“… knowledge is truly the mother of all resources.”
– Erich Zimmermann, World Resources and Industries (New York: Harper & Brothers, 1951), p. 10.
The peak oil movement, now trying to turn itself into a pro-government-intervention political movement, draws the wrong conclusion by logically progressing from the wrong assumption.
This post revisits this wrong assumption: fixity. From mineral fixity, it is concluded that every act of production and consumption leaves less supply. In this Harold Hotelling world, costs must go up and prices must go up….
But going from the natural science, perfect knowledge, hypothetical world to the real world, just the opposite is true. There is not a fixed supply, known or unknown, from which extractions leave less supply for the future. Costs do not have to go up, and neither do prices.
Try answering this question to see how the peak oilers have it wrong for the business/economic real world. Do we have more or less oil today than when the nation was founded in 1776? Does the world have more or less oil in 2010 than in 1910?
The natural-science answer is that in a physical sense, there is less oil today that then by the amount of extraction. But in a social science sense, we have much more oil today than in 1776 or in 1910 because today’s supply is inventoried and produced from known reservoirs. The same promises to hold true in the future in a consumer-driven, entrepreneur friendly world.
Erich Zimmermann (1888–1961) of the Institutional school of economics called his real world theory the functional theory of resources. His followers have coined the term resourceship to describe the theory.
The following quotations elucidate his theory to inform the current debate over the future of global oil supply. Resources are seen as open-ended, and the brake to production is identified as more man-made (institutional ) than physical nature.
Created Resources
“A functional interpretation of resources…makes any static interpretation of a region’s resources appear futile; for resources change not only with every change of social objectives, respond to every revision of the standard of living, change with each new alignment of classes and individuals, but also with every change in the state of the arts—institutional as well as technological.”
– Erich Zimmermann, “Resources of the South,” The South Atlantic Quarterly, July 1933, p. 216.
“If petroleum resources were in their entirety available from the beginning and could not increase but only decrease through use, it might be correct to advocate ‘sparing use so as to delay inevitable exhaustion.’ But if petroleum resources are dynamic entities that are unfolded only gradually in response to human efforts and cultural impacts, it would seem that the living might do more for posterity by creating a climate in which these resource-making forces thrive and, thriving, permit the full unfolding of petroleum reserves than by urging premature restraint in use long before the resources have been fully developed.”
– Erich Zimmermann, Conservation in the Production of Petroleum: A Study in Industrial Control (New Haven; Yale University Press, 1957), pp. 8–9.
“Nothing is more fatal to a realistic and usable understanding of resources than the failure to differentiate between the constants of natural science and the relatives of social science, between the totality of the universe or of the planet earth, legitimate domains of the natural scientist, and that small portion of these totalities which constitutes the ever changing resources of a given group of people at a given time and place, the bailiwick of the social scientist.”
– Erich Zimmermann, “Resources—an Evolving Concept,” Proceedings and Transactions of the Texas Academy of Science, 1944 (Houston: Texas Academy of Science, 1945), p. 160.
“Resources are highly dynamic functional concepts; they are not, they become, they evolve out of the triune interaction of nature, man, and culture, in which nature sets outer limits, but man and culture are largely responsible for the portion of physical totality that is made available for human use.”
– Erich Zimmermann, World Resources and Industries (New York: Harper & Brothers, 1951), pp. 814-15.
“… knowledge is truly the mother of all resources.”
– Erich Zimmermann, World Resources and Industries (New York: Harper & Brothers, 1951), p. 10.
Culture and Institutions Drive Supply
“The resources at the disposal of man evolve out of the working combination of natural, human, and cultural aspects—a combination which expands with every advance of human knowledge and wisdom and contracts with every relapse into the barbarism of war and civil strife.”
– Erich Zimmermann, “Resources—an Evolving Concept,” Proceedings and Transactions of the Texas Academy of Science, 1944 (Houston” Texas Academy of Science, 1945), p. 160.
“Nature and culture have become so intertwined that little can be gained from an attempt to isolate the natural resources. Cultural and natural resources are inseparable and can only be considered together.”
– Erich Zimmermann, “Resources of the South,” The South Atlantic Quarterly, July 1933, p. 215.
Price, an imperfect expression of the incomplete knowledge of the participants in a market.
My $0.02
While this all sounds very nice the fact of the matter is that the planet earth is finite. It is possible to deplete resources and conusmption today does mean there is less absolute resources available for tomorrow.
My understanding of peak oil isn’t that we will run out of oil, but that we will get to a point where our available production will not meet current demand. If this happens gradually, with no shocks to the system, price signals will trigger investors and developers to enter the market and find new sources of oil. Of course these sources will likely be more expensive to extract than current supply leading to a gradual real increase in oil costs (depending the the share these newer sources acocunt for in total oil production). Obviously there is the possibility of technology gains that can off set or mitigate this rise, but that would be purely speculative at this point.
The other possible outcome is that the system expereinces some sort of supply shock (Saudis really didn’t have as much oil as they said, Iran closes the Persian Gulf, Nigerian rebel attacks on delta oil rigs etc.). What happens then is a massive rise in oil prices as well as the ripple affect on international trade, food prices and other transportation related goods. Sufficced to say there would be massive social costs that could take a very long time to come to grips with, especially if the shock was viewed a permanent. Perhaps eventually the market might correct itself, but at a much lower standard of living for the world.
Mike:
It is SO HARD to get out of the fixity/depletion box, it really is.
But ask yourself the question: Does the US have more or less oil today than a hundred or two hundred years ago? And if so, how can that be?
Thinking in terms of social science and business instead of a perfect-knowledge physical science world leads to an opposite conclusion from ‘peak oil’–that supply can and does increase over very long time periods that are beyond the time horizon of ‘peak oilers’.
