Peak Oil and the Magic Free Market

[J]

The thread today on the coming helium shortage reminded me of some loose ends I'd like to tie up regarding Peak Oil and the forthcoming decline in oil production. In some past debates, most notably this one and a more recent one, it was claimed that free market economic forces will allow us to cheat the inevitable decline in world oil production. In the first thread I linked, it's claimed that higher oil costs and free market forces will allow us to achieve a slow, steady, and manageable decline in production rates rather than the accelerating decline predicted by Hubbert and other proponents of Peak Oil. In the second thread it's claimed that higher oil prices will allow the development of marginal oil fields and significantly increase oil production rates over current levels.

Well that sounds all fine & dandy except for one problem, where the hell's all this oil going to come from? I asked and never received any answers, I worked out how many oil fields we'd need in an ideal case along with the required production levels. I also noted that every major oil field is in decline, and that yearly discoveries of new oil are only a fraction of what is pumped out and consumed each ear.

So here's the question for the free market people: explain how we're going to manage a steady decline or even increase oil production in a sustainable manner from an ever shrinking base of oil reserves. And if you use the words "free market" and "higher prices" as though they're the self-evident answer, I won't be happy.

[CaptainChewbacca]

Well that sounds all fine & dandy except for one problem, where the hell's all this oil going to come from? I asked and never received any answers, I worked out how many oil fields we'd need in an ideal case along with the required production levels. I also noted that every major oil field is in decline, and that yearly discoveries of new oil are only a fraction of what is pumped out and consumed each ear.

So here's the question for the free market people: explain how we're going to manage a steady decline or even increase oil production in a sustainable manner from an ever shrinking base of oil reserves. And if you use the words "free market" and "higher prices" as though they're the self-evident answer, I won't be happy.

Third Post Down

[Lord Zentei]

I haven't posted in quite some time (RL concerns) though I have been browsing around. Since this seems at least partially directed at me, I'll return temporarily.

The thread today on the coming helium shortage reminded me of some loose ends I'd like to tie up regarding Peak Oil and the forthcoming decline in oil production. In some past debates, most notably this one

Well, well: you posted an answer there: sorry for not having answered in return, that was after I left. Here are responses, to avoid the need for a necro:

You're still missing the point. There have been no significant oil finds for the last 30 years, nor improved oil extraction technologies in the past 20 years. So where is all this new oil coming from? How are oil reserves keeping pace with extraction, and even growing despite there being no new finds of any significance nor new extraction methods & technologies?

No, I get the point all right: even if no new oil extraction technologies materialize we still face a situation where increasing prices add incentives to develop oil fields where such incentives did not exist before.

I already addressed that point, those predictions were made with flawed methods. Using Campbell's method always leads to a date which is a few years in the future. Hubbert's equations nailed the date for US production to within a year. In 1956 he predicted the peak would come in 1970. His prediction of a peak in 1995 for world production was off for two reasons, the OPEC oil embargo of the 70's and the Gulf War in the 90's. Both caused large extended cuts in production, without which the peak would've come a lot sooner. But once that's taken into account and the numbers re-crunched through the equations, the date comes out to 2005. Punching the numbers for any year after the Gulf War into the the equation and it comes up with 2005.

Yes, of course: it is not as if it is inconceivable that he may be rebutted or anything - what with opaque work and unproven assertions and all. What I find more objectionable is all these post-hoc excuses that keep emerging.

http://www.gasresources.net/Lynch(Hubbert-Deffeyes).htm

I notice that nearly the entire article focuses on Campbell's flawed predictions, and attempts to use that to discredit Hubbert's theory and those who believe in it. It should also be noted that his degree is in Political Science, he has no background in petrochemical geology. In fact all his work is with computer models which are highly flawed.

Almost, not all.

<snippa>

So you have the opinion of a PolySci major who dickers with flawed computer models against that of people who are highly knowledgeable (multiple PhDs, decades of industry & field experience) in the field of petrochemical geology. I don't know about you but I'll side with the PhDs.

Unless of course, said PhD has been proven wrong in the past: by your own words, Hubbard predicted peak oil in 1970 and in 1995 and was wrong on both counts. And the claim that the 1991 Iraq war could somehow lead to a significant contribution to a TEN year setback in the peak of world production seems quite bizarre.


Moving to your current post:

it was claimed that free market economic forces will allow us to cheat the inevitable decline in world oil production. In the first thread I linked, it's claimed that higher oil costs and free market forces will allow us to achieve a slow, steady, and manageable decline in production rates rather than the accelerating decline predicted by Hubbert and other proponents of Peak Oil. In the second thread it's claimed that higher oil prices will allow the development of marginal oil fields and significantly increase oil production rates over current levels.

Well that sounds all fine & dandy except for one problem, where the hell's all this oil going to come from? I asked and never received any answers, I worked out how many oil fields we'd need in an ideal case along with the required production levels. I also noted that every major oil field is in decline, and that yearly discoveries of new oil are only a fraction of what is pumped out and consumed each ear.

That new discoveries are less than current yearly production does not guarantee an accellerating collapse.

So here's the question for the free market people: explain how we're going to manage a steady decline or even increase oil production in a sustainable manner from an ever shrinking base of oil reserves. And if you use the words "free market" and "higher prices" as though they're the self-evident answer, I won't be happy.

You refuse the obvious answer a priori? What kind of answer are you then expecting? Increased prices are exactly how market forces work in cases such as this: they make possible the exploitation of existing oil that was not economic to extract previously. Oil in existing fields that would have been too expensive to extract while making a profit at lower oil prices become profitable as prices increase - what is so hard to accept about that? That such peak oil predictions have consistently been made since the 1890s and always been beaten by market forces is not significant in your assessment?

[J]

Third Post Down

Too bad we can't get more than a few tens of billions of barrels at most from the Canadian & Venezuelan tar sands & heavy oil deposits. As mentioned already, converting the heavy oil into useable oil requires a large amount of hydrogen, currently supplied in the form of natural gas, which I mentioned is starting to run short. We will exhaust all our natural gas long before making a significant dent in the tar sands deposits. Then there's all the water needed for processing the tar sands into oil, Canada has a lot of fresh water but not that much, to recover all 180 billion barrels will require a volume of water equal to one of the Great Lakes.

As for the Bakken "oil play", that's 150 billion barrels of original oil in place which is the DOE & USGS estimate, of which roughly 10-20% at best is recoverable. It's what's known as "suitcase rock", the oil does not want to leave the ground due to poor pore structure & factors. Shale & dolomite are at the very bottom of the list of desirable reservoir rocks. Somehow, the WSJ and other finacial magazines quote unnamed sources which claim anywhere from 200-400 billion barrels of recoverable oil. I'd guess that someone entered a few extra zeros into their computer models.

No, I get the point all right: even if no new oil extraction technologies materialize we still face a situation where increasing prices add incentives to develop oil fields where such incentives did not exist before.

Sure, if these oil fields exist, and I contend that they do not. Where are all those hundreds of currently idle oil fields waiting to be put into production following a price hike? A few hundred million barrels scattered here & there aren't going to go very far, tens of billions are needed to make any significant impact in production rates and even that's not going to last very long. Recall that we consume 30 billion barrels a year, 80+ million barrels every day. Where are these unused fields just waiting to deliver 10 million barrels a day, sustained, for a period of many years?

Unless of course, said PhD has been proven wrong in the past: by your own words, Hubbard predicted peak oil in 1970 and in 1995 and was wrong on both counts. And the claim that the 1991 Iraq war could somehow lead to a significant contribution to a TEN year setback in the peak of world production seems quite bizarre.

Depending on whose numbers you go by, Hubbert either nailed the US peak production year dead on or missed it by one. Going by Oil & Gas Journal numbers and those from the Society of Petroleum Engineers, the peak year was 1970 which matched his prediction. USGS & some DOE figures give the peak year as 1971, wow, he missed by a whole year.

