ozzy43

Peak Oil as a Function of Earth's Volume

Seems to be a version of 'Don't worry, be happy'. This has to be the most incoherent and inane post I've ever seen on SA. There is little if any connection to economic, practical or geological reality evident in this post.

Murray Rothbard once said:

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

This is as true of petroleum geology as it is of economics, and both speak to the loud and vociferous ignorance apparent in this post.

Fiat Money and a Profligate Congress: A Bad Combination

An astonishingly naive view, politically speaking. If this government of ours has proved nothing else, it is that it is utterly incapable of abiding fiscal restraint of any form.

Also worth noting: every episode of fiat currencies deployment, historically speaking, has ended in massive economic dislocation. In France, in the late 18th century, it ended in the guillotine being put to good use. Perhaps they were on to something...

Oil May Trade in the $80-100 Range for a While

This is devilishly difficult to determine with any precision, but I think this represents a fair minded and thoughtful stab at the beast. After all, Cantarell is declining at, what, 15%+? North Sea 10%+? If the global depletion rates come close to these, the far side of the curve looks to be a cliff. Who says the market is intelligent, rational? Perhaps a truly free market which priced in externalities properly would be, but ours - heavily regulated, subsidized and now increasingly nationalized - sure seems to be a dullard at times.

Oil Demand Down, Supply Up

Seems to me to be unlikely that we'll get any decent visibility into longer term oil price levels/trends until the November elections have passed. I also think the issue of resource nationalism/exports - especially given the recent actions and resulting re-alignment in the Caspian Sea region [ www.atimes.com/atimes/... ] - are set to play a large role once they've been more widely understood, and so simple production vs consumption analyses that ignore the geopolitical aspects are bound to be quite limited in their ability to yield solid conclusions. Therefore, instead of focusing on one single production model - megaprojects - it's probably wiser to look at a range of models to get a better overall sense, as the oildrum does here:

www.theoildrum.com/nod...

Includes, but does not limit itself to, the megaprojects data. So the question becomes: if you use this production analysis as a basis for comparison to anticipated consumption, does that change the conclusions? Or does it just obfuscate things?

Charlie Maxwell to Barron's: $300 Oil is Inevitable

Or it could be an analyst's honest assessment of where the price of oil will be in a few years - this is his job, after all, and there are serious questions about the ability of future oil supply to meet demand.

What seems senseless to me are those analysts who employ magical thinking to assert that an increase in price will seemingly magically create more oil in the ground (light, sweet, of course) to drive the price down. Or to assert that 'human ingenuity' will miraculously be capable of wholesale massive fossil fuel replacement at the precise moment when we're on the way from being an affluent nation to 3rd world status due to decades of extreme fraud in the financial and political systems.

If human ingenuity could produce miracles on schedule, where's the battery technology that would enable feasible electric cars? Decades, and a huge dollar prize, have not facilitated success in this one technical area, and we'd need dozens of similar breakthroughs to replace oil.

False Data Clobbers the Markets

True enough yank - the manipulations in both gold and silver is, IMO, pretty well established (and has provided for a terrific buying opportunity, IMO, for the long term investor). Hell, so is the recent Central Bank manipulation in the dollar, for that matter, which has had its own impact on commodities.

But let's not stop there - let's look at the macro picture - the author of this piece suggests:

"Why doesn't the government just hold off a few weeks before releasing its reports? No data is better than false data. The latest GDP growth revision is absolutely inexcusable. I can handle a small revision from 3.1% to 3.2% but 1.9% to 3.3%? Wouldn't it be better to just wait another 3 or 4 weeks and get the numbers correct?"

Why in the world would anyone presume that GDP numbers - that issue from the same government that emits the laughably fraudulent CPI - are 'correct' at any point along the revision trajectory?

