Peak Oil Overview - June 2007
Posted by Gail the Actuary on June 26, 2007 - 10:53am
Topic: Supply/Production
Tags: cera, eroei, matthew simmons, oil, overview, peak oil, saudi arabia [list all tags]
I wrote this article to put together answers to questions someone new to peak oil might have and to directly counter some common misunderstandings. One topic I talk about is CERA estimates. While there is a little overlap with Oil Quiz-Test Your Knowledge, most of it is different. Pass along a link or a PDF (available below) to your friends.
The message that "peak oil" may be a problem is now reaching respected publications like Business Week. But how can a person learn more? Information about peak oil is often fragmented, and the quality of the sources is questionable. The purpose of this article is to document some of what is known about peak oil, so that readers have a better framework for understanding our current situation. Many links are provided, so that readers can dig deeper if they like.
1. What is peak oil?
"Peak oil" is the term used to describe the situation when the amount of oil that can be extracted from the earth in a given year begins to decline, because geological limitations are reached. Extracting oil becomes more and more difficult, so that costs escalate and the amount of oil produced begins to decline. The term peak oil generally relates to worldwide production, but a similar phenomenon exists for individual countries and other smaller areas.
2. Why would oil production begin to decline? Can't we extract oil as fast as we want to, until it finally runs out, many years from now?
What happens isn't quite as simple as "running out". Instead of running out, oil gets progressively more difficult to extract. When a well is first drilled, the oil is often under pressure, so comes out quickly with virtually no effort. Later, pressure drops, and it becomes necessary to inject one of several gasses to repressurize the wells. Finally, when even this ceases to keep production up, the remaining oil is pumped out at a slow rate.
Another reason for production tapering off is that oil companies tend to develop the fields which are expected to have the highest return first, and save the smaller fields and fields with more challenging production profiles (such as deep sea oil, very viscous oil, and oil combined with toxic chemicals) until later.
3. Do we have any historical reason to expect that oil production will begin to decline at some point?
When we look at oil production in any given area, the production tends to rise until approximately 50% of the oil that will eventually be extracted is gone, and then begins to decline. For example,
Figure 1 shows oil production of the United States.
A similar pattern holds for North Sea oil production (Figure 2).
We have now reached the point where oil production is declining, apparently for geological reasons, in the majority of oil-producing countries. It logical to expect that world oil production will eventually begin to decline.
4. What does world oil production look like?
Figure 3 shows recent world oil production (blue line), plus a rough estimate of future demand for oil (red line), assuming world oil desired usage continues to grow at 2% per year.
On this graph, a person can see that world oil production was rising fairly steadily, but recently has "stalled out". Based on data of the United States Energy Information Agency (EIA), oil production for 2005 was a little higher than that for 2006. Partial 2007 data suggests that 2007 production may be a little lower than that for 2006.
Because of this "stalled out" condition, there is a growing gap between what the world would like for petroleum production, and what is actually being produced. At this point, the countries that are suffering a shortfall because the current price is too expensive are mostly third world countries from Africa and Asia. The International Energy Agency (IEA) has expressed concern that oil production is not high enough, and believes that Organization of Petroleum Exporting Countries (OPEC) should produce more.
5. Can OPEC raise its production of petroleum?
Many people suspect that the answer to this question may be no. Some publications report that Saudi Arabia is having production difficulties, as are several other OPEC countries (Kuwait, Iran, Nigeria and Venezuela). Saudi Arabia does not admit to any production problems. EIA data indicates declining oil production for Saudi Arabia, even before OPEC production cuts were announced in the fall of 2006.
It is likely that we will learn the truth about OPEC's ability to raise production this winter. OPEC has its next planned meeting in September. Unless something very unusual happens, there will be a need for significantly higher oil production. OPEC's actions at that time will tell what the real situation is.
6. Doesn't OPEC report very large oil reserves? It seems like those high reserves would assure us that OPEC can increase its production at will.
No, the high reserves aren't all that helpful. First, there are serious doubts about the accuracy of OPEC's oil reserves. The reserves are not audited numbers. Countries may be motivated to exaggerate them, so as to increase their OPEC production allocations. Analyses such as this one suggest that the reserves are likely overstated.
Second, even if OPEC reserves are accurate, the reserves tell us nothing about the flow rate. If the reserves include much very viscous oil, it may take years and large amounts of other resources to produce a relatively small flow of oil.
One important piece of detective work regarding Saudi oil reserves was done a couple of years ago. Matt Simmons analyzed published scientific papers relating to Saudi oil wells, and determined that Saudi wells were reaching a serious state of depletion. He documented his findings in the book Twilight in the Desert. This book is now available in paperback, and has been translated into German and Chinese.
7. What is the pattern of world oil production in the next few years expected to look like?
We can't know for certain, but Figure 4 shows three possible oil production scenarios as dotted lines.
If OPEC production is now falling, it is likely that we are at "peak oil" now, because production for the rest of the world is flat. If we are at peak oil, we might expect future oil production to follow a pattern similar to Scenario 3 (the lowest dotted line, with production falling immediately) or possibly Scenario 2 (the middle dotted line, with production falling after a plateau). Several respected energy industry insiders, including Matt Simmons, energy investment banker and author of Twilight in the Desert, and Samsam Bahktiari, retired iranian oil executive, believe that we are at peak oil now.
Scenario 1 (the top dotted line) shows a scenario in which peak oil is still a few years off. Some scientists believe that this is a more likely scenario. The Association for the Study of Peak Oil and Gas Newsletter forecasts peak oil in 2011, four years from now. The PhD thesis of Fredrik Robelius showed that peak oil is expected to occur between 2008 and 2018. Chris Skrebowski, author of the Megaprojects analysis forecasts a worldwide peak in 2011/2012.
8. Does everyone forecast peak oil within approximately the next 10 years?
No. The US Energy Information Administration's model is based on an approach that does not consider geological constraints. Instead, it is based more on expected demand. In Figures 3 and 4, expected demand is the red top line. Forecasts on this basis tend to be higher than those considering geological constraints. Forecasts of the IEA appear to use similar logic, since IEA also assumes that OPEC can meet supply shortfalls.
Another organization that is known for its rosy production forecasts is Cambridge Energy Research Associates (CERA). CERA's production forecasts are widely quoted in the news media, but it is not clear that they are particularly accurate. Some concerns:
• CERA's clients are companies in the energy field. One would expect that these companies would like to hear "good news" about future growth prospects. Thus, CERA is likely to be under more pressure to produce favorable forecasts than are independent scientists.
• CERA's forecasts do not appear to be reproducible by independent scientists. Chris Skrebowski and Fredrik Robelius (see Question 7) both use field-by-field analyses that are in many ways similar to CERA's approach, but come to very different conclusions.
