The Oil Drum | The geopolitics of expertise

163 comments on The geopolitics of expertise

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Halfin on March 17, 2006 - 2:24pm

I don't think "fungible" is really the right word here. Fungible means that all product is the same, that one barrel of oil is just like another. As it happens, that is not particularly true with oil. As we know, every field produces a different grade - light sweet, heavy sour, and everything in between. Within grades oil is pretty much fungible but as a whole it is not.

What he is trying to get at is that a competitive, "liquid" (in the financial sense) market will still exist in an oil shortage, and that oil producers will make their oil available to the market rather than keeping it for themselves. I do think that is reasonable. There are plenty of other products that have gone into shortages, and what happens is that their price gets high, but a market still exists.

What people forget is this. It is true that as oil becomes more valuable, countries may be tempted to hold onto it, or as the article describes try to use it for political purposes. But this ignores the other side of the coin: as oil becomes more valuable, the lure of selling that oil becomes proportionately greater as well. I think people somehow think that oil will be tremendously valuable, but it will still sell for only $65 a barrel. That's not true; in the circumstances we are considering here, countries using the "oil weapon" or diverting oil to internal industries are giving up potentially hundreds of dollars a barrel.

Economists say that "the cost of anything is the foregone alternative". This means that the holder of a barrel of oil has the choice between keeping and using that oil, or selling it for its value on the market. The more valuable the oil becomes, the more he gives up by keeping it and using it. And these two factors rise together in precise equality. So the temptation to keep the oil will always be exactly matched by the temptation to sell it. Hence there is no more reason to expect companies to hoard or exploit oil when it is expensive than when it is cheap.

The main case where countries will hold onto their oil and not participate in trade is in wartime. Then of course countries will not trade with their enemies. If we do see open warfare than oil trade will probably be impaired. But if the world maintains a peaceful state then there is no reason an oil market can't continue to operate even as oil gets more expensive.

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dima on March 17, 2006 - 2:39pm

"So the temptation to keep the oil will always be exactly matched by the temptation to sell it."

Not necessarily. The flip side of ever higher price of oil is ever lower value of money, since money is just the implied promise to perform work, and work requires energy, which comes from oil. So, you can treat both oil and money as currencies, except one of them keeps its value. Which one of them, then, is a better currency to hold in reserve, the ever-shrinking dollar, or the perennially valuable barrel of crude?

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odograph on March 17, 2006 - 2:45pm

A lot of these countries say they are building a non-oil economy out of their oil revenue stream. Regardless of how real that commitment is (or its possibility of success), it also serves to silence critics of a fast pump-out.

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Testudo on March 17, 2006 - 3:44pm

As the price of oil becomes painful, you will see importing countries attempt to make "strategic" deals to guarantee supplies. Ironically it is the US that wants to keep oil traded openly. Normally, as the largest importer, they would have the most to gain by making strategic deals - but since they have an unlimited supply of paper dollars, they can always afford the market price.

Interestingly, language warning China about making strategic energy deals was added to the National Security Strategy review released this week:

Voicing concern about China's trade tactics, the document said Beijing was ``expanding trade, but acting as if they can somehow 'lock up' energy supplies around the world or seek to direct markets rather than opening them up -- as if they can follow a mercantilism borrowed from a discredited era.''

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Glenn on March 17, 2006 - 4:06pm

In many ways, peak oil will be a return to the past, not just in using more energy efficient modes of transportation, but also in politico-military affairs. It is really only in the oil age that humanity went from the merchantile/colonial trading systems to lowering trade boundaries and creating a true open world market.

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Agric on March 18, 2006 - 1:28am

Correct. And one might validly ask: in whose interests has globalisation worked? And: in whose interests is it now working? Imperialism can wear many clothes, but it is always the weak and poor that pay.

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totoneila on March 17, 2006 - 5:23pm

Hello Tetsudo,

Your quote: "As the price of oil becomes painful, you will see importing countries attempt to make "strategic" deals to guarantee supplies".

The flip side of this is that importing countries should be making internal strategic deals to minimize demand. For example:

It would be painless to abolish external lighting on billboards and store signage, turn off the idiotic idea of streetlamps trying to illuminate black asphalt, and so on. The sun sets-- it get dark-- we need to get used to it, or use a flashlight outdoors at night.
To reduce the pain/cost of house/industry heating or cooling: install mandatory thermostatic controls that limit heat to 55 degrees maximum, or cooling to 90 degree minimum. These numbers are just my guess, medical experts may have a better idea of what temps are best to maintain life. This combined with super-insulation will conserve enough energy and extend the lifetime of the National Grid that the poor will not go violent against the rich when they are priced out of the electrical grid. If we are all adapting to the same internal temperature 'window' then this will prevent many energy riots in the future.