IMO - it's all false. It's all massaged. It's all a mirage - an illusion. I wonder if the author of the piece above ever bothered to look into how the GDP is actually calculated. As one widely available short essay on the subject notes:

"Much of the data used in GDP is collected by sending out surveys to different companies. They will send out surveys to a select bunch of retailers and manufacturers to ask for details of their output or sales on a monthly basis. Then comes the estimate of the whole. The governments can obviously use this to their advantage by selecting the companies that they know are steady companies and not choose the smaller companies who are more likely to be erratic. Therefore most smaller companies will never get asked to perform a survey for the government as this may upset the figures."

So the number is not only inherently inaccurate (and we have not even gone into the forms of economic activity that the GDP explicitly excludes), it is an invitation to governmental manipulation. After all, how would one prove that "the economy" (as though this were so easily defined in the first place!) grew at this rate or that rate? The only reason to believe the govt stats are accurate is if you believe the govt does not lie as easily as you and I breathe, which is demonstrably false.

So it's not just metals, not just the market, but the entire economic picture as portrayed by government statistics that is one big manipulation.

As far as I can tell, the one thing that one *can* rely upon is that a government which uses a fiat currency and is out of other options, especially one which is on the hook for $60T+ in unfunded obligations over the next ~75 years and has no other way to 'meet' these, must inflate like mad. Period. And at some point, manipulation or not, that's good news for gold, in the long term. And probably for oil, too, for as long as it's priced in USD anyway.

Students of history will know that in every single instance of the deployment of a fiat currency, starting 1000 years ago in Szechuan Province, China, the outcome is always the same - dozens of examples across history all tell the same story: run away inflation, sky rocketing of gold prices, collapse of the currency.

Those who are not students of history - well, Santayana had them pegged.

False Data Clobbers the Markets

"The bottom line is that this planet is flush with oil and even if it wasn't, we will have alternative technologies for transportation and energy fully integrated into society within twenty years. Cars will run on natural gas, hydrogen, and electricity. Energy will come from solar, wind, geothermal, or nuclear. Take your pick."

Naked assertions without any logic or data to support them are less than persuasive - the author may wish to look up the definition of 'analysis' because this exercise in magical thinking does not qualify. Don't get me wrong - I'm a big fan of magical thinking - it allows me to buy on the dips from folks who engage in it. Let's all repeat together: "oil is not a finite resource - and besides we can always fall back on magic pixie dust if need be."

It really doesn't matter how much oil is in the ground, what matters is whether anyone is ready, willing and able to pay the costs (monetary and otherwise) to extract it. How many polar and deepwater drilling rigs are there in the world? What's the ERoEI for tar sands? Oil shale? Why aren't the IOCs already busy drilling on the leases they have in the OCS? Where does the natural gas come from, given that the same peak dynamics are impacting that fossil fuel as oil? What's the supply situation for uranium look like, and how much energy will it cost to find, mine, extract, transport and process it? How much would it cost to build and operate enough nuclear plants? Wind farms? Solar plants? What's the amortization picture for all those gas fired plants that just got built? What's the feedstock for hydrogen?

And bottom line: who is going to pay for all of this considering we as a nation are dead BROKE and the banks are reluctant to lend money for CARS, let alone for massively capital intensive projects like, say, replacing the entire energy infrastructure of this nation over a quick time span of only a couple of decades?

For those who prefer a little reality in crafting their long term perspective, I suggest the 2005 Dept of Energy Study, and it's 2006 and 2007 follow up reports on mitigation strategies, by Dr Robert Hirsch:

www.netl.doe.gov/publi...
www.d-n-i.net/fcs/pdf/...
www.d-n-i.net/fcs/pdf/...

