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Guest Post: Global Oil Risks in the Early 21st Century

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This is a guest post by Dean Fantazzini, Moscow School of Economics, Moscow State University, Moscow, Russia; Mikael Höök, Uppsala University, Global Energy Systems, Department of Physics and Astronomy, Uppsala, Sweden; and André Angelantoni, Post-Peak Living, San Francisco, CA. This paper has been previously published in Energy Policy, Volume 39, Issue 12, December 2011, Pages 7865-7873.

 

Abstract:

The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.

1. Introduction

An economy needs energy to produce goods and deliver services and the size of an economy is highly correlated with how much energy it uses (Brown et al., 2010a, Warr and Ayers, 2010). Oil has been a key element of the growing economy. Since 1845, oil production has increased from virtually nothing to approximately 86 million barrels per day (Mb/d) today (IEA, 2010), which has permitted living standards to increase around the world. In 2004 oil production growth stopped while energy hungry and growing countries like China and India continued increasing their demand. A global price spike was the result, which was closely followed by a price crash. Since 2004 world oil production has remained within 5% of its peak despite historically high prices (see Figure 1).

Figure 1. Oil production stopped growing in 2004 while demand continued to increase. The result was a global oil price spike that contributed to the subsequent economic contraction. Liquid fuels include crude oil, lease condensate, natural gas plant liquids, other liquids, and refinery processing gains and losses as defined by the EIA. Source: Hirsch (2010)

The combination of increasingly difficult-to-extract conventional oil combined with depleting supergiant and giant oil fields, some of which have been producing for seven decades, has led the International Energy Agency (IEA) to declare in late 2010 that the peak of conventional oil production occurred in 2006 (IEA, 2010). Conventional crude oil makes up the largest share of all liquids commonly counted as “oil” and refers to reservoirs that primarily allow oil to be recovered as a free-flowing dark to light-coloured liquid (Speight, 2007).

The peak of conventional oil production is an important turning point for the world energy system because many difficult questions remain unanswered. For instance: how long will conventional oil production stay on its current production plateau? Can unconventional oil production make up for the decline of conventional oil? What are the consequences to the world economy when overall oil production declines, as it eventually must? What are the steps businesses and governments can take now to prepare?

In this paper we pay particular attention to oil for several reasons. First, most alternative energy sources are not replacements for oil. Many of these alternatives (wind, solar, geothermal, etc.) produce electricity, not liquid fuel. Consequently, the world transportation fleet is at high risk of suffering from oil price shocks and oil shortages as conventional oil production declines. Though substitute liquid fuel production, like coal-to-liquids, will increase over the next two or three decades, it is not clear that it can completely make up for the decline of oil production.

Second, oil contributes the largest share to the total primary energy supply, approximately 34%. Changes to its price and availability will have worldwide impact especially because alternative sources currently contribute so little to the world energy system (IEA, 2010).

 

Figure 2. Fuel shares of world total primary energy supply. The “other” category includes tidal, solar and wind generation. Source: IEA (2007)

Last, oil is particularly important because of its unique role in the global energy system and the global economy. Oil supplies over 90% of the energy for world transportation (Sorrell et al., 2009). Its energy density and portability have allowed many other systems, from mineral extraction to deep-sea fishing (two sectors particularly dependent on diesel fuel but sectors by no means unique in their dependence on oil), to operate on a global scale. Oil is also the lynchpin of the remainder of the energy system. Without it, mining coal and uranium, drilling for natural gas and even manufacturing and distributing alternative energy systems like solar panels would be significantly more difficult and expensive. Thus, oil could be considered an “enabling” resource. That is, it enables us to obtain all the other resources required to run our modern civilization.

2. The production perspective

It is commonly claimed that peak oil, i.e. the concept that oil production will reach a maximum level and then decline, is only about geology. To some extent this is a result of the polarized debate that has raged between geologists, such as Hubbert (1949; 1956) or Campbell (1997; 2002), and economists, including Adelman (1990) and Lynch (2002; 2003). In fact, peak oil is the result of a complex set of forces that includes geology, reservoir physics, economics, government policies and politics. However, a solid understanding of the peaking and subsequent decline of oil production begins with acknowledging the natural laws that create a framework for everything. The intrinsic limitations of these laws eventually affect all human activities because neither economic incentives nor political will can bend or break these laws of nature.

There are a number of physical depletion mechanisms that affect oil production (Satter et al., 2008). Depletion-driven decline occurs during the primary recovery phase when decreasing reservoir pressure leads to reduced flow rates. Investment in water injection, the secondary recovery phase, can maintain or increase pressure but eventually increasingly more water and less oil is recovered over time (i.e. increasing water cut). Additional equipment and technology can be used to enhance oil recovery in the tertiary recovery phase, but this comes at a higher price in terms of both invested capital and energy to maintain production. The situation is similar to squeezing water out of a soaked sponge. It is easy at first, but increasingly more effort is required for diminishing returns. At some point, it is no longer worth squeezing either the sponge or the oil basin and production is abandoned.

Another way to explain peaking oil production is in terms of predator-prey behavior, as Bardi and Lavacchi (2009) have done. Their idea is that, initially, the extraction of “easy oil” leads to increasing profit and investments in further extraction capacity. Gradually the easiest (and typically the largest) resources are depleted. Extraction costs in both energy and monetary terms rise as production moves to lower quality deposits. Eventually, investments cannot keep pace with these rising costs, declining production from mature fields cannot be overcome and total production begins to fall.

An additional factor plays an important role. In both models, regardless of the abundance of capital or high prices, an oil well is unable to deliver net energy at some point. Hubbert (1982) wrote: “There is a different and more fundamental cost that is independent of the monetary price. That is the energy cost of exploration and production. So long as oil is used as a source of energy, when the energy cost of recovering a barrel of oil becomes greater than the energy content of the oil, production will cease no matter what the monetary price may be.”

These physical trends conspire to make oil production increasingly difficult and expensive in monetary and energy terms. Economic incentives and technological advancement can slow these trends but they cannot be stopped.

2.1 Oil production today

Production peaks occur for many energy sources ranging from firewood and whales to fossil fuels (Höök et al., 2010). Currently, around 60 countries have passed “peak oil” (Sorrell et al., 2009) — their point of maximum production. In most cases this is due to physical depletion of the available resources (e.g. USA, the UK, Norway, etc.) while in a few cases socioeconomic factors limit production (e.g. Iraq).

Attempts to disprove peak oil that focus solely on the amount of oil available in all its forms demonstrate a fundamental, and an unfortunately common confusion between how much oil remains versus how quickly it can be produced. Although until recently, oil appeared to be more economically available than ever before (Watkins, 2006), others have shown this to be an artifact of statistical reporting (Bentley et al., 2007). Further, it is far less important how much oil is left if demand , for instance, is 90 Mb/d but only 80 Mb/d can be produced. Still, the most realistic reserve estimates indicate a near-term resource-limited production peak (Meng and Bentley, 2008; Owen et al., 2010).

Total oil production is comprised of conventional oil, which is liquid crude that is easy and relatively cheap to pump, and unconventional oil, which is expensive and often difficult to produce. It is vital to understand that new oil is increasingly coming from unconventional sources like polar, deep water, and tar sands. Almost all the oil left to us is in politically dangerous or remote regions, is trapped in challenging geology or is not even in liquid form.

Today, over 60% of the world production originates from a few hundred giant fields. The number of giant oil field discoveries peaked in the early 60s and has been dwindling since then (Höök et al., 2009). This is similar to picking strawberries in a field. We picked the biggest and best strawberries first (just like big oil fields they are easier to find) and left the small ones for later. Only 25 fields account for one quarter of global production and 100 fields account for half of production. Just 500 fields account for two-thirds of all the production (Sorrell et al., 2009a). As the IEA (2008) points out, it is far from certain that the oil industry will be able to muster the capital to tap enough of the remaining, low-return fields fast enough to make up for the decline in production from current fields.