Google Tanzania. They are currently having grid shutdowns of 16 hours/day, but the rich just fire up their generators. It is only a matter of time till the rioting poor pour dirt into these engines.

3. I have read many newsreports of how rising fuelcosts are busting school budgets. If parents understand Peakoil, then they should be telling the admins to abolish most busses and start buying bicycles for their kids. These buses can then be shifted to providing public mass-transit until inner-city rail is up and running. The kids need the exercise and as much money as possible should be going to education, not burning fuel in a schoolbus.

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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Don Sailorman on March 17, 2006 - 7:13pm

Rather than having children biking to schools, I think we should do something much more radical: Go back to small schools, including the one-room school house in rural areas.

At one time it was thought that consolidating schools and busing children would lead to better education and lower costs. The world did not turn out that way.

Why waste huge resources on busing children and on hordes of educational administrators? Put the school buses to work on transit, as you suggest, and perhaps the brighter of the educationists put out of work by getting rid of school bureaucracy can retrain as diesel mechanics or coal miners.

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totoneila on March 17, 2006 - 9:20pm

Hello Sailorman,

One room schools sounds good to me too--whatever the local community Peakoil consensus decides is best to save energy. Just turning off the damn streetlights and shifting the energy savings to heat/cool schoolhouses would help alot of kids as we go postPeak. I think people overrate nightlights as a deterrent to crime-- most burglaries happen during the daytime when homeowners are at work. When energy costs skyrocket, most people will go to bed soon after dark, like in the old days. In the future, having lights burning after dark will be a 'beacon' to attract the most violent kind of thug.

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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Todd on March 19, 2006 - 12:37am

Actually, California funds "necessary small schools." This has been a financial boon to many rural school districts since the state gives block grant funding and districts can usually operate the schools for less then the grant.

The school district (which covers about 500 square miles with a K-12 student population of under 400) in my very rural area has two such school. IIRC, they are 1-4 or 1-5 grades. The parents would like to see them go into junior high or HS.

A far cheaper long term alternative is to simply go to home schooling. The are many circula used today by home schoolers with excellent success. Of course, this assumes someone is home to do the schooling.

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Dan Ur on March 17, 2006 - 7:20pm

I am glad you said number 1, its great, if you have cities where the population might not kill another person.

You can turn off signage, say from 11 pm til the next time of turn on, because fewer people will see the signs at night. But you will always have some folks complaining about their advertiser dollars not getting spent right.

Across the board we can elimnate the big nasty power hungry lights with lower wattage just as bright lights.
Solar powered advertising is a viable option, just not in high use.

But some city streets do need street lights, or some form of illumination to keep the bad people at bay, unless of course you live in a totally crime free city, then go ahead turn all the lights off.

For #2, Totally change how houses are built, or can be remodeled. change that and you can solve a lot of the insulation and heating and cooling issues. then go back and get the poorer or already built houses.

For #3, revamping how our kids get to school and the whole racial bussing issue, where we don't bus kids half way across town to go to a different school we make all schools as equal as possible. But you will find that unless you install a marshal law like system the countries departments of education will just float all your energy saving measures out the sewer drain pipe. Even when they have to pay an arm and a leg, they are a bit slow on the up take.

Having cultured yeast and other micro-organisms, they can kill themselves off, just give them enough time. Tropical fish breeding does have its up sides and knowledge bases. I have been breeding tropical fish for about 15 years.

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totoneila on March 17, 2006 - 8:40pm

Hello Dan UR,

Thxs for responding. I don't claim to have the answers we need to optimally Powerdown-- just hoping to prod people along to hopefully form a workable consensus. We all know infinite economic growth is impossible, therefore, the advertising agencies should be willing, if Peakoil aware, to turn off night-lighting of billboards. Eventually, they will confront a cost/benefit ratio that will force them to turn off the night-lights anyhow. Might as well get ahead of the game. The smart companies should be PV or windmill powering their signs now.

A true Powerdown program will spread the pain equally among all people. This is the basic premise behind ASPO's Depletion Protocols. For example: if taxes were directly tied to total BTU usage for home, food, and car. Below a certain BTU minimum you would get cash back to further enhance personal Powerdown, anything above this minimum would rapidly scale to be extremely punitive. This would force people to quickly scale down the amount of personal sq. footage that requires energy to heat, light, and cool, and to minimize senseless appliance excesses.

