Why Peak Oil Will Never Lead To $500/bbl Crude Oil

http://www.chrismartenson.com/forum/why-peak-oil-will-never-lead-500bbl-crude-oil/38937

by cwan • 16 years ago

50 70 16 years ago

RyanMcGreal6• 16 years ago

It's more basic even than this. Market demand for oil collapses (read: recession) long before it gets anywhere close to $500/bbl.

pw0ncakes4• 16 years ago

It could certainly get to $500/bbl, but it's unlikely that it would. Before reaching this point, it would have wrought misery on the world economy, as you've described (and "recession" is an understatement).

w00pla2• 16 years ago

> Market demand for oil collapses (read: recession) long before it gets anywhere close to $500/bbl.

Above $80 a barrel, alternative fuels (such as liquid fuels from coal) becomes profitable. I sincerely expect that this will expand extremely rapidly in the next 15 years.

CWuestefeld4• 16 years ago

And resources such as natural gas are at very low prices right now, due to recent development of huge deposits such as the Marcellus Shale. In the medium-to-long term, I think that substitutability between oil and natural gas would go a long way, once oil prices get to a point where oil looks less attractive.

While I'm not entirely unconcerned, I don't think there's any reason to panic.

RyanMcGreal6• 16 years ago

When demand becomes tight, the price driver is not so much the cost to produce as it is the rate of production. Can we produce five or ten million barrels of oil-from-coal a day? Can we replace a two or three percent annual drop in oil production rates through some combination of conserving and replacement without recessionary demand destruction? I'm not so sure.

pw0ncakes4• 16 years ago

No one with any credibility actually believes he can forecast the price of oil.

Oil is very inelastic in the short term, which is why small drops in supply lead to massive price increases. The long-term effect of unavailable or expensive oil will be "demand destruction"-- many of those who currently use oil will either move to alternatives or go out of business-- and political fallout with unpredictable results.

Retric• 16 years ago

You can manufacture oil for around 100$ a barrel from coal. So the chances for inflation adjusted oil above 200$ / barrel lasting for more than a few months within 50 years is tiny. The best way for current suppliers to maximize profit is to occasionally spike prices, and then drop them before alternatives start to diminish demand.

pw0ncakes4• 16 years ago

What are the inputs into this manufacturing process? The $100/bbl figure is meaningless, unless we know what the specific inputs are and how stable their prices and availability are. Energy of some sort is obviously a major input, and it's unlikely that oil will spike without having a similar effect on the overall energy market.

So the fact that oil could be manufactured from coal at $100/barrel now doesn't mean that we'll be able to do so when we need it most.

edj• 16 years ago

People investing in futures do this every day, and some of them are most certainly credible. Southwest Airlines, e.g., seems to be pretty good at saving a buck with aviation gas futures (though that is a step removed from crude oil).

pw0ncakes4• 16 years ago

There's a difference between buying futures (which may or may not pay off) and reliably predicting the price of oil.

Also: Southwest buys fuel futures to hedge its exposure, which is different from speculation. People hedge because they don't know what the price will do, and want to be OK regardless of price movements.

hugh3• 16 years ago

People investing in futures do this every day, and some of them are most certainly credible.

If it were possible to do significantly better than blind luck in speculation about future prices then there'd be nobody around to take the other side of the contract.

lionhearted• 16 years ago

> Societal complexity is a function of excess energy availability

That's true in it's most trivial sense, and false in any non-trivial sense. Quick examples - Qatar, Venezuela, Japan.

randallsquared• 16 years ago

Your Qatar and Japan examples, at least, make his point: the complexity of those cultures reflect the resource conditions in which they developed. Not sure about Venezuela. Japan, in particular, was the only place in the world where hunting and fishing could support large settled populations, if I remember my Jared Diamond correctly.

WildUtah• 16 years ago

Japan, in particular, was the only place in the world where hunting and fishing could support large settled populations

Louisiana was more productive than Japan for wild fish and fowl. (Largely destroyed now by bad planning, pollution, and man-made environmental disasters)

dinde2• 16 years ago

I got pretty into peak oil circa 2006, when peak was supposedly already occurring or was going to occur by 2008. It will happen eventually, but I'm not going to get into playing this guessing game again.

RyanMcGreal6• 16 years ago

No need to guess. Oil production has been flat around 85 million barrels a day for the past four years.

dinde2• 16 years ago

Demand has been lower due to the global recession -- there is no indication that oil production can't go higher than ever before, once demand starts picking back up.

jacoblyles• 16 years ago

You know that 100 years ago people were panicked about peak coal. And "experts" (mostly environmentalists who have an agenda against industrial society) have predicted peak oil every ten years for the last 60.

heyrhett• 16 years ago

Why is bbl the abbreviation for "barrel"?

Ahh, wikipedia knows: The "b" may have been doubled originally to indicate the plural (1 bl, 2 bbl), or possibly it was doubled to eliminate any confusion with bl as a symbol for the bale. Some sources claim that "bbl" originated as a symbol for "blue barrels" delivered by Standard Oil in its early days; this is probably incorrect because there are citations for the symbol at least as early as the late 1700s, long before Standard Oil was founded.

bitwize• 16 years ago

I thought it was just for nicer symmetry with hogshead (hhd).

logic• 16 years ago

http://seekingalpha.com/article/18636-where-does-that-2nd-b-...

