Interesting perspective on peak oil

[solar_dave]

http://www.youtube.com/watch?v=F-QA2...1FD147A45EF50D

From a Physics professor @ Colorado State University

[CarZin]

Ugh. 2007? Pretty dated stuff, considered the study of peak oil heavily relies on technical data. Its a hard subject to make grand statements on. The peak oilers were way wrong about natural gas. I suspect the real situation with peak oil will be that we will reach a monetary peak on oil, unrelated to geological peak, as the price to produce oil given the shortage of conventional oil rises substancially to require higher and higher unit pricing. When we reach monetary peak, demand destruction will occur, allowing the gap between available supply and demand to grow.

It is the reason I think $200+ a B oil is nearly impossible, except for the short term. The demand destruction would be so great at sustained high oil levels that it would lead huge gaps between supply and demand, very similar to what happened during the last spike. If the world could support $200 oil, I think we could see even more insanely high production levels. The peakers seem to feel that wouldnt be the case.

Peak oilers have a gloom and doom view of geological peak, which I think would eventually come if the oil market were not controlled by market forces. But since they are, I doubt we'll ever get to see true geological peak. We will see global declines in oil in the next 20-30 years, but I think it will be due to supply being brought down to match consumption, rather than supply being unable to match demand.

[solar_dave]

Yeah it is pretty dated, but his perspective is interesting. Actually I think oil will continue to gradually tick up as cheap oil is probably not in the cards anymore and it is in OPEC's vested interest to keep the price slowly rising.

[DCFusor]

Whatever anyone else thinks, unless you believe with a very few that the earth's core is actually all abiotic oil, we've got a problem here.

The important parameter is EROEI - energy return for energy invested, and it's been going nowhere but down for a long time. An obvious endpoint is when it takes a barrel's worth to get another one - no net production. As you go down this rather nasty slope, you actually use more and more existing oil to get the next - so it might take half a barrel to get a barrel - so a barrel burned is really 1.5, and your total demand is actually going UP with only the same number getting to the end user.

Peak oil as a concept was invented to describe what happens to any one field. It's since been generalized to add the curves for all fields and presumably there will be a peak there - though due to averaging older and newer, it's a much broader peak. But it's there, and there can be no rational doubt about it if you just go fact finding. Oil is finite - there's an amount, and it takes a few hundred million years to make more. The tar sands would have been great oilfields if we'd been willing to wait a few million (maybe 100) more years to harvest them. If we're rolling in it, why are we using this very difficult, expensive and very polluting source now?

Yet, though there is a finite total amount of oil - we are using it at a rate. Obviously, any finite rate, high or low, will eventually run us completely out of any finite amount. Yes, there's demand destruction when the price gets high, but there are some real limits to that after all the joy-riding kinds of uses have ended. You still need tractors to make food, and trucks to get it to you. No matter how high the price, there's only so much demand destruction available without a complete system reset (as in, people killing one another in the streets, reset).

So, demand destruction is not a real enlightened thing to depend on, eh? Oil has already broken elasticity curves, in that when the price goes up - producers *cannot* produce any more - I've posted charts of Saudi production here (and can again) - and it tops out no matter the price - and these are the guys promising to do much more production if the world needs it. Sorry, the numbers show they haven't, and they cannot - the biggest oil field on the planet is at or past peak NOW. It will only seep through the sandstone so fast, that's it, and just to stay in the same place, they're having to run faster and use more expensive tech to keep it flowing at all.

But the simple issue, at dummies level - you have a fixed amount of something. You use it at a rate. No fixed amount can support a non-zero rate forever. People often get this wrong - some windfall, they quit their job, or get an inheritance and think they've got it made. Not too far down the road they realize, you spend the money, it's gone, no more is coming in - that's how it is with anything finite over time that you have a rate demand against.

The simple fact we're having to drill in deep water or mine tar sands says it all, really. We're at the end of this road, or close enough to get seriously working on something else - to this conservative, anyway. It's not conservative to think we'll always find more. While we are finding some, it's less and less, harder to get to, and what about after that? It's not like we haven't put this entire planet under survey with a good microscope already...

Saudi's from '80 to present. They recently hit the 10 line, but that's it. As you can see, in over 30 years, not much more rate has become available, despite more or less unlimited investment in more infrastructure.

[AySz88]

Ugh. 2007? Pretty dated stuff, considered the study of peak oil heavily relies on technical data. Its a hard subject to make grand statements on. The peak oilers were way wrong about natural gas. I suspect the real situation with peak oil will be that we will reach a monetary peak on oil, unrelated to geological peak, as the price to produce oil given the shortage of conventional oil rises substancially to require higher and higher unit pricing. When we reach monetary peak, demand destruction will occur, allowing the gap between available supply and demand to grow.

