ac writes:

But could oil prices fall sharply?

I can't help worrying that all of Russia and large parts of the Middle East are going to resemble mid-80s Houston sometime not too long from now (comparatively speaking, anyhow).

ac | 03.21.08 - 2:46 pm | #

Anonymous writes:
OT: Sorry to be off topic, but - First!

No, actually, this is a stunningly good article from the headlines on yahoo news from the Christian Science Monitor (yep, since Fox owns the WSJ, we need to go to the CSM for a good economic article)!

http://news.yahoo.com/s/csm/ 2008....Y.wkeKIFGs0NUE

an excerpt
--For too long, experts say, Japanese regulators coddled ailing banks, hoping the problem would go away. The government tried to pump money into the system, but without demanding better management. Credit became largely unavailable to firms that could have used it productively.

--That broke the rules of bank rescue.

--"If the government must bail the bank out … it should basically wipe out the management and wipe out the shareholders," says Mr. Beim.

--It sounds tough, but that's the point. It sends a signal that bad management won't be rewarded. And it conserves the bank's remaining resources – and taxpayer money – to restore sound lending for the economy.

--Swedish regulators quickly determined that they would follow that path, as some of their largest banks collapsed in the early 1990s.


(and further OT, this one is also a must read)
http://news.yahoo.com/s/ thenatio...ZzqI51E104EtbAF
Anonymous | 03.21.08 - 2:47 pm | #

wally writes:
Interesting ideas. It is difficult to apply any standard supply/demand rules to something that is priced by a cartel (some openly avowed members and a number of willing cooperators).
It seems to me to be a tragedy that some of the countries with such windfall wealth have done so little with it, except for rewarding a few of the elite families. When the resource is gone, they will have nothing to show for it.

The other price question worth exploring is: what is the maximum oil price that does not encourage too-vigorous development of alternative energy sources?
wally | 03.21.08 - 2:54 pm | #

ac writes:

So there is a possibility that what has looked like peak oil to some observers (something I believe is coming), was actually GCC countries investing by not extracting oil. If oil prices start to fall, and with rising expenditures (see first graph again), the GCC countries might increase production - causing prices to fall further.

Couple of other observations - that sort of "investment" could backfire if it spurs investment in alternatives like corn and vacuum energy.

Also regarding "And given highly inelastic demand..." I think easy credit, futures contracts, and oil tanker rentals may be severely distorting the oil market, so I would tend to reject any preconceptions about supply or demand.

In any case, I think it's better to move away from having an economy that's dependent on the quantity of things that have died in the past for its future.

ac | 03.21.08 - 2:55 pm | #

Jim writes:
http://money.cnn.com/2008/03/21/ ...=rss_topstories

The problem with Americans is that they are foolishly optimistic. They need to have that mercilessly beaten out of them. Then in the future they might be more sensible and wiser.
Jim | 03.21.08 - 2:57 pm | #

ac writes:

It seems to me to be a tragedy that some of the countries with such windfall wealth have done so little with it, except for rewarding a few of the elite families. When the resource is gone, they will have nothing to show for it.

Did you see the Economist's cover story on Russia?

Looks like they may be going on their own US-style consumption binge (relatively speaking, once again).

It seems like windfalls have a way of destroying real economic productivity.

ac | 03.21.08 - 2:58 pm | #

ac writes:

The problem with Americans is that they are foolishly optimistic. They need to have that mercilessly beaten out of them.

Now if only our Fed chairman were more like Jim here we could make some real progress.

ac | 03.21.08 - 2:59 pm | #

jim a writes:
Kind of the way I feel about drilling in ANWAR. In say, 50 years that oil is likely to be worth MUCH more. Until then we can store it in the cheapest method possible: leaving it where nature put it.
jim a | 03.21.08 - 3:00 pm | #

Max writes:
Interesting theory. If I'm reading you correctly, there are some self-limiting aspects to the current recessionary period.

BTW, some have argued (Stratfor comes to mind) that, due to geopolitical issues, both the Saudis and the Venezuelans have been lagging on much-needed infrastructure maintenance and repair and this has contributed to production shortfalls. If this theory holds, there might be profound implications down the road if prices fall enough that these production gaps need to be filled...

Interesting.
Max | Homepage | 03.21.08 - 3:01 pm | #

km4 writes:
What's happened to the U.S. economy?
http://www.boingboing.net/2008/0...ent- thread.html

from Zuzu

From about 2001 - current the United States has funded a comprehensive restructuring of domestic government agencies (i.e. Homeland Security) with new and far-reaching "anti-terrorism" programs (e.g. Federal subsidy of enlarged state and local police, USVISIT, etc.), funded an invasion and ongoing active occupation of Iraq (at a cost of about $1 billion per month), while at the same time cutting taxes, and in September 2007 Congress raised the debt ceiling $9.815 trillion. The U.S. Government went from an ostensibly balanced budget in 1999, to a mind-boggling increase in spending, while at the same time collecting less revenue (i.e. taxes). How do they afford it? They increase the supply of money and credit through the Federal Reserve. This is a stealth tax. By debasing the fiat currency of the dollar, they spend the new dollars on the military-industrial complex to "keep us safe"*, which dilutes the value of the dollars we save in our bank accounts (or that we negotiated with our employers to earn in our paychecks), but all of the other goods and services are still just as scarce, so more dollars are needed for the same value to exchange for them, which is inflation.

(*Recently "keep us safe" has been extended to including bailing out financiers such as Bear Stearns and soon Lehman Brothers.)

The "Three Trillion Dollar War" or whatever you want to call it was all paid with inflation, which explains why the price of gold went over $1000/oz, why oil and food prices are up, but people are still generally acting as if dollars are worth what they used to be worth before the new money was created. (Arguably his is also why the Federal Reserve ceased publishing M3 data in March of 2006, and why the Department of Labor and Statistics has redefined the Consumer Price Index (CPI) to exclude energy (i.e. oil) and agriculture from its "basket of goods" estimation of dollar purchasing power.)

The economic crisis the United States can no longer ignore is the unwinding of this inflation. However, economists who speak on television or for politicians will tie themselves in knots and circular logic to avoid ever saying the word "inflation" -- it's like a taboo. So first they pitched this problem as a "sub-prime mortgage crisis", until now the problem is obviously not contained to just that market sector. Recently I've heard people start saying "contagion" like when the Asian Tigers melted down from their inflationary bubble in the 1990s.

But the crisis is simply that the Bush-Cheney administration has spent more money than God by borrowing and printing it (i.e. creating inflation), which in the central banking system of fractional reserve multiplies several times over into even more inflation. This creates an enormous market bubble -- that so-called "economic recovery" Bush has claimed in his speeches of yore. So this bubble didn't even feel like a bubble so much because the "improvement" was marginal over the pre-existing recession from the previous dot-com bubble and housing "foam" created by Alan Greenspan. But soon all of that inflation is about to collapse.
km4 | 03.21.08 - 3:08 pm | #

Marcus Aurelius writes:
jim a writes:
Kind of the way I feel about drilling in ANWAR. In say, 50 years that oil is likely to be worth MUCH more. Until then we can store it in the cheapest method possible: leaving it where nature put it.
jim a | 03.21.08 - 3:00 pm

____

Maybe by then we'll get lucky, and it will be worth what it was in 1800.
Marcus Aurelius | 03.21.08 - 3:08 pm | #

Ministry of Truth writes:
Oil prices fall and we defeat Iran internally without firing one bullet. CIA just needs to get the oposition government ready to campaign.
Ministry of Truth | 03.21.08 - 3:10 pm | #

REBear writes:
From fig 1, it looks like the tailspin may not start until oil takes a 30+% hit. Am i right?
REBear | 03.21.08 - 3:11 pm | #

Debbie Downer writes:
defeat them at what ! ?
Debbie Downer | 03.21.08 - 3:11 pm | #

askin writes:
i think i've got a nasty virus ... google is redirecting me to google.es
askin | 03.21.08 - 3:13 pm | #

Rob Dawg writes:
The road map is fairly clear. Solar will reach critical mass through a combination of technological improvement and government policies. The demand for peak NatGas electrical generation will fall and take out NatGas prices on the margins. Oil is sure to follow.

Peak Oil or even limits to oil are such fundamentally flawed ideas that they don't even rise to the level of being wrong. Thank you Dr. Pauli. This is ostensibly and nominally a macro econ blog so this should come as no surprise. At worst we are running lower on very cheap oil. It concerns me that people manage to look at the history and track record and assumptions of Peak Oil and not laugh.
Rob Dawg | Homepage | 03.21.08 - 3:14 pm | #

Viewing with alarm writes:
The dirty truth about government spending is that it never turns down very much. There can be a leveling or even a small decrease but the basic level of services are impossible to cut. Therefore the oil producers are building a trap that will lead to a political crisis in their countries. Load up the 747 momma we gota get out of town and move to California!
Viewing with alarm | Homepage | 03.21.08 - 3:15 pm | #

Terry writes:
Wally said: "When the resource is gone, they will have nothing to show for it."

Other than the rabble battering the gate....
Terry | 03.21.08 - 3:18 pm | #

Mike writes:
Rob dawg writes: Peak Oil or even limits to oil are such fundamentally flawed ideas that they don't even rise to the level of being wrong.

Hmm, this could only be said by someone who doesn't understand what peak oil is.

At worst we are running lower on very cheap oil.

