Kunstler on why Maass didn't go nearly far enough...
Posted by Prof. Goose on August 23, 2005 - 8:00pm
Even if he spells his name wrong repeatedly, Kunstler takes Maass to task over at CFN:
Maas's article is full of howling omissions and delusions. For one thing, Maas omits any serious reflection of the consequences of a global energy crisis, any specters of geopolitical blowback, or potential problems for America's non-negotiable easy-motoring way of life. That omission grows out of the delusional assumption that some magical market mechanism will conjure up a menu of just-in-time replacements for the vanishing oil. These are referred to as "alternative technologies," a term that points to a more fundamental delusion now rampant among the public, namely the mistaken belief that technology and energy are the same thing, that they are interchangeable, that you can substitute one for the other. Out of oil? Get new technology.and
This week's performance by the media on oil issues shows how America will dissemble its way into a dark era.Technorati Tags: peak oil, oil,
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When I talk to newbies about peak oil, I NEVER mention Kunstler. Why should I? He brings nothing positive to the discussion, and his fanaticism alienates a lot of people (like me) who still cling to quaint notions like the importance of relying on facts and objective analysis.
Plus, there are too many worthwhile and far more palatable experts we can point newbies to, like Simmons, Campbell, et al.
Kunstler lays out PO so smooth and good and to the point and his writing is not boring. He's my main man when it come to refering people to PO!
http://www.globalpublicmedia.com/interviews/464
Now oil experts (yes, virtually all the engineers) say that peaking of oil production is imminent, we may have 0 - 10 years time left. Simmons spoke about it in 1995. But it is not here yet. The economy grows just fine and production is up. Why should anyone believe in Peak Oil? The doomsayers have always had it wrong. Jevons was one the very first and he was wrong about the coal. Economists had wrong predicting that high oil prices would have a grave effect.
Let's look at his from a broader viewpoint. The fact that oil prices have not affected the economy that much is merely a reminder that it is physical oil and total energy supply that really counts. Ayres has right. Economic growth is directly correlated to available net energy. As long the world total available net energy grows so grows the economy.
Oil production has grown. A 2.5% growth of oil production means 0.9% growth in world total energy. World natural gas production has also grown rapidly. I don't have exact numbers but it the world growth last year was probably like 3%. That adds about 0.6% to world energy. And coal: 3.3% and 0.8%. So world energy production was last year up about 2.3% (other energy sources did not show much growth). The share of of oil od this growth was 40%, the biggest one but not enough alone. Coal and natural gas are nearly as important.
We see here the "growth mix" of world economy. It is simultaneosly growing oil, coal and natural gas. It should be noted that China accounts for 75% of the coal growth. Because coal is the fuel and raw material for heavy industry and manufacturing in general (electricity, coke, chemical raw materials) we see what has been the engine of world growth: the Chinese coal. China has the right mix: coal production growing about 10% a year, considerable (and growing up to this day) domestic oil production and natural gas, too. This spells rapidly growing heavy industry, manufacturing and fertilizers and and the necessary transportation. This drives today the world economy.
This means that the oil production has to decrease about 4% before the total world energy production growth will be zero. A 10% drop in oil production would mean 2% drop in world energy if the other fuels can keep growing. So the real issue is not only oil but also coal and natural gas. China shows that a growing industrial economy can run on a relatively small share of oil (coal accounts there for 70% of all energy).
This present simultaneous growth makes us ask: how simultaneous will the peaking be? This is a relevant question because oil, coal and natural gas have some interdependence. NLG is counted as oil but it is derived from gas. Natural gas is commonly co-produced with oil. Coal mining and transportation is dependent of oil fuels. There is also the economic interdependence: the growth mix. This drives the demand of all the components of this mix and so accelerates the depletion. This affects first of all coal. The point is not running out of it but reaching the production peak. The coal production curve is obviously much flatter than that of oil but it has a peak, too. Coal deposits may be mined 200 years but the peak may come after 100 years.
The SUV driving Americans are not so important for the world economy after all. Chinese coal is. Jevons had it right, coal is important. Coal depletion is a real problem. Hubbert had it right. The production curve is real and deceptive: there is nice growth and a lot of euphoria just before the peak. "The Limits of Growth" had it right. They gave us about 30 years and predicted overshoot and collaps. The overshooting phase means euphoric growth and everybody has a nice time. Have a nice time.
I guess that ultimately, since economics <strike>asserts</strike> instructs (BTW, admins, can we allow "strike" in the html options? ;) that true value is whatever someone is willing to pay for it; that relatively high, and perhaps historically high are the only easy definitions of high. However, I think that what I would like to consider to be "high" would be a price at which X% of demand is destroyed from people who are genuinely interested in purchasing a commodity dependent upon price.
Under this definition, unless we set X at a few percent, prices are definitely not high. Setting X at 50% (or maybe even 40%), we might have to go all the way up to $200 a barrel (adjusted for {de,in}flation of course) until I'd call it high by this definition. Not that I'm finding fault in you for not using an unpostulated definition of a common word with multiple pre-existing meanings. But rather that as the statement is (paraphrased) "economists point out that high oil prices would have a grave effect" that considering how it seems that economists think, if demand isn't being destroyed (which in and of itself would be the grave effect) than prices are by definition, not high.