It is the reason I think $200+ a B oil is nearly impossible, except for the short term. The demand destruction would be so great at sustained high oil levels that it would lead huge gaps between supply and demand, very similar to what happened during the last spike. If the world could support $200 oil, I think we could see even more insanely high production levels. The peakers seem to feel that wouldnt be the case.

Peak oilers have a gloom and doom view of geological peak, which I think would eventually come if the oil market were not controlled by market forces. But since they are, I doubt we'll ever get to see true geological peak. We will see global declines in oil in the next 20-30 years, but I think it will be due to supply being brought down to match consumption, rather than supply being unable to match demand.

Based on the bits of the alt-reality game World Without Oil that I remember, I think peak oil amateurs are just thinking of short-term shocks; in particular, the severity of those shocks as the sensitivity of oil supply to price starts to fall in the short term in a peak oil situation.

Basically, the presumption in the World Without Oil game (if I remember correctly) was that both oil supply and oil demand are highly insensitive to price (short-term), but oil supply is even more inelastic than oil demand, thus oil demand would be the thing to "give out" in a world with very high prices. (I'd note that they did actually relax prices as demand destruction occurred, so your model of the short term and the peak oilers' model actually match.)

They basically threw out the medium-to-long-term subtlety, and didn't make much of a distinction between "monetary" and "geologic" peak. It was just a vague supply shock due to low oil supply elasticity.

My reading of what has happened in reality is that when the '07-08 price spike occurred, oil demand also got clobbered by external factors (unfortunately), and oil supply has proved to be elastic enough to meet oil demand in the medium-term, thanks to the extra time.

So really, there hasn't been the ingredients for a World-Without-Oil style peak oil situation. What that would require is a brief confluence of economic growth and temporarily low oil prices (locking in demand in the form of oil-hungry investments, like cars and factories). Then there'd need to be a big oil supply shock (like a war, or bunch of OPEC countries revealing that their proven reserves numbers were a lie, or something along those lines).

Hopefully the inelastic demand part of the equation is starting to disappear, since now we have maturing technology ready to step into any sort of World-Without-Oil-like situation.

[CarZin]

With respect, I know this is a contentious subject.

The important parameter is EROEI - energy return for energy invested, and it's been going nowhere but down for a long time. An obvious endpoint is when it takes a barrel's worth to get another one - no net production

I actually think EROEI is not a good metric. Consuming 1 unit of energy of a cheap fuel source to get one unit of expensive fuel source is perfectly legitimized in today's transportation society, where everything is dependent on oil. It may seem silly, but thats they way it is. I dont think it holds much value. Peter Jackson at CERA seemed to laugh at Peak Oiler's use of this metric a few years ago when I asked him about it.

Yes, there's demand destruction when the price gets high, but there are some real limits to that after all the joy-riding kinds of uses have ended. You still need tractors to make food, and trucks to get it to you. No matter how high the price, there's only so much demand destruction available without a complete system reset

I think the world will have moved beyond oil well before we reach the point where we have no alternatives, and farmers can't get the gas they need to power their equipment. It is this fear mongering that has made the late Matthew Simmons look like a fool, and actually makes the situation worse. I sat 10 feet away from him a few years ago in Washington D.C., and the man's presentation was the biggest most laughable calamity of worst case scenarios I had ever seen. At the end of his 'presentation,' in a tirade, stated that we would effectively be eating each other in a few years. Well, its been a few years, and I'm not eating anyone. His biggest folley, which was to me was the industry's way of saying "Screw You" was absolutely killing his peak natural gas predictions, that by his estimates that we were about to 'fall off a cliff' (estimates that were also shared by the peakers).


Despite the peaker's claims, techology continues to increase the amount of recoverable reserves we have, and is opening up new fruitfull places to recover oil. Enough so that I, and it seems most recognized energy firms and government associations, dont see the type of dramatic decline that peakers have been prognosticating for years. We are seeing growth in markets that we never thought would produce in the scale they are producing.

I suspect we'll get to that undulating plateau sooner than forcast, but it will be because the world has moved away from using so much oil, not because the geological constraints make it so. And the world will have moved away from oil, because as has been stated, even though there is plenty more oil to be found, it won't come cheaply.

They basically threw out the medium-to-long-term subtlety, and didn't make much of a distinction between "monetary" and "geologic" peak. It was just a vague supply shock due to low oil supply elasticity.