That is why peak oil predictions have been wrong from the beginning, and will continue to be for our lifetimes and far beyond, particularly defining oil in a broad sense (tar sands, etc.).
But political constraints–which are reversible and postpone oil production to the future–will continue to exist and fool the unschooled observer.
So basically you are outright rejecting science as a way of understanding the world. Which is very ironic given how when you talk about global warming you try to present yourself as very concerned about good science….
Unless by some magic oil is appearing ex nihilo in the crust, which it isn’t because wells deplete and because such a thing would violate all known laws of nature, the amount of oil is indeed fixed, or at best the rate of its creation is much lower than the rate at which we’re using it (and remember that there are also natural seepages that dissipate it a). You have to be a complete lunatic to reject that.
Your “we have more oil now than we had before” makes absolutely no sense. Yes, we didn’t know about all the reserves we know about today, but whether we knew about them or not, they still existed, and they were relatively fixed in quantity, aside from the slow geological processes that affect them.
To deny that is equivalent to denying the existence of objective reality and replacing it with a fairy-tale world where everything we wish becomes true.
Once again, what do the social “sciences” have to tell us about physical reality?? Social science aren’t going to take solar energy, CO2 and H2O, store it into chemical bonds and concentrate it into vast underground pools that you just have to poke a stick in and they gusher up hundreds of feet in the air. Those are processes governed by the laws of physics, and it is physics and only physics that can inform you about them.
You can deny that if you are either:
1. Clinically insane
2. The intellectual equivalent of a 2-year old
Sorry, but reality does beg to differ unless you think there really is an infinite amount of oil on the planet.
As far as the US having less oil then 100 years ago I will unequivicoally say yes it does. Does it have access to a greater amount of oil, once again yes. If you want to argue about the definition of “have” be my guest, but every molecule of hydrocarbon we combust is one less that the future can use.
While historically we have increased the amount of access we have to the finite resource, the fact of the matter is it is still finite. When we start getting to the point when extraction cannot meet demand is an entirely different question.
If you look back at my comment you can see that I completely accept the principle that diminshing existing supplies will put upward pressure on price and induce additional exploration and development. I do not buy into the idea that this new sources will magically be cheaper to extract than existing or historic sources have been. Looks at the Tar Sands: they have a much higher price production cost than conventional wells with little to no expectation of significant decline in their production costs.
At the end of the day I would suggest that even Zimmermann would accept that there is a finite supply of materials on Earth. I merely contend that we are limited in the amount of oil we can extract and that, with rising demand and more expensive supplies (like the tar sands) there will be real price increases. Sure this creates incentives for developing alternatives to oil but can also lead to a very delicate balance with a propensity to swing drastically up in price, causing the social and economic disruptions I spoke of previously.
We can’t rely on faith alone to ensure adequate or lower cost energy supplies, we ought to begin making preparations now with investments in technologies that are sustainable.
GM, you are being silly. Of course everyone realizes that as we use oil, there is physically less of it. That was true 100 years ago just as it is now, but it was not a meaningfully important factor at that time. The important factors then were our knowledge of where to find it, our technology to access and produce it, and the value and price that could be obtained for it. The fact that in 1920 the world had less oil than in 1910 was true, but was of little significance. It is not rejecting science to say that. Mr. Bradley’s point I believe is that there are still enormous quantities remaining, and the factors of knowledge, technology and price/value continue to be the critical variables in the supply equation, notwithstanding the agreed fact that we use some of it up every day.
I have to claim that we have no technologies and scientific knowledge to find out what this Planet can actually offer to us. We are just guessing what it could be. There is no relevant scientific information that can prove anything what was written here. It probably takes some time to find out what everything is ready to be explored here…
When someone says that “oil is finite according to the physical sciences but not according to the social sciences, so no problem”, you have to call him out for that, because how are we to understand such a sentence other for what it says exactly?
And you aren’t far off the extreme end of the cornucopican/lunatic chart either, because you, just as the author of the original post, completely ignore such little insignificant things as EROEI, the difference between flow rates and reserves, and the extremely complicated, almost incomprehensible concept that no finite resource, no matter how abundant, can keep exponential growth going on for very long (and mind you, it is the least abundant resource that gets you first so basically the claim isn’t that we will never run out oil, the claim is that we will never run out of anything, which is about two orders of magnitude more insane). Much less do so for 7 billion years as some people who should have been locked in the insane ward instead of allowed to write books and teach students thus infecting them with the same disease that ate up their brains claimed.
Here is BP’s Statistical Review of World Energy. Download the xls
http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622
Total World Consumption has been fairly steady since 2005 at a about 85 million barrels per day, which is 10% over consumption 10 years ago.
My math looks like we consume 30.7 trillion barrels per year, while we have “proved reserves” of 1,333 trillion barrels per day = a supply of 43 years.
Now, let’s go back 10 yrs in time to 2000.
We (the world) consumed 76 million barrels of oil per day and had reserves of 1.1 trillion barrels or reserves of 40 years at that consumption rate. So 10 years later, we have a larger supply per current consumption. Let’s see how things are in 2020 before we get all worried. Seems we figured it out these past 10 years. At this point either my math or the peak oilers have it all wrong. There fears are based on “theory”, not reality. Saying all that, it does make sense that there will be supply problems in the coming decades.
Proved Oil Reserves are 1,300 thousand million barrels which I assume is 1,300 billion barrels?
Doing the same math on the BP Stats I come up with:
1980 30 yrs of reserves for1980 consumption
1990 41 yrs of reserves for 1990 consumption
Maybe we should make one of those $500 JSimon bets for 2020.
