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DemonD
12-28-07, 04:26 PM
Luke:

I feel that most or all of us that are itulip readers and contributors understand your viewpoints on Peak Oil. Your arguments have been discussed, ad nauseum. Every time you post something else about Peak Oil, it's the same argument, again and again. Sure, there might be slightly different data, but the debate is the same. While I appreciate your efforts and respect your opinion, what I would like to say to you is this:

"Okay, I understand you. No need to keep saying the same thing. Let's just let this play out, and see what happens."

At this point any further debate and/or argument is just a rehash of what has been said. So please, do not be offended when I put an emoticon of a smiley beating a dead horse, because that is what I feel you are doing at this point when the same exact argument is brought up again and again. Most of the time I just do the thing most people do when they feel they've read something before: ignore it. But I felt the need to put up this post because it was just on my mind, and I felt like I needed to say it. Please do not take this as a personal attack, as it is not meant as such, but rather an opine of what I see when I read any new discussions on the topic. I just feel there really isn't anything new to say, so why say it.

Spartacus
12-28-07, 04:55 PM
others may find the posts useful. Indeed, people are reading and replying.

No need to ask people to stop posting ... [EDIT: inapplicable comment removed, quote shortened ]


same argument, again and again. Sure,

Please do not take this as a personal attack, as it is not meant as such, but rather an opine of what I see when I read any new discussions on the topic. I just feel there really isn't anything new to say, so why say it.

DemonD
12-28-07, 05:00 PM
I don't want to filter anything.

I also didn't ask lukester to stop posting. All I am saying is that stating the same thing over and over isn't adding anything to the conversation, in my opinion. This is why I put a "beating a dead horse" emoticon on one of the responses to a post, because I felt it was the same thing again and again and again. As far as being useful, there is a ton of useful info that doesn't get discussed on a daily or weekly basis, and also there is a dedicated forum for energy, but the oil discussion appears everywhere (whereas the housing bubble forum seems to attract most of the housing bubble news).

Edit: also, I've noticed that the peak oil debate tends to get a bit personal and sometimes acrimonious. I feel this is not helpful, as financial decisions should be made without passion or emotion, and discussions with that type of drama are not as useful as a more cool, logical discussion.

Spartacus
12-28-07, 05:15 PM
Sorry to put words in your mouth - when others do that to me I consider it extremely disrespectful.



I also didn't ask ...

FRED
12-29-07, 09:23 AM
Sorry to put words in your mouth - when others do that to me I consider it extremely disrespectful.

We hope Lukester keeps the posts on peak oil coming and the discussion moving. The iTulip position is that the Peak Oil disaster scenario will not happen, as in, a sudden drop off of oil supply. Our hypothesis is what we call Peak Cheap Oil, meaning that as easily and inexpensively extracted oil–especially sweet light crude that is most cheaply refined into fuel for transport–is used up, producers will charge more, prices will rise and demand will decline. This can be expected to produce a falling demand curve as prices rise. Next step is to see if we can't identify such a curve and convince ourselves that Peak Cheap Oil either is or is not occurring. Government can create an artificial Peak Cheap Oil curve earlier than might naturally occur via a floating tariff on imported oil.

c1ue
12-29-07, 02:27 PM
Lukester is going to do what he wants to do.

I've also never asked him to stop posting, but equally I have become less and less tolerant of the unremitting agenda.

As any PsyOps manual will tell you - one way to engender belief is to repeat it ad infinitum.

I do object to this (hopefully unconscious) effort.

Rajiv
12-29-07, 02:33 PM
Our hypothesis is what we call Peak Cheap Oil, meaning that as easily and inexpensively extracted oil–especially sweet light crude that is most cheaply refined into fuel for transport–is used up, producers will charge more, prices will rise and demand will decline. This can be expected to produce a falling demand curve as prices rise.

Fred,

The question that Lukester, and perhaps I (to a lesser extent) are asking is what would be the impact of the rising oil prices on the world economy. Currently agriculture relies heavily on hydrocarbons - both for primary input and for transport -- if cheap hydrocarbons become expensive hydrocarbons, how would society be impacted -- will we be able to adjust rapidly.

The other assertion that Lukster was responding to was the claim by many that the demand destruction will cause a collapse in oil prices -- but your stance is that oil prices will continue to rise and will be the cause for lowered demand. And this is the primary argument forwarded by Lukester as well.

We just have to look at the videos "greensumption (http://www.itulip.com/forums/showthread.php?t=2690)" and "the story of stuff (http://www.itulip.com/forums/showthread.php?t=2698)" to see how dependent we are on hydrocarbons and transport. My take on this is that the transition to electric transport will not come soon enough -- this will be particularly true for ocean shipping, and air transport.

Railway electrification is a way to go -- but it takes a lot of time, effort and energy to make the transition -- the question is "Do we have the time?" See also my post on "350 ppm (http://www.itulip.com/forums/showthread.php?t=2776)" -- global warming is a "joker" in the pack.

Energy conservation will occur -- but at what cost?

What will be the impact on civilization as we know it? I think we are trying to get people to factor that into their thinking -- we cannot afford to be pollyannish (http://en.wikipedia.org/wiki/Pollyanna_principle) about this very important issue.

Contemptuous
12-29-07, 05:34 PM
DemonD -

The articles you and the vast majority of iTulipers post regarding the housing implosion, mortgage derivatives and financial chicanery are truth be told by far the largest category of posts on this site. These are the true candidates for over-posting "ad nauseam". If you value factuality, start doing a two month retroactive count of the number of articles to do with that topic, and the number of articles to do with resource depletion, and you'll quickly come round to the propriety of referring to anything non-mortgage related as being "ad-nauseam".

