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38 comments on Nate Hagens on "The Reality Report" with Jason Bradford at Noon EST
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If oil has actually hit peak all time production, the price should be far above $100 per barrel. FAR ABOVE, and the "substitution" fuels such as nat gas and propane should be double where they are if not more. Pure and simple.
RC
Jason, thanks so much for your summary, I appreciate the information.
RC, can you explain a bit about your statement? I'd like to understand your viewpoint better.
thanks,
Phil
My logic follows as such:
Would we still have $100 dollar oil per barrel if:
(a) Iraq was at optimal production
(b) Iran was at optimal production
(c) Nigeria was politically stable and at optimal production
(d) Venesuala was politically stable and at optimal production
(e) Saudi Arabia was investing fully in maintaining optimal production, and had not been caught late in the 1990's on investment due to the givaway oil prices.
(f) Mexican development and production was being well managed.
etc.
So, now on top of all that, take off the 30% percent drop (more by now, I can't keep track) in the value of the dollar in the last several years which puts us back at $70 oil all by itself...
In other words, there are enough above ground old fashioned logistical issues to explain away the current oil price, with no need to resort to peak as an explanation. Likewise, the two cleanest fuels in the world, natural gas and LPG. By historical standards, they are high, but there has been NO effort to substitute them into the transportation mix, indicating that no one as of yet sees an emergency that justifies substitution. And again, if you take out the commodities increase/dollar decrease into account, they are simply not that high in price. In the 1970's, there was more effort to substitute LPG than we have seen now.
People often say "Price has gone up XXX% since the 1990's, a huge amount, that must mean peak!" And then in the next breath remind us that oil was massively underpriced in the 1990's! Think about that for a moment. Would some of the increase in price be simply to get back to what could be viewed as a rational level?
Now, time for the disclaimer: All of the above is NOT proof that we are not at peak. People often use price and production level as indicators either for or against peak oil. These are NOT reliable indicators. When the U.S. peaked in 1970, the price was at an almost all time low in the post war period.
In the late 1970's, production spiraled downward at a dizzying pace, one that makes the current "plateau" look like nothing more than measurement error.
When we get to true geological peak, on top of all the above ground and economic factors we have mentioned above, it is only logical to assume that the price will break to the upside to such an extent it will wash out the above ground/economic factors.
Rough guess would be a spike to $200 per barrel, falling back to about $160.
Then we would just have to see what the combined demand destruction/alternatives/substitution effect would be. We could also be sure that all of production that was possible would be fully funded and come online, but with about a 5 year delay, given lead times, even in an emergency push. We would finally get to see what max production would look like.
All the numbers above are nominal. If the dollar collapses more, they would have to adjusted.
That is why the high oil prices per se are causing some pain, but have not impacted demand greatly. If you take into effect the rising incomes since the 1980's, the rising prices in all other sectors of the economy, and the explosion in personal wealth due to the 1980's/1990's investment bubble, oil at $160 plus will be needed to seriously cut into demand, with one possible exception: If technical improvements enhance efficiency at a very rapid pace, we get "accidental" or "transparent" demand destruction, that is, for the same size/performance/comfort vehicles, the fuel economy increases, thus reducing demand. Don't laugh, it could happen.
Oh, one more thing....you see why you have to be cautious about asking me to explain my thinking! Sorry to go so long.....:-)
RC
Demand destruction appears to be happening in some places already, though perhaps not in our neighborhood. How else could it not be since population has risen for 2 years while oil supply hasn't budged.
It is interesting to ponder what price level would cut use in the U.S., though Stuart has looked at travel data suggesting it may have just begun in the U.S.
I agree fuel is very cheap here, although given the income disparity in the U.S. even these "low" prices are causing low wage earners to cut back in other ways.
Though my circumstances have changed, I try to imagine myself as a college student to understand what it might feel like for the poor. I was really cheap because I had very little money in my bank account. But then again, I didn't have kids and felt sure my family would bale me out if I got in trouble.
The poor in the US are not going to college. They're riding a decrepit bike to their job where they do heavy physical labor for 10-12 hours. then riding home. Eating what prepared food they can ingest before they fall asleep on their plate. A shower generally follows right after work, since they're generally stinky and filthy from the work. If they get any college classes in, it's night classes which are as much a struggle to stay awake as one to get grades. The night class curriculum is generally less thorough than the daytime one, but accelerated so they're learning less stuff, but with a heavier workload. They're wirey and can lift their own bodyweight with ease, after all they do it or close to it all day. They're angry at a deep level, but are not sure why so they supress it.
I speak from personal experience. I try to know what I'm talking about.
This huge sector of the US populace will be the motive force in the coming Revolution. What can I say? Arm up!
Sorry, bit unclear....I was trying to recall what my life was like financially as a college student to understand how increasing gas prices cut into other expenses, not to imply that poor folks are going to college.
I was in great shape in college (wrestling) and am in pretty good shape again (farming manually). I too take my showers in the evening and during the main work season usually fall asleep soon after dinner.
"True geological peak" is only a theoretical possibility, i.e. in an ideal world, which provides an upper limit. Since we do not have an ideal world, the actual peak will be the logistic peak, which will always be lower than the theoretical maximum.