• Where it is possible to test actual production against forecasts, CERA's forecasts seem high. Euan Mearns notes that in March 2006 CERA presented a model for UK 2006 oil production capacity showing around 2,350,000 barrels per day -- around 700,000 barrels per day higher than the actual production figure.
9. When was peak oil first predicted?
M. King Hubbert, in 1956, first predicted that US oil production for the 48 states would peak in 1970. This prediction turned out to be correct, to everyone's surprise. He also predicted a world-wide peak around 2000.
10. Will alternative energy sources be able to make up for the shortfall in petroleum production?
At this point, it seems unlikely that they will make up the shortfall.
On Exhibit 4, the gap that needs to be filled is the gap between future demand (the top line) and actual future production (something in the vicinity of the dotted lines). Clearly, the sooner production begins to drop and the steeper the decline in oil production, the bigger the gap that needs to be filled. Even if production stays level, there can be a gap because demand continues to increase.
At this point, there does not seem to be any "silver bullet" for replacing the lost oil production. Oil is unique in its abundance, its high energy density, and its portability. There do appear to be a number of possible silver BBs, however. These include:
• ethanol from corn,
• ethanol from sugar (generally imported),
• biodiesel,
• cellulosic ethanol from biomass, and
• coal-to-liquid.
None of these appears to be very scalable, especially in a short time-frame. In addition, there are other drawbacks -- cost, environmental damage, and for coal-to-liquid, climate change issues. Indirect approaches to circumventing the shortage, like using battery operated cars, may be part of the picture as well. If these are used, they will probably need to be phased in slowly, as existing cars are retired. It is likely that conservation will need to be part of the mix.
11. What is "Energy Returned on Energy Invested" or "EROEI"?
This is a concept that a person runs into frequently, if one reads any of the more advanced articles about peak oil on the internet. Analysis based on EROEI helps to explain why many scientists are discouraged about the newer energy prospects - both alternatives like ethanol and "unconventional" oil like oil sands.
EROEI is a measure of how much energy an investor gets out, compared to how much energy the investor puts in. Some of the energy invested is not in fuel directly, but in things that are made using fuel, like oil rigs and refining equipment.
In the early days of oil, much of the oil extracted came from highly pressurized wells, so little effort was required to get the oil out. At that time, the typical EROEI was about 100. As those wells became depleted, more and more effort was required to get the oil out. A typical EROEI for oil is now about 15, considering additional costs like repressurization of wells and drilling in underwater locations.
One problem that we are running into with "unconventional oil" and alternatives is that it takes a huge amount of effort (in terms of energy expended) to get the energy out. EROEI is in the low single digits for oil sands, and is barely above 1 for ethanol from corn. Oil in very deep sea locations is also expected to have a low energy return (assuming it can be extracted at all), because of all the very fancy equipment required.
If we had a huge amount of other energy from a readily available source that we could use for producing oil and oil alternatives, such as natural gas or coal, a low EROEI would not necessarily be a big issue. But it is now becoming clear that natural gas is in nearly as short supply as oil, at least in North America. And coal has a lot of issues as well -- it is implicated in climate change, is mixed with toxic pollutants, is not as easy to transport, and is not in as unlimited supply as most believe.
When we have energy sources with a low EROEI, we are using a lot of fuel to get oil or oil alternative. The energy we have left to do everything else we do -- build roads, build shopping malls, produce food -- is less. I once heard an estimate that it takes an average EROEI of 6 to have enough energy left over to fuel today's society. If new energy sources all have EROEIs of 3 or less, we are likely to
• Need a large share of workers to work in energy-related occupations
• Have less energy left over for other uses
• Experience a significant fall in our standard of living
12. What are the indirect impacts of peak oil likely to be?
We don't know for certain. Some issues that have been raised include:
• Will the food supply be adequate, if farmers are not able to get fuel for for their equipment and transportation is disrupted?
• Will it be possible to supply all of the products that are currently made with petroleum, including asphalt, many chemicals, fabrics, and building supplies?
• If there is a shortage of oil, will the new alternative energy sources really be sustainable? For example, will it be possible to service windmills adequately, if there is a severe shortage of oil? Will it be possible to produce enough corn for ethanol?
• Will people be able to repay their debt, if standards of living fall? Will lenders be willing to provide more long-term loans, if it appears likely that future transportation will be disrupted?
• Will there be problems with the monetary system, if there are major debt defaults?
• Will the many economic concepts that we hear so frequently continue to apply, such as "globalization", "companies should grow", "fungible oil supply", and "increased price will lead to greater supply or substitution"?
• Will countries fight about the remaining oil supply?
13. If the peak oil story is really this important, why haven't we been reading about it in the newspapers for years? Are you claiming there has been some sort of conspiracy?
No conspiracy. Just of a lot of things that seem to work together:
• Oil = Power. A country with lots of oil (and other fossil fuels) has great power. It can manufacture what it wants, outfit big armies, and generally be at the top of the pecking order. For this reason, government officials may be tempted to exaggerate strengths and gloss over weaknesses on the energy front. This is true for almost every country with oil -- US, Saudi Arabia, Russia, Venezuela, and others.
• Embarrassment about the drop in US oil production. Prior to 1970, the US was the world leader in oil production. It was the undisputed world leader in manufacturing, and the economy was growing rapidly. In 1970, oil production started to drop. This was a shock, because very few believed the prediction Hubbert had made in 1956. The drop in oil production meant a changing world role - to more of a service economy, and relatively less power. This whole discussion was left out of textbooks. If it had been included, people would have realized that a decline in world oil production would be coming some day, just like the decline in US production.
• Faith in OPEC oil reserves. The Saudi oil company Aramco was taken over by Saudi Arabia in 1980. Shortly thereafter, the amount of oil reserves was doubled, without finding any more oil. Other OPEC countries soon followed suit, since higher reserves meant higher oil production targets under OPEC rules. Current OPEC reserves appear to be seriously overstated, but they are repeated endlessly as fact, in news media and textbooks.
• Faith in technology. The fact that oil production would eventually decline has been known for about 50 years. But many people who were aware of this problem assumed that technology would somehow overcome the problem. If peak oil is viewed as an easily solvable problem, there is no reason to tell the public about it.
• Faith in economic theory. Economic theory says that if there is a shortage, higher prices will encourage greater production or substitution. Therefore, there should be no reason to worry.
14. Even with all of these things going on, it seems like the peak oil story would be better publicized than it has been. What else has kept the story off the front page?
There are number of other things:
• The people who have discovered the peak oil story are by and large technical people -- people working in academia, people working for oil companies, and scientists who are close enough to the situation to say:
Wait a minute. We see a huge change coming. Oil is near the point where world-wide production will drop and we aren't finding any major technological solutions. All we are finding is some little things that together don't look like they will cover more than a small percentage of the problem. The economy cannot continue to grow the way it has grown. In fact, it looks like a major cutback is in store.