Check your facts before indulging your peeve. As C1ue is fond of saying, if you are not interested in the tranquility of your energy (and economic) future, then "I can't help you". :o :p :o

Personally speaking, that is not my preferred form of address, as there are better ways to alert people that a substantive issue lies before them. I break out in hives at the slightest whiff of pomposity. But to each his own style.

Secondly, the reason I put this information under your dulled and uninterested eyes, is because iTuip's positions on this topic persistently stray into mis-representation as to A) the source of, and B) the depth of, the issue in question.

Based on my read of your posts DemonD, you are far and away more engrossed in "implications for your portfolio and investment results" (an enthusiasm you share with a good few others here apparently) to the exlcusion of a natural or deep curiosity about some of the "resource based" issues that seem to elicit little more than peeve and yawns from you. Considering you studied at Harvard, I find your range of expressed interests here, focused primarily on your one great enthusiasm, "stocks", to be a real yawn.

The issues I've been trying to point out are going to reach out and grab our apparently orderly world by the throat and shake it like a frightened rabbit in five to ten years. Whether you are paying attention or not at that time will not be high up on my list of concerns. I do assure you however, a lot of other people perhaps less securely ensconced than you (worldwide, not just in Hollywood California) will be paying a great deal of attention.

I find your objections fanciful, considering 90% of everything posted on this website has to do with imploding mortgage finance, a topic which apparently garners much more of your interest.

Respectfully.

___________

FRED -

You clarified the following for me :

<< The author of the phrase "Against popular opinion, high oil prices will neither reduce global demand, nor increase global supply" ought to visit this site for an Econ 101 refresher (http://www.investopedia.com/university/economics/economics3.asp) on the laws of supply and demand. >>

Here's my take on the inevitability of this "ECON-101" axiom (swiss cheese):

( you posted yesterday here http://www.itulip.com/forums/showthread.php?p=23138#poststop )


<< As for oil demand rising, that's a common fallacy we are going to try to dispel. It was true for the banner post-recession oil demand years of 2003 and 2004, but not after. Somehow the news from 2003 - 2004 got stuck in everyone's heads and was never revised. From an oil piece we're working on for next year, first of all it isn't easy predicting and measuring world oil demand. The Organization for Economic Co-operation and Development, International Energy Agency has an especially hard time forecasting when a US recession is coming. Notice the forecast in red and the actual in green, below. Way off in the recession year of 2001. This year they predict oil demand to rise 2.5% in 2008. Our guess? Less than 0.5%. >>


AND THIS:

<< Then there is the fiction that oil demand has been driving prices. Oil prices have increased an average of 27% a year since 2004 while global oil demand has increased only 1.2% a year. That includes the blistering 16% a year oil demand growth in China. OECD countries have seen falling demand that more than compensates for the increases in China and India. >>

QUESTION: - What about the conundrum that fiat petro-dollars have only debased 40% in seven years and yet the petroleum price has risen hundreds of percent. How do we nail the significance of these leveraging discrepancies to the floor in any meaningful way?

QUESTION: -the oil demand decline evidenced in the iTulip posted IEA chart, evidences RATE OF CHANGE, not any actual decline in demand.


174


In the context of the data posted in the excerpts below, it is not just the IEA that is expressly pointing out that oil demand growth continues to rise, and is anticipated to continue to rise next year. Global spare production capacity in an 80-90 MBPD world, is a measly, razor thin 2 MBPD, which is one analyst's statistical projection error away from an annual shortage.

Why post this declining rate of change chart to illustrate that global oil demand is "falling" while prices soar, when that is in fact not the case? Oil demand is not falling, it's growing. More to the point, regarding what you interpret as an incommensurately soaring oil price relative to real 1.04% global per year demand growth, the really significant point which refutes that"demand destruction" nearing, is that spare capacity continues razor thin.

Production growth is stagnant. Further, production growth is flatly stated as going into non-OPEC decline starting in two years, by a host of entities whose own charts you also use. This refers to 60% of global production - anticipated to transition into "decline" in a mere two years, and yet the below texts evidence no trace of even perceptible beginnings of demand destruction, but rather, are evidencing continuing consumption growth?.

This is a superb, peerless community for producing really rich, accurate, downright prescient analyses in so many different directions. This one direction is perhaps the sole exception.

There exists a real risk of misapprehension reading iTulip's estimation / explanation of this issue. There is a misapprehension risk, because what iTulip's summation of the drivers in this petroleum bull market accomplishes, is to draw attention away from a considerably larger issue - it's not exponentially rising monetary abuse that will be the big driver of the bid on petroleum (forget the more academic analysis of pure price action).

Put aside the "what is inflation" boondoggle for a moment. In five years - the "big issue" may very well not be "combatting massive global deflation with oceans of fiat" - because empirical data on the ground, is flatly stating the world's problem with sourcing enough petroleum to meet global growth - after non-OPEC supply tips into decline after 2010 - is right on schedule - and it's kickoff date is a mere 2 years away?!

I read these editorial posts, and I see iTulip is already constructing a thesis which will encompass soaring petroleum prices thereafter as a factor of monetary abuse alone? What about the all important question of the BID on petroleum?? We even are having the theoretical structure to pigeonhole future soaring petroleum prices constructed today as a fiat currency corrolary, in anticipation of that runaway price trend!.

Where is the substantive story hiding behind this? Will the real story in five year's time be what's happening at the central banks, with their ability to keep massive deflation at bay through continuing inflation, or what's happening on the ground in hydrocarbon reserves thereafter, to keep the wheels of global GDP from locking up?