Well that didn't take long - a simple demonstration that you don't, in fact, know what peak oil is.
Mike | 03.21.08 - 3:23 pm | #

CalculatedRisk writes:
REBear, I'd think a 30% decline would have a huge impact on the GCC. Just government spending according to Ziemba's numbers will require $50 oil this year.

I suspect a 30% decline (to $70 oil) would be enough to cause problems in the GCC - and help the U.S. economy and trade deficit.

I started this post thinking - why do governments always rachet spending to match revenues? Say goodbye to Gray Davis, and Hello to Arnold. At least that wasn't violent.

Best to all.
CalculatedRisk | Homepage | 03.21.08 - 3:24 pm | #

ac writes:

The dirty truth about government spending is that it never turns down very much. There can be a leveling or even a small decrease but the basic level of services are impossible to cut.

I think in a political sense that's probably true, but if those services depend on something that's going away or fundamentally limited in supply, reality can have a way of working it's magic. That's also when wars tend to start.

I am getting more of the sense though that government spending is a one way street. I think that's why it's so important to be wary of government spending -- not that we don't need government, but when government starts utilizing resources poorly it can be very hard to stop.

ac | 03.21.08 - 3:24 pm | #

Viewing with alarm writes:
I probably should have said that spending cannot be cut very much without a total collapse of an economy. If there is any credit left at all, the government will borrow to maintain the basic level of bread and ciruses. My goodness, that sounds like the good old USA!
Viewing with alarm | Homepage | 03.21.08 - 3:28 pm | #

MLM writes:
Rob - I have a good friend in the oil and gas business. He has been VP of production at several smaller domestic companies (S&P midcap 400 size). He doesn't find the idea of Peak Oil wrong.

I spent a considerable amount of time studying the question a couple years ago, and while there are a bunch of nuts who have involved themselves in the question, there are also a number of thoughtful and credible experts who think we are at or near peak world production.

It's very difficult to predict what the economic response to ever decreasing oil production volumes will be, and I suspect much higher prices will encourage remarkable ingenuity. That said, I'm not looking forward to the process.
MLM | Homepage | 03.21.08 - 3:28 pm | #

Mike writes:
Unfortunately, OPEC can cut production if required to protect the price range of oil that they need. It wouldn't require much cutting at all, and I think they've shown the willingness to do exactly that. I would not expect them to allow another drop to $50/barrel ala 2006.
Mike | 03.21.08 - 3:28 pm | #

Viewing with alarm writes:
Read circuses above. Bad typing by partially blind retired economist. Or is that redundant?
Viewing with alarm | Homepage | 03.21.08 - 3:29 pm | #

ac writes:

REBear, I'd think a 30% decline would have a huge impact on the GCC. Just government spending according to Ziemba's numbers will require $50 oil this year.

I suspect a 30% decline (to $70 oil) would be enough to cause problems in the GCC - and help the U.S. economy and trade deficit.

I started this post thinking - why do governments always rachet spending to match revenues? Say goodbye to Gray Davis, and Hello to Arnold. At least that wasn't violent.

I recall reading how budgets in some of the DC suburbs assumed an 8% rate of house price appreciation and went from there.

These were responsible budgets because 10%-15% appreciation was generally considered far more realistic. They had a little wiggle room built in for those occasional extra spending surprises like maintenance of abandon swimming pools.

ac | 03.21.08 - 3:32 pm | #

Kp writes:
The spec money can leave very quickly. Even if it did I don't see why prices would go/stay under 60-65/barrel very long. It took years to create all of this extra demand in the EMs...can it be erased over a short period of time?

Probably no more easily than we could abandon/substitute oil here in the states.
Kp | 03.21.08 - 3:32 pm | #

Red Pill writes:
I actually find this post to be some true good news. It seems plausible and would really help our economic situation. We absolutely have to get that trade deficit in positive territory for a bit.

Oil is a finite resource and it is used for many valuable things, like plastics. Seems a shame to keep burning it up in power plants and vehicles when there are viable alternatives.
Red Pill | 03.21.08 - 3:35 pm | #

ac writes:

The spec money can leave very quickly. Even if it did I don't see why prices would go/stay under 60-65/barrel very long. It took years to create all of this extra demand in the EMs...can it be erased over a short period of time?

Who in the early 80s would have every forseen $8/bbl oil in the late 90s?

I can imagine it was completely unthinkable at the time.

ac | 03.21.08 - 3:37 pm | #

Anonymous writes:
As the U.S. economy weakens, there is waning demand for oil in the U.S.:

OPEC has seen this movie before in the 70's and I don't believe they will slit their own throat again. If the price starts fall they will cut production and why sell a valuable resource for a currency that is purposely being depreciated anyway.
Anonymous | 03.21.08 - 3:41 pm | #

Bob_in_MA writes:
CR,

Great post.

What happened with the 1974-80s boom was they all increased spending even more dramatically than now and then found it very difficult to cut back, that forced them to keep producing heavily in a falling market, ultimately driving the price into the ground.


I've been working on a spreadsheet. You can kind of divide the top 15 economies into three groups: big net consumers (US, UK, Spain, Italy, France), big net exporters (China, Japan, Germany, Korea, ASEANs) and then the commodity economies (Russia, Australia, Canada, Mexaco, Brazil...)

The commodity countries as a whole consume almost as much as they export. Australia is fetching record amounts for coal, wheat, iron, etc., but their trade deficit is almost as bad as ours (%-wise)!

Look at the top consumer countries, all expected to slow appreciably. If commodities fall, even moderately, that group will have to slow consumption, so are Germany and China going to grow by exporting to each other?

If it happens like that, a really large, world-wide excess production capacity will become apparent. Steel production is growing just absurdly.

Then commodities will really fall, and around it goes again.
Bob_in_MA | 03.21.08 - 3:45 pm | #

FT Woods writes:
Diesel in LA last night: $4.37 gallon
Prices jumped with the start of the war in Iraq (March 2003) and never quite came back down.
FT Woods | 03.21.08 - 3:48 pm | #

REBear writes:
ac,
Thanks. The psychology of oil producing countries now resembles tech stock holders during early 2000.

IMO, beyond a certain point, cutting oil production will fail to hold oil prices. War at that point is inevitable
REBear | 03.21.08 - 3:51 pm | #

Jim writes:
Ministry of Truth writes:
Oil prices fall and we defeat Iran internally without firing one bullet. CIA just needs to get the oposition government ready to campaign.
Ministry of Truth | 03.21.08 - 3:10 pm | #


Why do we need to "defeat" Iran? To suck up to Israel? Or the Neocons?
Jim | 03.21.08 - 3:51 pm | #

Gary writes:
Solar is the future.

There are a number of positive externalities from high oil prices, which is easy to forget when you're being shaken down at the gas pump:

1) encourage investment in renewables (solar, tidal and wind)
2) discourage waste and overconsumption
3) encourage better transit planning
4) discourage sprawling development

I just wish we had a gov't with the balls to consistently tax gas appropriately, a la Europe, instead of letting Mr. Market hand us our asses over the past 30 years. Our transit infrastructure would be the envy of the world if we had responded to the oil shocks by raising our gas taxes to parity with Europe's.
Gary | 03.21.08 - 3:53 pm | #

rubberbandman writes:
By Jed Horowitz

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Standard & Poor's Corp., in a continuing sign of loss of confidence in investment banks' eroding profitability, put Goldman Sachs Group Inc. (GS) and Lehman Brothers Holdings Inc. (LEH) on negative outlook on Friday.

Although the rating agency didn't change ratings on Goldman's AA- and Lehman Brothers' A+ senior debt, it brought its view of the likelihood of a precipitous decline in profits at the firms during the next few quarters to the same negative levels it had previously assigned to Merrill Lynch & Co. (MER) and Morgan Stanley (MS).

The outlook changes are appropriate in spite of the fact that recent actions by the Federal Reserve have instilled confidence in the capital markets, S&P added. A negative outlook implies a one-in-three likelihood of a rating downgrade over an intermediate period of about two years, S&P said.

"We believe that negative rating outlooks are broadly appropriate for the independent securities firms, reflecting the potential for a more substantial decline in profitability from capital market activities," S&P said in a report whose principal authors are Managing Director Scott Sprinzen and analyst Diane Hinton. "Our current expectation is that net revenues could decline 20%-30% year-on-year," adjusting for write-downs.

Moody's Investors Service continues to rate Goldman Sachs and Lehman with stable outlooks, and has no plans to respond to S&P's change. "We remain comfortable with the outlooks," said senior vice president and lead securities industry analyst Peter Nerby.

S&P didn't change its debt ratings on Goldman or Lehman. It had previously said rating downgrades would be likely if it believed that companies' balance sheets were being overloaded with assets that were deteriorating in value. Investment banks have written down more than $100 billion of securities and loans since the middle of last year, and are still finding it difficult to sell the assets to large investors.

The 20% to 30% decline in profitability will erode investment banks' "margin of safety" this year, but S&P said it expects to sustain current debt ratings because of the Fed's move last week to let investment banks borrow directly from the central bank at low rates against some of their battered securities.

"Nonetheless, we see some possibility, were there to be persisting capital markets turmoil and sharply weakening economic conditions, that financial performance could deteriorate significantly more than we now assume, which would call the current ratings into question," S&P said.

