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53 comments on The Coal Crunch is Materializing
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53 comments on The Coal Crunch is Materializing
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The Chinese government made some regulations about coal prices, coal freight charges, etc. This meant that it was less profitable to mine and ship coal, and more profitable to export coal. Then they regulated coal exports. A bit of a mess. We will probably have a good idea of what really happened when the data percolates outward over the next month.
I think they shut down a lot of the less regulated illegal mines in the last few years, too.
I see. Not being familiar with inland Chinese regulation I can imagine all that. I'm still lost on the magnitude, though. Exports are up, imports are down - when they desperately need coal and have the money to pay for it. We've seen strong and decisive government intervention regarding several commodities, brought about by the food crisis. This shows the ability of the Chinese government to interact if need be. So I still don't really get it. Are all the numbers above hard facts?
(Correction: In my original post I committed several spelling mistakes and a grammatical one as well. I can't edit that any more, so here comes a sidenote. Instead of 'crises' I wanted to write the singular form: 'crisis', and of course the rise in oil prices is attributed TO and not by sg. It's still early here and I was typing faster than I should have. Here is hope it didn't make my post very hard to decipher.)
First and foremost the current situation in China is probably best described as a government mistake and will be rectified. Next in general in China with both coal and oil you have some messed up domestic pricing rules that make it more lucrative to export. Finally china is a big country like the US or Canada. Canada for example exports oil to the US from the western half and imports substantial amounts in the more populated eastern half of the country. China also as this sort of dynamic going. I believe its in general the northern regions exporting coal and the more southern regions importing. But I'd have to dig this up I've read a little bit about this but don't have the facts.
Also you can't dismiss some scheme to cause a few shortages before the Olympics to get the air quality a bit better.
China has suffered more power outages then we are used to in the west with whole cities losing power for weeks. Recently because of weather but its not uncommon. So seven days of coal left is not as unusual as we would expect in the west.
Good article but its overall not a simple situation and the rapid growth makes it even worse.
Thx for your answer, memmel. I think you are right on all accounts, with the major factor being messed up (and later to be rectified) inland regulation there.
About a less related issue: I'm a big fan of your theory/model of peak oil happaning at 60-70% of the URR as opposed to cca. 50% implied by the original Hubbert-curve. I'd love to see your detailed analysis and the numbers worked out. Do you have any preliminary results yet?
Yes I do but I'm working with Nate Hagens and he will be posting soon on the Maximum Power principal. This is the basis for the proposal. On the mathematics side maximum power and the logistic equation are similar although I've not been able to make the leap if you will to show a simple relationship between the two.
However I've stolen a good rule of thumb from Hubbert and focus on 80% of total URR as the amount of oil available at a high production rate.
Next I've actually determined the error people are making and its huge of course.
The problem with using current discovery estimates is that a lot of the oil reported as reserves is coming from reserve additions well after initial discovery. This is oil added because of technical/market changes.
The problem is from the production perspective this is the only oil in the world we cannot produce no matter what we do since its located below/behind the oil we are currently producing. So it does not do you a lot of good to double the predicted reserves in a fully developed reservoir. Your free to make up any number you wish over the original estimate. This is the core reason for disconnect between reserve estimates/ discovery and production. Once you reach this new oil if its real you will find that its probably going to have a high water cut or other issues that ensure that even if its real the production rate will be low. You can see that reserve expansion and new discoveries are fundamentally different beasties and radically different under a global peak vs regional peak. The US was able to continue to use infrastructure developed using cheap oil to develop marginally profitable oil fields and more importantly technology to exploit lower quality reserves this capability migrated to the ME and is a interesting addition to Maximum Power.
Basically my extension to maximum power concept is that if you have two systems with the smaller one decaying first triggering a natural selection process the fitness gains get transferred to the larger system allowing it to grow its maximum power region. Basically extinctions events that are not homogeneous and drive themselves.