As for world production, it wasn't just the 1991 Gulf War. I mentioned the 70's oil embargo, the Iran-Iraq war, and the 1991 Gulf War. Note the large dips & stagnation of oil production caused by the above events in this chart. It's more than enough to throw off Hubbert's prediction by a good 10 years or more.

That new discoveries are less than current yearly production does not guarantee an accellerating collapse.

If the oil base were merely shrinking, the decline would occur at a steady rate. If the oil base were merely aging, the same would apply, mature reservoirs have lower pressure and can't produce as fast. Problem is the oil base is both shrinking and aging, and on top of that oil companies are forcing the reservoirs and damaging them, the more production we have now, the harder the drop's going to be when the reservoirs crap out.

You refuse the obvious answer a priori? What kind of answer are you then expecting? Increased prices are exactly how market forces work in cases such as this: they make possible the exploitation of existing oil that was not economic to extract previously. Oil in existing fields that would have been too expensive to extract while making a profit at lower oil prices become profitable as prices increase - what is so hard to accept about that? That such peak oil predictions have consistently been made since the 1890s and always been beaten by market forces is not significant in your assessment?

What oil? Which fields? Where? How is it going to be produced? Is that so hard to answer? I already worked out how many fields & how much oil will need to be found in a best case scenario, now you tell me where it is and how we're going to get it. Instead I get another vague statement to the effect of "the oil will be there when prices are high enough".

[Lord Zentei]

No, I get the point all right: even if no new oil extraction technologies materialize we still face a situation where increasing prices add incentives to develop oil fields where such incentives did not exist before.

Sure, if these oil fields exist, and I contend that they do not. Where are all those hundreds of currently idle oil fields waiting to be put into production following a price hike? A few hundred million barrels scattered here & there aren't going to go very far, tens of billions are needed to make any significant impact in production rates and even that's not going to last very long. Recall that we consume 30 billion barrels a year, 80+ million barrels every day. Where are these unused fields just waiting to deliver 10 million barrels a day, sustained, for a period of many years?

As I pointed out in the earlier thread, the ratio between proven reserves and production rates is increasing. You dismissed this, insinuating that the producer countries were collectively lying their asses off, and that they habitually shifted oil from "possible" to "probable" and "probable" to "proven" reserves.

I posited that such shifts were perfectly normal procedure, given developments.

Your response: that no major oil fields have been recently discovered, nor major new breakthroughs developed.

Of course, that is questionable if they are indeed increasing their assessments of what use can be had of existing fields. The point seems to be that you do not beleive what producer countries say. In any case, I don't think I ever claimed that no decline would take place, merely that it would not be an accellerating decline, so don't assert that I have to provide a long term source that can replace current production completely.

Unless of course, said PhD has been proven wrong in the past: by your own words, Hubbard predicted peak oil in 1970 and in 1995 and was wrong on both counts. And the claim that the 1991 Iraq war could somehow lead to a significant contribution to a TEN year setback in the peak of world production seems quite bizarre.

As for world production, it wasn't just the 1991 Gulf War. I mentioned the 70's oil embargo, the Iran-Iraq war, and the 1991 Gulf War. Note the large dips & stagnation of oil production caused by the above events in this chart. It's more than enough to throw off Hubbert's prediction by a good 10 years or more.

And you deem that kinks in the graph vindicate Hubbard as opposed to the opposite? For these factors starting in 1973 to have changed a prediction of a peak in 1995 to 2005 would have to reduce overall production during this time by 1/3. You would have to remove the entire middle eastern production to acheive that.

Funnily enough, your graph does not show an accellerating collapse, but a steady one; and the global production levels shown for 2020 are similar to those in 1980.

BTW: the resolution on that thing is such that the text is virtually illegible.

That new discoveries are less than current yearly production does not guarantee an accellerating collapse.

If the oil base were merely shrinking, the decline would occur at a steady rate. If the oil base were merely aging, the same would apply, mature reservoirs have lower pressure and can't produce as fast. Problem is the oil base is both shrinking and aging, and on top of that oil companies are forcing the reservoirs and damaging them, the more production we have now, the harder the drop's going to be when the reservoirs crap out.

And the rate of this shrinking and ageing has no bearing on the matter? No combination of the two can lead to gradual decline!

You refuse the obvious answer a priori? What kind of answer are you then expecting? Increased prices are exactly how market forces work in cases such as this: they make possible the exploitation of existing oil that was not economic to extract previously. Oil in existing fields that would have been too expensive to extract while making a profit at lower oil prices become profitable as prices increase - what is so hard to accept about that? That such peak oil predictions have consistently been made since the 1890s and always been beaten by market forces is not significant in your assessment?

What oil? Which fields? Where? How is it going to be produced? Is that so hard to answer? I already worked out how many fields & how much oil will need to be found in a best case scenario, now you tell me where it is and how we're going to get it. Instead I get another vague statement to the effect of "the oil will be there when prices are high enough".

Yes, of course. Because I am not omniscient enough to know where all undiscovered oil sources are to be found, I must be wrong. I surmise that this means that the predictions of earlier peaks as far back as the 1890s must have been vindicated because the optimists back then could not divine in advance precisely where the new sources could be found or precisely how to exploit them.

You're basically asking me to do the oil companies innovation work for them, yes?

[Darth Wong]

A few observations:

1) Optimism is a shitty disaster planning technique. Only the idiot bases his plans upon the assumption that things will go better than expected, rather than things going worse than expected. I thought Iraq would have taught us this already, but I guess some people are slow learners.

2) Pointing out that previous pessimistic estimates have been wrong does not mean that we can assume new oilfields will magically materialize, any more than past scientific mistakes mean that evolution is wrong.

3) The free market will indeed raise prices and increase incentive to develop secondary sources and use alternate fuel sources. However, what J has pointed out is that no one has established the rate at which this mechanism will compensate for dwindling reserves, and whether this will be sufficient to avoid a the kind of global economic disaster that people are worried about.

[Ariphaos]

The Canadian and Venezualan tar sands do hold immense quantities of recoverable oil, and economical means by which US shale can be recovered have also been demonstrated (The Mahogany Research Project).

If Chavez wasn't such a fuck up, and Alberta was more willing to let its environment get destroyed (I don't particularly blame them. Why should they support the American pollution factory or the one Indochina wishes to build?) I'm sure the future would look smoother.

Even ignoring that, though, the US, Russia and China are sitting on staggeringly large coal reserves, and liquification technology isn't running backwards, either.

Even though biodiesel in its current form is far too little to significantly impact oil needs, there is notable potential in hydroponic 'farms'.

----

I take doomsayers with just as much a grain of salt, really. Yes, I'm sure that peak oil will be a bit of a setback. At least for the US, we are due a few anyway, might as well get them over with in a new Great Depression or something.

[Lord Zentei]

A few observations:

1) Optimism is a shitty disaster planning technique. Only the idiot bases his plans upon the assumption that things will go better than expected, rather than things going worse than expected. I thought Iraq would have taught us this already, but I guess some people are slow learners.

2) Pointing out that previous pessimistic estimates have been wrong does not mean that we can assume new oilfields will magically materialize, any more than past scientific mistakes mean that evolution is wrong.

It's not merely optimism that is at work here, but the observation that the ratio between proven reserves and production rates is going up, not down, even though the pessimists claim that collapse is imminent. And while past scientific mistakes do not prove evolution wrong, they can prove specific predictive models wrong. I doubt anyone is claiming that the oil is magically inexhaustible.

[J]

As I pointed out in the earlier thread, the ratio between proven reserves and production rates is increasing. You dismissed this, insinuating that the producer countries were collectively lying their asses off, and that they habitually shifted oil from "possible" to "probable" and "probable" to "proven" reserves.

I posited that such shifts were perfectly normal procedure, given developments.

Your response: that no major oil fields have been recently discovered, nor major new breakthroughs developed.

Of course, that is questionable if they are indeed increasing their assessments of what use can be had of existing fields. The point seems to be that you do not beleive what producer countries say. In any case, I don't think I ever claimed that no decline would take place, merely that it would not be an accellerating decline, so don't assert that I have to provide a long term source that can replace current production completely.

