. Regarding "Export Land Model": That's Jeffrey Brown's term for the idea that there's Export Land and Import Land and it is just as important to look at consumption growth patterns in Export Land as it is to look at production trends.

3) An increasing fraction of the oil goes to emerging markets. In other words, less of what gets exported goes to the US.

So the decline rate from point 1 above is not what we will experience post-peak. Rather, we will experience something much worse.

Substitutes: Certainly. I write many posts about prospects for new energy sources and new ways to use energy such as better batteries. But the problem with substitutes is that they take time and money. I expect a long deep downturn for several years after the peak while the economy reorganizes. The amount of capital needed and changed spending by consumers is so large and takes so many years to play out that we can't adjust to this quickly and easily. Too much existing capital and existing consumer goods will lose enormous value (e.g. idled trucks and cars) and so living standards will suffer.

Randall Parker said at July 3, 2009 10:45 PM:

David Friedman,

One of the books I'm currently reading is Oil 101 by Morgan Downey. It describes the basics of the oil industry starting with a history and then going thru details on everything from exploration, methods of drilling, applications for oil, refining, and other aspects of the oil industry and how the economy as a whole relies on it. Good book.

Anyway, figure 1-3 on page 7 has some pie charts of how oil is used. 64% of it goes to transportation globally with 26% for gasoline and 24% for diesel. Figure 7.1 shows that in the United States 44% of a barrel of oil ends up as gasoline and 22% as diesel and heating oil. US refineries are tuned for higher gasoline output.

We turn a lower percentage of our oil into feedstocks for petrochemicals and plastics. I suspect that's partly due to our using so much oil in absolute terms for transportation that we can use a lower percentage for plastics and still have enormous quantities of feedstocks.

Randall Parker said at July 3, 2009 11:01 PM:

As Samuel Foucher and Jeffrey Brown point out, the oil exporters are eating up an increasing portion of the oil they produce

The current top five net oil exporters--Saudi Arabia, Russia, Norway, Iran and the UAE--account for about half of world net oil exports. From 2000 to 2005, they showed a combined 3.7% per year increase in consumption.

From 2005 to 2006, their combined consumption showed an accelerating rate of increase, to +5.3% per year. From 2005 to 2006, the top five showed a net export decline rate of -3.3% per year. Based on year to date data, it is a near certainty that this net export decline rate will accelerate from 2006 to 2007.

Mexico's exports are declining more rapidly than Mexico's production. Their Cantarell field is in steep decline. Mexico is going to join the club of former oil exporters alongside Britain, Indonesia and other countries.

Randall Parker said at July 3, 2009 11:07 PM:

Some oil exporters and some Asian countries were experiencing (at least before the recession) rising per capita oil consumption while the US and most Western countries were (and still are) experiencing declining per capita oil consumption.

Randall Parker said at July 3, 2009 11:14 PM:

For a discussion of bogus OPEC reserve estimates see section 2.1. The Middle East does not have as much oil as OPEC members claim.

See table with the column "Cost to Replace Half of Fleet (2006$)" for an idea of how much it would cost to replace our vehicles with more fuel efficient vehicles. However, note that for trucks and buses there's far less that can be done to replace them with more fuel efficient versions. A long range truck is already pretty efficient at burning diesel fuel and using it to move a payload. Cars and SUVs offer much greater opportunity for energy savings by replacing with smaller hybrids, pluggable hybrids, and electric cars.

JP Straley said at July 4, 2009 5:39 AM:

. US Energy Policy
• Power for most work should shift from (combustion engine) fossil fuel to electricity. Move away from combustion machinery as much as possible, if for no other reason than to get away from Carnot inefficiency.
• Natural fuels such as algal oil and cellulosic ethanol are a logical path forward for transportation fuels, though they are not really practical at this time. An increase in support for university and even private investigators is a good idea. However, the US government should not provide financial support for end-vendors, because the market will best make that decision.
• Nuclear power is the best electric source for our country and the world generally. Even countries like China are rapidly moving in this direction. Advanced nuclear plants very efficiently use fuels such as thorium. This technology is reasonably well established from work in the 1960s and 1970s. Push it.
• Forget the clean coal program. It is a waste of money that can better be spent on implementing nuclear.
• Coal can be used for liquid fuels (CTL), and it is reasonable to do so at the same time as nuclear supplants coal for electrical generation. When nuclear supplants coal, CTL waste generation will be tolerable. It may be possible to accomplish electrification of short-range automobiles, and if the electricity is nuclear-generated then this further enables acceptability of CTL. Thus, support CTL as adjunct to nuclearization.
• Support production of oil and gas products from shale oil. Production of shale oil would be greatly enhanced by using mini-nuclear power plants , which are rapidly approaching commercial utilization.
• There are tantalizing developments in energy physics these days, and these should be supported as fully as possible. Getting to proof-of-concept with these technologies is cheap. Beyond break-even power, private monies will fund commercial development. Any one of these paradigm-changing inventions will be noted as a societal inflection point if it comes true:
o Bussard Fusion. If you don’t know about it, you should. I give it perhaps 50% chance of being workable.
o Focus Fusion. A variant of Bussard work, but perhaps just as useful. I give it a 25% chance of being successful..
o Blacklight Power. Dr. R. Mills has a theory of hydrogen transition to “hydrino” that defies conventional physics. No matter, he has a machine that in a calorimeter shows a large net power generation. Blacklight says they will put commercial products on the market in 2009. Mills’ company is privately supported. Government should investigate and support as required (information, infrastructure, generally getting out of the way).
o Cold Fusion. This is also known as Low Energy Nuclear Reactions (LENR), and is at this point a recognized phenomena. It is difficult science, however, and although replicable experiments are available, a cogent theory is not yet available. LENR should be supported.
• Prizes for target technologies—reward and encourage American brilliance. Avoid scammers by putting the money as a prize rather than as grants.
 Cheap Aerogel insulation. Fifty million dollar prize for the first person or company that could come up with an easy, cheap, and practical way to inject Aerogel insulation in the wall cavities of old buildingsThe use of Aerogel in new buildings would cut energy use to a quarter of existing use! Let American creativity loose on this project – we can fix it!
 One hundred million dollar prize for practical accomplishment of LENR.
 One billion dollar prize for accomplishing reliable net positive energy from Hydrogen-Boron fusion.
 One hundred million dollars for a cheap, energy-dense battery for cars which is amenable to mass production.

