Peak Cheap Oil Update - Part I: The glass is half empty

[we_are_toast]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

As someone who has spent 30 years in the oil and gas industry I would agree that we have reached peak "cheap" oil. I think this country with our 4 year political cycle and lack of energy policy is setting the stage for future hardships for it's people. We need to address the issue of energy security. It IS the most pressing crisis we will face, not health care or even global warming. We do have lots of energy resources here. The eastern gulf of mexico likely holds as much gas and oil as the western gulf. We need to be making hard political choices now or when the crisis hits we will be behind the eight ball. I wonder what is more of a threat to the tourism industry on the eastern seaboard? 6 dollar a gallon gas or an oil rig 75 miles of the coast? We need to develop our fossil resources as a bridge to the future. Millions generated by leasing gulf waters and western shale deposists could be used to fund energy research. Instead we spend millions researching global warming. Which would have a greater impact on future green house gas emissions? We need a manhattan or apollo scale project for energy development. People also need to understand the scale and investment required to harness and use low density energy sources like wind and solar. It would take a wind farm the size of the state of california and several square meters of solar panels for every citizen to produce 1/3 of our energy needs from each respectively. The current cap and trade legislation will do nothing more than siphon capital needed for investment and put it in the hands of politicians who will miss allocate the capital on social programs and foreign wars. Not to mention the cut the traders will take off the top. With an economy based 70% on consumption where will the GDP come from when people are spending their entire paychecks on food,shelter and energy? When oil spiked to $140 people in the northeast were wondering how they would afford to heat their homes and put gas in the car. Replacing hydrocarbon liquids as a transportation fuel should be the first priority but also will be the toughest challenge. I do believe in the creativity and ingenuity of the american people. If government would provide some leadership and vision we could conquer this problem. But alas, we have had neither wisdom or leadership in washington for a very long time.

Hmmmmm, you seem to be a bit vague about this energy development you mention. Could you be a bit more specific on what you would like to see being done?

[metalman]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

As someone who has spent 30 years in the oil and gas industry I would agree that we have reached peak "cheap" oil. I think this country with our 4 year political cycle and lack of energy policy is setting the stage for future hardships for it's people. We need to address the issue of energy security. It IS the most pressing crisis we will face, not health care or even global warming. We do have lots of energy resources here. The eastern gulf of mexico likely holds as much gas and oil as the western gulf. We need to be making hard political choices now or when the crisis hits we will be behind the eight ball. I wonder what is more of a threat to the tourism industry on the eastern seaboard? 6 dollar a gallon gas or an oil rig 75 miles of the coast? We need to develop our fossil resources as a bridge to the future. Millions generated by leasing gulf waters and western shale deposists could be used to fund energy research. Instead we spend millions researching global warming. Which would have a greater impact on future green house gas emissions? We need a manhattan or apollo scale project for energy development. People also need to understand the scale and investment required to harness and use low density energy sources like wind and solar. It would take a wind farm the size of the state of california and several square meters of solar panels for every citizen to produce 1/3 of our energy needs from each respectively. The current cap and trade legislation will do nothing more than siphon capital needed for investment and put it in the hands of politicians who will miss allocate the capital on social programs and foreign wars. Not to mention the cut the traders will take off the top. With an economy based 70% on consumption where will the GDP come from when people are spending their entire paychecks on food,shelter and energy? When oil spiked to $140 people in the northeast were wondering how they would afford to heat their homes and put gas in the car. Replacing hydrocarbon liquids as a transportation fuel should be the first priority but also will be the toughest challenge. I do believe in the creativity and ingenuity of the american people. If government would provide some leadership and vision we could conquer this problem. But alas, we have had neither wisdom or leadership in washington for a very long time.

well put, rn. the next peak oil cycle kick the usa economy back to 1990s gdp. all the $$$ will go to eat and heat. i''l be trading this...



...for this...



pity the poor saps who listened to this guy...

[ThePythonicCow]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

Well said, Roughneck.

[Roughneck]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

As someone who has spent 30 years in the oil and gas industry I would agree that we have reached peak "cheap" oil. I think this country with our 4 year political cycle and lack of energy policy is setting the stage for future hardships for it's people. We need to address the issue of energy security. It IS the most pressing crisis we will face, not health care or even global warming. We do have lots of energy resources here. The eastern gulf of mexico likely holds as much gas and oil as the western gulf. We need to be making hard political choices now or when the crisis hits we will be behind the eight ball. I wonder what is more of a threat to the tourism industry on the eastern seaboard? 6 dollar a gallon gas or an oil rig 75 miles of the coast? We need to develop our fossil resources as a bridge to the future. Millions generated by leasing gulf waters and western shale deposists could be used to fund energy research. Instead we spend millions researching global warming. Which would have a greater impact on future green house gas emissions? We need a manhattan or apollo scale project for energy development. People also need to understand the scale and investment required to harness and use low density energy sources like wind and solar. It would take a wind farm the size of the state of california and several square meters of solar panels for every citizen to produce 1/3 of our energy needs from each respectively. The current cap and trade legislation will do nothing more than siphon capital needed for investment and put it in the hands of politicians who will miss allocate the capital on social programs and foreign wars. Not to mention the cut the traders will take off the top. With an economy based 70% on consumption where will the GDP come from when people are spending their entire paychecks on food,shelter and energy? When oil spiked to $140 people in the northeast were wondering how they would afford to heat their homes and put gas in the car. Replacing hydrocarbon liquids as a transportation fuel should be the first priority but also will be the toughest challenge. I do believe in the creativity and ingenuity of the american people. If government would provide some leadership and vision we could conquer this problem. But alas, we have had neither wisdom or leadership in washington for a very long time.