So you think it's a coincidence that OPEC reserves just happened to start growing at an absurd rate when OPEC changed their production allocation quotas for member countries from being based on production capacity to total reserves? About 30 years ago was when they made the switch, and since then their reserves have more than doubled.

As of 1973 there were roughly 380 billion barrels of proven reserves in OPEC countries. By 1980 it had grown to a bit over 420 billion, ten years after that it was 600 billion, and it now rests at 800 billion. All this despite pumping well over 100 billion barrels from the ground and finding only a few tens of billions in replacements. Add to this that Middle East reserves have supposedly stayed contant for the last 10 year or so or even grown when they've pumped about 30 billion barrels from the ground.

Of particular interest are Iran and Iraq. Despite being at war for most of the 80's during which no exploration nor drilling was being done, both countries managed to double their proven oil reserves. How? Explain that one for me. If not from thin air, where did that oil come from?

And you deem that kinks in the graph vindicate Hubbard as opposed to the opposite? For these factors starting in 1973 to have changed a prediction of a peak in 1995 to 2005 would have to reduce overall production during this time by 1/3. You would have to remove the entire middle eastern production to acheive that.

Funnily enough, your graph does not show an accellerating collapse, but a steady one; and the global production levels shown for 2020 are similar to those in 1980.

BTW: the resolution on that thing is such that the text is virtually illegible.

Go back to 1974 on the chart and extrapolate the curve from there. That's the data Hubbert had for making his prediction in 1975. Then count the cumulative barrels produced on the extrapolated curve until you get to 1-1.1 trillion. That year will be pretty close to 1995.

The chart. I was using it to illustrate production to date, not future production.

And the rate of this shrinking and ageing has no bearing on the matter? No combination of the two can lead to gradual decline!

Every oil producing country which has matured and started decline has gone through accelerating declines until they're down to scavenging the last bit of oil unless they've deliberately restricted production to smooth out the decline. Canada, the UK, and Russia among others have gone through this. The US would as well had it not been for the finds in Alaska and the Gulf of Mexico, which have nearly doubled their oil base and replaced aging fields with fresh ones, and yet they only manage a steady decline. Count onshore deposits only for the lower 48 and there will indeed be a steepening decline starting around '73-'75. Barring sufficient finds to offset production, the same applies to world production.

Yes, of course. Because I am not omniscient enough to know where all undiscovered oil sources are to be found, I must be wrong. I surmise that this means that the predictions of earlier peaks as far back as the 1890s must have been vindicated because the optimists back then could not divine in advance precisely where the new sources could be found or precisely how to exploit them.

Unlike a century ago, we now have many reliable technologies for finding potential oil deposits, and they've been used to cover almost every part of the Earth.

Then there's all those currently marginal & unutilized fields which you claim will come into production when prices rise high enough. It's claimed that they've been found already and are just sitting there because it's too expensive to develop them given current oil prices. If we've already found them, where are they?

You're basically asking me to do the oil companies innovation work for them, yes?

No. Optimists claim that there's many currently undeveloped marginal fields sitting around just waiting for oil prices to go up so drilling can commence, I'm asking for proof these fields exist, and that they can meet predicted production estimates, if they can even be produced. Since these fields have been found already as they claim, how hard could it be to show me where they are?

In past threads I even worked out how many fields we'd need (several hundred) and the amount of oil in them (50-100 billion barrels) needed for the claimed production. Name the fields which we've (supposedly) already found, is it really that hard?

Or am I just going to get more platitudes of "the market will provide"?

[J]

It's not merely optimism that is at work here, but the observation that the ratio between proven reserves and production rates is going up, not down, even though the pessimists claim that collapse is imminent. And while past scientific mistakes do not prove evolution wrong, they can prove specific predictive models wrong. I doubt anyone is claiming that the oil is magically inexhaustible.

Proven reserves in 1980 were 1.2 trillion barrels, with yearly consumption at a bit under 25 billion, giving 56 years or so as the reserves to production ratio. Right now production is 30 billion a year on 1.05 trillion of proven reserves, giving 35 years. How is this an improvement again? The ratio has gone down, not up.

[Lord Zentei]

So you think it's a coincidence that OPEC reserves just happened to start growing at an absurd rate when OPEC changed their production allocation quotas for member countries from being based on production capacity to total reserves? About 30 years ago was when they made the switch, and since then their reserves have more than doubled.

As of 1973 there were roughly 380 billion barrels of proven reserves in OPEC countries. By 1980 it had grown to a bit over 420 billion, ten years after that it was 600 billion, and it now rests at 800 billion. All this despite pumping well over 100 billion barrels from the ground and finding only a few tens of billions in replacements. Add to this that Middle East reserves have supposedly stayed contant for the last 10 year or so or even grown when they've pumped about 30 billion barrels from the ground.

Of particular interest are Iran and Iraq. Despite being at war for most of the 80's during which no exploration nor drilling was being done, both countries managed to double their proven oil reserves. How? Explain that one for me. If not from thin air, where did that oil come from?

They shift their assets from possible to proven.

But it seems that you do beleive that all oil producing countries are in on some grand conspiracy of falsehood.

Go back to 1974 on the chart and extrapolate the curve from there. That's the data Hubbert had for making his prediction in 1975. Then count the cumulative barrels produced on the extrapolated curve until you get to 1-1.1 trillion. That year will be pretty close to 1995.

Do you have a higher resolution version? And if I understand you correctly, making extrapolations of the kind you are referring to here - assuming a neat continious curve - is a tad objectionable, at best.

The chart. I was using it to illustrate production to date, not future production.

It is future production that is at issue here.

Every oil producing country which has matured and started decline has gone through accelerating declines until they're down to scavenging the last bit of oil unless they've deliberately restricted production to smooth out the decline. Canada, the UK, and Russia among others have gone through this. The US would as well had it not been for the finds in Alaska and the Gulf of Mexico, which have nearly doubled their oil base and replaced aging fields with fresh ones, and yet they only manage a steady decline. Count onshore deposits only for the lower 48 and there will indeed be a steepening decline starting around '73-'75. Barring sufficient finds to offset production, the same applies to world production.

Not so, since regional production has only a limited effect upon world prices, whereas world production has, obviously, a major effect upon world prices. And it is the world price that determines whether alternative sources are developed.

Unlike a century ago, we now have many reliable technologies for finding potential oil deposits, and they've been used to cover almost every part of the Earth.

Then there's all those currently marginal & unutilized fields which you claim will come into production when prices rise high enough. It's claimed that they've been found already and are just sitting there because it's too expensive to develop them given current oil prices. If we've already found them, where are they?

<snippa>

No. Optimists claim that there's many currently undeveloped marginal fields sitting around just waiting for oil prices to go up so drilling can commence, I'm asking for proof these fields exist, and that they can meet predicted production estimates, if they can even be produced. Since these fields have been found already as they claim, how hard could it be to show me where they are?

In past threads I even worked out how many fields we'd need (several hundred) and the amount of oil in them (50-100 billion barrels) needed for the claimed production. Name the fields which we've (supposedly) already found, is it really that hard?

Or am I just going to get more platitudes of "the market will provide"?

You seem to beleive that new oil fields of the kinds we have today are the only means of producing oil; and you are consistently demanding evidence for such oil fields when other kinds of sources have already been mentioned repeadedly, both in this thread and in the previous threads: oil sands, coal liquefecation, artificial oil. This "it must be primary oilfields" brainbug is what seems to be the crux here.

Hubbard's theory is that the total curve will fall into a neat symmetric shape, with the maximum point when half the oil has been extracted. That the larger reserves are of a different, harder-to-extract kind rather makes this questionable.

[J]

They shift their assets from possible to proven.