pond said at July 4, 2009 5:51 AM:

This was a good thoughtful post. Thanks for taking the time to go through it.

I wonder about Charlie Maxwell's notion of a 10-12 year troubled economic period. This implies that starting in the 2022 period things will start to look up and we will start growing again, globally. Since he ties the downturn to peak oil and declining total energy, I wonder what he thinks will take up the slack and even go on to allow for more-more-more energy? Can nukes really do it?

The natural gas fraccing process has been a wonderful boon, and we'll just have to cross our fingers and hope to hell that this time (as opposed to all the other times!) they have it right and the chemical sludge used will not poison our water table (which would leave us dependent on rainfall only, in a warming, drying world). But the yields from these new shale gas plays really decline quickly year on year. It's not like the Saudi oil fields, still pumping 60 years later.

If solar won't ever work, if wind will 'disappoint' and if biofuels are 'losers' then what will change? Does he expect fusion to come online, or fast breeder reactors to be perfected? Those are about the only realistic things in this time frame.

Of course the biggest wild card of all in an age of prolonged economic contraction, starvation, resource depletion, is war. Can we avoid a world war this time, unlike the 1930s? Or will future historians look back to 1991 when Iraq invaded Kuwait explicitly for its oil, a war that continues to this day with US forces inside Iraq, as the beginning of WW3?

War is a wild card that will undo all our efforts to predict the future.

JAY said at July 4, 2009 6:26 AM:

Use the market to determine how close we are to running out of oil. What is the inflation adjusted price? Is it higher than in the 1920's? The 1950's? The 1970's? The 1990's? If the answer is no, then we aren't running out.

John said at July 4, 2009 8:21 AM:

@ the peak oil deniers- I have seen little in your argument to address the issue of infrastructure investment as a barometer long term oil prospects. If they (and by they, I mean the companies whose bread and butter is selling oil) were optimistic about the future, they would be investing in things like new rigs, new tankers, new equipment, etc. But they do not. The infrastructure itself is falling apart. Yes, they could manipulate the oil supply to mimic scarcity, etc- but you'd think they would still be investing in the infrastructure...but they do not.

While price may be indicative of scarcity on some level- where does capital investment lead us? If the oil companies were so bullish in the long term, one would think that there would be more investment.

Randall Parker said at July 4, 2009 8:47 AM:

JP Straley,

Thanks for bringing up the idea of prizes. I tend to forget about them even though I think they are far more cost effective than government research grants.

JAY,

We've now got the inflation-adjusted price of oil down to triple what it was 10 years ago by going into the deepest economic downturn since the Great Depression. I know how we can get the price down even further: Stop propping up the banks and cause a massive run on the banks. Just plain totally collapse the banking system. That'll cut demand low enough that we could get back to $20 a barrel.

John,

I think the bit about big oil companies divesting of refineries is telling. I wouldn't buy Valero stock because refineries are going to be underutilized.

We are at about $70 per barrel and a lot of oil producers are saying they need $80 per barrel to do new investments because the marginal barrel has gotten so expensive. Tar sands and deep water aren't cheap places to go to for oil.

John said at July 4, 2009 8:55 AM:

Randall - I read the Robert Rapier - very thoughtful and well reasoned. I would say that he is not as optimistic about technology improvements as I am - I can understand you valuing his opinion more highly than mine in that regard. As I read it though I realize that I may have misinterpreted the issue. My thought was that there are people who believe in peak oil in that there won't be any more. Rapier does not fall in to that category. If the issue were named "Number 122 on the list of things the government will mess up by over regulation and scare tactics causing short term problems with the energy supply" then I have no argument with that - much historical evidence to support that viewpoint. To me the danger is calling it something like "Peak Oil" that implies that the oil will not exist.

In reference to being labelled a "peak oil denier" - again government policy gets confused with the existence of the resource. Think about Exxon-Mobil - could you blame them if they never invested another cent in oil production - their profitability in the best of times is barely double digits - and when it is the government calls them in front of congress to justify their "windfall". Yet no one was proposing giving them money when oil was $10 per barrel.