All oil sources are not equally easy to exploit. It takes far less energy to pump oil from a reservoir still under natural pressure than to recover the bitumen from tar sands and convert it to synthetic crude. The energy obtained from an extraction process divided by the energy expended during the process is the Energy Return on Energy Invested (EROEI). It is a return on investment calculation applied to a physical process. As Hubbert noted, regardless of the price the market is willing to pay for oil, just as we won’t spend a dollar to receive only a dollar in return, when we expend as much oil as we get back from a particular oil deposit, production will stop.

The EROEI of US domestic oil production (chiefly originating from giant oil fields) has declined from 100:1 in 1930 to less than 20:1 for developments in the 2000s, e.g. Gulf of Mexico,(Gately, 2007; Hall et al., 2008; Murphy and Hall, 2010). Since giant and super giant oil fields dominate current production, they are good indicators for the point of peak production (Robelius, 2007; Höök et al., 2009). There is now broad agreement among analysts that the decline in existing production is between 4-8% annually (Höök et al., 2009). In terms of capacity, this means that roughly a new North Sea (~5 Mb/d) has to come on stream every year just to keep the present output constant.

In 2010, the IEA (2010) abruptly announced that the peak of conventional oil production was reached in 2006. The IEA also again lowered their estimate of total world oil production to less than 100 Mb/d by 2035. However, it has been shown that the IEA oil production model is flawed. To reach the production level in their model, they assume oil field depletion rates that are so high that they have never been seen in any oil region before (Aleklett et al., 2010). The remaining oil simply cannot be produced as quickly as would be required to push the production peak as far into the future as they project, thus the peak must occur sooner than the IEA asserts. Miller (2011) found that the IEA had not addressed any of the recent critique and concluded that the IEA outlooks likely remain too optimistic.

Most discussions about oil focus on the size of the resource left. However, in the near term, it is far more important to pay attention to production flows and the constraints operating on them. Peak oil is the point in time where production flows are unable to increase. It is not just underinvestment, political gamesmanship or remote locations that make oil production increasingly difficult. The physical depletion mechanisms (increasing water cut, falling reservoir pressure, etc.) will unavoidably affect production by imposing restrictions and even limitations on the future production of liquid crude oil. No amount of technology or capital can overcome this fact.

3. The economic perspective

3.1 The economics of oil supply

One important feature of oil supply is its cyclical boom and bust cycle in prices and production. Maugeri (2010, p. 12-13) describes this phenomenon: “if petroleum becomes scarce and there is no spare capacity...oil price climbs. This rise in prices fosters a new cycle of investment from which new production will flow. It also triggers gains in energy efficiency, consumer frugality and the rise of alternative energy resources. By the time the new production arrives at the market, petroleum demand may have dropped. This vicious circle has been a feature of all oil crises of the past.

However, oil production recently became less responsive to traditional economic stimuli. The first decade of this century witnessed a dramatic increase in oil exploration and production when the price of oil increased (Sorrell et al., 2009; 2009a). Unfortunately, as noted already, total world oil production seems to have reached a plateau nonetheless. To a large degree this is because the oil that remains tends to be unconventional oil, which is expensive and takes more time to bring to market. Some consequences of having extracted much of the easy oil are the following:

a) It takes significantly more time once a field is discovered to start production. Maugeri (2010) estimates it now takes between 8 and 12 years for new projects to produce first oil. Difficult development conditions can delay the start of production considerably. In the case of Kashagan, the world’s largest oil discovery in 30 years, production has been delayed by almost 10 years due to difficult environmental conditions.

b) In mature regions, an increased drilling effort usually results in little increase in oil production because the largest fields were found and produced first (Höök and Aleklett, 2008; Höök et al., 2009).

c) Because the cost of extracting the remaining oil is much higher than easy-to-extract OPEC or other conventional oil, if the market price remains lower than the marginal cost for long enough, producers will cut production to avoid financial losses. See Figure 3.

d) Uncertainty about future economic growth heightens concerns for executing these riskier projects. This delays or often cancels projects (Figure 4).

e) Most remaining oil reserves are in the hands of governments. They tend to under-invest compared to private companies (Deutsche Bank, 2009).

f) Possible scarcity rents have to be taken into account. Hotelling (1931) showed that in the case of an depletable resource, price should exceed marginal cost even if the oil market were perfectly competitive (the resulting difference is called scarcity rent). If this were not the case, it would be more profitable to leave the oil in the ground, waiting to produce it until the price has risen. Hamilton (2009a, 2009b) noted that while in the 1990s the scarcity rent was negligible relative to costs of extraction, the strong demand growth from developing countries in the last decade together with limits to expanding production “could in principle account for a sudden shift to a regime in which the scarcity rent is positive and quite important.” In this regard, the Reuters news service reported on April 13, 2008 that “Saudi Arabia’s King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world’s top exporter for future generations, the official Saudi Press Agency (SPA) reported.” Therefore, a possible intertemporal calculation considering scarcity rents may have already influenced (i.e. limited) current production. Although the sudden fall of prices at the end of 2008 is difficult to reconcile with scarcity rents, the following quick price recovery to the $70-$120 range during the enduring global financial crisis indicates that this aspect cannot be dismissed. This is despite the assertion by Reynolds and Baek (2011) that the Hotelling principle "... is not a powerful determinant of nonrenewable resources prices," and that "...the Hubbert curve and the theory surrounding the Hubbert curve is an important determinant of oil prices." We agree that the Hubbert curve, which defines the depletion curve of a non-renewable resource, may be the prime determinant of oil price but it is not the only one.

 

Figure 3. Global marginal cost of production 2008. Source: LCM Research based on Booz Allen/IEA data (Morse, 2009). The unlabeled items, from left to right are OPEC Middle East, Former Soviet Union and Enhanced Oil Recovery.

The consequence of these issues is that in the short-medium term the available supply is essentially fixed and thus relatively straightforward to compute. As Figure 4 shows, net production capacity will decline due to the difficulty in finding new reserves at an accessible cost while the existing capacity is steadily depleted. Just as occurred in 2004, by 2011 there is again no new net capacity while the world economy, and thus oil demand, has resumed growth. After 2014, it appears that global oil production will begin its decline (See the second report of the UK Industry Taskforce on Peak Oil and Energy Security (UK ITPOES, 2010), Lloyd’s (2010), Deutsche Bank (2009, 2010), the report by the UK Energy Research Centre (Sorrell et al., 2009a) and the 2010 World Energy Outlook by the IEA (2010).)

 

Figure 4. Global annual new gross production (blue bars), annual decline (grey bars) and net new oil production capacity (thin green line). Source: UK Industry Task Force on Peak Oil and Energy Security (2010)

3.2 The economics of oil demand

Now an important question is what are the consequences of high oil prices on world economic growth? In the economic literature, Hamilton (2009b) and Kilian (2008; 2009) attempt an answer, while in the professional financial literature, the report by Deutsche Bank (2009) is one of the most comprehensive.

Hamilton (2009b) in particular highlighted the importance of the share of energy expenditure as a percentage of total consumer expenditure. When this ratio is too high, an economic recession tends to occur. Similarly Deutsche Bank (2009) showed how each country seems to have a “threshold percentage of national income at which crude pricing meets stern resistance and demand is broken.” Deutsche Bank (2009) asserts that for American consumers this point is when energy represents 7.5% of gross domestic product. This value is close to the one calculated by Hamilton (2009b) but is based on monthly data and uses a different methodology. In a more recent report, Deutsche Bank (2010) lowered this threshold to 6.5 % because "...the last shock set in motion major behavioral and policy changes that will facilitate rapid behavioral changes when the next one comes and underemployment and weak wage growth has increased sensitivity to gasoline prices. Last time it took $4.50/gal gasoline to finally tip demand, this time it might only take $3.75/gal to $4.00/gal to do it." However, they also highlighted that "Americans have become comfortable with paying more for gasoline, and it may take higher prices to force behavior change".