The agency downgraded Merrill Lynch's senior debt to A+ on Oct. 24, 2007, and put Morgan Stanley on CreditWatch with negative implications on Dec. 19, 2007. During a conference call, Sprinzen said S&P expects to decide within 30 days on whether or not to change Morgan Stanley's AA- rating. The firm, in many ways, has the best business diversity of the five large investment banks, he added.

However, the "virtual collapse" of Bear Stearns Cos. (BSC) last week " highlights the extent to which securities firms are exposed to capital market sentiments and explains the Federal Reserve's actions to support the U.S. securities industry directly," S&P said. The Fed arranged for JPMorgan Chase & Co. (JPM) to buy Bear, which S&P rates BBB, at a fire-sale price of $2 a share and guaranteed the bank against $30 billion of losses on Bear Stearns' problem assets.

Lehman's business model is closer to Bear Stearns' and less diversified than the other three firms, but Lehman's funding capability and liquidity are among the strongest on Wall Street, Sprinzen said. Lehman and Morgan Stanley in their fiscal first-quarter earnings earlier in the week demonstrated strength across their businesses, while Goldman - the most profitable broker - had higher write- offs than in the past. Merrill Lynch doesn't report its first-quarter results until April.

Without Lehman's net write-down of $2.4 billion, he added, net income would have been about flat with a year earlier and "we wouldn't expect a recurrence of such charge-offs in coming quarters," he added.

Indeed, S&P has no great concerns in the near - or even long - term about profitability or funding for Goldman or Lehman and is relatively confident about core businesses at most firms. "We are not saying there is some fundamental flaw or business disadvantage compared to what we've seen before," Sprinzen said. However, he repeated that the capital-markets environment remains so volatile and uncertain that the agency's across-the-board caution on investment banks is justified.

"We don't feel it hurts to have negative outlooks even on the best-positioned players," he said.

A Lehman spokeswoman declined comment on the outlook change. Spokesmen at Goldman Sachs did not immediately return calls for comment.

S&P released its report on Good Friday, when U.S. markets are closed and brokerage firms are operating with skeleton staffs. S&P did not deliberately correlate the negative news on its paying clients to avoid riling the markets, an official said, but rather felt it important to publicize its revised views as soon as possible after analyzing firms' fiscal first-quarter results. Goldman and Lehman reported Tuesday and Morgan Stanley followed on Wednesday.
rubberbandman | 03.21.08 - 3:53 pm | #

Rob Dawg writes:
MLM writes:
Rob - I have a good friend in the oil and gas business. He has been VP of production at several smaller domestic companies (S&P midcap 400 size). He doesn't find the idea of Peak Oil wrong.

I have friends in the Real Estate business whould were convinced RE prices could never go down. your point?

Look. I've been doing this for more than a dozen years of traceable internet searches. Peak Oil was dreamed up by some academic type engineers. The kind that can prove to you that Nuclear powered airplanes are a good idea. Any sustained period of $100+ oil and everything from thin film photovoltaics to gym sock distillation start making sense. We used whales because they were cheap and plentiful until they weren't cheap or plentiful. We switched away from coal because oil was cheaper and more plentiful. Did we run out of coal?
Rob Dawg | Homepage | 03.21.08 - 3:54 pm | #

Gary writes:
NYT on Wednesday had a long article about the tremendous abundance of coal in the US.

It still provides much of our electricity . . . major environmental impacts though, both from emissions and mining practices.
Gary | 03.21.08 - 3:59 pm | #

DEFLATION---HOWSWEETITIS writes:
The annual decline rate is probably around 6%. We lose 4.5 to 5 million barrel/per day in production. New fields must come online all the time just to maintain output.

Nice try. Also, the majority of the developing world subsidizes prices for its consumers, including China. So demand won't be that negatively impacted from slower global growth. If demand is going to fall, it must come from the U.S, which it has recently.

Oil production will increase as prices fall? I'll believe it when I see it.
DEFLATION---HOWSWEETITIS | 03.21.08 - 3:59 pm | #

Dan writes:
So basically trying to regulate sovereign wealth funds investments is a bad idea then, since it will decrease their expected return and make them invest more into lowering production.
Hm.
Dan | 03.21.08 - 4:01 pm | #

VennData writes:
China, India other ex-Third Worldies subsidize oil. Once that stops, look out below.
VennData | 03.21.08 - 4:02 pm | #

ac writes:

ac,
Thanks. The psychology of oil producing countries now resembles tech stock holders during early 2000.

IMO, beyond a certain point, cutting oil production will fail to hold oil prices. War at that point is inevitable

I mean come on, what bigger hint do you need than a palm-tree-shaped island?

ac | 03.21.08 - 4:05 pm | #

cd writes:
wouldn't this help China econmically and inflationary too? If theory holds true plus Post Bush - oil seems more likely to fall then rise..
cd | 03.21.08 - 4:07 pm | #

energyecon writes:
Rob Dawg,

Why does the character of your energy arguments remind me so much of Seb's "no recession" arguments...? ;-)

The era of limitless economic growth based on an endlessly expandable supply of cheap oil is just about done...and the scale of the effort to transition to the alternatives is decidedly non-trivial. If we as a society do not make some significant policy changes to prepare, the magnitude of the economic dislocations will be much worse. As others have noted, the problem will solve itself but we won't much like how that works out...

More directly to the post perhaps the best example of two paths the GCC states are taking are Dubai and Abu Dhabi - where Dubai is growing exponentially and residents there generate more waste per capita than anywhere else in the world - and Abu Dhabi which is investing in alternative energy and building the first zero carbon footprint city on the planet.
energyecon | Homepage | 03.21.08 - 4:09 pm | #

Yossarian writes:
The Christian Science Monitor has been an award winning newspaper for decades. In today's world, it stands head and shoulders above most major outlets. It's not a religious tract handed out at airports.

Peak oil and insiders... gee, I dunno... I don't argue with 'deniers' ... check out Matt Simmons' site... CEO of the largest energy only investment bank in the world. Simmons makes all his speeches and presentations available online for free.
http://www.simmonsco-intl.com/ re...Type=msspeeches

Also, check out theoildrum.com a lot of industry geologists, oil industry folks post there. The comment sections are fascinating... there is also a basic tutorial on the home page. If its about energy, they've likely addressed it several different ways.

Also, if you can get to a bookstore, order 'Twilight in the Desert' by Matt Simmons... shows the history of oil exploration in the Middle East, Saudi Arabia, and why there's a lot less oil there than we imagine. Hundreds of references, graphs, etc.

You might also reference 'The Hirsch Report', a study of oil peaking - commissioned by the DOE. Can't recall where it resides now, but google it and you will be rewarded.

Conclusion of most 'real analysts'? Peak oil is here, its real. Will Americans believe? Not until they start seeing spot shortages of gasoline...

The solution? Conservation first, because it's way too late to do major mitigation (solar, wind, coal to oil, etc), without 'severe economic disruption.

If you want to pretend it doesn't exist, fine. I don't argue with people who think it's a good time to buy a house, either.
Yossarian | 03.21.08 - 4:12 pm | #

MLM writes:
Any sustained period of $100+ oil and everything from thin film photovoltaics to gym sock distillation start making sense.

Go run the numbers on replacing 80 million barrels of oil a day with gym socks, then get back to me.
MLM | Homepage | 03.21.08 - 4:13 pm | #

Kicker writes:
We used whales because they were cheap and plentiful until they weren't cheap or plentiful. We switched away from coal because oil was cheaper and more plentiful. Did we run out of coal?

I don't know if we've hit peak oil or not. But, I don't really think it's relevant in either case.

There are a lot of alternative energy sources that could be brought on-line for less than $100 dollars a barrel. Coal to liquids and natural gas to liquids is one of my favorites.

SASOL is already buildings some large NG to liquids projects in the Middle East to take advantage of NG that is currently flared or pumped back underground to keep up well pressure.

But, peak oil debate has taken on dogmatic overtones. If you point out that SASOL is already doing something like this it quickly degenerates into a debate about "peak everything" and EROEI.

Problem is that the generation currently in charge wasn't the generation that put most of the energy infrastructure in place. Now that we're finally bumping up against the limits they can't wrap their mind around the idea that it's possible to actually do something that large in scope.

I'm guessing they are waiting for Apple to invent iFusion.
Kicker | 03.21.08 - 4:14 pm | #

psychodave writes:
"Problem is that the generation currently in charge wasn't the generation that put most of the energy infrastructure in place"
Kicker | 03.21.08 - 4:14 pm
The generation that put most of the energy infrastructure in place is still around, they just all got laid off in 1984 and had to change careers. Boom & bust in high tech is nuthin' compared to the oilpatch
psychodave | 03.21.08 - 4:19 pm | #

Red Pill writes:
I find the the passion in the anti peak oil arguments puzzling. The evidence for peak oil seems pretty compelling. The peak oilers aren't saying it is going to dry up completely tomorrow. Even if it is not eminent, the earth is clearly finite and therefore so are oil resources. We will have to address it a some point. The benefits of diversifying our energy usage and conserving seem obvious especially given our uneasy relationships with many of our suppliers. Why the hostility to this idea? It makes no sense.
Red Pill | 03.21.08 - 4:19 pm | #

bZb writes:
From CR's post:
If oil prices start to fall, and with rising expenditures (see first graph again), the GCC countries might increase production - causing prices to fall further.

