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IEA says world's oilfields declining faster than expected

Tuesday, October 28, 2008, 9:13 PM

I know that the whole issue of Peak Oil seems to be on the back burner, given the financial crisis. Many think that oil demand will be knocked far enough back that even if Peak Oil were happening right now we'd have several years respite before it becomes a significant problem due to demand destruction.

So I've been patiently waiting for any estimates that would allow us to compare world oil production declines to demand destruction to see where we are in the oil sweepstakes race.

On the demand side, I've seen estimates that world oil demand will fall off as much as 4%-5% this next year.

Now for the supply side.

Today the Financial Times got their hands on a draft of this year's IEA annual report, the World Energy Outlook.  I certainly hope there's a misprint in the early version, because this authoritative field-by-field assessment of the rate of decline from existing fields is stunning.

They are projecting a 9.1% rate of production decline (collapse?) for all existing fields.

World will struggle to meet oil demand
Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term de­mand. The effort will become even more acute as prices fall and investment decisions are delayed.

This rate of decline is anywhere from two to three times larger than most other assumed rates of oil field declines.  It is also much higher than any estimates of demand shrinkage I've yet seen.

A complicating factor here is that a lot of the new oil finds that we were counting on to cover this gap are hideously expensive.  Think of the Jack II find in the Gulf of Mexico, recently trumpeted as a major find, but which had to break four drilling records to get to.  It was still being evaluated for its economic viability back when oil was over $120/barrel.

Or the find in Brazil, which had to break six drilling records to be reached. Also a very expensive proposition to consider.  The trend in oil production costs has been sharply up over the past few years, both because of rampant inflation for labor and materials, and because the finds themselves are deeper, more remote, and smaller.

Any slowdown in the investment for new field exploration and development will almost certainly translate into massive shortages, once the credit crisis is over and countries attempt to return to their respective paths of growth.

This is worth keeping on our radar screens as time goes on....

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77 Comments

Damnthematrix's picture
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Re: IEA says world’s oilfields declining faster than expected

We have been discussing this on my Running on Empty list http://groups.yahoo.com/group/roeoz for some time, in fact this IEA report had JUST landed in the list when I switched to Chris' blog.

The price of oil collapsing is very bad news for supplies.  Matt Simmons, a merchant banker who finances the oil industry, says that most of the world's rigs are mere rusting hulks by now, needing immediate replacement.  With no money available, many might be shut down, and very soon.  I think shortages and queues at the pumps as early as next year are highly probable.

Mike. 

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Re: IEA says world’s oilfields declining faster than expected

Peak oil

Now to the supply of oil, which affects us all just as much as the economic meltdown. A report from a British Industry Taskforce is due to be released tonight, which predicts a premature peak in oil production will arrive much earlier than expected. But if this task force is correct, peak oil not only poses further risk to the global economy but will have enormous repercussions on food production, energy supply, transportation -- in fact most aspects of modern life.


Guests

Dr Jeremy Leggett
Founder and Executive Chairman SolarCentury and SolarAid and editor of the report 'The Oil Crunch', from the UK's Industrial Taskforce on Peak Oil and Energy Security.


There has just been a World Today interview of Leggett and someone from CSIRO

http://www.abc.net.au/worldtoday/

not on web yet.

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Re: IEA says world’s oilfields declining faster than expected

This is worth keeping on our radar screens as time goes on....

...classic understatement.
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Re: IEA says world’s oilfields declining faster than expected

 
   Does this mean the hedge funds are going to pour all their money back into oil and energy? I've got 3 kids and am wondering how stable my job is and other critical issues to my existence. I've got a co-worker who is obsessed with the "coming bird flu pandemic" but that just seems to pale in comparison to these other issues discussed here like the credit crisis and peak oil. If you don't have a job and you can't afford food, then even a world war seems like a minor distraction. 
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Re: IEA says world’s oilfields declining faster than expected

Since when has oil been produced? Not how I understand production. Correct me if I am wrong.

Don

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Re: IEA says world’s oilfields declining faster than expected

"Raw or unprocessed crude oil is not useful in the form it comes in out of the ground. Although "light, sweet" (low viscosity, low sulfur) oil has been used directly as a burner fuel for steam vessel propulsion, the lighter elements form explosive vapors in the fuel tanks and so it is quite dangerous, especially so in warships. For this and many other uses, the oil needs to be separated into parts and refined before use infuels and lubricants, and before some of the byproducts could be used in petrochemical processes to form materials such as plasticsdetergentssolventselastomers, and fibers such as nylon and polyesters."

----thus the phrase "oil production."  There is a production process involved to make the natural resource of oil useful to us humans.

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Re: IEA says world’s oilfields declining faster than expected

Great work once again Chris,

 I am glad to see this on the radar again. One typo correction; in the last scentence of the first paragraph you used the word because, when I think you meant to use becomes. 

 I listened to the links provided on the oil issue and they are very informative. I appreciate this venue for information sharing. 

Great work on chapter 20. Thank you for making it available on DVD.

John

P.S. I spent some time working on Pandemic Planning with the State of California for the "inevitable" bird flu and I agree with xraymike79's comment that we are facing more serious REAL threats. There is a problem with the H5N1 virus but we are not (yet) living in a world where we live with livestock for our food source so just wash your hands and cover your cough and that should not become a serious threat for some time.

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Re: IEA says world’s oilfields declining faster than expected
This is from ASPO-USA's Peak Oil Review (27 Oct 2008)

1. A spreading crisis
Oil prices moved above $75 a barrel early last week as the markets anticipated a cut in OPEC
production. By Wednesday, however, fears of a deepening recession, falling equities markets, a
rising dollar, and increasing US stockpiles overcame concerns over the production cut to send
the markets lower, closing out the week at $64.15. Early today oil fell to below $62 a barrel.
There were new reports of falling oil production last week. Lloyds reported that OPEC exports
fell by 900,000 b/d during September. The IEA reports that total liquids production in September
decreased by 1.09 million b/d to 85.5 million b/d.  Part of this drop was due to the hurricane
disruptions in the Gulf of Mexico. So far in 2008, world production has been averaging 86.9
million b/d as compared to 85.4 in 2007.

The EIA released figures for crude oil production in July showing an increase of 840,000 b/d to
75.1 million b/d over June’s production. Considering world economic developments in the last
three months, the July record for crude production could well turn out to be the all-time peak.
Roughly a third of US Gulf of Mexico oil production is still shut-in by hurricane damage; however
this shortfall is being made up by lower demand and increased imports of crude and gasoline.

The widely reported drop in US demand for oil products may have bottomed out due to falling
gasoline prices. The average US price for gasoline is now $2.67 which is down over a dollar a
gallon in the last month and nearly 20 cents below the cost of gasoline one year ago. The EIA
reports that US oil consumption over the last four weeks is down 8.5 percent compared to last
year but that gasoline consumption is only down 4.3 percent. The previous week’s figures were
an 8.9 percent drop in overall oil consumption and 5.2 percent lower gasoline consumption.
 
2. OPEC
Despite the predictions that the Oct. 23 meeting would be contentious, OPEC decided in 90
minutes to cut its oil production by 1.5 million b/d and allocated the cuts among its members.
The final cut was a compromise between the conservative Gulf producers who were arguing for
a cut less than 750,000 b/d and the price hawks who wanted a cut of 2 or more million b/d.