Another point is that there isn't a time frame on when the grave effects occur. Currently companies depending upon cheap fuel are starting to get hit. Convenience stores which aim to break even on gas sales, and gouge with high prices on impulse items are starting to go under as people are considerably less impulsive as we haven't fully adjusted to the fact that yes, this is the new price of gas. And it's not likely to be much cheaper in the long run. When gas was at 65 cents a liter, I'd expect it to be between 62 and 72. If it got over that, I'd just get a half a tank, and fill up again a bit sooner, but more often than not I'd come out ahead (especially as the gas station is on the way to/back from 95% of my destinations, so I didn't take a hit in gas for that. However, last time I filled up gas was 94, and I was so tempted to fill half a tank and hope it would become 90. But I believe that would be foolish. However, while my rational mind knows this, my emotional mind still hasn't adjusted. And it's the emotional mind that says, "Arrrrgh, I just paid $38 for gas, I'm not buying an effing slushie." And it's other people emotional minds which are doing similar things. And just as the snowball you roll in the yard starts out small, eventually the effects add up. So there probably should be a "yet" attached at the end.
Lastly, which economists are these which are saying that high prices of oil will have grave effects. Many of the economist mindsets we've met via the oil drum seem to say high prices destroy demand which brings down the price of oil and all is good. JDH and others seem to be figuring out that the demand destruction of "energy" might not be such a simple thing. But Steven Levitt sure didn't (and of course, my wife recently bought the book and keeps pushing for me to start reading it, which I might even try to start today. I'm hoping that I won't be soured completely on the book. At the very least it will help me to keep a critical mind).
And I was referring to the economic discussion. Many economists predicted that if the oil price rises over 50$ this will virtually slash economic growth. This did not quite happen. I was trying to explain why.
The price mechanism only reduces demand to fit the supply. It can reduce demand more than that only temprorarily. But the oil supply has been growing and so the demand. And it is mainly the growth of total energy use that generates growth. So long the total energy supply can grow so can the world economy. Rising oil prices mean only changes in allocation.
Now we can make some predictions. When the growth of oil production slows and turn to negative the prices will rise if the overall energy supply will still grow. This growth generates more demand that cannot be met. But the potential demand will be already less than now because the absence of oil growth will diminish the total energy growth. This will also cause substitution of oil with other fuels etc. But this will go on only as far as coal and natural gas keep growing (plus the alternatives). After that demand will diminish and the prices will not necessarily rise any more. How this goes depends on changes inside the energy mix.
Demand can drop below supply if economic growth stalls for other reasons. The energy supply is only the upper constraint. Financial disruption could cause a recession and then the oil price could drop, even considerably. After this the economy will try to recover but will hit to the energy supply constraint. Economy will be in the state of negative growth but the oil price will find some kind of balance at a level that is not necessarily much higher than the present and will reflect rising marginal production costs.
This also means that we will not necessarily have any "long emergency" as Kunstler says. We have seen societes in negative growth and it would
be misleading to say that they experienced something that should be named as "emergency". Hardship, yes. But just drink vodka and adapt. Going down is easier than up.
TI
Oil price is not a function of pyhysical absolute oil production nor the changes of the production. Oil price is depends on production costs (marginal costs) and the relationship between demand and supply. Hence peaking oil will not cause price increases per se.
The growth of oil demand is mainly related to the overall economic growth. And here is a feedback: economic growth is a function of the growth of total net energy use. Because oil is only part of the energy mix the growth of coal and natural gas production and use cause also more demand for oil. The demand of oil probably grows proportionately more than the demand of other energy forms as the economy grows. So the growth of the Chinese coal output is an important factor in driving the oil prices up.
Strictly speaking the rising oil price is not a sign of oil peaking. It is a sign that the oil production is not quite keeping the pace needed by the growth of world economy. For those who think that oil price would be a signal for the markets of the coming oil peak this means that there need not be such signal. We need the oil geologists and engineers to tell when we should see the peak. But the high oil prices tell something indirectly: the production cannot grow faster. There are physical constraints.
Besides the peak oil is a strictly global pehenomenon. Individual economies can continue to increase oil consumption after the peak for some time. A drop of 5% in world production doesn't mean that the US consumtion drops 5%. It could drop more or less or grow still a bit.
There are two Peaks in oil,
One is the half-way mark, where we have used up half of all the oil we can pump out of the ground, represented by Hubbert's curve. We are several years past that now because of the superstraw technology effect.
The second peak is in daily oil production, represented by dollar price. This dollar price is a very short term indicator of oil speculators as
they looking at the second peak and not the first peak.
By the time the oil price gets up there to make it appear the hard-to-get oil would be worthwhile in dollars, will our world economy have changed so much (social chaos) that the cost of production will negate the raise in price ?
Between man's short-sightedness and rapid oil deplection, the next few years should be very interesting.
When the market economy reacts to this kind of things it mostly happens through investment decisions that are mostly quite far-reaching. The price trend influences them but there are also other factors.
It emerges in Maass' story that Husseini, a very credible source who Simmons has talked to at length, says that 12.5/mbd is possible but you can't go over that. Simmons may be right that even this well-meaning gentleman is too optimistic. I think the story establishes that Aramco can not be trusted at all. And, Saudi Arabia is not the whole story because of new conventional production elsewhere (Caspian Sea/central Asia, West Africa) and also claims about non-conventional sources (oil sands, Venezuelan heavy oils, GTL, CTL, et. al.) But still, do you believe the following proposition:
If Ghawar is peaking, the world is peaking.
See Trouble in the World's Largest Oil Field-Ghawar for example.