Or somebody from OPEC might drop a hint of possible reductions in production levels, thus causing the price of oil to skyrocket again. I think this is a more likely scenario.
bZb | 03.21.08 - 4:20 pm | #

Bob Dobbs writes:
"Peak Oil" has validity -- in terms of the current methods of finding and producing oil. "Peak Oil" means, we're half-way through the low-hanging fruit.

There are other ways to get oil; possibly more expensive, possibly environmentally damaging. The question is not, when will oil run out, but, "Should we move to alternative methods, and when? And, who's paying for it?"

Personally I want to get off the carbon energy bandwagon for other reasons. But in the strictest sense, we're not "running out of oil."
Bob Dobbs | Homepage | 03.21.08 - 4:22 pm | #

WestSideGeorge writes:
I think that the oil sands are profitable above $50 per barrel ... if this is correct, the middle east producers will have a hard time lowering prices below $50 in order to put the oil sands producers out of business.
WestSideGeorge | Homepage | 03.21.08 - 4:24 pm | #

MLM writes:
If you point out that SASOL is already doing something like this it quickly degenerates into a debate about "peak everything" and EROEI.

I pointed out above that under the big Peak Oil tent there was many a nut taking shelter. EROEI is one of the more idiotic concepts to grace the debate.

Coal and gas to liquids are great ideas, and SSL is on my list to look at after the price of oil tanks in the next year or two.

But it's fair to say that the size of the potential problem compared to the size of the current response is more than a little disquieting.
MLM | Homepage | 03.21.08 - 4:26 pm | #

ac writes:

Or somebody from OPEC might drop a hint of possible reductions in production levels, thus causing the price of oil to skyrocket again. I think this is a more likely scenario.

There's only so much people can pay for oil and remain economically viable. I think the basic argument is that if oil prices remain too high it can create a demand death-spiral leading to a collapse in the market for oil.

Oil producers can only squeeze so hard until they kill their customer.

ac | 03.21.08 - 4:26 pm | #

Yossarian writes:
WestsideGeorge:

Go to theoildrum.com and read about oil sands... they're more or less a scam like ethanol... takes more water and natural gas to cook the oil out of the rock, than the (low grade) oil is worth.
Yossarian | 03.21.08 - 4:30 pm | #

km4 writes:
> There are many potential impacts of falling oil prices - such as geopolitical issues with oil producing nations - but from a U.S. perspective this would help with the trade deficit, possibly the dollar, and cushion the impact of the current U.S. recession.

Nice dream !

Saudi Arabia’s Crude Oil Reserves Propaganda
March 4, 2008
http://www.theoildrum.com/node/3665

IMO oil prices will not fall below $90/bbl for multiple reasons but esp the BS nonsense that Saudi Arabia has been spewing for years.
km4 | 03.21.08 - 4:32 pm | #

bZb writes:
Oil producers can only squeeze so hard until they kill their customer.

Of course this is true. I meant that since they control the spigot, they can maintain a price level that doesn't kill the world economy but supports their level of government spending.
bZb | 03.21.08 - 4:33 pm | #

Yossarian writes:
Here's the wiki on The Hirsch Report.. some basic conclusions:
http://en.wikipedia.org/wiki/Hir...i/ Hirsch_report

# World oil peaking is going to happen, and will likely be abrupt.
# Oil peaking will adversely affect global economies, particularly those most dependent on oil.
# Oil peaking presents a unique challenge (“it will be abrupt and revolutionary”).
# The problem is liquid fuels (growth in demand mainly from transportation sector).

* 20 years is required to transition without substantial impacts
* A 10 year rush transition with moderate impacts is possible with extraordinary efforts from governments, industry, and consumers
* Late initiation of mitigation may result in severe consequences.

We are of course, in the "Late initiation" stage.

Be good.
Yossarian | 03.21.08 - 4:33 pm | #

kis writes:
I think they are being rather smart, to the extent they are spending money on capital projects like infrastructure and investsments in non-energy sectors, or even funding their pension plans. They know they need to shift their economy to something broader than oil...

Besides, capital spending is mostly discretionary. I'd be interested to know the expense portion of their spending.
kis | 03.21.08 - 4:36 pm | #

Rob Dawg writes:
MLM writes:
Any sustained period of $100+ oil and everything from thin film photovoltaics to gym sock distillation start making sense.

Go run the numbers on replacing 80 million barrels of oil a day with gym socks, then get back to me.

Go to my blog and see where I did this in Aug 2006 and stop acting so smug.

Californians use 414.4 gallons of gas per capita per year (8th lowest in the US). 14.5 billion gallons. How much electricty is that? 530,982,417,478.593 kW-Hours. California can generate at present 46,000 Megawatts. We'd need and additional 61,000 Megawatts of energy to make it into the battery. Let's not mince words, we'd need 3 times as many power plants as we have now. Too hard to grasp? How about 28 new Diablo nuclear power plants (2x9.5 million mW-H reactors). Actually more like 40 Diabos. [insert lame ; "better the Diablo you know" joke here] And what would that cost? Nukes cost about $2000 per kilowatt to build. $122 Billion dollars. How much does that gas we Californians guzzle cost? $47 billion. Surprised? Gets better. Anyone here doubt that an order for 40 nukes could garner a volume discount? Yeah, like half price. A 50 cent per gallon surtax would pay the capital construction costs in 7 years. And what would the electricity cost? Remember we don't have any capital costs to amortize. 1.5-3 cents likely. We pay 14 cents now.

We could do it and it would make sense but we won't do it because of a combination of boiled frog syndrome and the cognitive dissonance of the eco-warriors.

Kicker writes:
Go to theoildrum.com and read about oil sands... they're more or less a scam like ethanol... takes more water and natural gas to cook the oil out of the rock, than the (low grade) oil is worth.

And yet oil sands producers continue to pump out record profits....
Kicker | 03.21.08 - 4:36 pm | #

energyecon writes:
Kicker - interesting argument but I don't buy it simply because energy projects today are often much larger and lumpier it is an era of mega-projects, e.g. deepwater oil platforms that are all or nothing investments multi-billion dollar investments, LNG liquefaction facilities, with associated ships and regas terminal(s), etc.

Bob Dobbs - exactly, anyone interested is encouraged to read up on M. King Hubbert and the Hubbert curve. The issue is rate of production, not exhaustion of supply.

WestSideGeorge - rate of production and limits to expansion are the first issues with respect to the oil sands substituting for other sources of supply. There will be production there for a long, long time but it won't come close to replacing conventional oil.
energyecon | Homepage | 03.21.08 - 4:37 pm | #

NiNM writes:
Mr. Dawg -

Peak Oil is a religious cult. Entirely sensible people pick up factually-challenged stuff like the Long Emergency and take it as gospel. Then they feel they have been reborn from software engineer to know-all geologist/economist. Never mind that supply n' demand stuff, they scream, we are running out of oil, now. Then they go onto try to figure out how they're going to survive on vegetables grown using their own excrement as fertilizer.

I have some friends who are engineers at a Natl' Lab who are so incredibly jazzed about the latest solar -- only problem is that companies licensing their stuff tend to be overseas. D'Oh!
NiNM | 03.21.08 - 4:38 pm | #

km4 writes:
Oasis Economies
by Joe Saddi, Karim Sabbagh, and Richard Shediac

Surrounded by tension and unnoticed by many observers, the nations of the Middle East are building their own kind of sustainable prosperity.

Five years ago, Dubai’s Palm Island didn’t exist. Where there are now three human-made land masses — the largest the size of a major city — arranged in the shape of a tree, five years ago there was merely the sparkling blue water of the Arabian Gulf. Then the government of Dubai decided to accelerate the diversification of its economy, from a purely oil- and trade-based system to a business and recreation hub designed to lure investors and tourists.

A few miles south, Abu Dhabi, the capital of the United Arab Emirates (UAE) and the world’s wealthiest city, is experiencing an even more dizzying rate of growth. The US$3 billion, gold-domed Emirates Palace hotel was completed in 2005, ready to welcome visitors to the scores of world-class museums, universities, and hospitals that are slated for construction, at an esti­mated cost of $200 billion over the next 10 years. These fast-paced developments are part of the UAE’s reinvention of itself as the cosmopolitan crossroads of a sleek new Middle East.

All this is one piece of a still broader story. In the past five years, the Middle East region has consistently been transforming into a hotbed of new private enterprise. The government-controlled monopolies of the past, such as the Saudi Telecommunications Company, are being deregulated and exposed to competition. Research and development in high technology is booming; enterprise zones have attracted the likes of Hewlett-Packard, Cisco Systems, and Microsoft. Local companies are investing in streaming video and other technological applications. Manufacturing, too, is on the rise. Driven in part by growing demand from China, the region’s petrochemical sector is exploding, with more than 190 projects currently operating across the Gulf; its $28 billion biotechnology and pharmaceutical manufacturing industry has enjoyed double-digit growth each year. Many consumer packaged goods companies are opening factories in the region, in part to serve its growing middle class and in part to export goods to Europe and the rest of Asia. In short, the region — once an end consumer in the world market — has begun to transform itself into a supplier. All of this translates into unprecedented opportunities for investment.

http://www.strategy-business.com...6-1876- 26698132

Connect the dots folks... this is where Dick Cheney will be retiring.

But Bush will be off to his compound in Paraguay.

And the US middle class ( what's remaining of it ) will be holding the bag !
km4 | 03.21.08 - 4:39 pm | #

Henry writes:
Holy backward-bending supply curves, Batman!