Among the more interesting features of the run-up to the meeting were appeals to non-OPEC
producers Russia, Norway, and Mexico to share the burden by cutting production along with
OPEC. These appeals fell on deaf ears, but Russia, for obvious reasons, seems interested in
helping prop up world prices.  OPEC’s Secretary General met with Russia’s President for the
first time and Moscow and is talking about setting up an oil reserve so Moscow could become
the swing producer and control prices

The markets were not impressed by OPEC’s production cut and prices fell more that $4 a barrel
to $64 after it was announced. OPEC members are already talking of additional emergency
meetings and further production cuts if prices continue to fall. Whether the increasingly
desperate members will adhere to these group decisions has yet to be seen. The average price
received for OPEC oil is usually around $10 less than the benchmark New York price . If prices
fall much more, the revenues received by most OPEC members, and other major oil exporters
as well, will be below that needed to support government budgets and social programs. 

For the immediate future, oil prices, production and OPEC’s fate will hinge on the state of
financial markets and the availability of loans. Although governments have dedicated trillions of
dollars to support liquidity in the financial markets in recent weeks, it is not yet clear whether this
support is as yet having the desired effect. 
 
3. Investment in new production
Hardly a day goes by without a report that investment in new oil production projects is being
delayed, postponed or cancelled
. A combination of falling oil prices, declining demand, the
unavailability of loans, and fears of a global economic meltdown are more than enough to stop
many projects.

Most at risk are those projects with high capital costs per barrel of production such as upgraders
for the Alberta oil-sands and deep-water oil fields. Last week two major oil-sand producers
announced or hinted at postponements of multi-billion dollar projects. Even Brazil, which had
been talking about starting projects from new deep-water discoveries in the next one to four
years, is now talking delays of a decade or more. 

In the US, plans for an $800 million coal-to-liquids plant have been delayed by capital shortages
as has a carbon capture project. In addition to the major projects, hundreds of small producers
have been forced to the sidelines for lack of financing.

Even the ultra-conservative Saudis seem to be running into financial troubles as oil prices
plummet. Last week King Abdullah was reassuring his people by saying, “Citizens should be
sure that the country is moving calmly and all the coming days will be happiness and
prosperity."

The slowdown in new oil production projects will obviously have a profound effect on rates of oil
production in coming years. The world is still producing about 85 million b/d which will drop by 3-
4 million b/d each year unless an equivalent amount of new production offsets the decline.
It will be several years before cancelled or delayed projects fully impact  the world’s capacity to
produce oil.  Unless demand for oil is devastated by severe and lengthy economic setbacks,
these delays are almost certain to have a major impact on the availability and price of oil with
the next five years.
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Re: IEA says world’s oilfields declining faster than expected

Thanks for correcting me xraymike79. I have always thought of oil as extracted and the term "crude" also seems not quite as I thought. I had been led to believe that some economists thinking has it that a substance produced and in limited supply can  somehow be more produced in response to demand. Extraction fits less into that thinking.

Don

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Re: IEA says world's oilfields declining faster than expected
and it will likely be 6+% PER YEAR!!!!
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Re: IEA says world's oilfields declining faster than expected

It is also interesting to note the IEA expects consumption to grow between now and 2030 by some 20 million barrels / day: 

It expects oil consumption in 2030 to reach 106.4m barrels a day, down from last year's forecast of 116.3m b/d.

One has to wonder whether this is just a linear extrapolation, or if it has been reconciled against available supply.  I guess we do have to "stay tuned."

 

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Re: IEA says world's oilfields declining faster than expected

This more or less answers my question -

http://www.ft.com/cms/s/0/360cefa6-a52a-11dd-b4f5-000077b07658.html

 

Worldwide, conventional crude oil production alone barely increases, from 70.4m b/d in 2007 to 75.2m b/d in 2030, as almost all the additional capacity from new oilfields is offset by declines in output at existing fields, says the report.

Non-conventional oil, such as that produced from Canada’s oil sands or Venezuela’s extra heavy oil, is expected to play “an important role in counterbalancing the decline in production from existing fields”.

The global supply of non-conventional oil is projected to increase from 1.7m b/d in 2007 to 8.8m b/d in 2030. Canadian oil sands projects make by far the largest contribution, totalling 4m b/d.

But it is unclear how much of that increase in expensive non-conventional oil, particularly in Canada, will become reality, as the draft report was written before the worst of the financial crisis.

“There is considerable uncertainty about future cost, the level of oil prices to make a new investment attractive, changes in regulatory and fiscal regimes and the depletion policies of resource-rich countries to support new investments,” it says.

 

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Re: IEA says world's oilfields declining faster than expected

And this bears keeping in mind:

 

IEA Statement on Unauthorised Press Coverage of World Energy Outlook 2008

The Financial Times carried a cover page article this morning and a second article on page 4 allegedly reporting on the findings of the forthcoming WEO 2008. This article was drafted without any consultation with the IEA. It appears to be based on an early version of a draft from several months ago that was subsequently revised and updated. The numbers in the article can be misleading and should not be quoted or considered to be official IEA results. We are dismayed that such a comprehensive and important IEA report was made public without our input and verification.

The IEA will present the final and accurate results of the World Energy Outlook 2008 officially as planned at a press conference in London on 12 November. At that time, we will be happy to discuss the results and their implications for the global energy and climate in full detail.

 

http://www.iea.org/journalists/arch_pop.asp?MED_ARCH_ID=477

 

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Re: IEA says world's oilfields declining faster than expected
[quote=korysorrell]

And this bears keeping in mind:

 

IEA Statement on Unauthorised Press Coverage of World Energy Outlook 2008

The Financial Times carried a cover page article this morning and asecond article on page 4 allegedly reporting on the findings of theforthcoming WEO 2008. This article was drafted without any consultationwith the IEA. It appears to be based on an early version of a draftfrom several months ago that was subsequently revised and updated. Thenumbers in the article can be misleading and should not be quoted orconsidered to be official IEA results. We are dismayed that such acomprehensive and important IEA report was made public without ourinput and verification.

The IEA will present the final and accurate results of the World EnergyOutlook 2008 officially as planned at a press conference in London on12 November. At that time, we will be happy to discuss the results andtheir implications for the global energy and climate in full detail.

 

http://www.iea.org/journalists/arch_pop.asp?MED_ARCH_ID=477

 

[/quote]

 

I can't help wondering if that isn't just damage control. 

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Re: IEA says world's oilfields declining faster than expected

Sure sounds like it to me. What are they going to say, that the 9.1 figure was supposed to be followed by the word increase and not decline?

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Re: IEA says world's oilfields declining faster than expected

Non-conventional oil, such as that produced from Canada’s oil sands or Venezuela’s extra heavy oil, is expected to play “an important role in counterbalancing the decline in production from existing fields”.

There is ONE thing and ONLY one thing that must be remembered here.....  NETT ENERGY.

If you go back to Chris' PO chapters, he uses an inverted hockey stick graph, red below/green above.  Remember it?  IT is the most important concept you need to remember about PO.

We are on the knee of the curve as I write.  All that crap about tar sands and Venezuelan heavy oil is just that, crap, because yes there is a lot of oil there, but not much NETT ENERGY.  So they can dig it all up to their hearts content, but in the end, no matter how much they do dig it up, it will not stop queues at the bowsers, EVEN if the numbers do go up (which I seriously doubt anyway).

Mike. 

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Re: IEA says world’s oilfields declining faster than expected
IMHO I think the bird flu thing is another piece of collosal sensationalised BS to keep people distracted, fearful, xenophobic and buying flu shots. There is something that truly trips my BS radar there. I'm not saying it doesn't exist but the menace they say it represents isn't there.
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Re: IEA says world's oilfields declining faster than expected
[quote=cmartenson]

They are projecting a 9.1% rate of production decline (collapse?) for all existing fields.

[/quote]

Hang on a minute here... While this seems like certain cause for closer inspection, it seems to me that the anticipated rate of increase or (decline) in production sourced exclusively from existing fields is of dubious relevance.

