Betting on Cheaper Oil

Ronald Bailey | August 23, 2005

The insightful New York Times columnist John Tierney has placed a $10,000 bet with peak oil doomster Matthew Simmons. Simmons is author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy which predicts soaring oil prices soon because Saudi oil reserves are much less than they've been telling us.

The bet is modeled on the famous 1980 Julian Simon/Paul Ehrlich bet over the future prices of a basket of five metals. Simon handily won the bet in 1990 when the prices of the metals selected by Ehrlich had fallen by more than half.

Simmons is betting Tierney "that the price in 2010, when adjusted for inflation so it's stated in 2005 dollars, would be at least $200 per barrel."

For the record, when I report the story on January 1, 2011, I expect Tierney will be the winner.

Comments

|8.23.05 @ 12:01PM|#

I hope that the reason Outlook calendar doesn't go on the fritz anytime in the next fifteen years; this is two long-term follow-up articles we've been promised in as many weeks.

|8.23.05 @ 12:09PM|#

Rich Ard:

If you'd already read my new book, Liberation Biology, you'd know that thanks to future modern biomedical advances, I plan to be around a long time. :-)

|8.23.05 @ 12:19PM|#

Insightful? Y'know, I rarely disagree with you Ron, but even on the occasions when Tierney's right he still manages to be a jackass.

|8.23.05 @ 12:20PM|#

$200 in 5 years? That's nuts. I'd bet a small sum on $100. The safer and more important bet is that it won't go under $50 again.

|8.23.05 @ 12:37PM|#

I think Tierney will win, if not in five years, definitely in the longer run. My problem with Tierney and Leavitt (Freakonomics) is that they seem to gloss over short term economic pain, and yet poo poo attempts to avoid it, like Matt Simmons writing a book for example. We all understand lowered supply-acute oil shortage will spur tech development of alt fuels and oil demand decreases and prices go down. Yea, we get it. Its the shortage pain some folks would like to avoid.

|8.23.05 @ 12:38PM|#

What Brian said. I doubt that any of the doomsday scenarios will play out, but I think there's a pretty good shot that oil prices will stay at uncomfortable levels for a while.

Meanwhile, did anyone see Fareed Zakaria's Op-Ed today in the Post on the multitude of ways in which high oil prices harm American foreign policy interests? You don't have to necessarily agree with his policy prescriptions to agree with his broader point.

Ed|8.23.05 @ 12:39PM|#

For the record, I'm not a peak-oil doomster- I'm a libertarian and a free-marketeer.. and I'm definitely not an economist (I have an MS in applied math). Since "discovering" peak-oil a couple of years ago, I've tried to remain objective about the issue and research both sides rather than immediately dub all peak-oil enthusiasts as anti-capitalist, environmentalist nutballs. From what I've seen, the peak oil crowd seems to make a better argument than most of the peak oil "debunkers" (mostly economists). There are a few nutcases predicting the end of the world out there, but Matt Simmons definitely doesn't seem like one to me - he's done his homework and definitely has the right credentials. All the economists seem to be able to come up with is to say, "don't worry - some new technology will come along". Ok. What technology and when? I remember reading a Barrons article from November of last year (oil was around $40 at the time) where 5 wall street strategists including a money manager at Solomon Brothers and an energy strategist at Merrill Lynch predicted where oil prices would be in the last quarter of 2005. 4 of the 5 predicted they'd fall to the lower 30s range. Only one, Peter Schiff, predicted prices would rise. So now whenever an expert energy strategist tells me oil prices will fall, I ignore them - why shouldn't I? Over the past 2 years or so, the peak-oilers have been right and the peak-oil debunkers wrong. That's the simple truth. My personal gut feeling is that there will be some type of oil shock leading to a global recession/depression. But people who claim that peak-oil will be a "non-event" or is nothing to worry about simply haven't convinced me yet.

Ronald, you said that on jan 1, 2011 you expect Tierney to be the winner. Why?

|8.23.05 @ 12:45PM|#

Ed, would you mind if I cut and pasted your post into the "Peak Oil" thread a few spots down? It's mostly dead by now, but maybe it'll educate someone poking through the archives.

Ed|8.23.05 @ 12:51PM|#

Jennifer,
Go for it. I agree with your comments on that post by the way. :)

|8.23.05 @ 12:54PM|#

For the record, when I report the story on January 1, 2011

Just not close enough to December 21, 2012....

|8.23.05 @ 12:54PM|#

He is willing to bet on $200 oil? How much money can I bet? It looks like a sure thing to me: Take his bet and then arbitrage away the risk in the futures market: the market certainly thinks that oil will be much less than $200.

|8.23.05 @ 1:00PM|#

At the risk of being written off as a tinfoil-hat wearer (and I'd also like to make it known that I did not read the last "Peak Oil" thread in its entireity), I just want to say that I expected oil prices to shoot through the roof after Bush was re-elected. And I think the fact that he was re-elected and that gas prices are climbing higher than ever is not some unrelated coincidence. Yes, that's right, I think it's a conspiracy. Bush and his cohorts are in the oil industry. Bush and his cohorts stick their noses in every other aspect of the United States' business, personal, sexual, cultural, religious, or otherwise, so I don't see any reason why they wouldn't want to tinker with oil prices from the inside.

So for my part, I would bet on as high as $200 within the next 3 and 1/2 years, but maybe not after Bush's term ends. After Bush's term is over and their bet comes to fruition, prices will have probably dropped from that peak by that time.

Ok, now I will bear down and wait for my post to either be totally ignored or unforgivingly mocked.

|8.23.05 @ 1:03PM|#

Smacky - wonder why nobody brought that one up already? I happen to have the same suspicion.

|8.23.05 @ 1:09PM|#

...which is why I am not putting my money behind coal liquefaction (not Fischer-Tropsch)... yet.

|8.23.05 @ 1:13PM|#

"Over the past 2 years or so, the peak-oilers have been right and the peak-oil debunkers wrong."

What does that mean other than that the price of oil has risen for 2 years?

In the past 2 years, the cost of processing oil sands and shale oil have both been cut in half. This goes to the heart of the claims that the oil supply is about to dry up, and that saying the market will lead to better living through innovation (as it has throughout history) is just a lot of wishful thinking. I'd say that it shows how enormously wrong they are. We don't need "conventionally pumped from the ground oil," we need energy.

There have also been huge advancements in solar cell efficiency in both real applications (24%, efficient at converting sunlight to energy, I think) and in theory (it is thought that a 50% efficient cell will become possible in the next 5 years.) I could probably find 100 more ways the Peak Oilers are wrong, but you can't spen all your time chasing false claims by cranks.

The problem is that your information is probably largely coming from the Peak Oilers. Some of them are interested in the idea on its merits, but mostly it's just shrieked about by people with an interest in causing other people to believe that it's true.

|8.23.05 @ 1:16PM|#

Smacky--

I despise Bush, and I'm sure that having an oilman in the White House is having some effect on prices, but I disagree with you. The reason prices are so high now is partially because demand for oil is skyrocketing (in the old days of cheap gas we didn't have to compete with China and India for supplies), but also because oil just isn't as readily available as it once was. No, we're not going to wake up one day and discover all the oil will be gone (as a Reason staffer claimed in yesterday's post), but the price WILL continue to rise. I don't know if it will go as high as in Tierney's bet by 2010, but it'll be high enough to do some serious damage to our oil-dependent economy. And for all that I blame Bush for much that's wrong with the world today, I cannot in honesty blame him for this.

|8.23.05 @ 1:19PM|#

The Canadian oil sands are expected to produce as much as 2 million barrels a day by the year 2015. That's nearly two percent of what we use! Whoo-hoo! We're saved!

|8.23.05 @ 1:22PM|#

From what I've seen, the peak oil crowd seems to make a better argument than most of the peak oil "debunkers" (mostly economists).

The Russians have rejected the "oil is fossil fuel" theory, and have been drilling very deep oil wells (well beyond any fossil deposits) with success. The likelyhood is that there is way more oil down there than anyone previously believed.

I doubt we will run out soon. But if we did, I think that the market will do a good job adjusting. Either that, or we will all die off leaving nothing but big stone statues.

|8.23.05 @ 1:23PM|#

My guess is with the housing bubble about to burst that will take out the extra equity out of the market forcing the demand for oil down. With China less likely to sell the same volume to US that will force their demand down unless the plan to take Taiwan his fall. But, OPEC might decide that squeezing Bush is fun and cut back production anyhow to keep prices stable.

|8.23.05 @ 1:24PM|#

Of course, all that oil simply means we will die from global warming. Oil = death, No oil = death. Either way, it's death.

|8.23.05 @ 1:28PM|#

(in the old days of cheap gas we didn't have to compete with China and India for supplies)

I may be exposing my ignorance of world affairs here, but did China and India previously not buy oil (prior to these last 1-5 years)? I mean, the first year I really noted gas prices drastically rising was about summer of 1999-2000. Then, rising again more drastically than usual in the last year. Are China and India suddenly consuming more oil than they had prior to these years? For some reason? Please advise.


