July 20, 2009
$20 Per Gallon Gasoline: Book Argument Plausible?

Forbes writer Christopher Steiner has a new book about the approaching era of declining world oil production entitled $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better. In it he takes an interesting approach toward explaining how declining oil production will change the world. Each successive chapter is named after a progressively higher price for a gallon of gasoline. At each higher price point he describes how our lives will change. This is a novel and interesting approach aimed at explaining to a broader public what Peak Oil means for us in our daily lives. He doesn't put a timeline on when the price points will get hit or predict how much the total economy will shrink. This is more of a lifestyle approach to Peak Oil.

In Chapter $8 he foresees the bankruptcy and liquidation (not reorganization) of most of the airlines in the United States and Europe. This assertion is plausible. Most people do not realize that US domestic flight seats have already shrunk 21% since 2001.

For the time being, analysts agree that the airlines, by cutting routes and employees, grounding planes and imposing fees, can weather the downturn. In fact, when the latest round of capacity cuts takes effect in September, the seats on domestic flights will drop to 66.5 million — down from a peak of about 84 million in 2001 and the lowest September figure since 1984, according to OAG Aviation, which tracks flight schedules.

We will, in time, return to 1970s and 1960s levels of air passenger transportation. I do not expect technological advances to prevent this because the aircraft need liquid fuels - no electrically powered substitutes available. Boeing's much ballyhooed 787 Dreamliner only boosts fuel efficiency 20%. Aircraft fuel efficiency would need to improve by multiples to compensate for Peak Oil and energy substitutes would have to be in the form of liquid fuels. Unless algae genetic engineering solves the problem we'll do a lot more of our travel on the ground. Robert Rapier has explained better than I can the problems of algae biofuels.

Steiner's lifestyle preferences are not my own. He celebrates what he sees as an expected return of the suburbanites to cities. Me, I think the people who left cities had good reasons for doing so. I like wide open spaces and I even like some suburbs. A retreat from the rural life and from exurbs doesn't strike me as a positive development. I think SWPL writers who live in cities do not appreciate that, no, not all people will enjoy cities like they do. City dwellers can be pretty damned provincial. (and why didn't he mention Vespa scooters?)

But I have a more fundamental disagreement with him over the idea of a coming urbanism: I'm not sure that by his own logic it makes economic sense. In Chapter $16 (yes, he thinks gasoline will go that high - I'll outline opposing arguments below) he argues that the cost of long range transportation will get so high that more food will be grown and consumed locally. Well, okay. But isn't that an argument against large cities? New York City needs to bring its food in from longer distances because it has so many people. The amount of land needed to feed them all has to stretch many miles away from it. This is made all the more problematic because NYC borders on fairly built up urban and suburban areas around it that also need to have their food brought it from distant places. So isn't the high transportation cost argument an argument for the spread of people out to places closer to where the food is grown? In the United States that would be places like Nebraska, Kansas, and the Dakotas.

Is $20 per gallon possible? Steiner makes no attempt to prove this. I would like to know if it is possible. My biggest puzzle about Peak Oil is just how high can the price of oil go? We know that the utter outer limit for the price of oil at any given time is something well less than world GDP divided by the number of barrel of oil made in a year. World GDP is currently about $55 trillion by one measure. Also, world oil production is about 30 billion barrels per year. If all money was spent on oil then the max price would be $1800 per barrel. Of course that's not going to happen. What would the people who sold the oil do with the money? Buy other stuff. Why spend all your money on oil if you can't even afford a car to burn gasoline or a house to heat? You aren't going to spend even a quarter of your income on energy, let alone a quarter of your income on liquid hydrocarbons. You'll move into a very small apartment in a converted house and ride a bike before that happens.

Speaking of riding bicycles, rather than abandon suburbs for the big city why not follow Jeff Radtke's suggestion and convert bicycles to electric power and get around a lot on an electric-powered bicycle? No need to move to the big city. For people who have shorter commutes the price of gasoline ceases to be an obstacle when you get around on electric power.

How can we hit high price points on gasoline? How high gasoline prices can go depends on substitutes. Given no substitutes at all the economy will decline with the price of oil. Less energy will mean less economic activity. Imagine a large number of lower priced substitutes for all purposes and that these substitutes all became competitive by the time gasoline hits $8 per gallon. In that case gasoline would never hit $10 per gallon for any length of time. In order to hit high price points the economy has to have enough affordable substitutes to enable economic growth to provide the buying power to bid up oil and gasoline. This would have to happen even as some subset of economically valuable uses of oil turn out to have no effective substitutes. Only then could oil and gasoline hit high price points.

Steiner argues that international trade will plummet as the cost of fuel for ships skyrockets. Jeff Rubin develops this argument in greater detail in a recent book (which I have not read): Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization. Are Rubin and Steiner correct? At least up to some point. But what about substitutes? Steiner misses an opportunity here because in his $18 chapter he reports the US Navy believes nuclear cruisers become cost effective at $120 per barrel (which we hit for a few months in 2008) and nuclear destroyers become cost effective at $200 per barrel. The question here is obvious: at what price of oil does nuclear propulsion become cost competitive for ocean going cargo ships? Answer that question and you will know the long term ceiling on the prices for long range container shipping. Is the price of nuclear cargo shipping so high that Wal-Mart's business models falls apart (as Steiner claims)? Or is he just expressing SWPL prejudice against Wal-Mart?

In a similar vein Steiner claims that long range shipping of fruits and vegetables won't survive $16 per gallon gasoline. But a lot of vegetables and fruits move transcontinental via rail. Well, even as Steiner paints a bright picture for passenger rail in chapter 18 he fails to recognize the potential for electrified rail for freight as a way to put a ceiling on the cost of long range land-based cargo shipping. At what price of oil does fully electrified rail become cost competitive with diesel-electric train engines? That price (whatever it is) puts a ceiling on the long run price of rail cargo shipping. Suddenly rail becomes powered by nuclear reactors or wind turbines or hydro. Want to predict what'll happen with freight after Peak Oil? Ya gotta figure out the competitive prices for nuclear powered cargo ships and electrified transcontinental cargo rail. If anyone knows the answers post in the comments please.