Perhaps it's just because I'm a Peak Oil neophyte, but it seems to me like what matters is the net worldwide production estimates that integrate both existing fields and those coming online during the projection period. In other words, if existing field production is going down by 9% but new fields coming online are expected to make up double the difference, then the decline of existing fields is no big deal. If the -9.1% is only reduced to -8.9% by new fields, then this is a huge big deal.

Maybe I'm missing something, but it seems to me that projected net worldwide production is the critically important number. It necessarily comprises both new and existing fields, and I would argue that the proportion of each component is of relatively little relevance.

Am I missing something? I don't know much about Peak Oil (beyond the CC chapters), so I may be missing something obvious.

 

Erik

 

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Re: IEA says world's oilfields declining faster than expected
[quote]

Am I missing something? I don't know much about Peak Oil (beyond the CC chapters), so I may be missing something obvious.

[/quote]

What you are missing, is likely the same thing the IEA is complaining about: 

[quote]

IEA Statement on Unauthorised Press Coverage of World Energy Outlook 2008

The Financial Times carried a cover page article this morning and a second article on page 4 allegedly reporting on the findings of the forthcoming WEO 2008. This article was drafted without any consultation with the IEA. It appears to be based on an early version of a draft from several months ago that was subsequently revised and updated. The numbers in the article can be misleading and should not be quoted or considered to be official IEA results. We are dismayed that such a comprehensive and important IEA report was made public without our input and verification.

The IEA will present the final and accurate results of the World Energy Outlook 2008 officially as planned at a press conference in London on 12 November. At that time, we will be happy to discuss the results and their implications for the global energy and climate in full detail.

 

http://www.iea.org/journalists/arch_pop....

[/quote]

(stolen again from: korysorrell)

 

It is almost certain that the 9% is a very misleading number which was intended as a per anum rate drop for a few months only.   This makes perfect sense, as this huge rate drop is easily explainable by many of the expensive oil producers -- most of whom are also deep in debt -- going belly up. 

It is still cause for major concern, and the prime reason I mentioned a possible oil price crash late September/early October when supplies of gasoline and oil took an about face and started surging.

My guess is that now, we may have dirt cheap oil through the winter, followed by a price explotion when falling production finally catches up with falling demand.   But, that is only a guess.

--

Steve 

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Re: IEA says world's oilfields declining faster than expected

Perhaps it's just because I'm a Peak Oil neophyte, but it seems to me like what matters is the net worldwide production estimates that integrate both existing fields and those coming online during the projection period.

Erik,

THAT is precisely what Peak Oil is all about.  We are now consuming 5 times as much oil as we are finding.  ALL the oil fields currently online are old, some more than sixty years old in fact.  Some of them, like Ghawar (the biggest of all super giants) have been exploited using hi-tech methods like horizontal drilling, for maybe two decades.  This makes the plateau at the top of the Hubbert curve wider, but it doesn't INCREASE how much oil is in the reservoir.  So the backside of the curve will be steeper than the front.  This is why Cantarell is depleting at 16%!  The area under the curve is what dictates HOW much oil there is, the angle of the curve shows us how fast the growth or depletion is occuring.  The plateau is flat, so there is no growth or depletion occuring there...  but the backsidecould turn out to be a cliff!

Now that we have the financial meltdown, money to finance new projects is basically unavailable.  Matt Simmons has been saying for years now that the majority of oil rigs are rusting away and all need replacing.  With oil prices collapsing, there are no incentives to replace anything, and worse, all that new stuff found in the GoM and off Brazil are in record depths requiring new and expensive technology.  Such projects are simply not profitable at under $120 a barrel.  All the talk about Arctic oil (IF it's actually there!) doesn't mention that it will be nigh impossible to operate there for maybe six months of the year...  in other words, the cost of that oil needs to double to pay fo the idle time of hundreds of billions of dollars worth of gear.

At some stage, it also takes more energy to pump the stuff out than you can extract from it.  I expect fully one third of all the oil that is left to never come out of the ground.

Maybe you should revisit chapter 17...

Mike. 

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Re: IEA says world's oilfields declining faster than expected
[quote=ErikTownsend][quote=cmartenson]

They are projecting a 9.1% rate of production decline (collapse?) for all existing fields.

[/quote]

Hang on a minute here... While this seems like certain cause for closer inspection, it seems to me that the anticipated rate of increase or (decline) in production sourced exclusively from existing fields is of dubious relevance.

Perhaps it's just because I'm a Peak Oil neophyte, but it seems to me like what matters is the net worldwide production estimates that integrate both existing fields and those coming online during the projection period. In other words, if existing field production is going down by 9% but new fields coming online are expected to make up double the difference, then the decline of existing fields is no big deal. If the -9.1% is only reduced to -8.9% by new fields, then this is a huge big deal.

Maybe I'm missing something, but it seems to me that projected net worldwide production is the critically important number. It necessarily comprises both new and existing fields, and I would argue that the proportion of each component is of relatively little relevance.

Am I missing something? I don't know much about Peak Oil (beyond the CC chapters), so I may be missing something obvious.

Erik

[/quote]

You are correct, Erik.  It is net production that matters.  But from what I understand after reading two or three articles about the IEA report, they did take new production into consideration in their estimates.  In other words, the decline of existing fields is actually more than 9%.

Jeremy Legget explains peak oil very well in an article published in the Guardian today:

[quote]The prevailing oil industry view, echoed by the government, is that there are well over a trillion barrels of proved reserves, and several trillions more in tar sands. In a world burning just over 30bn barrels a year, that means decades of supply before we need worry. But peak oil happens when flow-rate capacity coming onstream from oil discoveries fails to exceed declining flow-rate capacity from depletion of existing reserves. Peak oil is as much a problem of flow rates as it is of reserves. In our report, the consulting editor of Petroleum Review – a flagship oil-industry journal – shows how the flow rates from reported discoveries will drop below depletion rates no later than 2013, and possibly a good deal earlier.[/quote]

http://www.guardian.co.uk/commentisfree/2008/oct/29/fossilfuels-energy

My opinion after researching this extensively over the past three years is that we are very close to peak as defined above, if we haven't already reached it.  The demand destruction occurring as a result of deflation may be sufficient to delay peak for a while, or it may not.  If the decline in supply is greater than the decrease in demand, we'll still have a net shortage.  If the decrease in demand exceeds the decline in supply, then peak may be delayed for a short time.

But in the end it doesn't matter much.  We're splitting hairs over a difference of a few years, tops.  The Hirsch Report said that we would need a minimum of ten years (and preferably two decades) of "WWII-level" mitigation efforts before the arrival of peak oil to avoid worldwide energy shortages.  If we reach peak oil with no significant mitigation efforts (which seems very likely at this point), we will have a minimum of two decades of energy shortages with "severe" social, economic and political consequences.

Debating the exact date of peak at this point in time seems somewhat analogous to standing outside of a burning building arguing about when the fire started.  We should be sounding the alarm and running for fire hoses and doing everything we can to put out the fire.  

Whether peak has already happened or will happen in five years, we're already way behind schedule when it comes to mitigation.  What will it take to motivate governments and businesses to act?  I fear that the house will be burnt down to the ground before they decide the time has come to respond. 

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A 9.1% decline is important because...

...the highest prior published decline rates for existing fields are 1/2 to 1/3rd that rate.

So if past estiamtes were predicated on a 3% to 4% rate of decline then a lot of models are badly off if it turns out the real number is closer to 9%.

So let's play a numbers game.

Assuming that the 74.5 mbd of conventional crude production is declining at 9%, then this means that 6.70 mbd will need to be brought online over the next year just to keep output even.  Forget about growth, the 6.7 mbd is like needing a new #4 producer each year.

Source

I'm not saying that can't be done, it's just that with the oil majors struggling to simply replace their own reserves I 'd need to see the data on exactly which oil field prospects are being proposed to fill that rather magnificent void.