All it takes is a 1% supply / demand SHORTFALL at the global level to send petroleum prices shooting up $50 - $100 per barrel. What is your fiat currency driver of petroleum prices doing in that eventuality? Is it scurrying like hell to catch up to the price, which just shot up $100 because OPEC finally admits to the world they can't, or won't, increase capacity further in 2012? We've never seen a 1% global supply / demand shortfal before. It is a "theoretical event". Why is this point overlooked in the emphasis on soaring oil price relative to modest global demand growth being a wholly owned subset of fiat money, where "demand destruction" and ECON-101 will inexorably impose equilibrium??

To my view, discerning "clear evidence of emerging global demand destruction" as occurring from rate of change charts spanning two or three years does not seem a robust method of extrapolating global trends, or even of tabling those as trends at all yet - and the excerpts below suggest even that rate of change chart does not accurately portray the persistent growth of global demand.

This was the quote you regarded as naive and preposterous: "Against popular opinion, high oil prices will neither reduce global demand, nor increase global supply"


STEP ONE: STUBBORN PERSISTENCE OF FLAT ENERGY LIQUIDS PRODUCTION GROWTH (FOLLOWED BY DETERIORATION AFTER 2010) - THIS FACTOR DOES NOT RESPOND BY DELIVERING IMPROVED PRODUCTION NUMBERS TO RISING OIL PRICES. (THAT MEANS "ECON 101" TRUISM - WHERE A RISING PRICE "MUST" PRODUCE RISING PRODUCTION - FAILS).

STEP TWO: IEA AND EXXON MOBIL, PLUS BP, SHELL & OTHERS, UNAMBIGUOUSLY PREDICT A "FLAT TO DOWN" NON OPEC PRODUCTION WILL COMMENCE AT, OR SHORTLY AFTER 2010 (TWO YEARS FROM NOW)

____________

WHERE IS THE SUPPLY GROWTH HERE RESPONDING TO HIGH AND RISING PRICES?

QUOTE :

Every year, baseball starts up in the Spring and there are rosy forecasts for supply growth in the non-OPEC oil supply. 2007 is no exception. Wood Mackenzie's Non-OPEC Increases to Continue in 2007 (http://www.woodmacresearch.com/cgi-bin/corp/portal/corp/corpPressDetail.jsp?oid=826346) announces the good news.







The strong upward momentum for non-OPEC supply, seen in the fourth quarter of 2006 [when Dalia (http://www.rigzone.com/data/projects/project_detail.asp?project_id=162) in offshore Angola came onstream] is expected to be maintained in 2007. The rate of increase is likely to accelerate in the fourth quarter of the year, when production is expected to be 1.6 million b/d higher than in the fourth quarter of 2006.
http://peakwatch.typepad.com/peak_watch/images/2007/03/31/exxonmobil_non_opec_2.jpg (http://peakwatch.typepad.com/photos/uncategorized/2007/03/31/exxonmobil_non_opec_2.jpg)The putative surge in new non-OPEC production in the 2007 -- 2009 period is crucial to the world oil supply. ExxonMobil's 2005 Edition (http://www.cemtpp.org/PDFs/2005_energy_outlook.pdf) of The Outlook for Energy -- A View to 2030 forecast that the non-OPEC share of world supply will plateau after 2010. (snapshot shown left).
END QUOTE.173

COMMENT - Please note in the above EXXON MOBIL chart, the "GAP" between production and consumption expands from 30 to 37 in a single decade 2010 - 2020 - that is a 25% increase in shortfall in the next twelve years. Then remember we've never even witnessed a 1% shortfall in net annual terms between supply and demand in the world. This chart is flatly predicting that 1% gap between supply and demand will occur between 2010 and 2020 - which then implies an easy, efortless leap in petroleum price upwards in a week, or a month or two, of $100 or more.

Now where or how exactly, in the above scenario, does iTulip posit that the fiat currency is going to be DRIVING the price rise so suggestively indicated in the above supply chart? It seems to me all objections that the "price (or inflation) cannot rise without fresh infusions of fiat currency" if the world goes into negative spare petroleum capacity, is a somewhat academic observation, which is refusing to allocate any significance to the substantive driver of the event??

I sure don't see a lot of iTulipers doing much independent thinking on this topic. Maybe the old "group reaffirmation of accepted ideas" is kicking in here?

The IEA's World Energy Outlook 2005 made a similar prediction (http://www.truthout.org/cgi-bin/artman/exec/view.cgi/34/14272). Any increases made between now and 2010 will most likely determine the high-water mark of non-OPEC oil production forever. And forever is a real long set of subsequent data points to establish the "latter day trend"...


QUOTE :

The apex of non-OPEC production may not be the global peak yet, but the importance of this event can not be overstated. From that point forward, the "Call on OPEC" must increase if world oil production is to show any net gains. Consequently, the security of the world's oil supply is in greater jeopardy should OPEC production falter for any reason. Given ongoing events in Nigeria, Iraq and Iran, along with declines in Venezuela and Indonesia, there are plenty of reasons to worry. As usual, Saudi Arabia is the wildcard. A future column will address the OPEC issues.

While there is no doubt that the industry is working flat out to expand its production capacity in response to high oil prices, the problem is that new projects must first compensate for output declines at existing fields before they can add to overall capacity. With underlying oil well productivity declining at an average rate of 5% worldwide, the industry needs to drill enough wells to replace more than 2 mbpd of ageing non-OPEC capacity every year just for production to stand still. Any delay in starting up a new project therefore widens the gap that needs to be filled before overall non-OPEC production can begin to rise.

