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207 comments on How Realistic is EIA's US Domestic Oil Supply and Demand Forecast?

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Nate Hagens on April 6, 2008 - 2:56pm Permalink | Subthread | Parent | Comments top

There is no evidence the EIA, IEA, CERA, Woods Mackenzie, IHS Energy, or any of the other major energy forecasting agencies have ever incorporated the concept of net energy (or limits to non-energy inputs) into their forecasts. There is a SERIOUS lack of understanding of the interdependency of the main fossil fuels, and the increasing energy costs of each. (e.g. if natural gas is the main energy input into oil production, what happens to oil production when there are natural gas shortages or price spikes, in ANY O/G producing region?? Just like we have discovered systemic risk in the financial sector, there is systemic risk in the fossil fuels sector, as increasing amounts of electricity, natural gas, and liquid fuels are all required to find and deliver the other two.

Corporations have really not yet begun to look at how resource limitations to growth will impact the economic assumptions underlying the existing paradigm, (with the tiny exception of carbon trading). I don't mean to be overly critical of the energy industry because we are all guilty - but the ecological concepts of limits, externalities and biophysical economics are going to explode into public awareness first in the energy sector.

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daniel morris on April 6, 2008 - 3:26pm Permalink | Subthread | Parent | Comments top

How can this be?

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Nate Hagens on April 6, 2008 - 3:50pm Permalink | Subthread | Parent | Comments top

How can this be?

From my graduate economics textbook:

"Should we be taking steps to limit the use of these most precious stocks of society's capital so that they will still be available for our grandchildren? … Economists ask, Would future generations benefit more from larger stocks of natural capital such as oil, gas, and coal or from more produced capital such as additional scientists, better laboratories, and libraries linked together by information superhighways? … in the long run, oil and gas are not essential." (p. 328, ECONOMICS, Paul Samuelson and William Nordhaus)

Because the 'rules' that governed the first half of oil were 'made up' under conditions of plenty, and the same 'formulas' will not work when basic goods become more scarce. But economics wasn't designed with its own demise built in - there is no natural transition to 'something else' built into the discipline - only continued growth and utility for more. The practitioners of modern Walrasian welfare economics just assume that resource shortages will be met by technology and new substitutes. A graph of US oil production shows pretty clearly that price and technology did little to change the production profile, and we are more dependent than ever on liquid fuel to supply basic goods.

Every major corporation and government entity has high level and well paid economists repeating the false rationales underpinning modern economics - which even if you ignore the now countless examples disproving the demand side assumptions of humans as rational actors, you are still left with basing economic decisions on fiat money, which is ultimately an abstraction that has worth because we say it does. Economists are not trained in biophysical principles. I sense that just now, finally, some of them are starting to scratch their heads wondering where all these resource needs for water, natural gas, oil, food, etc are going to come from - but concepts like net energy, sadly, will likely remain in obscurity/academia until they can be analyzed in the rear view mirror, e.g. history.

Here is a recent Scientific American article with an interesting take on the false foundations of neoclassical economics, "The Economist Has No Clothes

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noutram on April 6, 2008 - 4:29pm Permalink | Subthread | Parent | Comments top

Obviously a state of fright is due to emerge when Black Swan economics comes to the fore.

I imagine somthing like (with a nod to YPM):

"Humphrey, why did our estimate of production costs for coal to 2030 show a flat or declining cost when in reality we are paying five times that amount to get the coal out of the ground and keep our economy running?"
'Well that's because our model was -in a word- "Bolllocks"'
"I see, so what's plan 'B'?"
"May I recommend the Carribean?"
"You don't think Hampshire?"
"No Prime Minister..."

Nick.

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dissident on April 6, 2008 - 8:22pm Permalink | Subthread | Parent | Comments top

"The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline."

Oh my, what medieval garbage.

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SamuM on April 7, 2008 - 2:18am Permalink | Subthread | Parent | Comments top

There's more of that what Nate already posted above:

http://www.theoildrum.com/node/3129#comment-254607

Modern market fundamentalist mainstream economic theory does not attempt to reconcile for the fact that the theory is not physics or reality based.

The economists of aforementioned inclination really do believe that markets will 'solve all' - so to speak. In this sense they are acting on faith not scientific reason.

Of course, there are economists thinking long and hard about this issue, but they are neither market fundamentalists in the common sens of the word nor mainstream.

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Ignorant on April 7, 2008 - 1:07pm Permalink | Subthread | Parent | Comments top

Forget economists... go with what actuaries say; actuaries use REAL math (they have to... or else they'd be out of a REAL job).

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Gail the Actuary on April 7, 2008 - 8:03pm Permalink | Subthread | Parent | Comments top

LOL! I think we do tend to look closer at what the numbers really say, though.

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FMagyar on April 7, 2008 - 6:45am Permalink | Subthread | Parent | Comments top

Meanwhile nature continues to fight back at the ever increasing onslaught of human population growth.
http://www.cnn.com/2008/WORLD/americas/04/07/brazil.dengue/index.html

And somewhere on the edge of the Mongolian Desert in a little lab a group of rougue scientist has just read the latest posts on TOD and have decided to speed up their research efforts to gave nature a little help. They have seen the writing on the wall and have realized that the world can no longer tolerate the western civilization. They have embarked on the only course for salvation, engineering lethal organisms for quick deployment into major western cities. Yeah, it may be science fiction, but not much more so than trying to maintain BAU by drilling for oil.

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Nate Hagens on April 7, 2008 - 7:29am Permalink | Subthread | Parent | Comments top

Actually, every time I have looked at our 24 hour site statistics, there is always ONE IP addy near Ulan Bator, Mongolia...perhaps it is said rogue scientist...;-)

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