November 02, 2010
Dr. James Schlesinger: The Peak Oil Debate Is Over

James Schlesinger served in high positions under Presidents Nixon, Ford, and Carter as chairman of the Atomic Energy Commission, Secretary of Defense, Director of the CIA, and as the first US Energy Secretary. He's become convinced that the peak of world oil production is near:

What is the evidence?

First, we remain heavily dependent on super-giant and giant oilfields discovered in the 50s and 60s of the last century… I might add, of the last millennium. Only rarely in recent decades have discoveries equaled production. Mostly, it’s been one barrel discovered for every three barrels produced.

Second, old super-giants like Burgan in Kuwait and [Cantarell] in Mexico have gone into decline earlier than had been anticipated… and going into decline have been Alaska, the North Sea, western Siberia and the like.

Third, while it is not yet “Twilight in the Desert” (as you may have read) still we are well into the afternoon, even in Saudi Arabia. Even the Ghawar oilfield is increasingly hard to sustain.

Fourth, in 2004 we experienced our first demand-driven price spike, as opposed to the previous price spikes driven by supply interruptions. We still operate at about the level of production capacity of 2004.

Schlesinger has also written the foreword to the new book The Impending World Energy Mess by Robert L. Hirsch, Roger H. Bezdek, and Robert M. Wendling.

The rate of discovery is a fraction of the rate of consumption. World discovery peaked in the early 1960s. The rate of consumption surpassed the rate of discovery in the early 1980s. Since then we've been eating thru oil fields discovered long ago. I do not see the burden of evidence as on the Peakists any longer. An argument opposed to the expectation of a close peak needs to explain where the oil is going to come from that will enable much higher rates of production.

My advice: prepare in your personal life. When you move or take a job aim to minimize driving distances and ask yourself how vulnerable your job is to a decline in world oil production. Think about better home insulation. Think about other ways you can reduce your dependence on oil. Oil prices are headed upward and economic growth will remain anemic until an extended period of contraction sets in.

Update: James Lentz, President and COO of Toyota Motor Sales USA gave the Toyota view on Peak Oil almost a year ago: "we will probably see peak oil sometime around the end of the next decade." He said it could come as early as 2017.

The peak in Western consumption comes years before the peak in global production because oil consumption growth in oil producer states is cutting oil exports and Asian demand is displacing Western demand. India and China will bid up prices to levels that will cut Western demand well before production peaks. My guess is Western consumption has already peaked.

Update II: Charles Maxwell thinks the peak comes between 2015 and 2017.

Maxwell: Yes. Globally, I believe we’re quite close to the peak, simply because we’ve gone from 6 percent increases in production to 3 percent per year increases, to half a percent per year increases. I think peak will come between 2015 and 2017. So, we’re nearly on it.

But with increased internal consumption by oil producing countries and rising demand from developing Asian countries peak consumption by Western countries will come much sooner. For some Western countries peak consumption has already happened.

Update III: I am skeptical about our ability to rapidly transition to new energy sources. Peter Tertzakian's book A Thousand Barrels a Second: The Coming Oil Break Point and the Challenges Facing an Energy Dependent World sketches out information about previous energy transitions (e.g. sperm whale oil to petroleum oil for lighting) and how long they took. Many of those transitions were to more convenient energy forms. Well, liquid hydrocarbons are the most convenient energy form, especially for transportation. So the next transition is going to be to less convenient energy forms that cost more to use.

Update IV: See Robert Hirsch's slide show presentation on Peak Oil and also see former BP Chief Petroleum Engineer Jeremy Gilbert's slide show on Peak Oil.

Share |      Randall Parker, 2010 November 02 11:43 PM  Energy Peak Oil Adaptations


Comments
Sergey Kurdakov said at November 3, 2010 12:06 AM:

The peak oil is might be real thing but see no reason for changes in transportaion or life styles.

current ( or near term ) thermochemical ethanol is competentive with oil to some degree.
with supercritical water reactors (more efficient than now - so cheaper energy, with advantage - small breeding factor - so no worries on uranium depletion for several hundred years at least, there are more alternatives, of cause, like thorium molten salt reactors with accelerator driven support system ( then pure thorium can be used as is and there is no scarcity of thorium in sight ).

all waste biomas available can provide all transportation ethanol needed for world ( using thermochemical path ), yet there is room for cabon fiber in cars ( fuel reduction ), ceramic engines, more efficient batteries etc.

so it hardly possible that there is need for change of life style.
Myabe just making more push towards more research in fields of more cheaper nuclear energy with less waster, more research into making cheaper carbon fiber etc. That is really much easier and more natural to make effort for, that exercise in self humilitations.

cancer_man said at November 3, 2010 8:05 AM:

My advice to Randall: At some point, take the time to finally learn economics 101. Learn about supply, demand and price fluctuation.

Second free tip: Look at the solar cost cure over the past 25 years and tell us what it means for the 2020s.

Third, isn't it time you told us about what year to prepare for? It's always 5 years out, and you'e been saying this for ....5 years. See a problem? It is lame to always warn of "the future" without giving a year.

Quit wimping out, give us a year.

Nick G said at November 3, 2010 10:33 AM:

Randall,

I agree that PO is a serious problem, and that it will create a "headwind" for the economy in the coming years. Nevertheless, I think it's likely that the effect will be in the range of .5%-1.5% reduction in growth. I seriously don't see evidence for more than that, and I think you should clarify that your concern about economic contraction is speculative.

I agree that one should take PO and AGW into account when planning one's job/career: some industries will be affected significantly. OTOH, I think changing one's vehicle (to a Prius/Fusion hybrid/Insight, Leaf or Volt) or telecommuting are much more sensible than changing location.

Engineer-Poet said at November 3, 2010 10:56 AM:

2001.  Seriously.

Doug1 said at November 3, 2010 2:06 PM:

Peak oil is not at hand. More expensive oil is.

As the price rises more expensive oil can come onto supply. In the US and Canada alone, the estimated 2 trillion barrels of oil in shale and oil sands are much greater than the world's current 1,200 billion barrels of proven reserves from conventional sources. Surely oil shale and sand sources exist in many other countries if we look for them. The world is currently consuming about 30 billion barrels a year.

Dave in Seattle said at November 3, 2010 3:12 PM:

The security threat confronting the western democracies is demographic. We are facing a slow genocide of high immigration and low birthrates. All other problems are trivial. As for peak oil, Coal to Liquids can cheaply and easily supply all our liquid-fuel needs for the rest of this century.

Sione said at November 3, 2010 4:44 PM:

Been hearing the whinging about this since I was a young lad in school during the 1970s. Yup, Peak Oil, when we wuz gonna run out, well, she were always jus' around the corner- gonna happen in jus' a few more years.

Yeah.

Right.

Still waiting to make a killing off it.

In the end it never happened and even if it had, there were alternatives available to substitute (assuming governments avoided interfering).

In the meantime more pressing matters have conspired to influence the costs of oil and other commodities. It is a reasonable expectation that denominated in US dollars the price of a barrel of oil is going to rise substantially. >US$100 per barrel is not unlikely. This has not so much to do with Peak Oil, in the sense that resources are running out, but more to do with politics and the results thereof. As government interferences in the economy continue apace, the probability of further strong increases in commodity prices become greater and greater. This is nothing more than realisation of economic distortion casued by government interferences- you harvest what you sow.

As indicated previously, we are nowhere near "Peak Gold" and still over the last decade gold has risen strongly against USD (>US$1000 per ounce). It isn't PEAK. There is another reason for the strong upwards push in commodities and specie. Stated once again, it is the direct result of running a socialist, centralised money system. The problem of socialist calculation dooms such Ponzi schemes utterly.

It is not possible to continue to create unbacked fiduciary media "out of thin air" and expect there to be no consequences for the real economy, hence no consequences for real people. A colleague writes, "Since 8 January the results of the on-going currency debasement practiced by governments and central banks have resulted in substantial losses of value thus:

Currency. Value loss against gold
USD >14%
GBP >14%
CAD >13%
JPY >6%
EUR >6%
AUD >4%

Calculated against silver the trend is even more visible:

Currency. Value loss against silver
USD 30%
GBP 30%
CAD 29%
JPY 22%
EUR 21%
AUD 19%

(Any of you spot the silver market manipulation attempt by the big'uns being beaten back last month when silver started to really get going?)

Demonstrating where the worst of the problem of currency inflation resides the "reserve currency" (USD) has lost value against other currencies, being down 10% against the Oz and some 8% on Euro. Of course, by close of trading today things will be worse.

Here are some commodities and the loss of value the USD has experienced when denominated against them:

Agricultural Raw Materials: 24%
Industrial Inputs Index: 25%
Metals Price Index: 26%
Coffee: 45%
Barley: 32%
Oranges: 35%
Beef: 23%
Pork: 68%
Salmon: 30%
Sugar: 24%
Wool: 20%
Cotton: 40%
Palm Oil: 26%
Hides: 25%
Rubber: 62%
Iron Ore: 103%

These commodities are not at PEAK in the sense that they are running out.