The world is fast approaching a monumental historical shift. The impending peak of the non-OPEC oil supply circa 2010 illustrates the Red Queen Problem as posed in Lewis Carroll's Through the Looking Glass and illustrated by last week's Gator graph (http://peakwatch.typepad.com/photos/uncategorized/2007/04/01/gator.jpg) — one must run faster and faster merely to stay in place, let alone increase production.

As CGES points out, and as we have shown here, there is no longer any historical basis for using a "rational" approach to estimate new capacity additions. Wood Mackenzie's rosy forecast does not take the full power of declines in existing production into account. In so doing, they have sent an unrealistically reassuring message to the policy-makers and the public that peak oil is not a clear and present danger to the health of the world's economies.

END QUOTE .

____________


AND WHERE IS THE DEMAND DESTRUCTION HERE RESPONDING TO HIGH AND RISING PRICES?


Where is iTulip's reported global energy consumption demand destruction going on? If there is no evidence that demand destruction is evident. In the face of $100 oil and rising, this in fact suggests that apparently self evident "ECON-101 truisms, where a rising price "must" produce falling demand, in fact have failed yet to materialize. You may be anticipating this to materialize, but you apparently don't have it yet.


THIS - FROM IEA MARCH 2007 REPT. -


WHOLE ARTICLE HERE: http://omrpublic.iea.org/omrarchive/13mar07full.pdf (http://omrpublic.iea.org/omrarchive/13mar07full.pdf)


QUOTE :


Global oil product demand remains unchanged at 84.5 mb/d in 2006 and is seen growing by 1.8% to 86.0 mb/d in 2007. Weather-related adjustments to OECD data in Europe and the Pacific were largely offset by US demand strength and upward changes to China, FSU and India.


END QUOTE.


This is from the IEA - DECEMBER 11TH 2007 global overview -


QUESTION - Where is iTulip's anticipated global energy consumption demand destruction appearing, in this data? If there is no evidence that demand destruction is evident, "ECON-101 truisms, where a rising price "must" produce falling demand, in fact have failed yet to materialize. You apparently don't have it yet.


WHOLE ARTICLE HERE: http://www.eia.doe.gov/steo


QUOTE :


1) Global oil markets will likely remain tight through the forecast period. EIA projects that world oil demand will grow much faster than oil supply outside of the Organization of Petroleum Exporting Countries (OPEC), leaving OPEC and inventories to offset the resultant upward pressure on prices.


2) Expectations that tight market conditions will persist into 2008 are keeping oil prices high. Despite the OPEC decision last week to hold production quotas steady and downward revisions to projected consumption growth in 2008, the oil balance outlook remains characterized by rising consumption, modest growth in non-OPEC supply, fairly low surplus capacity, and continuing risks of supply disruptions in a number of major producing nations.


3) China, non-OECD Asia, and the Middle East countries are expected to remain the main drivers of higher world oil consumption through 2008. World oil consumption in the fourth quarter of 2007 is expected to rise by 1.7 million barrels per day (bbl/d) above fourth quarter 2006 levels and total oil consumption in 2008 is projected to rise by 1.4 million bbl/d over 2007. Both projections are slightly lower than last month’s assessment.


4) USA - Total domestic petroleum consumption is projected to average 20.8 million bbl/d in 2007, up 0.4 percent from the 2006 average (U.S. Petroleum Products Consumption Growth (http://www.eia.doe.gov/emeu/steo/pub/gifs/Fig14.gif)). A further 1.1-percent increase to an average of 21.0 million bbl/d is projected for 2008. Motor gasoline consumption is projected to increase by 0.6 percent in 2007 and 1.0 percent in 2008. Reflecting moderate economic growth and assumptions of normal weather during the upcoming winter season, total distillate consumption is projected to increase by 1.8 percent in 2007 and 1.4 percent in 2008.


5) USA - Natural Gas: Total natural gas consumption is expected to increase by 5.0 percent in 2007 (Total U.S. Natural Gas Consumption Growth (http://www.eia.doe.gov/emeu/steo/pub/gifs/Fig16.gif)), largely driven by increases in the residential, commercial, and electric power sectors that occurred earlier this year. The projected return to near-normal weather in 2008 is expected to increase total consumption by 1.1 percent. ...


6) Global demand for natural-gas-intensive goods produced domestically are expected to contribute to a 0.8-percent increase in industrial sector consumption in 2008.


7)USA -Total electricity consumption in 2007 is projected to increase by 1.9 percent over last year (U.S. Total Electricity Consumption (http://www.eia.doe.gov/emeu/steo/pub/gifs/Fig20.gif)).


8) USA - U.S. residential electricity prices are expected to average 10.6 cents per kilowatthour in 2007 (U.S. Residential Electricity Prices (http://www.eia.doe.gov/emeu/steo/pub/gifs/Fig21.gif)), 2.1 percent above prices in 2006.

END QUOTES.

______________


I therefore reiterate my question. What if you do in fact proceed to observe this in the next 2-3 years? A) No reduced demand. B) No increased supply. C) Rising Prices. iTulip must adopt a contingency response to that potential new hard data eventuality if it occurred also, no? If you see this occur, will your view of the exclusivity of fiat currency as the prime driver behind petroleum prices be modified? If not, why not?


<< Against popular opinion, high oil prices will neither reduce global demand, nor increase global supply >>

Verrocchio
12-29-07, 07:35 PM
It is the Rant & Rave section of the forum, DemonD, so your comments don't need further justification. For my part, I have benefited from Lukester's posts and encourage him to continue to post as he has in the past.