Randall - I appreciate your discussion and your blog. We disagree on this issue. I am an optimist when it comes to technology. I am somewhat of a pessimist when it comes to government policy that allows technology to advance.

Randall Parker said at July 4, 2009 9:54 AM:

John,

We've witnessed lots venture capital money flowing into biomass energy, solar, wind, batteries, and other energy technologies. I realize lots of people are trying to build replacements.

Peak Oil: Look at the term. Peak is obvious. It is a topping out. It is not an ending.

Don't read the political commentary on Peak Oil first. Don't read the popular interpreters of what it means to society first. Read the guys who know the oil industry, know the oil fields, know the history of exploration and of technological advance. Read those guys first. Read the Ph.D. physicists, petroleum geologists, petroleum engineers and understand the basics.

Names to pay attention to: Colin Campbell, Kenneth Deffeyes, David Goodstein, Robert Rapier, Samuel Foucher, Jeffrey Brown. They've got the technical chops. Also, Matthew Simmons is just an investment banker. But he's spend a lot of time reading Aramco reports and knows a lot about how much oil is left in the ground in the Middle East.

jon said at July 4, 2009 3:44 PM:

We could have plenty of nuclear plants now if it wasn't for the eco-nazis and left-wing scum traitors like Obama that block it at every turn. Rich scum like Obama don't care how much the middle class suffer.

Rendell Spurter said at July 4, 2009 4:46 PM:

Peak oil was supposed to happen so many times alread, it's impossible to count them all. And yet the fools keep predicting specific years for "it" to happen. The problem is the experts don't know what the hell they're talking about. It's true in most fields. The experts are the experts until someone else comes along and proves them wrong. Which virtually always happens. The same will be true about this peak oil prediction, just as with all others.

A 12 year economic downturn just from Obama's radical upward revision of governmental powers and regulations is virtually inevitable. Peak oil isn't necessary for that.

cancer_man said at July 4, 2009 9:50 PM:

Read economists, not geologists.

Found this:

===
In February 2003, Deffeyes said “World oil production may have peaked in the year 2000.” Campbell had been naming that as the peak for quite some time. In January 2004, Deffeyes switched his prediction to 2005, and in April 2004, so did Campbell. Campbell has taken all his old predictions off his web site, but Deffeyes is a real scientist.
===

(and Randall, many, including Intel, have at times thought Moore's Law was going to end soon)

persiflage said at July 6, 2009 5:46 PM:

You want to save lots of energy immediately and thus mitigate the crisis of peak oil? Do three things: Improve the insulation values of existing and newly-constructed residential and commercial buildings; improve the energy efficiency of heavy trucks and off-road IC vehicles (farming and mining/construction equipment); improve the energy efficiency of COMMERCIAL lighting systems.

Engineer-Poet said at July 7, 2009 4:53 AM:

I see Yeast Infection is posting other people's material without attribution.

cancer_man reminds me of an aphorism:  "If you took all the economists in the world and laid them end to end, they still wouldn't reach a conclusion."  Economics isn't a science.  Further, the predictions of economists for US oil production have failed spectacularly since the price shocks of the 1970's.  When they've been dead wrong for so long, what except blind adherence to dogma would lead anyone to believe them now?

The last time we had an economic collapse (Asian flu of 1999), oil prices went down to $10/barrel.  Today, in the middle of a collapse, oil prices are around $70 and appear to be headed UP.  This says one thing:  we are past peak oil already.

Nick G said at July 8, 2009 2:38 PM:

Randall,

The Export Land Model is useful, but limited. 1) it's a linear projection, domestic consumption won't increase forever. 2) It assumes that domestic subsidies will continue forever, even as export revenues fall. This is unrealistic for countries which depend on imports, like KSA. 3) it neglects substitution: much of the increase in crude domestic consumption is going to refineries, which will produce end products which will then be exported.

The "the column "Cost to Replace Half of Fleet (2006$)" is inaccurate. 50% of light vehicle miles travelled have historically come from vehicles less than 6 years old: in effect, the average life is 12 years, not 16-17.

Charlie Maxwell is a very good Fossil Fuel analyst, but he's not an economist. The US's problems with oil imports are due to it's oil import bill. US electrical generation is domestically produced, so for electricity a reduction in cost of 50%, or an increase in cost of 100% would make relatively little difference to the economy.

That's why wind is a perfectly good substitute for coal. OTOH, all of that is irrelevant to PO. PO causes much higher oil prices, and that's what damages the US economy (and helps the economy of Russia, KSA, Dubai, etc, etc).

Similarly, the cost of replacing coal plants or ICE vehicles isn't very important to GDP. Sure, the economy might be better served by producing something else instead, but GDP won't be hurt by the need to replace obsolete equipment. On the contrary, that will probably help GDP.

Nick G said at July 8, 2009 2:48 PM:

E-P,

"Today, in the middle of a collapse, oil prices are around $70 and appear to be headed UP. This says one thing: we are past peak oil already."

I'd quibble with this a little. I kind've think we're past peak also (in large part due to falling investment), but the picture is a little muddy: part of the reason for current oil prices is improved OPEC discipline.

Randall Parker said at July 8, 2009 9:18 PM:

Nick G,

I disagree about the importance of replacement costs. People who have to buy a car sooner effectively lose buying power. They have to spend on an unplanned purchase and therefore have less to spend on other things.