[don]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

A guy I know that is 72 years young retired a few years ago and converted his roughly 1/2 acre backyard into many plots for annuals and perennials. He's got a nice hobby and neighborhood micro-business.

The lawn to me is pointless.

A world with only essential plastics.

I'm ready

[ThePythonicCow]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

The science shows that the minute quantities of petroleum that might possibly be of abiogenic origin are not commercially viable. Most of the oil and gas ever discovered, on the order of 99.99% of it, is proven to be of biogenic origin. The fact is that at high pressure and temperature oil "cracks" and turns into gas. It's simple physics. In Part II we review a presentation by a geologist at the ASPO conference who has a theory of why some oil, but not much compared to shallow deposits, exists at these depths is due to unique geology of the fields.

There is an enjoyable read on the subject of abiotic ("not biological") oil at Debunking the "Abiotic" Theory of Petroleum Formation. It agrees with what FRED says here, that abiotic oil exists, but in insufficient quantities to be of much use to humans for energy.

[Slimprofits]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

I was reading an article a couple months ago saying how the tradition of lawns came over from England but America's climate and soil isn't made for lawns. You think how much energy is put into watering, fertilizing, mowing grass. Imagine if people grew their own food instead. Compost instead of fertilizer, weeding instead of mowing and collect rain water instead of using a hose. I think people will adjust their lifestyles if energy and food costs start to rise too much.

A guy I know that is 72 years young retired a few years ago and converted his roughly 1/2 acre backyard into many plots for annuals and perennials. He's got a nice hobby and neighborhood micro-business.

The lawn to me is pointless.

[Kadriana]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

This came up for debate on Country file, a BBC Farming program recently and has to be balanced against a very simple fact, a great deal of the land is only good for producing grass and then the only way to convert grass to food is through livestock farming.

I was reading an article a couple months ago saying how the tradition of lawns came over from England but America's climate and soil isn't made for lawns. You think how much energy is put into watering, fertilizing, mowing grass. Imagine if people grew their own food instead. Compost instead of fertilizer, weeding instead of mowing and collect rain water instead of using a hose. I think people will adjust their lifestyles if energy and food costs start to rise too much.

[FRED]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

Thanks for the excellent work. I have two criticisms.

EJ, I think you discount the evidence for oil being part of the primordial ooze that formed when the earth coalesced, and NOT being a fossil fuel.

I think the evidence is strong. And this means that the amount of petroleum in the earth is vast and the reservoirs refill themselves. And new drilling methods that go deeper will tap this vast amount of oil, or if not oil, then gas.

The science shows that the minute quantities of petroleum that might possibly be of abiogenic origin are not commercially viable. Most of the oil and gas ever discovered, on the order of 99.99% of it, is proven to be of biogenic origin. The fact is that at high pressure and temperature oil "cracks" and turns into gas. It's simple physics. In Part II we review a presentation by a geologist at the ASPO conference who has a theory of why some oil, but not much compared to shallow deposits, exists at these depths is due to unique geology of the fields.

Secondly, the problem today with oil production and exploration is more the problem of socialism.

For awhile, the explorers and producers were profit-seeking companies. Now they are overwhelmingly caretaker governments concerned with milking the oil industry in their respective countries for short term vote-buying.

Basically, you have a vibrant producing machine that has turned into a public works project. Very little capital is invested and the exploration and exploration has been winding down for many years.

That is half true. Governments have proven themselves to be inefficient at oil production, but quite good at finding it. Government influence tends to cause oil fields to be depleted more quickly than otherwise, but that fact only reinforces our forecast.

The answer of course will be more socialism and more government control.

You are agreeing with one of the key Peak Cheap Oil trends we identify in Part II. Government influence over energy resources will increase in response to Peak Cheap Oil.

Not all planning is socialism. Sometimes planning for the future is prudent, and lack of planning is irresponsible.

And a bonus criticism: there are actually very bad new bubbles forming even as we discuss this. Currently a bubble is forming in US sovereign debt. It is fueled as all bubbles are by an excess of credit and a mania in asset purchases funded by the debt. In this case, government debt goes to the banks, who use it to purchase financial assets.

No, not by our definition. To call everything that rises rapidly in price a "bubble" is to make the term meaningless. We have a more specific use for "bubble" here in order to preserve the usefulness of the term.

I'm not sure how, but China's bubble is part of this and we can expect the bubble in China and in sovereign debt to pop at the same time, perhaps in several years, with devastating results.

