• Steve H. Hanke
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    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Visualizing Peak Oil: Hype, Hope, Boom, Or Bust

Tyler Durden's picture




 

While oil prices have slid in their ubiquitous post-QE manner in the last few days, they remain notably elevated amid growing tensions in Iran and central bank largesse spillovers. These short-term fluctuations, however, pale in significance to long-run implications of peak-oil and whether it exists or not. From cost implications to technological innovation and demand destruction and supply constraints, the feedback loops of oil prices over time provide vicious and irtuous cycles for the global economy as we know too well. This brief clip provides all the color we could need on the matter of fossil fuel dilemmas and the diverging opinions of Astenbeck's (ex-Phibro) Andy Hall and Goldman's Michele Della Vigna provide the depth.

 

DON'T WORRY, DRIVE ON: Fossil Fools & Fracking Lies from MONSTRO on Vimeo.

 

Andy Hall's Conclusion: In summary, yes there are new oil resources to be developed but it will require high prices for it to happen and even then it is by no means certain that these resources can be developed fast enough to offset declining production from the existing supply base. More likely is that prices will need to rise periodically to curb demand growth emanating from the developing economies. In any event, we feel that longer dated oil prices which remain at a steep discount to spot prices remain a relatively safe investment with very significant upside and limited downside.

 

What impact high oil prices?

 

Goldman's Michele Della Vigna: Since the start of this oil price cycle in 2000, peak oil theories have become increasingly popular, due to lack of credible new sources of crude oil. Over the past five years, however, the industry has opened up two new credible sources of future supply: the ultra-deepwater and the “oil shales”. We believe that these new sources of oil will be comparable in scale to the opening up of the North Sea and Mexico in the 1970s and will lead to a meaningful reduction in oil prices, alongside a change in the balance of power of the oil and gas industry. This is why we call it a revolution. However, the technical complexity of these developments and the tightness of the oil services supply chain are likely to delay the impact of these new projects by several years, sustaining a tight oil market.

 

The 'new' cost-curve...

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Mon, 09/24/2012 - 21:21 | 2826588 zorba THE GREEK
zorba THE GREEK's picture

When oil is gone, we will just go back to whale hunting for oil for our lamps.

Mon, 09/24/2012 - 21:30 | 2826603 Muppet of the U...
Muppet of the Universe's picture

MUST HAVE MOARIL!

 

Don't worry ding bats, we already have nuclear fusion.  You just can't have it cus muppets rule the world.

Mon, 09/24/2012 - 21:45 | 2826647 vast-dom
vast-dom's picture

good companion piece on peak oil with Max Keiser:

 

http://www.youtube.com/watch?v=UFIyUI0rrUA&feature=player_embedded

 

Mon, 09/24/2012 - 22:03 | 2826679 Rusty.Shackleford
Rusty.Shackleford's picture

thanks for that

Mon, 09/24/2012 - 23:11 | 2826843 mick68
mick68's picture

 

No clue how deep oil will lead to cheaper prices, but the rest is accurate. Big oil needs $150 per barrel to open these new wells up, which explains all the bluster in the middle east. No war of course cause that would diminish demand, but lots of bluster. Unfortunately for big oil though, after 10 years of B.S. bluffing, nobody believes it anymore. Might have to actually start a war to achieve necessary results.

Mon, 09/24/2012 - 23:42 | 2826909 markmotive
markmotive's picture

Peak Oil and the New Boom Bust Cycle: http://www.planbeconomics.com/2011/01/31/peak-oil-and-the-new-boom-bust-...

Get used to it folks. What do you think 2008 was about? Yes, extended leverage...but what was the catalyst that sent the pyramid over the edge? High gas prices!

Mon, 09/24/2012 - 22:05 | 2826685 bobola
bobola's picture

Visualize commuting to work during the week on a bicycle and running errands with it on the weekend.

There, I just gave a solution to 2 frequent Tyler threads; dealing with peak oil and peak obesity...

All I need from oil is to keep the chain from squeaking after riding in the rain.

 

Mon, 09/24/2012 - 22:54 | 2826781 LawsofPhysics
LawsofPhysics's picture

You didn't "solve" jack shit, you just shifted from oil consumption to food consumption (providing that the same amount of work is done). Now, regarding the energetic cost of all that additional food....

But I do like the idea of a world cycling community.

Tue, 09/25/2012 - 04:01 | 2827103 flyingpigg
flyingpigg's picture

Lawofphysics, that's nonsense. Biking on food is far more efficient than moving a ton of steel on gas. Unless you mounted pedals in your car...

Tue, 09/25/2012 - 07:12 | 2827207 SmallerGovNow2
SmallerGovNow2's picture

Try moving a ton of steel on a bike.  Cheap oil made this country and cannot be completely replaced.  It can be "supplemented" to the tune of maybe 20-25%, but no amount of cycling is going to make up for the energy denseness and transportability of oil...

