impact of peak oil could be limited by both behavior change and technology change

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elasesor's picture
elasesor
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impact of peak oil could be limited by both behavior change and technology change

I'm relatively new to Chris Martenson and his material, but I have been following some of these topics for a while.  I also own some oil & gas properties & some gold.  In general, I buy into most of what Chris says in the Crash Course.  However, I have a question that I was hoping the forum community (and perhaps Chris M.) would address.

I read an article recently that talked about the potentially huge supply of gold out there.  Apparently less than 1% of the presumed gold in the earth's crust is counted in the official gold supply.  The remainder is gold that is so dispersed that it wouldn't be economical to find it & mine it.  Generally the official gold supply is hugely dependent on the price of gold.  The author's point is that if gold prices were to rise to $5,000/oz that magically the gold supply would rise dramatically because all of a sudden more gold would be economical to mine.

I believe a similar phenomena exists with oil reserves.  The statistics quoted about oil reserves make an implicit assumption about what is economical to extract.  With higher prices come three results.  First, more oil is economical to extract, enlarging the economically extractable oil reserves supply.  Second, technologies are invented which didn't exist before to find new oil or extract more oil from existing wells.  Third, behavior changes - either because of a recession that sets in from the high cost of oil or because of people's need/desire to reduce costs.  We saw this occur in 2008 when people sold SUVs and bought Civics.  We also saw a significant recession kick in (both in the 1970s and in 2008/2009 after the oil spikes), partially as a result of the oil spike (although, of course, caused by several other highly significant economic disturbances).  As another example, we have substantially more natural gas supply today in the US than we thought we did just 10 years ago due to the development of the hydraulic fracturing technology.  Of course, there are arguments about its environmental/health safety track record.  However, no one can argue that it hasn't caused somewhat of a glut of natural gas in the US.

I also read an article about a car run by compressed air (with backup gasoline motor to run the onboard air compressor).  The company claims that it will launch an air-powered car in the US in 2011.  Of course, there are also electric-powered cars coming online and the already existing hybrids.  Work is also being done on development of various biofuels such as algae oils, Jatropha, soy, methanol, etc.  While some of these hurt the food supply, algae-based oils don't.  Bio-fuels will either take another 10-15 years of development or substantial petroleum price increases to become economical.  I believe the passenger car fleet accounts for about 3/8 of total petroleum consumption in the US.  I believe that some combination of the above technology changes could reduce automobile consumption of petroleum-based fuels by 50% over the next 10-15 years, accounting for about 3/16 of total petroleum consumption.  Behavior changes (such as driving less) could further reduce this.

I am totally on board with Chris' notions about debt, money supply, population growth, food supply, etc.

Where I am not totally sure is that we won't substantially delay the day of reckoning with respect to peak oil because of a combination of substantial technology changes (like the air car and electric car), behavior changes, and recession.  After all, the price of oil crashed in 2008 from $147/barrel to around $30/barrel in the span of less than 6 months!  I'm not sure where the maximum sustainable price of oil is, but it appeared to me that around $150/barrel is about all the US and world economy can take before dramatic changes occur.  While some of those changes might be negative, some of them are actually positive and could lead to prolonging the supply of petroleum, as well as reductions in the production of green house gases and global climate change.

My question is:  Am I missing something here?  It appears to me that Chris doesn't really address this (in my opinion) very real possibility that price will bring about both behavior change and technology change that will result in a dramatic reduction in the severity of the impact of peak oil.  Similarly, could price increases in gold result in significant supply increases which effectively limit the increase in price of gold not withstanding the exponential expansion of the money supply, inflation, etc.?  These dramatic bull markets sow the seeds of their own destruction.

I'm looking for flaws in my reasoning as I try to sort out what my investment and hedging strategy should be...  thanks in advance for your input.

baldski's picture
baldski
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Re: impact of peak oil could be limited by both behavior ...

elasesor: How do you compress the air for the car?

 

Regards,

 

baldski

ewilkerson's picture
ewilkerson
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Re: impact of peak oil could be limited by both behavior ...

I'm not a scientist but a businessman.  I'm not the best at explaining things on paper, but I'll give it a go.

What Peak Oil means is that we are at about the halfway point in production and that production was the easy oil.  That is  only logical.  You find the biggest and most shallow oil first and exploit it first.  We peaked in big discoveries in the late 60s or early 70s.  From experience with fields around the world, the easy oil peaks at between 30 and 40 years depending on the geology and how hard the wells were pushed to produce.  I believe around 35 out of the top 45 fields are already in declining production.  Those major fields make up about 50% of our production.

It's all about what you can get out of the ground.  There may be billions down there but most of it is hard if not impossible at the moment to get out.  Worldwide, all the fields put together are declining at about 4m b/d per year, so that means we have to bring on line 4 m b/d per year of new production just to stay even.  Now here is where the trends are a problem.  We have not been finding nearly enough new oil nor investing enough worldwide to keep up this replacement.  Ninety percent of the oil in the world is controlled by governments.  Many of them are greedy and others buy off their people to stay in office, but the result is lack of investment.