A while back I commented that a significant currency event was in the making. Some of you may remember that. Well, here we are and the Federal Reserve is about to act. Guess which way the prices are going to go now? I'm figuring that all of this will have a significant effect on the price of commodities, which are likley to climb, denominated in US dollars. Still, oil isn't the best play. It's up to you to figure out what is.

The final result of all this in the longer term is that the US$ will lose its special status as reserve currency. This will create a serious reckoning within the USA, and it will likely correspond to soverign debt default, social security default, medicare default and a whole host of reallocation of resources as assorted handouts and military adventures prove to be impossible to fund. Look to how the Great British Empire collapsed and the economic status of that country now. Things will occur a whole lot faster.

The informed expectation is that the standard of living within the USA (and in certain other places as well) will fall severely. Oil consumption and the consumption of other resources will fall in those places. They won't be anywhere as affordable as at present for the people residing in those places. That's not due to running out. It's due to reallocation to the most productive use.

--

Recently Jim Rogers was asked about why he moved to Singapore. He stated that he didn't think "Gee, look at all those debtors, let's move over there and be with them." Indeed, he thought along different lines entirely.

Sione


Bruce said at November 3, 2010 7:46 PM:

"Brazil's Petrobras has discovered the largest light crude Oil Field since the Mexican Cantarell Field in 1976. The massive find is in the same area off the coast of Brazil as the restly discovered Tupi field which is beleived to hold 8 billion barrels of extractable crude. The new Sugar Loaf Field discovery is 5 times larger than Tupi and could signal an end to declining oil production around the World."

http://www.nextenergynews.com/news1/next-energy-news12.17d.html

Randall Parker said at November 3, 2010 7:59 PM:

cancer_man,

I'd like to hear your detailed position on Peak Oil. Are you saying that oil production will keep rising up above 100 million barrels per day and beyond? Will the price of oil drop back down to $25 per barrel? What's your optimistic outlook based on how you think economics works?

Sione,

So is oil production going to once again start rising 2-3 million barrels per day?

Sergey Kurdakov said at November 3, 2010 10:05 PM:

based on today's and foreceable technology it is hardly, that oil will drop tp 25$ barrel.
Still http://www.lanl.gov/news/newsbulletin/pdf/Green_Freedom_Overview.pdf and taking into account that in ten years time frame first supercritical water reactors will be appearimg ( with 50% less expense for KWh than III gen PWR ) then 1 usd/gallon gasoline ( as of production cost ) and 1.5-2.0 usd (sale price, no tax ) per gallon will be available.

and of cause, if there no better alternatives - then this technology can provide more than 100 million barrels of oil. But most probably the way it will go as in 70s - rapid introduction of new tech solutions. Such as carbon fibers for car bodies ( could reduce consumption by 1/3 ) etc.

so eventually - by 1 km - the expenses for transport will be less that for today transport for 25 usd/barrel.

there could be few years drop in activity ( like in few past years after oil got to 150 usd barrel ) - but hardly that for long time there is need to change lifestyle.

so what is the exact problem that for future transport needs there will not be energy equivalent to 2-3 million barrels? there is no physical one, I would like to note again - there are ways to bring energy prices to level of 1c/KWh and produce it for any meanigfull amounts. and there are ways to convert this to transportation needs.

So then - let peak oil be at the end of the decade. But why to change lifestyle?

Ak Lan Duc said at November 3, 2010 10:10 PM:

Randall,

Pricing oil in terms of a wildly fluctuating fiat currency, then pointing to the resulting fluctuations in price of oil as proof of "peak oil" does not seem reasonable. If you are using price arguments to demonstrate peak oil, price the commodity in gold or silver or other steadier measure of value.

Likewise it makes no sense to claim production stagnation as proof of peak oil, since production is dependent upon so many different things which have nothing to do with the amount of oil in the ground. Keep in mind that the richest fields are reserved for national oil companies, which have atrocious records for maintenance and investing in exploration and production technologies.

Peak oil is an ambiguous term at best, each person thinking he knows what he means but being quite wrong about that.

Flash Program said at November 3, 2010 10:40 PM:

We have to keep EROEI in mind, some analyzes regarding peak oil estimate early mid decade arrival. Where this to be so, there is no massive alternative substitute being implemented in the near future. Both the fleet of vehicles, land and air based, will need overhauling. Such could take decades.

Jenny said at November 4, 2010 1:49 AM:

I try to use my car just once/week when I go the store, instead I prefer walking, does good also to our health. If we don't do anything now when we can, in a few years will be late.

Engineer-Poet said at November 4, 2010 4:08 AM:

$1/gallon?  Even the advocates of the so-called "Green Freedom" scheme say it will cost $4.60/gallon at the pump (reduced to $3.40 if the electrolyzers can be made cheaper).

The idea of replacing gasoline via such a complex scheme is insane, doubly so when the relative cost of electric systems is falling so rapidly.  It makes far more sense to use electricity for the bulk of it (via PHEVs) and bio-fuels for the remainder.  Using nuclear heat to process e.g. municipal garbage into pyrolysis oil would be a "two birds, one stone" remedy.

Sergey Kurdakov said at November 4, 2010 5:03 AM:

$1/gallon?

yes - production cost given 50% reduction of energy inputs.

Even the advocates of the so-called "Green Freedom"

it is just interpretation of paper.
as you may notice starting for methanol 0.65 usd/gal + 1 usd for sales gets correct figure of $1.65 at the pump but with $1.40 gal (using current energy inputs not from advanced reactors ) + 1 usd they get $4.60 gal ( even one will add 2 dollars then the figure will not be that - somehow there is a bug there ).

but even with $4.60/gallon at the pump ( the same as in europe now, or when oil was about $150/gal ) - nothing bad happens.
of cause - it might be more wise to use electricity or biomass or coal for methanol/gasoline production ( rather than thin air ).

but still - even in worst case scenario - lifestyle will just marginally change. nothing which one would normally notice.

Bruce said at November 4, 2010 9:24 AM:

EP: Electricity in the USA is 46% coal generated. Now personally I think that is a good idea. More coal plants should be built and ALL oil fired power plants should be retired. Coal is cheap and plentiful. As is NG.

It appears China and Australia think coal-to-LNG is economically viable too.

http://www.electric.co.uk/news/bg-group-launches-big-9-billion-project-to-liquify-gas-from-coal-12341866.html

Engineer-Poet said at November 4, 2010 11:01 AM:
they get $4.60 gal
Because they're including the capital expense and process losses of the Mobil methanol-to-gasoline process.  Methanol is a much better motor fuel than gasoline and should be used as-is anyway.
It appears China and Australia think coal-to-LNG is economically viable too.
The Australia project isn't coal gasification, it's coal-seam methane (extracting methane already in place).  It would help if you'd read the articles you're touting.
Physicist Engineer said at November 4, 2010 11:56 AM:

Methanol is a good fuel cell fuel but not a good replacement in gasoline engines, just as ethanol is not a good drop-in replacement in present gasoline engines. Use methanol in fuel cells not gasoline engines.

Several biomass derived fuels are being developed which are better gasoline replacements than ethanol or methanol, and cheaper to produce. Making these fuels from coal, gas, heavy oils, or oil sands is even cheaper and easier than making them from biomass.

Phillep Harding said at November 4, 2010 12:14 PM:

I'm with Sione. I've been hearing about "peak oil" and how we are going to run out any day not for ages, but people keep finding more. I also keep hearing about areas where oil exploration is prohibited. I really doubt anyone can come up with hard evidence to support any such claim.

Sione said at November 4, 2010 12:15 PM:

Randall

I don't know. My specialist area of interest is not oil trading (although related).

At a guess, in the short run I'd expect producers to reduce the rate of production as a partial compensation for the Fed's debasement of the US dollar. The producers face difficulties in that they are paid in US dollars, have significant holdings of USD and are experiencing that those are not a stable nor safe store of value. Trouble is, neither is any other national currency. Pretty much all of them are stapled to the US dollar (which most central banks are using as "reserves")- paper backed by paper, empty promises backed by empty promises all the way down! Unpicking their way out of their present position (of extreme exposure to USD) is going to take them some time.