• Peak oil people are not well funded. Their organizations are volunteer organizations. Some of their work is done on internet blogs. It is hard for them to match well-funded organizations like CERA.
• Peak oil does not mix well with standard economic theory. Economic theory is repeated so often that everyone nearly everyone takes it as science or fact. It is only when people step back and realize that economic theory is just a theory, and that it does not necessarily apply in a resource constrained world, that they can understand the peak oil situation.
• Newspapers have a happy story to tell -- one of growth, entertainment, selling lots of SUVs. It is hard for a news organization to publish the peak oil story when it is so much at odds with the main message of the paper.
15. So who are the people who know the peak oil story?
In Washington D. C., Representative Roscoe Bartlett (R - MD) is the leader on the issue of peak oil.
There are many others who are peak oil aware. The Association for the Study of Peak Oil and Gas (ASPO) now has organizations in 11 countries. There are also quite a number of local peak oil organizations.
There are quite a few people involved with internet sites that publish peak oil information and discuss the peak oil story. A few of note:
• TheOilDrum.com - "Discussions about energy and our future" Features well-researched articles written by its staff. 40% of its readers have postgraduate degrees.
• EnergyBulletin.net - Publishes peak oil and related articles that others submit. Has good indexing features. No discussion.
• Globalpublicmedia.com - Publishes speeches and other audio media related to "a postcarbon world".
• Speeches by Matt Simmons Slides for the speeches by the author of "Twilight in the Desert" can be found at this site.
• aspo-usa.com - The web site of the US version of the Association for the Study of Peak Oil and Gas. Offers a weekly and daily newsletter.
There are also many others web sites dealing with peak oil. Many of these can be found by searching for the words "Peak Oil".
16. Are governmental leaders aware of peak oil?
Many of them seem to be.
We know that the leaders of OPEC are aware of peak oil because OPEC's magazine talks about the issue. A speech by one of their members on peak oil is printed on page 58 of the November 2006 OPEC Bulletin.
We strongly suspect that Russian and Venezuelan leaders are peak oil aware, because of their aggressive recent actions. They know that because of peak oil, they have more power, and are acting accordingly.
Representative Roscoe Bartlett (R-MD) reports that based on his meetings in China, Chinese leaders are very peak oil aware. He reports that they have a five point plan for dealing with peak oil and are buying up all of the oil assets they can.
George W. Bush and Dick Cheney do not talk about peak oil, but there are many governmental reports relating to peak oil. Some of these include
• Uncertainty About Future Supply Makes it Important to Develop a Strategy for a Peak and Decline in Oil Production. US Government Accountability Office, February 2007.
• Energy Trends and Implications for U. S. Army Installations E. T. Westervelt and D. F. Fournier, September 2005.
• Peaking of World Oil Production, Impacts, Mitigation, and Risk Management R. L. Hirsch, R. Bezdek, and R. Wending, February 2005. For US Department of Energy.
A number of people have noted that both Iraq and Iran report significant oil reserves. The question has been raised whether the US involvement in these countries is more than coincidence, given peak oil concerns.
EDIT: This a PDF of this article.
Gail-
First of all, nice compilation.
I am curious what your experience has been explaining PO personally to friends & family.
I can't even bring up the topic of oil to my sisters or they scream. I find that even people with so much to lose like a land developer friend don't even want to hear one word about PO.
I'd like to do something positive to balance out all the sleep I've lost over the last couple of years since learning about PO. For example, you cannot get around where I live (Middletown Twp, PA) by bike; it is far too dangerous. I'd like to know if anyone has had success petitioniong local municipalities for bike lanes.
I'd also like to know how valuable recycling plastics is, etc. Is there a forum you go to for questions such as these?
Thanks again.
dVincent
Nice summary, a few comments:
Alternatives will help but there is a lot of oil to be save with simple conservation measures (60-70% of oil consumption is for personal transportation).
some are arguing that this "stalled out" condition is due to lower demand and not an actual supply problem. Note also that inventory levels are not near an historical low. Your summary should address this important fact.
Khebab,
Thanks for your comments.
Regarding conservation, I agree that this will help, but not until Peak Oil starts making the front pages and people start realizing that there is a real need. Also, While it should help in the US, I am less certain that there are big gains to be made in the parts of the world where autos are rare and usage is growing rapidly.
Regarding the inventory situation, this is one I really wanted to put in, but didn't have fully sorted out in my own mind.
As I see it, inventory levels when the price for the "front month" is lower than the next two or three months are likely to reflect buying ahead, and thus are not directly comparable to inventory levels when the front month is lower than the price for the next few months.
The analogy I think of is deciding what gasoline inventories are by doing a survey of automobile drivers as to how full their tanks are. If gasoline stations posted not only what their price was this week, but also their expected price in future weeks, auto owners would tend to keep topping off their tanks as long as prices appeared to be rising. If prices looked like they were falling, they would wait until their tanks were close to empty.
I know this theory is not the standard one, and I didn't have a history of how long the front month has been lower than the next few months. There are also some carrying costs for buying oil ahead, and these would need to be considered too for a proper analysis. Right now, the front month seems to be lower than the next several months. See this site.
Gail:
Good Work!!!
On the NYMEX futures market and inventories:
The NYMEX futures have been in contango now for ost of the time since the end of 2004 when oil prices ran beyond $40/barrel and and seemed unable to fall below that price point in a time of rapid expansion in demand. This constant increase from the front-month to the 3rd/4th month contracts has been unprecedented since the beginning of the NYMEX futures trading back in 1983.
In the post Katrina/Rita era where concerns about JIT approaches to inventory were raised, along with the contango position of the market, the inventory build of oil is not surprising. Unless we run out of storage capacity (creating a sudden decrease in demand) or there is sudden jump in supply that makes the market go back into the more traditional role of backwardation.
While there are people who attempt to gain leverage in the market, it seems the market has largely bought the idea that cheap, easy oil IS NOT the wave of the future (this is what I tell them that the market sees). This is consistent with PO... the idea that as oil becomes progressively more scarce with no easy substitutes areound, the oil prices will continue to climb. At some point, the climbing oil prices eventually "break the bank" but economic theory does not do a very good job of predicting where that occurs.
On EIA assessment of Peak Oil:
the latest one from 2005 is shown here
http://www.eia.doe.gov/neic/speeches/Caruso061305.pdf
The methodology used by the EIA is one disputed by a number of people (including me) where the growth curve is constrained by the amount of recoverable reserves AND a decline rate governed by a R/P ratio of 10. That's too technical for nontechnical types. But I do tell people, to answer their question, that our own government and energy department predicts two things...one, the peak is a long way out and two, when it comes our Energy Department is predicting a global collapse in production. If the ability to support population is tied to the amount of oil available, then the US Government is making some pretty stark predictions. Most people get the happy talk on the left side of the curves not the dire consequences on the right-side.