While I obviously have some bones to pick with Steiner's book I recommend it. He covers a lot of territory in an accessible way for a broader public. If you expect lots of data to prove his assertions you'll be frustrated. But if you want to get a sense of just how much the future will change as a result of the lengthening list of countries whose oil production has peaked this book hits many of the ways our lives will change. It is not a precisely calculated set of predictions. Some of his guesses will turn out wrong due to substitutes and innovations that enable less disruptive adaptations. Others will happen at different price points than he predicts. But the value here is that his book causes the reader to picture a future that is not going to be business as usual.

Update: There's not a single oil price point at which nuclear powered cargo ships or electrified freight rail become cost competitive. Consider rail. The various rail lines have different levels of traffic per mile, the regions have different prices for electricity, cost of installation will vary depending on terrain and extent of surrounding industry and power lines. Plus, the cost of steel, copper, aluminum, and other construction materials varies over time. However, in an era of declining oil production rail electrification will probably make sense. Read Alan Drake and Phillip Longman on the potential to shift more freight to rail and to electrify rail. This would greatly reduce the transportation impact of Peak Oil. Also see Brian Wang on Nuclear Power For Commercial Shipping. If the optimistic numbers he provides there are anywhere near correct I do not see why Peak Oil has to cause a collapse of international trade.

Update II: One of the world's largest cargo ships, the Emma Maersk, has a 109,000 hp (81 MW) engine. The whole ship cost about $145 million to build. One analysis shows a nuclear powered equivalent as having lower total costs assuming $2500/KW of nuclear power and $500/ton diesel fuel. The $2500/KW cost estimate looks low. A recent MIT cost update put big land-based nuclear power plants at $4000/KW. How do smaller nuclear power plant costs differ from the costs at larger plants? For large nuclear plants here is a recent overview of an assortment of cost estimates for new nuclear power plants.

Update III: Brian Wang has put together even more useful links on nuclear-powered cargo ships. Costs for fossil-fuel powered cargo ships are going to surge because of regulated requirements for ship operators to shift to cleaner and more expensive fuels.

Based on current refining capacity and planned upgrades, Purvin and Gertz estimate bunker costs could soar by about $300 a metric tons as a result of the switch to gas oil.

Bunker fuel is already at $424 per ton in Singapore at the time of this writing. This price is already high enough to make nuclear-powered cargo ships cost effective according to some estimates. I do not expect global shipping to collapse due to higher fuel costs. Rather, the industry will just shift to nuclear power.

Share |      Randall Parker, 2009 July 20 11:58 PM  Energy Peak Oil Adaptations


Comments
David Govett said at July 21, 2009 1:15 AM:

Worry not. In a few years Obama's profligate spending will have devalued the dollar so much that $20 won't be worth picking up when dropped.

D. F. Linton said at July 21, 2009 2:38 AM:

$20 per gallon is nearly 10X current levels so I suppose he is talking about $600 per barrel oil. Well below that price, even the Carter-era Synthetic Fuels Corporations could make gasoline from coal. Crude oil is not the only possible source of liquid transportation fuels. This sounds like another example of soft core environmentalist porn.

pond said at July 21, 2009 5:58 AM:

This was a good long juicy post. Thanks. I share many of your doubts re: $20 gallon gas. I look at the essay more in terms of a thought experiment rather than a prediction.

For example, has anybody checked the price of whale oil per gallon lately?

Dmitri Martin, author of 'Collapse,' recently reckoned that at 25% of world GDP, oil price stalls the world economy. Crashing demand drives price down, a bottom is reached, the economy begins to grow a bit, oil price jumps up until it hits that 25% level, and another crash ensues. With world oil production descending from the peak, each successive head-bump would occur at a lower price (and lower level of world GDP). We would in this model stair-step our way down.

All these thought experiments are useful in making us wake the heck up and start contemplating the dangers that lie ahead and, I hope, doing something about it.

Forewarned is fore-armed as they say.

Engineer-Poet said at July 21, 2009 8:02 AM:

Synfuels, oil shale and other "alternatives" suffer from the law of receding horizons:  the cost of their inputs rises along with the price of energy.  We saw this with oil last year; the price of steel shot up along with everything else, and the cost of well casing and other essentials kept pushing off the point at which these domestic resources become competitive.  Now with recession hammering prices and evaporating credit, the prospects for raising money to develop these things are even dimmer.  Many billions in investment in oil has been deferred or cancelled outright, meaning we have a supply crunch in the pipeline.

Electric vehicles will also suffer from the credit crunch, but they are not (yet) subject to escalation in cost of their energy supply.  Some things like wind are getting cheaper over time (wind enjoys zero fuel cost as well).  This will help drive a shift away from petroleum.

Scott said at July 21, 2009 8:06 AM:

Nuclear -> electric cars and trucks. Problem solved at $9 per gallon or less.

JAY said at July 21, 2009 8:11 AM:

20 cents is more likely than $20

kurt9 said at July 21, 2009 8:58 AM:

The problem with making hydrocarbons from algae is that biological processes are inherently inefficient. Only 3% of the feedstock (CO2, nutrients) are converted into petroleum. The other 97% makes up the structural components of the algae as well as used in metabolism. I have a friend who worked in this area in the early 80's and this is what he discovered. Craig Venter thinks he can get around this problem by developing a completely synthetic biology where only the biochemistry to make the hydrocarbon is utilized. It remains to be seen if this method will work. The other approach to make hydrocarbon fuel using thermal processes from nuclear power plants.

Ned said at July 21, 2009 10:35 AM:

Interesting. Who knows how high the price of petroleum will go?

However, price increases do have a built-in negative feedback mechanism which tends to moderate, although obviously not eliminate, them. As oil prices go higher, marginal reserves become more available. Alternative sources and fuels (oil sands and shales, biomass, ethanol, batteries, etc.) are more attractive. Fuel economy improves. Surging oil prices, in the short term, tend to produce recessions, with subsequent demand drops.

