The Oil Drum | 4%, 11%, Who the Hell Cares?

170 comments on 4%, 11%, Who the Hell Cares?

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Halfin on September 6, 2005 - 10:54am

This is a reasonable framework for thinking about life after an oil peak, but I would make two points to challenge it.

First, the date at which the peak occurs is important in terms of looking at society's response. A peak in 2008 as you assume is very different in its effects from one in 2018. The reason is that the latter date gives us 13 years of high oil prices to begin to adjust to a potential decline.

And that points to the second issue, which is that society in general and markets in particular are forward looking. The peak isn't necessarily going to be a surprise, and hopefully it will not be. There is enormous attention and analysis going into the question now. At this point the analysts don't agree, but hopefully with more research and perhaps an improvement in transparency among oil exporters, a consensus will be reached in a few years.

Once people know when the peak will occur and can anticipate its effects, including the depletion rate, that will allow society to adjust and adapt in advance. In particular it may allow even relatively large depletion rates to be handled without leading to chaos and disaster.

If a consensus grew that we were going to be facing, say, a 12% depletion rate, which Stuart predicts would lead to social collapse, I think that society would instead take drastic measures in advance to adjust to that. We'd see massive investments in coal to liquids and tar sands, which are known to produce replacements for oil, it's just that scaling them up in time seems infeasible under current circumstances. Well, under an emergency situation things would be different. We would see a crash program to develop these technologies, which are proven and known to work.

The point is that an anticipated decline is far different in its effects than one that comes as a surprise. My POV with regard to peak oil is that I don't know when it will happen or what its impacts will be, but that we should pressure oil exporters to provide more transparency so that society can know what it's getting into and prepare in advance. That could make the difference between a successful adaptation and Stuart's collapse scenario.

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Donal on September 6, 2005 - 11:14am

What if we don't have 13 years of steadily higher oil prices? What if prices swing down every time some third world country drops out of the game. Someone will say, "Look, it's getting better!"

Also, it seems pretty clear to me that the powers-that-be won't admit we've peaked until well afterwards, when they can't deny it. So some people might not be surprised, but most will.

As you say, a lot depends on transparency, and accurate information. Looking at the photo-ops and back-slapping in the aftermath of Katrina, I'd say we are being pushed, blindfolded, into the abyss.

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Stuart Staniford on September 6, 2005 - 11:55am

You are right that I neglected to analyze the degree of warning carefully. My view is that, as long as the current lack of transparency into reserves holds, there won't be lots of warning. People only pay any attention to peak oil (and resource constraints in general) when prices are high (as in the 70s, which concern dissipated through the 80s and 90s, and now). Current prices are pretty much constrained to be not much lower than the future prices (via storage arbitrage). Historically, future markets have had extremely limited ability to correctly predict future oil prices (unsurprising given the lack of transparency into most sources of supply). Not only that, it's human nature to only respond to things after they've happened (no-one took very seriously that terrorists could fly planes into buildings or that New Orleans could flood until after those things had happened). If we are near peak now, we are starting to respond. If it turns out we are not, and there's some big new supply somewhere, we'll all go back to sleep until we are near peak (as we did in the 80s/90s).

Overall, I sort of assumed the warning of the decline rate is enough to set in place those 2x improvements in transportation efficiency, but not more. If we were to start constant decline next year, we obviously would not achieve 2x for some years because manufacturors would need to design new models (except Toyota and Honda), and rejig factories (in all cases).

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Rick on September 6, 2005 - 3:44pm

Great post.

I'm also very dubious about whether effective warning signals will actually occur. The classic economic assumption that markets receive perfect information, including warnings, can't possibly be correct under these circumstances because:

We don't have good information on production and reserves now.
We will not have good information on the timing of the peak: it can only be verified some time (2 years?) after the fact.
Oil companies, as we've seen already, are unlikely to tell their investors that they are in a long-term decline.
Governments aren't talking either. The Jimmy Carter experiment in telling the truth about oil was intellectually and ethically correct, and politically disastrous. It won't be repeated anytime soon.

This means that the warnings will come primarily from third party commentators in the peak oil community. This group has brains and passion. Unfortunately, we have no significant communication budgets. And we compete for credibility with a shadow--"they," as in "They who will find a solution."

We need to keep getting the message out, but most are not ready to really take it on board. So the warnings will be weak.

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Washutoo on January 21, 2006 - 1:46am

What I find interesting is that over 50% of European cars are diesels and the ave mpg is about doble the US fleet. The trend is in place already. Almost all European manufacturers make diesels now, so the technology could be shifted over here quickly. I also think the service stations could be switched over pretty quickly, so it boils down to refinery retools or new builds to convert coal to diesel. I see a lot of new capacity coming on in Qatar, Iran, Nigeria, Australia, Algeria, Turkman/Russia, Trinidad. Ramping up battery manufacturing, lead mines alone tells you that hybrids could hit a wall quickly.

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MikeCapone on September 6, 2005 - 12:51pm

"We'd see massive investments in coal to liquids and tar sands, which are known to produce replacements for oil, it's just that scaling them up in time seems infeasible under current circumstances."