A good practice to save energy is to do what I call the 'Stevie Wonder'. If you declutter your house so that you can navigate safely to find things-- it is amazing how well you can do learn to do tasks with open eyes in very low wattage lighting or even darkness. Rheostat light switches are heartily recommended by me.

My house looks dark most of the time because I try to get the major chores done while the Sun is shining. My biggest problem is my girlfriend [who refuses to believe or even discuss Peakoil with me], but she is slowly coming around everytime the power bill comes. Our biggest vice is the old above-ground backyard spa [220v 3-phase wiring, 300 gallons], but damn she looks good in a swimsuit-- I call it our own personal Thermo-Gene Collision! :) :0 ;} Lights out, of course!

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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sjruckle on March 18, 2006 - 4:58pm

If a rheostat light is dimmed, it still uses as much energy as if the light was all the way on. It's just that the rheostat steals some power away from the light (so the light is dimmer) and converts it into heat. There are better kinds which reduce energy consumption that use solid state electronics. Rather than waste power, they switch the light on/off really fast to cause a dimming effect. This method doesn't waste any energy in a resistance coil.

HowStuffWorks Article

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Jack Greene on March 17, 2006 - 11:34pm

Just have new homes facing south and taking advantage of passive solar, instead of making them face the conventional street which usually does not help.

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Donal on March 18, 2006 - 12:59pm

You can do both.

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Todd on March 19, 2006 - 1:00am

Well, here's how I deal with it: I designed and built our house almost 25 years ago to be energy efficient(yes, I've been concerned about energy a long time). I designed it to get 30% of its heat from insolation. That was the reasonable maximum short of going to an active system (I live in the Coast Range Mountains of northern CA and our weather is more midwestern then Californian. Right now I still have 6" of snow on the ground from the last storm.). It has an R-47 roof, R-20 walls on an insulated slab. Our windows are double glazed but I made storm windows so they are really triple glazed. The front of the house is mostly 8' high sliding glass doors. In the winter I cover the insides with clear vinyl sheeting so as to obtain triple glazing.

Although we are the last people on the grid in my area, we have a 3.6kW PV system and I used to have a 1.5kW wind generator. For back-up I have an 8kW gas generator and a 23kW diesel generator and will run them on wood gas if regular fuel becomes unavailable. All lights including the ones in the range hood over the stove are florescent.

We have solar hot water and a heat exchanger in our wood stove to pre-heat the water in the winter. The wood we heat with comes from trees from our property that I fell, buck up and split. We burn 2-3 cords per year for a 2,400SF house. I did buy a gas powered splitter when I turned 60 (I'm 67 now.)rather then keep on doing it with a maul.

We grow most of our fruit and vegetables. This includes fresh eating and preserving them via canning, freezing, juicing (mostly apple, grape and tomato) or dehydrating. As a back-up to our electric range, we have a wood cook stove in the kitchen.

There's more but this is enough.

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Oil CEO on March 19, 2006 - 7:37am

If you are serious, which I doubt you are, I want to come live with you.

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Todd on March 19, 2006 - 11:17am

Oil CEO,

Yes, I am serious. You must not be.

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Oil CEO on March 19, 2006 - 2:34pm

Do you have broadband or are you still using a dial-up modem?

I am serious. I never believe this stuff because I've seen too many movies, and there is always a catch. You won't tell me what it is, so I have to figure it out.

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Don Sailorman on March 19, 2006 - 11:27am

Did your wind generator break? It has been my Minnesota experience that many (possibly most) wind generators purchased during the 1970s and 1980s broke and were too expensive to repair. They are hard to fix.

I am an enthusiast for old-style windmills, and that makes me a really old fart.

However, the new and very expensive vertical turbines from Finland do not break. Also, you can make your own vertical turbines that are durable--but not very efficient.

Tradeoffs everywhere . . . .

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oilaholic on March 18, 2006 - 2:07am

Bob Shaw - your examples of conservation mostly involve electricity. That is not going to be a problem for a very long time. The problem is oil, which is not used very much to generate electricity. Moreover, there are several substitutes both short and long term for oil in generating power: coal, nuclear, wind, and solar.

One reason the doomers are wrong IMHO is they hypothesize a grid emergency, which is not likely to happen until natural gas becomes scarce. I've not heard any discussion of when that might be. Plus, as I say, there are substitutes, so any pain will be temporary until the substitutes are employed.

Furthermore, the economic depression that will result from peak oil will reduce demand for electricity, even further mitigating that as a problem.