Demographic maps of cities from the early 19th century showed that most people lived near where they worked. This was because most people walked to work - only a few could afford horses or carriages, and even these didn't extend the range by much. This changed with the introduction of the streetcar, initially horse-drawn but rapidly converted to electricity, in the second half of the century. Urban populations apread out along the trolley lines. Large interurban networks also arose to cover longer distances. As the automobile became more popular in the 20th century, these networks began to disappear. It is quite possible that, as oil prices continue their inevitable escalation, that these forms of transportation will reappear.

I have a lot of confidence in the power of human ingenuity and the free market system to deal with these problems. The more government gets involved, the worse the outcome will be.

Marcel F. Williams said at July 21, 2009 12:20 PM:

Using the Green Freedom concept, current nuclear reactors could produce gasoline for less than $5 per gallon. Utilized in plug-in-hybrid cars that could supply half of the transportation fuel via electricity for an equivalent of 70 cents per gallon, the total cost of nuclear synfuel combined with nuclear electricity per gallon would be less than $2.85 per gallon.

The Nuclear Synfuel Economy
http://newpapyrusmagazine.blogspot.com/2008/01/nuclear-synfuel-economy.html

bbartlog said at July 21, 2009 1:56 PM:

Synfuels, oil shale and other "alternatives" suffer from the law of receding horizons: the cost of their inputs rises along with the price of energy.

There is some truth to this; however, too many peak oilers seem to regard it as a law of nature - they derive some figure for EROEI (based on current inputs) and then extrapolate from that to argue that alternative energy source XYZ can never replace oil. What this ignores is that the current set of inputs reflects the current price of energy (still fairly cheap), and that other things (most notably human time and labor) can act as partial substitutes for those energy inputs if needed. EROEI is not a fixed number.
I think it's worth pointing out that trains carried enormous amounts of freight well before oil became their primary fuel source - diesel locomotives were not the standard until after WWII.
Anyway, I don't mean to sound particularly optimistic; I think we will solve these problems, but that the disruptions will be large. Further I think the reallocation/mobilization of human resources (by which I mostly mean in this case: engineers) hasn't even really begun, and that from that perspective this is kind of an unfortunate moment for a deflationary contraction of the capital markets. And I also expect that as disaster forces the countries of the world to turn their efforts and attentions inward, we will see the more marginal areas of the world experience catastrophe of an unprecedented scale. I really don't see how some places in Africa are going to avoid the deaths of millions of people, barring western aid that may not be coming in the years ahead.

Nick G said at July 21, 2009 2:40 PM:

E-P,

We saw this with oil last year; the price of steel shot up along with everything else, and the cost of well casing and other essentials kept pushing off the point at which these domestic resources become competitive.

Have you ever looked at the details for this to verify it? As best I can tell, the increasing cost of steel and concrete was almost entirely a classic case of China-driven commodity boom and bust, and had little to do with energy costs.

I'd be very curious to see actual calculations.

Brian Wang said at July 21, 2009 3:00 PM:

http://nextbigfuture.com/2008/06/us-navy-may-get-more-nuclear-powered.html

Nuclear navy cost premium at $74/barrel

A nuclear-powered CG(X) could cost roughly 32% to 37% more than a conventionally powered CG(X). The Navy estimates that building the CG(X) or other future Navy surface ships with nuclear power could reduce the production cost of nuclear-propulsion components for submarines and aircraft carriers by 5% to 9%, depending on the number of nuclear-powered surface ships that are built.20 Building one nuclear-powered cruiser every two years, the Navy has testified, might reduce nuclear-propulsion component costs by about 7%.

At a crude oil cost of $74.15 per barrel (which was a market price at certain points in 2006), the life-cycle cost premium of nuclear power is:
— 17% to 37% for a small surface combatant;
— 0% to 10% for a medium sized surface combatant; and
— 7% to 8% for an amphibious ship.

Newly calculated life-cycle cost break-even cost-ranges, which supercede the break-even cost figures from the 2005 NR quick look analysis, are as follows:
— $210 per barrel to $670 per barrel for a small surface combatant;
— $70 per barrel to $225 per barrel for a medium-size surface combatant; and
— $210 per barrel to $290 per barrel for an amphibious ship. In each case, the lower dollar figure is for a high ship operating tempo, and the higher dollar figure is for a low ship operating tempo.

So a medium to large cargo ship with a high operating tempo could break even in the $70/barrel range

Nick G said at July 21, 2009 3:06 PM:

Most people do not realize that US domestic flight seats have already shrunk 21% since 2001.

Yes, but how much have air-miles travelled fallen? Not much, which means the industry hasn't really contracted that much. This is mostly an efficiency measure, which incidentally has the nice benefit (for the airlines) of reducing competition.

We will, in time, return to 1970s and 1960s levels.

Jet fuel is just about the only thing which doesn't have good substitutes. It's only about 5% of oil consumption, so oil production can fall a long, long way before prices really have to jump.

I think the people who left cities had good reasons for doing so.

Absolutely. One of the best reasons was that urban living is a lot more expensive. It's a lot cheaper to buy a Prius (in fact, you save money over the average new vehicle) than it is to move to urban housing.

Is $20 per gallon possible?

Absolutely not. Not for any extended period.

First, the US couldn't export enough to pay for those imports, and oil exporters wouldn't be willing to lend that much money.

2nd, there are much cheaper substitutes for everything. A Prius pays for itself in gas savings at $3 gas. Adding a Hymotion conversion to a Prius pays also pays for itself at $7 gas ($7K over 10 years is $700 per year - a Prius uses 300 gallons to drive 15K miles, and a converted Prius would use 100 fewer gallons). A Volt will pay for itself at $3.35 gas ((an $8K battery (current price, before economies of scale ) over 10 years is $800 per year - a Prius uses 300 gallons to drive 15K miles, and a Volt would use 240 fewer gallons).

this book hits many of ways our lives will change

We'll have substantial disruption during a transition, and the economy has a pretty good chance of not growing much for 10 years, but we'll still drive cars and take planes, and eat California lettuce.