And certainly the drop-off in oil field investment as a consequence of falling oil prices and tough credit conditions will not help bring the most new oil out of the ground over the next few years. 

 

 

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Re: IEA says world's oilfields declining faster than expected

[quote]...the highest prior published decline rates for existing fields are 1/2 to 1/3rd that rate.[/quote]

Which is backed by the observed and unquestionably well documented decline trends in the overall oil production for many post production peak nations. As such, any claim of 9%/year as more than brief one shot drop, likely resulting from the economic destruction of new and expensive oil sources, should set off bullshit meters.

I'd certainly wait until the IEA's actual report clears things up before going too far with this. It is though, something to keep an eye on.

[quote]And certainly the drop-off in oil field investment as a consequence of falling oil prices and tough credit conditions will not help bring the most new oil out of the ground over the next few years. [/quote]

More importantly, it'll make already cash strapped investors extremely reluctant to invest in any non-traditional or other high expense oil resources. Doubly so if many of those existing investments get utterly obliterated. This, even in a pre-peak situation, will severely crimp production increases for years if not decades.  Further, fear of getting wiped out will create future hesitation even in the face of extremely high oil costs, slowing normal market supply/demand reactions.

Now add that to already tight supplies...

--

Steve

 

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Re: IEA says world's oilfields declining faster than expected
I agree, Steve. We really have to wait to get the real report before going off on this leak too much. Who knows, perhaps that November 12th press conference will become a day that will live in infamy. The day that spotlights were suddenly pointing at the the three-foot high, day-glow writing on the wall.
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Re: IEA says world's oilfields declining faster than expected

I do agree with the idea of waiting for the official IEA report in November; what I'd like to know, though is just how accurate this reports usually are? are the IEA reports honest or are they (can they?) be easily manipulated to say whatever the government needs them to say? 

 

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Re: IEA says world's oilfields declining faster than expected
This is from my Australian PO  list:
 
What you need is a good chart to show exactly what's going on. :-)
 
This is from ASPO-Ireland, which means Colin Campbell and co.
They do a "bottom up" analysis, a synthesis,
of all the oil wells in all the oil fields in all the countries,
split by various categories :
conventional oil - the ordinary stuff
heavy oil - that needs warming or mixing with solvent to extract it
deepwater - where the drilling and pumping conditions are special
polar - as above only with ice
natural gas liquids - the oil that comes out of gas wells and condenses
natural gas - methane with a little bit of ethane in it
non-conventional gas - that bubbles out of oil and is often flared off
liquid petroleum gas - a mix of propane and butane that is pressured into a liquid
ethanol from bio-sources
diesel from bio-sources
 
Not all these are in the chart below but some ARE in IEA / EIA / BP figures.
 
my annotations in red
 
 
So "conventional oil" peaked in 2005.
Adding in heavy, non-gas liquids and polar doesn't make much difference,
deepwater is increasing a bit, so it pushes the peak of all of those back to 2010.
Gas will continue to grow slowly, but it isn't enough to stop All Oils + Natural Gas from peaking in 2010 too.
 
The IEA report is suggesting 2011-13, but they are always super-optimists.
The EIA don't even do an analysis like this,
and rely on reports from different countries on their own production
or failing any data, EIA make up their own estimates.
 
The tail-off represents what would happen if demand is assumed to keep growing.
The impact of this economic crisis will be at least as big as the dip after 1979,
which cut production by 15% and took 15 years to fully recover.
Hence it is reasonable to assume we have seen July 2008 as the all-time peak of production
and that if we ever get production rising again,
we will bump into Peak Oil again before it gets as high as July 2008.
 
The area under the curves always stays the same ( total consumption ).
If there is a dip now, then there is more for later, but not much,
but the economy can't cope with oil production going down at all,
so once we are onto the downslope, all hell will break loose.
 
If we ever recover economically from this meltdown
the price will bounce back up to $147 and way beyond,
and the system will come crashing down again.
 
Dave
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Re: IEA says world's oilfields declining faster than expected

Based on the limited (and possibly misleading) information pulled from the early draft and reported by FT, it appears the IEA is contemplating something like a flat plateau for some period of time maintained by bringing on nonconventional sources -- heavy oil, more tar sands, etc.  This is supposed to offset declines, add a little, then begin a decline.  If this is a good prediction (and who knows), then we face flat production in the near term and the end of cheap oil.  This spells the end of cheap oil because (1) production costs go up and (2) there is increased competition for the resource.  Both move price up.  It is not clear whether -- or at what point -- we will see shortages.  But those price signals will have to spark considerable changes in behavior on the demand side and it seems to me that this is where the action will be: how fast can/will we "beat a hasty retreat" from oil (to invoke Simmons)?

Besides the ASPO sites there are two places I like to go for more input on this.  One is Freddy Hutter's Trendlines research.  I'm not saying he is "more right" - just that he gives a different perspective and he tracks all the other predictions very carefully.  Notably, he just changed his scenario to reflect PO in 2011 - instead of 2029 - based on delayed/cancelled expansion projects.  Interestingly, he shows something like a 15 year plateau of all liquids.  But, this is with a smaller  underlying decline rate than that apparently suggested by the IEA, and as Martenson points out, tripling that rate would require dramatic revision of these predictions (and move us closer to Simmons' view).

http://www.trendlines.ca/index.htm

The other is Jim Kingsdale's writeups at energyinvestmentstrategies.com.  Kingsdale took the current bottom-up analysis constructed by folks at TOD and factored in delays, etc.  The result suggests a coming crunch in the 2011-2012 timeframe.  It also suggests a "flattening out" of production - a longer plateau in place of a spike a drop.

http://www.energyinvestmentstrategies.com/

 

There is naturally a lot of talk right now about the effect of the financial crisis and recession on looming peak oil.  (Readers of this site are surely not surprised by this turn of events: one of Martenson's early graphs shows 2 years of financial crisis, then peak oil, then environmental challenges settling in.)  There is in particular a lot of handwringing about whether there will be sufficient investment available when it is needed given the financial crunch.  In peak oil terms, this is sometimes posed as whether we will have sufficient surplus energy to rebuild our transportation infrastructure, etc.  My thought - and I would genuinely appreciate others' views -- is that this is not a bivalent (yes we will! - no we won't!) question, but one of time - how long it will take - in just the way Hirsch tends to talk about this.  And in terms of capital/investment, all I can say is that there will likely be nothing higher on the agenda of government, business and individuals than responding to the liquid fuels crisis imposed by peak oil.  On this point, I do see something analogous to when Roosevelt said to the automakers, no new cars for the next several years; time for all out support of the war effort.  In short, we have to electrify and diversify our transportation sector.

What I see far less discussion about is the impact of PO on other countries.  As countries like Mexico lose exports, they lose their prime sources of revenue.  Mexico is looking at becoming a failed state and soon (see articles posted by Kingsdale).  As imported oil becomes very expensive, other states lose their source of revenues.  For example, in Turkey buyers pay about 11$ a gallon for gas.  60% of this is tax collected by the state.  As real prices reach 11$, this tax will either remain -- putting a double strain on buyers -- or be eroded, putting a severe strain on government revenues.  So even as American citizens are addicted to using cheap oil, other governments require it for export revenues, tax, or (in places like Iran) for subsidies.  We're not going to be the only ones in rehab.

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Re: IEA says world's oilfields declining faster than expected

Its been so long since I watched Chris's 3 peak oil videos I don't recall if he covered what the movie "A Crude Awakening" did or not.

One thing that stuck with me was that OPEC members cook their reserves so they can pump more. Their proven reserves never go down, despite how many millions of barrels they pump.... 

