With oil prices seeming to settle in around $100 a barrel – an alarming number, but not all that surprising when you consider the dollar’s weakness – perhaps it’s time for some contrarian thinking on the arrival of the so-called “Peak Oil” state.
“The World Has Plenty of Oil.” Mr. Saleri’s conclusion:
Sufficient liquid crude supplies do exist to sustain production rates at or near 100 million barrels per day almost to the end of this century.
His strongest point, beyond the straight recitation of statistics on what we know is in the ground and how much we actually consume, is that high oil prices will tend to create incentives for alternatives, both alternative fuel/energy sources, but also alternative extraction techniques. Oil that was not profitable to extract at $50 a barrel may be quite profitable at $100 barrel, and if oil prices remain high, previously untapped sources of oil will come on line. (A 2005 study by the RAND corporation said that a “surface retorting complex” for extracting oil from shale “is unlikely to be profitable unless real crude oil
prices are at least $70 to $95 per barrel (2005 dollars).”)
All in all it’s a rather different message than what you might read in your daily fishwrap or what you’ll hear from any environmental group. Oil will run out eventually, but it’s not likely to happen in our lifetimes.
I love the WSJ…
I am not sure I buy that annual increases will be limited to 0% to 2% or that increases will rise and fall closely with economic trends. There are 2.3 billion people living in China and India who are using more and more oil and their consumption can double even if the G8 have a bad year. It does not take much to double the oil consumption of an individual that subsists on $300 a year.
Do you think we will ever see the early 90’s 1.00 per gallon fuel cost again in our lifetime? I doubt it. What do you think the most promising alternative is?
Oh, BTW I was at the Giants/A’s Saturday and left after 3 innings because the A’s were up 8-0 with 15 hits…poor San Fran…going to be a long summer!
While it is a different message than we normally hear, I don’t fee that much better just because we have a 90 years worth of oil in the ground as opposed to say 50.
His strongest point, beyond the straight recitation of statistics on what we know is in the ground and how much we actually consume, is that high oil prices will tend to create incentives for alternatives, both alternative fuel/energy sources, but also alternative extraction techniques.
Unfortunately, our country does everything wrong when it comes to creating the incentive for alternative fuels. We give the Saudis billions from Chinese loans that we’ll pay interest on; we fight wars; and we subsidize the wrong alternative fuel.
Well, I just depressed myself.
Yes, but it will not take much of an increase in efficiency in developed nations to offset the rapid increase in consumption in developing nations. And as oil prices rise, the incentive to conserve will increase and suddenly more extreme sacrifices will start to make sense.
Obviously you are still looking at a net increase in consumption, but when you take all of these factors into account, an annual increase of 0-2% seems reasonable.
I thought the problem was the enviromental impact? I think true enviromentalists would not care too much about running out of oil as that solves their gripes quite quickly
With regard to China, I would argue that population trends – aging and mostly male – imply that total consumption will not increase too quickly, but on a per capita basis, we may find a positive correlation with increasing standards of living.
I’ve also heard that the Chinese are in Canada, and in the Gulf of Mexico exploring agreements to extract new foreign sources of oil.
Considering the past winter was the coldest (globally) in some years (our yearly average temperature is equal to that measured in the 1950s) perhaps it is time to acknowledge that the environmentalists are wrong about global warming being here to stay.
This is kind of off topic, but regardless of the extent of global warming, what is going on in China and India is disturbing.
I’m no environmental extremist, but go read some articles on the pollution in these two countries or talk to someone who’s visited a major city. The conditions are disgusting, sad, and could lead to major problems down the road if things don’t change. Just today schools in South Korea were shut down by a toxic dust cloud that covered all but two provinces. (http://www.telegraph.co.uk/earth/main.jhtml?xml=/earth/2008/03/04/eachina104.xml)
I am generally a pretty extreme libertarian, but it pains me to see otherwise rational people use the holes in global warming to deny that serious environmental issues exist.
My take on global warming is simple: If you believe this is a problem, the first thing to do is stop global deforestation. China, India, Brazil, SE Asia, and Nigeria are all cutting down trees at ridiculous rates.
And I think that the global warming scare is distracting us from dealing with nastier things we dump into our air/water than CO2. It’s very easy for developing countries to try to tell the US to stop producing so much CO2, but I don’t see why we should do so unless they’ll stop destroying their CO2 sinks.