Rajiv
12-29-07, 09:33 PM
The question that all itulipers should answer is whether oil has elastic or inelastic properties in the demand curve

Elasticity refers to the degree of responsiveness in supply or demand in relation to changes in price. If a curve is more elastic, then small changes in price will cause large changes in quantity consumed. If a curve is less elastic, then it will take large changes in price to effect a change in quantity consumed. Graphically, elasticity can be represented by the appearance of the supply or demand curve. A more elastic curve will be horizontal, and a less elastic curve will tilt more vertically. When talking about elasticity, the term "flat" refers to curves that are horizontal; a "flatter" elastic curve is closer to perfectly horizontal.

http://img.sparknotes.com/figures/5/5259b727009a2736d6ad639bab3494ff/e.gif

If demand is very inelastic, then large changes in price won't do very much to the quantity demanded. For instance, whereas a change of 25 cents reduced quantity by 6 units in the elastic curve in the figure above, in the inelastic curve below, a price jump of a full dollar reduces the demand by just 2 units. With inelastic curves, it takes a very big jump in price to change how much demand there is in the graph below. Possible explanations for this situation could be that the good is an essential good that is not easily substituted for by other goods. That is, for a good with an inelastic curve, customers really want or really need the good, and they can't get want that good offers from anywhere else. This means that consumers will need to buy the same amount of the good from week to week, regardless of the price.

http://img.sparknotes.com/figures/5/5259b727009a2736d6ad639bab3494ff/inelas.gif

My belief is that oil demand is quite inelastic in the short run (say ten year time span) -- To me this means that demand will have to be curtailed in ways other than by price mechanisms -- I know this is not palatable to people here who believe in the almightiness of the market. (see my posting on the interview with Michael Perelman)

Contemptuous
12-29-07, 09:52 PM
I know this is not palatable to people here who believe in the almightiness of the market. (see my posting on the interview with Michael Perelman)

Amen, brother.

c1ue
12-30-07, 01:46 PM
Rajiv,

I will respond to you as you have shown much more open mindedness nor have you continuously pushed a fixed agenda.

Obviously unlike textbooks, in reality demand has both elastic and inelastic components.

Keeping homes heated to 60 degrees Fahrenheit, for example, would be likely inelastic as below this temperature there is significant suffering and negative health effects.

As you adjust the thermostat upwards, clearly you progress further into the elastic (luxury) area.

The problem with both the expectation of inexorable future demand from developing industrializing nations and prediction of consumption by existing nations is that the former extra demand is mostly luxury and elastic, while the latter potentially lost demand is at least partially inelastic.

That's why looking at actual past behavior is useful.

As noted previously, from 1975 to 1985 the US saw a net drop of 13% of oil usage.

Population of US in 1975: 213M

http://www.cdc.gov/nchs/data/statab/mort75_2a_ta.pdf

Population of US in 1985: 237,923,795

http://www.infoplease.com/year/1985.html#us

So the 13% net drop also covers a population increase of 11.7% - thus the REAL drop is more like 25%. Given the ubiquity of oil in modern living, this is not a miniscule change.

Sure, some of this drop was due to the gradual replacement of Detroit gas guzzlers with Japanese cars, but as I sit here writing I saw 3 '70s era guzzlers go by. Even replacement of Detroit gas guzzlers doesn't necessarily mean equal replacement of 18 wheel trucks used for transportation, fuel oil used for winter heating, tractors for farming, plastics and chemical production, etc.

The point of this exercise is that whatever the elastic or inelastic component of oil consumption is - the past has shown that demand DOES drop in recessionary times, and drops markedly.

To me, the burden of proof rests on those who deviate from such proof.

The burden is as follows:

1) That China and other developing countries can continue to subsidize gasoline prices.

It is my belief that this is the primary reason why oil demand is ramping so quickly in these countries as has been amply demonstrated by Venezuela. Venezuela is a country that is NOT industrializing, but has the lowest priced gasoline in the world and unsurprisingly the highest 3rd world oil consumption per capita - far above China's.

Venezuela's pattern is repeating to lesser degrees in all of the other oil producing nations; China and its mercantile emulators in contrast does not produce oil and thus has the most to lose from said dynamic.

2) That the developing demand in China is both supported by organic consumption patterns as opposed to manufacture of export goods.

Buying a family car is great and all, but this is clearly a luxury.

All indications to date have shown that by and large China is NOT creating organic consumption beyond a thin fringe of nouveau riche on the top of the peasant labor masses. See other iTulip posts on this subject.

3) That the developing economies are independent of both foreign direct investment capital (FDI) and of foreign markets such that a significant recession in the US (and Europe) will not break their existing growth curve.

China and pretty much all of the other industrializing nations are still receiving huge amounts of FDI. It remains to be seen whether their economic miracles will continue should said FDI flow reverse. All of the other examples in the past - admittedly smaller nations - immediately crashed hard when FDI flows reversed; Thailand being a prime example.

4) That the iTulip/Fred supplied data showing global oil demand falling (per capita) since 1990 is an anomaly.

5) That the rest of world is necessarily being hit by dramatically increasing oil prices.

I just spoke to this when referring to 2000 vs. 2007 gasoline prices in Russia, Europe and the UK. While this would seem to reinforce the argument that overall demand would continue to increase, in fact what it means is that the largest consumer of oil - the US - is being disproportionately affected by the dollar price of oil. This in turn affects those nations with a dollar pegged currency - every single mercantile nation out there including China - and this feeds into points 1) to 3)
-----------------------------------
The projections on top of selected trends which I keep seeing do not address these points as they are all focused on one of 2 things: short term oil demand growth projections for China and the 'developing' nations, and equally short term projections on oil production shortfalls in a number of large fields.

Sure the 2 'doomer' points have some meaning, but the use of data thus far seems more like the fable of the 3 blind men describing an elephant based on what part they hold.

