Are the worlds economies too reliant on oil?

[Misthos]

Quote from Ed Breen:

Misthos, U.S. production increased by 460,000 BPD last year, the biggest gain in 40 years. Proven World Oil Reserves increased by 700M Barrels...gains in Brazil, Denmark, Saudi Arabia, Egypt and Indonesia offset declines in Mexico, Russia, Norway and Vietnam. World refining capacity grew by 2.2%, mostly in China and India. At the same time, world oil demand declined by 2M barrels per day. (See BP 2009 Statistical Review).

Technology and cost is driving efficiency gains dramatically in the Developed world. Technology is also driving access to more natural gas which will increasing compete and replace oil in both transportation and non trasportation uses...expecially if the oil price rises. Consider the efficiencies that were created by technological advancement in the history of agriculture and do not assume with enough incentive for profit that the same is not possible with oil use. It is also a mistake to assume that the growth of China, India and the rest of the emergin world will follow the same historical path of oil use that was followed by the Developed world...don't you think they will use the new technologies too?

All in, through fossil feul subsitution (NOt the fantasies of Wind or Solar) and maybe some increased nuclear development (capital cost is too high), combined with rapidly advancing technological driven efficiency in use...world demand will continue to drop...and 2008 will likely mark the peak in annual world oil consumption.

Ed, I have covered peak oil a lot on this board in the past. Honestly, I'm not up to regurgitating all the past info - nothing against you, but I try to avoid the discussions - I feel like it's pointless. Too many see a "Green" conspiracy, and others see a "Big Oil" conspiracy. The truth is, times have changed.

I firmly believe that the world is facing an energy crisis, and this crisis is feeding the financial crisis - hence the demand drop. There's a concept called EROEI - energy returned on energy invested. It has been dropping the past 100 years. There's a lot of material on the web on this school of thought - Biophysical Economics.

One hundred years ago, the US was the world's largest oil exporter - a position held up until the 1950s. The oil extracted back then was surface oil that blew out - it had just that much pressure. It was alse extremely high grade, much of it didn't need a lot of refining. 100 years ago, the energy contained in one barrel of oil was enough to extract 100 barrels of oil. Today, that same barrel of oil can only extract about 17 barrels - and we have to turn the earth upside down, we have to drill 10s of thousands of feet, we have to inject gases to create pressure... it's a very different game now.

If you have an hour to kill, I highly suggest this presentation by a Petroleum Engineer from Stanford:

http://www.youtube.com/watch?v=KTsYjRqPmNA

You also have to distinguish between the different oil grades. It's much more complicated than looking at all oil equally. Tar sands, shale oil, heavy crude, and light sweet crude that spews out of the ground from its own pressure involve different levels of energy for extraction and refinement. The trend is that the easy stuff to extract and refine is diminishing, and the difficult stuff is taking on a larger market share. It's much more nuanced than looking at raw barrel figures.

You want tar sands? Then you have to consume a large amount of natural gas to extract that oil. Tar sands are also a mining operation. People just look at the technology without taking into consideration the energy involved to create energy. We have been blinded by efficient market theory and ignore the realities.

 

[heypa]

Back to the question. The answer is yes.The statement "too big to fail" comes to mind.
The rate of energy consumption overwhelms all other sustainable energy conversions.
There are still vast quantities of other stored materials to produce usable energy.
The need to replace oil still has not reached economic parity with oil.
Someday it will and the alternate will be developed by the capitalist entrepreneurs trying to fill a need as a way to make money.
Governments just get in the way and kill progress.
To name one possible source Methane hydrate. It is available in vast undersea deposits.Remember the frozen crap that blocked B.P.s fires attempt to capture the oil in "The Leak"?
For the environmentalists how about increasing the efficiency of solar collectors to at least exceed the old Rankine cycle steam generators?

 

[Ed Breen]

Misthos, I appreciate your expressed 'patience' and acknowledge that you know something about what you are talking about, but with due respect your response did not address the argument point...to my mind it reinforced the idea...technology driving increased supply, increased efficiency in use, substitution...reduces your complaints to a simple price issue, price will allocate supply and it will drive supply and substitution. You really don't have to do anything about it.

 

[Random.Capital]

Quote from Ed Breen:

...and 2008 will likely mark the peak in annual world oil consumption.

I'm not convinced 2008 was the world consumption peak, but I am ok with the suggestion that if it wasn't, it will probably be close. Don't necessarily agree with it, but it is plausible.

But I'm with Misthos on the broader issue - when peak demand comes, it won't be because of "energy substitution", but due to the high cost of petro, which in turn means we've likely passed "peak economic growth" or whatever we want to call it. Put another way, it's not demand reduction, it's demand destruction.

That, IMO, would make for an ugly transition.

The least painful path forward, in my way of thinking, is bouncing around $100-$150/bbl for a long time - not so high to kill, not driven to cheap by wrecked economies, allowing a relatively long supply of petro at relatively stable prices with which to make a long term transition to whatever comes next.

 

[Random.Capital]

Re: increased "reserves" - a number of the countries you cite are either OPEC members or trying to become OPEC members. OPEC quotas derive from "proven" reserves - higher "proven" reserves allows for higher production.