Mercy Vetsel said at July 21, 2009 3:21 PM:

D. F. Linton:
> This sounds like another example of soft core environmentalist porn.

That's good! The biggest difference is that 20 chapters of this crap would be sheer agony for anyone who doesn't have an enviro fetish.

This is sort of the mindless nonsense that makes me embarrassed to admit to being a Peak Oil guy.

-Mercy


Nick G said at July 21, 2009 3:43 PM:

A couple more thoughts:

Prop planes were twice as efficient as jets, when jets took over. Wouldn't prop planes with modern engineering be twice as efficient as current jets? If fuel can be synthesized for $10/gallon, then aviation's cost per mile would be at the same level as it would be now at $5/gallon. I'm pretty sure aviation would do ok with that - please note that the airline industry has always lost money - I don't know why anyone gets into it. Vanity, I think.

There are a lot of substitutes that can used immediately. If gas rose to $6/gallon, a lot of people would carpool, and put in an order for a Prius. Similarly, container ships can reduce their fuel consumption by roughly 50% just by slowing down roughly 25% (a lot of ships slowed down last year), and trucks can save with speed reductions (anyone know exactly how much?).

Kent Gatewood said at July 21, 2009 3:47 PM:

How does natural gas fit in here? Wasn't there a report that listed reserves at 118 years at 2007 usage? How much to convert a car to run on natural gas?

odograph said at July 21, 2009 7:06 PM:

To answer the question, I don't think there is a counter-argument to the price, only the time-frame. We know oil will "end" at some high price, we just don't know when.

Peak Oil projections are especially muddled now by the economic whip-saw of boom then bust. Prices were pressed higher by a rapid globalization that outpaced production, then economic contraction slashed consumption again. It was a mug's game before the Great Recession to name specific dates, it is especially so now.

(I think we could adapt to $20/gal without too much pain. My work commute would still make sense. I could shift to less fuel intensive foods and entertainments. Rationing ... that might lead to some unknowns.)

Vx said at July 21, 2009 7:57 PM:

This all is f***ing environmentalist crap. While there is some challenge in transition to post-oil (read: solar) economy during next 5-10 years - which will shift global balance of power, enforcing ones, weakening others - the most important truth is we can get all the energy we need just by building solar collectors in deserts like Desertec in Sahara, and much more in a year than we can totally collect from all fossil fuels in the world (with all their CO2 consequences). So this is not a matter of energy available, there's f***ing lots of it. It can be (and more or less will be) the matter of economic competition: some regions may get into mid-term trouble if they ignore the shift. But once the challenge is over, the juice on Earth won't be a problem anymore not only to keep our current global lifestyle, but to develop it further. Fact # 1: solar power production is doubling every 2 years. This means going in 20 years from 1% to 100% of current energy needs, and few more years to the needs of 2030 which are going to raise a bit. Fact # 2: solar power gets cheaper year by year. At some point in 2010s (a period of likely oil plateau) it becomes cheaper than natural gas (which isn't going to be cheaper), then nuke. Then the boom follows, and oil-dependants get in trouble. Fact # 3: we have enough desert lands (for those who are afraid of "fuel vs. food" issue) and a decent star in our neighbourhood to keep #1 going ahead, and enough carbon and silicon brains to proceed with #2. Fact # 4: oil hysteria in 2008 was caused by extra (speculative) demand due to unprecedented global growth, and not by shrinking supply. This means, the stimulus to replace oil by sun everywhere is coming not when we're on the peak, but when just approaching the plateau (i. e. now). Then in few years, once the amount of new solar capacity exceeds net energy equivalent of oil depletion (if any), the peak oil problem is solved - forever. Pure physics. This is not "something from nothing", this is the real and abundant energy of Sun. So the scenario of (inflation-adjusted) $20/gal is just kind of enviro horror tales, which they support for ideological needs (see the word "better" in the book name).

And besides, let's recall that main steps of progress in human history were caused by resource crises. The Neolythic revolution (lack of wild food to hunt and gather), the Industrial revolution (lack of free land and wood), and now the Energy revolution begins. This will really change our lives for better - but not in an enviro-luddite way. Instead, we will put our feet on Mars - and bury some environmentalists there to grow some apples on Martian soil:).

Randall Parker said at July 21, 2009 8:33 PM:

E-P,

So then you are in the ranks of the substitutes pessimists? Some substitutes are cheap. I think Jeff Radtke's electrified bicycles proposal makes a lot of sense. A cheap way to get around.

What substitutions do you think are practical to expect?

Brian Wang,

Thanks for the additional data on nuclear ship break-even points. I think the US Navy could do the country and the world a big favor by going much more nuclear as a way to raise the production volumes on smaller sized nuclear reactors.

Vx,

The problem we face is not a general energy shortage. We specifically face a coming liquid fuels shortage. Sure, we could generate a lot of electric power from solar or, more cheaply from wind or nuclear. But our cars, trucks, trains, buses, farm tractors, bulldozers, road plows, and airplanes all burn liquid hydrocarbons and that's the problem. If other ways of powering vehicles were just as cheap and convenient as liquid hydrocarbons we'd be using those other ways already. We aren't.

The key question in the energy debate is basic: What's the cost of substitutes?

Randall Parker said at July 21, 2009 9:56 PM:

EP,

Yes, the price of steel went up. But so did drilling activity. I do not see that oil prices imposed limits on drilling activity. The steel mills were making a big profit before the financial crash. So their energy costs didn't go up as fast as their prices. Similarly, the oil companies had costs that were not going up as fast as prices.

Had the economy not nose-dived my expectation is that coal mining capacity, steel mill capacity, and other industrial capacity would have scaled up to support a faster rate of drilling. The bigger problem is the need for a much larger number of wells to get the same amount of oil.

Randall Parker said at July 21, 2009 10:00 PM:

Nick G,

I read last year when oil prices were much there was already a shift toward more use of prop planes and less use of jets on shorter hop flights. The reason: props are more fuel efficient. So, yes, props will be one way to make air flight more efficient.

