German Military Braces For Peak Oil

[The Grim Squeaker]

"A studyby a German military think tank leaked to the Internet warns of the potential for a dire global economic crisis in as little as 15 years as a result of a peak and an irreversible decline in world oil supplies. The study states that there is 'some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later. ... In the medium term the global economic system and every market-oriented national economy would collapse.' The report closely matches one from the US military earlier this year, which stated that surplus oil production capacity could disappear within two years and there could be serious shortages by 2015 with a significant economic and political impact."

Let the fun times roll...

[LionElJonson]

This is why we need to go nuclear, ASAP.

[Chris OFarrell]

Its not anywhere near that simple.

And unfortunantly, we're about 10 years too late to REALLY make a good effort at mittigating the worst of Peak Oil.

[adam_grif]

This is why we need to go nuclear, ASAP.

Believe me, I'd love nothing more than to drive a nuclear powered car. Unfortunately, they are not manufactured.

[Thanas]

The title is highly misleading. First, it is a study, not policy. Second, this is pretty much a worst-case scenario analysis.

[mr friendly guy]

This is why we need to go nuclear, ASAP.

Believe me, I'd love nothing more than to drive a nuclear powered car. Unfortunately, they are not manufactured.

I think in one of these previous economic threads which inevitably gets hi jacked to talk about peak oil, Shep suggested

1. Nuclear will allow us to convert the coal we aren't using anymore to be converted to oil. He even calculated how many nuclear plants a country like China would need.

2. The other option to try and decrease the use of oil is to have electric cars. Unfortunately we aren't able to mine enough lithium for both our consumer electronics plus electric power cars (in significant numbers). Recycling will help offset some of these, however electric cars will most probably just decrease the use of oil for vehicles, but not make a significant dent in it.

The other cool thing I have read in a science magazine is that with existing technology we could manufacture oil from the carbon dioxide in the atmosphere, thus we help flight climate change simultaneously. The thing is to mass produce this, you need lots of nuclear plants. I am at work doing a night shift so I don't have that magazine on me right now.

However nuclear will help. Just not by itself, and only if we do a few of these other strategies.

[Pelranius]

Shep also mentioned using nuclear power to take ammonia out of the atmosphere and use that to run combustion engines (with a bit of modification).

[Night_stalker]

This is why we need to go nuclear, ASAP.

Believe me, I'd love nothing more than to drive a nuclear powered car. Unfortunately, they are not manufactured.

Ford nearly made one, but someone finally realized how utterly batshit insane one would have to be to drive around in a nuclear powered car.

Link is here:http://en.wikipedia.org/wiki/Nuclear_car

[une]

This is why we need to go nuclear, ASAP.

Believe me, I'd love nothing more than to drive a nuclear powered car. Unfortunately, they are not manufactured.

I'm sure that by the time the affects of peak oil become really visible cars will be a luxury of the rich.

I think that instead of trying to figure out ways to keep our cars, we should really focus on building up our mass transit system and making cities more walkable/bike-able.

[Ryan Thunder]

I think that instead of trying to figure out ways to keep our cars, we should really focus on building up our mass transit system and making cities more walkable/bike-able.

The whole notion of cars for inner-city transit is insane anyway.

Take Toronto, for instance, where traffic is nuts. My commute is nearly 2 hours long. You could take 30+ cars off the road for every bus you add if people would just actually use them, and the highways would be wide open in the mornings instead of crawling along at 40km/h. My commute would be 35 minutes.

[KlavoHunter]

Why is it that, when I think of the military in the post-Peak Oil future, I envision fleets of electric battery-powered tanks 'foraging' off of local power supplies, and centering around mobile nuclear reactor vehicles for logistics?

[GrandMasterTerwynn]

Why is it that, when I think of the military in the post-Peak Oil future, I envision fleets of electric battery-powered tanks 'foraging' off of local power supplies, and centering around mobile nuclear reactor vehicles for logistics?