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R W Reactionairy on March 18, 2006 - 12:59pm

"One reason the doomers are wrong IMHO is they hypothesize a grid emergency, which is not likely to happen until natural gas becomes scarce. I've not heard any discussion of when that might be."

If the issue is natural gas in North America, the problem is now. We appear to at peak natural gas until / unless LNG starts to arrive in volume. The good news is that the peak demand periods for natural gas for electrical generation and natural gas for home heating are not in phase on a seasonal basis.

The problem is that a build up in storage in summer is an absolute requirement to get through the heating season. A big draw on supplies by the gas powered peak electricity generation makes it increasingly hard to enter the winter season with a high probablity of avoiding a crisis in the event of a colder than normal winter.

The first time we have a any shortfall in gas for home heating the gas peak generators may very well be legislated out of operation. Coming soon from a government near you.

"Plus, as I say, there are substitutes, so any pain will be temporary until the substitutes are employed."

Agreed, and we need to pursue them ASAP. I am also a lot more optomistic than many about the prospects of using grid delivered electricity as tranportation power if only through the use of plug in electric vehicles.

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Leanan on March 18, 2006 - 1:01pm

Some people experienced it this winter (mild though it was). Not long ago, there were rolling blackouts in Colorado, due to a natural gas shortage.

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R W Reactionairy on March 18, 2006 - 1:45pm

You got it right -- and my memory is much too short. The Colorado symptoms / problems were very recent, but IIRC tied directly to a very short but record cold snap. I should have qualified my speculation that "any" shortfalls would trigger a major political problem for the gas generators.

I still suspect that if the shortage had been more general and occurred under more spring like conditions, the political fallout for gas generators would have been ugly.

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TrueKaiser on March 18, 2006 - 2:02pm

More might experience it this summer when they all turn on their air conditioners to avoid the 90+ heat with 70+ humidity.

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wkwillis on March 18, 2006 - 5:55am

Thecoalpile.com is a more appropriate place for this post, and possibly ifithurtsitmustbegood.com as well.

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peakearl on March 17, 2006 - 5:58pm

It also depends on the power structure in each country. Do the people hold power or a few corrupt individuals? Both Stalin's USSR and Pol Pot's Cambodia explicitly starved their people to death to sell food elsewhere to enrich the central coffers and strengthen their own power base. Saddam Hussein starved his people by selling oil in a manner to enrich himself personally. When dictators/power elite can enrich themselves by selling product to outsiders for a high price despite the consequences to their own people, they will do so. This is kind of what's been happening in Nigeria all along with the government and oil co's there. On the other hand, a place like Great Britain or Canada will respond differently since people have more power.

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dima on March 18, 2006 - 3:43am

The USSR and Cambodia are good examples, but what about the US of A? It's about to become a net importer of food, and yet there are plans to "drive on corn", or so ADM would have us believe. What's the flip side of that? "Let the poor eat dirt?" This story is a lot closer to home than we think.

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peakearl on March 18, 2006 - 2:10pm

Agreed -- same goes for health care

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Darwinian on March 18, 2006 - 10:55am

Fungible is the correct term. Fungible does not mean that there are not different grades. If it did then nothing would be fungible. Lumber is a fungible commodity but one cannot replace knotty pine with cedar. But one can replace knotty pine with any other knotty pine. Likewise oil, of the same grade, is interchangeable with any other oil or the same grade. That is what fungible means. Oil, lumber, orange juice, or any other product that can be traded on a bourse is, by definition, fungible. Furniture, automobiles, homes, clothing and such are not fungible.

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Halfin on March 18, 2006 - 2:57pm

Right, fungible means interchangeable, a commodity for which there are standard grades such that everything of a particular grade is equivalent. You get your light sweet from west texas, brent or saudi arabia, you don't care and it's all the same, as long as it meets the standard.

My point was, what did the article mean when he discussed the question of whether oil would remain fungible? He wasn't considering that oil might alter its material properties so that we could no longer define standard grades! But that is what it would mean to say that oil was no longer fungible.

Instead, he was arguing about whether there would remain efficient and liquid markets for oil. That has nothing to do with fungibility. Hence my point that he was using the wrong word.

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stranger on March 19, 2006 - 12:41am

I agree. Its a question of liuidity not fungibility.

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163 comments on The geopolitics of expertise

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“If kindness and comfort are, as I suspect, the results of an energy surplus, then, as the supply contracts, we could be expected to start fighting once again like cats in a sack.”

—George Monbiot