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.

John Milton wrote,

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.

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:

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.

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.