Because you're grossly overreacting? Tanks can use either diesel, or multi-fuel turbines. Diesel requires less refining than gasoline, and can be made from non-petrochemical sources. And there's no good reason why a multi-fuel turbine can't run off of, say, ethanol. Besides all that, the other side of the Peak Oil plateau isn't going to be an oil off-switch. Yes, oil prices will skyrocket because demand will far outpace supply until that demand is destroyed (one way, or another,) but what makes you think that the military forces of the world aren't going to get first cut at the world's oil production?

We may have a lot of problems should energy demand ever get into a position where it far outstrips supply. Providing liquid fuel for military vehicles, however, isn't going to be one of them.

[Simon_Jester]

Though fuel costs might become more of a concern for things like training budgets. That could be a problem even if supplying fuel for military operations is not.

[Sarevok]

Frontlines Fuel of War becomes a bad videogame with a prophetic plot ?

From wiki

Frontlines: Fuel of War is set in a dystopian 2024 in the midst of a global energy crisis. As supplies of oil and natural gas wane, diplomatic relationships between the East and West are strained, causing new alliances to be formed.

[HMS Conqueror]

"some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later."

Fair enough.

"In the medium term the global economic system and every market-oriented national economy would collapse."

...what?! How do these people get jobs? And why do otherwise sensible people believe them?

Why is it that, when I think of the military in the post-Peak Oil future, I envision fleets of electric battery-powered tanks 'foraging' off of local power supplies, and centering around mobile nuclear reactor vehicles for logistics?

Sadly more boring. The present generation of military vehicles simply will run on oil based fuels: paying the premium will be less costly than replacing the engine. Otherwise, synthetic fuels that are functionally identical. Battery powered vehicles aren't going to happen unless the price of batteries drops by about an order of magnitude, and for military applications, the energy density would have to increase by an order of magnitude or more as well. Portable nuclear reactors won't ever happen.

[Surlethe]

"some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later."

Fair enough.

"In the medium term the global economic system and every market-oriented national economy would collapse."

...what?! How do these people get jobs? And why do otherwise sensible people believe them?

Come now. It is not unreasonable that very high proportions of consumption will be diverted to investment to replace cost-ineffective, depreciated capital: peak oil production will be accompanied by significant capital restructuring and shifts of employment away from industries that rely on petrochemicals. Meanwhile, resources will also be diverted to investment in cost-viable alternatives. This adjustment will result in prolonged unemployment and slow or negative growth: the real economy is full of friction, costly information, and it takes time for markets to clear.

[Skgoa]

"some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later."

Fair enough.

"In the medium term the global economic system and every market-oriented national economy would collapse."

...what?! How do these people get jobs? And why do otherwise sensible people believe them?

Huh? They looked at what the worst possible outcome could possibly be. That is PRECISELY their job description. Every (competent) military does that. Heck, every competent human being takes a moment to think about all possible risks, when asked to plan for (more or less) unknown future problems.

[HMS Conqueror]

"some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later."

Fair enough.

"In the medium term the global economic system and every market-oriented national economy would collapse."

...what?! How do these people get jobs? And why do otherwise sensible people believe them?

Come now. It is not unreasonable that very high proportions of consumption will be diverted to investment to replace cost-ineffective, depreciated capital: peak oil production will be accompanied by significant capital restructuring and shifts of employment away from industries that rely on petrochemicals. Meanwhile, resources will also be diverted to investment in cost-viable alternatives. This adjustment will result in prolonged unemployment and slow or negative growth: the real economy is full of friction, costly information, and it takes time for markets to clear.

Not really.

It means the oil price rises. Or rather, continues to rise, which will cause mild price increases for goods with oil in the supply chain. And that's about it. It won't even be continuous: there will be plateaus at various points as alternative oil sources become viable, followed by a permanent high at nuclear sourced synfuel, which will then steadily decrease in cost over time. At most, it will slow the rate of economic growth, but not turn it negative. Not even a mild recession. You would only get high unemployment if the increase were both rapid and unanticipated.