Hirsch's bio:

* Senior Energy Program Advisor, SAIC (World oil production)
* Senior Energy Analyst, RAND (Various energy studies)
* Vice President of the Electric Power Research Institute (EPRI).
* Vice President and Manager of Research and Technical Services for Atlantic Richfield Co. (ARCO) (Oil and gas exploration and production).
* Founder and CEO of APTI, a roughly $50 million/year company now owned by BAE Systems. (Commercial & Defense Department technologies).
* Manager of Exxon’s synthetic fuels research laboratory.
* Manager of Petroleum Exploratory Research at Exxon. (Refining R & D).
* Assistant Administrator of the U.S. Energy Research and Development Administration (ERDA) responsible for renewables, fusion, geothermal and basic research. (Presidential Appointment).
* Director of fusion research at the U.S. Atomic Energy Commission and ERDA.

Next, google Matt Simmons, CEO of the largest energy investment bank in the world, and take a look at any of the numerous presentations and interviews he's given. Here are some startingf points:

www.financialsense.com...
www.ogfj.com/display_a.../
www.economist.com/peop...
www.simmonsco-intl.com...

Finally, how about testimony from one of the most conservative Repubilcan Congressmen, Roscoe Bartlett:

bartlett.house.gov/Ene.../
www.energybulletin.net...
www.energybulletin.net...

Folks, these are not Birkenstock wearing tree huggers. Not sure what the energy background of the author of this bit of speculative fiction above is, but I'm willing to bet he's just a tad overmatched here.

"The other fallacy among oil bulls is that the growing middle class of India and China will cause a world wide shortage. ...Germany, Italy, Spain, France, Japan and Russia are losing drivers every year. By 2030 there will be 80 million fewer Europeans than there are today. Japan will lose 60 million people. Russia 30 million."

Drivers? Is the author under the impression that the only use for petroleum is *gasoline* and the only users are shoppers and commuters?! What about agriculture? Mining? Commerical transportation? Manufacturing? Plastics? Pharamceuticals? Asphalt? etc...

Pop quiz: what is the rate of GLOBAL population growth? (Hint: all these people will want to eat)

Cherry picking a half dozen nations whose replacement rate is low isn't analysis - it's blatant bias and distortion (in the best case, ineptitude) seemingly intended to introduce false data. Precisely the problems this piece of "analysis" (and I do use that word loosely!) purports to address.

Writing an essay on misinformation and then, within it, promulgating misinformation - Orwell would be proud.

Why $200 Oil Is Good for US Markets

Very interesting article; however, a correction needs to be made regarding this old myth, masquerading as conventional wisdom (who did *not* learn this as fact in school?):

"The Great Depression needed the Second World War to terminate its grip on the economy."

Conclusively disproven back in '92 by Robert Higgs - journal article here:

www.independent.org/pu...

Just an old wive's tale. Aside from that, though for somewhat different reasons, I agree that $200/bl oil would be a good thing.

Where Does Oil Go from Here?

I gotta say that this statement:

"If Americans can’t afford 140dollar oil- how can China and India afford it?"

Gave me the best laugh I've had in some time. It posits America as wealthy and China as poor - now *that* is rich! Thanks for the laugh.

Seriously, just how many US Treasuries is China sitting on? $2T worth? More? And just how far in debt is America, and are Americans?

Puh-lease...that hoary old myth of the affluent American and the poor rest-of-the-world is not exactly 'congruent with reality', as they say. I think someone needs to get out more and stop reading fairy tales. We're flat broke, and so are our kids, their kids, and their kids after them, compliments of those thrifty guys and gals in DC. And with Helicopter Ben spinning up the printing presses for a full court press to save America's banks and brokerage houses from the folly of their idiocy at our expense, that's only going to get worse.

The question you should be asking is *not* how can China afford $10 gas (hint: bilateral agreements will be the new oil pricing regime - and it probably won't be priced in USD anymore anyway), it's how will I be able to afford bread when it's USD1000 per loaf?

Just a Commodities Correction - Not the End of the Bull (Part 1)

The slow spread of alternatives to fossil fuels has little to do with bribes or lobbying, though Big Oil certainly plays a role. But more importantly are the severe technological hurdles for, say, a 'hydrogen economy' which experts and scientists in the field predict is 40 or 50 years away. Additionally, even the terminology is misleading - these technologies are not so much 'alternatives' to fossil fuels as they are 'derivatives' of it.

