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135 comments on Saudi Arabia's Crude Oil Production Peaked in 2005

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memmel on March 3, 2009 - 2:18pm Permalink | Subthread | Parent | Comments top

Although I don't think we have come close there is a maximum in oil prices.

This is reached when further price increases drive away customers faster then production declines.
In my opinion for this to happen you need to see fairly wide spread economic collapse at the individual consumer level.
Thus a 1% increase in price forces say 10% of the current consumer population to decrease their oil usage by 30% or more.

For your typical American consumer this implies that it becomes cost effective to simply abandon their auto's and spreadout homes. Some argue that EV's will help fill this gap but I'd argue that the real problem is that most suburban housing would become worthless in a high oil price environment. So its far more likely that we will revert in general to traditional small towns and city living. With that said it also makes sense that a wide variety of approaches to living in and expensive liquid fuel environment. I don't see EV's being important enough to "save" suburbia but they will play a role along with the reforming of town centers etc etc. The key is that as we move from effectively a monoculture suburban lifestyle to a rich variation exploring ways to save energy and live with less we rebuild the elasticity of the system. Once the the system becomes elastic then attempt to raise the oil price simply causes more people to opt for one of the new lower energy lifestyles.

At this point I think with oil prices no longer increasing and faced with spiraling extraction costs oil producers will finally try to strangle their consumers. Depending on how things go and how fast we convert this could well be enough to seriously damage the nascent move from oil.

Before we reach this point I think that ever increasing oil prices will serve for some time to ensure that oil producers can and will produce at capacity so I think that these pull back will happen towards the end of the oil age.

However you can see that we will reach a point on the back side where we have another dangerous or unstable point where whatever is left of our economy is moving off of oil how ever it can and producers are cutting supply to try and further increase prices. Because I believe we will only transition at the last minute when we have no choice one can suspect the situation will become very strained as we need the last remaining oil supplies to make the transition.

When ?
Dunno probably ten years from now after the depression has run for a while and we have had several years of very high oil prices. Figure that it would take at least 3-5 years for oil prices to hit crippling levels of 400-800 a barrel then a further 1-2 years at least for people to seriously begin moving off then maybe 1-2 years of a transition period your looking at 4-9 years before we hit a sort of second critical point on the backside where oil loses its critical status for our economy.

Whats interesting is most people focus on the consumer nations but if you look at oil producing nations and my scenario no way in my opinion can they transition their societies off of depending on oil exports. At the end of the day its the oil producers that are more addicted to oil then the consumers. So after the dust settles its probably the oil producing nations that actually crash back to a very low level of civilization while the consumer nations may fragment but still maintain a fairly technical civilization.

Mexico could prove to be a good model for the future of many of the oil producing nations.

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Neil1947 on March 3, 2009 - 11:51pm Permalink | Subthread | Parent | Comments top

Memmel,
happy 3rd year anniversary with TOD.

"Thus a 1% increase in price forces say 10% of the current consumer population to decrease their oil usage by 30% or more.
For your typical American consumer this implies that it becomes cost effective to simply abandon their auto's and spreadout homes."

You have often talked about a possible oil price of $300/barrel, if this translates into $10/gallon, what does this really mean for a suburban driver?. If the average US suburban worker is driving 50miles a day, and allowing that ALL of this is work related(probably only 50%), presently this average person will be using 2gallons/day(25mpg); cost $4 plus car payments of $20 per day.
At $10/gallon that would be $20/day for gasoline plus $20 per day car payments but a number of options; abandon house in suburbs, and rent in city, keeping car but not using for work(2)trade in 25mpg for a used 37mpg car, cost now $12/day( <1hours wages) plus $20 payments(3) sometime in future buy a PHEV, pay $1.20 per day electricity and $30 a day car payments( more due to more expensive batteries).

If you are not sure what people would do, just look to Europe where they have $10/gallon gasoline, still lots of private vehicles on roads, suburban homes still have some value, people living in city still have cars, but drive slightly less.