Corps who have to throw out suddenly worthless capital still have to pay on the debt they took on to buy the now obsolete truck or chemical plant or other oil-powered capital equipment.

Someone in a cold climate who can't afford heating oil or gasoline any more will have to spend money on:

- insulation.
- a ground sink heat pump.
- an electric car.

This is all very pricey stuff. For those who can't afford to buy all that stuff homes will get very cold and getting to work will become problematic - assuming a job still exists.

Nick G said at July 9, 2009 9:53 AM:

Randall,

No question, the need to replace obsolete equipment will divert capital from other, hopefully more useful things. That's what I meant when I said: " Sure, the economy might be better served by producing something else instead...".

OTOH, I would note that in the US, at least, capital has had declining marginal returns for quite some time. As a society, we have trouble allocating investments to good places: I'd choose medical research - most people, apparently, wouldn't. We have had more light vehicles than we needed for quite some time. We clearly have more homes than we need. We have, IMO, quite enough casinos. So, I don't really see a big impact here.

Also, as I'd noted, the need for more investment in replacement of light vehicles and electrical generation can only help GDP. That will create a lot of jobs.

Now, there's no question that this stuff will bring disproportionate harm to poorer US residents, and poorer nations. OTOH, a lot of solutions are effective, if inconvenient: spot heating of rooms; wearing of warmer clothes; carpooling.

Again, the US's problems with oil imports are due to it's oil import bill. As long as we import large volumes of expensive oil, we'll be poorer than we'd be otherwise. OTOH, the harm from that is self-limiting: if the US economy declines by another 5%, oil consumption in the US and in China (due to a sharp drop in exports to the US) will drop sharply, and oil volumes and prices will follow.

Randall Parker said at July 9, 2009 10:13 PM:

Nick G,

Regards more housing that we need? I see more housing than people can afford. Keep clear on the difference between need and afford. Post-peak the amount that people can afford will decline steeply.

Declining buying power will hobble the ability of people to adjust to declining oil. Just as the price of gasoline will skyrocket people will experience rising unemployment and lower inflation-adjusted incomes. So they'll have less money to spend on needed replacements such as (more expensive) electric cars and (more expensive) ground sink heat pumps.

Nick G said at July 10, 2009 10:19 AM:

I see more housing than people can afford.

As best I can tell, the recent housing bubble resulted in a lot of unneeded construction. There were a lot of units built "on spec", that is, without buyers in hand, which were bought by investors, on the assumption that there would be a "greater fool" to buy it a higher price. In fact, those buyers never existed and would not have arrived even if the bubble hadn't popped. From another point of view, the popping of the bubble was inevitable, because those buyers were never going to arrive and take those units off the hand of the investors. As a result of all this there's a lot of housing that's vacant.

Now, of course, if you reduce the price sufficiently you can probably entice people into it: this would amount to reducing the average number of people per household, and the formation of more households. But, as far as I can tell, there isn't a great need for that. It might even be bad for people's mental health, by creating more isolation. A lot of critics of suburbia feel that way. I'm not sure how I feel about that argument, but I don't see a crying need to push people into these vacant housing units. We just don't need them.

Just as the price of gasoline will skyrocket people will experience rising unemployment and lower inflation-adjusted incomes.

Only a relatively small %. Again, if GDP falls by another 5%, the price of oil (and gasoline) will fall, not rise. So, 85-90% of people will be employed, which means that 95% of households will have at least one wage earner. Will the poor be harmed? Sure, but they'll mostly get by. After all, the poorest 20% of the US own cars at a much lower rate than the more affluent even now: they live in urban areas and take mass transit, or just get by in other ways.

they'll have less money to spend on needed replacements such as (more expensive) electric cars and (more expensive) ground sink heat pumps.

EVs won't be significantly more expensive with mass production. The Honda Insight costs at least $5K less than the average new light vehicle. Add a larger battery and plug for $5K, and you have a vehicle that's no more expensive. Can't afford a new vehicle? Buy a used Prius or Insight and cut the cost of gas in half (the original Insight got 60 mpg). Gas doubles yet again? Spend $7K and convert the Prius into a plugin.

Most US residents don't heat ground-source heat pumps: the newer and much less expensive air-source will do just fine.

Yes, many people will suffer harm or inconvenience, but the overall economy isn't going to collapse, or even decline by 10% due to energy.

Nick G said at July 10, 2009 4:32 PM:

You might want to look at [edit: a blog post about Kjell Aleklett]

JD can go a bit overboard, but his posts are almost always useful.

Engineer-Poet said at July 10, 2009 8:22 PM:

We are already seeing proof that the pollyanna-ish view is false.  One oil-price spike was all it took to collapse the various bubbles.  Last year's price spike left some people with a choice between paying for housing or fuel to get to work.  And even if we can re-establish monetary credit, there is no way to establish energetic credit; we cannot use energy faster than we can obtain it from our various resources.

