Underlying nearly all discussions of the oil price is a standard economic concept: supply and demand. It seems so elementary that there is no doubt of it. It says that demand has been growing more rapidly than supply recently and that at some point the world will reach Peak Oil and the price will zoom northwards.
But the reality is more complex. Peak oil is not just a point in time or even a plateau when oil supply becomes unable to expand to meet demand. We need a more nuanced model for oil prices that includes several other factors.
First, there is the role of speculators. OPEC officials often say the locals in New York are the culprits responsible for higher oil prices, an idea that often is dismissed as simply a way for OPEC to focus attention away from their own responsibility. But the fact is that prices are determined in the oil futures pit to a large extent and some speculators, like hedge funds, are represented in the pit. Speculation is not just a form of gambling or “playing” the weak dollar. It also serves to move forward the future supply and demand impacts on the oil price that speculators see coming.
Second, is the mindset of the oil exporting countries, including OPEC, which are increasing supply at a slower rate than they could. I call this hoarding but it is known more commonly as “resource nationalism.” It is abundantly clear that supply is being diminished by hoarding. I recommend to your attention the collection of examples that I have catalogued under that heading, on which you can click above.
In a sense, the speculators in New York and the oil exporters who are hoarding their supplies are thinking and doing the same thing. They are bringing forward in time a supply/demand crisis that they anticipate will happen some day in the future. Speculators do it in the futures markets. Exporters like Russia, certain OPEC countries and Mexico restrict production through various "resource nationalism" policies. Both act based on the expectation of higher future oil price with the impact of bringing such prices forward.
Third, and most complex are cost pressures. The paradigm example of costs reducing potential supply is the “oil shale” deposits in the American West and elsewhere. CERA, the ever-optimistic consulting firm that makes its money from companies and governments that have a stake in keeping oil prices low, likes to refer to the vast quantity of hydrocarbons still in the ground, a large percentage of which is oil shale. CERA points to such “reserves” as a reason to doubt the coming of peak oil. But the reality is that no economical means of producing oil from shale deposits has been discovered despite decades of government-financed work by big name companies. Oil shale is simply too expensive to process into oil for it to work at an oil price of $100 – or even at $200.
Thus, cost is translated into supply.
Underlying the poor economics of oil shale is the negative EROEI – that is, Energy Return on Energy Invested. It just takes too much energy to make crude out of oil shale. You spend more to make it than it creates. That means that as the oil price rises, so does the cost of the energy input needed to turn the shale into oil. So no price of oil is likely to liberate crude oil from oil shale deposits. The brilliant geologist Kenneth S. Deffeyes wrote in Beyond Oil that oil shale will probably not be developed until a very cheap source of solar power is available to supply the energy input. That is not likely to occur in scale until well beyond the advent of peak oil.
I use oil shale as a gross example of cost limits to oil production. But more subtle and current cost pressures are already at work. Such cost pressures reflect the shortage of an input needed to produce oil. Whether that input is deep sea drill rigs or trained personnel, the shortage restricts production.
A recent Wall Street Journal article highlighted the shortage of trained personnel throughout the energy sector. It refers to a 2005-2007 survey of top management and HR people which indicated that “More than 70% of energy companies expect their future operations to be hit by shortages of skilled personnel…” The shortage, resulting from a drought of recruiting in the 80’s combined with recently growing expansion needs, is captured by the following statistic: fully half the energy work force will retire within ten years.
Where production cost issues and supply constraint issues intersect most directly is in the cost of energy required to harvest new oil. When you go far offshore and drill very deep, when you mine oil sands using trucks as tall as three story houses, when you try to obtain oil from under the Caspian Sea during its hellish winter conditions, you use a lot more oil in the process. The higher that oil is priced, the more the cost of the oil you recover, as discussed in more detail here. So the cycle of high costs resulting in more limited oil production is self-reinforcing.
The way I think of it is like a plow preparing a field. It used to be that the field was flat and contained good soil. The plow would cruise right along. Now the field is on a hill and contains rocks. The only way to go in future years is higher and steeper with the rocks turning into boulders. Eventually, progress becomes extremely slow. That is what is happening to the production of oil.