In other words barrels on paper, and not actual oil. I already described how a legitimate shift of oil assets occurs, it requires test drilling, core samples, and flow tests to prove the oil is there and producible or a new technology to extract a greater percentage of existing reserves. Anything else is a shift on paper and worthless. Barrels of proven reserves don't matrialize in the ground and become available when someone writes a bigger number under the proven reserves column. Writing numbers on paper won't magically change the Earth.

But it seems that you do beleive that all oil producing countries are in on some grand conspiracy of falsehood.

Not all. Just OPEC countries and Russia to a much lesser extent, though the latter was mostly a result of Cold War secrecy. Again, how do you explain the absurd increases in OPEC's proven reserves?

Do you have a higher resolution version? And if I understand you correctly, making extrapolations of the kind you are referring to here - assuming a neat continious curve - is a tad objectionable, at best.

Unfortunately not. The curve works for every country for which there is an accurate production history and reserves estimate, Canada, the US, Russia, China, and about 40-50 other countries.

Not so, since regional production has only a limited effect upon world prices, whereas world production has, obviously, a major effect upon world prices. And it is the world price that determines whether alternative sources are developed.

Regional production only has a limited effect on world prices? So the price spikes from the Arab oil embago was just a minor blip, and so were the rises caused by the Iran-Iraq war and the 1991 Gulf War. And the large drop in prices in the mid to late 90's when Saudi Arabia & Mexico increased production was just a little dip? In the latter two cases, a regional change of only a few million barrels a day, only about 5% of total world production caused prices to change by multiples. I guess you consider 50-100% changes in world oil prices to be a "limited effect". So what's a major effect, oil going up to the price of gold?

You seem to beleive that new oil fields of the kinds we have today are the only means of producing oil; and you are consistently demanding evidence for such oil fields when other kinds of sources have already been mentioned repeadedly, both in this thread and in the previous threads: oil sands, coal liquefecation, artificial oil. This "it must be primary oilfields" brainbug is what seems to be the crux here.

I already explained why oil sands can't be produced in any meaningful amount. As for coal liquifaction and artificial oil, since you're claiming it can stretch the reserves, prove it. Give an estimate of the time & resources needed to build the plants & infrastructure and work out the energy costs. Tell me how much oil you expect to make from these plants, how many plants will be needed, the raw resource requirements, and the energy costs. You claim it can be done, now show me.

Hubbard's theory is that the total curve will fall into a neat symmetric shape, with the maximum point when half the oil has been extracted. That the larger reserves are of a different, harder-to-extract kind rather makes this questionable.

Tar sands & oil shales can't be extracted in significant amounts, and production rates will always be sharply limited due to resource & energy requirements. That's why it has minimal effect on the curve.

[SWPIGWANG]

it was claimed that free market economic forces will allow us to cheat the inevitable decline in world oil production. In the first thread I linked, it's claimed that higher oil costs and free market forces will allow us to achieve a slow, steady, and manageable decline in production rates rather than the accelerating decline predicted by Hubbert and other proponents of Peak Oil. In the second thread it's claimed that higher oil prices will allow the development of marginal oil fields and significantly increase oil production rates over current levels.

Well that sounds all fine & dandy except for one problem, where the hell's all this oil going to come from?

The market is a means of allocated resources. It does not produce oil or replace industry in itself.

1. Steady decline or Cliff edge:

Using economic theory, the production of oil and the price of oil is unlikely to have drastic change without non-market forces at play. If there is a projected shortage in the future, there would be a price increase today until the profit from storing oil is equal to the rate of return on capital. In layman's terms, a business man will raise prices if there is a projected shortage until the prices are so high that there won't be a shortage of supply as only fewer people can afford it. If we use this theory, than oil production and prices will be largely continuous.

Economic theory is no perfect however. It assumes rational investors with good information, and non-distorted market. Neither of them applies in the real world, as oil prices are highly distorted by governments, international politics and simply manipulation. As for rational investors with good information, the history have shown this is not the case in all too many cases of economic collapse.

That said, if it is known that massive oil shortage is inevitable in the future, you can bet that oil price and investment in alternative energy will increase correspondingly. The current market price of oil reflects the current investor's beliefs in oil supply relative to demand. Investors are not always correct, but it is assumed that they act more rationally than the average person as their self interest is on the line. (if you have insight over other investors over resource futures, you can make a killing on the market)

2. Is there a cap on change: will there be enough oil/alternative to fill demand of easy lifestyle?

Market systems is an ALLOCATION system, not a magical product summon device. It is supposed to allocate resources that we have today to future needs using price mechanisms. It will not guantee that in the future we will be able to sustain lifestyles we have today or anything. The only thing it is suppose to do is to direct apporiate amount of resources to fulfilling demands today and in the future scaled upon price.

If oil is that rare, the result is that oil becomes so expensive so that few people can afford it.
---------------------------------------
The thing is this, if one sees oil just as another good as opposed to a "pseudo-necessarity" and its demands elastic (changable according to price), then the market should be just as good as other solutions as long as accurate information about the sistuation is widely believed. Market or no market, there is no way to summon more oil out of nowhere.

One can either force conservation and other contermeasures, or let it happen though the hands of the market with natural changes in price.

The real problem about the sistuation would probably be that we can't afford the market to be wrong for something like this. (world economy is not a housing bubble in a town) The governments should provide a safety net somewhere, but I think market probably would handle it fine.

[Darth Wong]

A few observations:

1) Optimism is a shitty disaster planning technique. Only the idiot bases his plans upon the assumption that things will go better than expected, rather than things going worse than expected. I thought Iraq would have taught us this already, but I guess some people are slow learners.

2) Pointing out that previous pessimistic estimates have been wrong does not mean that we can assume new oilfields will magically materialize, any more than past scientific mistakes mean that evolution is wrong.

It's not merely optimism that is at work here, but the observation that the ratio between proven reserves and production rates is going up, not down, even though the pessimists claim that collapse is imminent. And while past scientific mistakes do not prove evolution wrong, they can prove specific predictive models wrong. I doubt anyone is claiming that the oil is magically inexhaustible.

Are you seriously suggesting that modern oil prospecting and geological models are identical to those used a hundred years ago? Because that's what you're saying when you use historical failures in order to disprove the accuracy of modern predictive models.

[J]

It's not merely optimism that is at work here, but the observation that the ratio between proven reserves and production rates is going up, not down, even though the pessimists claim that collapse is imminent. And while past scientific mistakes do not prove evolution wrong, they can prove specific predictive models wrong. I doubt anyone is claiming that the oil is magically inexhaustible.

Are you seriously suggesting that modern oil prospecting and geological models are identical to those used a hundred years ago? Because that's what you're saying when you use historical failures in order to disprove the accuracy of modern predictive models.

A note of historical interest. A hundred years ago oil prospecting was done by looking for surface oil seeps and drilling near cemeteries. Why cemeteries you may ask? In US oil producing areas, cemeteries tended to be situated on hills which happened to be anticlines, which have the potential to trap oil. That was the state of the art science in oil exploration a hundred years ago.

[Bugsby]

Well, we are running out of oil, and it won't last forever. But here's the thing about the free market. Under a free market, we will never ever just run out of something. Before we run out, the price will get to be so high that the demand will drop down to near-zero.

Assume that things continue running the way they are. Oil reserves run down, and easily-obtained oil sources start to run dry. The price goes way up. This means that oil companies will have incentive to look elsewhere for their oil, as has been discussed. This will add a new supply into the market, but that isn't the most important effect of rising prices. The most important effect is that demand will drop.

The whole reason we use oil is because it is currently the most efficient and cost-effective way to generate energy. As the price continues to rise, oil will no longer be the most cost-effective way to generate energy. This means people will stop using oil and switch over to alternative energy sources. On the most pessimistic scenarios, oil supplies will keep dropping, the price will keep rising, and very soon we won't be demanding oil anymore.

The endgame is a scenario where we run entirely off of renewable energy sources. I do not say that because it is some environmentalist dream of mine. I say it because renewable energy is the only kind of energy that we can actually PRODUCE, instead of just kind of find. On a long timeline, there will not be a shortage in markets for renewable energy. My money is on nuclear, by the way. We'll get that controlable fusion thing down eventually.