Omri said at July 22, 2009 8:18 AM:

"Steiner's lifestyle preferences are not my own. He celebrates what he sees as an expected return of the suburbanites to cities. Me, I think the people who left cities had good reasons for doing so. I like wide open spaces and I even like some suburbs. A retreat from the rural life and from exurbs doesn't strike me as a positive development. I think SWPL writers who live in cities do not appreciate that, no, not all people will enjoy cities like they do. City dwellers can be pretty damned provincial."

Fine. But if your lifestyle means living out in the country and working in the city, then your lifestyle means adding to the air pollution in the neighborhoods you drive through, which means degrading the quality of life for people who live MY lifestyle. It also means adding road runoff and degrading the water quality for you and for me. It also means contributing to the country's sensitivity to gas prices and degrading its foreign policy leverage.

So this SWPL writer feels fully justified in making you pay for the externalities you're imposing on the country and actively interfering in your ability to live your lifestyle.

Nick G said at July 22, 2009 9:27 AM:

If other ways of powering vehicles were just as cheap and convenient as liquid hydrocarbons we'd be using those other ways already. We aren't.

Well, liquid hydrocarbons have been dirt cheap for 95% of the last 100 years, right? If EVs and PHEVs can compete with $3+ gasoline, why would anyone have developed them when gas was under $2??

Except, of course, if one recognized the external costs, and wanted to be a little prepared for possible fuel supply and trade deficit risks. But hey, that's what the military is for, right?

DaveMc said at July 22, 2009 2:30 PM:

The food arguments don't hold up very well either. By far most food energy people eat comes from grains and root vegetables. Above ground fruits and vegetables are primarily water and don't store well. These have historically been shipped long distances very cheaply by ship. They have been shipped efficiently by ships (including barges) for hundreds of years well back to the days of sail.Meats to can be frozen and transported efficiently by boat and rail. If freezing is too expensive they can always be preserved in traditional ways with salt. What is most likely to change in the era of high priced oil is the end of shipping fresh fruits and vegetables by air so we can have fresh grapes instead of raisins in January. Anything that can be stored and shipped using slow cheap methods like corn, soybeans, wheat, lentils, potatoes, carrots, onions, meats etc will likely not be horrendously affected by fuel increases. Nitrogen fertilizers perhaps the highest single source of energy consumption associated with farms can be made efficiently out of nitrogen from the air using solar or wind power(not that different than from how NASCAR pit crews now get nitrogen at the track to put in race car tires). The patents are a century old on this technology. People just used natural gas because it was dirt cheap for the past 50 years.

According to Lester Brown and his publication the Oil Intensity of food, www.earth-policy.org/Books/Seg/PB3ch02_ss3.htm here is how the energy associated with food we eat is attributed

20% food energy - on farm usage including fertilizer
14% transportation
16% -food processing (canning, freezing, drying)
7% - packaging - costs as much to put an empty box of cereal on the shelf as a full one
43% - consumer's kitchens - takes much more energy to preserve and prepare food in the home than it does to produce it in the first place -your refrigerator is the single most energy intensive item in the entire food chain.

Roughly 1/3 of the price of food, on-farm and transportation,is directly tied to fossil fuels the other 2/3s are attributed to electricity.

Randall Parker said at July 22, 2009 4:29 PM:

Omri,

I walk to work in a suburb. Haven't driven a car since a few days of driving in May. Some other people I work with bike to work. A few drive scooters. Some others drive fairly short distances to work. This is in an area with tract homes.

Nick G,

PHEVs can't compete with $3 gasoline. HEVs can only compete at $3 per gallon because some people like the idea of driving a hybrid.

Granted. HEV, PHEV, and EV costs are going to fall. Also, the buyers of HEVs today create the demand that helps drive the development of cheaper EV tech.

Nick G said at July 22, 2009 6:40 PM:

HEVs can only compete at $3 per gallon because some people like the idea of driving a hybrid.

I haven't done the math lately, but even Consumer Reports agrees. A Prius is a higher end vehicle than a Corolla, and it uses 150 fewer gallons to drive 15,000 miles per year. That's $4,500 over 10 years, which is equal or greater to the premium of a Prius over a Corolla.

PHEVs can't compete with $3 gasoline.

Well, let me repeat the calculations: A Volt will pay for itself at $3.35 gas ((an $8K battery (current price, before economies of scale ) over 10 years is $800 per year - a Prius uses 300 gallons to drive 15K miles, and a Volt would use 240 fewer gallons).

Nick G said at July 22, 2009 7:22 PM:

hhmmm. I suppose I shouldn't forget the $.01-.02 per mile for electricity ($.01 for the average person charging at night, $.02 for during the day). Also, it's only fair to note that only a minority of drivers would drive 15k electric miles per year - certainly there would be quite a few, including long-distance commuters and taxis - perhaps 10% of drivers?

OK, so the current battery would require $4 gas for our high-mileage minority, and $5 to capture a large % of the rest. Still, that's a far cry from $20 gasoline.

Also, what about the value of time? Saving 30 trips to the gas station at, say, 7.5 minutes each, is 3.75 hours. At $20/hours, that's another $75 per year. That almost pays for the electricity. Also, maintenance costs will be less: very few oil changes, etc.

Randall Parker said at July 22, 2009 7:40 PM:

Nick G,

PHEV cost effectiveness hinges on two factors:

1) Total miles driven per year.

2) Percentage of miles driven on battery charge.

If you raise 1 without lowering 2 then a PHEV becomes more cost effective. But there's the rub. People who drive higher miles will tend to drive higher miles per trip. To make a PHEV cost effective you need to charge it up and run down the battery and then charge it up again many times.

A 15000 mile per year driver is doing on average 41 miles per day. Sounds like a good fit, right? But the driving is not evenly distributed. More is on weekdays. More is on vacation trips. So what percentage of those 15000 miles will be done on battery? It is not clear to me.

John Moore said at July 22, 2009 8:09 PM:

The guy's arguments are total nonsense.

It is true that liquid fuel is very important.

It is also true that liquid fuel is easily produced from coal gassification - the Nazi's ran their military on that when their oil was cut off.

Coal gassification starts to become economically competitive at current oil prices and is obviously a complete no brainer when the price of oil goes up by 2x or 3x - certainly before gas from petroleum hits $20/gal.