Multiple equilibrium points!

I remember from econ class the first(?) backward-bending labor curve report, when the Navy in Greenland raised the wage rates to get an airbase built faster.

The residents had pretty low maximizing instincts, and very few outlets to spend their money. They certainly weren't socking it away in 401k's.

So -- the base took longer to get built. Classical supply-demand curve results upended.

Airbases can wait. People need to eat. Food prices are already on the 20-40% upswing worldwide.

What if the Saudi-type oil guys don't care muchly if US Americans end up standing hours in food kitchen lines when they can't afford the diminished food supplies that reduced oil supply has brought about?

"The quality of mercy... it droppeth alike...," indeed.
Henry | 03.21.08 - 4:41 pm | #

REBear writes:
kicker,
Who are the oil sands producers? Thanks
REBear | 03.21.08 - 4:42 pm | #

rich writes:
What CR doesn't quite get is the CUMULATIVE impact of high (not necessarily soaring) oil prices. Even if oil just hangs around $90 per barrel for a long time, it creates a gradually and growing drain on the U.S. economy. In other words, a year of $90 oil will be a lot more draining than a few months of $90 oil.

CR has been consistently wrong on the trade deficit issue. Go back and look at some of his posts from last summer. They were predicting big upturns in the blue line. He missed the oil run-up, and he'll miss it again when oil hangs around $90-100 mostly for the next year or two. It might go lower or higher for awhile, but this seems to be the new comfort zone between producers and consumers. Over time, this range is a lethal drag on the U.S. economy.

Oil isn't why the recession will be milder. Oil is why the recession will be longer.
rich | 03.21.08 - 4:43 pm | #

Anonymous writes:
"And yet oil sands producers continue to pump out record profits....
Kicker | 03.21.08 - 4:36 pm | #"

I think those are called teaser rates...
Anonymous | 03.21.08 - 4:45 pm | #

Kicker writes:
Reposted from an old thread...

The US consumes about 20M barrels of oil per day. Let's assume that you wanted to convert that to the same amount of electricity.

So, 20M barrels of oil per day is around 1460GW of energy. That works out to about ~1000 more nuke plants to replace *all* the energy in the oil we consume per day.

And those numbers are garbage. I'm comparing a refined energy source (electricity) with a raw energy source (oil). Basically, those numbers assume that we burn up a huge amount of the electricity we generate to refine oil products which we would no longer have a use for.

It also assumes that we'd be so stupid as to replace 100% of our energy sources with nukes.

If we just converted electricity generation from coal to nukes we would free up 965 million tons of coal per year. Converting that coal to gasoline would yield 199M gallons of gasoline per day. That's about half our current gasoline consumption
Kicker | 03.21.08 - 4:46 pm | #

DEFLATION---HOWSWEETITIS writes:
Americans dismiss peak oil. Are we surprised? Americans tend to be overly optimistic and non-realistic in all aspects of life. When I spoke of a housing bubble as early as 2005, the same Americans that oppose peak oil--without a coherent argument against it--said the U.S government would do something to prevent higher oil prices.

I just ask, are we in a capitalist system anymore? Every single time you ask an American what to do in troubling times, it seems the answer is let the guvmint fix it.

Amazing, I would think Americans would expect the free markets to work out most of the mess. Thought recessions were good and a normal part of the business cycle. Guess not. The guvmint and Bennie B are asked to place PUT under the economic system.

Sad...very SAD.
DEFLATION---HOWSWEETITIS | 03.21.08 - 4:47 pm | #

BottomCallTabulatorMatrix writes:
``Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''

#1071
BottomCallTabulatorMatrix | 03.21.08 - 4:49 pm | #

MLM writes:
What you are doing is classic dismissal as incompetent/uneducated anyone who disagrees.

No, in fact I think we are talking past each other. I have run exactly the same numbers on nukes, and come to more or less the same conclusions.

No one here said anything about "Peak Energy", just Peak Oil. Not the same thing in my book, at least.

I continue to believe it's likely that we are at or approaching Peak Oil. The question is whether we are going to start dealing with it by building nukes (photovoltaics, wind, and gym socks aren't going to make much of a dent), or not. As energyecon points out, it's a rate of production problem.
MLM | Homepage | 03.21.08 - 4:50 pm | #

REBear writes:
Converting that coal to gasoline would yield 199M gallons of gasoline per day


Can that be done?
REBear | 03.21.08 - 4:50 pm | #

ac writes:

``Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''

The big question IMO is can hedgies drive stocks up in an environment of falling profits. Should be interesting to see them try anyhow.

ac | 03.21.08 - 4:53 pm | #

MLM writes:
REBear - Go check out ticker SSL. A stock whose time is about ready to come, IMHO.
MLM | Homepage | 03.21.08 - 4:53 pm | #

solo writes:
"REBear writes:
Converting that coal to gasoline would yield 199M gallons of gasoline per day"

You forgot about the 100,000 more nukes needed to convert the coal to gasoline.
solo | 03.21.08 - 4:55 pm | #

wally writes:
Oil prices will fall when worldwide demand drops (and it will).
Two questions then arise: will cartel members turn on each other and exceed quotas, thus spiralling the price down? And: will the US maintain any memory and discipline from the twice-taught lesson and continue to move toward alternate sources?
wally | 03.21.08 - 4:56 pm | #

Kicker writes:
Americans dismiss peak oil.

Peak oil is a problem not a death warrant.

When exactly isn't going to be a problem is open for debate. How soon, how sudden, how steep the demand drop, etc are all valid points of discussion.

What we are going to do about it is also a valid topic of debate. Drill Anwar? Coal and NG liquification? Nukes? Solar? Ethanol? Wind? Tidal? Geothermal?

Efficiency is also a topic of public debate. Electric cars? Better insulation? CFL lighting?

What isn't going to be accepted by American's is the "prophets of scarcity" that seem to be so popular in some European circles.

It's worked so well over there that most of Europe now has below replacement rate population growth (especially among their educated population). They have effectively signed the death warrants for their own culture.
Kicker | 03.21.08 - 4:58 pm | #

energyecon writes:
wally,

#1: To the extent they have otherwise shut in production capacity, yes.

#2: The historical percentage bet is no, but I remain hopeful.

(Hey that's a Buckaroo Banzai quote: "Yes on 1, no on 2"!)
energyecon | Homepage | 03.21.08 - 4:59 pm | #

Viewing with alarm writes:
Alberta is the oil sands hot spot. Dramatic development and increases in production. Need free medical. Move to Calgary.
Viewing with alarm | Homepage | 03.21.08 - 4:59 pm | #

REBear writes:
solo,
I was trying understand if there is a profitable technique to make oil from coal.
REBear | 03.21.08 - 4:59 pm | #

solo writes:
"solo writes:
"REBear writes:
Converting that coal to gasoline would yield 199M gallons of gasoline per day"

You forgot about the 100,000 more nukes needed to convert the coal to gasoline."

Oh and also what about the nukes that are in danger of shutting down right now , shortage of cooling water?
solo | 03.21.08 - 5:00 pm | #

Rob Dawg writes:
solo writes:
"REBear writes:
Converting that coal to gasoline would yield 199M gallons of gasoline per day"

You forgot about the 100,000 more nukes needed to convert the coal to gasoline.

This is why there are limits to the usefulness of blogs. Two people on opposite sides come to the same conclusion that 15% of US gasoline consumption could come from 40 Nukes and some anon yahoo decides to make up a number of 100,000 instead of reading and understanding 270 is sufficient.
Rob Dawg | Homepage | 03.21.08 - 5:01 pm | #

Anon123 writes:
Kicker,

So your answer is keep increasing the population??
Like the world doesn't have enough people already.

There are 3 Billion people wanting to life style we enjoy in the US. Do you think we have enough resources to support this and for how long?
Anon123 | 03.21.08 - 5:01 pm | #

Viewing with alarm writes:
If you make oil from coal you have to figure out a way to handle the co2. That kills the project in the USA.
Viewing with alarm | Homepage | 03.21.08 - 5:01 pm | #

REBear writes:
- Go check out ticker SSL. A stock whose time is about ready to come, IMHO.


Thanks MLM. I will check it out.
REBear | 03.21.08 - 5:02 pm | #

MLM writes:
If you make oil from coal you have to figure out a way to handle the co2. That kills the project in the USA.

Never stand in the way of an entitled American looking to fuel up his or her pickup truck. co2 is negotiable, truck fuel isn't.
MLM | Homepage | 03.21.08 - 5:03 pm | #

Gary writes:
Kicker: "Coal to liquids and natural gas to liquids is one of my favorites."

Why liquids? The automobile economy in the US was based on bad policy . . . why convert those fuels to liquids except to fuel vehicles . . . more bad policy.

The changes we need to make are structural. Walkable development patterns, mass transit instead of more highways . . . I live in Brooklyn, and let me tell you, because most people walk to and from mass transit, stores, restaurants, church, etc. etc. etc. there are far fewer fat people per capita here.

The car culture is slowly killing us. Not just in bad economics, but in bad exercise habits as well.
Gary | 03.21.08 - 5:04 pm | #

Rob Dawg writes:
Oh and also what about the nukes that are in danger of shutting down right now , shortage of cooling water? - solo

Nukes purify (but raise the temperature of) water. Gawd, I feel like the 70s never happened.
Rob Dawg | Homepage | 03.21.08 - 5:04 pm | #

Rob Dawg writes:
Viewing with alarm writes:
If you make oil from coal you have to figure out a way to handle the co2. That kills the project in the USA.