As to whether or not this will cause an economic crisis, of course it will. All of our infrastructure is dedicated to oil-based energy production, and we are going to have to pay huge overhead costs to start producing our energy from other sources. If the rise in prices comes quickly and prices rise at a rapid rate, the economic recession will be severe. If prices only rise slowly, the economy will have time to adapt and the recession will be mitigated.

[J]

Well, we are running out of oil, and it won't last forever. But here's the thing about the free market. Under a free market, we will never ever just run out of something. Before we run out, the price will get to be so high that the demand will drop down to near-zero.

Correct.

Assume that things continue running the way they are. Oil reserves run down, and easily-obtained oil sources start to run dry. The price goes way up. This means that oil companies will have incentive to look elsewhere for their oil, as has been discussed. This will add a new supply into the market, but that isn't the most important effect of rising prices. The most important effect is that demand will drop.

The whole reason we use oil is because it is currently the most efficient and cost-effective way to generate energy. As the price continues to rise, oil will no longer be the most cost-effective way to generate energy. This means people will stop using oil and switch over to alternative energy sources. On the most pessimistic scenarios, oil supplies will keep dropping, the price will keep rising, and very soon we won't be demanding oil anymore.

Almost every part of the Earth has been scoured for oil already, and chances of significant new finds are near zero. Despite all the high-tech toys in the world, there haven't been any significant additions to the oil supply in the last 20 years. Oil finds have petered out to a trickle and existing fields are maturing and entering decline, and all those claims of "fields just waiting to be exploited" have amounted to well, judge for yourself. Optimists claim them, but haven't been able to provide a single shred of proof they exist.

So that leaves one scenario. Demand continues to rise and production will soon enter a permanent decline, the price increases in the future will make us long for the days of the Arab oil embargo. Prices will spike harshly and permanently once traders & consumers realize that oil is indeed in permanent decline. This will reduce demand as consumers can no longer afford oil and the side-effects such as runaway inflation ripple through the economies of many countries and bring them down like a falling house of cards. The reduced demand will come from sky high prices, very high inflation, and collapsing economies, the Great Depression all over again, except a lot faster with the interconnectedness of the modern world and its interdependancies. Live in New York and want Florida oranges? Well, it'll now cost 5-10 times more at the very least, higher costs to grow the oranges, can't grow as many either, and much higher transportation costs. The same will apply to everything you can think of, everything in our lives is touched by oil in some way. It's going to be one bumpy ride.

The endgame is a scenario where we run entirely off of renewable energy sources. I do not say that because it is some environmentalist dream of mine. I say it because renewable energy is the only kind of energy that we can actually PRODUCE, instead of just kind of find. On a long timeline, there will not be a shortage in markets for renewable energy. My money is on nuclear, by the way. We'll get that controlable fusion thing down eventually.

As to whether or not this will cause an economic crisis, of course it will. All of our infrastructure is dedicated to oil-based energy production, and we are going to have to pay huge overhead costs to start producing our energy from other sources. If the rise in prices comes quickly and prices rise at a rapid rate, the economic recession will be severe. If prices only rise slowly, the economy will have time to adapt and the recession will be mitigated.

I fear we don't have enough time left. By the time it becomes obvious that oil production is in permanent decline it's too late to take action. A new energy infrastructure can't be built overnight, even a crash program will take decades and it will be very hard to get a program underway when the economy and country is collapsing around us. It's like building lifeboats on the Titanic to save the passengers after it's struck the iceberg. In a panicked economy on the brink of collapse, the spare resources to undertake such a project will be very hard if not impossible to come by. In a worst case scenario, most of our society save a few small pockets will be set back 100 years and then be forced to rebuild from there.

What happens depends on how events play out on the international level. Best case would be every government in the world, through the UN or a special council getting together to plan out allocation for the dwindling oil supplies and a comprehensive plan for reducing oil consumption for everyone. We all co-operate and manage the decline with as much control as possible. Conserve energy, work to find alternative renewable sources, and reduce human population.

But that's not going to happen, the most likely and among the worst scenario is known as the "last man standing". We continue business as usual and wage wars for control of the shrinking supplies of oil. Countries which lose are completely screwed, and the survivors continue fighting it out until only one, or none remain. We already see that wars or even threats of war cause large increases in oil prices, this will make things a lot worse than anything seen to date. It will serve to accelerate the effects of supply shortages and price spikes, many economies & countries will not survive.

[Bugsby]

While what you suggest is a possibility, I think it's an overly pessimistic scenario. I might be wrong, of course, but I think the change will be a bit more gradual.

You present a scenario where oil prices hit a point where they shoot up sharply, as oil supplies just drop off. But that will only really happen if all the oil fields run dry at exactly the same time. That won't happen. They will dry up one by one, and as supply shrinks, incentive for alternative energy will go up.

Building up a system of all alternative energy will be expensive and take time, but not as much as it might. We don't need to reroute the power lines or anything. We just need to change what is at the end point of those power lines - change the plant that is supplying. Again, this is going to take time and a lot of money, but it will happen.

As to the claims that we will just spend time fighting over the dwindling oil supply? Well, that is true. We will, and it will be bloody and ugly. But one of the things that's great about the free market is that firms can enter or exit at will. While the big oil companies might be too hopelessly rooted in oil to make the switch, other companies will start up and compete. Big oil won't be able to drive them out of business, because, in the long run, the alternative energy companies are the ones pursuing the most cost-effective strategy. The switch WILL get made. We are looking at a big looming recession, but not a 100-year setback in civilization. I doubt that we will even see something along the lines of the Great Depression. That was caused by very poorly managed monetary policy and poor international trade decisions, among other things. We've learned since then.

The thing that's so great about the free market is it's flexible. That's what makes it run so smooth. If the free market were a monolith, that would be one thing. But the market really consists of thousands of different independent entities working with and against each other to find the most efficient solutions to problems, in order to stay ahead of the curve and make the most profit.

When oil prices start to skyrocket, which they might (and probably will) do soon, some people will try as hard as they can to keep the oil infrastructure intact and find as many possible oil sources as they can. Those comapines will become less and less profitable as the price of oil rises, while those startup companies who begin providing alternative energy, as well as heavy research into alternative energy, will become more and more profitable as their competitors lose their edge.

As you say, we are in for a bumpy road. But the market will adapt, because that's exactly what the market does best.


*if this post wasn't as intelligible as it could have been.... well, I've been drinking*

[J]

While what you suggest is a possibility, I think it's an overly pessimistic scenario. I might be wrong, of course, but I think the change will be a bit more gradual.

You present a scenario where oil prices hit a point where they shoot up sharply, as oil supplies just drop off. But that will only really happen if all the oil fields run dry at exactly the same time. That won't happen. They will dry up one by one, and as supply shrinks, incentive for alternative energy will go up.

The top 5 oil fields in the world account for roughly 1/7 of total world production. All five of those fields are either mature or entering decline. When they enter decline it will leave a large gap in production which can't be filled. A synchonized decline of every field isn't needed to sharply reduce global production capacity, all it takes is a decline in the top 5-10 fields which together account for a large irreplaceable fraction of total supply. Guess what? All the top fields in the world are mature or entering decline. The supply shrinkage will be a lot faster than you think.

Building up a system of all alternative energy will be expensive and take time, but not as much as it might. We don't need to reroute the power lines or anything. We just need to change what is at the end point of those power lines - change the plant that is supplying. Again, this is going to take time and a lot of money, but it will happen.

Sure we can keep the lights on, most of the power grid is run by coal, nuclear, hydro, & gas, but can we keep the cars trucks and trains rolling? What good is electricity if food can't be moved from the farmer's field to your home, and speaking of farmers, all those fertilizers & pesticides are oil based too not to mention the gas or diesel his tractors use. What about electric vehicles? The electrical distribution infrastructure will have to be heavily upgraded to cope with the much increased power consumption, and hundreds of new GW range generating stations will need to be built to supply the power. There's also close to a vehicle for every person in America, replacing them all will take years as the auto industry can only build 20-odd million cars a year. Yes we're looking at decades, even with a crash program as there are only so many people in the world with the skills & expertise needed for this epic project.