If your job sector is shrinking and all your income is needed for current expenses, you will have enormous difficulty e.g. paying for classes to train for work in an expanding field.  It's the same with energy; if all current energy production is needed for maintaining the status quo, there's little or nothing left to retool for greater efficiency or alternative supplies.  We could do something if we cut into discretionary uses (power boats, vacation driving, solo commuting, low-economy vehicles) and put that into the most effective measures to reduce our dependence, but the political pressure is 100% in the wrong direction.  People are demanding cheaper fuel while road projects go unfunded for lack of revenue, and the "Cash for Clunkers" bill is engineered to replace old gas-guzzlers, not with 35+ MPG vehicles, but with a fleet that is not only barely more efficient than the one on the road but also brand-new and not due for replacement for many years.  The sane thing to do is to shrink inventory by stopping guzzlers coming off the lines, but Washington wants to move them from the lots to driveways.

It's painfully obvious that Washington can engineer the collapse of large sectors of the economy by creating perverse incentives.  How can you look at this and believe that Washington cannot do this to the entire economy?  How can you look at the current legislative agenda and not think that Washington might not already be doing so (with perfectly good intentions, but recall the pavement of a certain road...)?

We need sanity in Washington and spine in America.  Both of these are as depleted as Pennsylvania's oil fields.

Randall Parker said at July 10, 2009 9:34 PM:

Nick G,

The empty houses almost all (with exception of those ready to collapse with huge repair bills) have market clearing prices. The banks could sell them tomorrow at auction.

The economy not declining by even 10%: Look at the current economy and what last year's oil price shock did to it.

EV costs: The pluggable hybrids and pure electric cars are coming in at $40k+.

Nick G said at July 11, 2009 12:02 AM:

E-P,

One oil-price spike was all it took to collapse the various bubbles.

Undoubtedly oil imports hurt the US economy. OTOH, we shouldn't exaggerate the role of oil. There was the US housing bubble, which had to collapse soon anyway, right? There was the commodity bubble, which included oil, as well as a lot of other things, all of which rose hyperexponentially due to a classic commodity squeeze, and then ended in a a classic inflationary/Fed tightening cycle. There's really not that much new here.

Last year's price spike left some people with a choice between paying for housing or fuel to get to work.

Many of those people couldn't pay for housing to begin with - their sub-prime mortgages were unaffordable even before they reset. Many other units were owned by investors who also couldn't afford to carry their units for the long-run - they were counting on "greater fools" to come along, in a rather extended unsustainable speculative roller-coaster ride.

there is no way to establish energetic credit; we cannot use energy faster than we can obtain it from our various resources.

We don't need to - we have an enormous surplus of energy used for very marginal things, like single-occupancy commuter SUVs.

We could do something if we cut into discretionary uses

That will happen. It would be nice to have it happen sooner rather than later, due to planning at the public policy level. To some extent, that's happening, with higher CAFE requirements. I agree, it's not happening fast enough. But, it will happen when prices rise. When gas goes to $5, light truck sales will drop, carpooling will expand, etc, etc.

It's painfully obvious that Washington can engineer the collapse of large sectors of the economy by creating perverse incentives.

Washington didn't engineer the collapse of finance and housing, greedy financiers did. They did manage to steam-roll Washington to allow it to happen, but that's different.

What we've been seeing is a classic bank panic. If you were to pluck someone from 1920, and explain recent history to them, they'd say "been there, done that. What's the big deal?". 1893, 1907, 1920, 1929, the list goes on and on - the current downturn is no worse than any of them. We're so surprised because after 1929 Washington managed to pass some regulations that prevented this kind of speculative melt-down for the next 70 years, but then memories faded, and financiers managed to repeal those regulations. And, we're back to our old boom-bust ways.

Randall,

The empty houses almost all (with exception of those ready to collapse with huge repair bills) have market clearing prices. The banks could sell them tomorrow at auction.

I assume that's a typo, and you meant they don't have market clearing prices. Well, that's what I was trying to address when I said "Now, of course, if you reduce the price sufficiently you can probably entice people into it: this would amount to reducing the average number of people per household, and the formation of more households." I mean, sure, you could get people in, but is there really a need there? Especially if you have to reduce it below the cost of construction? Also, please note that in some cases there isn't a market clearing price, especially if carrying costs (property taxes, condo/HOA fees, utilities, maintenance, etc) are significant.

Finally, have you looked at the home building times series? The long-term average of units built is, IIRC, around 600K/year. During the boom the number rose to well above 1M: there just wasn't real demand for that many units.

The economy not declining by even 10%: Look at the current economy and what last year's oil price shock did to it.

Sure. The economy declined by 2-3%, and demand for oil dropped by roughly 4Mbbl/yr. If the economy declined by 10%, that number would be much larger. Look at 1978-1982: US consumption dropped by 18%, even while the economy grew a little. If the US economy declines by 10%, OPEC won't be able to prevent oil price declines.

EV costs: The pluggable hybrids and pure electric cars are coming in at $40k+.

Sure: they're paying for R&D, and capturing tax credits and early-adopter premia. Look over the pricing logic I ran through.

Randall Parker said at July 11, 2009 8:35 AM:

Nick,

It illustrates the gap between my thinking and yours that you think this is a typo:

I assume that's a typo, and you meant they don't have market clearing prices.

Houses do have market clearing prices. Take all the houses owned by banks. Arrange auctions over the next 2 months. Sell them. They will almost all (95+%) get sold. Their prices will drop. But there will be prices for all that housing. We might even see only half million dollar prices in Santa Barbara. What a party.