I point out that these are collapse curves no matter which one you choose. On the otherhand, if PO is now and the decline is rather modest and we get some serious awareness about PO, we might actually have some chance to adapt to a gradual decline (it won't be pretty but which would you prefer?)
Once again, great job.
Just to avoid confusion. Saudi Arabia was not the first to raise its reserves estimates. Iraq was first and Saudi Arabia was last, completing its reserves increase in 1990.
It was OPEC which decided to implement the production quota based on reserves system, no doubt with SA's strong influence. I know this may seem to be nitpicking, but on a site that promotes accuracy, I would suggest you clarify your statement.
Thanks for the clarification. I had not gone back and checked who was first.
Since you seem to know quite a bit about this, can I ask for a bit more clarification on the reserves to production quota? How exactly does it work? Is the quota directly proportional to reserves, ie if a country doubles its reserves it basically doubles it's quota? And is that an upper limit or a mean production value?
Thanks.
The quota system was never to my knowledge actually predicated on reserves. They talked about it, everyone inflated their reserves, then they quietly dropped the idea when they saw each other cheating like mad.
Stuart Staniford's excellent graphic from his article What would we have predicted for Kuwait? is referenced below and clearly shows the odd shape of the OPEC reserves increases, all coming within a span of a few years and not accompanied by any one single discovery anywhere in the Middle East!
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
When prices in the front month are lower than outgoing months this is a signal to buy now and hold instead of later since your dollars get more now. (This has to be offset against inflation, of course, but if the later months are higher than current plus inflation then buying now makes sense.)
In turn, buying now also makes sense in a resource constrained environment, even if the buyers don't know it is resource constrained. It becomes cheaper to "hoard now" than buy later.
This point is often dismissed by those who argue that the inventory surplus must be "explained" by peak oilers. The explanation is in the futures price itself and there is nothing further for a peak oiler to explain. Our problem would be explaining current inventories if futures prices were lower while inventories were building.
In other words, the market itself is arguing for a constrained supply system and if you want to be certain of having yours, you need to get it while you can.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Also, the graph in section four is misleading. Projecting 2% demand growth from a date 2 years in the past doesn't make sense to me on its face. What is the basis for implying a level of demand other than the quantity supplied at a given price?
If projected 2% demand growth in 2006 did not materialize, then a peak-oil themed discussion might suggest that stagnating production "pushed the supply curve backwards", leading to a higher equilibrum price caused by less oil on the market. In a global market, there should not be supply shortages because price mediates between the quantity supplied and the quantity demanded.
If there are people clamoring for more oil, higher prices will shut them up. My apologies that this doesn't properly convey the toll on the people who are potentially being priced out of the market for modern energy.
These extended explanations for why peak oil enthusiasts are the only ones who are angst-ridden about peak oil make us look very defensive.
I opt for a simpler explanation: "Governments, businesses and individuals don't respond to a crisis until it subjectively feels like they're in a crisis."
Actually there is I would suggest a better number than 2% to use as a historical demand predictor....
If you look at global per capita oil consumption since about 1971 to current vs global population you will see it is as close as you get in the real world to a perfect fit:
4.1 bbls /person/ year +/- 0.25 bbls/year with R^2 > 0.91
(consumption from BP review, world population from US Census dept.)
BUT world population is growing at about 1.275% per year exponential, not 2%, so I'd suggest that as a benchmark, unless there is a better explanation for where 2% is being drawn from....
P.S. I can't find an equation that describes the price-production relationship at the level of yearly summary figures in this time period that is anything like a good fit, if someone knows of such a thing do tell...
In the US, there are 1000 cars for every 1000 adults. In China, there are 8 cars for every 1000 adults. In India, the number is 4 cars per thousand adults.
They want what we have.
And are working hard to get it.
I'd guess the number low, were it not for the fact that there won't be oil enough to support the demand. The reality is growth can't exceed the supply.
I did inhale.
Hi Kenny, and thanks (as always) for your work, Gail,
re: "My apologies that this doesn't properly convey the toll on the people who are potentially being priced out of the market for modern energy."
1) Yes, well - it does seem like an important concept, i.e., "people who are potentially being priced out of the market for modern energy."
How would you describe this?
How would you quantify it? (Or otherwise bring it in to the discussion.)
These "people" may well be the US middle class, as memmel (I believe) has mentioned.
It seems like such a crucial concept - "being priced out of the market". Because the lives of real people are affected.
So, we have an entire phenomenon with no words to describe it? And it doesn't fit in with the theory?
2) "should not be supply shortages"
Actually, memmel has addressed this point. And made the argument there actually "should be" supply shortages. (I'll try to look it up and edit back in.)
3) I like the idea in your last sentence. I just wonder if it might be re-worded some.
There could also be other explanations. Perhaps people simply don't know what to do.
I think this is right. The middle class of the western industrialized world might well be one group that is priced out of oil consumption. I was thinking more of the developing world and the misery already being caused by high global oil prices.
I agree that population growth and global per capita energy consumption is a useful way to look at future demand, with the caveat that global per capita energy consumption would change significantly if for example 300 million Americans suddenly became 50% more energy efficient. One consequence of sustained high oil prices will almost certainly be greater energy conservation and investment in energy efficient technologies among the richer nations.
Anyway, it's important to understand that the drive to energy efficiency and conservation caused by high prices will obscure peak oil for years, even if those high prices are caused by peak oil. Most of the potential/foreseeable effects of peak oil will obscure it in the short term, including a global recession, a massive effort to improve the energy efficiency of the industrialized world, continued trend toward nationalization of oil resources and "resource nationalism" among the major producers, etc.
I also recognize that there are other potential mechanisms besides price for the allocation of scarce resources. Thinking outside the box, an extreme form of future resource nationalism might be an oil producer suddenly deciding not to export any more oil. It doesn't seem likely, but you can imagine a revolution based on the idea that oil is too important a strategic resource to export.
I think this is right. The middle class of the western industrialized world might well be one group that is priced out of oil consumption.
They have to compete VS the rich, the military, the farmers and the subsidized poor.
Once they become the poor, then they can be helped!
I agree with Kenny about the graph in section four.
"a rough estimate of future demand for oil (red line), assuming world oil desired usage continues to grow at 2% per year."
I think there is some hand-waving going on here. You need to tighten this somewhat, without going all economist-technical on the reader. How about something like this:
"a rough estimate (red line) of what future demand for oil would be assuming oil prices hold steady and supplies are adequate."