I despise Bush, and I'm sure that having an oilman in the White House is having some effect on prices, but I disagree with you.

I guess I differ from you in that I don't think that particular statement that you made (which I emboldened) can or should be dismissed so easily. If you think that having an oilman in the White House is having an effect on gas/oil prices, how can you dismiss that so easily? Personally, that bothers the shit out of me. Controlling the money is one thing, but then being put in a position of ultimate power over the money and its source is what really starts to make me suspicious. I don't know. It's my crackpot theory. But Bush doesn't really have a clean record in the honesty department, IMHO.

|8.23.05 @ 1:28PM|#

If I may, I'd like to bring up a point made by M1EK in the other thread. He said

You will spend more energy growing the crop than you will get by burning it.

Now, would someone care to tell me what form of fuel creation actually results in more energy being created than is put into creating it?

"Lisa, in this house we obey the laws of thermodynamics!"

-Homer Simpson

|8.23.05 @ 1:35PM|#

I guess I differ from you in that I don't think that particular statement that you made (which I emboldened) can or should be dismissed so easily. If you think that having an oilman in the White House is having an effect on gas/oil prices, how can you dismiss that so easily?

Smacky, as much as I dislike Bush, I doubt that anything he could do to futz with the prices could hold a candle to the massively rising demand of the world's #1 and #2 most populated countries.

|8.23.05 @ 1:35PM|#

"The Canadian oil sands are expected to produce as much as 2 million barrels a day by the year 2015. That's nearly two percent of what we use! Whoo-hoo! We're saved!"

Yes, that's exactly the type of brain dead shrieking I'm talking about. Fine example.

Without the sarcasm:

If you accept the premise that Canadian oil sands will produce 2 million barrels a day, you must then accept the premises that the projections were made under, the most important of which was that oil would remain at $14 dollars a barrel until at least 2015. But then I'm not sure what your big worry is. Maybe you haven't really thought this through.

Dang, that's still sarcastic. And I never mentioned that you missed my point entirely. Dang again.

|8.23.05 @ 1:35PM|#

Now, would someone care to tell me what form of fuel creation actually results in more energy being created than is put into creating it?

Either dilithium or protoculture from the Invid Flower of Life (which requires little fertilizer and water).

|8.23.05 @ 1:39PM|#

And for all that I blame Bush for much that's wrong with the world today, I cannot in honesty blame him for this.

Given that Bush hasn't had much impact on the way the world is, it is hard to blame him--at least based upon logic and reason. You can disagree with the war, and our current economic policies, but if you don't like the present you need to go back farther in history with blame.

I blame Wilson for the bad outcome of WW1 (leading into the various "isms" and WW2, although I can't blame him for not seeing that result), and I blame FDR (& LBJ to some extent) for the dominance of the central government and the destruction of our constitutional republic.

Bush hasn't been much of a break with the past. Kerry and Gore would have behaved much the same way. Clinton in fact behaved much the same. As did the first President Bush. It is all like watching some sports fans cheering their team even though their team and their rival really behave the same.

|8.23.05 @ 1:46PM|#

M1EK:
You will spend more energy growing the crop than you will get by burning it.

mediageek:
Now, would someone care to tell me what form of fuel creation actually results in more energy being created than is put into creating it?


OK, obviously there is no over-unity engine out there. But energy "production" processes should really be called energy "capture" processes or energy "conversion" processes. All of these processes require some initial input of useful energy (e.g. gasoline in a tractor for plant fuels, fuel to run the pump at an oil rig, gasoline for the construction equipment at a hydroelectric dam, etc.). You run the process, and you get some energy that you previously didn't have in a usable form (e.g. oil previously in the ground is now oil in your tank, solar energy has been converted into sugars by plants, kinetic energy of water has been converted into electrical current, etc.).

If the process yields less energy than you used to get it going, then you would have been better off never planting the field of corn or drilling the well or whatever. On the other hand, if the process captures more energy than you used to get it going, then it was worth doing. (Well, from a thermodynamic perspective. There's still economics to consider as well, but let's keep this simple.)

I hear conflicting things about whether plant-based fuels actually yield more energy than the producers have to supply. Obviously if we consider the sunlight as an input then the process will yield less energy than went in (nothing is 100% efficient), but the idea is that the solar energy is not in a useful form initially. You plant the crops to capture that energy, and you have to use some fuel to run the tractor, and use more energy to run the processing plant, etc.

I have heard conflicting claims as to whether the fuel for the tractors and all of the other steps in the process actually use more energy than you get out in the end. But M1EK's point does not violate the laws of thermodynamics. It all depends on the engineering details of the process.

|8.23.05 @ 1:46PM|#

Are China and India suddenly consuming more oil than they had prior to these years? For some reason? Please advise.

It's all Wal Mart's fault, for selling all of those Commie Chinese "goods" (maybe we should call them "bads").

|8.23.05 @ 1:49PM|#

I should further say that when I accuse "Bush" of these travesties, I actually mean the machine that is running President Geo-Geo Bush the puppet and his hollow actions (pulling his strings). Blaming Bush himself is like getting mad at a retarded person for not understanding calculus. It goes against reason and logic. Besides, I realize that blaming solely him for certain problems would be giving him too much credit. So, again, to clarify, I'm blaming his puppeteer cronies and underhanded business partners, not trying to characterize the clearly simple-minded president as pure evil.

|8.23.05 @ 1:51PM|#

mediageek:

The Cornell study by Pimentel has some major flaws. Soybean-based biodiesel has a 3.2:1 postive energy return based on using fossil energy for cultivation. This was done using what engineers call a "life cycle assessment".

I posted this link in another thread, but it bears repeating. (PDF file) It's a response by the engineers of a lengthy, in-depth study on this matter. The link also cites more than a half dozen other studies that found a positive energy return.

|8.23.05 @ 1:52PM|#

Don--

I'll settle for blaming Bush for starting a war under false pretenses, with no plan for the aftermath, and making the deficit worse by being the first president to ever lower taxes while said war was going on.

Smacky--

China and India have recently started to seriously ramp up their industrialization. I don't remember the exact statistic, but the number of privately owned (and gasoline-powered, natch) cars in China is growing at an exponential rate. They're making the switch from a nation of bike-riders to a nation of drivers.

And as for blaming Bush for high oil prices--what's he doing? Some people blame him for not lowering prices by releasing some of what's in the Strategic Petroleum Reserve, but he actually got that RIGHT--the Reserve is to be held in the event of an emergency, not to keep gas prices cheap.

I suppose you could blame him for not being more of a leader in the sense of doing things like getting rid of the tax credit for SUV purchases, but in reality, what COULD he do to bring about a permanently lower price for oil?

JDM--

The 2-million-a-day statistic froom the tar sands was made just a few days ago.

|8.23.05 @ 1:54PM|#

(Well, from a thermodynamic perspective. There's still economics to consider as well, but let's keep this simple.)

From a thermodynamic perspective, you always get less energy out. From an economic perspective, some of that energy didn't cost anything, so it is still worth while.

If the producer spends more money on fuel then he makes selling the energy he produces, he will switch to another line of work shortly. The market will sort it out--assuming that the .gov isn't subsidising it.

|8.23.05 @ 2:03PM|#

smacky,

Bush is a smart guy who is in charge, and he is probably much more in control than Gore or Kerry would have been. He has an effective management style. I think he has managed things better than his opponents would have, but fundamentally his course has been the same.

I'll settle for blaming Bush for starting a war under false pretenses, with no plan for the aftermath, and making the deficit worse by being the first president to ever lower taxes while said war was going on.

Jennifer, 1) Do you blame Clinton for bombing the hell out of Iraq for similar reasons? 2) What plan would you have to make things better? 3) the deficit is getting better due to those low taxes.

|8.23.05 @ 2:07PM|#

Don--

I don't recall Clinton involving us in a long-term Iraqi occupation, but if he did I'd surely have criticized him for it. My plan would have been not to get involved in an occupation in the first place, but if it were unavoidable (which it was NOT) I would have listened to, rather than get rid of, the generals who said we'd need a LOT more troops on the ground.

|8.23.05 @ 2:08PM|#

doing things like getting rid of the tax credit for SUV purchases,

Tax credit? I think the real issue is that sedans face high taxes that were not imposed on larger vehicles that were typically commercial:

Tax small stuff --> push people towards "big" as an unintended consequence.