For example - the increase in oil demand from the 'developing' nations - almost every single one of them subsidizes internal consumption of oil. Furthermore those 'developing' nations which do produce oil, are subsidizing said oil even more so in relation to those which do not. Thus the non-oil-producing, oil subsidizing nations are effectively doubly subsidizing those 'developing' nations which do produce oil - by both providing increasingly cheap goods as a relation to the oil used to produce them as well as increasing income from oil purchases. This is not a good dynamic.

On the supply side - I've also pointed out that ultimately higher oil prices will affect the developing nations more.

Should there truly be both increasing demand and decreasing (or even stable) supply, barring something strange then price per unit increases.

The US and 1st world is the most able to afford these increases, the developing nations and 3rd world the least able.

Thus the scenario of higher oil prices itself forces demand lower; the richer countries will moderate their usage but not suffer greatly, the poorer nations will simply not be able to buy oil.

As much as I believe the US is going for a fall, the fact remains that there is a tremendous percentage of world wealth still here.

In bad times, the rich eat less richly, the poor eat less.

Contemptuous
12-30-07, 05:39 PM
The problem with both the expectation of inexorable future demand from developing industrializing nations and prediction of consumption by existing nations is that the former extra demand is mostly luxury and elastic, while the latter potentially lost demand is at least partially inelastic.
Your interpretation of which nations have the greater energy consumption elasticity seems totally back to front to me. Countries caught in the middle of their most robust < industrialisation / GDP growth > curve are naturally the nations with the the least "elasticity of demand", if only because any demand destruction occurring is faster consumed and superceded by their higher overall inherent GDP growth.

The developing countries have higher energy consumption growth, period. They have higher energy consumption per unit of GDP growth. They benefit very notably from the cost rise of raw materials in a world of rising energy input costs, because many of them have a sizable component of their GDP locked up in raw materials production.

Take postwar Europe, Japan, Korea, Taiwan, China / India, et. al - we only need take a brief glance at consumption growth curves during these nation's industrialisations, to agree the industrialisation phase uniformly behaved the same way for all of them, i.e. with a very robust growth inflection at the center of the curve.

According to the aritcle below, during the steepest phase of growth, energy consumption comes into tightest correlation to GDP growth. That can be translated directly as "least discretionary". Unless you envision a collapse of GDP growth in the developing nations, (and that's apparentlyclose to half the world at present) then that energy consumption growth trajectory is actually right now entering the portion of their industrialisation most tightly correlated into their GDP moves. Are you perhaps envisioning negative GDP growth rates in the non-OECD world?

You like to chew through the minutiae of issues up close to get a more reliable read? Here's an excellent review of the relationship between industrialisation and energy consumption, complete with detailed recession dynamics. It's a little out of date (early 2000's,) but still pertinent. To my mind, this analysis is closer to the realities today.

____________


Article Here: http://www.gasandoil.com/goc/speeches/mckillop.htm


As already noted, the notion of price elastic demand responses to much higher oil prices is based on classical economic thinking, and draws on data for rather short and selected periods of time, from a few large OECD economies for its support and demonstration. Absent from the underlying conception are the questions of actual economic growth rates, economic stage, ongoing industrialisation and urbanisation, the development of commercial energy supply and utilisation infrastructures and the economic demand-driven, increasing overall utility of oil within a growing economy. However, these elements are all critical for understanding 'reverse' or 'positive' elasticity of demand - that is increasing oil demand with increasing price. Classical price elastic notions are completely inapplicable for describing oil demand changes under regimes of much higher prices in fast growing New Industrial Countries as shown in Table 2, below

Table 2 Asian Tiger economic-driven, close-coupled adjustment to Oil Shock

<TABLE cellSpacing=2 cellPadding=2 border=0><TBODY><TR vAlign=top><TD></TD><TD>1975 </TD><TD>1976 </TD><TD>1977 </TD><TD>1978 </TD><TD>1979 </TD><TD>1980 </TD><TD>1981 </TD><TD></TD></TR><TR vAlign=top><TD>Singapore </TD><TD>141 </TD><TD>165 </TD><TD>165 </TD><TD>170 </TD><TD>183 </TD><TD>181 </TD><TD>208 </TD><TD>Increase 1975-81 : 47.5%</TD></TR><TR vAlign=top><TD>South Korea </TD><TD>278 </TD><TD>310 </TD><TD>371 </TD><TD>426 </TD><TD>480 </TD><TD>475 </TD><TD>497 </TD><TD>Increase 1975-81 : 78.8%</TD></TR><TR vAlign=top><TD>Taiwan ROC </TD><TD>214 </TD><TD>271 </TD><TD>304 </TD><TD>353 </TD><TD>358 </TD><TD>388 </TD><TD>359 </TD><TD>Increase 1975-81 : 67.8%</TD></TR></TBODY></TABLE>

Source/ BP Statistical Review, various edns

Firm Demand And Faltering Supplies:

The major reason for this is that oil demand by fast growing manufacturing and export activities in the NICs will tend to more than compensate any fall in oil demand by the OECD economies due to recessionary trends, partly (and to a very small degree) intensified by higher oil prices. For the oil demand driving factors of the NICs, the most important factor is solvent demand by low and middle income economies, for manufactured goods of all kinds.

This demand is made solvent, and increased rather rapidly, by large and rapid oil price rises, through the impact of higher oil prices on world price levels for energy-intensive metals, minerals and agrocommodities. Prices for these commodities increase in line with oil prices, transferring wealth from OECD consumer countries to low and middle income country exporters. These latter countries, having increased revenue flows, address their newly solvent demand to the NICs, which now include one-third of the world's entire population in the shape of China and India.