That makes the USA more desirable. We haven't signed Kyoto.
Rob Dawg | Homepage | 03.21.08 - 5:05 pm | #

cd writes:
Km4-Bush presidency is marked by numerous peaks..Take your pick..could be a couple left..

Heck, If we converted most business meetings to web ex, cutting to 10 flights instead of 40 for me last year, let people do office work on networks at home, stop eating cherrys, plums and peaches in winter shipped from chile, don't buy 50 toys shipped from china and japan,
vacation at local national park instead of antartica, use motion detector lights in all govt and public buildings at night, increase credits for builders and homeowners who go solar, demand it on homes over 2800 feet, stop handing out plastic bags at the store x billions..etc etc etc

Oil use seems like it would drop but what do I know..why solar panels aren't on every new home in the entire US is just plain stupid!
Sometimes things make dollars and sense!
cd | 03.21.08 - 5:06 pm | #

OilEquations writes:
Experiment for Oil understanding...

go to your local mega store and buy


10 qts of oil
one box of 100ct straws
two bags of sand
one bag rocks(small)
50 gallons of water
two large pails
3 buckets


go into your back yard

step 1

mix 5 qts oil with sand and rocks

bury in one foot trench in your yard

step 2

fill pails with water.
open 4 qts, place plastic wrap over top. put in water
from the roof of your house, assemble straws into a long enough (pipe) to reach pails.

step 3

take last qrt of oil, place on electric warmering plate..
out it whereever it's most convenient to you.. take one remaing straw, place in open container.



Now, try to get the most amount of oil you can into from each step into the buckets..
OilEquations | 03.21.08 - 5:06 pm | #

Kicker writes:
Converting that coal to gasoline would yield 199M gallons of gasoline per day

Can that be done?

Yes, I pulled those numbers from an article on SASOL. SASOL has been doing large scale coal liquefaction since oil producers cut off shipments during the apartheid embargoes.

Few companies in the US are willing to do the same because of a rabid anti-coal lobby and concerns about looming carbon taxes.

Today, those projects are profitable. But, throw in carbon taxes and lower oil? Nobody really knows. At least, nobody is willing to gamble a few billion on a plant.

With new clean coal technology coal can be zero emissions. The end product is still C02 but with clean coal it's collected and injected into long term storage or used to repressurize oil wells.

Problem is that nobody knows how long the C02 will stay in "storage".
Kicker | 03.21.08 - 5:09 pm | #

Mike writes:
Rob Dawg, why would we build 40 nukes if peak oil isn't even wrong? You're not making much sense.
Mike | 03.21.08 - 5:12 pm | #

Couch Sniffer writes:
I eat a lump of coal for breakfast every day. It definitely can be converted into GAS in an environmentally friendly way.

You can light it too.
Couch Sniffer | 03.21.08 - 5:12 pm | #

Yossarian writes:
See, this is why I hate arguments like this... not only do you have to take a position, you have to educate your opposition.
Here's the typical process to make oil from coal. It would take years to build all the coal to oil plants needed, if we could afford them. The environmental effects are enormous. As someone said, it's all about the time, even if you think it's the way to go. This is all covered in The Hirsch Report. Much of the material in the Report has been discussed and updated again in theoildrum.com... but I know some of you want a simple answer.

This is coal to oil.

http://www.fischer-tropsch.org/

These are some of the discussions on the oil drum, about replacing oil energy with nuclear.
http://www.theoildrum.com/ search...rchbox_form#972
Yossarian | 03.21.08 - 5:14 pm | #

Rob Dawg writes:
Mike writes:
Rob Dawg, why would we build 40 nukes if peak oil isn't even wrong? You're not making much sense.

I know. I'm only bothering to teach to the other 95% of the class that has a hope of passing the next quiz. Go back to coloring the Dëth Tongüe doodles in your workbook.
Rob Dawg | Homepage | 03.21.08 - 5:15 pm | #

REBear writes:
About building nukes, won't we get into "peak uranium"? :)
REBear | 03.21.08 - 5:15 pm | #

plschwartz writes:
I believe that this country has the technical ability to mobilize a Manhattan Project type program to develop and produce a realistic alternative energies economy.
What is missing is the political will to do this.
We are energy junkies. As with other addictions one must first hit bottom before you are willing to change. that.
I actually was hoping for a full-Rubini meltdown. Not because I am a Charles Addams type but because that is about the only way we will hit bottom. And then we will be given the choice between two models to come back up. The FDR model and the Hitler model.
plschwartz | 03.21.08 - 5:17 pm | #

energyecon writes:
Kicker,

CO2 sequestration in the right kind of oil reservoirs is even better than that - it can be a miscible flood - which means that it mobilizes oil that would otherwise be left in the ground, it is the miscibility rather than the pressure per se that increases recovery efficiency from the reservoir.

How long it stays down is a function of the cement job done on the well when it is ultimately plugged and abandoned.
energyecon | Homepage | 03.21.08 - 5:18 pm | #

REBear writes:
Thanks Kicker!
REBear | 03.21.08 - 5:19 pm | #

Kicker writes:
The changes we need to make are structural. Walkable development patterns, mass transit instead of more highways . . .

Personally, I would have loved that in college...

But, try to buy groceries for the family with three kids under ten in tow.

If you can't figure out a viable solution for a family of five (the minimum for above replacement rate births) then you don't really have a solution at all.

It's why I always get a kick out of those MIT cars that are the "solution" but only would be able to hold two people and a quart of milk.
Kicker | 03.21.08 - 5:21 pm | #

anonymous writes:
Dear CR,

I am not an economist by any stretch of the imagination, and perhaps I am all wet, but how do you get any use out of or base any model on the S shaped supply curve in "Krugman: Figure 1" as it is not a mathematical function of Q. I assume that both the supply and demand curves are conceived of fundamentally as mathematical functions of Q. At least that is what is suggested to my mind by the fact that Q is plotted on the X axis. Aside from Sraffa's logical critique of the Marshallian supply curve, if economists are basing analysis on a cruve that does not represent an actual function, then there is something deeply disturbing about the intellectual foundation of all of this. Perhaps the world has followed Alfred Marshall down the path of logical absurdity.
anonymous | 03.21.08 - 5:21 pm | #

Taylor writes:

Few companies in the US are willing to do the same because of a rabid anti-coal lobby and concerns about looming carbon taxes.


Glad to see that global warming denial still lives strong in the US.

I know we'll be able to deal with its consequences when the time comes. Look how well we've managed to get through this liquidity/solvency crisis.

Actually my prediction is, the US consumer will say screw global warming I want my cheap energy no matter what the cost, and coal will be king.

Then the fun part will start.

If you taught Katrina was fun to watch, wait for the replay coming to a coastal city near you.

And for the fly-over states folks, don't feel left out, the plains used to be a vast shallow inland sea. If you thought Mississippi flooding was bad....

And sequestration is a well-known con sold to a pliant Congress by the coal lobby, no-one believes it can be made to work, not in the quantities of carbon that are going to be produced.
Taylor | 03.21.08 - 5:22 pm | #

Peak Whatever writes:
In the 1970's the peakers were predicting a new ice age.
Peak Whatever | 03.21.08 - 5:22 pm | #

Peak Whatever writes:
Look folks. If you are worried about global warming buy on the second street in from the beach.

Warmer or colder, it's all going to be fine.

I think we have peak worrying.
Peak Whatever | 03.21.08 - 5:25 pm | #

energyecon writes:
Here is a link to a report recently released by the National Petroleum Council, in response to a request from the Secretary of Energy. This is about as far as you can get from the fringes of the energy debates, from their web site:

"The NPC is chartered by the Secretary of Energy, under the provisions of the Federal Advisory Committee Act of 1972. The Council membership of approximately 175 persons is selected and appointed by the Secretary of Energy. Individual members serve without compensation as representatives of their industry or associated interests as a whole, not as representatives of their particular companies or affiliations."

This report should be read by all of you venturing an opinion here, or at least the executive summary.

National Petroleum Council: Facing the Hard Truths About Energy
energyecon | Homepage | 03.21.08 - 5:27 pm | #

Hazard writes:
If we did run out of oil, the whales are still around. If coal is too expensive could we start whale farms?
Hazard | 03.21.08 - 5:30 pm | #

MLM writes:
This report should be read by all of you venturing an opinion here, or at least the executive summary.

Hey man, don't try to confuse me with ur factses.
MLM | Homepage | 03.21.08 - 5:30 pm | #

Viewing with alarm writes:
OK, I dug the ditch in the backyard and filled it with oil and rocks. I went in to check instructions on the blog and my grandson set fire to it. Where is Red Adair when I need him!
Viewing with alarm | Homepage | 03.21.08 - 5:32 pm | #

energyecon writes:
MLM - lol - thanks but the point I wanted to make was here are the facts from a knowledgeable third party...