The problem is the tax, not the "tax credit".

|8.23.05 @ 2:10PM|#

From a thermodynamic perspective, you always get less energy out.

No!!! You missed my point!

From a thermodynamic perspective, it is true that

tractor fuel + sunlight + energy for processing > fuel derived from crop

The question is whether

tractor fuel + processing < fuel derived from cop

Whether the fuel derived from the crop exceeds the fuel that the farmer and refinery consumed depends on how efficient the process is. It won't be 100%, but nothing ever is.

And yes, I know, the market will sort it out. So maybe there's no need for us to even discuss this in the first place. All I'm saying is that the thermodynamic issues will factor into the market's final decision.

|8.23.05 @ 2:12PM|#

Don-

Considering that I'm actually trying to absolve your hero of blame for the oil mess we're in, I'm surprised you're taking such offense. The fact remains, a person who buys an SUV and claims he's using it for business can get serious tax relief compared to the purchase of a less gas-guzzling vehicle. I'd like to see that end, but even if Bush were to somehow agree to implement my ideal dreamworld in regard to taxes and everything else, I don't see that making much of a dent in oil prices, Smacky's claim notwithstanding.

|8.23.05 @ 2:14PM|#

I don't recall Clinton involving us in a long-term Iraqi occupation, but if he did I'd surely have criticized him for it.

He just killed a lot of people without accomplishing anything.

Well, perhaps he angered people, and perhaps he convinced some people that we were cowardly and unwilling to risk American lives while killing Arabs.

My plan would have been not to get involved in an occupation in the first place, but if it were unavoidable (which it was NOT) I would have listened to, rather than get rid of, the generals who said we'd need a LOT more troops on the ground.


Do we really need a lot more troops on the ground? I realize that's a standard Democrat talking point, but the need seems far from apparent.

|8.23.05 @ 2:15PM|#

thoreau:

I don't understand why you wouldn't count in the energy from sunlight. According to the studies I've read, it's a valid energy input. After all, it's the sunlight that enables the plant to turn chemicals into plant oils.

|8.23.05 @ 2:19PM|#

I don't understand why you wouldn't count in the energy from sunlight. According to the studies I've read, it's a valid energy input. After all, it's the sunlight that enables the plant to turn chemicals into plant oils.

OK, here's the deal: Sunlight is most definitely energy. No question about it. The thing is, you have to have a way to capture it to make it useful. Capturing it can also consume energy (e.g. tractors to plant and harvest a crop). So when you plant a crop to harvest sunlight, you need to make sure you get enough energy out to make up for the energy that you spent on planting, harvesting, and processing the crop.

If you spent a ton of energy on this process, but you did it inefficiently, you won't get much out of the crop and you won't even break even on the gasoline that you used. OTOH, if you do it carefully then you will.

Now, you can say "But the sunlight was also an input!" Sure it was. But it wasn't a useful input in its own right. To be useful you needed a process to capture it. If you had a way of capturing it and turning it into vehicle fuel without this process then you would have skipped the whole rigamarole.

|8.23.05 @ 2:20PM|#

Never mind, Don. You're right, Iraq is going amazingly well, it is well worth the trillions of dollars it will cost us, the women in the country are super-happy about the implementation of Sharia law and I believe Bush when he says that we Americans are a LOT safer now that a secular country that had nothing to do with 9-11 is now on the verge of becoming an Islamic theocracy with close ties to Iran.

Meanwhile, Smacky, if you're still here, I am sincerely curious to know what you think Bush could do--outside of an out-and-out oil grab--to make a dent in oil prices.

|8.23.05 @ 2:21PM|#

No!!! You missed my point!

From a thermodynamic perspective, it is true that

tractor fuel + sunlight + energy for processing > fuel derived from crop

The question is whether

tractor fuel + processing < fuel derived from cop


The "question" is essentially economic. If free labor in the form of slaves or helpful space aliens (or .gov $$$) does some of the processing, that can be removed from the left side of the equation as well.

I got your point, you didn't get mine.

|8.23.05 @ 2:21PM|#

What technology and when?

Ed, if we could answer that then planned economies (USSR) wouldn't fail so spectacularly. And planned efforts within market economies (Japan and bubble memory) wouldn't fail so spectacularly.

|8.23.05 @ 2:24PM|#

I'd suggest that posters spend a few minutes poking around the spreadsheets available at the Department of Energy's website, http://www.eia.doe.gov/emeu/international/petroleu.html#IntlConsumption before posting.

Some reasons why oil prices have been rising recently:
1. The growth in demand from China and India. In 2000, China went from being a net exporter of oil to being a net importer.
2. US production has remained stagnant at around 8-9 million barrels a day - what is the typical complaint? "We haven't built any new US refineries since 1976?" - while demand has grown. Additionally, I keep hearing about the cost of having so many different mixes, to meet environmental regulations in various areas, but I haven't really looked into that enough to reasonably comment.
3. In 1990, 5% of US cars were SUVs - now it's about half.
4. Market speculation arising from uncertainty with suppliers in South America, Africa, and of course, Iraq.
5. We ended a recession, so travel and other oil-related purchases such as transport of goods are up.

Also: Since the US uses about 21 million barrels of oil a day, I think 2 million more barrels a day from Canada, if that is a realistic number, would be a very good thing.

|8.23.05 @ 2:25PM|#

Sandy--

But are you willing to at least consider the possibility that the technology may not arrive in time to save us from economic upheaval? Or are you convinced that science will save us in the nick of time?

|8.23.05 @ 2:31PM|#

"The 2-million-a-day statistic froom the tar sands was made just a few days ago."

Wherever it's from, you're still missing the point. It's a static number. It doesn't say anything, because the actual amount of oil the fields produce will go up or down with the price of oil, and the industry's and Canadian government's predictions about the price of oil.

The exact same thing is true of other sources of energy.

|8.23.05 @ 2:33PM|#

Jennifer,

I'm glad to see you have fully embraced the strawman.

I think it is reasonable to be skeptable of success in Iraq, but the critics tend to get it wrong. Frankly, the "we need more troops" argument is dubious. Perhaps not as dubious as similar claims made in Afganistan, but dubious nonetheless. In the end, Iraq will succeed or fail based upon what the Iraqi people do, and I hope for success but I'm much more willing to bet on future cheap oil.

|8.23.05 @ 2:36PM|#

Jennifer,

This isn't a cop-out (I swear!) but I don't think I can fully answer your question the way I'd want to (with a legitimately helpful suggestion) without a bit of forethought. Well, more than I could come up with off the top of my head right now, especially since I need to do something here in a moment (at work). To be honest, I'm not sure that I entirely understand OPEC's role in oil production/distribution and world economic law versus the US economic factors, etc. so I don't want to answer without looking into the economics of oil further. Uh, yeah. Also, to clarify: I'm not accusing Bush of doing nothing to keep oil prices lower, I'm suspicious of him for being in cahoots with someone to figure out a way to squeeze more profits out of higher barrel prices (possibly helping to pay for his ridiculous war debt?). In other words, I'm not suspicious of what he isn't doing, but rather suspicious that his administration is actively working to raise oil costs and hence profits (false scarcity, maybe?). However, I am willing to recognize other explanations such as the ones offered in Hobson's post. I'm not a total crackpot, but I am deeply cynical and do not expect much from Bush and his oil cronies.

|8.23.05 @ 2:39PM|#

Smacky--
It's because of my cynicism that I DON'T think Bush is behind some huge oil-jacking conspiracy. The boy just isn't that smart.

|8.23.05 @ 2:41PM|#

Sorry about the strawman, Don. How about "Bush has made no mistakes in re: Iraq?" He's said so himself, after all.

At the same time, I can't help but wonder--if THIS is what Iraq looks like when he did everything right, just IMAGINE what a clusterfuck would look like. . .

|8.23.05 @ 2:41PM|#

Additionally, I keep hearing about the cost of having so many different mixes, to meet environmental regulations in various areas, but I haven't really looked into that enough to reasonably comment.

These mixes can certainly result in local price spikes, since it means that, say, Arizona can't ship gas to San Diego to meet the demand there.

But are you willing to at least consider the possibility that the technology may not arrive in time to save us from economic upheaval? Or are you convinced that science will save us in the nick of time?

So, what is your proposed solutions for this possible upheaval? What are the associated costs? What are the increases in government power? How happy will you be when Jeb Bush (or Jenna or whoever) inherits these increased government powers?

Frankly, peak oil is a dubious theory: oil isn't fossil fuel, and there is probably way more of it than we realize.

|8.23.05 @ 2:46PM|#

IMAGINE what a clusterfuck would look like. . .


Iran (Carter) . . .
Beruit (Reagan). . .
Somolia (Clinton) . . .