Quote:

In the early 1860's, when oil production began, there was no standard container for oil, so oil and petroleum products were stored and transported in barrels of all different shapes and sizes (beer barrels, fish barrels, molasses barrels, turpentine barrels, etc.). By the early 1870's, the 42-gallon barrel had been adopted as the standard for oil trade. This was 2 gallons per barrel more than the 40-gallon standard used by many other industries at the time. The extra 2 gallons was to allow for evaporation and leaking during tranport (most barrels were made of wood). Standard Oil began manufacturing 42 gallon barrels that were blue to be used for transporting petroleum. The use of a blue barrel, abbreviated "bbl," guaranteed a buyer that this was a 42-gallon barrel.

fhars• 16 years ago

That quote doesn't explain why the abbreviation was used about a hundred years before stabndard oil introduced the blue barrel, as claimed by the wikipedia quote in the comment you ansered to. In fact, your quote just reiterates the claim that wikipedia said was probably false, so to make your argument you should instead show that the citations from the late 1700s are wrong.

EDIT: This will be difficult, as it is quite easy to find citations for "bbl oil" from before 1850 using google books, the first I found was on p. 239 of a book called "Railway engines and cars" from 1832. So the blue barrel legend can be firmly laid to rest in peas.

gnosis2• 16 years ago

Executive summary:

The author expects "government intervention of some kind to occur before prices get much above $200/bbl."

SanPedroGrouch• 16 years ago

government intervention is of course a euphemism for rationing. Rationing creates shortages which in turn causes steeper rationing, with the result being the economy slows to whatever pace is consistent with the limited supply of energy. For the USA that looks to be a lonnnng way down from here.

gnosis2• 16 years ago

Not just rationing. TFA talks about price controls, nationalization of oil companies, and even outright invasion of other countries to obtain "cheap oil".

jbooth4• 16 years ago

A combination of subsidies and taxes could align incentives well in advance without resorting to outright rationing.

robryan2• 16 years ago

I think the Internet will do a lot to lessen the effect of this when it does happen. People who can work from home probably will, when it costs a quarter to half your days wage just to make it to work it will offset any benefit you get by having a team in the same building.

Also online distribution, things like books might become prohibitively expensive in the physical form and drive everyone to ebooks, all creative products really.

synnik2• 16 years ago

But the electricity powering the Internet is also somewhat oil-based, depending on exactly what fuels you local plant runs. It may not impact the individual homeowner, but the costs of the data centers and network providers will increase alongside oil prices.

robryan2• 16 years ago

True, without any specific knowledge I would guess that power online services would still be more economical than revering back to an offline business model. Sure the costs will go up but freighting costs will go up more.

philwelch2• 16 years ago

Very little electricity is petroleum based anymore. Depending on region it's mostly coal, hydro, or nuke.

klochner• 16 years ago

Two things:

a) oil != gasoline http://www.ranken-energy.com/Products%20from%20Petroleum.htm

b) Demand destruction doesn't preclude $500/bbl crude, it just means that when oil hits $500 there won't be nearly as many products that are dependent on it.

izend• 16 years ago

We will reach $500/bbl eventually after the US dollar is hyper inflated away.

timcederman• 16 years ago

I keep hearing about how hyperinflation is about to hit. Surely in an efficient market, if this was truly likely, its effects would already be being felt? What is the rationale behind its prediction?

philwelch2• 16 years ago

Goldbugs think any fiat currency will eventually hyperinflate. Note this is an unfalsifiable hypothesis.

mediaman• 16 years ago

Monetization of massive US debt, particularly due to the present value of the future liability of social programs. If current spending patterns don't change, monetization is the only alternative to defaulting on Treasury obligations, unless we begin cutting programs (ex. military spending) to help fund those liabilities or reduce those liabilities by reducing social program benefits.

Given what just happened in the RMBS and CMBS market, it's hard to claim that we live with an efficient market, particularly with respect to long-term trends.

motters3• 16 years ago

I wouldn't be so confident about naming a particular ceiling price, but as oil becomes more expensive demand will fall and individuals and industries will move to other sources of energy. In particular within the next 5-10 years it looks as if electric vehicles are going to be a growth area, mainly driven by rising costs on conventional fuel.

ars5• 16 years ago

Electricity is not a "source of energy". If the price of oil goes up the price of electricity goes up too.

There are no other sources of energy that are really practical today. Although some are close.

motters3• 16 years ago

The price of electrons is not necessarily linked to oil production, since electrons can be produced in ways which don't require much or any oil.

There are other eminently practical energy sources available. The main issue is that these have historically not been price competitive with oil. As oil extraction becomes more difficult the economics of energy will change.

strebler• 16 years ago

I would like to see some sources for the "more than 100 years of oil left" claim. If it's at all based on 'public reserve levels' declared by oil producing countries, those are basically totally fabricated.

http://www.telegraph.co.uk/finance/newsbysector/energy/oilan...

In any case, it's the first claim in the article, he should back it up.

DanielBMarkham• 16 years ago

Dick Cheney returns to political power as an American Hitler laying waste to sovereignty in the Middle East!

Very imaginative. But not very likely.

I think peak cheap oil is likely within the next decade. What a person thinks happens after that says more about the person than it does the future.

Sapslzr• 16 years ago

"Collapse" a pretty good documentary on the subject

patrickk2• 16 years ago

“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” Sheikh Yamani, Saudi Oil Minister, 1962-1986

cookingrobot• 16 years ago

That's poetic - but is it true?

metamemetics• 16 years ago

Definately. We've had commercial electric cars since 1897 and commercial nuclear power plants since 1956.

patrickk2• 16 years ago

We've been here before, too, except before it was food shortages and 100s of millions dying that were being predicted in alarmist tones:

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

And the solution, which apparently now sustains one third of the world's population:

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

My prediction, is that like before, science will solve the problem and this will all disappear into the memory. Man's capacity to wipe itself out is far outpaced by it's ingenuity to sustain itself.

Then: Cold War, oil shocks

Now: Terrorism, oil shocks

History always repeats itself.

Why Peak Oil Will Never Lead To $500/bbl Crude Oil

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