The only thing preventing this is environmentalists and those they have cowed with their global warming hypothesis and their policy: suffer a lot now in order to avoid the possibility of suffering a lot later (at a time when technology will be far advanced).

As I said, coal gassification is a no brainer. Too bad environmentalists and those they fool have no brains.

Oh well.

Nick G said at July 23, 2009 9:46 AM:

A 15000 mile per year driver is doing on average 41 miles per day. Sounds like a good fit, right? But the driving is not evenly distributed. More is on weekdays. More is on vacation trips. So what percentage of those 15000 miles will be done on battery?

Probably about 72%. I believe 78% of 12,000 miles on average would be electric. If 50% of the additional 3,000 is electric, that gives 72%. That gives 10,860 electric miles, and a breakeven point of $3.68/gallon compared to a Prius (less compared to anything else). People who would drive 15,000 electric miles might include long-distance commuters (say, driving 30 miles each way and charging at work) and fleet drivers such as taxis, whose vehicle can be used two shifts per day, and yet don't go that far and can be charged during multiple breaks.

Rocky said at July 23, 2009 11:47 AM:

John Moore is right. Pyrolysis and gasification can produce abundant liquid fuels from any carbon source, from low quality coal to massively scalable biomass.

Peak oil slobberers are pooping up the internet with their incompetent whining. If they are too ineffectual to solve real world problems, let them take comfort in cheap wine, beer, and spirits.

Randall Parker said at July 23, 2009 5:20 PM:

Nick G,

Are you using unsubsidized prices for the Prius and Volt? As I recall you are ignoring the subsidy by claiming that GM raised their price to adjust for the subsidy, right?

So what're your costs for the Prius and Volt?

Long distance commuters: They benefit less from the Prius that city drivers. The long distance drivers might be better off with a diesel VW Jetta.

Nick G said at July 24, 2009 11:01 AM:

Randall,

I'm assuming $24K for the Prius - I've seen news reports indicating that's the average actual US selling price (Edmunds says the base price is $22K). The same reports indicated that the average price for the US overall was $28K. Edmunds says the Jetta TDI base price is $23,370 (I note there are a lot options), with 33 MPG.

Now, on Volt cost analysis. I'm assuming a Prius cost, with an $8K battery added. I think it's clear that the Volt with no battery will be no more expensive to manufacture in large volume than a Prius.

Why do I think that? Electric drive trains are cheaper than ICE drive trains. Heck, a ten year old can build one from scratch with wire, cardboard and pliers (with really good instructions.....) - I don't think anyone can say that about an ICE. A Volt is an EV with an onboard backup generator and a lot of good programming of the electronic controls. That won't be any more expensive than a Prius, which also has dual drive trains. Heck, the Volt should be cheaper, as the auxiliary ICE support systems can be smaller.

Electric drive trains are oooooold. EV's were sold in large volumes 100 years ago, commercially, until cheap gasoline killed them. GM sold electric trucks in large, commercial volumes from 1912 - 1918. There are something like 30,000 EV conversions on the road in the US (you'd be amazed what hobbyists do). Submarines have had them for what, 80 years? Freight trains have them. The largest container ship in the world has them. There are many tens of millions of small, non-highway legal EVs in use. It's very likely that there are more electric motors in use in the world than ICEs.

EVs and PHEVs are easy to do. Optimizing them, as well as the batteries, is good old fashioned engineering - no rocket science, no tech breakthroughs.

Now, the latest batteries do represent tech breakthroughs, but that's done. All that remains is ramping up production volumes and getting prices down. Is there any question that will happen? Not really. I think one can be rationally skeptical of Tesla: it's a small company, and perhaps it will fail. But the major car companies, like GM? Not now, with a very clear US gov public policy in place, and rising gas prices to back that up.

Nick G said at July 24, 2009 11:26 AM:

One more thought: you've often commented that better batteries would be desirable.

I agree. It would be really nice to have something like the Firefly new-tech lead-acid; the Eestor ultra-capacitor; or the latest MIT materials research make batteries really cheap, to really make ICEs bite the dust.

But, it's not necessary in order for EVs and PHEVs to compete with $5 fuel with the current battery price, and for them compete with $3 fuel in 4 years.

Sonny Barger said at July 25, 2009 1:28 PM:

Screw the Vespa, you can buy a Chinese made Vespa-like clone for less than $2,000. Your SWPL friends won't be able to tell the difference. If they ask, just tell them "Yeah, the body on a Vespa has always been made of plastic. It's an Italian design feature. Didn't you know that?"

They'll be too embarrased to inquire further, and you'll be laughing your ass off as you get about 80 miles to the gallon. Crisis solved!

Vx said at July 26, 2009 8:15 PM:

2 Randall Parker: Yes I see the situation about current US liquid fuel dependancy. This can and almost certainly will create price spikes in short term. Also in mid term (5-10 years) we'll need to rebuild whole industries for new kinds of energy supply. This won't be easy and may have bad effect on some countries. But it won't be forever.

What I disagree with is long-term "inevitability" of rising prices and lifestyle retreat. Prices are rising particularly because too many believe in such doom and gloom and don't recognize even current tech possibilities (not to say about future). Many are still astonished by "millions of years of solar energy in fossils" (well, all fossil fuel reserves in the world = 20 days of sunlight energy equivalent). All these Joes (and Georges W.) push prices up. And in fact we can close the supply/demand gap in a few years enough to keep oil prices down again (not having to replace the whole oil in a moment, just the gap).

And what happened to many renewable projects due to recent $30/barrel? They were delayed because of doubts if we really need so much oil (there was no actual shortage, just financial speculations) and if it really be hard to increase its production. Peak is still not a fact, it is a hypothesis.