Tue, 09/25/2012 - 12:32 | 2828303 Matt
Matt's picture

It can be replaced because eventually, it must. If something cannot go on forever, it wont. Are you trying to say that no one ever moved anything heavy and large prior to the invention of the internal combustion engine?

Some activities that use lots of oil will simply stop happening. Others will be done using other methods, like they were for the thousands of years before the internal combustion engine.

The big problem I see is not running low on oil, but natural gas, since thats where we get our nitrates from. This whole running powerplants on natural gas instead of coal thing could turn out to be massively negative in the long run.

Tue, 09/25/2012 - 07:55 | 2827271 LedMizer
LedMizer's picture

Yabba dabba doo!

Tue, 09/25/2012 - 09:38 | 2827590 Death and Gravity
Death and Gravity's picture

Easy. 1 american behind the wheel in the pedal-driven car, and 5 illegally imported chinese workers to actually stomp the pedals.

Tue, 09/25/2012 - 02:03 | 2827036 CompassionateFascist
CompassionateFascist's picture

I do that already. Now...visualize whirled peas. 

Tue, 09/25/2012 - 08:18 | 2827314 sessinpo
sessinpo's picture

Ignore the other post below. The problem you have is you bought into the "peak oil" premise in the first place.

Next you'll be suckered into man made global warming over population of people. The liberal path is a slippery slope that that traps many by using their emotions against them without you even realizing it.

Before long, you are on a path of lies and it becomes to embarrassing to go back to the truth.

Tue, 09/25/2012 - 08:31 | 2827355 LawsofPhysics
LawsofPhysics's picture

The numbers are available for everyone to see.  World oil production has flatlined.  Don't show me eight apples and then try to tell me you have ten.  It only makes you look stupid.  

Tue, 09/25/2012 - 09:07 | 2827475 N. B. Forrest
N. B. Forrest's picture

I quite agree, (of course with that statement I'll get 30 junks on this site)  All the peak oil people refuse to take into consideration all of the environmental restraints and other regulatory hurdles that the governments of the world are throwing up to block drilling for the easy stuff.  If the progressives would quit throwing sand in the gears of the oil producers, we would be energy independent again. 

 

Peak oil theory has been around since the '70s.  The 1870s that is.  Yawn...  forgive me if I don't get my knickers in a wad over the latest blow up.  Kind of an odd coincidence that its latest reincarnation has arisen as the leftists have been flouting their Anthropogenic Global Warming schemes. 

 

Please do the research people. 

Tue, 09/25/2012 - 12:37 | 2828321 Matt
Matt's picture

Original Peak Oil was about peak production of light sweet crude oil in the continental United States. It said that America would hit peak production in the 1970s. What does a graph of American production of light sweet crude look like? What happened around 1971?

EDIT: should read as conventional production of light sweet crude; AFAIK off-shore drilling, fracking and other non-conventional methods were not included in the model.

Tue, 09/25/2012 - 09:40 | 2827594 BobPaulson
BobPaulson's picture

That's your argument? It's a commie plot? I think you just convinced a bunch of people peak oil is a serious issue.

Tue, 09/25/2012 - 18:09 | 2829895 billsykes
billsykes's picture

Everyone can stand to lose a couple pounds biking.

I tried it this summer for 3 weeks, to only use my bike, used my car 2x to get groceries (hate shopping, do it all at once).

I really like it, its a faster way for me to get home from work than a cab or bus/train or car. Plus no $350  a month parking fee, and I can park anywhere.

Kind of a nice way to end the day.

If you want an adreneline rush without the porsche payments, I would advise biking as fast as you can in rush hour traffic sans helmet. Tried that too, won't do that again- but shit was it scary fun.

 

 

 

 

Tue, 09/25/2012 - 02:22 | 2827046 yt75
yt75's picture

To follow up what's going on regarding oil (and fossile energy in general), theoildrum.com and energybulletin.com best sources these days for me.

 

Otherwise amazing that GS (and other people) still refer to it as a "theory" when it is really a second grade banality.

And please don't hesitate to sign below :

http://tribune-pic-petrolier.org/mobilizing-society-in-the-face-of-peak-...

Tue, 09/25/2012 - 09:43 | 2827606 BobPaulson
BobPaulson's picture

Remember how long they denied smoking is not bad for you? Only about 10% of the population makes decisions based on rational presentation of empirical information. The rest are essentially convinced by who yells the most or has the hottest models presenting their side of the story.

Thu, 09/27/2012 - 10:32 | 2835324 yt75
yt75's picture

I think the comparison doesn't work very well, our entire society has been built on cheap energy since the industrial revolution, with the population explosion as a side effect.