I’m not sure what the point is here, Keith. So if we use increasingly damaging methods to extract every last drop of oil we can get our hands on, we should have an expensive, polluting fuel source for the next (maybe) hundred years. This is good news? I don’t know…I consider myself an environmentalist, but I don’t hoard gasoline in my basement or anything. This leaves me no less convinced that we need to work on a better alternative.
nuclear, baby. we’re all going nuclear.
I have to say I am happy that there are other sane people in the world, here on the dish at least. I just can’t stand how easily the environmentalist movement took over from communism and extreme socialism after they were proven to be flawed in the eighties. The left always finds ways to force people’s hands; if it isn’t “for the good of the workers” then its “for the good of the environment”. The problem with the whole way of thinking is that it takes away personal responsibility, and the result is a dehumanized, unquestioning populace. I split my time between Finland and Germany and have seen it clearly manifest itself in people’s everyday lives. They like to point fingers about the culture of fear on the left –and Heaven knows, I hate that aspect of right wing politics just as much– but they have their own culture of fear just as much with these environmentalist scares. This is the reason that I am disillusioned by all politics and politicians, no matter what stripe.
I thought Keith would be pleased to see that Yogi Berra compared himself to Vladimir Guerrero blatantly violating the rule against players of different racial/ethnic backgrounds being compared to each other.
Obviously totally off topic.
Of course, Scott, and those ideas will come in time as oil becomes more expensive and other fuels become more viable (through both better science and increased competitiveness due to costlier oil). The idea that we are going to run out of oil and someday be left with millions of cars just abandoned on the road is plainly ridiculous.
The market has to handle this on its own. No matter what any politician tells you, alternative energy is just not going to happen until it is economically viable, and when it is, there won’t need to be any arm-twisting because it will take over relatively quickly, all things considered.
Um…ok pete. And the idea that space aliens are plotting to kidnap the president is also plainly ridiculous, which is why I have never suggested such a thing.
If we invested more tax dollars into it, alternative energy would have a better chance of being economically viable in a shorter period of time. You may think that is a waste of money, which is fine. But it’s just a question of priorities.
If we invested more tax dollars into it, alternative energy would have a better chance of being economically viable in a shorter period of time. You may think that is a waste of money, which is fine. But it’s just a question of priorities.
Investing tax dollars is not a solution – it’s pie in the sky, and the history of government programs indicates that it’s most likely money down a rathole. There’s no guarantee it will work, and like most government programs, it’s tailor-made for corruption. The US government spent over $20 billion on “synfuels” in the late 1970s – that’s over $52B in 2007 dollars – and got absolutely nothing to show for it. Let’s not do anything that stupid again.
OK keith…so I assume you advocate eliminating all government subsidies to oil and auto companies…that would certainly level the playing field. I am definitely open to that idea.
I think that just about every government subsidy to private industry fails a cost/benefit analysis. Not least of which would be subsidies to privately owned sports franchises.
I agree on the sports franchises part of your argument. I disagree with your more general contention. But that is a debate well outside the scope of this thread. My only point here was that as an environmentalist, I was not the least bit surprised by any of the information in this article. It seems like common sense to me. But most of the commenters take it as some sort of stinging rebuke of environmentalism. I don’t get that at all, except as some sort of straw man argument.
Years ago, Danie Yergin wrote a great book titled ” The Prize: The Epic Quest for Oil, Money and Power.”
I work on the finance side of the energy industry, but know relatively little about it, especially compared to engineers and scientists. But check out http://i-r-squared.blogspot.com/, its a great energy blog written by an expert. He debunks many popular energy myths and also introduces potential solutions. His articles on ethanol and the subsidies involved provide clear evidence of the failure of government subsidies in the energy industry. There are also several entries on peak oil, etc
Scott, I didn’t mean to attribute the “millions of abandoned cars” scenario to you, but I can see how it came across that way. The point I was trying to make was that there is plenty of time for the market to work and that it will find a viable alternative before we pull the last drop from the ground.
My take on global warming is simple: If you believe this is a problem, the first thing to do is stop global deforestation. China, India, Brazil, SE Asia, and Nigeria are all cutting down trees at ridiculous rates.
When people look at me–a person who conserves, recycles, and would drive a hybrid if I drove–and then find out that I believe in the drilling of ANWR, I’m anti-carbon tax, and against funding renewable energy source they think I’m crazy.
My answer is simple, too: We’re not the problem. Look at capitalist countries. We don’t pollute nearly as much as communist (or former) nations. Poland’s pollution is much worse. China’s pollution is much worse.
Not to sound overly free-market, y’all, but it (capitalism) is the solution to the world-wide problem.