Ed|8.23.05 @ 2:48PM|#

I said,

"I remember reading a Barrons article from November of last year (oil was around $40 at the time) where 5 wall street strategists including a money manager at Solomon Brothers and an energy strategist at Merrill Lynch predicted where oil prices would be in the last quarter of 2005. 4 of the 5 predicted they'd fall to the lower 30s range. Only one, Peter Schiff, predicted prices would rise. So now whenever an expert energy strategist tells me oil prices will fall, I ignore them - why shouldn't I? Over the past 2 years or so, the peak-oilers have been right and the peak-oil debunkers wrong."

JDM said,
What does that mean other than that the price of oil has risen for 2 years?

Yeah. Exactly. For the past 2 years the peak-oilers have said the price would rise and the debunkers (in this case I cited several wall street energy strategists) have said it would fall. Therefore, the peak-oilers were right and the debunkers were wrong. I thought I was pretty clear. Sorry if you were confused.

I think what gets people like me (and Jennifer) - peak-oil "moderates" if you will - so worked up is this nonchalant attitude taken by the majority of free-marketeers regarding this issue. Their notion that "the market will take care of everything" , don't worry - nothing to see here. I totally agree that the "market will take care of everything". But the market is a very unforgiving beast. Prices are likely to keep rising and our global economy take a hit. That's all I'm saying. I'm not advocating more gov't regulation or any other particular "solution". The best "solution" to the peak-oil issue lies in the market itself. The faster prices get higher, the better in my opinion. Only significantly higher prices will cause your average SUV Joe to change their energy consumption habits and drive dollars towards alternative energy technologies. Please, let oil reach $100, $200+ a barrel- and soon.


Oh yeah. And will anyone tell me why oil won't be $200 a barrel by 2011? I'd argue that Matt Simmons know a lot more about the oil industry than John Tierney, Ronald Bailey or JDM. So if I were a betting man (I'm not) I'd have to go with Simmons.

|8.23.05 @ 2:50PM|#

But are you willing to at least consider the possibility that the technology may not arrive in time to save us from economic upheaval? Or are you convinced that science will save us in the nick of time?

It apparently cannot be said often enough: margins, margins, margins, margins.

We don't need to replace the entire petroleum industry in one day. We simply need to make up for a small but increasing marginal shortfall if and when it appears.

And on the demand side, not every consumer needs to switch to a new technology in one day. The few who do -- for whatever reasons they do -- will allow the rest to stick with the old technology at a not dissimilar marginal price.

The Peak Oil guys can't have it both ways. Either the oil all disappears one day by some mechanism they haven't mentioned, or it disappears marginally and can therefore be replaced marginally.

The former frankly worries me much more than the completely unrealistic latter. Global geopolitical chaos -- say China starting to invade its neighbors because the US won't play economic ball (c.f., Unocal) -- is way more likely to cause a collapse of the oil economy than the other way around.

|8.23.05 @ 2:50PM|#

Don--

I haven't advocated any increased government powers here. And the abiotic oil theory has been pretty well debunked; those who espouse it are far further out on the fringes of science that even the most rabid Peak Oiler.

I myself don't believe we're facing the end of civilization, just a serious economic decline and depression, which will last until we figure out how to use another source of energy and get from it the same output we currently get from oil.

|8.23.05 @ 2:53PM|#

Some day we will run out of oil. In all likelihood, not nearly as soon as the peak oilers would like to believe, based on the thoroughly crappy record of similar doomsayers.

But sure, oil is a finite resource. So the question becomes, what should we do about it? Those who think that "we" should do nothing, and let the market do its thing, to the right. Those who think "we" should "do something" by having the government try to control how and where we get our energy, to the left.

Way to the left. Keep going. There. Now, look around at the company you keep. Lots of failed regimes, no?

|8.23.05 @ 2:54PM|#

And the abiotic oil theory has been pretty well debunked; those who espouse it are far further out on the fringes of science that even the most rabid Peak Oiler.

Has it been? I haven't followed it closely, but the impression I get is that there's still no smoking gun to shoot it down once and for all.

But, like I said, I haven't followed it closely.

I kind of hope abiotic origin is right: Cuz if it is, there might be oil on Mars! And while I suspect that it would never be economical to bring it here from Mars, it might then be economical to colonize Mars.

|8.23.05 @ 2:56PM|#

Jennifer:

First, to clarify terms. I am not necessarily arguing that "science will get there in the nick of time". I am arguing that the economy will adapt through some set of methods that, even were I smart enough, I wouldn't have enough information to be able to predict. This may mean moving to a satisficing but lower-energy lifestyle, some substitute for oil, or, more likely, some combination of substitutes and a lower energy budget per dollar of GDP. Once you admit the whole range of possibilities, it looks less likely that technology will fail in all of them or that the market's price mechanism won't reallocate the scarce resources to where they are really crucial.

It's possible that technology will not develop some mix of substitues in time to prevent the collapse of the economy in a way to make the Great Depression look mild, certainly. It's possible that the avian flu will wipe out enough spare population to reduce demand for oil, too.

But if I were to bet on a cause of economic collapse surrounding declining oil production, I would favor technocrats betting wrong on the way to solve the problem in a way that kills more people than letting the market do the adjustment would have. Governments have a better record at that than technologists.

|8.23.05 @ 2:57PM|#

until we figure out how to use another source of energy and get from it the same output we currently get from oil.

Sure, although I think we can do better than that. The question is, what/who is most likely to achieve that result, based on historical experience?

If you're not advocating increased government intervention (not even secretly, in your heart of hearts, via tax-funded subsidies or the like) then you agree with the free marketeers that the best way to achieve this goal is to leave people the hell alone and let them find the answers the old-fashioned way.

By seeking profit.

|8.23.05 @ 2:58PM|#

And the abiotic oil theory has been pretty well debunked; those who espouse it are far further out on the fringes of science that even the most rabid Peak Oiler.

References please? The fossil fuel theory seems very weak to me, and the deep Russian oil wells pretty much drive a stake through the heart of fossil fuel theory as far as I can tell . . .

|8.23.05 @ 3:03PM|#

Don:

Cite, please.

Garth|8.23.05 @ 3:05PM|#

Let's put this in terms of another resource of some time ago: beaver pelts.

Beaver Peaker: We will run out of beavers and the price of beavers will go up astronomically!

Beaver non-Peaker: Nonsense! We will switch to something else long before we run out of beavers.

Real Result: We had something of both: almost ran out of beavers and prices did rise, but we moved onto something else before we really ran out of beavers, but after beavers became rare and dear.

|8.23.05 @ 3:13PM|#

Garth:

But society did not fuel its vehicles with beaver pelts. There are some major qualitative differences, here.

|8.23.05 @ 3:17PM|#

Guys, there are many other forms of energy out there, but the point of Peak Oil is not the loss of energy but the loss of CHEAP energy. A trip to work that costs five bucks with cheap oil can cost twenty when using something else. All we Peak Oil moderates are saying is that our economy, dependent as it is on cheap energy, will start some serious hurting when that energy now becomes expensive. Eventually I'm sure we'll improve current technology, or discover something new, to make energy cheap again, but it's not likely to be soon enough to prevent us from spiralling into a depression.

All of the anti-Peak Oil arguments amount to either: We're not going to run short of oil anytime soon; or, we WILL run short but new technology means we'll do fine. Both statements seem based on little more than faith.

When the Saudis tightened the spigot in the 70s we were able to turn to other sources for oil. When ALL the spigots tighten up, not from politics but from a lack of oil, who will we turn to then?

Thoreau--

By studying oil at the microscopic level there's all sorts of proof that it was once alive. They can even tell what KIND of oil it is; i.e., was this Plankton Type A or Plankton Type B? The organic oil theory is not a matter of faith.

|8.23.05 @ 3:20PM|#

Garth, tell me about it. It's outrageous how much dinner and a movie costs these days. Easier to just download the hot coffee mod.

|8.23.05 @ 3:21PM|#

The Peak Oil guys can't have it both ways. Either the oil all disappears one day by some mechanism they haven't mentioned, or it disappears marginally and can therefore be replaced marginally.


MikeP, They seem to be claiming that it will disappears marginally and we won't be able to cope. In other words, the argument becomes an economic one, hence the economic debunking of Peak Oil.

I'm not accusing Bush of doing nothing to keep oil prices lower, I'm suspicious of him for being in cahoots with someone to figure out a way to squeeze more profits out of higher barrel prices

As you jack up prices, the market responds by cutting back on demand. Those nasty capitalists have to be very carefull to peg the price just right to maximize their obsene profits.