What happens is that the first region to be stressed undergoes extensive natural selection that produces new more fit species these attack and take over the original ecological niches collapsing the natural web leading to more extinctions selection events etc. No one has ever adequately explained the large scale extinction events but the non-homogeneous nature is critical and shows extinctions are a self driven event. This is why we will soon face a global extinction event. In our case its interesting since it was man via attempts at self extinction using war that drove our own selection process i.e better ways to kill each other which drove technology which fueled a huge increase in our fitness level or ability to maximize power and destroy ecosystems. We have literally and figuratively committed suicide by our desire to kill our own species.
This leads me to suspect that the initial driver for selection is cannibalism in some sort of predator species that causes it to split into a super predator that then is capable of wiping out a ecosystem. For the dinosaurs we would then hypothesis that some sort of super predator dinosaur arose that wiped out the rest. My best guess is it was a birdlike species that learned to eat dinosaur eggs. So birds probably killed off the dinosaurs. Mammals just feasted on the cracked eggs from bird attacks. Birds eating bird eggs and chicks is the self cannibalism event.
Next on a global scale which is quite different from regional peaking when you finally get to produce these reserves if they exist at all the production rate will drop dramatically since in general this is low quality production coming from watered out fields. Since oil is used to produce oil etc you get on a economic treadmill with costs exploding. This is pretty much where we are today.
Now as far as real reserves that are readily accessible you have to go back to the original predictions which are about 1250-1350GB . We have pumped I think about 1150-1250 or so. Its not clear to me yet if we should only consider 80% of the original right now I am. So that gives about 1000GB at high flow with a range of 1000-1350 depending on a number of factors. I doubt its as high as 1350. In any case at 30GB a year although we have a large margin of error we are pretty much at the decline phase. Obviously I'd like to see if I could pinpoint this better since it spreads the edge of the cliff if you will over almost a 10 year period. I believe the major production declines will happen over a much shorter two year period. We have a significant amount of the remaining high quality oil locked up in OPEC. Iraq, Iran, KSA and Venezuela along with Mexico are because of political reasons sitting on I think about 100GB or so of our "good oil". KSA is not the primary member of the group I think its got less than 20GB of "good oil" its not producing. Some of its capacity some of its undeveloped smaller fields. For Mexico is primarily small field/ Deep water undeveloped. Overall most of this oil is undeveloped and not pertinent to a near term drop.
You can pretty much use the US hit list to know where the remaining good oil is. Its Iraq -> Iran ->Venezuela. But you can see that my uncertainty is fairly well covered by unproductive reserves that are of significantly higher quality than the world average but to produce these without export land effects negating the usefulness you have to invade the countries decimate the population subdue the freedom fighters and put all the infrastructure in. Plus the oil going back into the military industrial complex needed to do this negates the addition however the invading power gets a economic boost on the military side of the GDP. In any case it pretty much ends with the military invading oil producing countries to supply the military with the oil needed to invade oil producing countries with wealth created only for the military suppliers.
With the maximum power approach what changes at the end is the quality factor.
The fact that the worlds reserve quality has dropped off a cliff can be seen simply by noting that its now profitable to mine tar at a large scale. If any other new reserves had higher quality then this they would have been produced.
In short the money would have gone somewhere else and large scale production in the tar sands would not have been viable. This is that ever increasing minimum barrel cost effect the fact its no longer excluding the tar sands should be alarming. Even oil shales are now hovering on the edge of profitiability.
These are leading indicators that normal oil production is about to take a nosedive or in my opinion already started too the last quarter of 2007.
My posts won't have any different conclusions from this. But hopefully in working with Nate we can untangle the problem. To be honest I'm now more interested in maximum power/quality and sustainable resources working it out with oil is simply a way for me to understand the equations. The oil based economy is already toast so its time to look past it.
memmel,
your long and thorough post made me think a lot. I'm not sure I got everything right, but I generally understand it. (At least that's what I think.) I'm certainly looking forward to see your detailed work. (And yours as well, Nate.)
I know it takes a lot of time to get something of this magnitude 'done'. I myself am working on a concept about the differences of energy efficiency and the energy intensity of the GDP - and it is not at all easy.
So take your time and keep us updated! I'm sensing great (albeit depressing) stuff coming.
Thanks !