For the economy to collapse would need rapid sustained economic contraction, and I'm not sure why it would affect only market economies, as if anyone still believed planned economies are better at dealing with disequilibrium(?!).

[Zaune]

Electric cars probably aren't a viable solution outside of short-distance urban use, which could be almost totally eliminated by the provision of better alternatives like buses and light rail anyway. Fuel-cell power is probably going to be the way forward for other applications, including rail in the short to medium term; electrification is only really economical on routes with a high volume of traffic.
And hell, you can buy kits to make a passable substitute for diesel out of old chip fat if you really want to.

[Surlethe]

Not really.

It means the oil price rises. Or rather, continues to rise, which will cause mild price increases for goods with oil in the supply chain. And that's about it. It won't even be continuous: there will be plateaus at various points as alternative oil sources become viable, followed by a permanent high at nuclear sourced synfuel, which will then steadily decrease in cost over time. At most, it will slow the rate of economic growth, but not turn it negative. Not even a mild recession. You would only get high unemployment if the increase were both rapid and unanticipated.

I think you're underestimating how many goods have oil in their supply chain (how many goods are transported via truck or train? Rising oil prices cause enormous increases in transaction costs), and the level of investment required to use oil alternatives. At the same time there will be a wholesale shift to alternates, which will slow growth as well; oil has no perfect, and only a few good, substitutes. And the price increase will probably be rapid and may be unanticipated; how much does good information about the chief oil suppliers cost?

Regardless, we agree about mechanism and disagree about magnitude. For better or worse the German military planners are assuming a worst-case scenario, as Thanas pointed out, so their assumptions are more in line with the picture I painted.

For the economy to collapse would need rapid sustained economic contraction, and I'm not sure why it would affect only market economies, as if anyone still believed planned economies are better at dealing with disequilibrium(?!).

No, it would affect non-market economies too.

[HMS Conqueror]

Not really.

It means the oil price rises. Or rather, continues to rise, which will cause mild price increases for goods with oil in the supply chain. And that's about it. It won't even be continuous: there will be plateaus at various points as alternative oil sources become viable, followed by a permanent high at nuclear sourced synfuel, which will then steadily decrease in cost over time. At most, it will slow the rate of economic growth, but not turn it negative. Not even a mild recession. You would only get high unemployment if the increase were both rapid and unanticipated.

I think you're underestimating how many goods have oil in their supply chain (how many goods are transported via truck or train? Rising oil prices cause enormous increases in transaction costs), and the level of investment required to use oil alternatives. At the same time there will be a wholesale shift to alternates, which will slow growth as well; oil has no perfect, and only a few good, substitutes. And the price increase will probably be rapid and may be unanticipated; how much does good information about the chief oil suppliers cost?

Regardless, we agree about mechanism and disagree about magnitude. For better or worse the German military planners are assuming a worst-case scenario, as Thanas pointed out, so their assumptions are more in line with the picture I painted.

You're right that many things have oil in the supply chain, but it's important to quantify how much of the supply chain is oil. If a £1 loaf of bread includes 2p of supply and fertiliser costs due to oil, even a 1,000% increase in the price of oil (way past the point where you can make synfuel competitively) would only increase the price of that bread by 20%, which is about 6 years of economic growth. We presume that peak oil is going to happen over decades, and plateau or even decline in price a few times as, eg. tar sands, oil shale, etc. come online.

So how much of the world's economy is oil? According to this the world produces about 26 billion bbl of crude oil per year. At the current spot price (I used $76/bbl), that amounts to just on $2tn, or 2.8% of world GDP. Not a whole lot. Significant, but by no means overwhelming.

As for anticipation, how secret do you think 'peak oil' is if governments of respected countries are reported as taking it seriously (too seriously) in the NYT and the Guardian? It's just not worthwhile switching away from oil yet, as the recent biofuels subsidy debacle demonstrated. Of course, it also demonstrated that we can make lots of biofuels very quickly if it's ever important, not that they are necessarily the best option.

So yes, slowed growth, to some extent. I'm not convinced it would be noticeable even. But certainly not "the global economic system and every market-oriented national economy would collapse."