In sum, higher costs of energy production are the mirror image of lower capacity to expand production. The two parts of the same whole problem mean that less oil is produced as it costs more. Less oil being produced is what leads “peak oil.” So are the higher costs of producing oil a result of “peak oil”…or are they an integral part of it?
We need to understand that the simple model of peak oil, expressed recently by an industry leader, as “when output growth stops the oil price will go through the roof,” is a vast oversimplification of reality. In fact, oil is already becoming scarce because of cost pressures, hoarding, and, sometimes, speculation. Of the three causes, cost pressures are the most constant and unrelenting and are causing the speculation and hoarding. Cost pressures are the economic evidence of physical factors that are restricting oil supply to levels that fail to meet global oil requirements. This concept was recently addressed by the president of Hess Corp, who said at the CERA conference, "The supply challenge is really not one of scarcity as some believe." Rather, it is a cost issue.
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This article has 9 comments:
We live on a sphere. Therefore, we have X amount of oil no matter the variety.
At some point we will reach X/2, and that will be peak oil.
It is rather mindless, stupid and counterproductive to thrash around like a spastic contortionist in order to somehow make the exogenous, and largely extraneous in the larger sense, events and details conform to an ideology rather than to physical facts.
We will run out of oil. We will be UNABLE to replace that energy at the same gargantuan level it was. Again, physics does not care about your sustainability and efficiency and alternative energy fantasies. NOT GOING TO HAPPEN.
Other shortages also come into play: soil, water, ocean life, copper, indium, gold, copper, silicon, aluminum, etc.
These elements will also get more and more difficult to produce with energy supplies falling. Witness South Africa and its shutting down mines due to lack of electricity. What one must recognize is that our civilization is like hovercraft. Sure we can enjoy the lovely air-conditioned interior, the running water, the great gambling facilities, the lovely food, entertainment, and working conditions -- until it all sinks into the sea because the fuel to run the massive support system shuts down.
One tiny brick pulled from the system may collapse the entire system. Without cheap energy we don't have all the other cheap support elements. Without those cheap support elements, we can't have an advanced technological society. Ergo, no solar cell utopia, no windmill fantasyland, no nuclear glowfest, no tidal energy hoedown.
People who pontificate on the possibility that someone is hoarding or speculating or whatever minor irrelevant distraction from the real issue they wish to conjure is really in fact dooming the planet to an even larger crash. They are doing you a disservice. They are in effect like a retarded fireman pointing you back into the burning building because the light is better.
Don't be dumb. Physics is simple. BSing people is evil.
Don't let the economists BS you. Remember, if you push something hard enough it will fall down.
I never was able to understand this kind of reasoning. So what if it takes more energy (as measured in joules) to get oil out of oil shale. We do not create energy, we only transform it into different forms, and we always spend energy in the process. Oil is likely to remain valuable for a long time because it's such an efficient and versatile fuel. The rise in the value of oil creates incentives to use other forms of energy to extract it. Don't use oil to extract oil, use gas, electricity (solar, wind etc.), e.g. for heating shale or tar sands. There is no need to wait for "very cheap source of solar power," we just need to get to a point where oil is more valuable than solar-generated or other forms of energy.
Underlying all shortages is this simple premise: we all live on a big round spaceship called Earth that can support a certain population in a sustainable manner. But we have far, far too many people on our spaceship to make many, many resources "sustainable"... This goes double for non-renewables like oil. As long as organized religions exhort their followers to "multiply and be plentiful", (read "Give me more donors") we are in deep trouble. Read "The End of Faith".
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Good article!
No doubt some of the increase in crude is due to greed, speculation and hype. And, it may all be true that what we have been told about peak oil is in fact a hoax.
Same as the skeptics that claim global warming is a hoax.
It may all be a conspiracy, just a cruel trick on the consumer to line the pockets of industry with more money...only time will settle this debate
www.prisonplanet.com/a...
www.conspiracyplanet.c...
aftermathnews.wordpres.../
www.energybulletin.net...