As to the claims that we will just spend time fighting over the dwindling oil supply? Well, that is true. We will, and it will be bloody and ugly. But one of the things that's great about the free market is that firms can enter or exit at will. While the big oil companies might be too hopelessly rooted in oil to make the switch, other companies will start up and compete. Big oil won't be able to drive them out of business, because, in the long run, the alternative energy companies are the ones pursuing the most cost-effective strategy. The switch WILL get made. We are looking at a big looming recession, but not a 100-year setback in civilization. I doubt that we will even see something along the lines of the Great Depression. That was caused by very poorly managed monetary policy and poor international trade decisions, among other things. We've learned since then.

We've learned, we'll do better this time. Sure, so how do you explain the chimp who holds the US Presidency? How do you explain the actions taken to date by his government? Time & time again, people, governments, and nations delude themselves into thinking that this time will be different, and the mistakes of the past will not be repeated, only to boldly follow the footsteps of their predecessors into disaster. There's no global warming, we'll have cheap oil forever if only it weren't for those OPEC bastards, and we'll invade other countries to spread freedom & democracy. And you wonder why I have little faith in the system.

As for recessions, have you already forgotten the setbacks caused by the Arab oil embargos of the 70's and early 80's? That was a temporary shortage of oil, all we had to do was wait for the Arabs to turn the oil taps back on. This time there are no taps which can be opened up to relieve the shortage. When investors & consumers realize this, which will happen too late of course, there will be panic like you've never seen before. I suspect the futures trading limits will be tripped, and trading in crude oil will be halted at NYMEX and other major exchanges. And when word of that gets out on the news & internet, gasoline hording will take place on an unprecedented level, draining dry the tanks at every gas station. 70's gas rationing and recession all over again, except many times worse. Total economic collapse is a distinct possibility.

The thing that's so great about the free market is it's flexible. That's what makes it run so smooth. If the free market were a monolith, that would be one thing. But the market really consists of thousands of different independent entities working with and against each other to find the most efficient solutions to problems, in order to stay ahead of the curve and make the most profit.

When oil prices start to skyrocket, which they might (and probably will) do soon, some people will try as hard as they can to keep the oil infrastructure intact and find as many possible oil sources as they can. Those comapines will become less and less profitable as the price of oil rises, while those startup companies who begin providing alternative energy, as well as heavy research into alternative energy, will become more and more profitable as their competitors lose their edge.

The market works smoothly when people have the right information on which to base their decisions. Problem: They don't. The concensus among almost all geologists, the Society of Petroleum Engineers, the Oil & Gas Journal, and scientists in the petrolgeology field is that we've burned through about half of the roughly 2 trillion barrels of oil on Earth, and that production is nearing a peak if it hasn't peaked already.

Almost every article from economists & market leaders in the WSJ, Finacial Post, or other finacial and investment publications claims that we have many decades or centuries of oil, and that we can arbitrarily increase production to whatever level is needed if only oil prices went up $10. Another $10 they boast, and we can milk another 10-20 million barrels of oil every day, and sustain that production level for many decades. And of course they always cite unnamed or proprietary sources, or refer to crackpot thinktanks.

The market is completely unprepared for an oil shortage, it's unaware and in complete denial. Action will not be taken until it's too late, and by the time the error is realized it's panic time. Kinda hard to startup a company with no capital in the middle of a market crisis when everyone's struggling to put food on the table. Research & conversion into oil alternatives takes a lot of capital, hundreds of billions or even trillions of dollars. Right now is when we must begin mass investments to prepare for the future, when the decline begins we won't have the resources to spare.

[Dennis Toy]

you guys need to read this site.


http://www.lifeaftertheoilcrash.net/


The person who runs this site is Matt Savinar, He doesn't ramble or bring about the "END OF THE WORLD, HEAD FOR THE HILLS" kind of thingg. He speaks of peak oil using research from top notch experts and even tells us how to prepare.

He even addresses the denial and the emotional difficulties involved in finding out that Peak oil is coming and the end of our technological civilization is at hand.

[Lord Zentei]

They shift their assets from possible to proven.

In other words barrels on paper, and not actual oil. I already described how a legitimate shift of oil assets occurs, it requires test drilling, core samples, and flow tests to prove the oil is there and producible or a new technology to extract a greater percentage of existing reserves. Anything else is a shift on paper and worthless. Barrels of proven reserves don't matrialize in the ground and become available when someone writes a bigger number under the proven reserves column. Writing numbers on paper won't magically change the Earth.

No, obviouslt it won't. But you are stating that they shifted these barrels in just such a way without there being any preliminary work at all, which I'm not sure about.

Do you have a higher resolution version? And if I understand you correctly, making extrapolations of the kind you are referring to here - assuming a neat continious curve - is a tad objectionable, at best.

Unfortunately not. The curve works for every country for which there is an accurate production history and reserves estimate, Canada, the US, Russia, China, and about 40-50 other countries.

And in every case, there were other pirmary fields abroad that were waiting to be tapped, such that they were used instead of alternative sources. So you can't compare what happens in such cases of local depletion with global depletion: it's apples and oranges.

Not so, since regional production has only a limited effect upon world prices, whereas world production has, obviously, a major effect upon world prices. And it is the world price that determines whether alternative sources are developed.

Regional production only has a limited effect on world prices? So the price spikes from the Arab oil embago was just a minor blip, and so were the rises caused by the Iran-Iraq war and the 1991 Gulf War. And the large drop in prices in the mid to late 90's when Saudi Arabia & Mexico increased production was just a little dip? In the latter two cases, a regional change of only a few million barrels a day, only about 5% of total world production caused prices to change by multiples. I guess you consider 50-100% changes in world oil prices to be a "limited effect". So what's a major effect, oil going up to the price of gold?

Limited to the extent that it does not make alternative sources more profitable to use instead of seeking new primary oilfields. This counterargument of yours is unworthy - kindly don't ascribe me such stupidity.

Though I'll grant that Bugsby put it better than I.

I already explained why oil sands can't be produced in any meaningful amount. As for coal liquifaction and artificial oil, since you're claiming it can stretch the reserves, prove it. Give an estimate of the time & resources needed to build the plants & infrastructure and work out the energy costs. Tell me how much oil you expect to make from these plants, how many plants will be needed, the raw resource requirements, and the energy costs. You claim it can be done, now show me.

I am not sure that I can provide you with the resource cost of such plants, though I can point out that South Africa's Sasol has been producing oil by coal liquification since the 1950s. This has generally because of security reasons and unprofitable - until recently, due to increasing world prices. So we already have oil liquification plants that are runing commercially and at profit. They supply 37% of South Africa's fuel needs, iirc. That's an example of what happens when there are no new primary oil fields to use.

Hubbard's theory is that the total curve will fall into a neat symmetric shape, with the maximum point when half the oil has been extracted. That the larger reserves are of a different, harder-to-extract kind rather makes this questionable.

Tar sands & oil shales can't be extracted in significant amounts, and production rates will always be sharply limited due to resource & energy requirements. That's why it has minimal effect on the curve.

Tar and oil shales are only one source of oi.

A few observations:

1) Optimism is a shitty disaster planning technique. Only the idiot bases his plans upon the assumption that things will go better than expected, rather than things going worse than expected. I thought Iraq would have taught us this already, but I guess some people are slow learners.

2) Pointing out that previous pessimistic estimates have been wrong does not mean that we can assume new oilfields will magically materialize, any more than past scientific mistakes mean that evolution is wrong.

It's not merely optimism that is at work here, but the observation that the ratio between proven reserves and production rates is going up, not down, even though the pessimists claim that collapse is imminent. And while past scientific mistakes do not prove evolution wrong, they can prove specific predictive models wrong. I doubt anyone is claiming that the oil is magically inexhaustible.