Recently representatives from China, various South American, Asian and Middle East countries, as well as from Turkey and India got together to discuss the deleterious effect of US monetary policy. They are well aware that the extraordinary currency inflation being practiced by the US Fed embodies a direct threat to their economic well-being. In effect they are the targets of US currency aggression. From their perspective the US Fed has initiated a currency war against every other country, the most vulnerable being the emerging economies. The outcome of the meeting was an agreement to move towards replacing the USD as reserve currency and to begin trading in other currencies directly. There was statement of intent issued to replace the USD as currency of choice for making payment for oil and other internationally traded commodities and items. It was revealed that the central banks of China and of India had been making large purchases of gold (much larger than previously revealed) and had intended to start acquring silver. That would appear to be consistent with the aim to replace USD as global reserve currency. The stated target date for replacement of the USD as basis for international trade (starting with oil) is 2018. If that occurs, then the effect upon the US will be severe. It would force trimming of the Federal budget (extreme austerity) and eventual soverign debt default. New international loans (from China, India, the Middle East etc.) would become difficult or even impossible to service, as they would no longer be denominated in USD. The Fed could no longer inflate to help the US government with its growing debt (repayment is much easier if you borrow, then print new paper out of thin air and use that paper to make repayment). So, given this development I'd expect the oil producers to keep production squeezed, at least until 2018. After that it is likely that the US military will sharply reduce its requirement for oil as it gets severely downsized and much of it returned home. That too will encourage producers to moderate production.

There is more to consider. As the US economy slides deeper into recession/depression the demand for products, goods, services and commodities made by the US will decline. This loss of custom will not immediately be made good by growing local demand in developing economies. It is likely these economies will experience the weakness of the US economy, at least into the medium term (China, for example, is due for a bit of a reset). Hard to imagine those conditions leading to significant investment in increased oil production capacity...

That brings us to a most important issue. In order to make the investment in new oil production it is necessary to have access to large amounts of capital. That capital needs to be in the hands of entrepreneurs who are willing to take on risk. That capital comes from the pool of real savings. Monetary policy, tax, regulation and legislation practiced in the US over recent times has depleted the pool of savings severely. Such that does remain is very valuable. Couple that with the unattractive nature of the oil business and you'll not be seeing consistent on-going effort to increase capacity in the near term. Recall, the oil production business suffers from government regulation, legislation and other forms of intervention (including cronyism) to the point where the economic distortions are so great that it is difficult or even impossible to bring in new productive capacity- not encouraging to new entrants with capital to invest. This situation is not restricted to the US alone. In some places matters are even worse. The lost opportunities, Bastiat's unseen, are costly indeed. Difficult to see a widespread competitive push to increase oil production capacity. It's even difficult to consider much of significance happening with the alternatives either (in the short to medium term).

So, that's the context along with my guess.

Sione

Bruce said at November 4, 2010 1:03 PM:

EP: Did I say "coal gasification"? Nope. I sad coal to LNG.

"They will be able to produce 8.5 million tonnes of liquified natural gas each year initially. This is equivalent to one-tenth of the gas consumed in the UK."

The beauty of coal seam methane is that it works on really poor coal deposits.

Jehu said at November 4, 2010 1:15 PM:

Peak oil doesn't mean you're out of oil. In truth it means you've used about half of the total that will ever be available. What it means is that you'll never be able to sustain an increase in your daily production beyond that peak. We've been on a plateau since around 2005 in oil production. There's no need for a debate as such. If oil production increases for more than a little transient, we're not at peak oil. If it doesn't then we probably are. There's no reason not to let the data make the call.

Sione said at November 4, 2010 3:51 PM:

Jehu

So what exactly is the definition of the Peak Oil (or peak whatever)? Is it that half the total amount of the resource in existence has been harvested? Is it that half of the total amount of the resource that ever will be harvested, is harvested. Is it the presence of a plateau in production (if so for what period of time must the plateau persist)? Is it that production reduces irreversably (if so does it matter that an alternative supply of the utility to the commodity is supplanting it or that political actors are causal in the reduction)?

This notion of Peak Whatever is looking very imprecise. It's reminiscent of the global warming mumbo jumbo, and before that environmentalism in general, and before that pretty much every form of socialist bogey-man potty threat dreamed up to convince people that "there be dragons a-comin'" and the "gummints gotta do summint 'bout tit." Imprecise to the point of deceptive.

---

An old rule in trading is never to attempt to pick the peaks or the troughs. There are far too many unknowns and far too many influences in the market to make the approach succcessful. Sure, if you try you might get one or two right by dumb luck, but you'll consume far more wealth getting it wrong the rest of the time. There are better strategies to apply. "Science" advisors and self-interested mercantilists have much to learn.

Sione

Randall Parker said at November 4, 2010 7:38 PM:

Ak Lan Duc,

I point to patterns in discovery and production as evidence for Peak Oil.

Sione,

If you write shorter comments I'll read the whole comments rather than just skimming to see if you answered the question.

The US dollar is not the only currency in the world and the US is responsible for less than a quarter (and dropping) of world oil consumption. Inflation and deflation in the USD are besides the point.

Will oil production keep rising? I say oil will never hit 95 million barrels per day. I say in 2025 oil production will be millions of barrels less per day than it is today. If we are lucky production won't peak util 2020. But I do not think we are lucky.

Bruce said at November 4, 2010 8:14 PM:

The technology to drill in deep water is being perfected. The Falklands may have 60 billion barrels. I suspect Brazil has more than that. Greenland has oil off the coast. I won't worry about oil.

And there is so much NG available from shale, coal beds and then there is methane hydrates which dwarf other energy sources.

Jehu said at November 4, 2010 9:00 PM:

Sione,
Most people define peak oil as the point at which your oil extraction is at its maximum. It so happens that because of the nature of oil drilling and geology, that typically happens when you've extracted around half of the available oil. Their theory predicted the peak within the US in the 1970s successfully (back in WWII, the US was the Saudi Arabia of oil) and predicted that peak would be reached globally sometime in the 2000-2010 timeframe. That prediction is up for falsification if we rise off the plateau that started around 2005 and is still persisting. Notice the the US STILL produces oil, despite the fact that we're post peak---we just produce it at around half the level that we produced back then, and we produce off MUCH more marginal (and expensive) sources than we did in our heydey of oil production. There's a huge difference between the Peak oilers and the GW types. The peak oilers make falsifiable predictions and have had their goalposts stationary for a long time now. Are they right or wrong? Can't say for certain, but at least they've laid out a set of testable predictions. What turns a lot of people off to them is that many seem to relish the idea of what will happen on the downslope of the oil production curve if a rabbit isn't pulled out of a hat by engineers and scientists.

Engineer-Poet said at November 4, 2010 9:38 PM:

The world is burning over 80 million barrels/day.

1 billion barrels:  less than 12.5 days.

60 billion barrels:  roughly 2 years.

60 mmmbbl in the Falklands is a 2-year reprieve at best.  If you have a brain, sometime in those 2 years you'll get the bulk of petroleum out of your life.  Battery-powered car, walkable community, streetcars, something.  If you don't have a brain you'll insist on your right to have as much cheap gas as you want.  You'll buy a big truck and get crushed when prices spike, you lose your job in the next contraction, or both.

th said at November 5, 2010 3:47 PM:

sayeth the pierre woodstock , "60 billion barrels: roughly 2 years...Battery-powered car, walkable community, streetcars, something."

Call the Kremlin, genius, and let them know you think their entire oil reserves estimate .. http://www.eia.doe.gov/cabs/Russia/Oil.html .. is trivial nonsense, not worth the effort, and that the future is in grasping at straws. I'm sure they'd love to hear from a helium balloon, kite-powered, visionary.

Sione said at November 5, 2010 4:02 PM:

Randall

Lucky I can touch type, eh!

I realise that world economics, currency and trade is difficult for you. I do try to keep it real, real simple so you can skim read and perhaps come to learn a little of it by osmosis. Nevertheless, on this occasion you are offering opinions based on little more than prejudice and emotion. Let's put matters right here.

--

The US dollar is the world reserve currency. The ENTIRE international currency and trading system relies on it. What happens regarding the US dollar has impact EVERYWHERE else, even in the Islands, at least for the present.

The oil market is inelastic. Less than a 1% alteration in supply or in demand results in major shifts of price. Producers and consumers react accordingly.

The US is the World's most important consumer. Even small variations in the US pattern of use result in large price signals. These are reacted to by everyone in the market. That includes the producers.

Producers are paid in US dollars. They have SUBSTANTIAL holdings of these. What happens to the value of the US dollar is of extreme concern to them. US currency inflation matters to the point where they are worried that the USD is not a safe and stable store of value, let alone means of facilitating trade. That IS the point.

Non-US producers and non-US consumers are moving to replace the US dollar as world reserve currency. That leads to big changes ahead for the US and, by extension, for the US military. Expect on-going reduction in US consumption. Expect that trend to accelerate, especially as the world's largest consumer, the US military, is downsized, restructured, etc.


--


You write, "Will oil production keep rising? I say oil will never hit 95 million barrels per day. I say in 2025 oil production will be millions of barrels less per day than it is today. If we are lucky production won't peak util 2020. But I do not think we are lucky."

That's mere opinion. Certainly not bankable. You do NOT know what the oil business will be like in 2020, let alone 2025. You're projecting production volumes according to your existing knowledge, prejudices and beliefs. The fact is you do not know enough to divine 15 years ahead.