I would take anything reported there with a large grain of salt.

 

[Misthos]

Quote from Ed Breen:

Misthos, I appreciate your expressed 'patience' and acknowledge that you know something about what you are talking about, but with due respect your response did not address the argument point...to my mind it reinforced the idea...technology driving increased supply, increased efficiency in use, substitution...reduces your complaints to a simple price issue, price will allocate supply and it will drive supply and substitution. You really don't have to do anything about it.

'
Ed - watch the video. Peak Oil, to me, is not just about flow rates/production. It is also about reserves, it is about grades, it is about cost as a percentage of gdp, it is about EROEI, and the amount of people coming onstream that want oil as well.

peak oil is multi dimensional - it involves how we find energy, how much energy we use to get it, what it costs society and the economy at large, and what we get out of it.

We are not discovering oil at the pace we used to. Nowhere near it. You can't compare Cantarell, North Sea, and most importantly Ghawar with any other discovery the past 40 years.

All the trends are negative.

Mankind did not face a crisis of horses when he discovered oil and later used it for the internal cumbustion engine. Oil was an accident of history just sitting there for the taking. And it changed our lives - the population skyrocketed. I don't see any other energy source being so cheap and readily available as oil was in the 1900s.

 

[Ed Breen]

I accept all that...it still doesn't matter.

Read Don Yergin's (Cambridge Energy Research) congressional testimony in front of Congressional committe on Oil Price Rise in the spring of 2008 regarding peak oil an peak demand and drivers of price volatility in oil trading. Problem is prior lack of capital investment in capacity...lost decade of both physical and intellectual investment...not only in production, but also in distribution, (storage capacity now same as 1980 but tremendous increase in volume...maybe if we trained more drilling engineers in 90's we would have had some sober experience in making decision on the Horizon well...). There is plenty of oil that will be affordable to sustain quality of life and growth even at higher

 

[Misthos]

Quote from Ed Breen:

I accept all that...it still doesn't matter.

Read Don Yergin's (Cambridge Energy Research) congressional testimony in front of Congressional committe on Oil Price Rise in the spring of 2008 regarding peak oil an peak demand and drivers of price volatility in oil trading. Problem is prior lack of capital investment in capacity...lost decade of both physical and intellectual investment...not only in production, but also in distribution, (storage capacity now same as 1980 but tremendous increase in volume...maybe if we trained more drilling engineers in 90's we would have had some sober experience in making decision on the Horizon well...). There is plenty of oil that will be affordable to sustain quality of life and growth even at higher

Watch the video.

And I have read Yergin... I don't have a lot of respect for him. CERA is a shill for the oil companies - I guess that's tinfoil, no?

Follow the raw data - IEA and EIA.

 

[Random.Capital]

Quote from Ed Breen:

There is plenty of oil that will be affordable to sustain quality of life and growth even at higher

It's not about running out of oil. It is unlikely we will *ever* run out of oil.

It's about running out of ever-cheaper oil, which has already happened, and the trend is accelerating.

It's really not any different than, say, cedar. There are 100 year old farm fence posts out there, still fully functional, yet the typical cedar post you buy today will rot in less than 10 years in the ground. The difference is the old-timers were cutting down ginormous trees and using heartwood - those trees are gone (or now off-limits) and haven't been replaced so the new stuff is immature sapwood and simply doesn't hold up. You can still get heartwood cedar, but it is expensive as hell.

We hit peak-Cedar maybe 80 years ago - but it doesn't mean we don't have any cedar at all.

 

[Ed Breen]

Misthos, I watched the video. It was very good even though it was a little long...but I went short oil when I started watching...buying DUG at $69 and then sold DUG when it was over at $72.50. So, really thank you.

Two minor citicisms of the presentation. 1. He fluffs over the significance of the shift from production by the Seven Sisters until the 1980's and then to nationalised production thereafter. You will note that 1980 marks a significant date of change on a number of his production charts. I would suggest that the move from private mineral rights to public mineral rights itself reduced discovery and exploration. Consider how many wells have been drilled by national oil companies post 1980 and where they have been drilled compared to private drilling and where they were drilled. I realize there is a lot going on with this point in terms of total production and the cost of production and the yield per well, but you have to admit that there is something strange when even today the overwhelming prepoderance of new wells is drilled in the U.S. where the prospects are fully explored. Mexcio, right next door doesn't drill hardly at all. 2. He also fluffs over technological efficiency of consumption, just hinting at it at the end in question section.

So, given the video, and going back to my point about demand peak to which you responded in this discussion...So what? You keep talking about supply limits and you have me watch a movie about supply limits...what about demand? I was talking about demand.

There is a relationship between supply and demand that is moderated by price...as the supply declines so will the demand...if it fact we did reach (just for the sake of this demand discussion) peak world oil supply in 2005, then that supports my suggestion that 2008 will mark peak oil demand.

I'm not hear to promote Yergin but I find it distasteful that you dismissed him with a personal slur and did not engage any of his ideas even though you imply that you know them. That's not argument, its evasion.