But I always tell the proponents saying peak oil is a conspiracy and think that we have an unlimited amount of oil, natural gas, coal, uranium...actions speak louder than words.
We can look at Hubbert's prediction of the USA's peak.
en.wikipedia.org/wiki/...
He was exactly right.
We can look at global oil production and see what the general trend is.
Look at the UK and other countries like the US that had been energy exporters in their heyday. Now they are all energy importers.
See:
www.oilcrashmovie.com/
We can look at the trend in drilling to see how deep we have to go to find oil. How many big finds are being made?
We can look at the quality of crude being produced.
Is it light sweet crude or high sulfur, heavy, hard to refine crude?
The light sweet is just that 'light' and is on the surface of the oil pool. Whereas the less desirable heavy sulfated crude is on the bottom of the pool. Does the phrase hitting the bottom the barrel mean anything to you?
Lately we have been putting much of our hope in the tar sands of Canada.
When we have to get the oil out of the sand and shale it sounds like we are hitting the bottom of the barrel again. Even talk about getting our gas from refining bitumen coal.
Now, some people say we are saving the light sweet crude for national defense and using the foreign oil and tar sands first. I don't know, I have no inside information about that claim.
We get about 15% of our natural gas from Canada. That 15% amounts to 50% of the natural gas Canada produces. The US sucks down more energy than any other country...no one can come close to us.
Our demands for natural gas are on the rise, just as our demands are for all fossil fuels. Once demand outstrips production we are headed over Hubert's peak in any number of areas besides crude. We can see peak production issues in natural gas, uranium, food or water, just as we will see with crude oil.
It is an easy task to see how much oil is produced in the world. But finding the 'exact peak date' for world oil production is hard to pinpoint. (see peak oil section)
en.wikipedia.org/wiki/...
For one thing, some countries production are erratic and they are not transparent with their real production and discovery data.
Also oil production is not an exact science and still requires a little luck. We may find a lucky hit down the road that brings in a gusher to distort some of the figures.
No one knows the exact peak date for world oil production, but we do know that time will come in the not so distant future. But finding the peak is not hard problem once we can look back on it by a few years....but we need some time to do it...again, only time will settle this debate.
"If the public does think briefly about future oil supplies, the question usually asked is, "How long will oil last?" This is the wrong question. Oil will be extracted in some insignificant quantity perhaps 200 years from now. The critical question is: When does the peak of world oil production occur?" ~ Richard C. Duncan
Check out:
Twilight in the Desert: the coming Saudi oil shock and the world economy
by Simmons, Matthew R.
It is a well written book examining 12 of the key Saudi oil fields and the exaggerated claims of remaining crude reserves of Saudi Arabia.
Also see:
www.worldoil.com/INFOC...
hubbert.mines.edu/
www.mnforsustain.org/d...
Life as we know it in America is coming to an end in the not so distant future. I think our countries future will be that of...'America...a Democratic, Communist Nation Under God.'
And maybe I am using the wrong word with communism?
Maybe it should be Nationalism? Socialism? I don't know since I have little interest in politics.
As far for what I means, it could be compared somewhat to Plato's Republic. Where the republic came first and people came second.
But with the US, the injection of Democratic values as well as a spiritual foundation that supports our country from its earliest beginnings would 'hopefully' separate us from the atheist based communists that have been run as dictatorships.
Am I as Christian zealot?
No, I am an agnostic freethinker.
As for why I have come up with such a bold statement as 'America...a Democratic, Communist Nation Under God?'
See these DVD's
1940's House PBS (albeit our enemy is not Germany...it is energy) And witness something along the lines of a 'Democratic, Communist Nation Under God.'
www.amazon.com/1940s-H...
A Crude Awakening
www.oilcrashmovie.com/
End of Suburbia
www.endofsuburbia.com/
Oil Apocalypse
store.aetv.com/html/pr...