Kopits (2009) suggested that when crude oil expenditures exceed 4% of GDP, oil prices increase by more than 50% year-on-year, and oil price increases are so great that a potential demand adjustment should have to reach 0.8% of GDP on an annual basis, then a recession in the US is very likely. A similar outcome was found by Hall et al. (2009) who showed a recession in the US is likely when oil amounts to more than 5.5% of GDP. We remark that the difference between the 4% (Kopits, 2009) and 5.5% (Hall et al., 2009) is simply a wholesale versus retail difference, and the result comes out the same [1].

Finally, Hamilton (2011) highlighted that 11 of the 12 U.S. Recessions since World War II were preceded by an increase in oil prices. Unfortunately, there is no clear alternative source of energy able to fully substitute for oil (see, for example, Maugeri (2010) for a recent non-technical review of the limits of alternative sources of energy with respect to oil). It possesses a combination of energy density, portability and historically very high EROEI that is difficult for alternatives to match.

4. A timely energy system transformation not assured

As oil production declines, significant changes to the current oil-dependent economy in the medium term are likely to be needed. However, it isn’t clear that there will the financial means to implement such a change. For example, Deutsche Bank (2009, 2010) suggested that the widespread use of electric cars in the second part of this decade will be the disruptive technology that will finally destroy oil demand. Apart from technology and resource constraints (lithium necessary for electrical batteries is quite abundant in nature but production is currently very limited), the availability of sufficient financial resources to transition the entire vehicle fleet seems dubious. As Hamilton (2009b) demonstrates, tightened credit follows high oil prices and most vehicles are purchased on credit. Others suggest that natural gas is the next energy paradigm. Again, will be there sufficient financial resources to switch to it as oil production declines?

Reinhart and Rogoff (2009, 2010) found that historically, after a banking crisis, the government debt on average almost doubles (86% increase) to bail out the banks and to stimulate the economy. They also showed that a sovereign debt crisis usually follows: not surprisingly we saw Iceland, Greece, Ireland, Hungary and Portugal turning to the EU/ECB and/or the IMF for financial help to refinance their public debts to avoid default. The need to switch to alternative energy sources with the enormous financial investments that such a task would require — and the simultaneous presence of large public and private debts — may well form a perfect storm.

 

Figure 5. Public debt as a percent of GDP (2009/2010) taken from CIA Factbook (2010).

Additional forces will play a role. New regulations to be introduced by Basel III are likely to impact investment expectations, budgeting and planning. Basel III is a new global regulatory standard on bank capital adequacy and liquidity proposed by the Basel Committee on Banking Supervision following the recent global financial crisis and whose aim is to "...to improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy", BCBS (2009). Demography will also be extremely important in the next decade as well. Europe and the United States have aging populations and their baby boomers are entering pension age. China faces a similar demographic problem due to their one child policy, too.

The combination of declining oil production (and thus oil priced high enough to cause recessions), high taxes, austerity measures, more restrictive credit conditions and demographic shifts have the potential to severely constrain the financial resources needed to move the economy away from oil and to alternative energy sources. Another consequence of this combination of forces is the likely contraction of the world economy (Hamilton, 2009b; Dargay and Gately, 2010).

4.1 Energy transition risks

With higher priced oil, technology substitution (such as electric cars gradually replacing internal combustion engine cars) and fuel substitution (such as natural gas replacing oil) will occur. History is filled with many such examples and they are frequently highlighted in the debate. However, one must read carefully and not overstate the simplicity of an energy transition.

For example, whale oil was – technically – an energy source in the 19th century, but the economy was based on coal at the time. Whale oil was used only for very specific purposes (primarily illumination), and the transition to kerosene was easy and occurred very rapidly. Bardi (2007) explored this in more detail and made several important remarks that pinpoint how difficult it can be to substitute energy sources.  In particular, he showed that resource scarcity often dramatically increases the amplitude of price oscillations, which often slow an energy source transition. Businesses and governments struggle with alternating circumstances of insufficient cash flow to handle price spikes and plummeting prices that don't cover their cost structure. Long term planning in this ever-changing environment becomes extremely difficult and investment — even highly needed investment — can drop precipitously.

Friedrichs (2010) also cautions that after peak oil countries have several sociological trajectories available to them, they can follow predatory militarism like Japan before WWII, totalitarian retrenchment like North Korea, or, ideally, socioeconomic adaptation like Cuba after the fall of the Soviet Union. Given the recent century of conflict and the extensive weapon stocks and militaries held by modern nations (especially the United States, which spends on its military almost as much as the remaining countries of the world combined (SIPRI, 2011), there is simply no guarantee that the relatively peaceful period currently experienced by developed nations that is conducive to rapid energy source transitions will continue much longer.

Koetse et al. (2008) showed that for both North America and Europe the capital-energy substitutability over the long term is large. In other words, if there is abundant capital, the economy can respond to higher oil prices with substitution. However, if declining oil causes a credit contraction similar to the crash of 2008, there may not be sufficient capital to replace existing equipment quickly.

Even if there is sufficient capital, substitution has thus far operated with high and even increasing EROEI fuel sources. Since the transition from whale oil, each subsequent transition has been to an energy source with greater net energy profit. The energy dense fuels we are using now have allowed us to build our civilization. The difficulty this time is that we must move from highly profitable, in terms of energy, sources to lower profit alternatives like solar and wind. Researchers are beginning to ask the following important question: what is the minimum energy profit that must be sustained to allow us to operate our civilization? And, assuming alternatives are up to the job (this is not yet proven), can we complete the move away from oil before the overall EROEI gets too low? (Murphy and Hall, 2010)

A further challenge is that, strictly speaking, for the last 150 years we have not transitioned from previous fuel sources to new ones — we have been adding them to the total supply. We are currently using all significant sources (coal, oil, gas and uranium) at high rates. Thus, it’s common but incorrect to say that we moved from coal to oil. In fact, we are using more coal now than we ever have (IEA, 2010). We never left the coal age. The challenge of moving to alternative energy sources while a particularly important source is declining, in this case oil, should not be underestimated.

4.2 Net oil exports decline faster than overall production

The challenge may be greater still because net oil exports are set to fall more rapidly than overall oil production. Rubin (2007) points out that before the financial crisis many producer countries were experiencing economic booms. These countries export only the oil they don’t use themselves. The Middle East saw annual consumption increases of 5%. Russia was increasing at a 4% annual rate. It was only Russia’s increased production during the same period (accounting for 70% of the increase that came from OPEC, Russian and Mexican production during the early part of the last decade) that oil prices did not break records sooner than they did. Although the IEA has projected that oil use in OECD countries may already be declining (IEA 2010), they think that the oil appetite of non-OECD countries, which includes the producer countries, is not even close to being satisfied.

Brown et al. (2010b) show how significant the squeeze of declining gross production and increasing producer country consumption can be, which they have named the Export Land Model. Increasing producer country consumption due to population growth acts as a strong “magnification factor” that removes oil very quickly from the export market. Using the top five exporting countries from 2005 (Saudi Arabia, Russia, Norway, Iran, and United Arab Emirates), they construct a scenario in which combined production declines at a very slight 0.5% per year over a ten year period for a total of 5%. Internal oil consumption for these exporters continues to grow at its current rate (2010). In this scenario net oil exports decline by 9.6%, almost double the rate oil production declines.