In addition, these latter countries have now entered the 'dynamic' of conventional economic 'takeoff' into energy intensive, urban-industrial economies, thus reinforcing their own domestic demand for oil in particular, as well as all other forms of commercial energy.

AND THIS EXCERPT

Drive Elements in Oil Demand Decoupling

In the case of South Korea we find that per capita oil demand, now approaching EU-15 per capita rates, has increased about 30-fold in 40 years. Without question, therefore, the oil demand of such an economy is close coupled in its early periods of fast growth and fast urbanisation and industrialisation. Increasing electrification, whether as a conscious 'oil dependence limiting' policy or not, will certainly help to reduce oil coefficients over time. However, in that part and period of the development process (in the case of South Korea from about 1965-85) where additional energy demand arises from the creation, and extension of energy dense infrastructures, oil coefficients of economic will remain close to unity, and in some cases can exceed unity.

This can be understood from the example of the development of car manufacture and highway construction, as well as construction of nuclear power plants, in South Korea and other NICs. The mainly oil-based embodied energy of car manufacturing plant, highway construction equipment and materials, nuclear reactors, etc, both increases energy intensity of the economy while enabling (and forcing) economic agents and consumers to use more oil. Widespread 'motorisation' or the use of personal vehicles, in OECD and other countries, is associated with increases in personal or per capita oil demand of 10 - 20 times comparing on a 'before-and-after' basis.

On a world wide base the growth of the car industry and the world car fleet is a key vector for increasing energy-, and particularly oil-intensity of economic activity. The world's car fleet now stands at about 775 million units and is increasing at a world-wide average of about 6%/year, with the most rapid growth taking place in the new NICs, notably China and India, where double-digit annual growth rates are the norm. Through 1990-2002 the Chinese car fleet has increased at an average of more than 13% per year, growth of the car fleet attained more than 50% in 2001-2002, and national production will soon attain 6 Million units/year (Ref/ McKillop 5).

Given that classical economic development has always featured declining relative prices for and values of raw materials, unfinished products and energy, increasing oil consumption is virtually axiomatic for the development process of industrialisation and urbanisation that currently concerns at least one-half of the world's population. The time taken to transit from 'early' or oil-based and oil-intensive economic development, to 'mature stage', electrified energy-economic structures underlying the service-oriented economies of the ageing OECD countries is typically more than 20 years. Due to this, any forecasting of world oil demand trends without integration of these considerations will inevitably be incorrect and of little practical use.

*T*
12-30-07, 07:29 PM
ALL economic activity (and indeed life itself) relies on a low entropy source, i.e. power from the sun directly or in a stored form as fossil fuels. Mostly fossil fuels in our current civilisation. It is used to do useful work. The one-time use of this low entropy is the foundation of all economic activity. If the availability of fossil fuels decreases and our consumption is forced to decrease, once efficiency gains are exhausted (the elastic demand part) the ability to do useful work contracts and real economic activity must diminish concomitantly as a law of nature.

This is a law of nature and has nothing to do with price: All else is accounting.

As such, the question of physical supply of fossil fuels is of the utmost importance, above even that of the credit crunch. What Lukester and the peak oilers appear to be saying has, frankly, apocalyptic consequences. So I think it is quite right and proper that this debate should not be confined to the rants & raves forum, but should be at the forefront of our minds.
We are used to beefsteak, we may have to get used to a bowl of rice a day (literally and figuratively).

Given the poor energy balance (ie less low entropy available) of tar sands etc as energy sources, the outlook looks less rosy than it may at first appear.

Keep at it Lukester.

c1ue
12-30-07, 09:26 PM
Lukester,

At last, a more coherent argument for China/India/developing industrializing nations (DIN) energy demand increase.

Your source postulates that since Singapore, Taiwan, and S. Korea increased oil consumption even in the face of the 1975-1985 US recession/ oil net consumption decrease, therefore the same pattern can be used as a reference to future Chindia/DIN oil consumption behavior.

This is a good data point, but again I have to ask the following questions:

1) Was oil and/or gasoline subsidized by these governments in this period of time? If so, then oil price is irrelevant so long as the governments in question can continue subsidies.

2) The population of Taiwan, Singapore, and S. Korea totalled roughly 17.8M, 2.3M, and 38M in 1980.

The total is 58M, or roughly 25.6% of the US population of 226.5M people in 1980; 49.5% of the 117M population of Japan in 1980; and 12% of the 484M population of Europe in 1980. Or in other words, the industrialization of Taiwan, Singapore, and S. Korea was 7% by population to their total possible export population. The relative economic footprint of these 3 countries vs. their target markets is even smaller.

In other words, a flea on a starving dog can still get fat.

More importantly, the increase in oil consumption by these 3 countries had zero impact on world oil consumption trends. This is not true should the same dynamic occur with Chindia/DINs. Vietnam alone has as many people as these 3 countries today.

http://www.unu.edu/unupress/unupbooks/uu11ee/uu11ee0l.htm

http://earthtrends.wri.org/pdf_library/country_profiles/pop_cou_702.pdf

http://www.international.ucla.edu/eas/statistics/wb-population.htm

3) Taiwan and S. Korea received tremendous subsidies from the US and other countries in this period. Besides military protection, relative tariffs and outright monetary loans and grants were in the hundreds of millions of dollars. This relates to 1) as well.

Thus the data point you reference to is interesting, but far from conclusive with regards to predicting future behavior for Chindia/DINs.

In fact from my own first hand experience with Taiwan starting in the 1980's, it is quite conceivable that gasoline usage may have decreased after the collapse of Taiwan's stock market bubble in the mid 80's; certainly I remember far more cars on the road then vs. today.