To the United States issues with pollution, we, as the richest nation, should be able to develop renewable energy; but I’m shocked that many still believe the government should be the ones who fund it. Talk about a boondoogle…
Vested interest and what not, but I think/know there are plently of rational environmentalists and rational capital that recognize that an oil replacement will work because it is a superior alternative, rather than because oil is running out. That being said, sources like tar sands are particularly awful for the environment. Additionally, its worth noting that something like 75-80% of the world’s oil is controlled by state-owned companies like Saudi Aramco, Citgo, Gazprom – companies whose motivations go beyond profit. The market functions on the premise that making profits is the goal, which isn’t “always” the case with these players.
“Investing tax dollars is not a solution – it’s pie in the sky, and the history of government programs indicates that it’s most likely money down a rathole. There’s no guarantee it will work, and like most government programs, it’s tailor-made for corruption. The US government spent over $20 billion on “synfuels” in the late 1970s – that’s over $52B in 2007 dollars – and got absolutely nothing to show for it. Let’s not do anything that stupid again. ”
Fyi, have a look at how much big oil has gotten in subsidies over the last 30 years or so. Heck, even the Katrina bill contained a bunch of sops for oil.
Fyi, have a look at how much big oil has gotten in subsidies over the last 30 years or so. Heck, even the Katrina bill contained a bunch of sops for oil.
To be fair, though, we do have federal and state taxes on gas. The government uses oil companies services and gets paid for them.
Lest anyone forget, Chrysler was bailed out by tax dollars. How did that work out?
I agree with the general view of most subsidies fail the cost/benefit analysis test. Programs like DARPA certainly provide a template for successful government investment but the bulk of government subsidies these days amount to corporate welfare.
That said I have always viewed alternative energy as more a matter of infrastructure investment for a public good rather than pure technological subsidies. The market doesn’t provide roads or schooling but they are certainly vital to our economy. The market would never provide funds for the infrastructure of electric cars or other alternative energy in regards to automobiles since the primary benefits (Cleaner environment, reduced dependence on other countries) are not relevant to private entities. The government would almost certainly have to provide that sort of infrastructure.
I seldom have sympathy for politicians, but corporate bailouts are one of my exceptions.
To run with the Chrysler example:
If you bail out Chrysler, you’re giving hard-earned taxpayer money to a big, bad corporation that should’ve managed its money better.
If you let Chrysler fold, you’re the guy who let thousands of blue collar workers lose their jobs.
Either way, populist cheeseballs like John Edwards will hammer you.
So it’s all well and good to be against corporate welfare (and I am), but you have to understand the stakes.
It’s pretty hard for us as Americans to try to tell India and China not to pollute. They’re just trying to better their quality of life and get the things we take for granted. We’ve put a lot more pollution in the air in our industrial era than they have by a huge factor.
Oil needs to go much, much higher than $100 to incent anyone to do anything better.
Ultimately the solution is a *complete* revamping of our transit system. We need electric cars fueled by nuclear power.
I think the 0-2% is also rather low. China’s population is gigantic, and only a small fraction own vehicles. As that number climbs while their economy gets stronger, the need for oil will go hyperbolic.
We’ve put a lot more pollution in the air in our industrial era than they have by a huge factor.
Statistics?
I tried posting this earlier, but communist (or former) countries have polluted much worse than the United States. Poland and China are examples. Why is this? Capitalism will limit pollution.
So it’s all well and good to be against corporate welfare (and I am), but you have to understand the stakes.
The case for term limits…
http://www.vexen.co.uk/USA/pollution.html#Pollution
China will eventually surpass the US on a yearly basis, but since we’ve been polluting for 100+ years, they still have a lot of catching up to hit our total level of emissions.
Good Day,
It is critical to realize that the premise of peak oil is not that we will ever run out of oil, only that the costs of extraction combined with the required physical effort will become both prohibitively expensive and restrictive. Ultimately ROI (Return on Investment) and EROEI (Energy Returned on Energy Invested) will determine the point when it no longer pays to extract it. Even the leopard knows there is a point when pursuing the gazelle is fruitless.
Discussing the concept of peak oil within the context of a economics is only one part of the equation. Similarly, analyzing this diminishing energy source as a problem is incorrect. Peak oil is not a problem; it is but a symptom.
The real problem is that the carrying capacity of this planet has already been exceeded – too many people vying for too little remaining resources. Right now the discussion is oil; in ten years it will be natural gas, followed within 30-50 years by coal. Water is already on the table. Add to this ever shrinking list several minerals and exotic metals. Food production on the scale the world requires is wholly dependent on oil and natural gas. We are rapidly reaching the limits of feeding us all.