 

Figure 6. Crude oil production, consumption and exports for Indonesia (left) and Egypt (right). Steadily increasing internal consumption coupled with a 1/3 drop in domestic production turned Indonesia into a net oil importer just 12 years after its peak of production. Egypt has lost all it oil export revenue and will soon follow Indonesia to become a net oil importer. Source: BP Statistical Review (2010).

This accelerated loss of exportable oil can be seen in many producer countries that have passed their peak. Figure 6 shows the typical cases of Indonesia and Egypt. Indonesia has withdrawn from OPEC because they have no more exportable oil to offer the world market. Egypt is already incurring a public debt and is on the cusp of becoming a net oil importer, which will exacerbate already stretched public finances. As producer countries continue to grow their oil use even modestly and production declines (again, even modestly), there is an extremely high risk that net exportable oil will decline much faster than most observers are currently expecting.

4.3 Crash program may eventually replace declining oil

Hirsch (2010) points out that a crash program to create liquid fuel savings and additional liquid fuels may be able , at some point, to make up for declining oil production (Figure 7). While the alternatives are ramping up and as oil production is declining, Hirsch (2008) estimates that the world economy will contract at approximately a one-to-one ratio. In his best-case scenario, using a 4% per year decline rate, an idealized crash program to produce liquid fuels does not pause contraction sooner than ten years after the onset of decline.

 

Figure 7. Liquid fuel mitigation programs take at least ten years before they are able to make up for declining oil production. Source: Hirsch (2010)

Other mitigation efforts like increased solar, wind and geothermal production may not be prioritized since they do not help the situation — they produce electricity and the world’s 800 million transportation, food production (i.e. tractors and harvesters) and distribution vehicles require liquid fuel.

If the peak of oil production occurs this decade, there is insufficient time to avoid contraction because of how long it takes to transition the vehicle fleet. Even in their moderately aggressive scenario, Belzowski and McManus (2010) estimate that in a healthy, growing economy by 2050 still only 80% of the vehicle fleet in Europe and the U.S. would operate on alternative power trains.

5. Government risks

A contracting economy presents governments with a host of problems that are not easy to resolve. Promises made to the citizenry, some in the form of social welfare programs, pensions and public union contracts, will be impossible to keep as the energy base of the economy declines. Downward wage pressure and reduced business activity will lower tax revenue. With lower revenues and greater demands in the form of social welfare support by an increasingly poorer citizenry, it is difficult to see how the accumulated (and growing) government debt can be paid back without rampant inflation. Though it is still unclear whether the government response will be hyperinflation (to minimize the debts) or extensive and massive debt defaults — or both — it is not likely that business as usual will continue as oil production declines.

In business sectors that are highly dependent on oil, such as the automotive sector (Cameron and Schnusenberg, 2009), ill prepared companies that lack understanding of how price volatility may impact their firm will likely fail. In the case of the car companies some may fail a second time because their products are still not yet ready for a high-priced oil environment (Wei et al., 2010). Governments may not be willing to spend the money to rescue these businesses (such as the car company bailouts in the U.S.) and should be prepared for increasing unemployment as vulnerable sectors contract. To minimize potential future social discord, governments should immediately begin planning for contraction and educating their citizenry of the risk of contraction.

Because poverty reduction is highly correlated with capital availability (World Bank 2001), as contraction occurs due to oil production decline, some countries may see the reversal of poverty reduction gains made in recent decades. Some governments may also have to contend with food and fuel riots as they did in 2007 and 2008. Other forms of crowd behavior, namely hoarding of fuel and food, may exacerbate the situation and governments should prepare accordingly.

6. Business risks

In a joint report, Lloyd’s of London and Chatham House have advised all businesses to begin scenario-planning exercises for the oil price spike they assert is coming in the medium term (Lloyd’s, 2010). These planning exercises should scrutinize a company’s operations and balance sheet in fundamental ways.

Like governments, businesses of all sorts may experience similar difficulty paying their debts as sales decline. Banks may see asset values fall further. Manufacturers in particular will have to contend with increased difficulties making and delivering products as oil production declines (Hirsch et al., 2005). It will prove imperative that business addresses this Schumpetarian shock (a structural change to industry that can alter what is strategically relevant) in a timely fashion (Barney, 1991).

A significant benefit of cheap oil was that distance was relatively inexpensive. It is possible now to manufacture goods using far-flung operations. However, as oil declines, distance will, once again, become increasingly expensive, and oil price may begin to act as a trade barrier for many products.

Another risk as oil production declines is the possibility of oil supply disruptions. If this should occur, much modern manufacturing may be impacted. Just-in-time manufacturing systems in which warehoused parts are minimized through the frequent replenishment of parts by parts suppliers — sometimes with multiple deliveries a day — have little tolerance for delivery delays.

To prepare for this risk requires more than the drive for manufacturing efficiency that has generally characterized business. Supply chains should be examined with the aim of building in resilience and greater agility (Bunce and Gould, 1996; Krishnamurthy and Yauch, 2007), implying the loosening of tight and often brittle couplings between suppliers and manufacturers (Christopher and Towill, 2000; Towill and Christopher, 2001). With little or no slack in the system (fewer warehoused parts, etc.), just one supplier failing to deliver a part or supplier hoarding can shut down a production process.

7. Conclusion

The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other difficult-to-reach locations. Moreover, obtaining the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, we reviewed the physical perspective of peak oil and some of the limitations on producing ever-increasing quantities of oil were highlighted as well as the possibility of the peak of production occurring this decade.

We then briefly discussed the economics of oil supply and demand, showing why the available supply is basically fixed in the short-medium term, and highlighting the importance of a high energy expenditure share as a percentage of total consumer expenditures sounding an alarm bell for economic recessions. Moreover, we remarked that the potential financial resources available in the future to switch to alternative sources of energy will be limited due to several factors ranging from the high levels of debt (both private and public) to the aging of the populations in Western countries and China. We also noted that, even with very slight production decline rates, net oil exports decline significantly faster than total oil production as the economies of producer countries grow.

In such a context, risk mitigation practices are called for, both at the government level and at the business level to prepare for high and likely volatile oil prices. Governments should begin educating their citizenry of the risk of contraction to minimize potential future social discord. Businesses should examine their operations and balance sheets with the aim of building in resilience. It also implies preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.

Acknowledgements

We are grateful to the reviewers and colleagues who provided valuable comments on drafts of this paper. Special thanks to Simon Snowden for outstanding assistance.

 


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Only an idiot asshole would rely on the Today Show:

http://annoyanidiot.blogspot.com/

Tue, 04/03/2012 - 20:25 | Link to Comment easypoints
easypoints's picture

I hate to post the same link twice, but this article is just another reiteration of something everyone should watch, and everyone will feel soon enough.

Tue, 04/03/2012 - 21:38 | Link to Comment hardcleareye
hardcleareye's picture

OK not bad for kids (booked marked it)...  you might enjoy Gail Tverberg articles

http://ourfiniteworld.com/2012/03/31/true-sustainability-solutions/

"Bleak as reality is, it is not the utter crushing of hope that lies in the heart of denialism."

Tue, 04/03/2012 - 22:41 | Link to Comment easypoints
easypoints's picture

Yeah, they made it with everyone in mind. Thanks for the link!

Wed, 04/04/2012 - 00:13 | Link to Comment markmotive
markmotive's picture

Also check this thesis paper presented to the Faculty of the U.S. Army Command and General Staff College on peak oil and it's impact on global power:

 

http://www.planbeconomics.com/2012/04/03/peak-oil-and-the-global-balance...