Not 'my' facts about airily replacing huge components of the energy matrix and associated physical capital like we were ramping up bandwith by throwing on another rack of blade servers...
energyecon | Homepage | 03.21.08 - 5:34 pm | #

Rob Dawg writes:
• "Hurry, before this wonderful product is depleted from Nature's laboratory!" - advertisement for "Kier's Rock Oil," 1855
• ". . . the United States [has] enough petroleum to keep its kerosene lamps burning for only four years . . . " - Pennsylvania State Geologist Wrigley, 1874
• "... although an estimated two-thirds of our reserve is still in the ground, ... the peak of [U.S.] production will soon be passed--possibly within three years." - David White, Chief Geologist, USGS, 1919
• " ... it is unsafe to rest in the assurance that plenty ofpetroleum will be found in the future merely because it has been in the past." - L. Snider and B. Brooks, AAPG Bulletin, 1936
Rob Dawg | Homepage | 03.21.08 - 5:36 pm | #

Anonymous writes:
But, try to buy groceries for the family with three kids under ten in tow.

Kicker

You could always get a cargo bicycle with trailer.
Anonymous | 03.21.08 - 5:36 pm | #

Barley writes:
What you are doing is classic dismissal as incompetent/uneducated anyone who disagrees.
Rob Dawg

;-) Nice one!
Barley | 03.21.08 - 5:37 pm | #

swampfella writes:
We've been here before, we'll be here again. I've spent my career straddling two industries...petroleum (distribution side) and real estate. The only reason to own petroleum distribution outfits is to buy nice corner lots.

Oil producers spent like sailors on leave in the 70's and then the price collapsed. They are now too. Dubai will be a very expensive ghost town in ten years.

Oil is inexhaustable in any investment forecast (200 years?...forecast long enough the sun is going to exhaust itself..be real here, this is about money) because of tar sands and coal so there is a limit to the price, and when it reaches heights that reduce demand and increase production, then next lull in demand will reduce the price sufficiently to blow out the highest cost producers and the cycle takes a few years.

The first oil shortage and forecast of the "peak barrel" was way back in about 1916.

Smart oilmen ride the waves with the finesse of good surfers. Read Exxon, Conoco-Phillips, etc. They are on the outs now because any idiot can sell oil at a profit. In another decade the gov'ts with captive companies will be falling all over themselves offering concessions to the independent/sharholder owned.

Russia is going to need all the vodka it can stockpile.

So many folks here saw the real estate bubble years ago. Why is the oil bubble so opaque to you?

Look for oil at $50 a bbl within the year and gasoline below $2.00 per gallon...and I'm taking bets.

Life is good...enjoy it.
swampfella | 03.21.08 - 5:37 pm | #

MsHabanero writes:
[[Yossarian wrote:
WestsideGeorge:

Go to theoildrum.com and read about oil sands... they're more or less a scam like ethanol... takes more water and natural gas to cook the oil out of the rock, than the (low grade) oil is worth.
Yossarian | 03.21.08 - 4:30 pm |
]]

Do not confuse oil sands (a la Alberta) with cold flow heavy oil with shale oil (the reference to cooking). They're all different things. Shale oil is uneconomic, oil sands and Alberta/Sask/BC heavy economic at circa 50 (obviously there is more to it, this is the very short version). There are techniques (SAGD) to improve recovery of heavy, and THAI is under test (Petrobank). In a nutshell. Shell dumped shale oil research in Australia years ago. There is a lot of oil bearing shale in the US but no economic technique to recover it (unless you want to cook mountains).

Ref carbon capture there is an interesting pilot plant project described at http://www.spectrum.ieee.org/mar08/6058 Early days.
MsHabanero | 03.21.08 - 5:38 pm | #

Kicker writes:
So your answer is keep increasing the population??
Like the world doesn't have enough people already.

How many people do you need on the earth to produce an Intel chip or a nuclear power plant?

Would we ever have gotten there if we'd decided that the population in the 1700's was enough? Even in the 1700's we were burning the worlds forests at an unsustainable rate.

What exactly is the "right" level of population?

And why should I care? When it gets down to it, most of those who argue for population control have some sort of Earth or Humanity as God philosophy.

We've got to reduce population to a "sustainable" level so we'll last long enough to "escape the earth" or "transfer our knowledge to alien species". I snicker when I read articles in the Scientific American about how a "fourth generation civilization" may be able to escape the "heat death of the universe".

I think I saw a recent article in Discover about "writing a message to Alien civilizations by "rearranging the stars."

Why do I car if somebody 10,000,000,000 generations from now is able to escape the "heat death of the universe." Just another way of grasping for eternity/god.

Seems like every religious group wants to get into family planning.
Kicker | 03.21.08 - 5:40 pm | #

MLM writes:
Not 'my' facts about airily replacing huge components of the energy matrix and associated physical capital like we were ramping up bandwith by throwing on another rack of blade servers.

When I started looking into the question, my number one concern was - is it even possible. Once we're only talking about degrees of difficulty, I relax a little bit about my kids' future.

Besides, it looks like the perfect opportunity for massive amounts of fiscal stimulus - and we know we're going to be getting that before too long.
MLM | Homepage | 03.21.08 - 5:41 pm | #

energyecon writes:
MLM - that is the hopeful part.

swampfella - your recap misses the boat as the prevailing element of previous price crashes was excess supply being brought online in response to the price run up...and $50 ain't much of a bold prediction as the new low price. That was the top end of the high price range just three short years ago...
energyecon | Homepage | 03.21.08 - 5:51 pm | #

Alec writes:
Sampfella,

Larry Kudlow will take that bet for 800 quatloos so he can finally make money off his $25 a barrel prediction 5 years ago.
Alec | 03.21.08 - 5:52 pm | #

km4 writes:
Oil use seems like it would drop but what do I know..why solar panels aren't on every new home in the entire US is just plain stupid!
Sometimes things make dollars and sense!
cd | 03.21.08 - 5:06 pm

The USA should have listened to Jimmy Carter back in the late 1970's about alternative energy....because today we would have this oil crisis and oil would likely have never crossed $40 /bbl.

well that's history and crony capitalism ( with BIG Oil ) with Cheney and failed oilman Bush has made sure the USA remained way too dependent on OIL !

But it took direct intervention in Iraq for the big payoff in OIL prices.

However, it's the new emerging economic powers ( Chnia, India ) and many developing countries ( mostly Far East ) that will ensure demand remains close to oil production supply which is dropping yr by yr i.e. we already have reached peak oil and for the US deep offshore drilling in Gulf of Mexico was only predicated on ecomics of oil above about $80/bbl and there no oil extraction below 35,000 where the new finds are bing made there...because it cooks !
km4 | 03.21.08 - 5:53 pm | #

cd writes:
OT-Sacramento credit union troubles brewing? How are credit unions positioned in all this?

SAFE

SAFE Credit Union has "assumed the worst" after enduring a horrible fourth quarter, moving a hefty $21 million to its reserves for loan losses this year with the dismal economy and the hard-hit housing market. The aggressive additions to reserves pushed the area's second-largest locally based credit union to a $5 million loss for 2007. And the credit union plans to add $1 million to its reserves every month of this year. The credit union experienced a rapid deterioration of consumer loans in the fourth quarter, said Henry Wirz, chief executive officer of SAFE. "It was a very sudden change."
...
What was surprising was how many of the borrowers had excellent credit when they applied for credit, he said. "They are prime borrowers, yet in our portfolio they are becoming a higher portion of delinquencies."

This stood out-
And the credit union plans to add $1 million to its reserves every month of this year.
cd | 03.21.08 - 5:55 pm | #

OilEquations writes:
If we did run out of oil, the whales are still around. If coal is too expensive could we start whale farms?
Hazard


sweet , back to Lahaina

not to far from kite beach, either
OilEquations | 03.21.08 - 5:56 pm | #

AlanY writes:
I have big investments in Syncrude and a few of the other major oilsands plays, so I understand how profitable this can be. Yes, there is more oil in northern Alberta than in Saudi Arabia, and yes, it is profitable at $30/barrel.

However, people have to be realistic about the level of investment, capital, and most important, time, required to bring alternative oil sources online. The Syncrude project started in the late '60s and only in the last couple of years has been producing serious quantities of crude. That's 40 years of lead time! Projected output for Syncrude in 2020 is only 40% higher than what's being produced today. There are real logistical and physical issues with increasing production any faster (you can't blame any of this on regulatory holdups or environmentalists, the Alberta government has been content to keep the rules loose). There are all these oil precursors in the ground but we're constrained by reality to retrieving it through straws.

If the Alberta oil sands are any indication, even a massive, well-funded effort to start exploiting the oil shales in Colorado and Wyoming wouldn't be able to start producing real product in significant quantities for 25 years. There's more to the story than just the canard "it'd be profitable at $40/barrel."
AlanY | 03.21.08 - 5:58 pm | #

Kicker writes:
OT-Sacramento credit union troubles brewing? How are credit unions positioned in all this?

Most credit unions are better capitalized than banks. But, they have more concentrated risks because they are local.

They also have some back-door exposure to some of the more exotic sub-prime securities:

Feb. 5 (Bloomberg) -- U.S. Central Federal Credit Union, the non-profit company that invests on behalf of 8,400 local lenders, lost its AAA rating from Standard & Poor's after reporting a $760 million drop in the value of subprime-infected securities.

http://www.bloomberg.com/apps/ ne...id=a6VxzezfX8ew
Kicker | 03.21.08 - 6:01 pm | #

Elvis writes:
Back in the late 1990s when oil was so cheap, I filled my waterbed with it. Nothing quite like sleeping on oil. But, it was hell to clean up when the bed got punctured.
Elvis | 03.21.08 - 6:01 pm | #

km4 writes:
AlanY do you know how much water it takes for the conversion of tar sands into oil ?