This supply of cheap energy is ending, and not really anything to replace it considering the amount.

Tue, 09/25/2012 - 04:16 | 2827110 Andrew Jackson ...
Andrew Jackson epitaph's picture

Muppet is right. google "Z machine"

Mon, 09/24/2012 - 22:13 | 2826706 krispkritter
krispkritter's picture

If it's blubber we're after, at what point can we start hunting fat Progressives like Michael Moore, Oprah, Roseanne Barr, etc. and really cut down on fossil fuels?

Tue, 09/25/2012 - 06:54 | 2827197 Dr. Bonzo
Dr. Bonzo's picture

I like your thinking man. But why stop at fat progressives? It's my understanding that the meat content on the obese regressives is far superior due to their animal rich high protein diets and fixation on lard consumption. Yum yum. And since it's open season on fatties... why have a political litmus test at all? I say round em all up and off to the beefulo farm with them. If we hurry we might just be able to have our first fatty shanks by Xmas.

Happy holidays indeed.

Tue, 09/25/2012 - 07:53 | 2827266 shovelhead
shovelhead's picture

Screw all this prepper stuff...

A piece of bacon, a string and a bat is all I need.

Besides gallons of Billy Ray's BBQ sauce.

Long pig pulled pork is delicious if you're not the finicky eater type.

Tue, 09/25/2012 - 08:20 | 2827321 sessinpo
sessinpo's picture

Because they are really filled  with hot air, not anything of real useful substance.

Mon, 09/24/2012 - 21:23 | 2826590 nah
nah's picture

oil is in

Mon, 09/24/2012 - 21:25 | 2826593 buttmilk
buttmilk's picture

Peak bath salts!

Mon, 09/24/2012 - 21:30 | 2826608 Muppet of the U...
Muppet of the Universe's picture

LONG KROKODIL.  MORE FLESHY AWESOMENESS!

Mon, 09/24/2012 - 21:25 | 2826591 Lost Wages
Lost Wages's picture

Why don't we just clone more dinosaurs, bury them, and dig them up in a few years when they become oil?

Mon, 09/24/2012 - 23:01 | 2826815 centerline
centerline's picture

can't we just rehypothecate this?  Seems to work for Wall Street.

Tue, 09/25/2012 - 09:44 | 2827608 BobPaulson
BobPaulson's picture

Already doing that.

Tue, 09/25/2012 - 04:01 | 2827102 Heyoka Bianco
Heyoka Bianco's picture

What if we clone the dinosaurs, let them eat a bunch of fatties, then bury them, pile some more dead fatties on top of that to increase the pressure, get more oil faster, and free up more food, air and water? Problems fucking solved!

Mon, 09/24/2012 - 21:25 | 2826592 LawsofPhysics
LawsofPhysics's picture

Cost to discover, cost recover, cost to deliver, cost to refine. There is a capital cost and energetic cost. When the BTUs invested is greater than the BTUs recovered, game over. Don't get mad it's just business.

Mon, 09/24/2012 - 21:30 | 2826609 samsara
samsara's picture

Exactly and the Export Land Model I mentioned above is on top of that.

Mon, 09/24/2012 - 22:03 | 2826681 FeralSerf
FeralSerf's picture

"When the BTUs invested is greater than the BTUs recovered, game over."

Absolute Fucking Nonsense!  Not all BTU are worth the same.  Natural gas BTUs, e.g., are worth a lot less than kerosene BTUs.

Mon, 09/24/2012 - 22:43 | 2826762 LawsofPhysics
LawsofPhysics's picture

Perhaps BTU is the wrong term, don't be an ass. If I invest a Joule and only get half a Joule in return, that's a bad investment. If the oil company has to invest significantly more energy than will be recovered, they won't bother.

Mon, 09/24/2012 - 22:58 | 2826811 FeralSerf
FeralSerf's picture

How can you be so fucking stupid?  We've gone over this before.

You don't "invest joules".  You invest dollars.  A dollar does not purchase a constant number of joules.  It can currently purchase many more joules of natural gas than it can kerosene.  In the present marketplace, if one somehow converts one joule, or calorie or BTU, kilowatt-hour, electron volt or any other unit of energy, from the burning of natural gas or coal and from that amount of work obtains one joule (or whatever unit you're using) equivalent of kerosene, that is a good deal.

There's lots of cheap natural gas BTUs available right now and they can be used to replace expensive diesel BTUs one for one.   Capisce?