Tue, 04/03/2012 - 22:44 | Link to Comment Ima anal sphincter
Ima anal sphincter's picture

Is this propaganda? Hard to tell, but the info is one sided towards "It's All Going To Hell."

Man will survive. Man will adapt.

We're going back to the land whether we want to or not. I actually think this is a good thing. There is also our technological advances. "Mr Fusion" from Back to the Future might not be that far off.

If the world can't support the number of humans as described, then I guess the population will drop to what can be supported.

All of this is "The Big Guy's" work. No politician or POS banker has any control over this.

What will be...Will be. Just enjoy the ride.

Tue, 04/03/2012 - 23:54 | Link to Comment Arrowhead
Arrowhead's picture

It is so. It is so. So refreshing.

Tue, 04/03/2012 - 22:54 | Link to Comment earleflorida
earleflorida's picture

Follow the geopolitical logic: ___ Uruguay opens up seas to Bolivia's 'lithium-gold-dust' while Tehran simultaneously opens up "IPI", via Pakistan's & india's new found alliances just recently announced. India has an infrastructure that can now be built for LNG & CNG retrofitted vehicles [heavy haulers/ auto's] and in the interim hybrid vehicles could be purchased through China, in a trade-off? Iran wins big on the sweetener of Bolivia's lithium as a bartering chip with China to stay on their side regarding all the hype of nuclear proliferation?    http://www.mining.com/2011/12/09/china-bets-on-bolivian-lithium/  

http://en.mercopress.com/2010/10/30/iran-partner-in-the-industrializatio...    

http://en.mercopress.com/2009/07/15/uruguayan-ports-will-give-bolivian-t...    NOTE: Click News Archive - Scroll to page 17 for story... if interested :-( 

http://www.geopoliticalmonitor.com/tehran-islamabad-finalize-gas-ipi-pip...

http://en.wikipedia.com/wiki/Iran-Pakistan-India_gas_pipeline

Ps. In the meantime - the K-Street Boys, and political junkies wait for a hand-out, while the dithering, obfuscation/ malfeasance, and profiteering sinks America further in a morass [the idiots stands around with their fingers up each other's ass, hoping to find a pearl neckless, pathetic!

 jmo

Tue, 04/03/2012 - 19:45 | Link to Comment Bartanist
Bartanist's picture

Gonna call mainstream media B/S on this one.

There is essentially an infinte amount of oil down 40,000 ft.

Also. there is an eseentially MORE than a practicabley infinte amount of energy available to us if we had the infrastructure to use it... which the government and oil companies have ensured we do not.

This article is MSM mainstream scare tactics.... IGNORE ... snooze.

Tue, 04/03/2012 - 19:53 | Link to Comment Dapper Dan
Dapper Dan's picture

an infinte amount of oil down 40,000 ft.

I must have told you a million times not to exaggerate!

Tue, 04/03/2012 - 20:01 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

The empty fields in Oklahoma have leases for sale.  Go buy them and drill down your 40K feet.  Cash in your 401K for the money.

If you think it's there, go get it and make yourself rich.  

Notice, however, that nobody is investing money drilling down 40K feet in Oklahoma.  Maybe they aren't as sure as you are.  That means there's opportunity for you.  Get out your checkbook.

Wed, 04/04/2012 - 15:48 | Link to Comment smiler03
smiler03's picture

"There is essentially an infinte amount of oil down 40,000 ft."

Let me guess, you think God put it there for us to discover.

Tue, 04/03/2012 - 19:56 | Link to Comment HelluvaEngineer
HelluvaEngineer's picture

Oh.  Only 7.5 miles down?  I'll grab my fucking shovel.

Tue, 04/03/2012 - 21:53 | Link to Comment WmMcK
WmMcK's picture

That may take more than $5 to dig up, though.

Wed, 04/04/2012 - 00:13 | Link to Comment deflator
deflator's picture

Especially with $5 being an arbitrary moving target based on the whims of technocratic central bankers and governments that must increase the money supply.

 We know exactly how much energy it takes to move a barrel of oil up 40k feet. The higher it needs to be pumped, the more energy it takes to pump it. (shit ain't exactly Jed Clampett's "bubblin' and gurglin" outta the ground Texas tea)

 Hubbert was off a bit when he said that when it takes more than a barrel of oil to recover a barrel of oil production will cease regardless of price. Taking into account Ponzi economics, timeframes and global scaling, he should have said, "eventually..."

Wed, 04/04/2012 - 02:57 | Link to Comment New World Chaos
New World Chaos's picture

Once tapped, deep oil comes up readily due to pressure of the overlying rock.  See BP's problems.  But EROEI still screws you because deep wells shallower than this are very difficult to drill and they tend to have problems which require the well to be abandoned.

Forget about deep abiotic oil as a solution.  Doesn't even exist in meaningful quantities.  If oil was bubbling up from the mantle, it would have eventually filled reservoirs and then found its way to the surface at the same rate as it was being produced.  The fact that ancient people didn't observe 80mbpd worth of La Brea Tar Pits means we are fucked unless we find a new form of compact energy.  Lithium-air batteries?

Tue, 04/03/2012 - 20:08 | Link to Comment Decolat
Decolat's picture

Well then, what are you waiting for? Obtain geological proof, make your case to investors, allot startup capital, start drilling to 8 miles and buy the rights to your 'practicabley' (?) infinite power source, become the new overlord of energy in the world and report back to us on how that worked out for ya. Can't wait to hear back. 

 

Tue, 04/03/2012 - 20:19 | Link to Comment spinone
spinone's picture

simultaneously our capital for plant investment to drill down that far is evaporating, and R&D funds as well.  Remember, it is the net energy we are interested in.  If it takes 100 barels of oil to drill down to 40,000 ft and extract 1 barrel, its just not worth it.

Tue, 04/03/2012 - 21:37 | Link to Comment masterinchancery
masterinchancery's picture

There certainly is a huge amount of oil in North America lodged in shale formations, which aren't that difficult to exploit.

Tue, 04/03/2012 - 22:52 | Link to Comment That Peak Oil Guy
That Peak Oil Guy's picture

In that case what are you doing here?  Shouldn't you be off investing in some shale oil companies?

Wed, 04/04/2012 - 00:32 | Link to Comment Rusty.Shackleford
Rusty.Shackleford's picture

Nice handle

Wed, 04/04/2012 - 04:22 | Link to Comment malikai
malikai's picture

Every time I see your avatar, I think dirty sanchez. Sorry man. Can't help it. I'm crude.

Wed, 04/04/2012 - 00:20 | Link to Comment deflator
deflator's picture

 <Whispers>  pond liners

Tue, 04/03/2012 - 22:01 | Link to Comment flying dutchmen
flying dutchmen's picture

40,000 feet there might be some oil down there.  but i doubt it, more then likely the pressure would make it dry gas.. and then the economics.     good luck with that........

Tue, 04/03/2012 - 22:54 | Link to Comment Curt W
Curt W's picture

Do you realize how much 40,000 feet of drill pipe weighs, and 40,000 feet of casing?  The size of the motor to turn the drill bit at the end of that 40,000 feet?  The number of truckloads just to get the pipe on location?  The pressures on the bit at that depth, if the bit gets wedged, you can't reverse the drill, you start unscrewing 10,000 joints.  A friend was on a rig in Wyoming and at 15,000 ft they hit a gas pocket under so much pressure the entire 15,000 ft of pipe jumped 30 ft.  It tore the top off their rig and put 3 in the hospital,

Good luck finding capital for that endeavor.

Wed, 04/04/2012 - 03:00 | Link to Comment BlackVoid
BlackVoid's picture

"Gonna call mainstream media B/S"

A slight problem with this point is that the article is not published in the mainstream media. And it is not even written by journalists but scientists.

Your other points were already discredited, os I won't go into that.