I beleve you made a good point about higher prices bringing more on line, but it takes time and a great deal of investment.  The only easy oil out there that could be brought on line is Iraq.  I don't think it is unreasonable to say they will not live up to their bragging about new oil they can bring on line.  Their infrastructure is falling apart, the government can't come together, they are very corrupt, and I believe they will fall apart once we leave.

The thing is, though, that oil is not even enough to make up for the 4m b/d we are loosing.  The demand is rising rapidly as well, so the candle is being lost at both ends.

I was probably off on some numbers, but this may help.  Check out Chri's 17a in his crash course at the top left

Hope that was hhelpful.

wheatgrassfarmer's picture
wheatgrassfarmer (not verified)
Re: impact of peak oil could be limited by both behavior ...

I will defer to Chris Neldner, whom I believe summarized the dynamics of the cost of energy and economic activity with this excellent post on the Oil Drum on March 16, 2010...Peak Oil Demand,' Yes... But Not the Nice Kind: Why There Will Be No Recovery

 http://www.theoildrum.com/node/6281

"As we enter the post-peak phase of global oil supply sometime around 2012-2014, the price that heavily import-dependent countries like the U.S. would have to pay for that marginal barrel will become increasingly intolerable. In a weakened economy, $100 a barrel (or less) could be the new $120.

The true import of peak oil, therefore, may not be sustained high prices, but economic shrinkage. Demand will be destroyed long before oil gets to $200 a barrel, but it will not be destroyed by improved efficiency.

From where we stand today, it's hard to make an argument for economic recovery. Persistently high unemployment rates, broken state and federal balance sheets, and an inflationary depression will continue to cut into petroleum demand.

We spent the last several decades offshoring the fundamental value-adding sectors like energy production and manufacturing, and now our FIRE economy — finance, insurance, and real estate — rests entirely on real value created elsewhere.

The reason is simple: Energy is the only real currency."

IMHO, OECD goes over an economic clift when oil exceeds $100/bbl.....which I beleive is inevitable.

Tycer's picture
Tycer
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Re: impact of peak oil could be limited by both behavior ...

Time and scale.

How long will it take to design, retool, build and sell 10% of the world's cars ( about 80 million) with something new that people can afford to buy?

How many years? 10? 15?

If we import 14 million barrels a day and the recent Joint Forces Command says the world will be short 10 million a day in five years do we have time to retool before the Joint Chiefs go take the oil?

If we use 14 million barrels a day for US transportation and we can cut that by 20% in five years it still leaves us short.

We're late to the party. The big players have known about this since the 50's. 

 

Damnthematrix's picture
Damnthematrix
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Re: impact of peak oil could be limited by both behavior ...
Tycer wrote:

Time and scale.

How long will it take to design, retool, build and sell 10% of the world's cars ( about 80 million)

Errrr.....  try 800 PLUS!

Woodman's picture
Woodman
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Re: impact of peak oil could be limited by both behavior ...

Please consider Energy Returned over Energy Invested

aggrivated's picture
aggrivated
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Re: impact of peak oil could be limited by both behavior ...

There is an alternate variation on the cost of energy that is covered in Michael Ruppert's take on peak oil.  See: http://www.collapsemovie.com/

He ties economic health directly to energy costs like Martenson, but projects a period of economic bouncing: economic 'recovery', economic 'crash', in response to the growing cost of energy.  Like all things looked at through Malthusian glasses, there is the possibility of change in behavior or availablity of the resource in question (as with food in one of Thomas Malthus's original concerns) which would prevent the catastrophe.

How the segue (it is with foolish hope that I use this word) in our use of energy occurs is yet to be seen.  I would consider the see saw idea of Ruppert to be helpful.  Society might actually wake up after having their collective heads banged around time after time.  Unlike the food/disease factors that Malthus worried about, our current use of energy is way off the scale compared to the overall history of mankind on this planet.  Like an  addict, our civilization will have to go through withdrawal.  Just as an alcoholic's  body physiologically comes to need alcohol to survive, our civilization absolutely depends on abundant stored energy.  For a semblance of it to survive, the weaning off energy needs to occur over time, not suddenly.  How we each and together do this is what we are all about/

Has anyone written/ discussed looking at this from a 12 step approach in individuals and society?

agitating prop's picture
agitating prop
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Re: impact of peak oil could be limited by both behavior ...

Elaseor, You bring up some excellent considerations. After spending many years on Peak Oil forums, I came to the conclusion that  there is a definite problem, but  entertained the idea that there may be some practical solutions as well as some self correcting market phenomena that readjust price downward. Those phenomena don't have to be catastrophic, sometimes they're a just moped away.

People who are alarmed about the subject tend to label those who have constructed an alternative cosmology, as being in "denial", when they could just as easily be called to task for the same thing, along with indulging a kind of cult like fundamentalism.   Peak oil provides the backdrop against which much of the theatrics of economy play out. However, to think that the back drop is unalterable, static, not subject to incremental change, or even massive redrawing, is a mistake. Pain will accompany readjusting to something new, but it will happen. There is far too much money to be made addressing the problem and it is simply imbecilic to conclude that all individuals and groups with access to huge reservoirs of cash are ignorant of that fact. Money doesn't  just talk, it screams.

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