It does make sense to analyze how deep we may fall in short term if, say, Iran blocks Persian gulf. This can cause far worse problems than any peak, even if we passed it in 08. Peak is smooth, politics is not. It also does make sense to boost energy efficiency anyway, smoothing the revolution. But when someone proclaims oil will always rise in price, there will never be any substitute and due to this large-scale global business models will be destroyed once and forever, this doesn't make sense, this is lie. A business may fall, but another business may survive and even lead the revolution. I doubt there can be such massive mid-term shortage enough to kill Walmart but not enough to kill those who depend on it. Such shortage won't certainly change people's lives "for better". This is another enviro localistic utopia. If they mean US will turn into Japan by efficiency (trains etc.), in fact only big business will survive. If they mean even worse shortage per capita, there would be hunger, not "better life". That is green bullshit. Better life will come when those who survive begin to rebuild the economy and to increase renewable capacities, efficiency and move technologies ahead in all directions, including synthetic fuels. It will take at most 20 years to forget about all this peak oil rumors.

Engineer-Poet said at July 26, 2009 8:27 PM:

If the military cost of defending oil supply routes was billed at the pump, gas would already be costing $5/gallon.

Today I got 48 miles per gallon on a trip to save myself $60 on a new UPS, and the fuel I burned is running 10¢/gallon cheaper than no-lead at the moment.  I'm already laughing my ass off.  I am thinking about getting a scooter just for kicks (I wonder if they're chick magnets way out here?), but I don't need much in the way of fuel savings for the sake of my finances.

Nick G said at July 27, 2009 3:34 PM:

If the military cost of defending oil supply routes was billed at the pump, gas would already be costing $5/gallon.

I agree, based on back-of-the-envelope calculations - isn't the US military budget about $400B higher than it was just before 9/11? It would be nice to have a detailed analysis of this - ideally something that also included all of the local government and private security expenses since then. Have you seen one?

Randall Parker said at July 27, 2009 7:25 PM:

Nick G, E-P,

I think the neocons wanted to invade Iraq more to protect Israel than to protect the oil.

Engineer-Poet said at July 27, 2009 9:23 PM:

It's documented that Cheney & Co. had the Iraq invasion planned before Bush was elected.  Now we have the Iraq oil law.  How much evidence do you need?

Randall Parker said at July 27, 2009 10:09 PM:

E-P,

Bush wanted to invade Iraq to show his father what he thought his father should have done: finish off Saddam. Bush thought he could boost his popularity and reduce the risk of terrorism. The guy was deluded. The neocons wanted to protect Israel against imagined WMDs and also wanted to cut off Saddam's (not very large) support of the Palestinians. The neocons were foolish. Oil might have been consideration number 3 at best.

Iraq oil law? What are you talking about? Do you follow which oil companies even win contracts to drill in Iraq? BP and China's CNPC won the only oil contract in a big recent round of bidding. All the American oil companies came up with squat. The Iraqi government demanded terms that would have left little or no profit.

Nick G said at July 28, 2009 1:47 PM:

Randall,

Don't forget that anything related to Gulf War I, including finishing off Saddam and making Iraq accessible to US oil companies (even if the effort is unsuccessful) comes back to oil. Gulf War I caused 9/11 and Gulf War II. Osama Bin Laden has said that 9/11, and the whole Al Qaida movement, is a reaction to the US military presence in the Gulf generally, and Saudi Arabia in particular. The KSA military presence was a direct successor to Gulf War I, and the general military presence is a result of our concern about the stability of oil exports.

Re: Gulf War I - I vividly remember the cover of Businessweek at the time: it showed an aircraft carrier in the Gulf, and was titled very simply: Oil War. Otherwise, the US would not have intervened to protect Kuwait if it had been, say, over in West Africa, and had no oil or neighboring countries with oil. Also, let's not forget the Carter Doctrine.

Finally, we can't forget that a substantial part of the historical reasons for the US's defense of Israel has been Israel's role as an ally in an oil-bearing region.

“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil”

Alan Greenspan, in his 2007 memoir.

Randall Parker said at July 29, 2009 12:33 AM:

Nick G,

Yet the invasion of Iraq has done nothing so far to boost Iraqi oil exports.

The biggest reason we support Israel is because of Jews in American and Christians who think Jews are God's chosen people. Israel is a liability in our dealings with oil exporters.

Nick G said at July 29, 2009 10:49 AM:

Yet the invasion of Iraq has done nothing so far to boost Iraqi oil exports.

True. One might argue that this doesn't prove the intent of the authors of Gulf War II, just their incompetence. Or, one could argue that that this is a longer-term project, and that exports are likely to rise eventually (which I think is true).

More importantly, Gulf War I was intended to protect protect exports from Kuwait and Saudi Arabia, not Iraq. 9/11 would not have happened without Gulf War I, and its consequences. Without 9/11 we wouldn't be spending a minimum of 400B per year on Iraq and homeland security. Ergo, without oil addiction we'd be 400B/year richer.

The biggest reason we support Israel is because of Jews in American and Christians who think Jews are God's chosen people.

That's true now. But, we have to look at the history: why did Truman support the new state in 1948? Why did Eisenhower do the same in the 50's?

Israel is a liability in our dealings with oil exporters.

True, though I think that most ME rulers really don't care about Israel or Palestine: it's mostly a convenient scape goat, to distract the population from the reality of autocratic rule. Further, just because oil exporters don't like our support for Israel doesn't mean that Israel hasn't provided some of the strategic and tactical benefits that Truman and Eisenhower expected. Mind you, I'm not necessarily endorsing that strategy, but I think we have to acknowledge that it is/was there.

Jeff Carlson said at July 30, 2009 6:39 AM:

For all you Gulf Oil focused folks ... we get more from Canada ...

For all you Peak Oil in 10 - 20 or 5 - 10 year folks ... we haven't scratched the surface of US reserves (the ones Congress put off limits) like OCS, Alaska, Shale Oil ... not to mention coal to oil which is currently cost effective above 70-80 per barrel ... try more like 100 - 150 years ...

Engineer-Poet said at July 31, 2009 5:22 AM:

Oh, get real.