Wed, 04/04/2012 - 03:42 | Link to Comment Cast Iron Skillet
Cast Iron Skillet's picture

Right - 40,000 feet down, the Earth is full of oil like a giant balloon. Pumping it out is what causes earthquakes.

Logically, it has to be that way, since the Earth has an iron core, like a great big giant ball bearing, which naturally has to be lubricated by a lot of oil. The spinning of the iron core creates the Earth's magnetic field. The big danger is not global warming, but what will happen when enough oil is pumped out to allow the core to either rattle around inside the crust, or to grate on the mantel. Either effect could cause it to slow down, reducing the magnetic field. And if the magnetic field went off completely, it would be a catastrophe, since we wouldn't be able to tell which way is north.

Wed, 04/04/2012 - 05:41 | Link to Comment akak
akak's picture

If those damned abiotic oil drillers end up turning the whole earth into a giant Mexican jumping bean (whatever happened to those, anyway?), I am really going to be pissed --- along with a whole lot of golfers and surgical patients!

Tue, 04/03/2012 - 19:47 | Link to Comment UBIGDummy
UBIGDummy's picture

Wake me up when this market is going to correct!  Oh wait, on ZH its every 5 mins.  I will never get a nap.  

GO OBAMA, cuz he'z good for stocks yo...

He is my favorite half Schwoogie!

Tue, 04/03/2012 - 19:48 | Link to Comment l1b3rty
l1b3rty's picture

I don't see why we remain on the Oil Standard, what with the alternative technologies available not ot mention the suppression of free energy. Check out the Rossi story and go long palladium and silver!

 

http://silvervigilante.com

 

 

Tue, 04/03/2012 - 21:39 | Link to Comment masterinchancery
masterinchancery's picture

What alternative technologies? I don't know of any that will efficiently move transportation.

Wed, 04/04/2012 - 03:49 | Link to Comment Common_Cents22
Common_Cents22's picture

Why Baraka the energy rock star says ALGAE, bitches!   Is the housing crash obama's sneaky plan to grow algae in all those abandoned swimming pools?  Freakin brilliant!   We'll all thank him some day.  Green pools are our future!

Tue, 04/03/2012 - 22:02 | Link to Comment Freewheelin Franklin
Freewheelin Franklin's picture

I'm going long uranium hydride/nitride and lead/bismuth


Gen4, bitchez.

 

 

Tue, 04/03/2012 - 23:11 | Link to Comment Matt
Matt's picture

We're on the Oil Standard because it has the best Energy Returned On Energy Invested.

If you're talking about nickel-hydrogen fusion, you might want to go long nickel instead. That stuff apparently mostly comes from meteors; maybe Japanese space-mining robots would be another good investment, if you think the Rossi fusion reactors work.

 

Wed, 04/04/2012 - 06:05 | Link to Comment GiantVampireSqu...
GiantVampireSquid vs OWS UFC 2012's picture

Check out Rossi indeed.  Turning rubbish into toxic waste, and getting paid for it.  The guy is surely a genius.  For his invention to work physics needs to be wrong.  Silver on the other hand, is useful in many 'greentech' products and has intrinsic value.

Tue, 04/03/2012 - 19:50 | Link to Comment Caviar Emptor
Caviar Emptor's picture

But but but...they said we got oil nuff to last 500 years! 

Tue, 04/03/2012 - 19:54 | Link to Comment ArgentoFisico
ArgentoFisico's picture

Yes! And some satellite of Jupiter is made of gas... so it will last 10.000 years! No problem!

>>> go and get it!

Tue, 04/03/2012 - 19:56 | Link to Comment ArgentoFisico
ArgentoFisico's picture

.. and add farting to the reserves

Tue, 04/03/2012 - 19:50 | Link to Comment Goldilocks
Goldilocks's picture

"The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach." <= yah sure. /sarc

Tue, 04/03/2012 - 19:55 | Link to Comment UBIGDummy
UBIGDummy's picture

Difficult places to reach such as, Iraq, Oklahoma, Texas, Nevada, Alaska, the Middle east.

What a crock, USA is not past its peak oil production, we are past the POLITICAL LIMITATION of production.

Tue, 04/03/2012 - 19:58 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

You're at complete liberty to invest your money buying up empty fields in Oklahoma to drill in.  The leases are for sale.  Go buy them.

Tue, 04/03/2012 - 20:14 | Link to Comment UBIGDummy
UBIGDummy's picture

Can't, because I have been bearish for like 6 months now due to a little ZH birdy wispering in my ear, and lost about 1/2 the cash.... unfortunately can't find that ticker who just nailed a sizeable stake in OKlahoma.

Don't get me wrong, I still love ZH, as they are a wealth of information.  But this FUKED up market where it rises on bad news.  Being bearish is the wrong side to be on.  Lesson learned.

Tue, 04/03/2012 - 20:46 | Link to Comment billsykes
billsykes's picture

I think there is an inverse relationship from knowledge to wealth.

Some of the dumbest people I have ever met are very wealthy, some of the smartest are totally poor.

I think if you want to play the markets or do business, with any hope of making money, delete ZH from your bookmarks.

All of this stuff is great, very insightful very smart and true, but try pitching a pension fund on a fringe play Private Equity fund- body bags, riot gear, crypt liners, prison food, etc.

NO WAY. No one wants to listen to the downer guy, he may be right but they are never going to give you cash to play it out they want the bullish guy, the happy guy- they don't care if you loose them money, because it will turn around....

Everyone says gold bitchez, and they are right but what's it going to do? go up 1-2x in 5 yrs? big deal, without some leverage you cannot get the 10x in that time span you need.

Bahhh, ZH burnout. I need a break from all this end of the world stuff. Time to delete and go make some money.

 

 

 

 

 

 

 

Tue, 04/03/2012 - 21:00 | Link to Comment easypoints
easypoints's picture

bye.

Tue, 04/03/2012 - 22:04 | Link to Comment IndicaTive
IndicaTive's picture

Seems like you've been leaving since you registered on ZH.

Tue, 04/03/2012 - 22:45 | Link to Comment azzhatter
azzhatter's picture

that's why you read 6 articles from bulltards to every one from Kyle Bass. Don't make a guy like Bass wrong, people just don't want to hear bad news. Then when it crashes, they all say unexpected, who could have known. Even people who know it's going to blow just want an exact date and nobody can give it to them

Tue, 04/03/2012 - 21:41 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

I said not a word about markets.  This matter is not about trading.  It's about shortages.  Of food.  Soon.

Tue, 04/03/2012 - 21:22 | Link to Comment Errol
Errol's picture

Dummy, there is an important principal in oil geology, it's called "nearology".  This is a way of pointing out that large deposits of oil are often found near other large deposits of oil, due to the presence of geologic features that gather and trap migrating oil.  Think Saudi Arabia and its neighbors Iran and Iraq, or even Texas and Louisiana.

Now that we know that, tell me about the giant oilfields in Florida.  And Georgia, and the Carolinas.  The morons who tell tall tales of oil bonanzas waiting offshore of Florida and Georgia are just that...morons.

BTW, due to abundant capital and mild political climate, the US is the most thoroughly seismicly explored area in the world.

Tue, 04/03/2012 - 21:47 | Link to Comment ILikeBoats
ILikeBoats's picture

You mean the drilling north of Cuba (i.e. off the coast of Florida)?

http://www.redstate.com/vladimir/2011/09/10/good-news-oil-drilling-off-f...

 

(yes source is "partisan" but info is accurate from what I can tell)

Tue, 04/03/2012 - 19:57 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

This is solid analysis.  They understand.  They are tepid in their presentation, but they do understand.

Tue, 04/03/2012 - 20:13 | Link to Comment malikai
malikai's picture

Very solid analysis.