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Re: IEA says world's oilfields declining faster than expected

THere's a point that some of the bigs (Heinman, Legget, Kunstler, et al) have made at different time over the past few years, and I don't think enough gets made of it:

Paraphrased from long-past articles: "The world is not going to allow America to continue to consume 25% of the world's petroleum resources while having only 4% of the world's population."

 

What that means in a nutshell, though perhaps different than the thought process that has driven each of those who have voiced in their different ways, is that market adjustments will be made such that a more equitable equilibrium obtains; those adjustments are MOST likely to come in the form of a dollar collapse, the other popular option being withholding or hoarding...

We are not far from a radical change in America as she is...

 Would love to hear your thoughts, as this board is starting to really THINK!

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Re: IEA says world's oilfields declining faster than expected

I will reiterate my own conclusions in re: this topic.  The only way to significantly reduce our oil consumption in the short run is to conserve on a massive scale.  Developing any alternative sources will take a long time.  Until we are weaned from OPEC oil we are at their mercy. 

Much of our oil comes from Canada.  We need to cultivate our relationship with them to keep it stronger than it has been in the past.  They are our best friend, or at least should be.

As a nation we need to take our energy sources much more seriously than we have in the past.  That means developing alternatives as quickly as possible and figuring out innovative ways to conserve in the meantime.  Hopefully the next President will recognize the urgency of this problem and exercise some leadership in getting us there.

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Re: IEA says world's oilfields declining faster than expected

 

Also, the below just came out and directly engages our topic.  The first opinion (A) is by Chris Skrebowski, who seems to know what he's talking about when it comes to bottom-up analysis.  The second is provided by Shell and isn't exactly cornucopic.

I should also mention that I found this at Lou Grinzo's The Cost of Energy website -- one of my favorite resources.

http://www.grinzo.com/energy/

Home

On 29th October 2008 at The London Stock Exchange, eight leading UK companies launched a report, The Oil Crunch: Securing the UK’s energy future, warning that a peak in cheap, easily available oil production is likely to hit by 2013, posing a grave risk to the UK and world economy. The warning comes from a broad spectrum of industry (Arup, FirstGroup, Foster + Partners, Scottish and Southern Energy, Solarcentury, Stagecoach Group, Virgin Group, Yahoo), known as The Peak Oil Group.

The report from the newly-formed UK Industry Taskforce on Peak Oil and Energy Security is the first multi-company alarm bell to be sounded on peak oil. It sets out a series of practical recommendations for Government, including action to grasp the significant economic and environmental opportunities from a step-change in investment in renewable energy and sustainable transport.

LINK TO REPORT:

http://peakoil.solarcentury.com/wp-content/uploads/2008/10/oil-report-final.pdf

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Re: IEA says world's oilfields declining faster than expected
The only way to significantly reduce our oil consumption in the short run is to conserve on a massive scale.
Nothing excels the market price at balancing supply with demand. Government programs and supsidies are almost always counterproductive and misdirected. Alternate forms of energy will come to market when the economics is there. To those who think they are serving some higher cause by voluntarily conserving, be my guest. I'll adjust my consumption according to price.
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Re: IEA says world's oilfields declining faster than expected
I'm charmed by your faith in the omnipotence of "the market."
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Re: IEA says world's oilfields declining faster than expected

[quote=mainecooncat]I'm charmed by your faith in the omnipotence of "the market." [/quote]

I'm frightened by it.  

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Re: IEA says world's oilfields declining faster than expected
Ha! Well, I was trying to be diplomatic. Also didn't have time for a thousand word critque of such thinking.
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Re: IEA says world's oilfields declining faster than expected

mainecooncat says;

I'm charmed by your faith in the omnipotence of "the market." 

It's not a matter of faith, it's the facts but there are other considerations.

Says Switters

I'm frightened by it.

I'm uneasy about what the political class does to screw it up.

If the oilfields are in fact declining while prices are declining, it is either because demand is decreasing faster or currency gyrations are giving false signals. I believe something like 80% of the oilfields in the world are nationalized. Don't underestimate their incompetence. That's the source of oil field output declining. 

 

 

 

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Re: Market fears

[quote]I'm frightened by it. [/quote]

I'm even more frightened by the fact that he thinks there ever will, or ever can be a 'free market'...  ... even without the presence of governments.  Much less that such an entity would be perfect in the event it could exist. 

I mean seriously.  The moment a 'true and pure free market'  encounters a Tragedy of the Commons it'll blow itself up.

--

Steve 

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Re: Market fears
I'm even more frightened by the fact that he thinks there ever will, or ever can be a 'free market'...  ... even without the presence of governments.  Much less that such an entity would be perfect in the event it could exist. 

There is no free market,  but that doesn't preclude us from using it as a theoretical model to asses the harmful effects of government interference. I've been a long student of Austrian Theory.

I mean seriously.  The moment a 'true and pure free market'  encounters a Tragedy of the Commons it'll blow itself up. 

I disagree. In a true free market, decisions are made independently. Bad decisions are suffered independenly. The Tragedy of the Commons is an outgrowth of socialism.

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Re: IEA says world's oilfields declining faster than expected
[quote=hewittr]

Says Switters

I'm frightened by it.

I'm uneasy about what the political class does to screw it up.

If the oilfields are in fact declining while prices are declining, it is either because demand is decreasing faster or currency gyrations are giving false signals. I believe something like 80% of the oilfields in the world are nationalized. Don't underestimate their incompetence. That's the source of oil field output declining.

[/quote]

What I was reacting to was this statement:

[quote]To those who think they are serving some higher cause by voluntarily conserving, be my guest. I'll adjust my consumption according to price.[/quote]

I strongly disagree that we should all sit around waiting for the price of oil to go up before we make any changes in our own lives.  That's exactly how we've gotten into this mess: a complete lack of foresight and auto-regulation as individuals and as a society. 

According to the Hirsch report, in order to avoid "unprecedented" economic, social and political impacts from PO we would have needed to begin mitigation efforts in earnest twenty years ago.  The price of oil at that time was certainly not prohibitively high, so we just went on consuming it like there was no tomorrow.

That's a perfect example of where your theory that the market will magically solve all problems fails.  The market didn't anticipate peak oil, climate change or resource depletion in time to mount an appropriate response.  Nor does the market give a [email protected]#$ about how people are treated, which is something I happen to care very much about.

 

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Re: IEA says world's oilfields declining faster than expected

Switters

That's exactly how we've gotten into this mess: a complete lack of foresight and auto-regulation as individuals and as a society. 

The lack of foresight was in letting government amass so much power. I've done all I could to resist, but there are too few like me. The shortages are political, not geological.

That's a perfect example of where your theory that the market will magically solve all problems fails. 

How could the free market fail when it's been overridden by massive government interference? This is a problem of government failure.

Nor does the market give a [email protected]#$ about how people are treated, which is something I happen to care very much about. 

Well the political elites don't care how much suffering they cause. The more people think government cares, they more they will be made to suffer. Since so few get it, I expect this to be an especially bad and long depression.

I strongly disagree that we should all sit around waiting for the price of oil to go up before we make any changes in our own lives. 

I could afford gas at $10 a gallon, but it would bring our economy to a halt. To reduce consumption aimed at saving what's left for future generations is an exercise in futility. Again, the root cause of shortages is due to politics, not geology.

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Re: IEA says world's oilfields declining faster than expected

Hewittr,

I’d really like you to explain to me what you conceptualize the free market to be and how its implementation would alter our world’s current trajectory. I ask this not sarcastically but because I’m genuinely curious. One of the reasons for my curiosity is that I feel that I more or less agree with most of your analysis I’ve read (certainly within the context of the complete spectrum of thought) but differ strongly on the point of the free market as solution and the overwhelming culpability you ascribe to government.

