Thursday, February 21, 2008

The Down Slope

As we wander through the maze of arguments around Peak Oil, some things look quite certain.

Fuel shortage in Katmandu

Gas shortage in UAE impacting cement companies

A multi-dimensional worldwide rice shortage

Rising wheat prices

The pursuit of ethanol may be contributing to the price increases of some crops

Poor countries are feeling the pain:


Inflation in Asia


The global economy is reacting to above-ground factors impacting energy, which are having consequences both in the energy sector itself and the food market. The plateau we are on won't last forever, we may be starting down the slope, however slowly. And it may only get worse a lot quicker than we expect if Philip Verleger is correct. (PDF Warning) He cites 6 reasons that oil prices are going to increase dramatically:

First, global economic growth would boost energy and particularly
oil use at near-record rates if supply were available.

Second, twenty years of underinvestment have created supply constraints that make it impossible to meet growing demand.

Third, spreading nationalism in countries holding the largest reserves of easily accessible oil and gas further worsen the supply problem.

Fourth, needed investment in private-sector capacity expansion is being discouraged by uncertainty created by efforts to reduce global warming gases.

Fifth, supply will be limited by conflicts in oil-exporting countries.

Finally, efforts to substitute away from hydrocarbons or to conserve will be hampered by the problem’s enormity. The stage is set for a period of very high energy prices.

But, not to worry, our erstwhile President wanna-be's have all been briefed on Peak Oil, not that they fully get the implications or have a coherent policy. Maybe we can get them to sign on to the Oil Independent Oakland Action Plan (PDF Warning), which will be presented next week to Oakland's Public Works Committee. Joe Moore, our Progressive Alderman, and his kindred independent spirits on the council should sign on to this instead of pursuing foie gras and Big Box bans. It seems to me that this ward, and this city, have more to worry about from rising energy costs than they do from farmers force feeding ducks and retailers that will find it difficult to continue heating the oversized warehouse stores.

How about it Joe?


Neil_in_Chicago said...

I've been sold on the peak-oil argument for a while. It seems to me that the only real questions are some of the numbers: how soon ("right now!" is one of the reasonable answers), and how fast a decline and divergence between supply and demand.
I don't really expect pre-in-your-face-crisis action, so it seems to me one of the critical questions is how fast the decline will be.
This piece, suggesting "real fast!" doesn't make me very hopeful.

The North Coast said...

Will the reclamation of 115 billion barrels in Iraq prolong the "bumpy plateau" long enough for us to take at least rudimentary mitigation measures?

Will those 115 billion barrels offset what we will lose in a few years when Mexico stops exporting oil, as they are set to do in about 3 years?

How much of those 115 billion can even be accessed, given the condition of the wellheads there?

Will the American populace tolerate any of measures that are part of "mitigation" such as the diversion of funds from evermore highways and road widenings, to railroads; and the re-ordering of our zoning and urban planning from favoring cul-de-sacs of 3000 sq ft houses set on one-acre lots, to high-density , mixed-use bldgs at town and city neighborhood hubs, with no allowances for parking?

We will do nothing to mitigate because it is politically unpalatable. Most people in this country will be extremely resistant to any measures that entail making any changes in their way of life at all, and when they realize that it has all been taken off the table, the howling will be heard around the world.

twestgard said...

I'm confused about the idea of "underinvestment" creating supply constraints. What is the meaning of underinvestment in that context? It reminds me of the arguments in favor of drilling in ANWR. The real supply constraint here is the total volume of oil in the world. There is no "investment" that we can make that will increase the number of barrels of oil on the planet. The oil will run out, sooner or later, since we are burning it like mad and it is a finite commodity. "Underinvestment" sounds to me like a choice to slow the speed of extraction thus saving some for later, which doesn't sound like such a bad idea to me.

My thinking on underinvestment in the energy field is that we have radically underinvested in alternative fuels and energy-saving initiatives, especially the energy-savings part. We certainly haven't underinvested in building transportation systems that assume there will be a continued cheap supply of asphalt for roads and gasoline fuel for passenger cars. Underinvestment comes in the stunning lack of passenger rail - one need only look at the CTA's inability to get what is really the most basic of infrastructure funding, while the Dan Ryan expansion project just finished without serious question at any point in its lifespan. Or the IRS rule allowing the depreciation of buildings over seven years, leading to the construction of buildings designed to last... seven years!

What I take from the Peak Oil discussion is that, in terms of counting on a petroleum supply that can support our lifestyle, what we are truly facing is Endgame Oil. If oil is running out, as it seems to be, I suppose it's okay to have more people looking for more oil, but it's not as though nobody is doing that, and in any event, that can only delay the inevitable switch from our current oil-burning lifestyle to something else.

Interestingly, the concept of Peak Oil actually predicts that the importance of petroleum will diminish and largely disappear. At some point, petroleum will be more like tungsten, a rarely-seen, rarely-used oddball substance that few people think about, useful for highly-specialized and expensive projects. The real question is what will happen between now and then - will the required lifestyle changes be relatively smooth, evolutionary, and painless? Or will there be mass famines and war? So far, we have the Darfur model available to follow. But investing heavily in petroleum infrastructure isn't a way to smooth the transition, compared to the benefits of investing in sustainable lifestyles.

twestgard said...

Oh, um, heh, I forgot to note the other natural and thus immobile constraint - the limited ability of the biosphere to absorb the CO2 released from burning these fuels. If "underinvestment" leads to a slowing of the burning of fossil carbon, then please, let's underinvest even less. Of course, there is already an increase in coal fuel consumption due to the price rise in oil, so we have to find a way to confront that as well, but we're still in the position of not being improved by adding oil to the mix, not on the long term. The only way that can happen is with lifestyle change.

Kheris said...

"Underinvestment" sounds to me like a choice to slow the speed of extraction thus saving some for later, which doesn't sound like such a bad idea to me.

Actually, the underinvestment is the lack of investment in technology and in additional drilling. It has an economic basis - the price of a barrel of oil determines the return on investment that makes drilling feasible, or not. This is why the Chevron Jack 2 well is not being developed, although that could change, and BP is sweating the delays in Thunder Horse, both deep water wells. The Brazilian Tupi field is at the edge of available drilling technology. Any deeper and they would be doing R&D, if they could afford it, to figure out what to do to bring it up.

Oil will not run out, some will always be left behind. The real issue is not the size of the tank, it's the size of the tap. The harder it is to reach and get the oil, and the lower the quality of same, the smaller the tap because the dollar investment to get to the oil is higher than for conventional oil that flows under heat and pressure up the well.

Exporting countries are now discovering that they need to deal with rising internal consumption, which is likely to constrain their exports. It's known as the Export Land Model, and it appears to be at work in the MidEast now. So they are saving oil, but not necessarily out of any concern for the future.

Overall, we do need to change our lifestyle and start making serious infrastructure investments. However I don't foresee that happening since it interferes with Americans' view of who we are and what makes for a good life. No politician wanting to get elected, not even Hillary or Barack, will touch this issue. Which is really too bad.