See these books:
www.amazon.com/Out-Gas...
www.amazon.com/Hubbert...
www.lastoilshock.com/
...put it all together and you have 'America...a Democratic, Communist Nation Under God.' as the 'best fit ' equation.
And for dessert...add 'politics as usual'
See:
en.wikipedia.org/wiki/...
And we can see nothing substantive will or can be done in the US to fix our woes.
BTW, do I like communism?
No, not really, I like things EXACTLY as they are. I like being an energy whore and sucking down the crude just as you do. I like running my dirt bikes, jet skis, RV and driving my car.
But what I like doesn't matter...neither does what you like matter.
What does matter is 'what our country likes' or more appropriately 'needs' in order to survive.
If we look at the root of communism it is that of the commune-ist. The hippy communes and the Israeli Kibbutz's and the modern day survival devotees that plan to buy some land and develop a 'survival community' to live of the land all share in the same commune-ist dream.
But the point is not to persuade you to be a communist, but to foster a realization that for the US to survive, we must put 'what matters to our country' on the front burner...and as our country survives...so do we survive.
Alan Watts used to say, it doesn't matter what you think, it doesn't matter what you like, it doesn't matter what you hope for...all that really matters is what IS.
Sure we keep our treasured paper money, our guns, and what have you.
Guns are a populations last line of defense.
Look at Afghanistan...they beat Russia and the US is still having trouble with 'the people' there....all because of an armed population.
BTW, whenever I think of the Afghanis I think back to the poem.
"When you're wounded and left on Afghanistan's plains,
And the women come out to cut up what remains,
Jest roll to your rifle and blow out your brains.
And go to your Gawd like a soldier" ~ Kipling
So NEVER, NEVER give up your guns...for when the guns go, so does your freedom. Guns are the foundation of freedom.
Money??
Well, money will not be worth much anyway. Money is nothing more than stored energy. But since the crude dried up, the 'real energy' behind the money has vanished...and so did private industry.
So, what is money good for nowadays...to wipe your ass?
Not really, the government supplied toilet paper works better than that.
What about the coal mines? All government owned. If you want to eat you work in the mines or where the gov places you...it is that simple.
This is how our country can claim to be a 'communist democracy' We are not a slave driven dictatorship, You still have 'some freedoms.' You can work or not work as you please. But, don't expect a gov handout if you do not want to contribute to the countries survival needs....and as our country survives so do we survive.
Religion? Well, the atheists can still be atheists and the Christians, Muslims and Jews can still worship as they like.
But the big difference in our government is; instead of the ego based decisions that politicians and the titans of business get sucked into, the politicians will put the long term US viability as top priority over personal profit.
How do we accomplish this? I don't know, since politicians are normally ego based, lying, power hungry individuals. But this is an area that has to be perfected the best we can with accepting we deal with imperfect humans.
If we look at the various powers the government has though executive orders, we are pretty much there (a Democratic, Communist Nation Under God.) without much effort.
Here are just a few of them...
EXECUTIVE ORDER 10990 allows the government to take over all modes of transportation and control of highways and seaports.
EXECUTIVE ORDER 10995 allows the government to seize and control the communication media.
EXECUTIVE ORDER 10997 allows the government to take over all electrical power, gas, petroleum, fuels and minerals.
EXECUTIVE ORDER 10998 allows the government to take over all food resources and farms.
EXECUTIVE ORDER 11000 allows the government to mobilize civilians into work brigades under government supervision.
EXECUTIVE ORDER 11001 allows the government to take over all health, education and welfare functions.
EXECUTIVE ORDER 11002 designates the Postmaster General to operate a national registration of all persons.
EXECUTIVE ORDER 11003 allows the government to take over all airports and aircraft, including commercial aircraft.
EXECUTIVE ORDER 11004 allows the Housing and Finance Authority to relocate communities, build new housing with public funds, designate areas to be abandoned, and establish new locations for populations.
EXECUTIVE ORDER 11005 allows the government to take over railroads, inland waterways and public storage facilities.
sonic.net/sentinel/gvc...
What happened to all our individual freedoms with these executive orders?