Are you seriously suggesting that modern oil prospecting and geological models are identical to those used a hundred years ago? Because that's what you're saying when you use historical failures in order to disprove the accuracy of modern predictive models.

No, no it is not: if the ratio between reserves and production has improved, that is precisely what I am not suggesting, indeed, that was the very point.

[J]

In other words barrels on paper, and not actual oil. I already described how a legitimate shift of oil assets occurs, it requires test drilling, core samples, and flow tests to prove the oil is there and producible or a new technology to extract a greater percentage of existing reserves.

No, obviouslt it won't. But you are stating that they shifted these barrels in just such a way without there being any preliminary work at all, which I'm not sure about.

Feel free to look up back issues of Oil & Gas Journal and SPE publications which detail oil exploration worldwide for the last 100 years. If a hole's been drilled in the ground, it's documented in there. There was no drilling or exploration which corresponds with the ludicrous reserves inflation among OPEC countries, nothing which would justify any shifts from possible to proven reserves.

Unfortunately not. The curve works for every country for which there is an accurate production history and reserves estimate, Canada, the US, Russia, China, and about 40-50 other countries.

And in every case, there were other pirmary fields abroad that were waiting to be tapped, such that they were used instead of alternative sources. So you can't compare what happens in such cases of local depletion with global depletion: it's apples and oranges.

And there are fields waiting to be tapped now? If there aren't, and I maintain there aren't any fields of significance, then the situation is the same except on a larger scale. Apples & apples.

Regional production only has a limited effect on world prices? So the price spikes from the Arab oil embago was just a minor blip, and so were the rises caused by the Iran-Iraq war and the 1991 Gulf War. And the large drop in prices in the mid to late 90's when Saudi Arabia & Mexico increased production was just a little dip? In the latter two cases, a regional change of only a few million barrels a day, only about 5% of total world production caused prices to change by multiples. I guess you consider 50-100% changes in world oil prices to be a "limited effect". So what's a major effect, oil going up to the price of gold?

Limited to the extent that it does not make alternative sources more profitable to use instead of seeking new primary oilfields. This counterargument of yours is unworthy - kindly don't ascribe me such stupidity.

It's not my fault you're making a stupid argument. "If the price of oil is high enough, oil will be too expensive, and alternatives will be more profitable". Sure. The real world is not a simplified ideal case in an Economics textbook, kindly quit treating it as such.

I already explained why oil sands can't be produced in any meaningful amount. As for coal liquifaction and artificial oil, since you're claiming it can stretch the reserves, prove it. Give an estimate of the time & resources needed to build the plants & infrastructure and work out the energy costs. Tell me how much oil you expect to make from these plants, how many plants will be needed, the raw resource requirements, and the energy costs. You claim it can be done, now show me.

I am not sure that I can provide you with the resource cost of such plants, though I can point out that South Africa's Sasol has been producing oil by coal liquification since the 1950s. This has generally because of security reasons and unprofitable - until recently, due to increasing world prices. So we already have oil liquification plants that are runing commercially and at profit. They supply 37% of South Africa's fuel needs, iirc. That's an example of what happens when there are no new primary oil fields to use.

South Africa has a third of the per capita oil consumption of the US. They make about 215,000 barrels a day from coal liquifaction and conversion of gas condensates. US oil consumption is nearly 50 times greater. 50 times. You go figure out the costs of South Africa's program and scale it up 50 times. Like I said, show me and prove it's feasible on a large scale such as the US. Solar power may work for powering your cottage, but it's not going to run a metropolis.

Tar sands & oil shales can't be extracted in significant amounts, and production rates will always be sharply limited due to resource & energy requirements. That's why it has minimal effect on the curve.

Tar and oil shales are only one source of oil.

Right, so where's all those other sources? Time and time again all I hear is "the sources will be there when the price is right". I'm getting fed up with it, WHAT ARE THESE SOURCES AND HOW MUCH CAN THEY PROVIDE? I want numbers to prove it, not vague statements.

No, no it is not: if the ratio between reserves and production has improved, that is precisely what I am not suggesting, indeed, that was the very point.

I've already shown a few posts up that the ratio has gone down, not up. Thanks for trying.

[Lord Zentei]

Unfortunately not. The curve works for every country for which there is an accurate production history and reserves estimate, Canada, the US, Russia, China, and about 40-50 other countries.

And in every case, there were other pirmary fields abroad that were waiting to be tapped, such that they were used instead of alternative sources. So you can't compare what happens in such cases of local depletion with global depletion: it's apples and oranges.

And there are fields waiting to be tapped now? If there aren't, and I maintain there aren't any fields of significance, then the situation is the same except on a larger scale. Apples & apples.

Er, no: if there were other fields waiting to be tapped elsewhere, that would be the same. If there are none, alternative sources are exploited instead.

Limited to the extent that it does not make alternative sources more profitable to use instead of seeking new primary oilfields. This counterargument of yours is unworthy - kindly don't ascribe me such stupidity.

It's not my fault you're making a stupid argument. "If the price of oil is high enough, oil will be too expensive, and alternatives will be more profitable". Sure. The real world is not a simplified ideal case in an Economics textbook, kindly quit treating it as such.

Ah, economics does not apply? Basing arguments on it is stupid? Wow. Never mind the fact that we have real-world examples of such occouring.

I am not sure that I can provide you with the resource cost of such plants, though I can point out that South Africa's Sasol has been producing oil by coal liquification since the 1950s. This has generally because of security reasons and unprofitable - until recently, due to increasing world prices. So we already have oil liquification plants that are runing commercially and at profit. They supply 37% of South Africa's fuel needs, iirc. That's an example of what happens when there are no new primary oil fields to use.

South Africa has a third of the per capita oil consumption of the US. They make about 215,000 barrels a day from coal liquifaction and conversion of gas condensates. US oil consumption is nearly 50 times greater. 50 times. You go figure out the costs of South Africa's program and scale it up 50 times. Like I said, show me and prove it's feasible on a large scale such as the US. Solar power may work for powering your cottage, but it's not going to run a metropolis.

Linka. Sasol's capital assets are worth about 65 Bn Rand, which translates to about 10 bn dollars. Scaled up 50 times means about 500 billion dollars worth of capital assets.

Tar sands & oil shales can't be extracted in significant amounts, and production rates will always be sharply limited due to resource & energy requirements. That's why it has minimal effect on the curve.

Tar and oil shales are only one source of oil.

Right, so where's all those other sources? Time and time again all I hear is "the sources will be there when the price is right". I'm getting fed up with it, WHAT ARE THESE SOURCES AND HOW MUCH CAN THEY PROVIDE? I want numbers to prove it, not vague statements.

I'm sure you are aware of the size of the world's proven coal reserves.

[J]

And there are fields waiting to be tapped now? If there aren't, and I maintain there aren't any fields of significance, then the situation is the same except on a larger scale. Apples & apples.

Er, no: if there were other fields waiting to be tapped elsewhere, that would be the same. If there are none, alternative sources are exploited instead.

You continue harping on alternative sources, buthave yet to show they're even feasible.

It's not my fault you're making a stupid argument. "If the price of oil is high enough, oil will be too expensive, and alternatives will be more profitable". Sure. The real world is not a simplified ideal case in an Economics textbook, kindly quit treating it as such.

Ah, economics does not apply? Basing arguments on it is stupid? Wow. Never mind the fact that we have real-world examples of such occouring.

Using the simplified ideal textbook case out of a high school economics text which neglects all real world factors, which is what you are doing, is goddamn stupid. What you've argued to date is identical to the classic "building widgets" example in my high school Economics text. You can't seriously tell me it applies to the real world.

Linka. Sasol's capital assets are worth about 65 Bn Rand, which translates to about 10 bn dollars. Scaled up 50 times means about 500 billion dollars worth of capital assets.

That only counts the conversion plants and some of the coal mines. Coal liquifaction projects do no operate in isolation and require a large infrastructure to support them. Massive expansions of both coal mining, coal transportation via railways, and power generation will also be needed.