Tue, 04/03/2012 - 21:56 | Link to Comment DCFusor
DCFusor's picture

Agree, I've been following this one for decades.  They got it right.

Tue, 04/03/2012 - 20:15 | Link to Comment max2205
max2205's picture

Huh, did I wake up yet. Burrrrrr. Not peak oil AGAIN. fuck:(

Tue, 04/03/2012 - 20:19 | Link to Comment PaperBear
PaperBear's picture

I have heard it said on the internet that crude oil may have a different origin to the fossil origin that is the accepted orthodoxy.

Is it bunk or is there anything you have seen on the internet to support a non-fossil origin ?

Tue, 04/03/2012 - 20:38 | Link to Comment Decolat
Decolat's picture

There may have been a little methane (natural gas) left over from the solar nebula, 4.6 billion years ago, still within the Earth. How much was left, and how much still remains in the ground is unknown. Primordial methane is indistiguishable from organic methane.

 

Methane is NOT abiotic oil. Don't get me started with that horseshit.

Wed, 04/04/2012 - 16:18 | Link to Comment smiler03
smiler03's picture

"Is it bunk or is there anything you have seen on the internet to support a non-fossil origin ?

I really think you need to discover search engines and to think for yourself.

Tue, 04/03/2012 - 21:06 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Let's take a moment and say . . . so what?  What does it matter how crude was created.  It is found where it is found.  You require a particular array of geological structures and when you seismically image the rock and find the desired rock structures in your image, you drill.

And one out of three times (present odds), your hole finds something.  That's as good as it gets. 1:3.   Decades of drilling unpromising structures ate up enough money to teach the lessons.  You don't do that anymore.  You know where oil is found and you drill there.  You drill when you have promising structure, and you fail 2 of 3 times when you drill.  That's state of the art and it costs a lot of money.

Those promising structures are getting very scarce.  The issue is not improving the 1:3 ratio.  The issue is we've already tried everywhere such structures exist.

See how those words didn't care about biotic vs abiotic?  The oil is in the structures.  Doesn't matter how it got there.  It is the undrilled *rock structures* that are scarce.  It's origin-of-oil independent.

Wed, 04/04/2012 - 00:14 | Link to Comment Curt W
Curt W's picture

Every element known to man was forged in the nuclear furnace of a sun, or in the explosive blast of a super nova, oil is a form of carbon, just as coal, or diamonds, or you.  It all comes down to the recipe.  The chance of oil being present before biologic processes is exceedingly small, but can not be ruled out.  Then again, there is a very large possibility that the core of the earth contains millions of tons of gold, as heavier elements would have sunk to the bottom of the gravity well as the earth cooled.

 

Two problems.

1.  To get to it you would need to smash the earth to pieces.

2.  There would be no place to spend your profit then.

Tue, 04/03/2012 - 20:20 | Link to Comment overmedicatedun...
overmedicatedundersexed's picture

"cheap energy is BAD for America"..B Obuma semi black and always right.

Tue, 04/03/2012 - 20:32 | Link to Comment indygo55
indygo55's picture

How come "abiotic oil" was never mentioned? Haven't the Russians already figured this out?

Tue, 04/03/2012 - 20:55 | Link to Comment easypoints
easypoints's picture

Snake oil has also been figured out, and you can get some if it pleases you. Even if it was abiotic, it would not be able to sustain the exponential growth we have become accustomed to.

Tue, 04/03/2012 - 22:57 | Link to Comment That Peak Oil Guy
That Peak Oil Guy's picture

I was wondering why they didn't include oil from pimply teenagers.  We could milk the next generation for their oil and save modern civilization!

Tue, 04/03/2012 - 20:44 | Link to Comment yogibear
yogibear's picture

Start an IPO called infinite oil to drill down 40,000 feet and get fund managers to throw their money down the hole.

Have a nice administration fee directed to offshore accounts. Then claim bankruptcy. 

Tue, 04/03/2012 - 20:57 | Link to Comment Milestones
Milestones's picture

Growth is not possible on a finite RESOURCED planet if population continues to grow at about 1 1/2 t0 2 % per year. Continued increasing population and pollution (Popullution) and decreasing water and soil erosion will almost certainly drastically reduce the planets sustainability of 7 Billion + people.

If the bankers don't get us, ma nature will.

The world needs a massive change of thinking when most mericans can bare write their name in the dirt with a stick.       Milestones

Tue, 04/03/2012 - 23:24 | Link to Comment Matt
Matt's picture

Here on Earth we live on a planet that is in orbit around the Sun. The Sun itself is a star that is on fire and will someday burn up, leaving our solar system uninhabitable. Therefore we must build a bridge to the stars, because as far as we know, we are the only sentient creatures in the entire universe. When do we start building that bridge to the stars? We begin as soon as we are able, and this is that time. We must not fail in this obligation we have to keep alive the only meaningful life we know of.  - Werner Von Braun

Tue, 04/03/2012 - 23:38 | Link to Comment Curt W
Curt W's picture

I would love the idea of traveling to the stars, but our current world governments are too busy digging the biggest debt hole in the universe.

I fear we will be back to gunpowder and horses before we reach another star.

Maybe during the next industrial revoulution in a couple hundred years they will get it right.

Wed, 04/04/2012 - 03:16 | Link to Comment New World Chaos
New World Chaos's picture

If we go back to horses and gunpowder for more then a couple generations, then there won't be another industrial revolution.   The machines will break down, the unmaintained skyscrapers will corrode away, specialists will take knowledge to the grave, the easy resources will be gone, and there won't be the resources to build the heavy machinery needed to get the difficult resources.  We could get a second enlightenment but it would remain stuck in the renaissance indefinitely.  This is why we must get offworld soon.  Sooner or later, Earth will go world government, world North Korea, world cannibalism, and then cowboys and Indians forever.

Tue, 04/03/2012 - 21:02 | Link to Comment rosiescenario
rosiescenario's picture

"The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach."

 

To me the Global Horizon incident indicated what happens when BP  is trying to rush things and did not listen to the operator nor follow the correct safety procedures. In other words they serve as a good example of Taleb's metaphor..."collecting nickels in front of a steam roller."

Tue, 04/03/2012 - 21:21 | Link to Comment hardcleareye
hardcleareye's picture

Guess you haven't been reading about the

Gas Leak at North Sea Elgin Platform....

looks like another little fuck up with a BOP (looks like they just didn't have one) and plugs that don't plug and casings that leak.......    good news it's sour gas and not crude, bad news it sour gas..... boom...... hate to be the poor bastard engineer that has to "go assess conditions,"

http://www.reuters.com/article/2012/04/03/us-total-elgin-gas-idUSBRE8320...

Scroll down and Read "Rockman's" comments on TOD

http://www.theoildrum.com/node/9072#comments_top

Tue, 04/03/2012 - 21:03 | Link to Comment hardcleareye
hardcleareye's picture

Great article, read it on TOD last week, glad to see it on ZH.

For those of you interested in read the "industry" old dogs critic on this, there are some really good comments worth reading at the end of the article on TOD.

http://www.theoildrum.com/node/9015

Tue, 04/03/2012 - 21:06 | Link to Comment Ocean22
Ocean22's picture

What happened to all the Iran war headlines? Were we being played?

Tue, 04/03/2012 - 21:06 | Link to Comment q99x2
q99x2's picture

What if there is too much of everything already and people suddenly start to like playing music, baking, knitting, night school and telling stories instead of wasting gas on driving to work...and the Rotheschildes, Rockefellers and those kinds just start sending everyone monthly Government checks...I mean like wouldn't that buy us some time?

Tue, 04/03/2012 - 21:27 | Link to Comment Jason T
Jason T's picture

Just awesome.  Economics and energy go hand in hand.  Work = Energy.  Start planning now!