It was lost long ago in the deluded American dream that believes the individual American can survive on their own. Without a strong government you guys would be speaking Chinese or Russian. What happened to the personal property of Iraq when the US took it down? Ditto for your homes and McMansions if another country decided 'to move' here.
You think it is political biz as usual in the US in the upcoming election?
It makes little difference.
The world is in a death spiral and politicians as well as industry are pretending this problem does not exist. No Politician can fix our woes. the best we can do is to make the most of our dilemma.
We can only blame ourselves, for it is just how we have built our world over the years....too many people, living outside of natures intended balance and not an infinite supply of energy to fuel all our demands.
So Dem or Rep...any politician in charge had better come to terms with how things really are and not live in dream land...we are running out of time as our fossil fuel supplies dwindle.
You know every country will not run out of crude all at once.
Without energy our country is open for takeover ... no jets...no tanks...no transport on the ground or in the air. Luckily we will still have nuclear powered submarines and aircraft carriers as long as the uranium holds out. But the jets on the flattop all use jet fuel. All the supplies for those subs and carriers petroleum dependent.
Other countries such as Russia that have a good supply of nationally based crude may not be so kind to keep on selling it to us, We will need a 'local and continual' source somewhat within our borders for national security. You see, jet fuel as well as gasoline deteriorates and cannot be stored indefinitely. So we must always be producing some of it to replace the stale stuff to supply the military.
So long before the crude dries up the government must 'secure a supply' of crude for it own needs. This is what is driving the North American Union. This is why illegal aliens are pretty much free to do what they wish in the US.
en.wikipedia.org/wiki/...
NAFTA came about as a way for the US to get its hands on the energy output of Canada and Mexico. And part of that agreement (unwritten) was to relax the law somewhat on the illegals coming from Mexico.
In short...if you want our crude you take some of our illegals
As our world changes and our drug supply dries up, things will only get worse. And the bigger the city - the bigger the hellhole it will become. And this time RIGHT NOW is the defining moment as to whether most of our population will die off or not in the crisis that awaits us in the not so distant future.
Besides crude oil, have you ever thought about how much of our life is dependent on natural gas for cooking, heating and hot water?
How many of our homes are set up for efficient heating with natural methods such as wood, pellet, passive solar?
My house is not.
I never gave this subject any thought until I learned about peak natural gas. And by then it was too late.
My house is as far as it can be from the 'ideal house' that can be heated my natural methods. And to make maters worse, I live in the NE US, where it gets plenty cold.
Do you know that much of your life is dependent on natural gas *outside* its use as an energy source?
Natural gas is a raw material in many of our products we depend on.
Almost all the helium we produce comes from natural gas.
Propane, synthetic fertilizers, ammonia?
They are totally dependent on natural gas.
Our population boom was fueled by synthetic fertilizers made from natural; gas. Once the gas dries up so does the fertilizer and a shortage of fertilizer equals a shortage of food.
Natural; gas is also used as an energy source to produce steel, glass, paper, clothing, brick, electricity
We will run out of natural gas, just as we deplete our crude supplies in the near future.
www.amazon.com/High-No...
www.enotes.com/how-pro...
www.ipm.iastate.edu/ip...
www.eia.doe.gov/kids/e...
Many people just think of crude oil for gasoline production.
From this list we can see that we are still massively depend on crude for our non sustainable lifestyle. There is no replacement for crude...crude is in the details of our life.
So even if we all stop driving we will just be postponing the inevitable that our artificial way of living is going to change in the not so distant future.