First let me say that I have no love for government. I think I’m what political theory wonks would call a minarchist (though I’m anti-police state) in that I believe that governments are inherently corrupt (and therefore inept and wasteful) but that their existence in some form is inescapable because of the need to attend to infrastructural needs of complex societies and because large groups of humans always end up being "led" or "ruled" by someone or some smaller group. (This does not mean that I personally want to be led or ruled but simply that humans congregate this way biologically and have for thousands of years.)

So when you say that government is the problem in one way I agree, but I think it’s an incomplete thought. I say, yes, government is the problem, but, then, why is that so? My answer is that people are the problem, but I don’t mean this in a cynical or fatalistic sense. Simply that the behavior and characteristics that people exhibit in government that corrupts governments and makes them inept, interfering and wasteful is a characteristic of people not limited to the context of government.

This is really the crux of my argument so I’m going to repeat it in boldface:

The behavior and characteristics that people exhibit in government that corrupts governments and makes them inept, interfering and wasteful is a characteristic of people not limited to the context of government.

To me, if there were somehow to be absolutely zero government, all the silliness that’s part of the human condition that corrupts government would still exist and would simply be corrupting other spheres of activity. Like the marketplace or the business community or whatever socio-economic system would exist in a world completely devoid of government.

Also, just because (continuing the theoretical here) there was no government doesn’t mean that there wouldn’t still exist strictly constructed hierarchies of power, wealth, and influence. These would simply exist in different forms or within different spheres. Again this goes to biological roots for me. And this is part of their inescapability.

Some random thoughts to close here:

I think when it comes to free-markets as the solution to our problems, advocates are often engaging in a bit of wishful thinking or ideological overlay. I see free-marketeers in a similar light as certain socialists. For example, the writers at the World Socialist Website (www.wsws.org) write very good political and geopolitical analysis. In fact their analyses aren’t that much different much of the time from many strains of libertarian thought. But clearly their reactions and solutions to similarly perceived ills are much different. It seems like they end every single article or essay with, "...and until the workers of the world unite..."

And a lot of the time when I read free-marketeers’ stuff it seems to always come to, "...and until the free market works as it should..."

But in one sense don’t we have a truly free market already. Large companies are more or less "free" to do what they please on a global scale, violating all kinds of ethical norms. Moving right in to some tropical wilderness in a country to whom whose leaders they’ve bribed for access and then deforest vast swaths of land, pollute water supplies, and create tens of thousands of embittered locals. Just think of the oil industry for starters in places like Indonesia and Nigeria. Corporations are "free" to do this.

They are also "free" to send former CEO’s and other high-ranking executives into the halls of political power to curry sweetheart deals via legislation and the courts.

It seems a lot of the time that free-marketeers are implying that there would or could be no crime or shadiness in a truly free market. Perhaps then what they are really wishing for is a truly ethical market not a truly free one – an optimistic (though unlikely) vision worth striving for.

However, from an economic information perspective, corrupt markets aren’t free because the theft of wealth from others can serve to artificially lowers prices, therefore distorting value and worth.

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The Concept of Free Markets

mainecooncat - they are fair questions. I don't think I can answer them completely in this short space, so I'll hit the highlights.

The concept of free markets is a thinking tool. I would be an ideologue if I expected humans some day to act accordingly. Rather, I take a Darwinist approach. By understanding how markets work when left on their own, we gain insight to why they go wrong when governments social engineer them. As an analogy, when your car breaks down, you take it to a mechanic who understands how all the parts should work together. Otherwise, he wouldn't know how to diagnose and fix the problem. With human nature we don't have that control, but at least we have a methodology for evading the traps that so many of the unknowing masses fall into.

First we have to get away from the concept of society. In this context, it is a meaningless abstract term. We turn our attention to individual behavior. In the society frame of reference, there is a single homogeneous whole that doesn't exist in reality. A market is composed of individuals acting according to their self interest. If there was such thing as a society that acted in a uniform manner, it would be as easy to predict human behavior as it would be to predict the effect of gravity on a body. Rather, each individual is a unique unpredictable force acting in his own interests. The number and kind of economic decisions people act upon is impossible to know and calculate. When governments interfere with those decisions, they invariably produce side effects they can't foresee. The first interference produces an unexpected result typically resulting in a continuous chain of interferences to correct the preceding interference. This goes on until the market breaks down.

This is why we are facing such a deep and long depression. The market didn't fail as commonly perceived; the market is sending signals, warning us it is badly managed. If your car mechanic gave you your car back and it worked worse than when you gave it to him, you would correctly blame your mechanic for being incompetent. Simarly to blame the depression on market failure would be like blaming your car for not conforming to the mechanics efforts.

Let's go back to individual behavior where individuals are allowed to make economic decisions in a free market environment. When a buyer and seller exchange goods for money, they are in effect trading something of lower value for something of higher value. The buyer places a higher value on what he wants over the money he has. The seller places a  higher value on the money he wants over the goods he is selling. It takes countless trades of exchanging things of lesser value for things of higher value that produces the wealth effect. When governments thwart or regulate the free exchange of goods and money, they prevent individuals from trading up.

Governments also distort the price mechanism by injecting excessive pools of money into the market. In a free market  where the money supply is constant, wealth is produced by savings and production. In this enviromnent, savings would going into production and prices would be going down as production increases. Instead our banking system has discouraged savings that would have gone into production, replacing savings for debt that goes into consumption at the expense of production. This is why we have inflation. The US is now consuming more wealth than it is producing, another reason why we are burdened with debt and sinking into a depression.

In a free market, a company has to serve consumers to make a profit, otherwise it will go out of business. If it is corrupt it will be inefficient at producing value for consumers and lose business. If it fails, its failure is limited to investors and employees; consumers will go elsewhere. But if government steps in to protect business from the whims of consumers, it spreads those inefficiencies to society at large. Because government has a monopoly on force, businessess find it in their interest to lobby government to protect themselves from the whims of consumers. In a word, this describe fascism.

Finally we have consumers who are also voters. As voters, they find it in their interest to vote for the politicians who offer the most freebies, thus saving them the effort of earning what they have by living off the production of others. Taxation is a form of theft; government robs Peter to pay Paul. This is why socialism has mass appeal and why socialism impoverishes any nation that takes that path. No nation can make itself wealthy when neighbor robs neighbor through the agency of government.

The true ideologies are fascism and socialism because they are embedded in the use of force to achieve the impossible. The corruption that people blame on "deregulation" is actually a byproduct of a strong central government that is inherently corrupt because it has a monopoly on force. Governments oppose free markets because it undercuts their power. They use free market language to disguise the protection they give to business to commit fraud and theft against the public.

The shame of it all is that through mass indroctination in school and media propaganda, people are afraid to be free. The lure of socialism and fascism only increases the power of government social engineers. I don't see that changing in our lifetime. I suspect that in the long run as nations compete for scarce resources, they will be compelled to downsize government if they are to survive. Free market economics teaches us how to uses scarce resources by the most efficient means. It is a basic law of economics that cannot be repealed without undo consequences.

As a libertarian, I place a high value on personal freedom. I don't argue for anarchism; I argue for a form of limited government that protects our rights to life, freedom and the property of individuals. As things stand now, our system of government is the enemy of those basic rights.

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Re: The Concept of Free Markets

For the record I'd say that I am pretty close to mainecooncat's views on politics and human nature. 

However, I still strongly disagree with the concept that free markets are capable of auto-regulation in every sense.  Perhaps it's true in purely economic terms (hard to say since we've never really had true free markets, as hewittr points out repeatedly), but there is more to life and the survival and succes of our species than economics.