The idea there is a single point where all hell breaks loose is a myth. In reality the transition from cheap oil to expensive oil is a continuous function.
very succinctly put
Roger, there always have been above ground factors affecting the supply of oil and there always will be. When oil reaches its very highest peak in production ever, if it has not reached that point already, there will be plenty of above ground factors keeping this country or that country from producing at their full potential.
I really don't understand why you think the fact that above ground factors, affecting the production of oil, indicates that we cannot be at peak oil. Be honest, do you really think all the factors you listed must disappear before we can possibly be at peak oil. That would be strange indeed!
Peak oil will be, or was, at that point where world oil production reaches it highest point ever, regardless of above ground factors.
However I agree with you on one point: Price is no indicator of peak. The price will only spike upward when the world becomes fully aware of peak oil. The fact that the market is in backwardation indicates that the market does not believe peak oil is anywhere in sight. There will be denial of peak oil, by both the people and the market, long after the peak in world oil production.
Ron Patterson
Well, it sure looks like oil production hasn't increased for a couple of years. And since oil is priced at the margin, most oil traders don't think very far ahead, and there is no government or business mechanism for pricing in future scarcity, don't we get the price at which demand is forced to match supply?
Anyhow, hopefully soon you can hear the whole program and see if you disagree with the details.
I'll put my 2c in and say I think most of the credit problem is sort of "underwater out of sight". My own creditors don't seem to have put 2 and 2 together and realized I'm now a bum who's never going to be able to repay their principal and interest, especially with the interest at 30% and more now. In fact I'm getting credit card offers!
I called on one to get my motorcycle, we got as far as myself saying "No, I don't have a cell phone, I don't believe in them" and that was that. I'm surprised the gal stayed on the phone through the no job etc parts lol. This shows how desperate the banksters are to keep money moving. I finally got the bike on a "handshake" loan which is thus utterly inviolate and will be paid by playing guitar (badly, sad to say) in front of Wal-Mart with a tin cup if I can't swing it any other way. But the bike prevents OTHER spending on gas, car insurance (which skyrockets if your credit is horrible) and so on, and in a way represents a contraction in the economy in itself.
I'm (not) proud to say that I'm a non-homeowner, and yet am responsible for "destroying" as many dollars as a lot of people in mid-America have to lose a house to do. Because I'm not a homeowner, I don't think I'm showing up in the stats. I'm going to venture to guess there are at least 50 million like me, all of those with huge college loans who can't get a job, types who went to "chef school" or art school for obscene amounts of money, those who started small biz's and ran 'em for 10 years without paying themselves first and tanked them, and so on. We're boomerang kids and the newly homeless and that new barista with age lines, and so on. And while we're not being counted, we are here. :-(
Fleam--
They can't stop sending you credit cards-- if they do the pyramid will crumble.
This is a superstition based economic model, and will only survive if everyone believes. As in Plato's Cave, some still believe the shadows are real. Some have come into the sunlight and we are starting to hear their screams.
Can a wood stove be modified to burn plastic?
I disagree. At Peak Oil we start a permanent decline. However we do so from a point that is the highest production ever. At that stage of the game, small drops in demand would offset smaller decline rates and prices could decline, potentially a great deal. And if there is a recession or worse post peak, prices will drop, even years after the peak. (because its unlikely that people will admit publicly to peak until its well beyond the date - perhaps 5-10 years.)
We do so from a point that is the highest not only in oil produced, but also in the number of people supported by the oil-dependent infrastructure.
I humbly disagree with 710's statement. Peak people will probably occur 10 to 20 years after peak oil. A lot of things must happen before the human population starts to drop. People must get very hungry and that will not happen until many years after peak oil. Also there will probably be resource wars.
There is simply no way of predicting when the population will begin to drop but we know for sure that drastic things must happen to cause it, such thing as famine, war and perhaps even large scale diseases like cholera.
I know, such things are already happening in some places in Africa. But nothing is happening right now, on a large enough scale, to reverse the world’s population growth. Slow it slightly yes, but not reverse it.
All I am saying is there will be a delay between peak oil and peak people. How many years delay I could not even venture a guess.
Ron Patterson
I humbly disagree with your statement as well. :)
No, the 6.6 billion on this planet don't rely solely on oil. Coal, natural gas, nuclear are the other major players, but they mostly produce electricity, and some heat, and minor amounts of specialty fuels and industrial products.
In our interdependent energy system, oil is used for most of our transportation, trucking, flying, and shipping fuel, including fuel for the processes that enable the mining and transport of coal, the pumping of natural gas, the processing of uranium.
Oil is used for pharmaceuticals that treat everything from depression to disease.
Oil is used for cosmetics, pesticides, lubricants.
Oil is used for nearly everything made of plastic.
Oil is used for the asphalt the maintain an acceptable level of service on roads for transport and maintenance of everything we use, want, and need. The electric grid, food distribution, and servicing the water pumps and sewers all rely on drivable roads.
There are myriad points of failure in this complex, interdependent system, all due to shortages of oil.
Yes, there will be a delay between peak oil and peak people. I will venture a guess that it will be less than a decade. It will start among the billions of poor people who have few or no options when they are priced out of their cheap energy, or priced out of the necessities supplied by cheap energy (food, water).