Didn't Gore call for higher gas prices in his book? Of course, he wasn't interested in profit, he just wanted to engage in some old fashioned social engineering.

|8.23.05 @ 3:23PM|#

Jennifer-

Reference? As of 5 years ago the abiotic theory still had enough steam left in it to be placed in a book called "9 Crazy Ideas in Science--A Few Might Even Be True!" The book gave it a skeptical review, but still deemed it worthy of consideration.

|8.23.05 @ 3:26PM|#

Thoreau--

Let me do a quick search and get back to you. It's not exactly like my blood type--you know, the kind of information I keep handy to spout out anytime it might be necessary.

|8.23.05 @ 3:31PM|#

Ed,

Yeah, I'm nonchalant about oil. So what.

The price of oil is going up. Plan your life accordingly.

Sheesh.

Garth|8.23.05 @ 3:31PM|#

JonBuck,

Exactly. I suppose I should have added that I would not have taken a 10 year bet as Tierney has since I think it likely that that would be not enough time for a major shift in technology or consumption but enough to demonstrate that oil really is a finite commodity. But we won't squeeze out the last drop... In 100 years there will still be oil but no market in it and therefore it will be worthless.... in the meantime astronimical prices will have been reached to force us to make some serious changes or advancements but I have no idea when that will be....

|8.23.05 @ 3:32PM|#

Thoreau -

actually, abiotic oil makes sense. Pretty recently (just over a couple billions of years ago) Earth atmosphere was reducing as hell (before those evil green plants poisoned it with that nasty oxygen thing), perfect conditions for all sorts of organic matter to form (see Miller-Urey experiment) and organic carbon would be very stable under these conditions. Is it true? Dunno, I ain't no petrochemist.

And, foreseeing questions, no, you can't carbon date oil.

|8.23.05 @ 3:40PM|#

Seems to me all these debates would be more fun if we could all put some money behind our predictions. In most cases a good metric is hard to find but with oil prices it's easy. Maybe we could start a "Reason Commenters Oil Futures Pool" or something. I'm thinking there could be 1 year, 2 year, 5 year and 10 year pools. Maybe they would be simple over/under pools with the winning side dividing the take in proportion to their own contribution. It could also be easily expanded to alternatives, as in what percentage of our total energy use will be supplied by which alternative in a given future year. Lots of other possibilities of course, but it could be fun.

|8.23.05 @ 3:41PM|#

Wait a second here.

First of all, if the Saudis are Bee Essing about their reserves, having that sprung on us could cause prices to skyrocket even if we aren't anywhere near running out of oil globally.

Second, according to libertarian theol- I mean, economics, all of our problems will be solved by other energy sources. If petroleum is $300 a barrel and everyone in America zips happily along in their wind, solar, and fuel cell cars, would Tierney still win?

M1EK|8.23.05 @ 3:44PM|#

My point about EROEI has been misconstrued - I wasn't claiming that anything violates thermodynamics. The energy inputs to biodiesel are TWO: (1) fossil fuels and (2) solar energy. The problem is that some (most) people think you're getting out more energy than the #1 input, while some people say otherwise.

As for the bet - I wouldn't take it either. The odds that oil will be that high by then EVEN IF YOU BELIEVE IN PEAK OIL are quite low, since it's more likely that we'll be in economic depression by then, leading to a falloff from the peak price.

|8.23.05 @ 3:45PM|#

JonBuck, here:

http://ranprieur.com/crash/abiotic.html

Based upon Jennifer's comment, I did some searches and there is quite a bit of argument on both sides. The above link seems tied to Peak Oil, but what I've read from the Peak Oil sites indicates that they can't disprove the abiotic theory, but that they don't think all oil is abiotic, and they also claim that abiotic oil doesn't change the Peak Oil problem (their point being that most abiotic oil would be "out of reach"). Jennifer's claim that abiotic oil has been dubunked appears to be false, but the arguments in favor of it are not as strong as I thought.

In any case, both the Peak Oil and the abiotic oil people appear to be nutcases. Some on the abiotic oil side claim that Peak Oil is a Zionist/Bush/Cheney conspiracy.

M1EK|8.23.05 @ 3:47PM|#

"The price of oil is going up. Plan your life accordingly."

If everybody else doesn't plan, you're screwed anyways. If your city doesn't allow urban development but instead requires sprawl development (zoning with big setbacks; small height limits; limiting multifamily), you're unlikely to be able to afford the housing you'd need to do to use less oil. If your city doesn't fix its transportation system to give mass transit a speed and reliability boost, you're screwed either way. Etc.

You can hedge, but that's about it. Hedging doesn't make money, it just lets you lose a little less than your neighbors.

|8.23.05 @ 3:50PM|#

Jennifer -

Without more, it looks like you are making a classic scientific mistake - evidence that A is a causative agent per se excludes anything else from being a cause.

Applying to your post - just because some oil has biomarkers, and therefore is likely to have been created by biological processes (or biologically related processes) does not mean that there aren't abiotic processes that also create oil.

And,just to be clear, I don't have a dog in this fight. Whether oil is running out or not, the market is the best method of handling it. Government intervention can only accomplish two things if it is running out - delay the adjustment, thereby making it a much bigger, harder adjustment, and two, allow well connected sycophants to profit off of taxpayer money.

|8.23.05 @ 3:53PM|#

Here's a super-long cut and paste from a Peak Oil site, explaining why supply and demand, and market forces, won't be enough to solve the problem: (after this, all words are pasted, though I don't fell like going through and italicizing it all):

As economist Andrew Mckillop explains in a recent article entitled, "Why Oil Prices Are Barreling Up," oil is nowhere near as "elastic" as most commodities:

"One of the biggest problems facing the IEA, the EIA and a
host of analysts and "experts" who claim that "high prices
cut demand" either directly or by dampening economic
growth is that this does not happen in the real world."

"Since early 1999, oil prices have risen about 350%. Oil
demand growth in 2004 at nearly 4% was the highest in 25
years. These are simple facts that clearly conflict with
received notions about "price elasticity". World oil demand,
for a host of easily-described reasons, tends to be bolstered
by "high" oil and gas prices until and unless "extreme" prices
are attained."

As mentioned previously, this is exactly what happened during the oil shocks of the 1970s - shortfalls in supply as little as 5% drove the price of oil up near 400%. Demand did not fall until the world was mired in the most severe economic slowdown since the Great Depression.

While many analysts claim the market will take care of this for us, they forget that neoclassic economic theory is besieged by several fundamental flaws that will prevent the market from appropriately reacting to Peak Oil until it is too late. To illustrate, as of April 2005, a barrel of oil costs about $55. The amount of energy contained in that barrel of oil would cost between $100-$250* dollars to derive from alternative sources of energy. Thus, the market won't signal energy companies to begin aggressively pursuing alternative sources of energy until oil reaches the $100-$250 mark.

*This does not even account for the amount of money it would take to locate and refine the raw materials necessary for a large scale conversion, the construction and deployment of the alternatives, and finally the retrofitting of the world's $45 trillion dollar infrastructure to run on these alternative sources.

Once they do begin aggressively pursuing these alternatives, there will be a 25-to-50 year lag time between the initial heavy-duty research into these alternatives and their wide-scale industrial implementation.

However, in order to finance an aggressive implementation of alternative energies, we need a tremendous amount of investment capital - in addition to affordable energy and raw materials - that we absolutely will not have once oil prices are permanently lodged in the $200 per barrel neighborhood.

While we need 25-to-50 years to retrofit our economy to run on alternative sources of energy, we may only get 25-to-50 days once oil production peaks.

Within a few months of global oil production hitting its peak, it will become impossible to dismiss the decline in supply as a merely transitory event. Once this occurs, you can expect traders on Wall Street to quickly bid the price up to, and possibly over, the $200 per barrel range as they realize the world is now in an era of permanent oil scarcity.

With oil at or above $200 per barrel, gas prices will reach $10 per gallon inside of a few weeks. This will cause a rapid breakdown of trucking industries and transportation networks. Importation and distribution of food, medicine, and consumer goods will grind to a halt.

|8.23.05 @ 3:54PM|#

Joe: If petroleum is $300 a barrel and everyone in America zips happily along in their wind, solar, and fuel cell cars, would Tierney still win?


Simmons would win, assuming that the $300 is inflation adjusted. But I have to wonder: if there is no demand for oil, why would it command $300 a barrel?

|8.23.05 @ 3:55PM|#

And I now have to do some actual work. But I'll check this thread later and read the various arguments for why I'm wrong and everything will be fine.

Jack William Bell|8.23.05 @ 4:02PM|#

I've learned three things from this thread:

(1) Don tends to make sense to me.

(2) Smacky isn't worth listening to.