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memmel on March 4, 2009 - 2:57am Permalink | Subthread | Parent | Comments top

The problem is not directly the cost of gasoline but the fact we have based our suburban housing supply on inflation of the money supply and ever more exotic loans to support rising prices. Rising transportation costs and also rising food costs with a stagnant economy brings this economic model that underpins suburban society to a end.

Its not the direct costs of either that are the problem but the effect they have on the financial underpinning of suburbia.

This is not to say that we won't keep some form of suburbia for those they both enjoy and can afford the lifestyle but most Americans can afford a depreciating house and a depreciating car at the current price levels.

Europe to some extent is different since it has a range of living styles people can fairly easily choose to live without a car and if they do choose to have one they have options as to how much they drive. Its difficult to compare the US and Europe since we don't have the choices most Europeans have. And of course taxes make up a large part of your fuel costs so again its difficult to directly compare the two.

Its important to understand the shear magnitude of the pickle we have gotten ourselves into in the US.

I think this is a fantastic article that show the shear size of the problem we face.

http://www.housingbubblebust.com/HM/HM-Main.html

The bottom line is that for housing in the US to return to sanity would require a drop in prices of 50-75% at the national level. This is Great Depression levels or worse. Not to mention elimination of inflation or even allowing persistant deflation to ensure a stable economy as it converts to a new low energy form.

If we had sane housing prices then transportation would not be a issue and I'd suggest that we could naturally move to lower or transportation needs and develop rail higher density housing in the cities and real villages surrounding a rail terminals in the country. I've said several times that EV's and other forms of transportation make a lot of sense as options around a rail based core transportation network.

What I see as impossible is not EV's and suburbia its conversion to EV's with their expenses coupled with saving our housing bubble we probably can't save it anyway and certainly trying to convert to EV's to support people living in houses that are falling in value as their expenses are increasing and their credit is drying up is a bit of a stretch.

This does not even get into the retirement of our baby boomers unfunded pension liabilities falling wages etc etc etc.
A pullback in consumer spending in a society that now depends on borrowing and spending. A rapidly degrading road network etc etc etc.

The number of assumptions your making in your EV calculations is enormous. If you consider a switch to EV's as we are forced to deal with our financial train wreck and the underlying loss of cheap liquid fuels at the same time then I think you will realize that at best they will be toys of the the wealthy. The reality is most Americans actually are poorer than the poorest people in India we are just now balancing the books.

We are going to be lucky to put in electric rail and keep our society functioning I'm simply saying we don't have the luxury of simply switching to EV's and going along our merry way. If we had not blown our housing bubble on top of our credit bubble if we funded sane pensions and if we controlled our medical costs and if we built decent houses thousands of ifs then it might simply be the problem your describing but its not.

This is why I'm actually of the opinion that peak oil right now threatens our very civilization we have gone so far beyond sanity that the added burden of dealing with a dwindling energy supply on top of all the other problems we will be forced to face including longer term stuff like global warming makes it a probably unsolvable problem even worse since it basically ensures we have no exit. Inflation simply does not work when basic commodities are in short supply without inflation we are dead. With inflation spiraling energy prices ensure the debt bubble will keep imploding.

The only way out that I can see is to offer people the chance to live a decent energy frugal lifestyle and let suburbia and EV's make it if they can. By giving them a chance to live at least part of their lives using little energy and saving money and further more limiting inflation so savings actually works we can build up the monetary base to invest in paid for EV's and suburban houses without a massive credit scheme. If thats what people still want. Some will some won't.

Finally I think we have to do it that way. I think high energy lifestyles can no longer be subsidized but have to be paid for with cash by those that can afford it. We simply can't wast our credit resources lending for EV's or suburban houses we need every penny we have as an society to fix all our other problems and fix our energy supply. We simply can't afford as a society to lend that much money to support the old suburban lifestyle EV's or not. Bottom line we simply don't have the money right now already at the society level and its rapidly expanding to the personal credit level and it will only get worse as peak oil continues and the baby boomers get older.

And wow its been three years. It looks like the comments archives don't go back that far.

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135 comments on Saudi Arabia's Crude Oil Production Peaked in 2005

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