For the economy to collapse would need rapid sustained economic contraction, and I'm not sure why it would affect only market economies, as if anyone still believed planned economies are better at dealing with disequilibrium(?!).

No, it would affect non-market economies too.

Sorry, I didn't mean to put those words into your mouth. It's what the report said.

[Simon_Jester]

Come now. It is not unreasonable that very high proportions of consumption will be diverted to investment to replace cost-ineffective, depreciated capital: peak oil production will be accompanied by significant capital restructuring and shifts of employment away from industries that rely on petrochemicals. Meanwhile, resources will also be diverted to investment in cost-viable alternatives. This adjustment will result in prolonged unemployment and slow or negative growth: the real economy is full of friction, costly information, and it takes time for markets to clear.

Not really.

It means the oil price rises. Or rather, continues to rise, which will cause mild price increases for goods with oil in the supply chain. And that's about it. It won't even be continuous: there will be plateaus at various points as alternative oil sources become viable, followed by a permanent high at nuclear sourced synfuel, which will then steadily decrease in cost over time. At most, it will slow the rate of economic growth, but not turn it negative. Not even a mild recession. You would only get high unemployment if the increase were both rapid and unanticipated.

For the economy to collapse would need rapid sustained economic contraction, and I'm not sure why it would affect only market economies, as if anyone still believed planned economies are better at dealing with disequilibrium(?!).

What's really problematic, as always in any mathematical model, are the discontinuities: the points where the model doesn't really cover what happens next.

For example, as the price of oil (and the associated prices of things like plastic and gasoline) rise, we see certain activities being priced out of the market: they can no longer compete because the service they offer is not valuable at the price they have to charge to cover fuel expenses. Commercial air travel may already be nearing this point.

In a naive economic model, this just results in people finding other ways to satisfy their needs, or shrugging and accepting that the need can no longer be met. But in a more sophisticated model, you would have to take into account time delays due to infrastructure construction. And situations where the capital available to develop alternative solutions winds up getting sunk into dealing with short-term problems. And situations where there is a short term vital necessity that must be met, the costs of which become an increasing fraction of the overall cost of keeping the system running, reducing the available pool of assets to do other things.

For example, a 20% increase in the cost of food means a corresponding increase in the cost of living. Minimum livable salary increases, and that may drive certain operations predicated on cheap labor out of business... which in turn has other effects that echo through the system. Likewise, the simultaneous rise in the cost of long-distance transportation is increasing the price of everything, including the things you would need to put together viable substitutes for oil (trucking in the materials for laying down the railroad track becomes more expensive).

The cumulative effect of this kind of thing can be a drastic and unpleasant fall of opportunities for economic growth... and money that should be getting spent on developing long-term alternatives to oil and building the infrastructure to use them (like electric-powered railroads run by nuclear reactors) instead gets spent on the rising cost of urgent needs like food and fuel. This causes increased dislocation in the long run when the price of things like long distance trucking (common in the US) becomes too high because of fuel costs, because the alternatives don't exist yet; they haven't been built and can't appear overnight.

It's even worse in countries where the economy is fairly marginal for much of the population. If you're spending a majority of your income feeding your family and the cost of food rises 20%, you're a likely candidate for riots, or to die in a famine that, again, has side effects that cause even more economic dislocation.

A lot of these effects are not adequately modeled just by looking at supply and demand curves. I'm not familiar enough with economics to know if more refined models exist, but I know they're going to be needed if we want to adequately project the implications of peak oil.

[HMS Conqueror]

Come now. It is not unreasonable that very high proportions of consumption will be diverted to investment to replace cost-ineffective, depreciated capital: peak oil production will be accompanied by significant capital restructuring and shifts of employment away from industries that rely on petrochemicals. Meanwhile, resources will also be diverted to investment in cost-viable alternatives. This adjustment will result in prolonged unemployment and slow or negative growth: the real economy is full of friction, costly information, and it takes time for markets to clear.