(3) Those pooh-poohing the oil-sands/oil shales 'solution' by pointing out how little is produced that way seem to know little about the process. The problem isn't that there is a lack of raw materials, it is that there is a lack of facilities to do the conversion. When oil goes above $100 a gallon it becomes cost-effective to build new facilities. Once the facilities are built supplies will stabilize closer to demand and oil prices probably won't go much higher until 2030.

Jack William Bell|8.23.05 @ 4:03PM|#

Whoops! (MUST REMIND SELF TO PREVIEW!)

$100 a barrel, not a gallon.

Doh!

|8.23.05 @ 4:18PM|#

Peak Oil is so last week...

I predict that biodiesel will replace gasoline at $4 a gallon. In fact, as petroleum production costs rise past that price, there will be a large but painless shift in the developed and developing world to vegetable-derived transportation fuel.

But in the undeveloped world disaster awaits.... As the hungry industries demand more and more plant oil, it actually outcompetes food crops on lands in the undeveloped world. The western world, China, and India push more and more people from their farms, increasing displacement and potential famine throughout the nonindustrial nations.

In 2016 Peak Vegetable Oil arrives when a man named Morris leads a transnational rebellion against the vegetable oil interests. He organizes the vegetable oil producing nations into VOPEC and extracts huge price concessions from the industrialized world. Worldwide depression follows. Oh, and all the economic laws you ever knew anything about fail, yadda, yadda, yadda.

"Peak Vegetable Oil" is not snappy enough. I will call my theory "Collapse of the Wesson World".

Can I be on Fresh Air now, or do I have to write a book first?

|8.23.05 @ 4:29PM|#

As mentioned previously, this is exactly what happened during the oil shocks of the 1970s - shortfalls in supply as little as 5% drove the price of oil up near 400%. Demand did not fall until the world was mired in the most severe economic slowdown since the Great Depression.

Uh, we had price controls on gas back in the '70s. Price controls maintained a high demand. Like in California recently with respect to electricity . . .

To illustrate, as of April 2005, a barrel of oil costs about $55. The amount of energy contained in that barrel of oil would cost between $100-$250* dollars to derive from alternative sources of energy. Thus, the market won't signal energy companies to begin aggressively pursuing alternative sources of energy until oil reaches the $100-$250 mark.

So the market can't attempt to find solutions until an existing, known solution becomes economically viable?

Once they do begin aggressively pursuing these alternatives, there will be a 25-to-50 year lag time between the initial heavy-duty research into these alternatives and their wide-scale industrial implementation.

I would hedge my bets and say 1-100 year lag, but I'm conservative when pulling numbers out of my ass.

However, in order to finance an aggressive implementation of alternative energies, we need a tremendous amount of investment capital - in addition to affordable energy and raw materials - that we absolutely will not have once oil prices are permanently lodged in the $200 per barrel neighborhood.

We need!? Maybe we will, maybe we won't. That is a worst case assumption.

While we need 25-to-50 years to retrofit our economy to run on alternative sources of energy, we may only get 25-to-50 days once oil production peaks.

Possibly true if combined with price controls. Otherwise, demand will drop giving us more time to deal with reduced supply.

. . . it will become impossible to dismiss the decline in supply as a merely transitory event. Once this occurs, you can expect traders on Wall Street to quickly bid the price up to, and possibly over, the $200 per barrel range as they realize the world is now in an era of permanent oil scarcity.

It is also possible that as oil prices drop with decreasing demand, that traders who bought expensive oil will have to sell it for a fraction . . .

With oil at or above $200 per barrel, gas prices will reach $10 per gallon inside of a few weeks. This will cause a rapid breakdown of trucking industries and transportation networks. Importation and distribution of food, medicine, and consumer goods will grind to a halt.

Trucks and trains typically are diesel; heavy crude is much easier to find than light crude. There is also a price differential between light and heavy crude oil. We can also use coal to make diesel.

I'd expect a transistion to diesel if this Peak Oil thing comes to pass. Granted that diesel would eventually face the same problem, but after a long lag (certainly compared to this 25-50 day fantasy).

|8.23.05 @ 4:31PM|#

Quasibill--

Think of the "organic oil theory" in the way we think about protons and electrons. (Yes, I WILL tie subatomic particles to the production of oil--just you wait.) Nobody has ever actually SEEN an electron or a proton--they are purely theoretical. And yet the theory works--scientists say "If electrons have these qualities then THIS should happen in lab experiments," and sure enough it does. When some guy--I think Mendeleev--invented the Periodic Table of the Elements, there were gaps in the table, but based on the theories of atomic structure he was able to predict, "When you find the element that belongs in THIS space it will have THESE qualities," and sure enough it did.

Same thing with oil. The organic oil theory seems to work--petroleum geologists use it to predict, "Okay, we should find some oil HERE, and it will be oil type X," and sure enough they do and it is. And then they say "Also based on this theory, we will NOT find oil here"--and sure enough they dont.

Abiotic oil doesn't lead to any such provable predictions.

|8.23.05 @ 4:33PM|#

(2) Smacky isn't worth listening to.

Even Smacky seems to realize that.

|8.23.05 @ 4:33PM|#

Don--

So how will we manufacture all these things, and make the change to a non-oil-based, without oil to provide the energy and raw materials?

|8.23.05 @ 4:35PM|#

When oil goes above $100 a [barrel] it becomes cost-effective to build new facilities.

Yes, Jack, but we'll still be stuck paying $100 a barrel. I say this again and again--Peak Oill does NOT say we are running out of energy, it says we are running out of CHEAP energy.

|8.23.05 @ 4:37PM|#

Nobody has ever actually SEEN an electron or a proton--they are purely theoretical.

Oh, boy...

Let's start with a refutation of the most literal take on that statement: Imaging. Scanning probe microscopes routinely image atoms. I'm no expert in that area, but I'm sure somebody has imaged a hydrogen atom by now. That's a single electron orbiting a single proton.

Now, in various types of scattering experiments, people have routinely observed a beam of particles traveling through their system, and when they use electromagnetic fields to measure the charge and mass of these particles they find the exact charge and mass of the electron of proton, depending on the type of beam they use.

I'll dig up references later if you like.

|8.23.05 @ 4:42PM|#

Don,

"Simmons would win, assuming that the $300 is inflation adjusted. But I have to wonder: if there is no demand for oil, why would it command $300 a barrel?"

There wouldn't be no demand for oil - there would still be "classic cars" on the road, a plastics industry, NASCAR, companies that are so profitable and shortsighted that they've put their money into dividends/salaries/bonuses instead of a new power plant...

You know, the same reasons why lagging technology always hangs around.

|8.23.05 @ 4:43PM|#

Jennifer,

Theoretically we should have one theory that describes subatomic particles, but it is theoretically possible that oil is derived from different sources.

However, light can be described theoretically as a wave or a particle. Same for electrons, or all matter for that matter. Wave-particle duality and all that . . .

|8.23.05 @ 4:48PM|#

To channel Gary Gunnels...

Really, all of you should stop talking about waves and subatomic particles and read "Quantum Physics" by Eisberg and Resnick before you embarass yourselves any further.

*chuckle*

:->

|8.23.05 @ 4:50PM|#

Joe,

The demand for oil would be greatly reduced, along with the price.

Jennifer,

Manufacture what things?

|8.23.05 @ 4:50PM|#

"While we need 25-to-50 years to retrofit our economy to run on alternative sources of energy, we may only get 25-to-50 days once oil production peaks."

And to you, this is credible?

|8.23.05 @ 4:51PM|#

I honestly had no idea they piled it that deep...

|8.23.05 @ 4:53PM|#

Thoreau--

They hadn't seen protons or electrons when the Periodic Table was done, and yet the theory worked just fine. I'm surprised that you didn't at least get the point I was making there: organic oil theory leads to predictions that are proven true; abiotic oil theory does not. (And the whole "prediction" thing I got from something you wrote, about the difference between evolution and ID.)

Don--

Manufacture everything we'll need to make the switch from an oil-based economy to an economy based on whatever miracle the free market will hopefully come up with.

|8.23.05 @ 4:55PM|#

One thing people keep bringing up is the increased oil demand in India and China. But no one ever brings up the fact that both countries subsidize their gasoline prices. That practice cannot continue if the market price gap gets larger and larger. Of course, every country subsidizes energy of some kind or another (wonder how much that contributes to greenhouse gas emissions), but China is probably the heaviest subsidizer. Which explains a lot of why their goods are so cheap.

If your city doesn't allow urban development but instead requires sprawl development (zoning with big setbacks; small height limits; limiting multifamily), you're unlikely to be able to afford the housing you'd need to do to use less oil...Hedging doesn't make money, it just lets you lose a little less than your neighbors

M1EK, yawn. Everyone already makes the decision to allocate their money on housing vs. transportation. If all my neighbors lose more money than me, then prices go down and I can afford more. So I'd kinda prefer to do my own planning and hope everyone else doesn't plan as well as me. But I don't want them to do so badly that they become an angry mob and steal my stuff. I believe the correct term for that is "economics".

|8.23.05 @ 4:58PM|#

"Yes, Jack, but we'll still be stuck paying $100 a barrel."