During the boom the number rose to well above 1M

Of course. Renters were told they could afford to buy houses with liar loans with ARMs that start out at 0% or with no-equity monthly payments. There are tens of millions of renters ready to move out of small cramped apartments and live in houses. Granted, they do not make enough money to afford those houses at high prices. But given low enough prices most could afford them. Hence the market clearing prices.

Below the cost of construction: Look, you are confused. Separate out in your mind needs versus desire. Also separate out price versus cost. Also separate needs from price. In theory hardly anyone needs a house. They could all live in cramped apartments. So by your needs logic we had more houses than we needed 50 years ago, 40 years ago, 30 years ago, 20 years ago, 10 years ago. We are as an industrial society well above needs for basic survival. To speak of more houses than we need tells us nothing.

There's the number of people who can afford houses if all people bought at cost. But housing prices are very frequently above or below housing costs. Were lots of houses built at costs above what people could afford if they paid real costs? Sure. But that does not mean there are no market clearing prices for all these houses. There are market clearing prices for the housing stock just like there are market clearing prices for all the cars sitting backed up on dealer lots and storage areas.

EV development costs explaining electric car prices? Not even. GM is going to sell the Volt for a loss. Component costs are too high or else the car companies would already be making more models of hybrids, pluggable hybrids, and pure electric cars.

Be clear on the difference between now and when oil production starts declining every year:

If the US economy declines by 10%, OPEC won't be able to prevent oil price declines.

When OPEC reaches the point (and this happens by 2015 is my guess) where its oil production declines every year for geological reasons then prices will decline even as the US economy declines.

Nick G said at July 11, 2009 11:15 AM:

Randall,

It illustrates the gap between my thinking and yours

Patience, Randall, we'll get there.

We just had a slight miscommunication. I thought your 1st sentence meant to say that the houses were not currently at market clearing prices. Instead, you meant to say that a market price existed in theory, but that banks needed to find them, perhaps by conducting auctions. Which, is saying the same thing in different words.

Actually, we're thinking about this pretty similarly. I agree, if you priced these houses low enough they'd likely sell to someone. It might be foreign investors, who see an opportunity to buy something that can be sold at a higher price when the economy recovers: there are quite a few doing that already.

To speak of more houses than we need tells us nothing.

Well, I acknowledged that this is a perilous line of thought. OTOH, look at the example of empty-nesters: some keep rattling around in their 5 bedroom house, and some acknowledge that they have more space than they need and down-size.

Were lots of houses built at costs above what people could afford if they paid real costs? Sure.

And that brings us back to my original point: that the housing bubble misallocated capital. We built lots of houses that, in normal times we would not have. It didn't make sense to build them, but too much money was flowing to sub-prime loans, and to investors who weren't going to live in the units. Again, have you looked at the home building times series? Did it really make sense for construction to jump well above the long-term trend?

GM is going to sell the Volt for a loss.

Well, a loss is an accounting artifact. You can create a loss by front-loading your R&D, and making assumptions about future costs. In fact, GM says that they'll sell at a loss because they're assuming the need to replace every battery during the warrantee period. Well, this is plainly unrealistic.

The Volt was originally planned to sell at about $30K. Then, the federal government passed a $7,500 tax credit aimed at the Volt, and the expected price of the Volt rose to...the high 30's. Similarly, Mitsubishi plans to sell the iMiev for the high 40's in Japan, where tax credits will bring the price back down to...about $30K. I see a pattern.

Component costs are too high

Well, no doubt parts manufacturers are having to put out some extra R&D to develop new electrical brake and steering parts, for example. GM has blamed some of the price increase on that. OTOH, GM also says that those parts will be no more expensive to build in volume.

or else the car companies would already be making more models of hybrids, pluggable hybrids, and pure electric cars.

Well, no question that there were R&D barriers to market entry. But, more importantly, there was little need for any of these when gas prices were very low. More importantly, no one in these industries wanted to make their skills & careers obsolete. There's still quite a lot of resistance within the industry to the electrical transition. For example, see http://energyfaq.blogspot.com/2009/05/do-electric-vehicles-cost-less-to.html OTOH, very car maker is pursuing these vehicles pretty aggressively.

Again, look at the Prius. Toyota is selling it a profit, at about $24K on average. It has an electrical drivetrain, and an ICE drive train. The only real difference in cost between it and a Volt is the battery. The Tesla battery only costs $400/KWH. A 16KWH battery is going to cost less than $5K in 3-5 years.

Here's what GM thinks about demand "He also believes the market is ripe for such cars. “I think there’s pent-up demand for the technology,” he said." http://gm-volt.com/2009/07/07/gm-vp-plug-in-suv-on-track-pure-ev-under-consideration/
Here's what they think about costs: . “My job is to get it out there and get it right the first time but then get it cost-effective so that we can do a huge number,” he said. “If I had to go with my first generation, we couldn’t really pencil a business case. Any new technology is expensive, but if you get to the second or third generation you find that the cost goes way down”.

Here's an example, in the CS Monitor. The article says: "Still others say that the cost of new battery power for PHEVs may drop faster and already be lower than what has been widely reported at perhaps $500 per kilowatt-hour or even less, says Suba Arunkumar, analyst for market researcher Frost & Sullivan.