Just to add support that the cannibilistc nature of super preadators is critical we can look at Orcas the super predator of the oceans.
http://marinebio.org/species.asp?id=84
Generally in my opinion omnivores like humans have a better predator/prey cannibalistic relationship. The fact we generally only kill ourselves for sport and habitat control is simply a waste of good meat. However generally we only wipe out the male lineages and impregnate the females so that makes up for wasting the protein. Maybe once we developed rudimentary agriculture burial practices where a way to re fertilize the soil using the dead bodies. So we got more energy out of using our enemies and old as fertilizer than simple eating them directly. So the combination of impregnating the live fertile females of a slaughtered clan that where supported by the now dead males and then using their bodies as fertilizer makes up for not being in general good direct cannibals. So you can see how basic agriculture changed us from simple direct cannibalism. This carrot of adoption of fertile females instead being slaughtered and eaten is probably the balance that kept us from self extermination. You have some pretty heavy selection at least in females for those willing to join another clan and allow impregnation.
This natural selection for survival probably is why men can still treat women as second class citizens. Women that resisted where treated as equals to men and slaughtered. In men homosexual in the sense of female like traits would also be a positive so you have some selection pressure for men that can act like females to avoid being slaughtered.
In anycase although the above is off topic maybe ? You can see that in the oil industry we have the same sort of selection pressures with the Western Oil companies behaving like Orcas or humans. Many of the national oil companies take on the feminine like roles and are still submissive although not always as a mega contract but certainly via subcontracting back to western companies for technology. The role has changed from fully submissive to quasi but its still there. Also of course humans are the top biological predator exhibiting the required cannabilism but companies are a order of magnitude better than the individual or even governments. You can see that as our super national companies have refined their cannibalistic abilities that we face and extinction event as they destroy the economies/ecosytem that gave them birth.
.
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To back off for a bit I got to thinking about burial and our love of killing people.
People make very good fertilizer and the natural place to kill is when someone is on
a ravine say by a river. Our ancestors probably had their favorite ambush spots.
When the killed travelers the travelers where probably carrying sacks of grain and other vegetables like root crops. In the battle in the mud this would be dropped along with various body parts. Making a excellent garden. So agriculture probably started along with burial based on this chance occurrence.
Since the travelers may have carried the seeds a fair distance it also created hybrid crops. And when these where ripe it acted as a trap for wandering travelers. A garden of eden.
Cannibalism in humans leads to things like kuru and new-variant CJD. There appear to be firm reasons for the taboo.
Thats why its secondary cannibalism. You kill for the resources that a person can provide. You get a lot more bang for the buck using the body as fertilizer vs eating it directly. Plus the females have be fed too the age of maturity. At worst the ones that are reluctant to be enslaved become more fertilizer. The redirection via agriculture allows you to bypass the problem of the top cannibal falling prey to direct pathogens like kuru.
In fact these pathogens exist because of the cannibal effect. Via agriculture we managed to bypass the natural control on over population not just because of the food value but also because of the fertilizer effect. On the opposite end of the spectrum is the nigth soil issue.
In any case the key point is that a cannibalism esp if its a omnivore can survive ecological collapse since its both predator and prey. We for example can and do exist in a very simple ecological environment consisting of less that 100 critical species. Wheat rice, cows, pigs sheep, goats, beans etc. We don't need a complex ecosystem and if pushed we can eat ourselves. Worst case is you need rice, beans and people. This is how some bird made it through. However as you point out once specialization is reduced the chances of major die offs from disease grow dramatically either via direct transmission or some other vector. For us at least its a chilling result since what ever top predator was created that killed of the dinosaurs some omnivore bird it completely died out soon after firts from direct diseases and then via speciation filling the truly empty niches since the omnivore was not a specialist and would lose in and particular niche.
Back to oil coal etc this is why the mega-corporation collapses after it destroys all its enemies if you will.
Back to the Chinese by underbidding everyone on production of goods at some point no one is left to buy the goods. Oil suffers a similar fate post peak.