A few facts and some reality check for you:
1. As was already mentioned several times, a carbohydrate molecule burned today is one less carbohydrate molecule available to be burned tomorrow. So we have less and less oil, whether we know it exists or not each year. We may have more reserves because we have found more oil or found ways to increase the recoverable fraction of old fields, but the planet’s crust has less and less of it, which is what matters
2. It is a well know fact that oil discovery peaked in the 1960s and that right now each year we are burning about 5 times the amount of oil we’re finding, with the gap growing bigger and bigger with time due to both increased demand and even less oil remaining to be found.
3. The reasons reserves have been growing are two. First, better recovery from old fields, which, however, only measures in some relatively minor in the big scheme of things improvement, you can’t go higher than 100% recovery, but you will never get to 100% recovery anyway, so if you started at 30%, you can see how little room there is for improvement there. Second, outright fraud, as for example, in the 80s OPEC countries doubled their reserves overnight without any new discoveries so that they can get larger production quotas within the organization.
This means that we even if we had more oil in the books (whether we had more actual reserves is an entirely different matter) it is 99% certain that we aren’t going to be able to have more reserves 50 years from now. And that’s doesn’t even matter, because, if we can’t produce it fast enough to meet demand (which is the case with heavy oil tar sands and shales), we still have a very serious problem, no to mention the issue of EROEI.
A person that jumps from the 88-floor and who is thinking while passing by the 30th “See, I’m doing fine, no problem” still will still have his brain and intestines splattered on the concrete below with 100% certainty.
GM,
you are repeating yourself. we have 1.3 trillion barrels available. I completely accept that every day that amount is reduced. We still have about 40 years supply of oil at current rates of usage.
Now, how much oil is undiscovered? We don’t know, but, I would be willing to bet there is at least another 10 years of oil in the ground we do not know about. So guess what, we have about 40 years before oil starts getting tight.
I would like to point out you got another minor item wrong. You say that once we burn a carbon based fuel it is gone. Sorry bud but the Germans were producing synthetic fuel during WWII. You think that process doesn’t work anymore?? Algae and bacteria are being cultivated right now to make biodiesel. You think that will stop happening? Nope, they are just continuing to improve the processes.
So basically the writer is right and you are just blowing smoke up our dresses.
Now, the coup de grace. No one has ever PROVEN that oil is biotic. There are plenty of intelligent scientists who are looking at the possibility that some or all of the oil in the ground is abiotic in origin.
“A person that jumps from the 88-floor and who is thinking while passing by the 30th “See, I’m doing fine, no problem” still will still have his brain and intestines splattered on the concrete below with 100% certainty.”
So you think all those Hollywood stunt men and women die??
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHA
GM and others:
Note how we are talking past one another. I am emphasizing economics and business–the real world of human action toward resources–and you are stuck in a natural science world.
But the ‘peak oil’ debate is about price right? Public policy, right? The ability of business to turn stuff into usable resources, right?
On all of these counts the peak oilers have been wrong throughout history by believing that the great turn has been made….
If you want to argue pure physical quantities of BTUs in the earth, that is a seperate debate but one that would surely boggle the mind if you think of the hydrocarbons as substitutes. Shale gas demonstrates the fallacy of peak-hydrocarbon–it is an example of ‘resources are not, resources become’. We have an ocean of BTUs beneath our feet–vast quantities that offer centuries of future supply….
The right answer for the real world of human action is that we have more oil today than anytime in history. We had ‘no oil’ in 1776. And we have more oil today than ten years ago–and a heck of a lot more gas.
Unless you can convince me that cost and price do not matter, this is a debate about economics, not hypothetical estimates about physical quantities, right?
I think what is more crucial to this discussion about prices is the availability of surplus supply. As we exhaust existing oil fields and are forced to bring alternative methods online we run the risk of having less wiggle room in terms of supply. One of the reasons the initial arab embargoes were so devastating was because Texas was already producing at full capacity.
Assuming a world with gradually increasing oil demand it may be possible to bring new supply sources online to meet the demand (with higher prices signaling the development of these resources). But newer sources do not have the swing capacity as conventional sources, making even minor disruptions to the oil supply much more dangerous to global economic stability. It doesn’t matter if there is enough oil in the ground, if it cannot be brought to market fast enough then it does us little good. It is a question of flow not supply. And when that flow is suddenly, unexpectedly reduced there are major social and economic consequences.
Good public policy would encourage the development of alternative supplies or movements away from a fossil fuel based economy as a hedge against such a disruption regardless of the amount of oil in the ground.
A few other points:
The German synthetic fuel process of WWII involved converting coal into liquid fuels. This was much more expensive than convention oil and more energy intensive. If we had to resort to such practices prepare to pay more for oil.
Even if oil is abiotic there is still the question of flow vs. demand. Sure the earth might be creating more oil through some thus unknown process, but if we are depleting it faster than it is produced (a process we have not substantiated) it does us little long term good.
You cannot divorce economics from reality. No matter how large the incentive is to deliver a good to the market, if the good does not exist it cannot be delivered. Substitutes can be used instead (in this case biofuels, electric cars, shift in lifestyle), but given the size and scope of the petroleum society we live in it will take sometime to adjust. The market cannot magically provide us a new societal model overnight. Reality matters.
Mr. Bradley, interesting site. I learned about this from your interview in Kaizen. Are you familiar with George Reisman’s lecture on Environmental & Resource Economics? He makes some similar points there.
http://mises.org/media/2148
Just another Mike,
agreed that creating synthetic fuels is more expensive, ala our hosts real point. I was responding to GM’s statement that once a hydrocarbon is burnt it is gone forever. That particular molecule may no longer exist, but, the properties of it is in no way unique or irreplaceable.