Let's take a basic example.  We discover oil.  We then use enormous amounts of it because the market gives us the green light (i.e. the price is low).  Meanwhile, rampant consumption of oil creates environmental problems on a catastrophic scale.  Topsoil that feeds us all is depleted at an alarming rate, aquifers are drawn down faster than they can replenish, gases are released into the atmosphere that threaten the very survival of our species.

But all the while, the market continues to send the "buy" signal for oil, and people continue to use it without consideration of its detrimental effects.  Why?  Because the market doesn't know anything about desertification, loss of habitat, extinction of species, topsoil depletion, peak water, peak fish, etc.  The market didn't anticipate these events and it doesn't understand their impact until it translates into economic terms.  In many cases, by the time this happens it is too late.

Just take climate change.  It's analogous to a slow-growing cancer that doesn't produce any symptoms until it has metastasized across the body.  By the time the doctor/patient realizes what's going on, it's too late.  For many years we were exacerbating the effects of climate change without knowing we were doing it.  How could the market possibly factor that in?  What's more, even if we stopped all emissions today, climate change would continue accelerating for the next 40-50 years in reaction to our actions over the previous 50-75 years.  I do not see any "market mechanism" that is capable of anticipating and responding to events on this scale that can't be characterized in purely economic terms.

You say that "free market economics teaches us how to use scarce resources by the most efficient means."  But it doesn't tell us anything about the effects of our use of those resources.  Nor does it have anything to say about how those resources are distributed, or who benefits from their use.  (I am not arguing that government has historically done a better job in this regard. However, that doesn't mean that such a government isn't possible if humanity evolves.)

 

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The Concept of Free Markets -2

Switters

However, I still strongly disagree with the concept that free markets are capable of auto-regulation in every sense. 

I emphasized that our current system of government is incapable of auto-regulation in every sense. To me, this is self-evident. The powers-that-be do whatever they want to whoever they want. Just witness the Wall Street bailouts and the wars in the ME at the expense of taxpayers. It's the elephant in the room. Maybe you don't see it.

We then use enormous amounts of it because the market gives us the green light (i.e. the price is low).  

Because the dollar is the base currency for the rest of the world, Washington has kept the price of oil artificially low by passing our inflation on to oil producing nations. We've been getting oil on the cheap for decades.

Topsoil that feeds us all is depleted at an alarming rate, aquifers are drawn down faster than they can replenish, gases are released into the atmosphere that threaten the very survival of our species. 

Government has kept the price of water artifically low in the arid regions. So of course the aquifiers will be drawn down. If the water was privately distributed by companies operating wells, they would raise prices to get the most revenue from their limited supplies.

The market didn't anticipate these events and it doesn't understand their impact until it translates into economic terms. 

Again you are wrongly attributing a government failure on the market. Case in point. During the Dust Bowl days, farmers were encouraged by Roosevelt to farm in arid regions.

Just take climate change. 

Climate has been changing since the beginning of earth. Global warming is a hoax to get more power and revenue.

You err by thinking of the market as an homogeneous whole when it is composed of the actions of individuals acting in their own interests according to their circumstances. Think of individuals as pressure points spread out everywhere acting through the market pricing process. No central command can have that sensitivity. In fact, central planners and social engineers are cut off from those sensitivies. Instead acting according to their whims.

Nor does it have anything to say about how those resources are distributed, or who benefits from their use.

The market price acts as a ratiioning mechanism. That is why it is so critical that prices be allowed to float unfettered. Otherwise they send out false signals with regard to demand and supply.

I do not see any "market mechanism" that is capable of anticipating and responding to events on this scale that can't be characterized in purely economic terms. 

Markets are ammoral. They cannot protect humans from themselves. Nothing can. Especially the central planners and social engineers.

My suggestion is to take the time to understand how markets work. Then and only then will you be in position to make informed opinions. I'll be glad to suggest resources. But I warn you, it could take years to get a feel for the subject. I know it took me a long time to weed out the false ideas implanted in me during my early years. If you put faith in government solutions, you'll be at the mercy of their incompetence to deal with matters they cannot understand.

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Free market capitalism is doomed to fail

Your comments did not address my main point.  You have not convinced me that markets can anticipate future events that do not effect market prices in the present time. 

Your response to my statement that markets are not capable of auto-regulationm was to argue that governments aren't capable of such auto-regulation either.  I didn't say that our government has been capable of such auto-regulation.  I said that free markets are not.  

Even with a free market oil price over the past several decades, the price of oil would have still been low enough to permit the unrestrained growth and resulting environmental impacts that result from a supply of cheap and abundant energy.  This is simply a consequence of the energy density of oil.  Even without subsidy and the dollar as the reserve currency of the world, it would be a much cheaper and more potent source of energy than any other the world has seen.

I don't agree with your opinion about climate change, but that's besides the point.  It was used as an example to illustrate the inability of markets to anticipate future effects that are not manifest in the present.  Once again, you did not address this in your analysis other than to say that governments haven't been able to anticipate such changes either.  The difference is that it is theoretically possible for a government to do so, if the electorate has such foresight and elects leaders who share it.  However, I see no possible mechanism in a free market for anticipating and responding to such events.

What you fail to recognize or acknowledge is that a free market capitalist system is doomed to fail.  That's because it's a system predicated on unlimited growth in a world of finite resources and physical boundaries.   We are now bumping up against these limits to growth, and free markets can't stop that.

I understand markets and economics well enough to have this discussion with you.  I'm just not a true believer in the religious cult of free market capitalism as you seem to be.

 

Ray Hewitt's picture
Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Capitalism was Killed by Socialism long ago
You have not convinced me that markets can anticipate future events that do not effect market prices in the present time. 
I gave it a shot. That's your business.
Your response to my statement that markets are not capable of auto-regulationm was to argue that governments aren't capable of such auto-regulation either.  I didn't say that our government has been capable of such auto-regulation.  I said that free markets are not.  

I also said that no market system - nothing - can protect humans from themselves.

However, I see no possible mechanism in a free market for anticipating and responding to such events. 

That doesn't mean it's not there.

What you fail to recognize or acknowledge is that a free market capitalist system is doomed to fail. 

You fail to understand that we are not operating under a free market capitalist system in any sense of the word.

I understand markets and economics well enough to have this discussion with you. 

I find you have no understanding how markets work.

I'm just not a true believer in the religious cult of free market capitalism as you seem to be. 

Religious cult? Don't make me laugh. Free market economics is formally known as the Austrian School of Economics. Mises.org is stocked with books from as far back as the twenties describing in great detail how markets work and how government interference screws them up. I know I've been watching the events that built up to this crises for decades. I latched onto this site because Chris shows an understanding for markets, not because I needed an education. I was buying silver years ago before it got hot.

The difference is that it is theoretically possible for a government to do so, if the electorate has such foresight and elects leaders who share it.  However, I see no possible mechanism in a free market for anticipating and responding to such events. 

Practical considerations have proved the opposite. The electorate are still clueless as to the severity of what this depression will turn out to be. If the electorate can't foresee that, how are they going to foresee anything else? If the leaders made this mess, how are they going to fix it? Obama and McCain are a joke. The whole Congress should go straight go jail. That's what you get when you depend on the electorate.

What's your alternative? You once said you live in Berkely. I can imagine what it is.

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switters
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Joined: Jul 19 2008
Posts: 744
Free market capitalism = cancer

The funny thing is that I agree with your assessment of the crisis we're facing - for the most part.  I agree that government has failed miserably and continues to make a bad situation worse.  I agree that the electorate is completely clueless.  I agree that no political leaders on the national stage (especially Obama & McCain) are acklowledging the depth and scope of the problems we face.  I agree that Congress has been inexcusably ineffective and even criminal in its action and inaction.

I also agree that these are not inherently problems of either government or a free market, but of human behavior.  One could argue that they are problems of human nature, and perhaps they would be correct.  I have mixed feelings about that.  But regardless of what I think of the true nature of humanity, I can say unequivocally that human behavior throughout much of history has been primarily motivated by fear and greed.