The economic structure of the world in 2020, let alone 2025, is likely to be very different than it is at present. For a start it is known that the US dollar is losing favour as world reserve currency. That WILL have significant effect on the oil market.

The technology of oil production in 2020, let alone 2025, will have developed considerably from the present. It is more than unlikely that some 15 years will bring no technological change whatsoever.

Most of the oil present in an oil field is presently not harvested. I am aware there are several advanced projects aiming to harvest that oil. Aside from this there are alternative approaches to making "artificial" or "synthetic" oils or HC fuels. Of course, there is also the possibility that an entirely new approach could appear. What will succeed? It isn't at all clear what is going to happen yet.

Given the emergence of the developing economies and the huge changes occurring in the world politically, culturally, economically and technologically it is base and naieve to pretend to know what production volumes in 2020 or 2025 will prove out to be.

--

In forty plus years of trading and R&D and in business, one of the things I have come to appreciate is that the future is generally not a simple linear projection of the present. You should bear that clearly in mind whenever you ponder what the future may or may not bring.

Sione

Bruce said at November 5, 2010 9:05 PM:

EP: Think of it this way. The Alberta Oil Sands is 300 billion recoverable now, 1.4 trillion barrels plus recoverable in the future.

Thats 45 years worth (using your 60 billion = 2 years) and probably more.

Venezuela = 516 billion now, 1.4 Trillion more eventually.

Venezuela + Alberta = 3.6 Trillion barrels.

120 years.

John Moore said at November 5, 2010 9:23 PM:

Peak Oil arguments remind me of the Laffer Curve (relationship of taxation to government revenue). Both are clearly correct - 100% tax yields zero government revenue, and some day oil will run out.

Beyond that - the real issue is far more complex. In the case of oil, as others have pointed out, there is enough out there for many, many decades without a huge price rise. The primary limit on the production of North American oil is environmental/political. Even beyond that, one can produce huge amounts of liquid fuel with another very abundant North American carbon fuel: coal. Coal + heat (from nukes, let's say) => liquid/gas fuel.

Peak oil is just not going to be here soon. Short term shortages may happen, triggering price rises which will trigger more production and relaxation of government restrictions. But no peak oil for a long time.

Let's hope that during that interval reasonable alternatives show up. So far, there is nothing even close to a reasonable substitute for petroleum based transportation fuel.

Engineer-Poet said at November 5, 2010 10:39 PM:

Alberta oil sands aren't scaling up to compensate for depletion of conventional oil fields, even with cheap Canadian natural gas for processing.  Unless some wildcard like THAI can radically simplify and cheapen the extraction process, those 1.4 trillion barrels of potential will never be more than potential.

BTW:  300 billion barrels = 10 years world consumption.  At 5 million bbl/day, it's good for over a century... but that means not coming anywhere close to filling in for the post-peak declines of Ghawar and Cantarell.  It's expensive regardless.

That expense is what's going to drive any sensible policy away from oil, even if climate isn't an issue.  Batteries are on a steep downward price trend, and we haven't even touched some of the possibilities like lithium-air.

So far, there is nothing even close to a reasonable substitute for petroleum based transportation fuel.
"Substitute" in what sense?  Alan Drake's prescription for expansion and electrification of the US rail system is a substitute that works for freight and even some passenger traffic.  Cars like the Nissan Leaf are substitutes for commutes well beyond the current American average.  Something doesn't have to work for 100% to be terrific; 70% would be superb, and even 30% would be useful.  Perfect should never be the enemy of "good enough".

Bruce said at November 6, 2010 8:05 AM:

EP; The same kind of pessimism permeated shale gas discussions. Now the technology works and vast quantities of NG are flowing.

Sione said at November 6, 2010 1:03 PM:

Jehu

Interesting explanation. Thanks for providing it.

Did you see John Moore's comment?

John Moore writes, "The primary limit on the production of North American oil is environmental/political." That's an accurate assessment. What that means is that "peak" occurs not only for reasons of technology, geology or resource quantity, but also for reasons of arbitrary politics and ideology. To this you can add, for reasons of economics (currency rules, financial structures, trade deals, demand, etc.) as well.

I question whether such a concept has sufficient precision to be relevant in application to reality.

---

What does seem to be the case is that the "peak" idea is commonly employed to justify various half-witted schemes and central plans, all of it government interference (as if there isn't enough of that already), all of it coercive and compulsory.

The blind faith cult of belief in salvation by government interference has proved out to be a litany of consistent disasterous failure. Unfortunately there exists a priviledged rump of "scientific" advisors, academics, bureaucrats, mercantilists, croniests and the like who promote it- for reasons of self-aggrandisement, rorting, looting, fraud, social status, malfeasance, power, personal advantage, malevolence or willful pig-ignorance. In that regard there isn't much difference between the politics of the peaksters and the warmists- crooks all.


Sione

Jehu said at November 6, 2010 1:44 PM:

Sione,
You could probably increase oil production in the US by a little bit (relative to our consumption) if you tossed the political/environmental obstacles to the side. But this is very unlikely to get you more than 1 Mbarrels/day at the absolute maximum (and that is a very optimistic estimate) and it will be very expensive oil to pull out of the ground (or offshore). Should we? Maybe, although the political/environmental obstacles will fall on their own anyway when the price of gas hits 5 or 6 dollars a gallon. Certainly the various major oil producers who are national oil companies throughout the world excepting the Saudis (who do a very good job of exploiting what they've got in terms of capital expenditures to keep up production) could do quite a bit to extend the plateau that we're on---particularly Mexico and Venezuela, but from the American consumer perspective, we have very little power over them. A lot of people have this mistaken idea that the private oil companies like Exxon, BP, Shell, and the like control most of the world's oil when in fact they're small fry compared to the national oil companies.

Both you and Dr Schleslinger are making a grave mistake here. Scleslinger is making the mistake of saying 'the debate is over', which is assinine when you're talking about a matter that is falsifiable. Science isn't about debate, and it's not about consensus either. You're also making the mistake of assuming that the Peak Oil theorists and hangers-on are wrong simply because you dislike their governmental proclivities---and I'll point out that a LOT of peak oilers think that government intervention is futile anyway. Focus on this, Hubbard et al have made a falsifiable prediction based on previous falsifiable predictions that have in fact come to pass. If his prediction (that oil production will fail to increase during this decade after the peak of around 2005 until now) comes to pass, then, well, he's probably correct on his theory and it's worthy of further consideration and study. If not, his theory is wrong. This is how science is SUPPOSED to work. You present a hypothesis and make falsifiable predictions or perform experiments to falsify your hypothesis. I know this isn't how the AGW folks roll, but that's because they're not really doing science but rather misappropriating its mantle of prestige. I could say the same for a lot of other 'scientish' disciplines. Ask also this: is the government giving them lots of research money or pushing their position through the organs of the culture? The answer to that is, well, hell no, it's considered something of an outlier position although not tinfoil. Large amounts of governmental support is the main red flag of bogus 'science'.

Engineer-Poet said at November 6, 2010 3:55 PM:
The same kind of pessimism permeated shale gas discussions. Now the technology works and vast quantities of NG are flowing.
But not profitably at today's prices (drilling is going on speculation), and there are major unresolved questions about aquifer contamination from the fraccing fluids or process.  Only time will tell what happens with THAI.  Conventional oilsands have very large capital requirements, around $65000 to get 1 bbl/day.  This (or rather the equipment and labor it represents) is a rather tough limit on how fast production can expand.

If THAI can't give us useful amounts at less than, say, $100/bbl, we'll have a long-term limit on what OPEC can charge but not the fuel prices which gave us "happy motoring".  In that scenario I expect we'll see lots of Prius-class cars, great popularity of the Leaf and Focus EV with many new EV models, and Alan Drake seen as a minor prophet as trucking becomes more of a local business with electric tractors taking over in urban areas even outside of ports.

Bruce said at November 6, 2010 5:37 PM:

EP: "But not profitably at today's prices "

Prices are down because supply is vast!

"US Shale gas production was 2.02 trillion cubic feet (TCF) in 2008, a jump of 71% over the previous year"
"Remaining proved US shale reserves at the end of 2008 were 31.8 TCF, an increase of 51% over 2007"

The technology that has unlocaked Shale gas, is now being used for oil.

"A research paper by USGS geochemist Leigh Price in 1999 estimated the total amount of oil contained in the Bakken shale ranged from 271 billion to 503 billion barrels (8.00×1010 m3), with a mean of 413 billion barrels."

http://en.wikipedia.org/wiki/Bakken_Formation

Up to 1.8 trillion barrels in Green River: "Estimates of the oil resource in place within the Green River Formation range from 1.2 to 1.8 trillion barrels. Not all resources in place are recoverable; however, even a moderate estimate of 800 billion barrels of recoverable oil from oil shale in the Green River Formation is three times greater than the proven oil reserves of Saudi Arabia."

http://ostseis.anl.gov/guide/oilshale/

Doug1 said at November 6, 2010 9:14 PM:

With horizontal drilling and tapping vast shale sources, natural gas is at an extremely low price level below $4 a cubic something.