The most difficult reality to comprehend and accept is that no combination of alternative energies can come even close to providing the energy density of oil, nor can any of them be used as the feed-stocks for our plastics, medicines, and over 500,000 other products and chemicals. Without oil, we cease to live the lives of comfort and convenience we have become accustomed to.
And here is the real kicker: every adaptation of a new energy source in combination with every new efficiency only serves to both accelerate and insure that our future is in pearl by growing our population in an exploitive and exponential manner. Every solution feeds the problem.
The only solution is to begin to retract, to go backwards, but as should be evident, this will never happen. James Schlesinger, President Carter’s Energy Secretary, said that people have two modes regarding energy: complacency and panic.
This human reality is our ultimate and, unfortunately, fate-sealing problem.
QED, I don’t see why we would ever listen to someone who worked on energy policy under Carter.
And David, the second half of your post could be straight out of Ehrlich’s The Population Bomb. You’re swinging to the assumption opposite to that made by Scott: Where Scott argues that government investment will lead to alternative energy sources (or, by extension, replacements for petroleum’s role in plastics), you argue that no investment or invention will ever lead to such sources. And unless I’m mistaken, nuclear power is far more economical than other natural resource-based energy sources, although obviously we’re not about to fill our cars with liquid uranium.
I am of the opinion that the global energy market will eventually correct and lead to alernative energy sources. I just don’t want to be around for what could be a painful and prolonged correction period.
Keith,
Actually, I’ve read that nuclear is the most expensive form of energy on a per unit output basis, due to heavy fixed costs and regulatory barriers. It’s actually a heavily subsidized energy source in France (the US hasn’t created a nuclear power plant in a while). That said, I think there is more than enough oil for the world for quite some time. What we could pull from ANWAR could replace out Saudi imports. And these claims of carbon induced global warming seem statistically spurious. It’s clear that economic growth and technological innovation have done more for pollution reduction and clean-up than any alternative energy promises. The real problem is going to be the lack of oil available for consumption.
Keith,
I believe if we put our partisan analysis aside, it would be easier to accept Mr. Schlesinger’s comment as a psychological observation of human tendency, and not a policy statement. That is how I interpreted and intended it. As humans we wait until the problem is upon us, and then, and only then, do we act. It’s no coincidence that over 80 percent of all residential burglar alarms are sold after a burglary. We are a reactive, not proactive animal.
I have not read Mr. Ehrlich’s book, although I have heard of it. That my concerns might echo the author’s could be coincidence or perhaps just the result of my difficult, but essential growing awareness of exponential growth. I guess either you accept the premise as valid or not.
In the arena of alternative energy, my view is that it does not matter whether the investment comes form government or the open market. You still run up against the constraints of ROI and EROEI.
ROI is a accountancy constraint – if there your profit falls below a threshold, you curtail or cease the endeavor. Observe the stock by-backs the oil companies have undertaken in the past year alone (Conoco-Philips $15 billion, Exxon $29 billion). Exxon’s exploration budget?: Just 19 billion. The big oil companies see the writing on the wall and are not making sizable investments, regardless of the price of oil. They haven’t built a new refinery in the US for over 20 years. Extraction is getting too expensive and too difficult with the finds too small.
EROEI is the amount of energy gained, minus the expenditure of energy to acquire, transport, process, maintain, store, and utilize the energy source. As it gets harder to extract, the EROEI drops. Early oil was 100 to 1; today it’s 8 to 1. The EROEI ratio has been deteriorating at the rate of about 3.5% per year since the 1930’s. We are reaching the limits of this constraint.
Nuclear energy comes with many problems. 200,000 tons of uranium ore must be mined for each reactor to extract the annual required 27 tons of enriched uranium. At the current rate, just 63 years of uranium remain. If we ramp up the number of installations this fuel source will drop to just 15-20 years. Uranium is just as finite a mineral as oil. And the amount of oil energy requites to mine and process uranium is staggering.
One other point: people confuse technology with energy. All technology can do is harness manipulate, and store energy – it can’t create it. Hydrogen? It’s just electricity in another form. Shale oil? It’s consuming vast amounts of precious natural gas. Ethanol? That’s putting oil into the ground to get two-thirds energy in return. You can’t get around the laws of thermodynamics.
Keith, and everyone else, thank you for your kind consideration.