Ahhh small scale pilot projects do not exactly translate into full scale commercial production.

Also why coal liquefaction in western USA ( biggest reserves ) will NOT see light of day !
km4 | 03.21.08 - 6:02 pm | #

Rob Dawg writes:
...small scale pilot projects do not exactly translate into full scale commercial production.

Yeah, the production units are always more efficient and cost effective.
Rob Dawg | Homepage | 03.21.08 - 6:05 pm | #

tj & the bear writes:
Two points:

1) The greatest demand growth lately has come from *within* the exporting countries themselves. Since those countries subsidize oil/gas/NG use internally, their citizenry are unaffected by market pricing. That means *export* supplies will continue to drop even if production was to at least maintained at current levels. Mexico may become a net importer inside a decade.

2) The break-even price of alternative forms of energy always underestimate the cost of the use of petroleum products necessary to get and/or make them. Therefore, every time the price of oil goes up, so does the cost of the alternatives. It's called the "Law of Receding Horizons".

tj & the bear | 03.21.08 - 6:07 pm | #

km4 writes:
Rob Dawg = bozo ...it's the water idiot !
km4 | 03.21.08 - 6:07 pm | #

Peter Strazinski writes:
so LA can either have water or shale oil, but not both?
Peter Strazinski | 03.21.08 - 6:07 pm | #

Missed Information writes:
What isn't going to be accepted by American's is the "prophets of scarcity" that seem to be so popular in some European circles.

Scarcity is already here, Americans just did not want to recognize it - that's why the current crisis is unfolding. With globalization around, incomes will slowly converge - the time of a small US population consuming 50% of Earth resources is gone.


And btw, all of this has nothing to do with the European demographics.
Missed Information | Homepage | 03.21.08 - 6:08 pm | #

AlanY writes:
km4, I agree, there are additional issues people are ignoring with respect to oil shale production.

Syncrude is in many respects the optimal case: water is plentiful in Ft. McMurray, until recently Alberta was producing surpluses of natural gas, the regulatory environment is loose, and the government was willing to help fund this very large, long-term capital project through both low royalties and direct investment in the beginning.

I'm just saying that in most cases the people advocating oil shale production and the magic "it's profitable at $40/barrel" claim simply do not understand the magnitude of issues involved. Yes, water is one of them, but even if that was solved, there are dozens more. Oil shale production will eventually come on line, but it's very possible that serious production levels will not begin in my lifetime.
AlanY | 03.21.08 - 6:09 pm | #

Gary writes:
Kicker, I can get my groceries delivered for free, though usually we drive and load our own.

Amazingly enough, people somehow survived for many thousands of years without personal gasoline fueled driving machines . . . driving cars is not a natural entitlement, it is an unsustainable way of life we have gotten used to over the past three generations in the USA.

Now we're finding out the costs . . . and that we can't afford them.
Gary | 03.21.08 - 6:10 pm | #

Yossarian writes:
Ms. Habenero:
I'm not going to argue heavy oil recovery on a housing blog.
For those of you mildly interested in the argument about Canadian tar sands, here's a link.
http://canada.theoildrum.com/node/2931

Here are some SPE papers.

http://www.spe.org/spe-app/basic...& searchSelect=0

Here's an article from the lay press ..
http://atlanticfreepress.com/con...t/view/3530/32/

If you want to believe oil sands will replace light oil, fine. If you want to believe 40 nukes will replace all the gasoline in the US, fine. If you want to believe that it's just another phenomenon, and ignore folks from your own oil industry, fine.
This is a housing blog, after all... not an energy blog. Yes, they are related. But I get my energy information elsewhere.
This is where I go for housing and mortgage related issues.
Yossarian | 03.21.08 - 6:11 pm | #

Kicker writes:
...small scale pilot projects do not exactly translate into full scale commercial production.

Is a 150,000 barrels a day full scale? The technology is 60+ years old. The biggest (legitimate) question is environmental impact (carbon, mining, etc).

Coal Liquefaction. There is a well-developed process to turn coal into oil. South Africa's Sasol Co. produces 150,000 barrels of oil from coal per day. China is also bringing coal-to-oil plants online, with plans to produce as much as a million barrels of oil a day from coal by 2020.

http://www.ncpa.org/pub/ba/ba590/
Kicker | 03.21.08 - 6:12 pm | #

Bob Dobbs writes:
And there are ways of making fuel from other things than petroleum. GMO algae + grass and woodchips = fuel. And these people are serious:

http://www.technologyreview.com/...20319/? nlid=891
Bob Dobbs | Homepage | 03.21.08 - 6:12 pm | #

km4 writes:
> Syncrude is in many respects the optimal case: water is plentiful

AlanY I haven't looked closely at the water issue but if its plentiful like you say then you're probably right that commercial oil tar sand conversion is economical with oil prices of just $40/bbl
km4 | 03.21.08 - 6:13 pm | #

Sam writes:
The GCC aren't lacking investment opportunities in fact they are pouring billions into Africa stepping on traditional Western turf. They are also increasing oil sales to China. Incidently China has recently built a strategic oil reserve and plans to increase military spending by 17% this year. The Saudis are assuring them that they can supply. China is also moving into Western turf in Africa and countries like Sudan are signing on with huge still untapped reserves.

As for the decrease in US domestic use it is partially offsett by the huge increase in military use. More armor means less miles per gallon not to mention the increase in air attacks. Besides for a lot of people the extra expense is not a problem. The entire infrastructure is built on the car so demand will remain and the driving season is approaching.

CNN is predicting that China will surpass the US by 2010 as the World's top oil consumer. First they brought over a quarter billion people out of poverty and now they are going to buy them cars. How anybody can see lower prices in this scenario is beyond me. As for peak oil if it really is upon us all the investment money in the world seems to be unaware of it.
Sam | 03.21.08 - 6:13 pm | #

luke writes:
REBear:

With respect to "peak uranium", I ran some numbers one time. If we could convert all electrical energy production to fission nukes tomorrow, we would run out of existing known uranium in less than 10 years. If we could replace all fossil fuels it goes down to 4 years. Now these statements come with some serious caveats:
- Breeder reactors are different and effectively a lot more efficient, so you can multiply by maybe 7-10 if all reactors are breeders. (There are other reasons for maybe not liking breeder reactors, but that is a separate issue.)
- This is existing known (proven) uranium deposits. No-one has looked really hard for deposits (in the way they have for oil, for example), and there are potentially quite a lot at higher cost per ton. Power from nukes is not so sensitive to uranium input costs (fuel cost is small percentage of total cost) so this might up the effective supply a lot, but no-one knows how much.

In any case, fueling reactors is probably not a short-term or medium-term problem, as much as anything because they are costly and otherwise difficult to build (nimby issues etc) and so it is not so likely we can/will put together enough of them to make the peak-uranium idea an issue in less than 3 generations.

More (most?) serious is the problem of what to do with the waste. The US is failing on this in a big and expensive fashion, with no reasonable resolution in sight. This plus nimby are what make nukes not much of a solution at present, but eventually they may be.
luke | 03.21.08 - 6:14 pm | #

Elvis writes:
I'd rather have $4.00 per gallon gas much more than $250,000.00 median home prices.
Elvis | 03.21.08 - 6:14 pm | #

Kicker writes:
If you want to get speculative...

Air to gasoline at $4.60 a gallon.

http://www.lanl.gov/news/index.p.../story_id/ 12554
Kicker | 03.21.08 - 6:16 pm | #

MLM writes:
I'd rather have $4.00 per gallon gas much more than $250,000.00 median home prices.

I'm not paying attention to anyone who slept on an oil-filled bed.
MLM | Homepage | 03.21.08 - 6:16 pm | #

Anonymous writes:
askin writes:
i think i've got a nasty virus ... google is redirecting me to google.es
askin | 03.21.08 - 3:13 pm

download windows live onecare...it kicks ass.
Anonymous | 03.21.08 - 6:16 pm | #

AlanY writes:
Kicker, those quantities are precisely the problem. China is pursuing enormous capital investments in this area and they only expect to produce 1 million barrels/day by 2020.

1 million barrels sounds like a large amount, but that's virtually nothing in the grand scheme of things, especially compared to a large oil field. The 12 year lead time just illustrates my point. The technology exists... none of this is new (well, some of the in-place oil sands production techniques are new), but logistics constraints rule the day.
AlanY | 03.21.08 - 6:18 pm | #

Anonymous writes:
Is this thread a continuation of the petrol dollar topic on the previous thread, i.e, potential impacts of falling oil prices...

Re: The recommended speed of the German autobahn is ...
Anonymous | 03.21.08 - 6:20 pm | #

Arraya writes:
"So many folks here saw the real estate bubble years ago. Why is the oil bubble so opaque to you?"

Well maybe because production has been flat for close to 3 years now and demand has increased. It's not that difficult a concept.
Every well peaks, every geographic region peaks and the world will peak too.

From what it looks like we are not going to produce any more than our current production level of 85 million barrels a day. That level will soon i.e. less than 5 years soon drop.

Since we do not have a viable replacement and our best idea was biofuels which have only accomplished sending food prices into the stratosphere, that kind of tells you something. That nobody really knows what to do.

It’s in this context, I’ve suggested, that the neoconservative adventures of the last decade needs to be interpreted. By the end of the 1990s, it was very likely clear even to the most recalcitrant members o