We should in the intermediate term move to gas fuel to power transportation and home heating, starting with trucks and non electric trains. We have huge domestic natural gas reserves, especially now with new technology. As for moving to electricity, people need to recognize that if they're worried now not only about energy independence and "peak oil" costs of oil, but also AGM, that coal is by far the largest source of US electricity (46%), with natural gas and nuclear about tied at around 20% coming in next. A good slug is hydroelectric but there's not much expansion available there. Petroleum makes up only around 1%. In Hawaii and a few other places geothermal is big. So right now moving to electric cars is moving to more coal electric generation, which is a big problem if you believe in AGW, since coal produces about twice the CO2 per kwh as natural gas. Nuclear should clearly be our much large intermediate term source of electricity. Nuclear would be cheaper than coal if it wasn't for the legal costs and associated delays -- those could be changed by preemptive federal statutes and federally pre-approved designs than have to be challenged within a reasonably short time period and then that's it.

The long term solution is likely to be fusion, though who knows. Solar is still damn expensive. Wind is very expensive too, though less so, but is ugly and noisy and if implemented in less than ideally windy places, becomes as bad or worse than solar.

Engineer-Poet said at November 7, 2010 6:16 AM:

Shale-gas companies mostly aren't making money at today's $4/mmBTU prices.  They'd be shut down if not for speculative investment.  According to the stuff that crosses my desk, prices need to be at least 50% higher with the current technology and environmental requirements.

Environmental requirements are a wildcard.  Widespread groundwater pollution complaints are attributed to fracking for shale gas, and any remedy is going to shove the minimum price up even more.

Prices are down because supply is vast!
Supplies of solar, wind and nuclear are even more vast.  If the Bakken contains 503 billion recoverable barrels, that's 2.86e21 J.  In contrast, the 473,000 tons of elemental DU produced by the USA thus far is about 4e22 J.  No mining or refining involved, just build the reactors to use it.

Sticking with oil for transport is like sticking with spermaceti for lighting.  It's a loser's game.

Bruce said at November 7, 2010 9:39 AM:

EP: "Shale-gas companies mostly aren't making money at today's $4/mmBTU prices."

Isn't it nice that so much gas is easily accessible?

The beauty of capitalism is that companies can choose to change where they spend their exploration dollars from shale gas to shale oil if the profit margin is different. Isn't it great subisidies aren't necessary to increase the oil and gas discoveries in the future?

Nuclear? It will never be allowed by the greenies. They HATE the idea of a USA with nuclear. They want the economy to fail so their socialist utopia of a dead capitalist society can come true.

Lucky for us, oil and gas are plentiful in coal seams and shale formations and oil sands.

Sione said at November 7, 2010 10:27 AM:

Jehu

I'm afaraid you're the one that has it wrong.

My position is that peak is arbitrary to the point of being nebulous. That's not due to its finding favour by statists/collectivist types (although it certainly does), but an attribute of the notion itself, its varible premise (which depends on who you are addressing), various caveats, excuses, exclusions, definitions and how it is directed.

For instance, you have a particular view of peak which is framed by certain premise, such as an acceptance that there will never be means to harvest the bulk of oil remaining in a field. From what you have written it is also clear that you do not seriously differentiate between geological and technological limitations versus political and ideological interferences. Further, it is unclear whether you consider various synthetics and alternatives as oil to be included in the calculation. Others frame the notion of peak differently.

Imprecise and, worse, open to deceptive practice.

Anyway, as previously mentioned, there isn't much use in attempting to pick peak and trough. It is far superior policy to analyse a market or an economy exhaustively to learn and understand its cause and effect relationships. Then it is possible to make limited prediction- taking decisions and actions logically.

--
As far as "falsifiability" and the philosophy of science is concerned, looks like you've been influenced by poor old Karl Popper. Amazing how people roll him out whenever they try to explain how science supposedly "works". I guess that's what happens when he's about all that's taught to science students at varsity these days, at least when it comes to phil-sci.

If you want to understand why that approach is incomplete and erroneous (and why, if applied consistently, it leads to the impossibility of certainty or even knowledge of reality), then you'd do well to get hold of Harriman's "Philosophic Corruption of Physics". I came across it by accident some years ago and ended up buying my own copy. Well worth the time invested in understanding it.

Sione

Engineer-Poet said at November 7, 2010 10:52 AM:
Isn't it nice that so much gas is easily accessible?
Perhaps if I write in capital letters my point will be clearer to you.  THESE COMPANIES ARE NOT MAKING MONEY.  THIS MEANS THE GAS IS NOT SO EASILY ACCESSIBLE.  ENVIRONMENTAL ISSUES MAY MAKE IT LESS ACCESSIBLE STILL.

The Bakken shale is a lesson in accessibility.  Estimates of oil generated from the system go as high as 400 billion bbl, but the estimate of mean technically recoverable oil is a mere 3.65 billion bbl.  That's about 1% recovery.  The USA burns about 7 billion bbl/year, so that's 6 months of US consumption IF all of the technically recoverable oil is also economically recoverable.

The beauty of capitalism is that companies can choose to change where they spend their exploration dollars from shale gas to shale oil if the profit margin is different.
Can they?  The companies drilling the Marcellus for gas do not seem to be the same ones drilling the Bakken for oil.  Chesapeake isn't involved in the Bakken.
Nuclear? It will never be allowed by the greenies. They HATE the idea of a USA with nuclear.
The greenies didn't stop the US nuclear program from going to a one-stop licensing system.  The problem is that the Republicans didn't go far enough and re-start the IFR and MSR programs as well.
oil and gas are plentiful in coal seams and shale formations and oil sands.
If coal is so plentiful, why is US anthracite production less than 5% of the level of 1950, and why are companies blowing off the tops of mountains to get at deposits once mined without disturbing the surface?  Why are we chasing oil at extreme depths on the continental shelves?

None of these facts are consistent with abundant, accessible fuels.  You are obviously wrong, and probably deluded.

Randall Parker said at November 7, 2010 11:07 AM:

John Moore,

The fraction of remaining American oil that is off-limits to production is fairly small.

More importantly: The fraction of remaining total world oil that is within US borders is very small. Opening up all US territory to production would still leave the US importing most of its oil.

Bruce,

Using original technologies only about 25% of oil in oil fields was extractable. Now about 40% is extractable. So all the advanced tech developed over many decades hasn't even managed to double the amount of extractable oil. The fraction that is extractable is not rising rapidly and most of the enhanced oil recovery (EOR) techniques are quite old.

Alberta Tar Sands: What's most notable is just how slow the scaling up has been even with high oil prices. You can cite theoretical numbers. But read what the Canadian tar sands oil industry says. Some in the industry were talking about 3.5 mmbd by 2015. But 2 mmbd is more likely Well, that's about 5% of world production or about 1/9th of current US consumption.

The rate of new investment in the oil/tar sands is rising but still below the 2008 peak. Oil production in the oil sands has to increase just to compensate for declining production from conventional Canadian oil fields.

Sione,

Some problems are not philosophical problems. They are physical problems. Without looking at the specific pieces of relevant empirical evidence for each issue doing lots of abstract reasoning about economics is a waste of time. You can not know the truth just from reading works of philosophy and economics.

Doug1,

Certainly some will end up buying natural gas vehicles out of desperation. But the reason people use gasoline rather than natural gas is convenience and total cost. The cost of oil has to get much higher compared to natural gas before we will witness a big shift to natural gas vehicles.

Randall Parker said at November 7, 2010 11:12 AM:

Guys,

E-P is right about the economic problems with shale gas. If you do not believe us then look at the investment decisions Chesapeake Energy CEO Aubrey McClendon is making to shift Chesapeake away from natural gas and toward oil:


Chesapeake plans to become one of the top five oil and natural gas liquids companies by 2015 according to an announcement by CEO Aubrey McClendon. In a conference with analysts, McClendon said that the company would be running 150,000 bbl/day by year-end 2012 and 250,000 bbl/day by 2015. Capital spending for natural gas will be reduced from 90% in 2009 to 35% by 2012. If natural prices recover, this could be revised. Chesapeake facing a "rough" 2011, will continue seeking joint ventures in 2011

Obviously shale gas extraction is not cheap.

Bruce said at November 7, 2010 1:01 PM:

What Randall and EP fail to realize is that gas is so abundant, that it will staying in the 4$ - 7$ in the forseeable future. If it stays low, companies will drill in areas easiest to drill in. If the prices rises to 7$, all of the shale gas will be more economically viable and vast quantities will flow. The US is on the road to being self-sufficient in NG. All it needs is a few more pipelines.