Buy continuously pricing in the real value as peak oil goes mainstream at some point you simply don't have any more costumers. Demand destruction will eventually happen for oil but as you can see with my above thesis only well after you have passed complete destruction and the winners lose.
Elasticity of demand for oil is complete and utter nonsense demand and demand destruction is a compression phenomena. Like compressing a massive spring you push and push with greater pressure and eventually all hell breaks loose. Or the cracking over a critical beam in a bridge. Its not elastic but eventually suffers catastrophic failure. High prices don't cause stretching they cause compression. The stupidity of treating them as a elastic phenomena is beyond dangerous. But this is not surprising since its a concept from economics.
Memmel, good stuff, thank you for the theory, it helps explain a lot of how the world connects together.
There are several underlying truths in the world and these are some of them.
I have quite unexpectedly suddenly learned a lot in a very short space of time. Thanks.
Gripping stuff --- why didn't I think of it before? Once said, it seems so obvious that I wonder why it took me four years reading about peak oil to find someone who said it. I've been pondering over it for the best part of an hour. I wonder could you at some stage draft it in some kind of PowerPoint style (bullets, etc.) so as to hammer the message home? A lot of readers probably don't have the necessary attention span to digest your contribution as it stands.
I reckon I'll be having nightmares about predatory flying dinosaurs tonight.
Thanks!
Another way to look at it thats related to Maximum power is simultaneous reserves or active reserves. I prefer to call them real reserves. Given that we produce about 30GB of oil a year and we have been able to keep production basically steady with 3mbd or so of new production brought on line. You get a pretty simple quick estimate of 1md == 10GB of backing reserves. This is a maximum. I also get a similar number looking at field production histories and URR.
So for 30GB a day we have at most 300GB of active reserves backing our production. This is inline with a world URR of about 1350 or so as Hubbert predicted. Now you can deplete this number and still keep production up. And of course new fields refresh it. But we could be as low as 60GB given the assumption that you can maintain high production rates to 80% depleted.
I think we will see production declines well before we hit that level since the 80% is more of a per field result I'm not sure its correct for the globe.
In any case if your not adding new oil and you start with the 300GB at 30GB a day your depleted in 10 years or a 10% depletion rate which is not insane.
Using other numbers.
http://www.opec.org/home/PowerPoint/Reserves/World%20crude%20oil%20reser...

And you know dammed well that we have not found any 10GB+ fields recently.
Then you know the 99GB for OPEC which is half the entire amount of reserves ever found in the US over 100 years is dog poo not even paper barrels. The non opec 29 at least rates paper barrel status.
In any case using the 1:10 rule with a cumulative was about 950 in 2000 (note I did not find the exact total cumulative for that year ) 950+174 = 1124. The point is we burned through 174GB of oil with no major changes in production rates. We brought online about 3mbd or so of new production per year or about 1GB a year over 6 years this is 6GB using 10:1 rule give a maximum backing of 60 GB. Now assuming Non OPEC paper barrels are better than OPEC this gives OPEC additions of about 30GB perfectly inline with the performance of non OPEC countries or at least at the same paper barrel level.
The other 60GB's where probably created at the camel races.
But you can see over this time period we went down at least 114GB with 60GB of suspect additions. In my opinion probably more like 10-20GB of real new oil with the rest coming from pushing production and typing on paper.
So back to the 1350-950 gives a 400GB reserve backing over the period or using 10:1 a max production rate of 40GB a year or close to the 100mbd or so that some people claim is possible. You can see how its fits with the 10:1 rule. And you can also see that 10:1 is a sort of maximum.
In any case the majority of the remaining oil is in Iraq Russia KSA and Iran probably in that order. With I estimate at least 100GB not being actively produced for political reasons primarily in these countries. This gives 300GB
and we are back in line with the 10:1 max or about 10 years of active production. Figure right now we are at 1060-1100 in production this gives 200GB. Lets say high production rates for on 70% of this gives 140GB/30GB or
4 more years of high production before we reach say 50% of our current rates.
Obviously even if production crashes assuming a decline rate to say 15GB a day in 4 years gives a 15/4 == 3.75GB decline or 13mbd decline rate.