Seems to me you can't talk about demand for a product without saying what the price is.
What's lurking behind this are the classic price-demand and price-supply curves from economics 101... where the curves meet is what sets the price and the amount produced. Seems like TheOilDrum could use a bit more econ 101 type of information to balance all the great geology info. I still have the impression that the economists are right in the following sense: there are so many ways for people to adapt, conserve, substitute that the emergency will indeed be long. The book "1000 barrels a second" by Peter Tertzakian helped turn my personal doom-o-meter down from defcon 4 to defcon 2 (but Westexas' Export Land Model may push me back up to defcon 3).
P.S. Gail, do you want some help with typos and such? I spotted about a half dozen in your excellent piece.
Regarding the demand, I am really assuming prices at early 2005 levels, rather than at today's level. I know the economic theory about demand varying with price, and that as the price goes up the quantity demanded goes down.
My problem with this is that most readers have a very different view of what demand really is. When I read about riots because of load shedding and about hospitals in Africa going without electric power because the price is too high, in my mind there truly is current unmet demand. That is why I used a trend based more on the pre-2005 period, and a left a gap between supply and demand. I tried to tip the reader off that I was not using the standard economic definition by talking about the "the countries that are suffering a shortfall because the current price is too expensive are mostly third world countries from Africa and Asia." I probably need clarify my demand sentence somewhat further, in the direction you are talking about.
Regarding typos, please send me an e-mail at gailtverberg at comcast dot net. That way I will also have your e-mail, if I have a new version that it would be helpful for someone to look at.
Gail,
Your postings are some of the best on TOD; I do enjoy them.
But when it comes to "demand" and "quantity demanded," please stick with standard usage in economics.
IMO any other usage is fatally flawed by ambiguity.
Terms such as the inherently ambiguous "demand destruction" should be avoided entirely.
Clarity, clarity, clarity.
"Seems like TheOilDrum could use a bit more econ 101 type of information to balance all the great geology info."
Ummm... I would suggest thats sort of like the preacher saying that more info about the book of Genesis is needed to balance all the great geology info from the fossil record. (with regard to evolution vs creation).
[bold claim]
I'm not saying that oil consumption is unrelated to price, but I am suggesting that in the real world such relations are so far removed from the simple "supply demand curves" graph of economics 101 as to make it fairly meaningless.
[/bold claim]
But, of course, if such a curve pair could be constructed from actual real world data it would be great to see....
John Milton wrote,
An Appeal For More Economics in Peak Oil Theory
Doubtless Mr. Milton's statement is correct... the real world is complex, messy. However, we view the world through our mental models. And the more powerful mental models are often the simplest ones.
While the supply and demand curves for gasoline, for instance, are doubtless not the simple curves of my econ 101 text, they are still curves that are monotonically increasing or decreasing. Meaning that the demand curve only goes down with increasing price, never up (at a given moment in time of course... the curves themselves change shape and shift up or down over time).
We use simple models like this to reason about the future. For example, we can reason that a recession would lower demand for gasoline, and reduce the price from where it would have otherwise been without recession.
Another example: gas prices having jumped from $30/bbl to $60/bbl over the last 3 years has generated large business investments in all sorts of energy fields. This is the supply curve at work: as price increases, we move up the supply curve and more is produced. This is an effect that is too little appreciated by what I've seen of peak oil literature.
The cornucopian viewpoint (hilariously well expressed in a recent Drum Beat story: Arthur Foulkes: We will never run out of oil) believes that these effects (substitution, better oil extraction technology, unconventional liquids, etc.) will win over the gradual loss of petroleum supply. I think it is in the interest of peak oil researchers to take on these issues as directly as possible, and provide a point-by-point rebuttal of Arthur Foulkes or Huber/Mills of The Bottomless Well. (Such rebuttal's probably already exist... I'm grateful for any links). The excellent work by Gail The Actuary on the Peak Oil Summary is a good start.
The most reasonable cornucopian I've read is Peter Tertzakian, his book "A Thousand Barrels A Second". I highly recommend this book to TOD readers; he presents history of the various energy transitions that have occurred so far (whale oil to kerosene; coal to oil; etc.) and argues that what is coming is just another transition to a different energy source(s) plus some conservation.
I don't know who to believe: the doomers or a reasonable cornucopian like Tertzakian. Seems to me, a key issue is the speed at which the transition is forced on us. Too fast and the doomers might be right. But if it's slow enough, then people and economies can adapt.
I don't see TOD as a doomer website. I find great information here, and reasonable informed people discussing the articles with vigor and intelligence. TOD seeks the truth, and let's the chips fall where they may.
That said, how can you not be a doomer with the info that TOD presents? Part of the answer has to be these economic issues, of how precisely the energy transition will be handled, and its speed. (Another big part of being or not being a doomer has to do with how cynical you are in general about human nature.)
kenny made a recent comment along these lines:
It would be great for TOD to have articles on economics that is of the caliber of the geology and oil industry research. (Now, I'm a bit of a newbie, so there may well be lots of great info here that I haven't seen yet... This is based on about a year's worth of reading, but much of it books and not internet sources). It strikes me that the "future resource estimates" are improving (see for example The Coal Question from a couple days ago) to the point where economists might be able to help with models of possible economic responses and scenarios.
BTW, these supply and demand curves are by and large theoretical constructs anyway; you can't easily do the tests of offering gas at different prices to see how much is supplied or demanded. At least you can't do repeatable, controlled tests in the real world. You can look at time series, and try to factor in the zillion other things that were going on in the world over that time period. Governments that control the price of gas can supply messy uncontrolled real-world experiments: like the current riots in Iran over gas being rationed, where the subsidized price is $0.30/gal.
Speed is probably the key issue but there are others.
A transition in energy form will most likely lead to different living arrangements than we have now. In other words, we're likely to see Kunstler's end of suburbia one way or another. This leads to a second issue - the psychological, sociological, and political commitment to successfully transition regardless of where it takes us in our living arrangements. Right now the US is engaged in a hard defense of suburbia. If we gave up that defense and adopted a new way of living, would that make the transition easier? I think it would. And contrarily, the longer we cling to outmoded ways of living, the faster we must transition when the time comes, which puts more pressure on the adoption of technologies to make the transition.
If we had started to transition back under Carter as he had argued, we would be laughing at peak oil today. Instead we face the very real possibility that we may delay to the very last second and then not have enough time to transition before things fall apart.
As I have said before, the problem has never been the technology. We have the technology. The problem was and remains us. We are the problem, not the technology. Our lack of psychological, sociological, and political willpower is the problem. And that is a far harder nut to crack than technology.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
I really liked what RelocalizeNow said. It fits my psychological take on the issue. Key point is definitely speed, though I suspect that if USA keeps having presidents as intelligent as Bush, speed factors nil.