"U.S imports of liquefied natural gas in August fell to their lowest monthly level in more than 2-1/2 years as ample domestic supply continued to dampen import needs, according to data from the Department of Energy on Tuesday."

http://uk.reuters.com/article/idUKN0518490120101005


The technology perfected in fracking Shale gas will be used ont he more lucrative Shale Oil if NG prices stay low and oil prices stay where they are.

"•In its April 2009 report, "Modern Shale Gas Development in the United States: A Primer," the US Department of Energy stated that at the US natural gas production rates for 2007 of about 19.3 Tcf, the current recoverable resource estimate provides enough natural gas to supply the US for the next 90 years. Separate estimates of the shale gas resource extend this supply to 116 years. Production of shale gas is expected to increase from a 2007 US total of 1.4 Tcf to 4.8 Tcf in 2020. The DOE report states that shale gas production potential of 3 to 4 Tcf per year may be sustainable for decades."

http://www.api.org/policy/exploration/hydraulicfracturing/shale_gas.cfm

The problems is that there is way too much gas in the US.

What a wonderful position to be in!!!! Industries dependant on NG can compete with European companies paying twice as much.

"European gas prices are currently near $8 per mmBtu, with spot LNG prices in Asia above $9."

Bruce said at November 7, 2010 1:10 PM:

EP: Why is anthracite production down?

"Because of its higher quality, anthracite is around 2–3 times the cost of regular coal."

"The principal use of anthracite today is for a domestic fuel in either hand-fired stoves or automatic stoker furnaces. It delivers high energy per its weight and burns cleanly with little soot, making it ideal for this purpose. Its high value makes it prohibitively expensive for power plant use."

As for Oil Shale:

"Know-how gained from North Dakota's once-perplexing Bakken shale formation is being used to exploit other onerous oil plays across the globe.

Pushed by high crude prices, companies in just four years have nearly perfected technology to tap oil trapped in a thin layer of dense rock nearly two miles beneath the surface in western North Dakota.

Unlocking the Bakken using advanced horizontal drilling and hydraulic fracturing techniques has propelled the state from the nation's ninth-largest oil producer in 2006 to its fourth-largest today. A record number of rigs are piercing the state's oil patch.

Oil companies and countries a world away have taken notice of North Dakota's success, said Lynn Helms, director of the state Department of Mineral Resources.

Companies say they are aiming to apply technology learned from the Bakken to geologically similar shales in China, France, Poland, Canada and in some U.S. states, including Wyoming, Utah and Colorado. Companies already have used Bakken technology to successfully tap the rich Three Forks-Sanish formation, directly below the Bakken."

http://www.businessweek.com/ap/financialnews/D9J7D6J80.htm

th said at November 7, 2010 3:12 PM:

Randall, Aubrey McClendon isn't the best example to get a fix on things, he has always been a loose cannon, has always played this business with high leverage and the banks have always had to keep a close watch on him.. http://www.nytimes.com/2008/10/14/business/14margin.htm

..and from your own article... "A primary reason for this is that most of these companies are highly leveraged and face bond redemptions over the course of the next several years."
The ones facing difficulties have their own set of problems the primary one being they wrongly thought prices would stay high forever, they assumed the boom and bust aspect that typifies this business was over, typical for mcclendon. The investment in shale gas by better managed companies is growing.
http://www.foxbusiness.com/markets/2010/09/23/shale-gas-boom-dented-global-gas-investment-study/

Jehu said at November 7, 2010 5:37 PM:

Sione,
If you drop the requirement of falsifiability or at least prospective prediction accuracy, you get garbage like AGW, or for that matter, an awful lot of modern economics. I'm perfectly aware, having published papers myself and reviewed them as well, that my definition isn't presently a mainstream one. It is, however, IMO, far and away the most practical one. If a theory can't be used to accurately (or at least a lot more accurately than its competitors) predict, what good is it? Those are in fact the rules used by science in its heydey, when it accumulated most of the prestige being drawn down today. I'm deeply suspicious of anything which requires a 'paradigm' to support it or which only has explanatory utility because it was curve fitted to match datapoints everyone already knows about because anyone with any knowledge of mathematics knows you can fit a curve to pretty much ANY datapoints you've got. As to the specifics of the theory, read Hubbard, but the executive summary is as I've described it. There's no need to question the motives of the proponent or to make inane pronouncements regarding a debate being over, because the theory stands or falls on the accuracy of its prediction. If Hubbard's right, you'll see no increased oil production in the 2011-2020 timeframe over now. If he's wrong, you'd see increased oil production (or 'all liquids', if you prefer).

Randall Parker said at November 7, 2010 6:32 PM:

th,

I'm aware of McClendon's history with leverage and long positions. I'm also aware that Chesapeake is the most watched company in natural gas in North America. What it does is very telling. They think they can make more money in oil and they are cutting back on their natural gas drilling.

The leverage and bond redemptions would not be a problem if current natural gas prices were high enough to make shale natural gas profitable.

Better managed companies: Some petroleum geologists at The Oil Drum say they've seen all this before and they've watched intense drilling programs up to the point where companies started failing. What I see happening: foreign companies are coming in to drill for natural gas while domestic companies cut back. Do the domestics know more?

Read Arthur Berman who believes the marginal cost of new natural gas production is about $7 per Mcf. If he's correct then natural gas prices will about double over the next few years and a lot of natural gas companies will report losses. Marcellus has a lot of NG liquids in it that improve its economics. See this RigZone article on the Marcellus Shale. The industry has witnessed previous natural gas plays accompanied by excessive enthusiasm:

Should we be concerned about the economics of the Marcellus gas shale given its long-term outlook? For those who have been around the energy investment business for a long time, we have seen highly touted exploration plays destroyed by poor economics in the past. These plays such as the Deep Anadarko, the Austin Chalk and Bright Spots all ran into similar problems – optimistic production assumptions, expectations of higher oil and gas prices, well-managed drilling and producing costs and unlimited capital. If anyone of these assumptions proves wrong, even for only a few years, the economics underlying the projects can be destroyed.

I know I've read somewhere (from Berman) that one or more of the older shales have already peaked in production. Can't remember if that was Haynesville or Barnett.

Sione said at November 7, 2010 9:28 PM:

Randall

You posit some interesting things for consideration.

"Some problems are not philosophical problems."

All problems are in that they presuppose philosophy (a system of thought) in order for them to be recognised, let alone for an attempt at solution. In the case of science, one can't escape from that discipline's utter dependence upon a particular epistemology and metaphysics, hence upon philosophy.


"They are physical problems."

How is it you even "know" what a "physical problem" is, let alone address it? How do you know anything at all? This is an issue that was addressed by Popper (who must have thought it important enough to spend the greater part of his life building a system to deal with aspects of it). Unfortunately he accepted an accumulation of errors from Hume, Kant and Marx. In the light of this his work is deeply flawed, but certainly remains interesting. He did contribute some important insights to the philosophy of science. It is a shame he started with false assumptions.

"Without looking at the specific pieces of relevant empirical evidence for each issue doing lots of abstract reasoning about economics is a waste of time."

Agree. I couldn't survive if I didn't deal with direct evidence and deal directly with reality. Reality is (or should be) what economics addresses and is all about.

Anyway, it looks like you wouldn't have much time for poor old Popper. That's fine as I don't agree with his system either. I know why. Do you? What might be your objection?

BTW economics is the study of human action. The winning of minerals, production/manufacture of useful goods, provision of services etc. are the result of human action. They are controlled by it at the fundamental level. Similarly, the exploitation of new technolgies, new methods, scientific knowledge etc. is a matter of human action. Among other things understanding economics allows you to realise why some social structures are as they are, why some technical solutions are employed in preference to some others and why that might be. There are obvious advantages to the possession of such knowledge, even when the knowledge is of unhappy news.


An aside: The economy (the sum total of all human actions) is not a series of unconnected, separate, discrete "a-happenings". The best way to consider it is as a massively parallel distributed system (OK I borrowed that term from Klein, but it is about as accurate a lable as I've come across) wherein variables/entities/actors (collectively jargoned as "things") interpay upon each other chaotically (as in, an analogous fashion to that of chaos theory) and everything can affect everything else, if you get what I mean. Things are potentially or actually connected and you have to be very careful in your analysis not to miss an important or even vanishingly subtle input to the subset of reality you are concerning your enquiries with.

"You can not know the truth just from reading works of philosophy and economics."

Quite true.

Interestingly you can't know what "truth" actually is unless you do.


Now I have to go off to dinner. Guaranteed it will be real, else I'll pay with non-existent money.


Sione


Sione said at November 7, 2010 9:37 PM:

Ooops, while I remember. Many people like to debate *"what should be done" without realising from whence the ideas they support originate.

In that regard Lord Keynes once opined,
"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

He's on the money (!) with that assessment.

What used to horrify me was how often I would read ideas, even on this very site, that could have been sourced straight from some of the most horrible critters in history.

Sione

*Does anyone know the author of the famous polemic, "What should be done?"