As far as cost of synthetics, yes they are currently more than oil. No they will not stay that way if peak oil ever actually happens. Again, what is a reasonable estimate of future technologies? If you read this site a lot you should understand that enough wind to make a difference would require a world wide intelligent energy net with windmills damn near everywhere there is any wind with improvements we currently do not know. Solar also would require substantial land areas to contribute more than a token to our energy supply. Hundreds of square miles of photovoltaic or reflectors are just a beginning with unknown effects on the regional environment.
Currently hydro is the only renewable that can make a reasonable contribution to our energy security and it is being blocked by enviros. Based on the hystrionics about future water insecurity the lack of dam building is doubly ignorant.
Your argument on abiotic is similar to the basic oil question. WE DO NOT KNOW. Yet, we DO know that there will be more than the peak oil delusion assumes. What we do know is that we continue to improve extraction methods and continue to find more sources. Improving methods extend the lives of old fields so that peak oil continues to be pushed into the future.
You are absolutely correct that reality matters. The reality is that gubmints pushing in a particular direction continually get the wrong direction and ALWAYS have problems with efficiency and corruption. The free market WILL handle the problem if not hobbled by gubmint regulation. Supply and demand WILL set prices and provide incentives to do what is necessary.
The argument is we must make these changes now at an emergency pace to save our children and grandchildren from….. WHAT?? As I mentioned above, if peak oil happens in 40 years we will have progressed in our technology in that time. The technological base available will be much more prepared to tackle the issue at a societal level than now. My belief is that between now and them we may make those issues moot. That is, fusion, fast breeders, new breakthroughs, improvements in efficiency in all areas will all come together to make the issue within reason. Trying to force inefficient, extremely expensive kluges into the energy system is NOT a rational approach.
When Tesla originally designed the AC system we now use the industrialist grabbed it and implemented it. It worked very well and is now the standard. Tesla tried to talk him into waiting so they could deploy a system using higher voltages and frequencies that would have been more efficient and SAFER!! Even with the knowledge no one has ever tried to move the COUNTRY to a HF HV AC system. It would simply cost too much.
Similar to this, allowing the Gubmint to SUBSIDIZE early, poor, technologies means there is little impetus to spend a lot of time creating more efficient versions. If they can sell a lot of what they are making where is the incentive to improve it??
Harold:
Professor Reisman is very good on these points–as was von Mises. Zimmermann is great but ultimately stumbled versus Mises and to a lesser extent Hayek and Rothbard. See my piece, “Resourceship: An Austrian Theory of Mineral Resources.”
Prices and costs measured in $$ signs indeed don’t matter because we live in a physical world, not in one where the pseudoscientific laws of economics rule. I highly this can be explained to you in a way you can understand because to achieve such a feat is the equivalent of someone standing on top of the Kaaba in the middle of the Hajj and converting everyone around him into atheists. You have been brainwashed with free market nonsense for all your life, it has become a fundamental part of the way yo use the world and yourself, to convince you that reality matters would mean to turn all of that upside down. So as most people you are prefer to deny reality than face it.
I will still try though.
The first thing to recognize is that the economy is a subsystem of the physical world (a very, very small one), not the other way around.
The second things to recognize is that there are laws of nature that determine everything that happens in the physical world. Those laws are immutable.
What this means is that what happens with the economy is determined by what happens in the physical world it exists within, and that if what economics tells you clashes head on with what the physical sciences tell you, then economics is wrong, not the physical sciences.
That should be fairly obvious to everyone.
I will echo some of what Just Another Mike said, but with respect to resources, the situation can be described as follows.
I have to say that I prefer to think of things in terms of entropy, not in terms of energy, because you generalize better to mineral resources and doesn’t allow people to use the fallacy of the very wide base of the resource pyramid as a “look, no problem” excuse. And the high school, “mixed stuff = high entropy, pure stuff = low entropy” explanation of entropy perfectly suffices here (which is why I like to emphasize severity of the scientific literacy of people like you).
Organisms, humans included, exist in a state of low entropy, civilization as a whole exists in a state of even lower entropy (all that infrastructure is some very low-entropy stuff). The problem is that because of that unfortunate thing called The Second Law of Thermodynamics, you need a constant influx of negative entropy to keep things in a state of low entropy as left on its own, it tends to increase all the time (i.e. things fall apart). Negative entropy for the maintenance of civilization comes as energy but also as concentrated ores – the entropy of a 3% copper ore is much much lower than the entropy of a 0.3 % copper ore, and it takes a lot more negative entropy to purify the copper from the latter than the former.
Now, the influx of negative entropy into the Earth is fixed (it’s pretty much limited the solar radiation we receive). And while it is large, it is also spread over the entire surface of the planet, so it is very hard to harvest it. Plants have done this over millions of years of evolution and it has been stored in the form of oil, gas and coal in the planet’s crust, but it is very much finite. Once we burn it it is gone, and we have to rely on whatever we can get directly from the sun which is much much less.
That’s the most simplified and general-principle view of things. In practice, the limitations are even more severe as it doesn’t really matter how much hydrocarbon molecules are in the crust, what matters with respect to keeping a civilization in the state of low entropy it needs to be to call it a civilization is how much hydrocarbons molecules can be harvested from the crust and how fast (if you can only do it a rate that’s lower than the rate of decay of civilization due to the effects of the aforementioned Second law, you’re out of luck). Yes, there are a lot of hydrocarbons in the crust, but the majority of them do not exist in the kind of large underground pools that you stick a straw in and you suck out as much oil as you want, they exist in very small pores in the rocks, or are mixed with sand and other minerals, etc. This severely limits both the rate at which you can get them out of the rocks and the net energy you get out of that, sometimes even making the whole exercise meaningless as you gain nothing of even lose.