Dave
Dave – I find your explanations too facile. For example, you say that oil companies “haven’t built a new refinery in the US for over 20 years” as proof that they don’t see profits in future exploration, but that has a lot more to do with the regulatory difficulty and massive opposition of environmental groups than it does with expectations of lower profits.
I also don’t see your point about technology. Of course technology can’t create energy, but it can reduce the quantity of energy wasted in a process, or the quantity required to execute some task.
And finally, your estimations of global uranium supplies are far lower than most of the estimates I’ve read, which place supplies at 50-100 years assuming moderate expansion of demand but not considering sources that are currently too expensive. Yes, uranium is finite, but it’s more plentiful than you imply. The world’s energy needs can be met by existing supplies through the end of the century, even if we don’t assume technological advances that reduce consumption in developed countries.
The Department of Defense commissioned a study into the feasibility of space based solar arrays and as it becomes more technologically feasible there is some hope the private sector will move into field. The first link I’ve attached is an general overview, the second is the actual study… if anyone’s interested.
http://www.msnbc.msn.com/id/22397928/
http://www.nss.org/settlement/ssp/library/final-sbsp-interim-assessment-release-01.pdf
Keith et al,
As might regard my being too facile, without question that’s true. Any surface-skimming offerings here are generalized and condensed for the sake of blog expediency. If there were a forum where we could delve into the meat of the matter, we would be better served.
I will agree that regulation and NIMBY outcry’s have restrained refinery expansion. But that does not diminish the resistance of big oil for infrastructure development in general. Those stock buy-backs would not exist it this were not the case. Truth is, gasoline can be purchased cheaper abroad than doing the dirty work here in the USA. Over 14 percent of the gasoline we use in this country is imported.
My mention of technology applies to the often simplistic assumptions of the general public as regards energy production. You and I understand this concept, but few actually do. This can be seen in the growing interest in electric vehicles as a salvation from either the high cost of gasoline and/or diminishing availability. But that ‘solution’ is just a trade in fuel types. Natural gas, which accounts for about 50 percent of all electrical generation, is actually declining as well. We are in a tough spot.
You can browse this discussion on our nuclear prospects here: http://europe.theoildrum.com/node/3450 It offers a healthy give-and-take on the subject of remaining uranium.
I will offer you this: had we not so violated out financial system with non-existent money and vapor credit, we might stand some change to make some inroads. But it is too late and we will be lucky if the recession we are in does not become a full-blown depression.
As I began my personal investigation of this issue, the single reality which took me by surprise, and a great deal of time to wrap my head around, is the almost unfathomable density of oil. There is nothing else like it, and no alternative can come remotely close. Review the concept of the Cubic Mile here: http://spectrum.ieee.org/jan07/4820/ncmo01 and here: http://www.theoildrum.com/node/2186 This work was done by the respected IEEE, the world’s largest professional technology association.
To equal the energy output of one year’s worth of oil, one cubic mile, you would need to construct 52 nuclear power plants …each year, for 50 years! That’s 2,600 installations total. The sobering reality is that there is not enough time, uranium, or money to come within a fraction of our energy demands using nuclear, even with other sources in consort.
Once again, thanks for your time.
Dave
Fyi,
its also worth noting that by the gold standard of data (the EIA), world oil production peaked in 2005 – its been declining since then. Matthew Simmons is a pessimist, but some of his thought processes on Saudi Arabian oil seem to be fairly prescient at this point.
Keith – seems my last post disappeared…
Dave
I agree with those who have said subsidies are a bad idea all around, whether it’s for alternative energy sources or for oil.
Before one discusses solutions, everyone has to agree there is a problem. If the US wants to start reducing it’s oil consumption, then it’s quite easy to do. Tax oil consumption. Add a $1 per gallon tax. This will immediately make solar/wind more competitive for electricity. It will immediately make people think longer and harder about what type of car they buy. You’d have to do something to protect these funds from politicians, but hopefully they could be guaranteed to be used for infrastructure improvements. Ideally, this would be a state tax in every state, and the money would be used within each state. I just don’t trust the feds to hand out pork effectively. California tried this in a proposition a few years ago, but it was voted down due to some heavy campaigning by the oil companies.
It’s exactly what was done to curb cigarette smoking, and it worked. With the price of gas in Europe, it’s no wonder when you go there you see nothing but the tiniest cars you’ve ever seen. That’s what sticker shock at the pump will do to you.
http://money.cnn.com/2008/06/06/news/economy/birger_shale.fortune/?postversion=2008060617