  • OCS is incredibly expensive, and we are running out of e.g. Gulf OCS to explore.
  • Alaska doesn't have all that much.  ANWR is good for maybe 1 million barrels/day, peak.  We can get several times that in savings from more-efficient light vehicles, faster and cheaper.
  • Shale "oil" from oil shale, isn't.  It's something called kerogen, and it has to be thermally cracked to yield hydrocarbons.  If nature has done the cracking for us, great; doing it ourselves is horribly expensive in terms of the very energy we need as a product.  The EROI we need to run society is around 8-10, oil shale is down around 3.
  • Coal-to-liquid plants cost about $100,000 to get one barrel/day of capacity; this is about 50% more expensive than conventional tar sands.  To put this into simpler terms, if you burn 500 gallons/year of gasoline you'd need about $3200 in plant to supply yourself.  You'd also use about 4.6 tons of coal per year (25 million BTU/ton).  If you ran your car on electricity at 300 Wh/mile, even a 33%-efficient powerplant at $2/watt would only cost you $890 in capital cost and 1.6 tons per year.
The age of hydrocarbons is coming to an end.  Get used to it.

SM said at August 4, 2009 4:57 PM:

I am sure many of you are SUV gas guzzling hogs with the bad comments about environmentalists. Have any of you taken time to step out of your tiny lives to sit and look at what nature has? Have any of you d**kheads gone across an indian reservation to see clear cut forests, been to the Redwood forest to see the massiveness of nature that we....as a greedy society have cut down and dimenished throughout time? Do you really believe in your small little worlds that there is enough here to sustain us all for the next 75 years we may live? Everything has a revolving cycle. If we do get into a hard times crunch market for fuel, none of us will be able to afford anything. WE will all go into forclosure because our FAT wallets we percieve to show the world is nothing but credit cards.

I will be glad when the big box stores collapse and we get back to the way it use to be....living off the land and being neighborly. It is people like you all that will eat up the planet and then turn to one another, blame each other and wonder what happened. You know how I know this, look at the wonderful geniuses on Wallstreet that have screwed up our economy and the oh so smart bankers that gave out loans to every Tom, Dick and Harry. Oh yes, our elite....are full of shit. I can't wait till the whole boat sinks....sadly....many of you that don't have the first idea where things come from or how they are grown will be the starving clans throughout America. I will be glad to sell you an ear of corn for your Escalade!!! ha ha ha ha

Jerry Martinson said at August 4, 2009 10:34 PM:

Nick wrote:

> Prop planes were twice as efficient as jets

There are windows where prop planes - in particular "propfan" planes are much more efficient. Propfans are like turboprops but with 2 counter rotating propellers. However for very long flights, it is more efficient to climb to very high altitudes where air is thin and use a trubofan (i.e. what most people call a jet). A large portion of passenger miles could be covered by propfan aircraft though. A major disadvantage of propfans is that they are EXTREMELY loud and this problem currently makes them unusable. They are also a little slower but as you know most of the time in air travel

Jerry Martinson said at August 4, 2009 10:37 PM:

Previous post got clipped.

Nick wrote:

> Prop planes were twice as efficient as jets

There are windows where prop planes - in particular "propfan" planes are much more efficient. Propfans are like turboprops but with 2 counter rotating propellers. However for very long flights, it is more efficient to climb to very high altitudes where air is thin and use a trubofan (i.e. what most people call a jet). A large portion of passenger miles could be covered by propfan aircraft though. A major disadvantage of propfans is that they are EXTREMELY loud and this problem currently makes them unusable. They are also a little slower but as you know most of the time in air travel under 800 miles is in the overhead spent on the ground so this doesn't matter much.

There are 4 things that could make aviation more fuel efficient:
1. Ditch the co-pilot (plane can land itself if pilot croaks) and have less stewardesses (slight gain)
2. Propfans
3. "Flying Wing" fuselage - enabled by uP control of the control surfaces. This is a major reason why the B2 is shaped the way it is - for fuel efficiency ( although flying wing does have inherently lower RCS from certain angles but not from below).
4. Plastic (i.e. CRP) structure - enabled by CAD and materials science

What I'd like to know is at what point does intercity passenger rail really (and not just the pre-ordained outcome studies from railfans) make more sense than propfans. If I look at a US-based TGV-like system (using REALISTIC numbers) versus propfans, it seems like JETA will have to cost a LOT more before it is even close.

Engineer-Poet said at August 5, 2009 8:04 AM:

Given the collapse of the aviation industry even at current prices for jet-A, rail may be the only viable alternative.  We'll get TGV when people get tired of cruising among freight traffic.

Nick G said at August 5, 2009 10:46 AM:

collapse of the aviation industry even at current prices for jet-A

Well, some airlines are doing fine (SW in particular). The airline industry has always been marginally profitable as a whole, and gone through boom/bust cycles. I'm baffled that anyone invests in it - I think it's a vanity industry. For instance, Howard Hughes got into it with inherited oil money, just for the fun of it.

Miguel F said at August 12, 2009 7:11 AM:

Interesting blog on the costs of Prius vs. Volt vs. fuel. I guess GM's announcement yesterday that the Volt is going to fetch $40,000 (LoL) throws all your conjecture out the window. GM can't get out of its own way. Never has never will. Once again, Toyota and Honda will eat our lunch! The trouble with much of the analysis herein is that it assumes a constant and relative sense of logic and disregards greed as a driving factor that will impede (but not prevent) progress. Again, a Chevy Volt for $40,000, give me a f...ing break! So much of this dribble is being driven by media hysteria and literature like Mr. Steiner's. As long as you can scare people into "end of the world" scenarios, someone will continue to profit from it. GM is certainly outdoing itself on that count and I believe that they will fail miserably once and for all. Maybe then, the REAL American auto manufacturers will get a dosage of adaptation (as in Darwin) and come along with the rest of us to develop long-term sustainable substitutes, which I have no doubt we will achieve with or without them.

placebo said at February 4, 2016 4:18 PM:

It is Feb 2016 and oil is ~ $30/barrel.
You should do a follow-up post on Peak Oil and $20/gallon predictions.

Post a comment
Comments:
Name (not anon or anonymous):
Email Address:
URL:
Remember info?

                       
Go Read More Posts On FuturePundit
Site Traffic Info
The contents of this site are copyright ©