Prices can’t and won’t solve this problem as the most fundamental laws of physics are the reason for it, and those don’t change, neither it is possible to get around them. And it is absurd to think that when the price rises high enough, technology will advance and find a way. Demand for perpetual motion machines is very high and according to economic theory, they should have been created a long time ago, right? Somehow, they haven’t been, certainly not for lack of trying.
If we are to get really specific, we are most likely at the plateau of the peak of the worldwide peak of oil production right now. And we think we are because the same techniques that have been very successfully used to predict Peak Oil in individual countries and oil provinces tells us that. Given that no amount of technology has prevented Peak Oil in any of these historical cases, there is no reason to think it will be different globally. What this means is that we will find ourselves in a situation where we will have less and less energy as time goes, and that is going to happen very soon in the future, in the next decade or two. At some point the Second Law takes over and civilization falls apart. None of this is helped by the fact that our social structure is based on perpetual growth so it will fall apart for purely social reasons even before the Second Law does it.
Yes, there is a lot of energy embedded in matter and if you find a way to get it out of there, you can solve a lot of problems. However, there is no guarantee this is even possible outside of the fissions and fusions reactions we already know about or practical for a lot of them. What is certain is that we are very far off having those technologies, that they won’t magically appear our of nothing because it will take a long time for them to be developed, if it is at all possible, no matter how high ti prices. Time is what we don’t have.
Again, prices matter very little with respect to all of the above. We are talking about physics here – if something is impossible, how high the price is won’t make it happen. You claim otherwise, which is the reason why I will keep insulting you intelligence and sanity every time you do it, because the only people who get away with doing so without it being pointed out are economists and priests, and that has to change
GM
The reality is that peak oilers have been wrong throughout history. Can you tell us why they were wrong but you are right?
You speak of “pseudoscientific laws of economics” Do you believe in social science or the laws of human action–or is the only causality between physical objects.
Do you believe that institutions matter with mineral resource development–from culture to public policy?
And if hydrocarbon fixity is your God, what is your estimate of total physical carbon-based energy–oil, gas, coal and parts between? Proved, probable, speculative, other?
P.S. Could you do us all a favor and quit ranting and raving if for no other reason that it would shorten your comments for the rest of us. It would help your credibility too.
Peak Oilers have been wrong? That’s an outright lie. I have no idea where you got this idea from. Who has been wrong? Hubbert predicted the US peak with an accuracy within a year. You call that being wrong?
Hubbert’s 1956 paper:
http://www.hubbertpeak.com/hubbert/1956/1956.pdf
What happened in real life:
http://upload.wikimedia.org/wikipedia/commons/5/58/Hubbert_US_high.svg
What exactly are “the laws of human action”? What is the empirical basis for calling such things “laws”? Humans are physical objects so of course, there is only causality between physical objects. The problem with economics is that is built on a number of assumptions are demonstrably false, yet are never questioned and are taken as being as rock solid as the laws oh physics. That’s a hallmark of pseudoscience.
I don’t believe in anything. I’m a scientist. And your question is entirely irrelevant, you aren’t addressing any of the points I raised.
I don’t have any Gods and that hydrocarbons are fixed follows directly from the most basic laws of physics. Total energy matters very little, net energy is what matters, and net energy in the present, not net energy in general (you can’t average the net energy you got in the 1930s from oil gushers with the net energy you get from oil sands in the 2010s because with respect to keeping civilization going on in the 2010s what was in the 1930 is pretty much irrelevant). And even this isn’t as important as the ratio between demand and supply. Demand for energy is very inelastic so once supply can’t keep up, no matter how large, society collapses. That point is not very far in the future, probably in the next decades, maybe two.
I type fast and the subject, while simple in its essence, requires some explaining so that people can grasp it.
GM
Here is but one early ‘peak oil’ quotation:
“The peak of [U.S.] production will soon be passed—possibly within three years.”
[- David White, Chief Geologist, United States Geological Service, 1919, quoted in Edward Porter, Are We Running Out of Oil? American Petroleum Institute Discussion Paper #081, December 1995, p. 1.]
The peak oil debate is about global supply and demand, not US supply. Hubbert was correct for the US because the world petroleum market has passed us by, in part from a good deal of domestic regulation (such as what we are seeing now with the offshore).
What did Hubbert say about US gas, and what is the story now with shale gas? This is one reason to stay humble.
If you reject all economics, and not try to differentiate between good and bad economics (and bad economics uses false assumptions, something Austrian-School economics tries to correct), you pretty much reveal why you can’t get unstuck from the fixity/depletion mindset. (But notice how I am not saying you are dumb or lying or anything else….)
That’s a prediction that shouldn’t have been made as at the time discovery hadn’t peaked. In 1956 it had been more than 20 years after discovery peaked in the US, which allowed for an accurate prediction to be made.
Worldwide discovery peaked in the 1960s, which gives us more than enough certainty that the global peak isn’t far off in the future if it hasn’t been passed already.
The same geological principles apply. The difference is that the world has nowhere to import oil from.
Have you ever seen the probable estimates for the undiscovered oil offshore? Have you ever compared them to the annual consumption of oil in the US? Apparently not. If you have, you would have seen that those won’t make any material difference even if they existed, which isn’t certain at all.
http://www.theoildrum.com/node/6785
100 years supply that’s probably quite overstated at current consumption levels means much less when you consider future demand growth (after all, the economy has to grow, right?), and that’s without considering the EROEI (all the drilling and fracturing takes a lot of energy, and when wells go dry within a year or two, you have to drill an awful lot of them to keep things going) and the environmental effects.