I agree. But there was also another problem. With high energy prices, the USA could not have maintained the GDP growth (and with it its productive capacity) it has been having for twenty years. Americans always laughed at the Euro"tards" that kept having slow GDP growth and high centralized energy taxes and all. It seems like a slippery slope: if you save too much, you will grow nothing, and if you grow too much you might have nothing saved at the end to back up. But again, if you save too much, you might miss technological breakthroughs that only come with sustained economical growth (compare for instance Sillicon Valley with Russia), and those breakthroughs could (eventually) save the day.
Take solar power, for instance. I really doubt that the amazing sustained progress for decades that this technology has been through could have been possible in a stagnating economical world. This is the danger of slowing down "too soon".
Either way, the world is climbing blindly. We simply don't know what to count on. But the world has faith that all is well. So, it is obvious it requires a big slap in the face to wake up.
I agree with what GreyZone, that
I guess I'm searching for persuasive information to motivate people. This Peak Oil Summary by Gail The Actuary is a good start. But it doesn't address some of the cornucopian arguments, some of which I personally still find compelling and hard to argue with. In particular, question 10 above falls short I think.
I still feel that if/when the true picture emerges (when PO is obvious to all), that people will be motivated to "make different arrangements". Whether there will be enough time and political will and leadership is a very open question.
It's up to us (the PO-aware) to shorten the time until the rest of the world is PO-aware. Otherwise all we can do is try to make our little armed farms more obscure and secure.
The Mayans didn't make different arrangements. They kept doing what they thought would work. The Romans didn't make different arrangements. They too kept doing what they thought would work. Only in neither case did their approach to their particular problems work.
There is a large body of history that says there is a high probability that humans will not respond as you think. That instead, humans will look for scapegoats and keep trying to do what they think is right even when it is not. Of course everyone says we are different. Somehow we are special and not like the Romans, the Mayans, the Babylonians, etc. The truth is that societies that actually do change in response to a changing set of problems facing that society are fairly rare.
Let's hope that we really are different and special. I'm not going to assume that though in my planning.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Agreed. I wonder, if we were going to be different what would be different about us?
That's enough of a list right there to make a difference. It all depends on whether enough of the right things are done, and few enough of the wrong things.
This is why I want to see more of a debate between some peak-oil writers and well-meaning cornucopians who are not peak-oil deniers.
The future has not yet been determined. It is possible we can make a difference. (At least the opposite has not yet been proven to me).
BTW, if you are at all concerned about Freedom Of Communication on the internet, you might want to see the #1 story at this webpage:
Top 25 Censored Stories of 2007
The number one story?
#1 Future of Internet Debate Ignored by Media
Hi Relocal and Grey,
I really appreciate your comments, relocal.
re: "Whether there will be enough time and political will and leadership is a very open question."
We also need available energy, i.e., material and physical means to make such transitions.
We need both.
re: "Let's hope that we really are different and special."
Grey, are "some" of "us" in this category? And/or, "some" of "us" under "special" circumstances?
My guess is, yes. Then, as re-l says, what does this look like and/or consist of?
My experience explaining peak oil to family and friends has been mixed.
There are some that I don't even try, and some that I do try, but they are clearly not receptive to the idea. There have been quite a few who seem interested, though, and this seems to make up for the others. Most of the people who are interested are ones I have talked to one-on-one, or in a small group. The more scientifically inclined ones seem to be better candidates than others.
With respect to information on recycling, etc, the The Green Book, a conservation book that just came out, has 50 pages of web references in the back, on various subjects. I will be doing a review of this book shortly for TOD.
Perhaps others can echo how they have explained peak oil. I found the WestTexas ELP model was the most useful (cut salary in half, double fuel bills). Very few want to understand oil depletion, but everyone can understand rising prices makeing it impossible to service loan payments.
I just say that because the oil is running out we are going to enter another Great Depression (without saying we are never leaving it). And it is pretty easy to see that selling $5.00 coffee is not a viable job during a depression.
Even people who "don't want to think about it" have tightened up budgets and reconsidered second morgages. People who won't talk about it have taken a sudden interest in gardening. I had one couple say "we bought the best kitchen pans we could get because we need them to last forever." So the ideas are crossing, if not the mathmatics.
Your developer friend is in a great position to assist handling peak oil. It is energy efficient housing on mass transit routes that will save many.
Which brings up another idea: Peak Oil actions based on occupation. Lots of people are in positions to improve efficiency or help prepare, if there were a list attached to each job category, people would see how they fit in to a community solution. Everyone from car sales people to neighborhood board members can help. Maybe something like that exists already, but I have not seen it.
(Another great article Gail! Keep up the good work!)
Jon Freise
Analyze Not Fantasize -D. Meadows
Hi dVincent-
I'm hearing what you're saying. I live not but a long bike ride from where you are (19002). Trying to communicate what is stated on this site to others is challenging - to say the least! Drop me a line at: mikeatmichaeljeremybrowndotcom if you want to commiserate more about the pros and cons that the Phila suburbs offer in a PO world. (And, frankly, anyone else from the Phila area can feel free to contact me as well)
Best,
Mike
Yes, Gail, very nice summary. Thank you.
I'd like to add your PDF to the peak oil section of my site or elsewhere. (I see you have your name on the footer, so I'm thinking you approve distribution provided we keep the footer.)
My experience with friends and PO is only slightly different. I started a "friends-only" discussion group to discuss what I think are three mutually-reinforcing topics: Peak Oil, Terrorism, and Debt (national, local, personal). My friends joined, and then... nada. The problems seem to be so big that even bright people's minds simply shut down. I think that death is easier for them to contemplate than peak oil.
The only solution I see is to keep repeating the key thoughts over and over again. Maybe this is a little like selling soap or toothpaste (or SUVs!) -- repeat it long enough and it begins to get traction.
Bob in D.C.
http://livingwithoutoil.blogspot.com
http://my-words.org/Beyond2010-top/top.htm
Yes, distribution of the PDF is fine. Watch for slightly improved versions in the future. I purposely named the article with the date June 2007 in the title, so that updates could be made with new dates. I have been talking with Prof. Goose about getting some version (probably slightly improved) accessible from the front page of TOD.
Good luck with your groups. I don't have a good solution. Most people have a very difficult time dealing with the idea of peak oil.
Ah, someone finally wrote a Catechism of Peak Oil for TOD.
Probably worth continuing to refine and expand, though I would suggest keeping the number of new questions limited.
Some possibilities for further questions:
P1: They were telling us we were running out of oil back in the '70's. How is this different?
P2: Aren't there new oil fields discovered every year?
P3: The world is really large, so how do you know that there isn't a lot of oil waiting yet to be discovered?