DemonD
12-31-07, 01:31 AM
Luke:

I'm glad you responded. I know a critique of what I put on here is a bit dramatic, but it is just my opinion, and something that I'm seeing and just felt the need to write it out. There is a reason I put it on rant and rave - to me my own little opinion on one person's postings is of no real consequence, just something I wanted to put out there, because it seems to me that every thread involving peak oil is the same. So I would just like to answer your arguments and be done with it.



The articles you and the vast majority of iTulipers post regarding the housing implosion, mortgage derivatives and financial chicanery are truth be told by far the largest category of posts on this site. These are the true candidates for over-posting "ad nauseam". If you value factuality, start doing a two month retroactive count of the number of articles to do with that topic, and the number of articles to do with resource depletion, and you'll quickly come round to the propriety of referring to anything non-mortgage related as being "ad-nauseam".

Okay, there is a huge huge difference. The housing market is fluid, with very very large swings happening on an almost daily basis. Almost like the stock market, and have large effects on the stock market. From what I can tell, a large part of the discussion isn't about housing per se but credit, money, inflation/deflation, and housing happens to be a part of that that was extremely wrapped up in it. Commodities, by extension, are affected by this, and hence possibly a natural bias against peak oil being the direct cause of the spike in oil prices, because we see gold, silver, copper, all commodities rising in unison, where there isn't such a raging debate.

I would also say the issue that I see with the posts is that a lot of times they become acrimonious. Having some passion for your convictions is admirable, but being inflammatory by name calling has no place in a discussion that should be facts and calculating discussion. Please note that all I did in my original post is point what I see as going on, without any vitriol.



Secondly, the reason I put this information under your dulled and uninterested eyes, is because iTuip's positions on this topic persistently stray into mis-representation as to A) the source of, and B) the depth of, the issue in question.

This is a perfect example of what I mean when I say "acrimonious."

By the by, are my eyes really dulled and uninterested? Most chicks say my eyes are my best feature...


Based on my read of your posts DemonD, you are far and away more engrossed in "implications for your portfolio and investment results" (an enthusiasm you share with a good few others here apparently) to the exlcusion of a natural or deep curiosity about some of the "resource based" issues that seem to elicit little more than peeve and yawns from you. Considering you studied at Harvard, I find your range of expressed interests here, focused primarily on your one great enthusiasm, "stocks", to be a real yawn.

Well, to the first part, it's definitely true. But to me, money is a means to an end, an end being a certain lifestyle that a large portfolio would allow me to live. Am I superficial, materialistic? I would say that is definitely part of my persona - but so what? That doesn't diminish my insight or intellect on the matter. As far as me caring about nonrenewable resources (and the environment), I do have more than a passing interest, however as you correctly point out, the main concern is to the size of my portfolio and secondarily the life/global issues. Also, if I want to talk about resource depletion, I'd probably put a post on the commodities or energy forum; instead when I come to itulip I am looking enhance my understanding of investing and economics, and in this I feel I have learned a great deal, and I am certainly thankful to itulip and all it's members. To a certain extent lukester, you might find this shocking, i pretty much AGREE with everything you post. Maybe not to the extreme, but your points are valid. The problem I have is with the acrimony, and the repetitiveness of the argument. The reason the housing bubble is so fascinating is that there is something new to talk about all the time. Reactionary articles to certain items don't catch my fancy; however if/when oil hits 100/bbl, and we have a discussion of how this will hit the american consumer, and worldwide business - that is a more on-topic discussion, IMO.

I also have to thank you. While I visited a friend at Harvard once back in 2000, I never attended that institution as a student.

As far as my fascination with stocks, it's something I understand and have done well with, and tend to make the right decisions. I will admit my level of investment is actually more conservative than I might let on, I tend to be a long term buy and hold investor, but again I tend to make the right decisions when the time comes to buy and sell. Fortunately in a capitalist/free market society, everyone has the choice of investing in different ways, and that is my preferred way. Just a simple example: one of my absolute favorite companies to invest in is Suncor (SU). Returns for the year: SU 39.64%; GLD 31.30%.

Incidentally, it's facts that you have pointed out luke that have partially led me to believe that Suncor is one of the absolute best companies to invest in (at the right price of course). Yes, that strip mining, environment destroying oil sands company - one of the best stocks over the past 10 years, and will continue to be so in the future.


The issues I've been trying to point out are going to reach out and grab our apparently orderly world by the throat and shake it like a frightened rabbit in five to ten years. Whether you are paying attention or not at that time will not be high up on my list of concerns. I do assure you however, a lot of other people perhaps less securely ensconced than you (worldwide, not just in Hollywood California) will be paying a great deal of attention.

While itulip does delve into some larger social issues, I do not see it as a survivalist armageddon type place, nor do i see it as a discussion for saving the environment. I like the slant itulip has on it: alt-energy is the next bubble. This is a functional and logical prediction based on many of the facts you have laid out. I don't read itulip to help save the world, nor to prepare for the day when I need water and bullets to survive. I read it for economic education and investment education and advice (of course, investing at my own risk).

Incidentally, I certainly DO pay attention, and some of that has indeed come from itulip. But the overall point that I am saying is that the argument is the same, the same, the same, over and over. When I feel like I'm reading the same post, the same argument, yet again, what's the point of reading it? Especially when part of the arguments are peppered with highlights and wording that appear to me as shouting, instead of calm, logical debate.


I find your objections fanciful

In reality, I object to nothing you write. All I stated, and am stating, is what I put in the quotes in the first post:

"Okay, I understand you. No need to keep saying the same thing. Let's just let this play out, and see what happens."