"I do expect the price will come down to perhaps as low as $200 per kilowatt-hour when mass production begins in 2010 and 2011," she says."

Tesla's cost is $400/KWH - it's very likely that GM will pay $200-$300 in volume. The batteries won't be produced in large volumes for several years. They'll use less expensive materials than 1st Gen batteries; the larger format is much less expensive; and they'll have very, very large production volumes relative to most 1st-gen li-ion. Large production volumes reduce costs very quickly.

When OPEC reaches the point (and this happens by 2015 is my guess) where its oil production declines every year for geological reasons then prices will decline even as the US economy declines.

You mean "prices will increase".

Well, that all depends on the pace of the decline in oil production. 1st, by then the US and other countries will have gotten much further in their preparation for PO. 2nd, please note that production doesrespond to prices: at the price peak in 2008 all liquids production was leaving it's plateau and increasing. 3rd, take a look at http://peakoildebunked.blogspot.com/2009/07/408-kjell-aleklett-05-per-annum-post.html . We see that Kjell Aleklett, President of ASPO International, is predicting only .5% decline over the next 20 years.

You might want to read more of JD's posts. He goes a bit overboard occasionally, but his posts are almost always informative.

Engineer-Poet said at July 11, 2009 2:59 PM:

Anyone who predicts only a 0.5%/year decline needs to sum up the decline rates of the existing oil fields in the world and then tell us where the difference will come from.  That difference has to come in at an affordable price, too, or economies will simply collapse to cut demand to the affordable supply.

Given the failure of oil discoveries to keep pace with consumption for the last 24 years, I don't see this happening.

Nick G said at July 11, 2009 6:50 PM:

E-P,

Aleklett is president of ASPO International. He seems pretty credible, and definitely not someone to dismiss quickly. This estimate is part of a pretty detailed presentation here: http://www.aspo-australia.org.au/References/Aleklett/20090611%20Sydney4.pdf

Don't you think you should take a look? Wouldn't that contribute more to deciding if his presentation makes sense?

Randall Parker said at July 11, 2009 9:36 PM:

E-P,

On the Sydney Aleklett PDF on page 30 look at the projected growing contribution from fields yet to be found. Unless there's a big burst in discovery how is that possible.

I'd like to know more about the prospects for NGLs.

On page 51 he has coal production peaking in the mid 2020s. China's coal production peaks sooner and Russia's surges while China's coal is in decline. Coal in the US peaks a few decades later. China could become a big buyer of US coal unless the cost of nukes plummets.

If natural gas also peaks in the 2020s then even if the overall world oil production decline rate is shallow we will have a problem as big as if oil production declines steeply.

Nick G said at July 11, 2009 11:58 PM:

Randall,

On the Sydney Aleklett PDF on page 30 look at the projected growing contribution from fields yet to be found.

Please note that this chart shows the IEA's WEO projection, not the Aleklett/ASPO projection. Aleklett's projection can be found on page 40. Page 40 shows the IEA/WEO and Aleklett/ASPO projections side by side.

Nick G said at July 12, 2009 12:49 PM:

Randall,

If natural gas also peaks in the 2020s then even if the overall world oil production decline rate is shallow we will have a problem as big as if oil production declines steeply.

The oil market is much more globalized than the coal and NG markets. The US, in particular, now appears to have very, very large supplies of coal and NG.

We need more regional analysis. It would be especially interesting to know more about China's situation for both coal and NG.

Randall Parker said at July 12, 2009 2:27 PM:

Nick,

The construction of LNG ships and LNG terminals appears to be making the natural gas market more globalized.

Coal also is becoming more globalized due to Chinese imports. If China's coal production peak is coming up in 10-15 years then I expect China's demand for coal imports to skyrocket. So the coal market could become more globalized as well.

The question in my mind: What's the added energy cost of shipping Powder River Basin coal from the US to China? Will doing that ever make economic sense?

Engineer-Poet said at July 12, 2009 6:58 PM:

PRB coal is used because it's low-sulfur, period.  It isn't worth shipping overseas; it isn't even worth shipping cross-country for fully-scrubbed powerplants like the Wabash River IGCC unit.  Australia will own the Chinese market as long as it wants it (which gives Australia leverage over China's AGW policies).

There's a substantial amount of overhead involved in making LNG.  The destinations of LNG shipments may vary (and the USA appears to be the dumping ground of the moment), but there will only be a few sources due to the investment in liquefaction trains.  Rumor has it that the NGLs from e.g. Qatar have enough value to make the LNG effectively free, so it goes wherever someone will accept it.

I'll take a look at the ASPO document when I'm awake (splitting wood plus dinner is putting me to sleep early).

Randall Parker said at July 12, 2009 9:24 PM:

E-P,

China and Australia combined have less coal than the United States. China is now burning thru coal faster than the United States.

Coal use in China’s electricity sector increases from 24.9 quadrillion Btu in 2006 to 57.3 quadrillion Btu in 2030, at an average rate of 3.5 percent per year (Figure 46). In comparison, coal consumption in the U.S. electric power sector is projected to grow by 0.7 percent annually, from 20.7 quadrillion Btu in 2006 to 24.3 quadrillion Btu in 2030. At the beginning of 2006, China had an estimated 350 gigawatts of coal-fired capacity in operation. To meet the demand for electricity that is expected to accompany its rapid economic growth, an additional 600 gigawatts of coal-fired capacity (net of retirements) is projected to be brought on line in China by 2030, requiring large financial investments in new coal-fired power plants and associated electricity transmission and distribution systems. In the near term, the IEO2009 projections show a substantial amount of new coal builds, with 192 gigawatts of capacity additions between 2006 and 2010.