Also, there is a fundamental distinction to be made here: fossil fuels are almost unbelievably energy dense - most of the 'alternatives' are, simply, not. And there are no good substitutes for liquids replacement that offer anywhere near the ERoEI metrics of traditional fossil fuels, and the ERoEI for fossil fuels going forward looks set to drop rather dramatically.

There is no magic wand - there is no 'switch' we can simply flip. And given that we do not have a free market, but rather a heavily regulated, subsidized and politicized market which operates under the burden of profound market distortions compliments of both the government and non-governmental entities like the Fed, you cannot expect 'market forces' (which are heavily suppressed) to come to the rescue.

Additionally, while human ingenuity is a marvelous thing, it is *not* a miraculous thing. If it were, we'd have solved the battery problem decades ago, dontcha think? Not like there haven't been really smart, really motivated people working on this particular challenge for years and years and years - and with the dollar incentives involved, it's hard to see how any additional level of motivation would make a difference.

In other words, this is not a simple problem to solve, and it may in fact be the most difficult problem to solve that modern humans have yet faced, and there are no guarantees that we *will* solve it. In the current political and socio-economic climate, it certainly seems the odds are stacked quite heavily against us.

It seems possible that what we face is, in fact, not a problem in search of a solution, but a new condition to which we will need to adapt. Or not.

Oil: Does Supply and Demand Still Apply?

"here let's take a look at past data for the oil industry"

Not to be facetious, but: does the author not grasp the meaning of the term 'peak'? It implies that looking forward at the downslope is vastly different than looking back at the upslope. Peak oil means an entirely new paradigm, and a new paradigm is one in which the tried and true adages and analyses of the past no longer apply, because the fundamental assumptions have been made invalid - that's what defines a paradigm shift.

I also must question what part of the terms 'finite' and 'non-renewable' are not being understood here?

The implicit assumption underlying the author's logic is that oil is an *effectively* infinitely renewable resources - in which case, more exploration and more drilling, over time, will inevitably yield more oil. But we know this to be false.

Interestingly though, on his own graph, the percentage of successful wells peaks in 2005 - which seems to have been when production peaked as well.

Additionally, this seems to be a rather contrived metric to use - it does not make clear that over time, the *size* of the fields being found has diminished considerably! So in this graph a successful well drilled into a field of 1Gb has the same status as one drilled into a field with 10Gb. The percentage of successful wells is not nearly as significant at the ultimately recoverable resources in these new fields, nor as important as the ERoEI for recovering those resources.

In fact, I would argue that the proper way to interpret his graph of increasingly successful wells over time is by explaining this as an example of what Matt Simmons has called 'super straws' - the better the technology for extracting the oil discovered in new fields, the faster those fields peak and then go into depletion.

Simply, this analysis should makes perfect sense to those who believe that financial trend analysis can somehow render moot and thus obviate physical, geological facts.

Which Inflation Is It Anyway?

Regarding this assertion:

"We expect continued heavy spending on infrastructure in many regions, and that they could be joined by the US itself post election. The US needs that spending anyway and infrastructure has been proven to be some of the most effective 'make work' money."

I am aware of no proof along these lines whatsoever. This is nothing but Keynesianism - an ideology which insists that economic stagnation and inflation can *never* exist side by side. And yet - we know it does. Thus, the underpinnings of this form of economics is fatally flawed.

Bastiat's 'Broken Window' parable is on target here. Money coercively extracted by the government and spent on 'make work' projects is money that is NOT being allocated by the market, thus represents a reduction in efficiency, and thus a reduction in net productivity, compared to a situation where government did *not* extract and spend that money. This is not a difficult concept, yet it is apparently not understood by those analysts who cheers government spending.