Ain't necessary so. Let's say, one produces electricity by burning oil at, say, $.50/kwh. Somebody figures how to produce electricity at $.45/kwh and undercut competitors (nuclear power, anyone - Greenpeace ravings notwithstanding, they produce far less radioactive emissions than conventional coal-burning ones) - whoops, suddenly oil spent making that electricity is no longer needed, demand goes down, supplies go up, price drops. Market, y'know?

|8.23.05 @ 5:00PM|#

Sorry, Jennifer, I just zeroed in on that one statement because I was like, huh?

When the periodic table was put together the original concept had nothing to do with electrons and protons. It had to do with classifying elements that behave in similar ways. It was later discovered that the order corresponded closely with the number of electrons and protons.

As to the abiotic theory: Fair enough. If biotic origin leads to lots of testable (and verified) predictions, while the abiotic theory is merely a way to fill ever-shrinking gaps, well, you know which horse I'll back.

Meaning no disrespect to you (you've obviously read more about this than me), but I'm maintaining an open mind on the abiotic theory until I learn more, because just enough credible people seem to think it's worth considering. Doesn't mean that I conduct science with a poll, but if something is outside my expertise I either defer to the most reputable people outright, or else I do my own "back of the envelope" calculation to figure out which group I should defer to. If it's outside of my current work I can get away with deferring.

If I'm working on it, of course, I have the ability to check it myself.

|8.23.05 @ 5:02PM|#

Russ-

China and India subsidize fuel? That would explain a lot.

In regards to manufacturing, even if we run out of cheap oil the plastics industry will continue. They'll use cheap immigrant labor to work in the plastics mines (old landfills) and extract stuff that can be recycled.

|8.23.05 @ 5:04PM|#

Don, if supply drops to near zero, even a paltry demand could result in higher prices than we have now.

JDM,

25-50 days is not the time frame for a severe drop in oil supplies. It's the timeframe for panic, hoarding, and profiteering once the reality of the situation hits the public and industry.

|8.23.05 @ 5:04PM|#

Russ D - agreed. Someone (On Freakonomics?) alluded that China burns 9 times more oil than U.S. per dollar GDP. I have no clue if it's the case, but they'll get fucked much sooner if price of oil goes further up, hence a slowdown, hence reduction in demand, hence price drop. Having said that, I ain't selling my 100 mpg moped - and if you pull up behind me and honk, you'll get flipped. :-)

|8.23.05 @ 5:08PM|#

[To be ignored by Jack William Bell]

Some on the abiotic oil side claim that Peak Oil is a Zionist/Bush/Cheney conspiracy.

while the abiotic theory is merely a way to fill ever-shrinking gaps

Can somebody please clarify abiotic oil theory for me? Is that just the theory that oil is not produced/composed organically from dead matter, and therefore more limited in quantity than biotic oil would be? That is the impression I am getting.

[/To be ignored by Jack William Bell]

|8.23.05 @ 5:15PM|#

Smacky-

To be clear, I don't know the details of the abiotic origin theory, except that oil doesn't come from fossils. As I understand it, there are 2 possibilities:

1) Oil formed with the earth. Given that there's a lot of organic matter out in space, it's not something that I'm qualified to dismiss.

2) Oil is being continuously formed inside the earth, probably from processes involving carbonate minerals. This sounds fishy to me, but I'm not qualified to dismiss it. There are 2 versions of this notion. The first is that oil forms really, really slowly, so oil supplies are effectively fixed (and yes, I know, usable supplies will depend on technology and price, yadda yadda). The second (which seems downright nutty to me) is that oil supplies are being replenished on a scale that might be observable by humans.

Anyway, that's the theory. It's not widely accepted, and no doubt some of the proponents are nuts (any theory outside the mainstream will have some nutty adherents), but there are a handful of thoughtful people who consider it worthy of careful examination.

|8.23.05 @ 5:16PM|#

Jennifer,

Yeah, I know: manufacture what?

In any case, we will still have heavy oil and coal that we can use for diesel, and our trucks and trains and other industrial tools can run on that.

They'll use cheap immigrant labor to work in the plastics mines (old landfills) and extract stuff that can be recycled.

how much energy will be required? How easy would it be to convert plastic to gas?

|8.23.05 @ 5:17PM|#

cynical bastard-

Mopeds get 100 mpg? If oil prices go up much higher I might consider getting one. Are they useful in cities?

|8.23.05 @ 5:18PM|#

Don-

The plastic mines will be solar-powered,of course ;-)

|8.23.05 @ 5:22PM|#

I'm just glad there are enough supplies in the various moonbats' bunkers left over from y2k to keep them from preemptively syphoning the gas out of my car.

|8.23.05 @ 5:24PM|#

Thermal Depolymerization can convert plastics into crude oil. See this Wikipedia article. It's just been updated with some new information about profitability and product yield. However, I am unsure if the oil it produces can be further refined into gasoline.

|8.23.05 @ 5:24PM|#

Thoreau:

And where does the "deep, hot biosphere" stuff fit in, the claim that oil is produced by living things, but more or less continuously, and mostly by microbes living miles below the surface of the other? I think Wired did a cover story on that awhile back, but I didn't find it immensely convincing.

|8.23.05 @ 5:27PM|#

the surface of the earth, even...

|8.23.05 @ 5:29PM|#

One thing people keep bringing up is the increased oil demand in India and China. But no one ever brings up the fact that both countries subsidize their gasoline prices.

Well, in India's case, every time the government raises oil prices (since the dominant oil companies are state-owned, the government effectively determines the price), those wonderful Communists whom they depend on to keep their craptacular coalition government going raise a stink about it. They actually organized street protests the last time prices were raised.

Though on the flip side, India, like most nations, does have fairly high gasoline taxes. So the net result has been that the price of gasoline has remained high, but the state-owned oil companies have been saddled with major losses.

|8.23.05 @ 5:29PM|#

JonBuck-

I was thinking more about mining plastics to keep the plastic industry going. If oil gets too expensive that will undoubtedly spur more plastics recycling. I have no idea what the price of oil would have to be before they open a plastic mine in an old landfill, or what sorts of innovations might affect that.


Eric the Half a Bee-

I don't know how the Deep Hot Biosphere fits into the abiotic framework. Like I said, it's not my field. But I've heard of it, it sounds interesting, and it doesn't sound like the theory has been definitively ruled out yet, based on the pockets of respectable support it claims. But I don't know much more than that.

Now, if you want to talk about the Bohmian critique of quantum mechanics, that's a crazy theory that I can get behind....

|8.23.05 @ 5:32PM|#

Jennifer,

Thanks for pasting that. I had spent some time hunting down the actual position of the Peak Oil guys. Your summary is more concise and to the point than anything I was able to find.

That said, I counted 10 distinct errors in that brief piece. Presumably because it is concise and to the point, it contains all the nonsense in just a few paragraphs.

Here are refutations of the errors I found. Matching them to the article is left as an exercise for the reader:

1. Gasoline today is still cheap.
2. Oil in the '70s suffered massive government intervention.
3. There are alternatives cheaper than $100.
4. Markets can anticipate price rises as well as -- okay, better than -- panic-peddlers.
5. You do not need to retrofit the entire petroleum world at once.
6. A 25-to-50 year lag time? Get real.
7. There will be gobs of investment capital at $200 per barrel.
8. There is no 25-to-50 day rush to "retrofit our economy".
9. As prices rise, oil companies can go right back to quasi-depleted wells and spend more money at them.
10. Importation and distribution will not grind to a halt; it will merely favor more valuable goods and leave less important goods at the docks.

|8.23.05 @ 5:40PM|#

Frankly, peak oil is a dubious theory: oil isn't fossil fuel, and there is probably way more of it than we realize.

So this is an assumption on Don's part, right? I mean, it's not known that oil is not fossil fuel, correct?
I could see the possibility of both abiotic and biotic oils coexisting peacefully on Earth.

Those nasty capitalists have to be very carefull to peg the price just right to maximize their obsene profits.