That isnt my recollections, but I may be incorrect. It was my recollection that they believe in a fairly steep decline in production, due to lack of finding new giant fields to replace declines from existing giants, and that as a result, society would collapse. "Gail The Actuary" is one of those idiots on the oildrum.com. I remember her posting maybe 3 or 4 years ago telling people that they need to go ahead and fly to see relatives, because air travel was about to become a thing of the past. The one thing you have to give peakers is that they never give up, and never seem to remember their past inaccuracies. When it comes to the oildrum.com, when your chart doesnt work, re-run, and republish to push peak a little further out. That way you're never wrong!

This is essentially the cycle as I see it. Feel free to remember this for historical accuracy. I published this before the last spike on some other board, and damned if I didnt look good:

In normal times:
People forget about high gas prices. Oil prices are reasonable. Investments in new oil recovery is moderate..

In bubble times:
Total Available Supply starts to meet demand. Oil prices rise. As it gets very tight, and increasing demand cant be met by increasing supply, a spike happens. Oil prices go through the roof. As a result of high prices, investments in new oil recovery is increased.

Recession times:
Due to high energy prices, the economy goes into recession. Available supply now far exceeds total demand. Prices of oil fall rapidly. Investment in new oil recovery is at a low.

Then you cycle back to normal times. Rinse and repeat. Every time with more demand destruction per capita, but the resulting bottom and resulting peak being higher than the previous. The end result are the developed economies being less dependent on oil after each cycle [per capita]. Ultimately, we transition from a high price and volatile energy source to a different one. When that happens will depend on politicians and society as a whole.

[DCFusor]

Well, by lumping everyone into some straw man group "peakers" and then defeating the straw man - which was never real, isn't that the same as saying that because I'm a conservative, I like Rush and am a Republican, and since they are stupid, so am I?

You'd be wrong about that, you know. No hard feelings. There are always plenty of people who think the end is near, and even more who say, keep running this way, that's not a cliff we're about to stampede off - hey, it worked for the buffalo.

The thing to do is forget what supposed "groups" "think" (mobs don't think real well) and just go get the facts and figure it out yourself. When there's tons of money involved, as in this case, that's hard to do (lots of misinformation, deliberate and accidental out there) - but even more worth doing.

No, they are not burning "cheap" energy to get expensive energy. Gheesh, work it out.

[AySz88]

CarZin,
I think we may be following different peak oil circles; I've pretty much never heard of Oil Drum other than occasionally from this forum. My primary exposure is from World Without Oil, which seems to be a pretty legit simulation of a peak-oil-related supply shock (at least, realistic circa 2007).

I'm not surprised at their panic, though - I think the intuition is right, but my hypothesis is that they've conflated two correlated variables (time and price).

The "time story" goes: Supply per year is shaped like a bell curve. Proven reserves are a finite, fixed number. The longer peak oil is delayed, the more oil is eaten up prior to peak oil, and the steeper the drop after peak oil will have to be. Price as a feedback variable is almost forgotten - oil is either cheap when supply can keep up, or not cheap when supply can't.

My* "price story" goes: Supply per dollar is shaped like a bell curve. The higher prices go in the name of keeping production up, the worse the supply elasticity. And if you've given up on a demand-side-managed soft "landing", the more demand destruction (to use your term) will end up happening in the form of price shocks.

I think the price story is a lot more compelling, but the graphs you see are all production per time (because that's what the data is).

* (I don't know if there's a name for this or if I should give credit somewhere; it's just a hypothesis from my observations in World Without Oil, but I don't pretend that it's likely that nobody else has thought of it already!)

[edit] Heh! Just stumbled across this comment browsing through The Oil Drum - looks like they're starting to have similar thoughts.

[CarZin]

The thing to do is forget what supposed "groups" "think" (mobs don't think real well) and just go get the facts and figure it out yourself. When there's tons of money involved, as in this case, that's hard to do (lots of misinformation, deliberate and accidental out there) - but even more worth doing.

Which is what I do, which is why I have dismissed the 'general' thoughts of the vast majority of peakers out there. Since you seemed to suggest that we would reach a point where farmers couldnt put gas in their tractors, a situation I find entirely unlikely, I likened you to a more extreme peak oil believer. Given my interest in energy, given the connections I have made to people in the energy, to research institutions, and stake holders, I have done more than 99.9999% of the population has done to be educated on energy policy.

No, they are not burning "cheap" energy to get expensive energy. Gheesh, work it out.

Certainly 'cheaper' energy. There is a reason we abandoned oil for power production in the 70s and early 80s.

I respect you a lot, Fuser. So I am not trying to make enemies of you. I just got really turned off with the peaker's in general in 2006-2009, and it is REALLY hard for me to relax about the subject.

[AySz88]

I wouldn't give energy prices that much credit. To extend the metaphor, I think they were not so much the catalyst as maybe a spark or ember, and perhaps just one of several. I think the components of the housing bubble are enough to account for the fuel, and the oxidizer, and the catalyst.