Which Inflation Is It Anyway?

JasonC: hilarious. Millenia of human history mean nothing to you it seems - hold no lessons whatsoever. Fiat money throughout history has served as the vehicle of inflation to serve the purposes of the printers and those regimes have invariably collapsed under the weight of their paper money (but they had VERY flexible banking - right up until the end).

In truth, this has nothing to do with entrepreneurship. It has to do with the fundamental soundness of the monetary system. Have you looked around lately? It is precisely this soundness that is crumbling even as we speak - and for the reasons Simon and other cite, among others - hard to imagine how more blatantly obvious this could be. But let's not bother YOU with facts, either from the daily news, or from history. Facts are, after all, inconvenient things when they get in the way of 'flexible banking'.

Oil Prices Finally Changing Consumer Behavior

petervankan: And El Al never gets hijacked. But their tactics would not work for US airlines. Why? Because of the scale. Holland is not America - it's vastly less populous, and vastly less heterogeneous.

Anyone who wants to buy into the social model made famous primarily by the Scandinavian countries should first read:

www.timbro.se/bokhande...

'Better' is a highly subjective word - Holland's residents pay for their 'better' laws by accepting less liberty, vastly higher taxation, etc. Fine by me, but please don't presume that the tradeoffs you find acceptable are right or will work for every country in the world. I would welcome an end to the calamitous war on drugs here, and I would welcome an end to the misbegotten war on Iraq, among innumerable other 'wars' we declare on everything from illiteracy to teen pregnancy, but as for more State control - you can keep it, thanks very much. The State here has proven unworthy of that sort of trust - no matter who has held office. And in fact the greater the power of the State in a militarized nation like the US - UNlike Holland - the greater the probability that the military will be used to advance political agendas. Again, no thanks. Vast State empowerment is what got us into this mess in the first place, compliments of some other US presidents you probably think highly of: FDR, Truman and LBJ.

The Oil Bubble Will Meet the Same Fate as Tech, Housing

There are some serious problems with this analysis, but the most severe is this: tracking oil prices in dollars makes little sense, yet that provides the fundamental basis for the argument being made - as though dollars were a fixed store of value!

Try tracking oil in gold prices, which is still not ideal, but is certainly better than using dollars, which are constantly manipulated by the Fed. Using that basis, the analysis looks quite different.

Another flaw is exemplified by this statement:

"gasoline shortages don’t exist and new oil is plentiful"

No evidence is given for this astonishing assertion. The US uses about 20M barrels per day - ~25% of the global total - and when pressed (begged) by the President of the US, the Saudi's - the only exporter in the world with (at least alleged) spare capacity - can only manage to squeak out an extra 200k - 500k barrels per day (and the world expects the Saudi's to generate an extra 10M barrels per day or so in the next decade??). That's plentiful? Have the Saudi's discovered a new Ghawar that I didn't hear about? Doubtful. Thus, there are very real concerns about supply going forward, and 'plentiful' is not the right word to use here.

The market is not based on whether or not there are gas shortages NOW - it's a leading indicator. Priced into oil is the uncertainty about supply and demand in the FUTURE. This analysis seems to miss this point utterly.

Further, there is a major difference between oil and housing on the one hand, and tech stocks on the other: houses and tech companies are not finite, non-renewable resources. Oil is. The same rules do not apply. How is it that so many self-styled 'oil analysts' miss this most fundamental, basic, incontrovertibly vital point?!?!

Oil prices will certainly correct from time to time, but until the uncertainty about long term sustainability of oil supply is directly addressed (and the utter lack of transparency from OPEC and the psychosis emanating from Russia are not encouraging), it's seems foolhardy to assert that high oil prices are a 'bubble', and it seems likely the uptrend, or at the very least a sideways action, will continue. In other words, concrete facts about supply will be required to drive the price trend down. No such facts are in sight at the moment, despite the speculation about demand destruction - speculation does not equal fact.