The Aleklett PDF has China's coal production peaking in the 2020s. Well, those numbers above sure suggest to me that the demand for US coal is going to skyrocket. You got an opinion on all this?

Nick G said at July 13, 2009 11:22 AM:

Randall, two thoughts.

1st, the environmental movement appears to be much stronger in the US than in Australia. I have a hard time seeing the US providing the coal for China to put that much carbon in the atmosphere.

2nd, whenever I look in detail at coal resources in a country, I'm surprised at the very high numbers I find. This is true for the US and UK. Now, I look at Australia, and find this:

Of note and widely missed by the investing community is the 1 - 1.5 trillion tons of coal discovered over the last few months by CTP in the Perdika Basin. CTP has according to independant reports good prospects for their UCG program as their coal is at the right depth, grade and importantly has thick seams up to 40m in diameter. Another plus is that they almost straddle the Darwin to Adelaide railway and consequently will have little difficulty in transporting their diesel and other fuels eg Kerosine to either Australian or Asian markets.
http://anz.theoildrum.com/node/5477#more page 11,17 of PDF
---
"The findings are a solid outcome and whilst there has not yet been sufficient drilling to arrive at a JORC resource estimate, the report has defined a coal Exploration Target potential of between 0.6-1.3 trillion tonnes above 1,000 m with a total tonnage inclusive of deeper coal sections of between 1.5 to 2.1 trillion tonnes in CTP's combination of Mining and Petroleum Act permits and applications that covers most of the same ground," Central Petroleum's Managing Director, John Heugh, said.


"This is a significant conclusion, as the estimate is based on a realistic contribution of several factors, including a fresh interpretation of the geometry of the Basin, three dimensional data from seismic surveys, 2008 drillholes including cumulative coal intercepts of much greater than 100 m, and supporting geophysical downhole logging data. We were already aware from previous modelling that the Basin's coal footprint extends over more than 9,000 km2 of the Purni Formation alone in EP 93, just one of the company's Pedirka Basin tenements, so this is a further step along the confidence path to vindicate substantive coal focused drilling throughout the Basin."

http://www.energytribune.com/articles.cfm?aid=1345


So, I have two questions: is this find as large as it looks, and are there similar things to be found in China?

Randall Parker said at July 14, 2009 6:55 PM:

Nick G,

Picture what Peak Oil does to the US dollar and US living standard. Then picture China wanting to buy some of our coal. Both masses and elites might think anything to raise cash is a good idea.

1.5 trillion tons: As I understand the Wikipedia Coal page I linked to above the US has 246 trillion tons and Australia has 78 trillion. So 1.5 trillion doesn't sound like a big addition.

Nick G said at July 14, 2009 9:44 PM:

Both masses and elites might think anything to raise cash is a good idea.

Could be. Although, if the US economy crashes, we won't be importing nearly as much from China, and China's manufacturing (and electrical generation to support it) will slow down quite a bit. Even now, the US trade deficit ex-oil has disappeared, which has hurt Chinese exports quite a bit.

As I understand the Wikipedia Coal page I linked to above the US has 246 trillion tons and Australia has 78 trillion.

That's billion. An addition of 1.5 trillion would in a stroke increase Australian reserves by a factor of 20, and give Australia the biggest reserves in the world.

If this is real, China won't need imports from the US, and we really will need renewables (or nuclear) to get much cheaper, fast, to prevent the globe from being on a rotisserie over a coal-fed fire.

So, does anyone have concrete feedback on this report?

Engineer-Poet said at July 17, 2009 10:59 PM:

I am too deep in other things to read it right now; it's one of my several open PDFs ATM.

However, I can say several things without needing to read it.

  1. PRB coal will be much more expensive to transport per BTU than oil.  The cost of moving it to the coast by train, and thence to China by ship (perhaps burning petroleum all the way) is going to make it far more expensive at the destination than the source.
  2. Any treaty limiting GHG emissions will increase that cost further.
  3. The US is not only closer to the source, it uses energy more efficiently.  The scenario of China wanting to buy PRB coal would also have the USA in the energetic position of Saudi Arabia, only with a huge technological and industrial capability AND many cost advantages—it basically spells the end of China as a great power.

Dane Hooper said at March 25, 2013 7:47 AM:

All readers should check out www.coldenergy.com which is about Anthony C. Mamo's US Patent #6696766 he earned in 2004 shortly before he died about generating vast amounts of energy almost out of thin air - THICK AIR is also involved. The differences in Barometric Air Pressure in parts of the world 200 or more miles apart are now - and always will be different.
Connect two areas 200 or more miles apart with a TUBE . . . a TUNNEL maybe 6 feet diameter, and put wind fan generators inside the tunnel. When you open the valves at either end of the tunnel, there will be an almost supersonic wind inside the tunnel, generating vast amounts of energy at virtually no cost! No by products, no pollution.

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