Tue, 09/25/2012 - 06:45 | 2827194 EnglishMajor
EnglishMajor's picture

The last time I checked we don't run our cars and trucks on natural gas.  Ships don't sail on natural gas.  Planes don't fly on natural gas.  We don't make steel with natural gas.  We don't make highways out of natural gas.  We don't make rubber out of natural gas.  We don't make plastic out of natural gas.  We don't make paint out of natural gas.  We don't make fertilizer out of natural gas.  Barring some inexpensive, interchangable retrofit for industrial society, not all potential BTU's are equal.  Perhaps we will simply reach the point where burning stacks of dollar bills will release more BTU's than they could purchase anyway.

Tue, 09/25/2012 - 09:51 | 2827629 post turtle saver
post turtle saver's picture

Wrong. Just flat out wrong.

http://en.wikipedia.org/wiki/Natural_gas#Uses

Tue, 09/25/2012 - 11:11 | 2827937 EnglishMajor
EnglishMajor's picture

Okay, then the better statement of the point is, it is not an either/or option.  You can't have exclusively one or the other or an easy switch back and forth, and forget byproducts for the moment.  How will you retrofit the trucking, airline, shipping and automobile industries to run on natural gas?

Maybe that's the answer, though.  Let's put the printing press to practical use to build pipelines, more pumps at every gas station, and two tanks on every vehicle.  Maybe that would be as good for GDP as building the Death Star.

Tue, 09/25/2012 - 23:20 | 2830828 FeralSerf
FeralSerf's picture

Trucks and locomotives are pretty easy to retrofit and the payback period is short.  There are companies doing that now.  Cars in South America run on natgas.  If they can do it, maybe Americans can too.  Trains can be electrified.  Electricity can be generated from natgas.   It's not practical to fuel airplanes with natgas.

Tue, 09/25/2012 - 09:15 | 2827500 N. B. Forrest
N. B. Forrest's picture

FeralSerf--

 

Although I like this site, the attention span of most of the commenters is rather short.  If you can't make and argument in one sentence they just junk you.  But keep it up.   The battle will eventually be won.  The truth will eventually rise to the surface and the goofballs who read 0Hedge will claim to have known it all along.

 

Unlike those who go to other site, where even when the truth rises to the surface they will still refuse to see it. 

Tue, 09/25/2012 - 23:37 | 2830844 FeralSerf
FeralSerf's picture

ZH, like all popular internet blogs and message boards, have paid, and volunteer in the case of the ADL and some others, shills whose job is to keep public opinion corralled in a manner that is acceptable and profitable to the PTB.  The more popular the site, the better and more numerous are the shills.  There's professional grade software available to manage their shillery.  We are, after all, not watching the MSM and TV when we're here freely blogging.

"The conscious and intelligent manipulation of the organized habits and opinions of the public is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country." -- Edward Bernays

Tue, 09/25/2012 - 09:55 | 2827638 BobPaulson
BobPaulson's picture

I would stand somewhere in the middle on this concept. It's certainly not game over if we convert 1 energy unit of peat to one energy unit of electricity (it has to do with the exergy of the energy, its ease of transport, the amount of waste it generates and the amount of it on the market) but it starts to show some very problematic issues in our economy. For example, the fact that we use so much gas to produce corn is evidence of government manipulation/distortion of a market. Gas is cheap because of fracking and its low density, which is one big hole in the hydrogen economy dream.

The fact that we are burning the glut of gas on the market to get heavy oil out of the ground does point to some problems. The market cannot fully represent the costs of heavy oil and our need for liquid fuels to drive our huge cars from the exerbs to our paper-pushing/non-manufacturing/barrista jobs in the city.

Tue, 09/25/2012 - 23:54 | 2830867 FeralSerf
FeralSerf's picture

Much of that gas is being flared.   It has negative value.

Tue, 09/25/2012 - 21:12 | 2830544 jerry_theking_lawler
jerry_theking_lawler's picture

Dr., please PM me and explain exactly how all BTUs are not the same?? a BTU IS a BTU, right? 1000 Btus of natural gas = 1000 Btus of kerosene, correct? kinda the same as 1000 pounds of feathers weight the same as 1000 pounds of lead....??

I am always excited to learn new scientific concepts (especially after 15+ years of pyroprocessing experience).

Tue, 09/25/2012 - 23:50 | 2830862 FeralSerf
FeralSerf's picture

You are correct, of course, that a BTU is a unit of energy (the amount of heat necessary to raise one pound of water one degree Fahrenheit).

The reason not all BTUs are the same, i.e. have the same value, is convenience, primarily portability and storage.  Natgas is difficult to carry in an aircraft's fuel tanks.  Kerosene is much easier.  So if one needs to operate an aircraft, he buys kerosene even though a comparable number of natgas BTUs are much cheaper.

It usually makes sense to use the cheapest fuel that can be accomodated to provide the necessary BTUs.  That means wood or natgas to heat houses, natgas or coal to generate electricity, gasoline or diesel to fuel automobiles, kerosene to fuel jet aircraft.

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