So, what is my alternative?  On the most basic level it involves a radical shift in the awareness and behavior of individuals.  This is what people like Chris M. have dedicated their lives to: making proactive changes in our lives rather than waiting around for the free market or government to tell us what to do.  These changes include reducing consumption and waste, increasing self-sufficiency, living and working more locally, building community, protecting the natural resources that support all life and considering the effects of our actions on future generations.

On a collective level it means designing an economic system that adequately reflects the value of clean air and water, species diversity, and social and generational equity.  Any system (including free market capitalism) that excludes biophysical and social systems from its analyses inevitably overlooks problems of the increasing scale of human impacts and the inequitable distribution of resources.  

Economist Herman Daly argues that traditional economic theory is mainly useful in only one of the three core areas of economy (the optimal price and allocation of scarce resources) and does not address in any meaningful way two other issues -- the distribution of resources and determining the overall scale of the economy that can be sustained within the biosphere.  But others have written about this as well.  Economist Nicholas Georgescu-Roegen describes all of the tenets of traditional economic theory that become untenable merely when one accepts the fact that the second law of thermodynamics (the law on increasing entropy) must apply to an economy just as it applies to the biological and physical world.

Continued economic growth cannot be sustained in a finite world.  Period.  Borrowing Edward Abbey's metaphor, "sustainable" cell growth in a human body is called cancer.  That's exactly what continued growth is to our planet, and this explains why the phrase "sustainable growth" is an oxymoron.

Now, do I think that it's likely that we will design such a system?  Unfortunately if I am completely honest I would say that the probability is low.  But I continue to advocate it and work towards it because it's goal worth fighting for, and it's better than any other system (in theory or in practice) that I am aware of.  

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Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Unfree market capitalism = cancer

To be  honest Switters, I haven't taken Chris's Crash Course. If that is what Chris is advocating, he can have it. I've seen movements like that come and go. It's a Spartan way of life that will never gain broad appeal. In that I think your expectations are realistic.

The commune way of life will always be dependent in some way on capital markets for what it can't produce itself. While commune livers are devoting effort to conserving resources, the Asian nations are working towards building a capitalist economy that consumes massive resources from around the world. The switch in roles is kind of ironic.

It's a reasonable idea to leave the system for the times when things get really bad; I've done so in part myself.

Any system (including free market capitalism) that excludes biophysical and social systems from its analyses inevitably overlooks problems of the increasing scale of human impacts and the inequitable distribution of resources.

Resources have to be distributed by the market pricing process or by fiat. People aren't attuned to sharing what they value. Choose  your poison. Viable economic systems can't be designed because they are too complex. Capital markets evolved over centuries from the spontaneous actions of individuals. That's what makes them especially tuned to the way people trade.

Continued economic growth cannot be sustained in a finite world.  Period.

No argument there. Free market theory only tells us what is the most efficient way to balance scarce resources with infinite human demands. It tells us what we can expect when humans compete for those resources by the way they compete. I'll remind you that I said above that free market theory is a thinking tool that best describes how markets work. It is not an ideology. It offers no promises. It says nothing about the limits of economic growth.

Humans are at the top of the biological scale and certainly limited to what earth's environment can support. This current ongoing crises has nothing to do with that. It's better described as a failure of governments to live within their means. We are going to witness a massive collapse of governments around the world. I estimate it could take twenty years of more before we have an economic recovery.

I have no issue with your cause. It's socialism and statism that I despise. That's what i was assuming you would be advocating.

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drb
Status: Bronze Member (Offline)
Joined: Oct 11 2008
Posts: 95
Re: Political Peaking

The following was extracted from http://fabiusmaximus.wordpress.com/2008/04/08/hirsch-energypolicy/

[quote=fabiusmaximus]

Robert Hirsch, one of the world’s top energy experts, has an important article in the February issue of Energy Policy magazine, “Mitigation of maximum world oil production: Shortage scenarios.” As usual with his work, it offers a mixture of new insights and careful analysis seldom found in Peak Oil research — on either side of the debate. I strongly recommend reading it. Unfortunately Energy Policy is subscription only. Here is a brief review of his analysis. Here are slides to an earlier presentation on this topic by Hirsch at the ASPO-USA conference in October 2007.

Political Peaking

Hirsch introduces an important concept which he (and many others) has long discussed, but only now is formally described: political peaking, an extreme form of resource nationalism.

 

A few nations have the bulk of the world’s remaining conventional oil reserves. There large sources of unconventional liquid fuels: heavy oil, deep-sea, polar, bitumen (oil sands), kerogen (oil shale), coal (for coal to liquids conversion). However, these have high extraction costs — both in terms of initial capital requirements and operating costs — which create operational limits on their production flows.

The output of the few nations with large conventional reserves will become more important as production declines everywhere else. This result appears in all forecasts (e.g., EIA, EIA, energy consulting firms). Optimists and pessimists debate how much oil these nations hold, and how long they can meet the world’s growing thirst for liquid fuels. Hirsch turns the question around. Perhaps they can increase production, providing cheap and ample supplies. But will they? What best meets their long-term needs?

Policy experts have long advised conservation, seeking to cap consumption. Political peaking means that oil exporters choose to conserve their reserves — a cap on supplies.

The oil-rich peoples of the Middle East long believed their oil reserves to be unlimited. During the past decade they slowly realized their error, the “Bedouin to Bedouin over five generations scenario.”  This insight changed the world.  Consider their choice: after pumping enough oil to meet expenses, is it better to pump more and invest the surplus - or leave it in the ground for future generations?  The latter looks like the superior bet, given the inevitable peaking of oil and the paucity of potential substitutes over the next few generations.

  1. No risk of foreign investments being expropriated.
  2. No danger of losing money from instability of financial markets or poor investment decisions.
  3. No way foreign bankers and brokers can siphon the money into their own pockets.
  4. Equal or even superior ability to grow in value.

It is a tribute to our lack of energy research and planning that this scenario is both likely and receives near-zero attention from our public policy experts.

Update:  It is not a theory any more.  See The world changed last week, with no headlines to mark the news.

[/quote]

Note the update link.  Like most people who spend much time on the net I am skeptical of anything that comes from a single source, but a simple google search yields numerous hits that corroborate the stated intent of Saudi Arabia to leave new oil discoveries in the ground for future generations.

http://www.bi-me.com/main.php?c=3&cg=3&t=1&id=19167

http://www.arabnews.com/?page=1&section=0&article=108902&d=13&m=4&y=2008

http://www.energybulletin.net/node/42700

 

It is still too soon to deterime if Saudi Arabia's comments were a ploy to defer attention from what may be real constraints on their ability to increase production or if it was an honest determination to keep production at approximatelycurrent levels for the sake of their future citizens.  In either case, the result would be the same for the U.S..   At present it is somewhat irrelevant since the world-wide recession will prevent us from testing the production capacity limits again for some time.  The absence of attention to his statements, however, is very disturbing.

drb's picture
drb
Status: Bronze Member (Offline)
Joined: Oct 11 2008
Posts: 95
Re: Unfree market capitalism = cancer

[quote=hewittr]

To be  honest Switters, I haven't taken Chris's Crash Course. If that is what Chris is advocating, he can have it. I've seen movements like that come and go. It's a Spartan way of life that will never gain broad appeal. In that I think your expectations are realistic

[/quote]

Hmmm... if you haven't taken the time to review Chris's crash course on economics (which would take less time than you've spent to date in expressing your libertarian point of view), then why are you even in this forum?  Its a simple question...  I really don't believe you can intelligently comment on what you 'speculate' that Chris is advocating without first reviewing the crash course. 

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