Specifically, China has property and stock market bubbles, per our definition.

I do think GDP will decline. I agree with you there. Due to the Depression we are in, and the policies of "stimulus" and massive "injections" of fiat that will perpetuate and lengthen the Depression in the same way these identical policies worked to make the Great Depression as bad and as lengthy as it was.

Yes and no. The story of the Great Depression is complex and nuanced. The original error of excessive credit expansion has no painless solution.

[Chris Coles]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

There are other limits to food production besides energy. More important and significant bottle necks would be water, arable soil, erosion, desertification, etc. I don't think our current population growth is sustainable and no way population can double. Food supply will limit growth as in those who can't afford it will starve. Even so, declining GDP will decrease energy demand for industrial and transportation uses. This will decrease energy demand even if energy demand for food production remains flat. Also, as people get poorer, the diet shifts to more grains and less meat. Grains are less energy intensive per calorie than meats.

This came up for debate on Country file, a BBC Farming program recently and has to be balanced against a very simple fact, a great deal of the land is only good for producing grass and then the only way to convert grass to food is through livestock farming.

[grapejelly]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

Thanks for the excellent work. I have two criticisms.

EJ, I think you discount the evidence for oil being part of the primordial ooze that formed when the earth coalesced, and NOT being a fossil fuel.

I think the evidence is strong. And this means that the amount of petroleum in the earth is vast and the reservoirs refill themselves. And new drilling methods that go deeper will tap this vast amount of oil, or if not oil, then gas.

Secondly, the problem today with oil production and exploration is more the problem of socialism.

For awhile, the explorers and producers were profit-seeking companies. Now they are overwhelmingly caretaker governments concerned with milking the oil industry in their respective countries for short term vote-buying.

Basically, you have a vibrant producing machine that has turned into a public works project. Very little capital is invested and the exploration and exploration has been winding down for many years.

The answer of course will be more socialism and more government control.

And a bonus criticism: there are actually very bad new bubbles forming even as we discuss this. Currently a bubble is forming in US sovereign debt. It is fueled as all bubbles are by an excess of credit and a mania in asset purchases funded by the debt. In this case, government debt goes to the banks, who use it to purchase financial assets.

I'm not sure how, but China's bubble is part of this and we can expect the bubble in China and in sovereign debt to pop at the same time, perhaps in several years, with devastating results.

I do think GDP will decline. I agree with you there. Due to the Depression we are in, and the policies of "stimulus" and massive "injections" of fiat that will perpetuate and lengthen the Depression in the same way these identical policies worked to make the Great Depression as bad and as lengthy as it was.

[kartius919]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

There are other limits to food production besides energy. More important and significant bottle necks would be water, arable soil, erosion, desertification, etc. I don't think our current population growth is sustainable and no way population can double. Food supply will limit growth as in those who can't afford it will starve. Even so, declining GDP will decrease energy demand for industrial and transportation uses. This will decrease energy demand even if energy demand for food production remains flat. Also, as people get poorer, the diet shifts to more grains and less meat. Grains are less energy intensive per calorie than meats.

[Chris Coles]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

The real problem is not transportation, but food production. Almost all our food is entirely energy related. We might feel that the defining numbers are related to transport, they are not. The defining numbers are population growth. If we had difficulty with food production, expected to need to double over the next century, before Peak Cheap Oil; where are we with a decline of oil production of 30% over the next two decades?

[MulaMan]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

1. http://www.solarroadways.com/

2. The idea of people living in suburbs is absurd for many reasons, not just peak oil and will end. Cities and towns will return. Much more effiecient way of living. Walking to the store, what a concept.

3. Warren Buffet buys the largest railroad in America. What a concept.

Personally, I can't wait for peak oil so that the world can move forward into the 21st century.

On the other hand China is making a huge mistake by following a 20th century industrialization strategy. Short China.

[kartius919]

Re: Peak Cheap Oil Update - Part I: The glass is half empty

Excellent post, but the demand side the equation is quite sparse. I don't understand how the "possible world future GDP" was constructed. Does that take into account peak oil w/ a 2007 peak production as the baseline? What are the assumptions?

We see demand fall off a cliff while only in the early stages of this depression. Gov'ts may stimulate all they want, but eventually someone has to pay the piper. In a way, Prechter and Mish are correct that real wages and demand will continue to fall. Chinese energy consumption regardless of what they publish will eventually have to meet reality. They can't continue to build shitty apartment complexes forever while food prices skyrocket. For the next decade, I fail to see how demand for energy can keep up with 2007 peak global productivity.

What are your estimates of future global GDP? What do you see as the driver that keeps energy demand relatively flat? Will government expenditure continue to substitute for lack of consumer demand? If so, how long can that last until civil disorders gash a hole in energy demand? What happens to oil demand under a currency crisis?

We saw in the Great Depression that misallocation of capital during boom years can result in devastating declines in productivity in bust years. This real estate and us consumption global misallocation is far greater than the 20's, so how does it not end with massive declines in productivity in the near future.

Btw, the first scenario is a pipe dream. If we have learned anything from the financial crisis, it should be that governments are incompetent.