I sure hope that will only be a small part of the solution, because otherwise we're just heading for peak coal and peak tar sands, and more global warming and air pollution.

I'd hope that massive investments would happen in solar, wave and wind technologies along with the extremely important efficiency and conservation sectors.

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Engineer-Poet on September 6, 2005 - 7:02pm

One thing I haven't seen anyone note is that once any element of the economy (commuter, company, whatever) converts away from petroleum for transport fuel, they are individually immune to further price increases or supply squeezes. Their upstream suppliers and customers may not be, but the higher the cost of oil goes the more advantage the converted will have in their particular niche.

For instance, suppose you've got an oil crunch that starts in 2005. By 2010, depletion is running at 5% per year but conversion has been averaging 2% a year and 10% are already converted away from petroleum. Further productivity crunches will only affect the other 90%, so a 5% contraction in the oil-dependent sector is only 4.5% overall. By 2020, 30% are converted and a 5% contraction is only 3.5% overall; if the converted are growing at 5% per year (likely if they are much better investments) the overall contraction is just 2%. Eventually the converted are out-growing the dependent-and-contracting and the economy goes forward again.

The only way we'll have real problems with peak oil is if government tries to maintain the economy on it instead of getting it to switch, e.g. what the Republicans have been doing since cancelling the PNGV in 2001.

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Stuart Staniford on September 6, 2005 - 10:05pm

I agree with this, though I see it happening somewhat later in the process than you suggest given the sucky energy/weight ratio of batteries (my best guess is that in small to medium depletion scenarios, nuclear power and plug-in hybrids will prove to be the path of least resistance that the market picks, with the plug-in part getting more and more significant over time).

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Engineer-Poet on September 7, 2005 - 6:56am

If you think batteries are inadequate, take a look at lithium-ion performance figures. AC Propulsion did, and they made an electric rocket-car that can go almost 300 miles at freeway speeds.

The problems with Li-ion batteries will be overcome. The expensive and runaway-prone cobalt oxide cathodes are eliminated by Saphion technology, and nano-fine structures by Altair Nanomaterials and Toshiba have radically increased the cycle life and charge/discharge rates.

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cezar on September 8, 2005 - 9:51am

I believe the Toshiba battery represents the true breaktrhough in EV technology. I'm surpries it received as little publicity as it did. Is there any reason to believe this batery will fail to live up to its promise? Is it too expensive.

For those who aren't aware of Toshiba's breakthrough in battery technology, here's the link:

http://www.toshiba.co.jp/about/press/2005_03/pr2901.htm

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coffee17 on September 7, 2005 - 6:48am

One thing I haven't seen anyone note is that once any element of the economy (commuter, company, whatever) converts away from petroleum for transport fuel, they are individually immune to further price increases or supply squeezes.

I'm not so sure of that. There are a few cases to consider.

1) A switch from gas/diesel to natural gas. Well, hopefully it's obvious how one isn't immune to price increases in this case. For the record, it's a limited resource, it's peaked in North America and it's price is also increasing.

2) Any liquid/fuel cell fuel source. How well does it scale? Yes you can get waste oil to run your car from a restaurant down the street, but what happens when 5% of the population find out about the great savings? Suddenly the reataurant realizes that waste oil is a resource that s/he can sell for far more. And now you effectively have to buy the bio diesel (or algae oil) from a station. Growing demand, but will supply ramp up quickly enough? Sure, in the long term price should/might go down but when it's just becoming popular there could be wild price adjustments. Sure, some could be down, but some could be up.

3) electrical power. Whether compressed air or a battery is used for the energy storage mechanism, have you looked at your electrical bill? I'm getting yearly adjustments to the bill twice yearly for the last two years (better than the quarterly I seem to be getting from the natural gas company). How many new nuclear plants are being built in your area? Does your bill show what percentage of your energy comes from what sources? Odds are you'll see 50% from coal, some from gas, and then some from renewables. Coal will get more expensive to ship, and gas is going up. And without breeder reactors nuclear will also rise. When a lot of people are plugging their cars into the grid, there's going to need to be a lot more electricity produced.

I'm unsure what other categories there are, but one won't be immune from price increases. But hopefully the price increases will be less than the petroleum bound competitors.

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Engineer-Poet on September 7, 2005 - 9:44am

Nobody in North America is going to convert from petroleum to natural gas for cost reasons. At $65/bbl, crude is about $11.00/GJ; natural gas is around $14.00/GJ at the wellhead these days. There may be fuels like landfill gas which are too expensive to upgrade to pipeline quality or are "stranded" by distance and thus go cheaply, but they're not big enough to turn things.

Waste-derived fuels (both crop wastes and post-consumer wastes) will come into play, but I don't think they're going to be very big over the next 5 years. There's too much groundwork that's not done yet.

For the most part, the conversion is going to be to electricity. Electricity can be generated by a host of things and co-generated from many processes which currently just eat the entropy increase in conversion to low-grade heat; if we moved aggressively to make more electricity for less fuel, the amount of low-hanging fruit would allow it with relative ease.

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