And shale gas has been known for a very long time, it is not as if it came out of nowhere. But there is nothing comparable when it comes to oil. Tar sands and oil will never be able to make up for the shortfall in conventional production, it has been decades of development in Alberta and according to the Alberta government, it may reach 5 million barrels a day in 2030(http://www.energy.gov.ab.ca/OurBusiness/oilsands.asp), at which point the worldwide shortfall will measure in tens of millions barrels a day.
Economics is useful when the underlying assumption are met. When they aren’t it traps people into some very dangerous delusions. Problem is that the underlying assumption are generally incorrect.
You are not dumb. I never said that. A dumb person is person who given a complex problem and sufficient information to solve it lack the intellectual capacity to do it. Madmen can be very smart and innovative, their problem is that they are smart within the confines of their broken understanding of reality, which makes them completely disconnected from the world they live in. Your problem is that you and other economists explicitly deny the existence of such a thing as reality and you substitute it with costs and prices, which is precisely the kind of disconnection from reality that forced people to declare that you can only claim that infinite growth is possible on a finite planet if you are an economist or a madman
GM
Maybe I can end on these points. Human ingenuity is the ultimate resource (and not a depleting but an expanding resource) tht has increased supply of mineral after mineral to meet demand over all of recorded history in market settings. (This is a lot of ‘jumps off the building’ where no hard landings have been made.) There are probably 30 minerals that are common–any examples of ‘market failure’ where demand has outraced supply and costs/prices have stayed very high for a period of time?
Two, the story of ‘fixed supply’ is increasing ‘fixed supply’ as human ingenuity evolves (pick your mineral). And again I challenge you to come up with all the BTUs in the earth to confirm that there is an ocean of energy beneath our feet even from a static fixed perspective.
I fear central planners when it comes to planning the future with any mineral–I think this is where the ‘madmen’ like to congregate.
I’ll take markets over government and the ‘smartest guys in the room’ peak-oil would-be planners. Remember the 1970s? Remember James Schlesinger? There was the not-so-good economist, believing that we were running out of oil and gas.
Just to bring this discussion back to the fundamentals I would propose that there are some basic tenants that everyone agrees about:
1) There is a finite amount of oil in the world (wild ass assumptions about biotic oil aside)
2) Humans now have a greater ability to utilize this finite supply than previously
3) Our view of the sources of oil (shale, oil sands, etc) has expanded with technological progress and economic incentives advance
Where the diversion occurs is as follows:
1) One side proposes that humans will react to the depletion of existing resources by advancing technology and exploiting other sources of oil. The other suggests that the technology will not necessarily be there (see: perpetual motion machine), if it is there current indications point to much higher prices and that if it is developed there is a greater risk of oil market volatility due to diminished swing capacity.
2) There is definitely a divide between the technology outlooks of both sides. One side suggesting the market will create incentives for new oil technology or alternative power sources (fusion, fast breeder reactors, HV HF AC systems) to make up for any loss in oil supply. The other is a bit more pessimistic and wary of letting the market, which has its share of failures and possibly slow reaction time, determine the future of energy sources (what this blog refers to as the Master Resource).
Personally I think the risk with following a pure market strategy is that markets must first see incentives before changing. If the market is hit with a shock (as I suggested would be more likely to occur as we lose swing capacity) there may not be enough time or capital available to adjust to the shock.
3) The definition of peak oil. There seems to be a mishmash of claims about peak oil on both sides. I don’t think it is totally relevant to the discussion and merely state that my take on peak oil is that unless supply grows with demand the market will develop with a narrowing amount of swing supply available. Prices go up as alternative methods are discovered and either economies slow down or alternatives are found. This creates a very fragile system that has greater sensitivity to oil supply. Drop a couple million barrels out of the world supply and their impact (and disruption) would be much greater than today.
4) Solutions: One side suggests that government has been (and continues to be) the culprit interms of energy scarcity and the stifling of innovation, supporting losing technologies at the expense of better ones. If the government withdrew from market interference technology and new energy sources would blossom like a thousand flowers and stave off the dragon of energy poverty.
Contra this position is more market skepticism (though I would say no hostility). For the most part the above comments for this side remained agnostic about solutions. For the record I do believe in the power of human ingenuity in overcoming problems, but incentives are needed to bring it forth.
I think this is relevant when we are talking about large complex systems such as energy since the sudden appearance of an incentive does not guarantee its implementation at a suitable speed to avoid large scale social and economic disruption. Well crafted public policy can lay the foundations of basic research (such as super conductors) and hedged positions (such as renewable sources of energy vs. fuel volatility) before the market starts sending those signals. The free market system can be robust but, in some circumstances, also quite fragile espcially if there is a disruption in the supply/distribution of the “Master Resource”. Better to accept some inefficiencies on the front end than risk total exposure down the road.
“The definition of peak oil. There seems to be a mishmash of claims about peak oil on both sides.”
There are at least 3 possible definitions that get mixed up.
1) geological peak. That is the point where we have consumed half the oil in the ground from all deposits. We are not at geological peak.
2) flow rate peak. That’s the point where demand is greater than the ability to extact the oil. Unconventional sources have very low flow rates. They will not keep up with depletion rates from dying fields. We are at flow rate peak now (since 2005).
3) ERoEI. That’s the point when the amount of energy needed to extract the oil is more than what we get out of that oil. Convensional sources in the 1960’s was 100:1. Today the average is about 25:1. The Alberta Tar Sands is 6:1. Society needs at least 3 or 4 to 1 to break even. At the current drop in the ERoEI ratio we would hit the break even point some time between 2020 and 2030. Once we hit that break even point it won’t matter how much oil is left in the ground, we can’t get it. Hence we will have run out of oil.