I tend to put it at 10mbd per year or a 11% initial decline rate. 3 times higher than other estimates but not insane. A simple replacement of 1GBnew/30GB
gives 3%. Thats a real 3% underlying decline rate on production that should still be effectively flat if not increasing with the max of my pessimistic approach of 400GB of real reserves left.
In any case this approach is way to rough for the level of reserves we have left but given what I'm saying and the fact that a good bit of the oil is in Iran and Iraq say about 100 GB or more if you could pacify the two countries probably eventually via all out genocide they would represent probably close to 25% of the worlds oil production if not more if it declines like I think it will. If you take into account export land effects its probably not sufficient to encourage these countries to produce peacefully since the populations are high enough that exports would probably not be at the needed level. You pretty much have to either impoverish or kill the local population.
You would think one of the super powers would do everything in its power to control this oil. Russia is the other big oil producing nation so they pretty much get a lot of the rest of production by default and it has nuclear weapons.
You would think that Iran and Iraq if they figured all this out would be hell bent on obtaining nuclear weapons to protect themselves within the next 10 years before they get invaded.
Maybe one of the other super powers has this all figured out and is doing the obvious and taking control of Iran and Iraq. However regardless if these two countries are not quickly brought up to maximum production I'm not sure what the bottom is it wont be 40mbd like my calculations say since you need these two Iran and Iraq to ramp up production yesterday and impoverish their populations like Nigeria.
But to finally finish this approach is simply to rough to capture the current situation its got errors as high as 100GB or 3 or more years of production the error term is 30% of the potential remaining oil. So we could crash now like I'm thinking or hold for a few more years then go down. I don't see and significant increases possible we barely have the reserve base to sustain current production and the distribution of remaining reserves is a huge issue.
Memmel, an interesting series of posts. I've been away for a few days, and still am, so I'm a bit late to the party. Look forward to the post that you and Nate are preparing on Max Power. A few queries...
Extinction of dinosaurs Interesting to have an alternative theory and I'm aware that the asteroid / commet theory has holes. But you will have to address this issue. Extinction did not just involve the dinosaurs but thousands of other species / families. I'm not convinced that egg eating canibals will have upset the whole eco-web.
Human fertilizer Not convinced about this in either literal or metaphoric senses. The removal of threat would be sufficient argument for me for destroying competitors. And what time period / time frame are you talking about?
And would you care to comment upon the impact of religion upon human society behavior in this regard. We actually bury or burn our dead and I'm not aware yet of rendered humans being sprayed on fields. Maybe I got the wrong end of the stick?
Elasticity Can you expand upon your comments on stretching and compression. I think this is interesting but don't quite grasp what you are trying to say.
I think we have seen widespread demand destruction already throughout the energy sector based on poor people being priced down or out of energy consumption. Many / most of "us" are just continuing as normal - perhaps making a few discretionary energy savings on the way. Prices are in the zone now where conservation counts. Right now I see this trend continuing and see the main immmediate threat from the disenfranchised getting mighty pissed off (groups of poor people in rich countries and groups of poor countries) combined with inflationary pressures that could cause socio economic disruption but not collapse (yet). How long this continues I don't know. Two to five years I'd guess. What happens after that?
Now let's come back to the coal and see how the decline of oil production will impact on transporting coal. I have read somewhere 50% of Chinese coal is transported by truck but I guess that would be from smaller mines and over shorter distances.
How about bunker oil? Who is an expert here? We could well have the situation that bunker oil shortages will limit the volumes of coal exports which would be good news for our climate.
Once shipbuilders understand peak oil, they won't even build more coal ships.
First and foremost the current situation in China is probably best described as a government mistake and will be rectified.
I think it's a lot worse than that. The government has set finished electricity prices that do not cover the current cost of coal. Many facilities are losing money, many more will be losing money. With poor cash flows... they cannot borrow and they can no longer finance inventories. This means grid problems followed by price shocks.
A 7 day inventory situation is dangerous. Remember... electricity pumps the water, moves the sewerage, runs the traffic signals, keeps the food from spoiling, powers the media...