Sione said at November 8, 2010 1:48 AM:

Jehu

Re Economics

Pretty much all that passes for modern economics presently is mush. That is why the present el grande recession was unforeseen by the vast bulk of the profession.

In contrast pretty much every major figure in the Austrian School along with the Rothbardians were warning about what was coming. Some went into the mainstream media to call attention to the looming disaster years early (Peter Schiff for one).


Re Peak

"my definition isn't presently a mainstream one."

I know, but you explained it clear enough.

Re prediction, falsifiability

What you are really after is "correspondence with reality". What is sought is identification of aspects of reality in a non-contradictory manner. When achieved you can explain the nature of an aspect of reality (an entity or identity), what has occurred or is occurring with regards to that, and THEN, within certain limitations, what may occur next (the pay-off, the prediction).

Re H's Peak

He wrote for a certain context, with specific assumptions and premise. If his premise are correct, immutable and unchanging then he might be right. If not, then either way, the conclusions become largely irrelevant.

The important question for enquiry is, as always, what should I do about it? Of course, if one can't act freely, then there is no point in enquiring.


Sione

Sione said at November 8, 2010 2:03 AM:

Jehu

"I'm deeply suspicious of anything which requires a 'paradigm' to support it or which only has explanatory utility because it was curve fitted to match datapoints everyone already knows about because anyone with any knowledge of mathematics knows you can fit a curve to pretty much ANY datapoints you've got."

Well said that man! Won't argue with that.


"There's no need to question the motives of the proponent or to make inane pronouncements regarding a debate being over, because the theory stands or falls on the accuracy of its prediction."

Actually there is. Motivation is an important indicator of action. It may be innocent or it may not be. Ask, what is this being used for?

I'd say that a theory stands or falls on its correspondence with reality or lack thereof.

Sione

Jehu said at November 8, 2010 8:37 AM:

Sione,
What is Peak Oil research being used for? Frankly, it's being used by a few voices DEEP in the political wilderness. Many are saying that we ought to be making preparations for a future with less oil. More than a few are saying that we're basically screwed. But notice that NOBODY on the political scene is proposing anything like, say, a 3-4 dollar a gallon tax, not even a revenue neutral version offset by say, abolishing the payroll or reducing the income tax. That should be enough to tell you that it's not really salient politically. Also notice that putting 'Peak oil' on your grant proposals doesn't get them funded---if anything, it reduces the probability of getting them funded. Saying 'Peak Oil' and 'Climate Change' on the same proposal is about a wash.
Besides the leftist peak oilers, there's also a substantial group of rightists and reactionaries that give the predictions of peak oil some deference, although their proposals for how to handle the problem vary drastically. But neither group has any purchase on the engines of political power, so their proposals are honestly of little relevance.

Our host is certainly not a leftist and not even a misanthrope. I'm a pretty hardcore reactionary, of the 'Silent Cal' school. My recommendation for dealing with such a problem is to have the government just GET OUT OF THE WAY. The complexity of our societies rules and regulations, and their total and wanton disregard of what people ACTUALLY want and will put up with makes innovating our way out of this hole a lot harder. For instance, white middle class people would be way more willing to use public transit IF other groups were forcibly prevented from using social, physical, auditory, or olfactory intimidation against them on said transit. People would be more willing to live in higher density surroundings if you didn't have to be rich to live in relatively safe surroundings (translation, dump the civil rights fair housing rules, let neighborhoods accrete on a basis other than price---right now the worst part of being poor in the US is that you've got to live with other poor people, but lots of poor people are themselves perfectly good neighbors, so why not let them discriminate against the disreputable sorts irrespective of any 'disparate impact'). There are lots of opportunities like this, and the fact that the mainstream environmental movement isn't pushing them testifies that environmentalism IS NOT their main goal

Engineer-Poet said at November 8, 2010 4:46 PM:

Quoth Bruce:

Why is anthracite production down?
"Because of its higher quality, anthracite is around 2–3 times the cost of regular coal."
Says someone who hasn't a clue.  Look at historical prices for coal in the USA.  Bituminous was about half the price of anthracite in 1950.  Anthracite is only about 10% more costly than bituminous today, yet extraction is way down.  The only way you can believe what you say is to know nothing.

Quoth Sione:

Motivation is an important indicator of action. It may be innocent or it may not be. Ask, what is this being used for?
Yes, what IS "e = mc²" being used for?  Weapons with the capability of destroying the world as we know it?  What an evil motivation!...

Which has no bearing at all on whether or not it's correct.  It simply is, and we have to live with it.  Anyone claiming that e = mc² is a moral issue is delusional.  The only moral issues relate to how we deal with it.

I'd say that a theory stands or falls on its correspondence with reality or lack thereof.
It's done a fine job of predicting that the peak of oil production would follow the peak of oil discovery by some interval.  That interval was about 40 years, and peak hit right on schedule in 2005.  There was a delay in the peak caused by the delayed production due to OPEC's production cutbacks in the 70's, but that does not mean the theory is invalid; it just means that the peak date has to be adjusted for non-geological factors.

Engineer-Poet said at November 8, 2010 4:50 PM:

Quoth Jehu:

Many are saying that we ought to be making preparations for a future with less oil. More than a few are saying that we're basically screwed. But notice that NOBODY on the political scene is proposing anything like, say, a 3-4 dollar a gallon tax, not even a revenue neutral version offset by say, abolishing the payroll or reducing the income tax.
Except for e.g. Europe, where they already have motor fuel taxes that high.  The USA is an exception, due in no small part to oil producers buying influence via both our pols and our media.

Some people (not pols) are calling for gas-tax increases, including Robert Stavins, the Albert Pratt Professor of Business and Government, Director of the Harvard Environmental Economics Program, and Chairman of the Environment and Natural Resources Faculty Group at Harvard University’s John F. Kennedy School of Government..  Of course, I do too, but I'm not a political force.  The problem is that our government has betrayed the public trust so often that nobody trusts Washington not to turn a tax transfer into a tax hike.

Also notice that putting 'Peak oil' on your grant proposals doesn't get them funded---if anything, it reduces the probability of getting them funded.
Pols have noticed that it doesn't help them in the next election, and that is as far as their horizon extends.  That doesn't mean it isn't important; hell, it could be a life-and-death issue and still not get support if it doesn't get votes.

The government ought to be looking forward even when the voters are not.  That's what we should want them to do, even if we don't like the immediate results.

Bruce said at November 8, 2010 8:45 PM:

"The Mount Klappan project is well positioned to benefit from the projected global shortage of high quality metallurgical coals that will result in strong prices for the foreseeable future. Coal price sensitivities for the project were prepared to assess project economics with prices up to US$ 300 / tonne, the price for metallurgical coal attained in 2008."

"Anthracite is used in a broad range of applications, including reductants used in metallurgical processing, blend coals for blast furnace coke replacement, and charge carbon, sinter and PCI coals used to manufacture steel. Only about 1% of world coal reserves are anthracite grade"

http://www.digitaljournal.com/pr/153482

Randall Parker said at November 8, 2010 9:18 PM:

Jehu,

I do not primarily approach Peak Oil from the standpoint of public policy. One can't promote policies if most people don't believe Peak Oil is approaching. I see the subject primarily as one where public education is needed on the problem. I tend to focus on what we can do about it personally. Some people are using Peak Oil research to know to:

- to buy a hybrid or scooter or bicycle.
- build a much better insulated house.
- switch to a less Peak Oil vulnerable job.
- move to be closer to work.
- go on long distance flights while it is still possible to do so.
- invest in stocks that will do well as oil supplies dwindle.
- move to a city that is safe even though it is urban. Not all American cities suffer from having a large dangerous lowest class. Though most do.

Randall Parker said at November 8, 2010 9:37 PM:

Sione,

Lots of scientists have done great work without spending a lot of time studying philosophers. I would argue the scientists are better philosophers than the philosophers and the scientists have developed better ways to think about understanding the world than the pure philosophers have done.

Meanwhile, you show little indication that you've studied much evidence relevant to a discussion of Peak Oil. Yet you write long comments to show off your knowledge.

Look, I've read Ayn Rand's West Point address ("Philosophy, Who Needs It?") and just about all her non-fiction on philosophy. I've read Human Action and assorted other books from Austrian economists, libertarians, Objectivists. I've discussed the scientific method with a roommate who took a class with Sir Karl. Okay? I'm not clueless to all this. Done all that. Got the t-shirt. I just do not see the point of parading around about. Your grandstanding does not come across as enlightenment from the mount. You might think you are presenting ideas I haven't heard before. Nope. You are just distracting from the issue at hand.

Engineer-Poet said at November 9, 2010 5:09 AM:

Bruce quotes text but doesn't seem to grasp that it doesn't explain why anthracite production fell from over 44 million tons in 1950 to 1.7 million tons in 2008.  Not very impressive.