Not really.

It means the oil price rises. Or rather, continues to rise, which will cause mild price increases for goods with oil in the supply chain. And that's about it. It won't even be continuous: there will be plateaus at various points as alternative oil sources become viable, followed by a permanent high at nuclear sourced synfuel, which will then steadily decrease in cost over time. At most, it will slow the rate of economic growth, but not turn it negative. Not even a mild recession. You would only get high unemployment if the increase were both rapid and unanticipated.

For the economy to collapse would need rapid sustained economic contraction, and I'm not sure why it would affect only market economies, as if anyone still believed planned economies are better at dealing with disequilibrium(?!).

What's really problematic, as always in any mathematical model, are the discontinuities: the points where the model doesn't really cover what happens next.

For example, as the price of oil (and the associated prices of things like plastic and gasoline) rise, we see certain activities being priced out of the market: they can no longer compete because the service they offer is not valuable at the price they have to charge to cover fuel expenses. Commercial air travel may already be nearing this point.

In a naive economic model, this just results in people finding other ways to satisfy their needs, or shrugging and accepting that the need can no longer be met. But in a more sophisticated model, you would have to take into account time delays due to infrastructure construction. And situations where the capital available to develop alternative solutions winds up getting sunk into dealing with short-term problems. And situations where there is a short term vital necessity that must be met, the costs of which become an increasing fraction of the overall cost of keeping the system running, reducing the available pool of assets to do other things.

For example, a 20% increase in the cost of food means a corresponding increase in the cost of living. Minimum livable salary increases, and that may drive certain operations predicated on cheap labor out of business... which in turn has other effects that echo through the system. Likewise, the simultaneous rise in the cost of long-distance transportation is increasing the price of everything, including the things you would need to put together viable substitutes for oil (trucking in the materials for laying down the railroad track becomes more expensive).

The cumulative effect of this kind of thing can be a drastic and unpleasant fall of opportunities for economic growth... and money that should be getting spent on developing long-term alternatives to oil and building the infrastructure to use them (like electric-powered railroads run by nuclear reactors) instead gets spent on the rising cost of urgent needs like food and fuel. This causes increased dislocation in the long run when the price of things like long distance trucking (common in the US) becomes too high because of fuel costs, because the alternatives don't exist yet; they haven't been built and can't appear overnight.

If the amount you spend on oil increases from 1-2%, you simply cut back on luxuries. In the US case, probably on cars with enormous engines, with little loss in functionality at all. Catastrophic adjustment only occurs if the price increase as a % of total spending is really huge and unexpected, but it simply isn't. The oil market anticipates price rises, which are gradual, since the depletion of oil is a continuous process and not one that occurs in huge jumps. The oil price already more than doubled in real terms since before the 70s crisis: have you personally noticed a difference to your life? And it has increased about 5x this decade before crashing with the banking crisis: did you notice that? In fact, at the 2000 spot price, even with the small economy, oil would be less than 1% of world GDP. Even if oil disappeared in the next 2 years I don't see how we would get world-destroying consequences, when biofuel already is competitive with the pre-crash oil price.

As far as I've been able to tell reading their websites and publications, the peak oil doom-monger case is based on the assumption that there is no possible replacement for oil and that almost everything is dependent on it. Neither of these are true. Oil is just the most convenient feedstock for a range of things at present.

It's even worse in countries where the economy is fairly marginal for much of the population. If you're spending a majority of your income feeding your family and the cost of food rises 20%, you're a likely candidate for riots, or to die in a famine that, again, has side effects that cause even more economic dislocation.

A lot of these effects are not adequately modeled just by looking at supply and demand curves. I'm not familiar enough with economics to know if more refined models exist, but I know they're going to be needed if we want to adequately project the implications of peak oil.

Not really, since those countries' food supply is not much affected by oil price increases. If they had mechanised agriculture, everyone driving cars, flying in vegetables from abroad, etc. then they wouldn't have marginal economies.

[J]

Hirsch Report Read it someday. I have nothing further to add since I refuse to deal with this level of unadulterated stupidity.