Catechisms have several purposes, but one of them has to be to strengthen one's arsenal in defense against those who would attack your beliefs.
In 1949 I was introduced to the idea of Peak Oil by a man with a degree in civil engineering. (He drove a Crosley and stockpiled copper tubing, by the way.) His reasoning was pure engineering: In World War II we had burned much of the easy oil that was out there, and from (say) 1950 on out the going would get tougher. His reasoning was approximately the same as Hubbert's--and earlier.
Well, we did not reach Peak in 1950 and we did not reach Peak in 2000. So what? The logic is unassailable, though the timing is hard to nail down.
(And because of my concern going back to 1949 I'm going to claim Seniority of Peak Oil Concern [SPOC] unless somebody asserts an earlier date for their conversion to the theory and doctrine of Peak Oil.)
Don,
Well I won't claim seniority on you but, my father was definitely a peak oil man in the 50's and 60's when I was a kid, even though I'm sure he never heard of Hubbert. Hell he never went to college either. He just had a lot of common sense, so Kunstler and all the others have nothing new over him. My father called cars 'gas buggies' all the time and he railed against the likes of Robert Moses and his refusal to make railroads part of his highway building rampage. He also knew that the motoring economy was a long term dead end. I and my siblings thought he was crazy of course. It was much easier to believe the cultural messages of the 60's than any crap about conservation and resource management etc...
Those are good suggestions. One thought is to do updated, expanded versions of this from time to time.
Some of the questions about new oil fields being discovered each year are covered in Oil Quiz.
Gail,
If you read the work of Fredrik Robelius you discover some amazing facts.
1. There are about 50,000 oil fields in the world (fields, not wells).
2. Of these 50,000 only 507 or about 1% provide over 60% of all oil produced each year and possess 65% of all known reserves.
3. Of these 507, just the largest 20 of these oil fields produce almost 20% of the oil produced each year. (Data from Matthew Simmons.)
The conclusions are inescapable - small fields cannot be discovered and brought online fast enough to replace the large fields. To replace the 507 largest fields would require more small fields than exist today in addition to all the current small fields.
The decline of the giant and super giant oil fields is, quite simply, the absolute end of the oil age. As a civilization, we either get moving right now on mitigating this loss or we suffer the consequences. Ace's prediction is for peak liquids next year and after that it's all downhill. If we don't put a plan together immediately to mitigate what is happening, we probably never will.
References: http://www.energybulletin.net/27491.html (See the PDF referenced by Energy Bulletin for Robelius full thesis.)
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
I probably should have included this discovery graph from Oil Quiz in this write up. It doesn't show large vs small fields, but it does make the point that discoveries are generally getting smaller.
That's useful but the large field paradigm is a shocker, right to the core.
Extrapolate it out, Gail. There are 49,500 oil fields providing 40% of the world's oil. How many of those size fields would we need to replace the 507 giants and super giants? Answer: 123,750 total fields. That means we need to find 74,250 new fields. And since the small fields last an average of about a decade versus multiple decades for the giants and super giants, we have to find 123,750 such fields every 10 years just to maintain production (no growth at all). That is 34 fields per day or 12,375 per year! Last year the API indicated that about 250 fields total were found for the entire year. In other words, exploration and discovery must become two whole orders of magnitude more efficient overnight, an impossibility.
The absolute utter dominance of giants and super giants means that small fields can never, ever replace the large fields at an adequate rate.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Great job, Gail!
I liked your Oil Quiz - Test Your Knowledge so much that I put the URL into my email signature. Now I want this story to stay around longer than the few days it will be visible on the front of TOD. Where is the PDF? I want it!
Andy
PS - This story has some diggs but they are not showing up in my browser. Is anyone else able to see the digg count?
The PDF is in the "attachment" at the very end of the story.
I also noticed the problem with the Digg count. I am not very knowledgeable about Digg. I'll send an e-mail to Super G and see if he has any ideas.
I must be an idiot because I don't see any "attachment" at the end of the story. Guess I don't know where to look. Are you referring to the space just before the comments? The story I see ends with three bulleted links and a parting shot at the end of your response to question 16.
Or are you referring to the Hirsch report? I'm hoping you made a PDF of your story. . .
It is possible that different browserse do this differently. On mine (Safari), I see the words "Attachment" and "Size" after Question 16. That's where the PDF is.
They discontinued the pdf version of the stories after some trouble developed with the server (or was it with drupal?)
I'm using Safari too, Gail. Maybe you are seeing that link and I'm not because you are logged in as an author or something, while I'm just a viewer.
Could you post your pdf on another website and post the url here?
There's no rush. If people suggest corrections and clarifications you might want to compile an improved draft first. But I was thinking it would be good to have this story as a resource to a broader audience than just TOD.
The one that was discontinued was the automatically generated one.
The one that is supposed to be attached is one I made myself that has page breaks in reasonable places and bullet points look like bullet points. We can still do that.
If you aren't seeing it, maybe we can figure out a way to get it to show.
This PDF link should work now. I can make a new one, when the article is revised.
I have not posted in quite a while but have continued to follow TOD. As minor evidence for a growing Peak Oil awareness, yesterday I received an ad for a soon to be published PC game that appears to have high production values the theme of which is a large scale resource war for oil. The add explicitly referred to both the concept of peak oil as well as peak oil related sites including TOD.
That's neat! If you see the game advertised on the internet, send us a link!
Also, Are you aware of the WorldWithoutOil.org. They were active for a month and invited people to submit peak oil related stories. I believe they are indirectly supported by PBS. I submitted some of my stories, and am still getting several hits a day from their site. Our World Is Finite: Is This a Problem? (submitted under a different name) was one of the winners on that site.
Yes, I have seen the WWO site and enjoyed it. Here is the link to the game site I mentioned last post: http://www.frontlinesgame.com/
let's help spread this around the net for Gail. She's done great work here. Hit reddit, hit digg, hit stumbleupon, hit slashdot, send it around! The author thanks you.
I appreciate section 12, and keeping issues as questions. Perhaps this section should be divided between public and private issues?
When I gave a speech at my Toastmaster club on "Hubbert's peak", the biggest question come out as "What should we do?"
This issue stands highest for me perhaps:
--> Will people be able to repay their debt, if standards of living fall?
The uncertainty for me is how much to paint panic into the issue. Is it an issue that requires personal preparation or should we just tell our representatives to "do something" like raise fuel standards?
I'm on the panic side, at least in terms of encouraging individual preparation, at least simple things that help people whatever happens - using debt only as an investment to the future over supporting a lifestyle now, feeling confident you can live on half your income if you needed to.
I guess for me it most comes back to money, to the seemingly bottomless "needs" that require so much money to keep our lives running smoothly - people on the edge now can't care about bigger things they can't do anything about.