Jehu said at November 9, 2010 8:50 AM:

Randall,

My take on public policy re: peak oil is that it's unlikely that we'll take any actual effective action until the peak is well in the rear view mirror. Oil is also a massive headwind on our economy that we'd really only be able to overcome by reducing the scale of government in our society by at least 50%. Controlled de-complexification is the only way that governments have historically been able to survive resource problems like this one. Consider the liquid fuel problem---if you're like me, most of the time your vehicle has less than half of its passenger capacity in use, and most of the time, there's someone that could use it and some price at which it is worth both our while. But I'd not want to share my private automobile space with anyone who IMO didn't present a vanishingly small risk to me and I'd prefer not to have to handle the transaction explicitly. The second problem is a simple matter of software and networks, the first is a legal problem---to get widespread adoption we'd have to let people discriminate blatantly and often egregiously. We'd also have to shoulder any taxi regulation out of the way. In terms of personal preparations, I have done or am doing many of the things you list. I think that a happy outcome is possible, but unlikely because we've suppressed the innovation instincts of the population so hardcore in the last 30 or so years, or channeled it into finding loopholes in the complex web of rules and laws that we've tied Gulliver down with.

Bruce said at November 9, 2010 10:34 AM:

EP; Anthracite is rare (you didn't read the info about it being ony 1% as common as other types). It has the highest energy per ton, therefore it would be mined first. Thats what people do, expend the time and capital on the rarest and most valuable commodities first.

One of the reasons coal production as a whole is down is because NG is so incredibly cheap thanks to Shale Gas, only those without a choice would run their power plants on coal instead of NG.

Greenies are making coal usage extermely costly. Lucky for us, the evil capitalists are spending money on finding vast quantities of NG.

Bruce said at November 9, 2010 4:12 PM:

Coal to Ethanol. NG to Ethanol.

http://www.bloomberg.com/news/2010-11-09/celanese-to-spend-up-to-700-million-on-chinese-coal-to-ethanol-factories.html

I wonder how cheap NG/Coal has to be (or how subsidized ethanol production has to be) for this to be economical.

Bruce said at November 10, 2010 8:42 AM:

"Nearly all of the nation’s anthracite deposits are in eight counties in eastern Pennsylvania between the Susquehanna and Delaware Rivers. The coal is prized because it burns longer and produces less acid-rain pollutants since it has a high carbon and low sulfur content.

But what makes this brittle and lustrous rock, often known as black diamond, so hard and pure is that it is often deeper and under greater pressure than other forms of coal, which also explains why it is expensive and dangerous to extract."

http://www.nytimes.com/2008/06/10/us/10coal.html?_r=1&pagewanted=print


If ignroance is bliss, EP is the most blissful commentator on this site.

Bruce said at November 10, 2010 8:45 AM:

"With the shift to bituminous coal, however, domestic anthracite production has fallen to 1.5 million tons in 2006, from 46 million tons in 1950.

Since most of the mines in the area have closed and been flooded ... "

Ouch! EP wonder why production is down from closed and flooded mines!

Disquieted said at November 10, 2010 4:30 PM:

Bruce is talking to himself now?

Randall Parker said at November 10, 2010 11:08 PM:

Bruce,

The mines are flooded because they are are closed. It takes active pumping to keep them from flooding.

Why did the mines close? Peak Anthracite. Most of the accessible anthracite has been removed. Anthracite makes up such a small fraction of total production in large part due to depletion of reserves - just like domestic oil and just like oil in most other oil producers.

Anthracite is coal's equivalent to light sweet crude. It is the highest quality stuff. So it went first. Now we see a migration down to progressively lower quality coal as the higher quality deposits are depleted.

Bruce said at November 11, 2010 9:34 AM:

Randall, the mines are closed because they were killing people more often than other kinds of coal.

31,113 dead. Quit trying to make a "peak oil" point about an industry as lethal as Anthracite coal mining.

The mine flooded because someone punched a hole into a river!


"Anthracite coal seams are locked in the folded layers of rock that make up the geology of Northeastern Pennsylvania. This geology often made it dangerous and difficult to mine.

The tunnels and shafts driven into the ground to mine anthracite coal were often at steep angles that forced miners to either crawl up mine tunnels and down others to get to the coal.

Picture a birthday cake with several layers that was pushed from both ends until it folds in the middle.

Anthracite production in Pennsylvania reached its peak in 1917 when more than 100 million tons of coal were mined from underground operations centered in the Wilkes-Barre/Scranton region. Anthracite industry employment reached its peak in 1914 with nearly 181,000 miners.

Between 1870 and 1995 there have been 31,113 deaths recorded in anthracite mining accidents, from a high of 708 in 1908 to zero in 1982, 1984, 1987 and 1992.

Modern mining methods, safety training and inspections in the mining industry have dramatically improved the safety record on the industry to the point where it is about equal to agriculture and the construction industry.

Although anthracite production experienced a dramatic decline after World War II, production has increased more than 150 percent since 1990 with a surge in new uses in cogeneration, industrial and residential heating.

Large scale underground mining of anthracite coal essentially ended in 1959 in the Wilkes-Barre/Scranton area as a result of the Knox Mine flood. In January of that year the Susquehanna River broke through and extensively flooded the underground anthracite mines in the region after a mine operator mined under the river.

The Susquehanna River literally disappeared into the mines at the break through point. The Lehigh Valley Railroad was relocated to move over 30 rail cars and 400 mine cars in to plug the hole caused by the break through."

http://www.myerchin.org/AnthraciteCoalMining.html

Randall Parker said at November 11, 2010 9:59 PM:

Bruce,

One mine area flooded due to a river flooding in. There are many anthracite mines that shut for other reasons.

Lethality: There are still plenty of people going into the mines and some still dying. Plenty of people will take the risk because of the pay. So, no, danger did not shut down the mines. Narrowing coal seams did. Your own article shows that lethality is not that big a problem any more:

Modern mining methods, safety training and inspections in the mining industry have dramatically improved the safety record on the industry to the point where it is about equal to agriculture and the construction industry.
Bruce said at November 12, 2010 7:51 AM:

"One mine area flooded ..."

The anthracite area was all pretty much interconnected, as you can see from the following map. Note the "previously flooded" notes.

http://upload.wikimedia.org/wikipedia/commons/8/87/Knox_Mine_Flood_area_from_USMSHA_report.gif

Multiple mines were flooded.

"There are many anthracite mines that shut for other reasons"

Ok. I'm waiting ....

"There are still plenty of people going into the mines "

Actually, less than 5% of Anthracite coal today comes from deep mines.


"Over 8.7 million tons of anthracite coal were mined in Pennsylvania in 1995 employing just over 2,179 people in 274 mining operations.
Most of the anthracite coal-5.8 million tons was reclaimed from refuse piles left over from old mining operations or from bank mines. Bank mines are mines cut into hillsides to expose a vein of coal.
Just over 2.4 million tons was mined from surface mines where soil and rock are stripped off to expose the coal underneath.

About 427,000 tons were recovered through deep mining, mining that occurs underground where coal is taken out through a system of tunnels and shafts."

th said at November 13, 2010 5:05 AM:

Randall, since the oildrum is merrily swimming against the current on natural gas, oil may not be far behind, yuk yuk.

http://online.wsj.com/article/SB10001424052748704865704575610734039395358.html

Randall Parker said at November 13, 2010 1:48 PM:

th,

From that WSJ article:

The shale boom won't begin to end American dependence on imported oil, but industry experts say it is driving a significant and potentially enduring shift in the way oil is produced domestically.

and:

Industry executives and analysts say the growth is likely to continue, at least as long as oil prices remain over $70 a barrel.

So this shale oil (like tar sands oil) is not going to usher in a return to cheap oil. Oil will move back and forth between very expensive, very very expensive, and very very very expensive. This is the new normal.

Oil Econ said at November 13, 2010 2:07 PM:

$70 dollars will barely buy a good meal these days. If we have another 8 or ten years of US fiscal irresponsibility like the last 3 or 4 years, oil will be priced in the thousands of dollars, because US dollars will become much like those of Zimbabwe.

There will still be hundreds of years worth of fossil fuels buried safely underground, of course. But no one will retrieve them for worthless US dollars.

Bree said at November 19, 2010 2:28 AM:

dollar will never get deprecated in that way. But it's best if we'll try to be more environmental caring, we are in the area when we can see things clearly and get informed by everything. We must act more responsible to improve our life and so that our children can grow in a good world, or at least better.

xd said at December 8, 2010 3:28 PM:

E-P,

When you say 60 billion barrels give us a two year reprieve you're being dishonest.

We don't lose 60 billion barrels of production over the course of two years post peak peak.

We lose something like 1-3 billion barrels of yearly production post peak.

Taking nothing else into account (i.e. no substitutes) using 1 billion barrels decline rate we get a ten year reprieve and using 3 billion barrels decline rate we get a six year reprieve.

Do the math my friend.

Andreea Ferlin said at February 17, 2011 4:29 AM:

Those are some lies thrown out!In fact XD was right!

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