The effects of slowing extraction rates will have many differing geopolitical effects. Some countries, the most indebted ones, will have a hard time bidding on the open market for oil simply because they won’t have the money. Demand dictates the price, not scarcity. As the price of oil increases, it gets to a point where it causes a recession, which kills demand (some perminently). Down goes demand for oil and the price collapses. This seesaw can happen for dacades as we follow the production decline curve down the far slope. Each increase in demand is less than the one before it.
This, then, is the forth component of peak oil: Geopolitical and economic. Which means some countries will get hit with peak oil before others.
So it doesn’t matter what’s in the ground, what matters is the flow rate, the net energy returned on extraction and economic factors.
We are at flow rate peak now (since 2005).
We are at a flow rate peak. This is not the first time in history oil production has peaked for a long period of time. To say it is the terminal peak requires knowledge nobody can possibly have.
3) ERoEI. That’s the point when the amount of energy needed to extract the oil is more than what we get out of that oil. Convensional sources in the 1960’s was 100:1. Today the average is about 25:1. The Alberta Tar Sands is 6:1. Society needs at least 3 or 4 to 1 to break even. At the current drop in the ERoEI ratio we would hit the break even point some time between 2020 and 2030. Once we hit that break even point it won’t matter how much oil is left in the ground, we can’t get it. Hence we will have run out of oil.
This is one of the biggest errors peakists make; oil is not energy. It is an energy store. What makes it so valuable is its high energy density; you can use it in applications where other methods are too bulky or don’t have a high enough energy output. We’re not generating energy when we pump oil, we’re storing it. So long as the energy you are using to get it is relatively abundant, it does not matter what the EROEI is.
If your statement was true, rechargeable batteries would never be used.
In 2008 when oil hit 140 all sources were pumping flat out. There is less than 3mb/day excess capacity at the moment because of the global recession. By the time we find out that 2005 was the start of the max it will too late, we will be on the downward slope.
As for ERoEI. It’s everything. If it takes x joules to pump, process and transport the oil, but you get less than x energy out of that oil how is it useful if it takes more energy to get the oil than you get out of it?
It’s no different than hunting for food. If it takes more energy to hunt the food than you are getting out of it, you starve. ERoEI is a thermodynamic fact.
Fact is, every super giant field is in depletion mode: North sea, Cantarell, even Ghawar. Now we find out that the Arctic has less than 10% of what they thought was there. New fields are all very small (Brazil’s off shore is less than 1 year world consumption), difficult to extract, costly to extract, very low flow rates and has a much lower net ERoEI.
http://www.theoildrum.com/node/7075?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+theoildrum+(The+Oil+Drum)&utm_content=Google+Reader
In 2008 when oil hit 140 all sources were pumping flat out. There is less than 3mb/day excess capacity at the moment because of the global recession. By the time we find out that 2005 was the start of the max it will too late, we will be on the downward slope.
A similar thing could have been said about the peak 1979 at the time. The fact is that making such a call requires information about the future no one has. Case in point – due to new extraction techniques American production is on the rise again.
As for ERoEI. It’s everything. If it takes x joules to pump, process and transport the oil, but you get less than x energy out of that oil how is it useful if it takes more energy to get the oil than you get out of it?
This only matters if you use more energy generated from oil to accomplish those tasks. Otherwise all you’re doing is storing energy from another generation source. It does not matter if the ERoEI is 1 is of course preferable, but isn’t necessary.
If it takes more energy to hunt the food than you are getting out of it, you starve.
This is true only if there are no other sources of food. If you can make up for the hunting shortfall through another source such as fruit, you can still hunt and not starve.
Now we find out that the Arctic has less than 10% of what they thought was there.
This was for the North Slope in Alaska, not the entire arctic.
Hmm, my formatting got screwed up and some of my second response was lost. It should read:
This only matters if you use more energy generated from oil to accomplish those tasks. Otherwise all you’re doing is storing energy from another generation source. It does not matter if the ERoEI is less than one as long as the other generation source is abundant. Again, think about rechargeable batteries. The ERoEI is always less than one, but they’re still extremely useful.
An ERoEI greater than one is of course preferable, but isn’t necessary.
Peak Oilers argue from ignorance. They can truly have no idea of the true state of the resources of hydrocarbon energy. So they hide behind “lucky” Hubbert, whose predictions were only vaguely correct due to the 1969 Santa Barbara oil spill, which triggered such a rash of energy regulations that Political Peak Oil occurred virtually immediately in the US.
They are hooked on doom, and nothing else will do. No sir, nothing else will do at all.
As i pointed out several times already in this thread, and it was repeatedly ignored, discovery peaked in the 1960s, i.e. some 40-50 years ago. This means that we have a pretty good idea when we can expect the global peak to occur, and this happens to be somwhere around 2000-2010. Therefore the price being high in 1979 due to above-ground factors is very different from the price being high in 2008 when everybody was pumping the stuff out as fast as they could
We do not have an abundance of energy from other sources – the peaks of gas, uranium and coal aren’t that far in the future after Peak Oil, assuming perfect opportunities for getting them out of the ground and no above-ground disruptions (which isn’t likely to be the case in a post-Peak Oil environment). And the EROEI of each of those is decreasing – it takes a lot more energy to extract shale gas than conventional one, it takes a lot more energy to mine coal from very deep than to do surface mining, lignite coals have a lot less energy per unit mass than anthracite coals, so EROEI is lower as the amount of energy needed to mine them is the same, low-grade uranium ores take a lot more energy to mine that high-grade, etc.
