This post examines our own history on the planet, outlines how the ancient-derived reward pathways of our brain are easily hijacked by modern stimuli, and concludes that in very real ways, we have become addicted to the 'consumptive behaviors' linked to oil.

Gold Plated Porsche

Editor's note: I have learned a great deal more on the twin drivers of consumption - relative status and habituation/addiction since what follows was first written. However, despite best intentions, I am personally even more habituated to stimulation offered in modern American culture and my life still has about the same physical dependence on oil's emergent properties as it did back then. On the bright side however, I have continued my decade long shift of 'competition for status' away from pecuniary metrics...

This is part 3 of a series of posts co-authored by phoenix, who is an Engineer heavily involved in the energy sector. It will be based on a submission we made recently to the Australian Government.

Part 1 is here.

Part 2 is here.

Introduction

In part 2 we introduced a model for looking at energy use over the next few decades and applied it to the Australian situation. This model:

• Estimates how much time will be needed to achieve a transition to alternate and renewable energy sources.
• Estimates how much energy will be needed to achieve this.
• Estimates the cost of this transition.
• Calculates (based on industry figures) how much energy we have left in our remaining energy reserves and how long this will last.

The model shows that:

• If Business As Usual is the assumed paradigm, the energy required may exceed the energy available.
• If Business As Usual is the assumed paradigm, the cost of the transition is likely to place an untenable strain on GDP.

The market can be counted on to deal with this problem, but over the last few months we have seen that the market can be brutal. BAU is not an option. Our choice is to manage the problem, or let the market manage it for us.

There is a gap between our current expectations and the reality we will experience over the next few decades. In developing this model we are quantifying that gap. This allows decisions to be made based on hard numbers.

In this post we apply the model to the larger picture.

The present contango in oil prices bears all the hallmarks of an oil market where supplies are well above present fundamental physical consumption.

The recent large inventory build of petroleum, under a steep contango which now is flattening, within the big oil consumers (like the OECD countries and China) have left some with the expectation that major economies soon will begin to grow again, and that the contango now signals increased oil demand and higher oil prices in the future.

My analysis indicates that in recent months, as much as 2 -3 Mb/d of global petroleum supply has been used to build inventories. This is about to come to an end, because available storage is getting closer and closer to full and contango has begun to flatten. When additions to storage cease, the resulting drop in demand can be expected to lead to substantial downward pressure on oil prices.

The chart above shows one component of inventories--US inventories. The chart indicates that US oil inventories (green) have been increasing since after the September 2008 hurricanes, and, in fact, started increasing as early as May 2008. Brent oil prices (red) decreased between June and December, but recently have been slightly increasing.

Below the fold I give a summary of US, OECD and China petroleum inventories, inclusive of oil stored on tankers, and indicate what I expect will happen to near term oil prices.

When discussions arise about Climate Change, and the possibility that carbon dioxide and the other greenhouse gases are responsible for the rise in global temperatures, one prevailing argument is that “we cannot afford to take the risk of the AGW argument being right, without doing something.” However, in that discussion, there is rarely any mention of possible negative consequences to mitigating against increased levels of carbon dioxide in the atmosphere. The only positions mentioned are frequently the projections of dramatic rises in sea levels, the promise of worse storms, droughts and climate conditions and other projected severe costs of inaction. The costs of the actions themselves are not addressed, and the implications are that the world will be a better place if some of the current trends in Climate Change are, if nothing further, stopped from progressing further.

But there are costs to the required changes in lifestyle that a reduction in carbon dioxide production will require, and those potential impacts are rarely spelled out to the public, or to the politicians who must enact the legislation to put new laws in place. However politicians, particularly in those districts that are likely to be impacted by the changes in regulations, are already showing some sensitivity to the potential negative aspects of “cap and trade” and so it might be worth exploring the topic in a little more depth.