Perhaps there's a way to go back to Kennedy's plea "Ask not what your country can do for you, but what you can do for your country?"
Oil, if nothing else, offers such a clear "line in the sand" to draw. It should be agreed we need to transition away from needing oil for transportation in the least, and so we ought to take our limited refining capacity as a natural limit to expanding our consumption, and adding high taxes for imported gasoline.
What if the U.S. stated our "goal" was to lower our world share of oil consumption from 25% to 12% in the next 10 years? With 5% of the world's population, we're still overconsuming per capita.
Whether a geological or political peak oil, the goal stands firmly in our best interest.
And if we did set a goal, how to we regulate the consumption - by supply/demand pricing or a consumption quota or some combination?
Anyway, until there's agreement somewhere along that line, I think the best we can do is "scare people into fiscal prudence." I don't have any better advice.
I do like the idea of local communities looking at their collective risks and responses, but I guess even I'm in denial.
The demands of the issue exceed my selflessness to help others more than telling them to turn off the TV (or computer!?) and get some exercise.
I suppose "peak oil" will hit communities with a myriad of local issues - crime, unemployment, foreclosures, alcoholism, etc, so THOSE are the organizing issues for communities.
Yes, big question. Of course, it all comes down to if there is going to be hyperinflation or not. Because if so, debt won't be a problem. Unlike most of everything else that involves money.
You know, as much as I really admire America, this is one thing I don't believe anything they can pull off. Yeah, USA is still over the top but that comes with lifestyle, and that is not changeable in ten years. Unless of course you can relocate some 80 million houses to be closer to community needs, groceries, shopping, business and work, etc. All that in ten years.
Furthermore, oil price increases will only strengthen USA share of oil usage, not decrease, as poorer nations will demand destruct sooner than USA. I'm talking about share, not total usage, as that is destined to decrease, of course.
Not voting in you at all. Even if I were American. "You wanna mess with ma money, pal? U wished, frig left nutcase!"
Worse, gov would be completely aligned with the big oil in increasing prices in the eyes of the consumers. No politic could sustain that democratically. No way at all.
Only measure I see now is CAFE rising and hope for oil to climb up up and up. And hope that when it does, people understand they have to go for alternatives (and praying that they exist).
Essentially, all that comes with a sense of utter disappointment to the future must be countered with a clear vision of what is going to happen, what should we do and do it. Crisis are moments of redefinition. Of changing motivations and purposes. One can endure a long nightmare if he believes that people are going the right direction to get out of it, working out a myriad of solutions by themselves and living purposely.
In a sense, this is a opportunity to create the greatest political momentum since WWII, as it will span in all classes.
I think debt is going to be a big problem and I really don't know how it will work out.
The US government is a bigger debtor than any of us individually. A big question in my mind is whether countries will figure out that the US government is not going to be able to pay back its debt (at least in dollars that are worth anything) after peak oil. It is possible that the government may be able to get out of this through hyperinflation. Afterwards, some whole new system would need to be established - perhaps more barter-based.
WIth respect to individual debt, my guess is that debtors will come out ahead of lenders, because lenders will not find it to their advantage to have possession of a huge number of unoccupied homes and SUVs that no one really wants. Also, hyperinflation is a real possibility, and it will benefit borrower.
I think part of the answer may be to change our focus to things that money can't buy - spending more time with family and friends, entertaining at home, playing games and musical instruments, planting a garden. Our spending will be down, so we will have less debt, and less to worry about, regardless of what happens.
When hyper-inflation and a collapsing economy yoked to an agricultural system that cannot produce enough food for the US without fossil fuel finally meet in a huge blast of entropy fired clusterphooey, then people will finally see that the economist has no clothes.
Can you say "Jubilee?"
Can you say, "Got no choice but to blow off the imaginary debt fueled economy?"
When people find that the economic "system" is a fraud, an imaginary pal with gambling issues, they will simply discover that they can stay in their homes and quit paying the bank. People will band together and fight off the vultures. Not at first of course. And the poor will not stand a chance, but when the weasels who are still driving their bloatmobile SUV Erect-O-Matic Manhood Enhancers find themselves about to be thrown out on the street, you can bet your collective lives that they will suddenly turn all squishy socialist in a heartbeat and demand a JUBILEEEEEEE!!!
Funny thing about rich people. They will use whatever they have to to survive. Even if it means becoming what they had always hated before.
Truly it is amazing to me how loose lenders have been on credit, oblivious of risk, but perhaps the financial world is cooked so the big investors always win whatever happens, and it'll be a 100 million 401(k)s and whomever else that'll take most of the real fall.
On the other side, I'm fully unimpressed by the doomers who want to buy land on credit and think they can defend it from the bank with guns when TSHTF and they can't make their payments.
I suppose the great depression is the only somewhat modern comparison to where the money flowed after a crash.
I think of myself as a rental property owner - what am I going to do evict my friends when they lose a job and can't pay the rent or cover my increased costs?
Its funny people are still looking for 10% return investments, while I'm just trying to hold my investments even. Paying down the mortgage while I have a good income seems my only "safe" bet.
I admit I'm not hopeless about a future of higher unemployment, since it CAN mean more time to think about what's important and how to live closer to home and pay more attention to the community around it.
Why pay down the mortgage when peak-oil-based inflation is going to go through the roof and your savings account interest should be much higher than your mortgage interest? Wouldn't it be better just to leave it in an interest bearing cash account?
You assume the government won't index all debt for inflation. They actually talked about this in the 1970s but it never got close to actually occurring. This time I am not so sure.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Ah, agreed perhaps if I was one of the lucky ones with a low fixed rate mortgage, but the unexpected gambler in me went for a 5-year ARM for a lower initial rate but "only" capped at 10.75% later, which encourages me to pay the principle earlier.
Mostly I don't have much respect for banks, so prefer to minimize my participate in the debt economy, even if profitting from it was possible.
I feel more secure knowing I can live on a much lower cash flow later. A tricker question later, if I'm fortunate, will be what is my best investment options to strengthen my community and support systems, over merely my personal security.
On crazy musings for a 20 years future, I wonder like whether peak/falling oil/energy will reduce or increase the distribution of wealth and I pretty much assume it'll steepen for this intermediate term, and yes, even towards a feudal system where communities will "sell" their city services like police into private hands that can afford it, and the rest of us will bow down to Mr. Potter's affluence "to keep our children safe".
I think we're leaving a period where prosperity lifts all boats, and whatever happens those most dependent upon a high income to sustain their choices will have the least flexibility being at least partial masters of their future.
Why wouldn't they play fast and loose with credit? Last time, the late 80's with the savings and loans, the feds bailed them out. The ones that were responsible weren't rewarded by the government, so they ended up missing out on the both the federal bailout and the eas