[Simon_Jester]

If the amount you spend on oil increases from 1-2%, you simply cut back on luxuries. In the US case, probably on cars with enormous engines, with little loss in functionality at all. Catastrophic adjustment only occurs if the price increase as a % of total spending is really huge and unexpected, but it simply isn't. The oil market anticipates price rises, which are gradual, since the depletion of oil is a continuous process and not one that occurs in huge jumps. The oil price already more than doubled in real terms since before the 70s crisis: have you personally noticed a difference to your life? And it has increased about 5x this decade before crashing with the banking crisis: did you notice that?

Not much, but I've also been lucky enough to be living on essentially the same terms I was before the banking crisis itself; that doesn't mean the crisis doesn't matter.

The reason peak oil is a potential problem is one that really ought to be familiar to you, given the level of grounding in economics you rely on: bidding contests over scarce resources.

As long as the available supply of oil continues to increase, growing demand is not a problem. You just drill more wells. But what happens when the supply is fixed, but demand continues to grow, since the population of oil consumers is growing, and since many countries are consuming more oil per capita than they used to?

Suddenly there is a marked change in the price regime. When the supply of a good can grow, the price of a good is determined by the cost of expanding production. The price I charge you for an apple is determined by how much it costs me to grow an apple and bring it to you to sell. If I try to charge much more than my own costs, I am vulnerable to being outbid by someone else who doesn't overcharge you.

But when the supply of a good cannot grow, and demand continues to increase, the price is determined by a bidding war among the customers. If every person needs an apple and there is no way to supply apples to everyone, the price increases until someone is priced out of the market. We can see this in, for example, the rapid increase in the price of things like bottled water and gasoline in a disaster area. When sellers can sell their entire available inventory and still have customers pounding on their door, prices go up very quickly, and some people lose the ability to afford the product.

It's the effects of that game of economic musical chairs that cause the problem with peak oil. Certain activities will NOT simply switch over to other, equally useful substitutes; they will be priced clean out of the market. If what gets priced out of the market is a luxury (Humvees when we could be driving sedans) that is not a problem. If it's not a luxury (long-range commercial trucking in the US, or a steady supply of food in the Far East), then there's a problem, one that is not modeled by supply and demand alone, and that can not be solved purely by waving one's hands and saying "ah well something else will meet the demand."

In fact, at the 2000 spot price, even with the small economy, oil would be less than 1% of world GDP. Even if oil disappeared in the next 2 years I don't see how we would get world-destroying consequences, when biofuel already is competitive with the pre-crash oil price.

Biofuel competes directly with food supplies, which has consequences detailed below. Moreover, biofuel is not a substitute for the entire petrochemical industry.

It's even worse in countries where the economy is fairly marginal for much of the population. If you're spending a majority of your income feeding your family and the cost of food rises 20%, you're a likely candidate for riots, or to die in a famine that, again, has side effects that cause even more economic dislocation.

A lot of these effects are not adequately modeled just by looking at supply and demand curves. I'm not familiar enough with economics to know if more refined models exist, but I know they're going to be needed if we want to adequately project the implications of peak oil.

Not really, since those countries' food supply is not much affected by oil price increases. If they had mechanised agriculture, everyone driving cars, flying in vegetables from abroad, etc. then they wouldn't have marginal economies.

That is not true. Many of them import large amounts of grain from abroad, and make up for it by exporting cash crops or natural resources that are locally available: a country that has a lot of tropical mountains can grow coffee far more advantageously than grain, and tends to do so. Countries with marginal economies aren't necessarily self-sufficient in food.

Also, some of the food commodities used in those countries compete directly with biofuels: vegetable oil and maize come to mind. When demand for biodiesel and ethanol increases, those countries wind up in a bidding war with the developed world; farmers find themselves choosing whether to grow the food the Third World eats or the fuel the First World burns.

That can, and has, led to sharp increases in the price of certain foods all by itself; we saw this during the recent oil price spike right before the recession.