A partial list of products made from Petroleum (144 of over 6000 items) One 42-gallon barrel of oil creates 19.4 gallons of gasoline. The rest (over half) is used to make things like:
Solvents Diesel Motor Oil Bearing Grease
Ink Floor Wax Ballpoint Pens Football Cleats
Upholstery Sweaters Boats Insecticides
Bicycle Tires Sports Car Bodies Nail Polish Fishing lures
Dresses Tires Golf Bags Perfumes
Cassettes Dishwasher Tool Boxes Shoe Polish
Motorcycle Helmet Caulking Petroleum Jelly Transparent Tape
CD Player Faucet Washers Antiseptics Clothesline
Curtains Food Preservatives Basketballs Soap
Vitamin Capsules Antihistamines Purses Shoes
Dashboards Cortisone Deodorant Footballs
Putty Dyes Panty Hose Refrigerant
Percolators Life Jackets Rubbing Alcohol Linings
Skis TV Cabinets Shag Rugs Electrician's Tape
Tool Racks Car Battery Cases Epoxy Paint
Mops Slacks Insect Repellent Oil Filters
Umbrellas Yarn Fertilizers Hair Coloring
Roofing Toilet Seats Fishing Rods Lipstick
Denture Adhesive Linoleum Ice Cube Trays Synthetic Rubber
Speakers Plastic Wood Electric Blankets Glycerin
Tennis Rackets Rubber Cement Fishing Boots Dice
Nylon Rope Candles Trash Bags House Paint
Water Pipes Hand Lotion Roller Skates Surf Boards
Shampoo Wheels Paint Rollers Shower Curtains
Guitar Strings Luggage Aspirin Safety Glasses
Antifreeze Football Helmets Awnings Eyeglasses
Clothes Toothbrushes Ice Chests Footballs
Combs CD's Paint Brushes Detergents
Vaporizers Balloons Sun Glasses Tents
Heart Valves Crayons Parachutes Telephones
Enamel Pillows Dishes Cameras
Anesthetics Artificial Turf Artificial limbs Bandages
Dentures Model Cars Folding Doors Hair Curlers
Cold cream Movie film Soft Contact lenses Drinking Cups
Fan Belts Car Enamel Shaving Cream Ammonia
Refrigerators Golf Balls Toothpaste Gasoline
Americans consume petroleum products at a rate of three-and-a-half gallons of oil and more than 250 cubic feet of natural gas per day each!
www.beloit.edu/~SEPM/Geology_and_the...
Realize this, throughout history many great nations that once were are not around any longer.
Hopefully the US will understand this and start accepting the truth that something has to give and it can't be business as usual.
Always remember, none of us will be ultimate survivors, we all have to die one day. But the successful survivor extends his or her life beyond an earlier death...a death that was caused by ignorance of how to make that life last longer.
You still have some valuable time left to prepare for what awaits you down the road.
We are in the 'Indian Summer' of a carbon based world. Don't wait until the winter sets in to start work on your preparedness efforts.
Also see:
Beyond Civilization: humanity's next great adventure
by Quinn, Daniel
Beyond Oil: the view from Hubbert's Peak
by Deffeyes, Kenneth S.
www.princeton.edu/hubb.../
Bowling Alone: the collapse and revival of American community
by Putnam, Robert D.
Breathe No Evil
Safe-Tek Publishers
Collapse
en.wikipedia.org/wiki/...
The Coming Economic Collapse - how you can thrive when oil costs $200 a barrel
by Leeb, Stephen
Crossing the Rubicon: the decline of the American empire at the end of the age of oil
by Ruppert, Michael C.
Dancing at Armageddon: Survivalism and Chaos in Modern Times
by Richard G. Mitchell Jr
The Long Emergency: surviving the converging catastrophes of the twenty-first century
by Kunstler, James Howard
The Oil Depletion Protocol : a plan to avert oil wars, terrorism and economic collapse
by Heinberg, Richard
Peak Oil Survival: preparation for life after gridcrash
by McBay, Aric
Powerdown: options and actions for a post-carbon world
by Heinberg, Richard
Resource Wars: the new landscape of global conflict
by Klare, Michael T
www.amazon.com/Resourc...
A Thousand Barrels a Second: the coming oil break point and the challenges facing an energy dependent world
by Tertzakian, Peter
Twilight in the Desert: the coming Saudi oil shock and the world economy
by Simmons, Matthew R.
Zoom:the global race to fuel the car of the future
by Iain Carson and Vijay V. Vaitheeswaran.