Tue, 04/03/2012 - 21:36 | Link to Comment steve from virginia
steve from virginia's picture

 

Times change. Not so long ago 'Tyler Durden' was pimping hot cars here on ZH. Now, it turns into The Oil Drum.

Time's a changing. Next: organic gardening on ZH!

 

Tue, 04/03/2012 - 21:51 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

I have a very big garden and a very hot car.  The two are not mutually exclusive...yet.

Tue, 04/03/2012 - 22:00 | Link to Comment DCFusor
DCFusor's picture

There are certainly plenty of people here who would be well served by doing some gardening, or for that matter, anything real that takes actual effort and isn't done indoors.

Tue, 04/03/2012 - 22:30 | Link to Comment Hulk
Hulk's picture

Dude! ZH is beyond Organic...Get with the times !!!

Tue, 04/03/2012 - 21:38 | Link to Comment hardcleareye
hardcleareye's picture

edit posted in incorrect place

Tue, 04/03/2012 - 22:09 | Link to Comment dolph9
dolph9's picture

Start to put together the pieces.

There is, for all intents and purposes, a large, practically infinite supply of oil IF all we did with it was make plastic trinkets.

But, we don't...we burn it, we destroy it, to power our cars and trucks and planes.  The world over.  Every one of us, when we fill up our tank, are setting the price of oil when we do so.  Never, ever, think that you are the only one who is trying to do this.  7 billion people are trying to do this.  They are trying to burn the oil to move around.

This is what gives peak oil it's particular significance at this juncture at time.  In theory, peak oil could be "peak jellyfish" but it's much more than that, precisely because it's the vital fuel that we all need so much of.

The solution?  GET OFF OIL.  But, I'm not holding my breath.  Even I have to go to work and back.  There are no trains, and if I walked or biked, it would take a day just to get to work.

So the best thing that any one of us can do is to start to localize.  Start to think about distances and costs of fuel.  Think about it, every single time you decide to go somewhere.  I guarantee, if you do not have the means and keep on filling the tank, you will bankrupt yourself and end up in the ghetto or trailer park.

Tue, 04/03/2012 - 23:20 | Link to Comment Curt W
Curt W's picture

Everybody who drives more than 10 miles to work should change jobs or homes with somebody going the other way.

Wed, 04/04/2012 - 16:30 | Link to Comment smiler03
smiler03's picture

I foresee a huge growth in car sharing.

Oh, and a personal bugbear, if somebody isn't making something or moving around to do their job then why should they have to go to a remote building and park their ass on a seat all day long when they could do it all at home using telephones and that internetty thing?

Possible answer: Bosses would be redundant.

Tue, 04/03/2012 - 23:07 | Link to Comment Dr. Hannibal Lecter
Dr. Hannibal Lecter's picture

good gawd, the wall of text.  good thing i lost all interest when i read "peak oil" in the header.  where's the face-palm icon?

 

Tue, 04/03/2012 - 23:17 | Link to Comment Curt W
Curt W's picture

Anybody who has seen a picture of the earth taken from the moon, and then claiming there is an infinite amount of oil...

Is either not sure of the definition of infinte, or completely mad.

Tue, 04/03/2012 - 23:57 | Link to Comment deflator
deflator's picture

 Usually, those claiming there is an infinite amount of oil have a vested interest in there being an infinite amount of oil. The latest fiat Ponzi scheme could not have lasted as long as it has without the past 150 years of growth in the production of cheap transportation fuels.

 The fiat Ponzi is running on the fumes of the retiring baby boomers who have only known the growth paradigm and refuse to accept the reality that there is such a thing as a down side.

Wed, 04/04/2012 - 01:08 | Link to Comment Curt W
Curt W's picture

Most people who deny peak oil also deny global warming and the idea that there could be too many people, they think that the resources will last forever, despite our almost expotential growth in population.  Science has been denied by various groups of people for thousands of years.

Granted there are some who would skew scientific tests to favor their benefactors, but our world is finite, and every natural resource will eventually become scarce.

 

WOW just saw 48"ft containers 300 ft off the ground in texas. on the news

Wed, 04/04/2012 - 03:08 | Link to Comment deflator
deflator's picture

a disclosure of something hidden from the majority of mankind in an era dominated by falsehood and misconception

 Who did the "hiding" and who was the majority of mankind that was dominated by falsehood and misconception?

Wed, 04/04/2012 - 00:09 | Link to Comment lolmao500
lolmao500's picture

No oil : no food for most of the developed world = total chaos.

Wed, 04/04/2012 - 01:40 | Link to Comment Curt W
Curt W's picture

The very idea that the world economies can continue to have a 2% growth through central bank manipulation is impossible. 

 It has been maintained, certainly not a straight line, but on an average for decades.

  But unless the earth is growing, it will come to an end.  WE must find an economic model that is static.

where a  zero population growth will maintain a zero change in every economic value.

 

All other growth is inflationary not organic.

Wed, 04/04/2012 - 02:08 | Link to Comment Curt W
Curt W's picture

If you take central banks out of the equation, 

The only reason a product would rise in price is there are more people who want it.

If you have a static population, all price changes would be driven by fads.

If we don't control population growth, we will grow expotentially and  crash, like any animal that is moved out of their predators normal range.

 

All economic growth is transitory, not real.

With out this transitory growth, we would not have computers and cars.

We are destined to go extinct just like the dinosaurs.

It is the natural growth cycle ingrained in every life form in the universe.

A thousand years ago, humans realized the circle of life.  We have cool toys, but the circle is still there.  See ya later, 

 I mean in a couple thousand years.

 

OK I need to stop smoking that shit.

Wed, 04/04/2012 - 01:40 | Link to Comment UrbanBard
UrbanBard's picture

You are making a mistake: you have not considered the effects of regulation on oil production. The current production is not evidence that we are running out of cheap oil. The reason that BP was not drilling near the shore was that the US government would not allow permits to drill closer. Nor will it allow drilling off Alaska or the East and West coasts.

We have in America about 20 times as much energy as in the Mideast, but the government will not allow the tar sands in Colorado to be tapped, nor the natural gas found in the Chukchi Sea. Fracking caught the Environmentalists off guard, which is why they didn't try to shut it down. They are gearing up a PR campaign against it as I write.

We have enough energy in Coal to supply all our energy needs for a century. The problem is that we need to utilize it efficiently, which burning it directly does not do. But, we can easily and cheaply convert coal to methanol. All we need is an energy source. Nuclear energy could produce electricity and fuel, but the administration is strangling the nuclear plants which the Bush administration approved.

Our problem is not a lack of cheap energy; we have to contend with economic saboteurs. 

Wed, 04/04/2012 - 02:38 | Link to Comment Blackfox
Blackfox's picture

The Olduvai theory,will be a nice read to many of you.

http://en.wikipedia.org/wiki/Olduvai_theory

Wed, 04/04/2012 - 04:01 | Link to Comment suckerfishzilla
suckerfishzilla's picture

"The  Deepwater Horizon incident demonstrated that most of the oil left is deep offshore"   How does a drilling accident demonstrate that?  Saudi Arabia will run out of oil before the US does.  Aside from that the slaves should revolt and demand an end to the prohibition of hemp fuel production. 

Thu, 05/31/2012 - 09:45 | Link to Comment tranzvient
tranzvient's picture

It seems that most of the countries in the Gulf are increasing the production as indicated in many interviews such as - Kuwait Oil Production, interview with Bahrain's minister of oil and gas - Peak-Oil Theory: Oil Reserves Estimate in the Middle East by Bahrain Oil and Gas Minister. Most people agree there is enough oil and heavy investment is being poured into the sector. 

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