Not especially careful. All they would need to do is apply a standard business calculus profit maximization function to a number of variables easily obtained by people on the inside of the business.
Normally I wouldn't object to this practice as a capitalist, but something seems a bit wrong when the person/people who is/are controlling the nation, its laws, its courts and congresses may be in on the deal.

|8.23.05 @ 5:42PM|#

thoreau,

Thanks for clarifying the theory (or your impression of the theory) for me.

|8.23.05 @ 5:43PM|#

Thoreau:

50 cc scooters (4 strokes, like the one I have, 2 strokes might be slightly better) are only marginally so. They won't go over 35 mph, and are excruciatingly slow uphill - prepare to use your middle finger extensively. On the plus side, fuel economy, low insurance ($75/year), auto tranny. Check out gsmotorworks.com for fluff - but I have to admit, at $900 delivered it's a bargain, even despite shoddy workmanship. 125 to 250 cc (Honda Elite) - which I am considering, if I move to a house next year - could go up to 60 mph (still not good enough for the Interstate) - are better, although you lose some fuel economy (60-70 mpg?). Interstate commute - consider Honda Silverwing (new, not the V-engined tourer from the 80ties), that'll go everywhere a car would. Or, if you don't mind proper motorcycles, get a dirt bike - even larger ones, like KLR 650 I was commuting on as a postdoc still give you 55 mpg. And if you want real economy, get one of those real mopeds, with pedals. Rumor has it, 150 mpg - but you still have to pedal on occasion.

Now, when Honda will bring their hybrid scooter on the market? I WANT ONE!!!! If they don't do it soon, I'll have to build one myself...

Jack William Bell|8.23.05 @ 5:55PM|#

RE: $100 a barrel oil

Yes, best guess from what I have read is that we are going to be stuck with oil at that rate within a decade. With higher world demand that is going to be the market value, so we might as well get used to it. On the upside, it won't go above that for a while. Short, that is, of some disaster or a world war.

On to my opinions now: I think that price will hold through about 2030 at the latest. After that all bets are off. We might get a cheap replacement source which won't be regulated to death -- in which case prices will drop dramatically.

Otherwise new sources like deep wells, oil sands/shales and agro-oil will start to fall behind demand as China and India move beyond early-industrial to consumer economies. (At current rates they will probably be equivalent to the US in the 1950's by the 2020's. Only with far bigger populations.) In that case the Peak-Oil folk might just get their wet dream.

So, basically, we have less than a generation to get our shit together. I consider it criminal negligance of our government that we didn't start investing in solar power satellites twenty years ago.

|8.23.05 @ 5:58PM|#

Oops. Honda Helix, not Honda Elite. Sorry.

|8.23.05 @ 6:17PM|#

So this is an assumption on Don's part, right?

Right.

Not especially careful. All they would need to do is apply a standard business calculus profit maximization function to a number of variables easily obtained by people on the inside of the business.

Uh, no. They don't know what price is going to start driving their profits down, any more than the government knows what increased tax rate is going to drive their tax revenues down.

Normally I wouldn't object to this practice as a capitalist, but something seems a bit wrong when the person/people who is/are controlling the nation, its laws, its courts and congresses may be in on the deal.

Bush can only sign or veto laws passed by congress. He has quite a bit of forign policy power, and he can sign EOs to his heart's content. But he doesn't control congress (even though it is a Republican congress), and he doesn't control the courts (even though he can nominate judges).

Jack William Bell|8.23.05 @ 6:21PM|#

Uh... Note when I said "new sources like deep wells, oil sands/shales and agro-oil" I meant "new sources like deep wells, oil sands/shales and agro-oil made economically viable by $100bbl oil." Obviously, should oil prices fail to rise to that level the new sources won't come on line.

But then they won't be needed. Either way the market solves the problem using currently known sources and technology for at least twenty years.

|8.23.05 @ 7:14PM|#

Don--

You keep asking me "what we need to manufacture." Let me spell it out here:

Right now we have a society based upon the notion of cheap petroleum, which we use for our primary source of energy. And it's also used to create a lot of wonderful plastic things, many of which are so cheap the stores practically give them away.

In addition to buying a lot of plastic products most Americans use a lot of petroleum just to get from their homes to anywhere useful--their jobs, the grocery stores, anything like that. Even with gas prices what they are, it's still pretty cheap to do this. Hell, I drive about 130 miles a day round-trip, and with a fuel-efficient car I'm spending less than ten cents a mile to do it.

Enough people can afford such a low rate for gas that we have huge numbers of people who commute thirty, forty, fifty or more miles one way each day to get to their jobs. And many live in places too spread out for mass transit to be feasible.

Now say that in two years it doesn't cost ten cents a mile to go places--it costs a dollar a mile to drive anywhere. And after that, two dollars a mile. All that extra cost, with no increase whatsoever in wages or productivity.

We're going to have to manufacture or build or produce a lot of stuff to rework our society for that to work without widespread, crushing poverty and unemployment and related problems.

So, since we're waiting to make the transformation until after oil gets really expensive, how will we make the changes to society? What will power the machines to build them, what will we use if petrochemicals are that much more expensive, and so forth?

That's what we need to manufacture.

|8.23.05 @ 7:16PM|#

Actually, let's say five years before gas gets that expensive. What the hell, gives us more time to build, right? At least in theory.

|8.23.05 @ 8:01PM|#

Jennifer,

Your hyperbole is showing.

In your example you are postulating an incease in the price of gas of 10 to 20 times in only 2-4 years! Even if every Saudi oil field caught on fire tonight, I doubt the reaction would be as dramatic as this. The Simmons/Tierney bet is that the price of oil will increase by only 3 times in five years.

MDH

|8.23.05 @ 8:10PM|#

Mac-

The numbers in that specific context were to pose the point to Don--things will get a LOT more expensive, we have to rebuild a LOT of stuff, so HOW will we do it?

|8.23.05 @ 8:53PM|#

Jennifer,

We don't know what the final solution will be, so we don't know what we need to manufacture. That's the point.

In any case, we will continue to have diesel for some time, via coal and heavy crude and other sources. We will still be able to make things for quite a while.

Peak Oil may be a bump. It might not be that. It will not be a major problem.

|8.23.05 @ 9:09PM|#

We don't know what the final solution will be, so we don't know what we need to manufacture. That's the point.



The point isn't even "what will we have to manufacture," but "how will we manufacture and apply it, especially in time to avert a serious problem?"

I'm not saying "Do X and the problem will be solved;" I'm saying "The unlikelihood of our being able to do X is what the problem will be."

|8.23.05 @ 9:14PM|#

Jennifer,

You're falling into the "all other things being equal" trap. Oil prices don't move in isolation without effecting related activities in the rest of the economy that at least partially offset the rise unless, of course, the government starts jacking around with things.

Regarding the bet between these guys; there is already an arena for betting where oil prices will go. If these guys REALLY had the guts to put their money where there opinions are they would buy or sell short a contract in the futures market. This bet is pretty small beer and probably a subconscious (and wise) acknowledgement that they might be wrong.

Uncle Sam|8.23.05 @ 9:50PM|#

How will we make enough refridgerators for everyone?
How will we make enough computers for everyone?
How we make enough of anything?

Distributed decision making.

Uncle Sam|8.23.05 @ 10:26PM|#

The greatest threat to our future well being is he usual hsyterical reaction. That's why government doesn't work, it responds to people's immediate fears (often promoted by polititians) rather than to long term solutions. That's why the market, if unmolested, responds better, people with the smarts look toward long term profits by anticipaing future needs and taking risks. Something you won't find in the political arena.

Big Jack Daddy's Cream Puff Ex|8.23.05 @ 10:27PM|#

I have a Hemi. And a moped imprint on my bumper. The finger negative is cool.
I get 17 mpg. The same as a 1976 Chevy Vega when it was new. My owner had one of my ancestors (1970 Charger, 383 ci 4-barrel holley, 4-speed) in 1981 when gas was $2 a gallon and he was working for the minimum wage of $3.70

After accounting for inflation (thumbnail calculation) gas at $4 gallon today doesn't cause him any worry. He makes a bit more than minimum wage now.

And Jennifer, your left is showing.

|8.23.05 @ 10:49PM|#

Everybody is so sure what will happen. Both the Peak Oil and economic arguments have merit. However, I think the former have more facts on their side than the economists. Indeed, the arguments they make are economic ones.

This issue has gotten me so worked up I can hardly think of anything else. I try to enjoy life, but the effect it's having one me is largely negative. I spend a lot of time and energy rebutting arguments that biofuels have a negative energy balance (The Cornell study has far too many serious flaws for its conclusions to be valid).

Nobody can really predict with any certainty what exactly is going to happen. We can argue about it, to some degree plan for it, but in the end we're all in the same leaky boat. And I don't see any harm in planning for the worst but hoping for the best.

|8.24.05 @ 1:44AM|#

This sudden glut of predictions on H&R are giving me a headache. Can somebody wake me when we're back to living purely for the moment again?

|8.24.05 @ 5:47AM|#

And Jennifer, your left is showing.

Ooooh, accusations of leftism. That changes everything.