Therefore the price being high in 1979 due to above-ground factors is very different from the price being high in 2008 when everybody was pumping the stuff out as fast as they could.
Today’s situation is a result of ‘above ground factors’. Many fields are declining because of a lack of investment rather than geologic peak (Venezuela, Mexico, and Iran in particular). The low prices of the 90’s and early 2000’s resulted in a massive drop in exploration and development even in the States.
We do not have an abundance of energy from other sources – the peaks of gas, uranium and coal aren’t that far in the future after Peak Oil, assuming perfect opportunities for getting them out of the ground and no above-ground disruptions (which isn’t likely to be the case in a post-Peak Oil environment). And the EROEI of each of those is decreasing – it takes a lot more energy to extract shale gas than conventional one, it takes a lot more energy to mine coal from very deep than to do surface mining, lignite coals have a lot less energy per unit mass than anthracite coals, so EROEI is lower as the amount of energy needed to mine them is the same, low-grade uranium ores take a lot more energy to mine that high-grade, etc.
This has been true for the last two-hundred years. Humanity has responded in several ways:
1) Get better at using the sources you have (efficiency)
2) Learn how to extract previously unusable resources economically
3) Create new sources of energy.
Shale gas (and oil) was nigh impossible ten years ago because the energy and monetary costs of doing so were astronomical. New techniques have allowed us to extract it at an acceptable cost.
The real ignoramuses are people like you who post such throughly uninformed posts. As I said probably 6 or 7 times in this thread alone, discovery in the US peaked in the 1930s and based on that, with a simple mathematical technique, it was possible to predict the historical peak of production with an accuracy within a year. The peak was in 1970-1971. The oil spill was in 1969. It takes between 10 and 15 years to develop an oil field so I am very curious how it could have been that the spill in 1969 prevented further drilling (not even true, the rate of drilling new wells sky-rocketed after the peak was hit, it didn’t make much difference) and this caused the peak in 1970…
The worldwide peak of discovery was in the 1960s. Which gives us a rough estimate of how much oil was originally in the ground and when we can expect the peak.
Could you please point us to the major undeveloped sedimentary basins in the world that will provide the equivalent of several Saudi Arabias if only the pesky environmentalists got out of the way so that they could be drilled?
You aren’t going to find any oil in the Himalayas or in Iceland. There is a very special kind of geology that is associated with oil and gas deposits and it quite well known where that kind of geology is found, the majority of those places have been drilled or, if they haven’t, it is extremely unlikely that they will contain hundreds of billions of easily recoverable oil. Arab-D is one of a kind formation, for a reason.
But of course you knew all that and had considered it so I shouldn’t be pointing it out to you, right?
You can’t “create new sources of energy”. They aren’t very popular here, but the laws of thermodynamics are still what govern everything that happens in this world and you can’t violate them. But again, I am sure you know that
Deeply ironic how I posted an article on shale gas just a few posts above earlier today, yet you apparently never even noticed it….
GM, do you understand the meaning of the term: Political Peak Oil? Political peak oil does not require any lead-in period to speak of. Politicians and regulators jumped right into the fray in 1969 and shut the door on the vast amount of exploration and development that was in the works. Hubbert lucked out.
Your geologic thinking needs updating. In the 1800s and early 1900s your thinking would be current. Now we have a better understanding of the antiquity of the Earth and the early origin of photosynthetic life in the oceans. Hydrocarbons began sedimenting early, and were caught up in billions of years of geologic tumult. The classic picture of petroleum reservoirs and other hydrocarbon deposits only applies to relatively recent formations.
Could you please point us to the major undeveloped sedimentary basins in the world that will provide the equivalent of several Saudi Arabias if only the pesky environmentalists got out of the way so that they could be drilled?
Where did you see anything about environmentalists in my post? I said those countries have been under investing for some time. I’m also talking about known reserves. There are over 1.3 trillion barrels recoverable with current technology (reserves). Under investing means that countries are failing to exploit current technology or even failing to maintain existing infrastructure.
You can’t “create new sources of energy”. They aren’t very popular here, but the laws of thermodynamics are still what govern everything that happens in this world and you can’t violate them. But again, I am sure you know that
Don’t be dense; of course I meant create new sources of energy relative to society. If current technology can’t make use of them, they’re not sources of energy.
Deeply ironic how I posted an article on shale gas just a few posts above earlier today, yet you apparently never even noticed it….
You also managed to completely miss the point regarding shale gas in it. Yes, shale gas has been known for some time, but it was completely inaccessible until recently. We came up with ways of extracting at a low enough cost in resources (including energy). It was not a resource reserve prior to then.
Good point Chris T: “resources are not, resources become” is a fundamental Zimmermann point. Again, from a business/economic viewpoint, not a physical science viewpoint.
What is high cost today becomes low cost tomorrow. What is inaccessible today becomes accessible tomorrow.
Fifty years from now, the peakists will be saying the same thing–we now know that we are past the peak and supply will run low and costs and prices must rise.
And again, we don’t live in a business world, we live in a physical world so the business viewpoint is just as relevant to the discussion as the viewpoint of young earth creationists is relevant to discussions about evolution. And very similar in its intellectual bankruptcy.
Money can’t make resources appear magically out of nowhere, when they don’t exist and money can’t make thermodynamically unfavorable processes become favorable. To claim otherwise is to claim that laws of physics don’t exist. Which as I already explained should land you in the nearest mental ward, not in any position of authority on the subject.
And as I also already explained, 50 years ago the “peakists” were telling us how the US will peak soon, and 50 years later the US is entirely dependent on oil imports, because for some mysterious reason it peaked. And not only it peaked, but its peak production was only half of what it is consuming now. Madman or an economist, you know…
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