How much? Well US transportation needs in oil are equivalent to 16 quadrillion BTUs of energy (quads). Coal liquifaction is about 67% efficient at best. A kilogram of coal has 2.3e7J of energy. To replace 37% of the oil used in US transportation needs would require the mining of an additional 3.8 billion tons of coal every year. Current US coal production is 1 billion tons a year. Figure out the capital value of all US coal mines, multiply by 4. I'll bet it's a real big number.

Also, those 250 year US coal reserves? They've just gone down to 50 years.

I'm sure you are aware of the size of the world's proven coal reserves.

Which as shown above, ain't going to amount to much. Great, you've replaced some oil. But now you've increased coal consumption to several times the current level. Wonderful.

[GrandMasterTerwynn]

While what you suggest is a possibility, I think it's an overly pessimistic scenario. I might be wrong, of course, but I think the change will be a bit more gradual.

You present a scenario where oil prices hit a point where they shoot up sharply, as oil supplies just drop off. But that will only really happen if all the oil fields run dry at exactly the same time. That won't happen. They will dry up one by one, and as supply shrinks, incentive for alternative energy will go up.

I've been following this entire debate for a while, and shall add my own commentary. As has already been pointed out, even small changes in the level of oil production cause massive increases in prices. The so-called 'Oil Crisis' of the 1970s dropped global oil production by something like 3% to 5% annually, yet it resulted in a 400% increase in prices. The U.S. was able to get past the embargo by relying on oil from other sources. In that case, the only thing that really suffered was the flow of supply, and not the supply itself. The price of oil, and many other commodities, is partly based on futures . . . on buyers speculating on where a given commodity might end up. When we hit the phase where the global oil output will permanently decline by 3-5% annually, what happened during the Arab oil embargo of the 1970s will seem downright mild, comparatively speaking.

Building up a system of all alternative energy will be expensive and take time, but not as much as it might. We don't need to reroute the power lines or anything. We just need to change what is at the end point of those power lines - change the plant that is supplying. Again, this is going to take time and a lot of money, but it will happen.

Building up an infrastructure reliant on petrochemicals took decades, and was done in a time where the available energy was going up. In a post peak-oil world, the available energy be going down, but the price of using that energy will be speculated to such levels where it becomes prohibitively expensive to completely transform our basic infrastructure. What hurts worse is that no alternative we've explored to date provides the same net gain of energy from its production that petrochemicals do, nor can they be as easily stored and transported as petrochemicals can be. Not to mention that even a basket of such alternatives will take decades to get to the point of widespread deployment . . . even if we make the assumption that Peak Oil doesn't exist and we have the energy to spare to make such a transformation happen.

As to the claims that we will just spend time fighting over the dwindling oil supply? Well, that is true. We will, and it will be bloody and ugly. But one of the things that's great about the free market is that firms can enter or exit at will. While the big oil companies might be too hopelessly rooted in oil to make the switch, other companies will start up and compete.

It will be bloody and ugly, yes. And when it becomes prohibitively expensive to transport food to market, or even grow it in the quantities that we do, thanks to the fact that we rely on oil for our pesticides, farm machinery, food processing machinery, and transportation . . . it will become uglier still.

The problem with this free-market fantasy is that all these other companies are as reliant on oil as so-called Big Oil. They still need the cheap energy oil offers to get their infrastructure started up. And they need the investment capital of a banking system which is built on the fundamental assumption that the supply of money will always grow. The supply of money can only grow if you have an ever-growing number of people entering a workforce capable of doing more and more things, using more and more energy. Take away one of those inputs, and the whole thing collapses, and will stay collapsed until things stabilize.

Of course, there is also this small problem of the biggest suppliers of alternative energy sources like wind-turbines and solar panels happens to be . . . big oil companies. Besides the big oil companies know that the gig is up. They're not undergoing their current merger-mania because of how much they love each other. No, mergers are, largely speaking, an admission of weakness in the business world. You don't merge if you don't have to, because mergers and buyouts are ugly, ugly things. Not to mention they're tacitly admitting that Peak Oil is upon us. Or have you missed Chevron's newest ad campaign about the virtues of conservation.

Big oil won't be able to drive them out of business, because, in the long run, the alternative energy companies are the ones pursuing the most cost-effective strategy. The switch WILL get made. We are looking at a big looming recession, but not a 100-year setback in civilization.

The Arab oil embargo sparked off one of the biggest global economic slowdowns since the Great Depression. And even during the Great Depression, the supply of energy needed to get out of it was still cheap and plentiful. The Great Depression would be about the best we could ask for.

I doubt that we will even see something along the lines of the Great Depression. That was caused by very poorly managed monetary policy and poor international trade decisions, among other things. We've learned since then.

Poorly managed monetary policy? Yep, we still have that. Our monetary policy assumes that things will always stay the same or continue to improve. As a result, our economy is sensitive to even the most minor of changes. Minor changes spark periods of inflation or depression. Like it or not, all economies run on energy. To grow an economy you need to expend more energy. Be it energy expended in extracting and processing raw inputs, energy expended in creating productive work environments, or energy expended in keeping the workforce healthy enough to take advantage of the above two. If you have less energy to spend, then the economy must contract.

We've learned nothing at all. Or have you missed the stories about how people have been suckered by ARM balloon mortgages and offers of cheap credit? We're essentially doing the same sorts of things we were doing before the Great Depression hit. Only this time, recovery is going to be a real bitch.

The thing that's so great about the free market is it's flexible. That's what makes it run so smooth. If the free market were a monolith, that would be one thing. But the market really consists of thousands of different independent entities working with and against each other to find the most efficient solutions to problems, in order to stay ahead of the curve and make the most profit.

The free market does not work to find the most efficient solution to a problem. The only problem the free market works to solve is how much profit it can return to its shareholders. So it will do the best that it can to produce growth of profit that can be poured back into the market to stimulate more growth of the market.

But that market relies on the basic inputs remaining cheap enough that you can realize a profit at the day's end. It's never had to face having 75% of its energy budget taken away from it, or even the prospect thereof, given how much of the economy is based on how things might end up. And don't forget that today's "free market" encompasses the entire planet. There are countries which are even further behind the alternative energy curve than we are, and some small pissants that are further ahead. But the ones that are ahead are much smaller than we are.

When oil prices start to skyrocket, which they might (and probably will) do soon, some people will try as hard as they can to keep the oil infrastructure intact and find as many possible oil sources as they can.

This is one of those deceptively bland things that one might say. It's like saying that global sea levels will only rise by a hundred feet over the next couple of centuries. I mean, sure, that's fine to say if you live in Denver, Colorado, with an elevation of a mile above sea-level. It's another thing entirely if you live in New York City, New York; or the entire state of Florida, for that matter.

The bulk of the world's oil infrastructure is located in countries that are, if not outright hostile towards us, justifiably cool and suspicious towards us. Not to mention that among our competitors is the holder of the planet's largest standing army. And rising fuel prices will be much less of an obstacle to them than it would be for us.

Those comapines will become less and less profitable as the price of oil rises, while those startup companies who begin providing alternative energy, as well as heavy research into alternative energy, will become more and more profitable as their competitors lose their edge.

Again, we're just starting on the alternative energy curve. Full deployment is decades away, even under the very best of circumstances. These aren't the very best circumstances. In fact, they're about as bad as they can get. Furthermore, there is no energy source as economical, energetically dense, and as easily transportable as oil. Not without a lot of advanced technology that, incidentally, requires enormous inputs of energy and expertise just to build.

As you say, we are in for a bumpy road. But the market will adapt, because that's exactly what the market does best.

This is a crisis that the dead hand of Adam Smith will not be able to solve. It will require conscious effort and heroic, brutal, once-in-a-generation leadership to even slightly soften the coming body-blow. This conscious effort will run contrary to the market's instincts, and to our basic instincts as people. But, that is for another thread. Which, incidentally, I will create, as I'm thinking so much about it right now.