In the news in Canada today an economist predict a 69 month slowdown in the economy (how he arrived at that number, I have no idea). That is almost 6 years!. It got me thinking that if economists can think that far ahead why can they think about the one resource that drives the economy in the first place? They aint makin any more of it and demand keeps rising.
Peak oil refers to the time when demand surpasses production and since production is limited and demand is not, peak oil is predicted to come sooner than later, within the next few years by most predictions.
Am I being overly influenced by left wing enviro junkies when I say the peak oil is a reality?
How can an economist predict a five year slowdown and ignore the decline of the basic resource that is the engine for the economy?
Do a search, there have been several threads here on the idea of Peak Oil. The main point seems to be that if the price of oil rises, oil stocks which are currently uneconomical to produce will come online.
The idea of peak oil is largely garbage. To put it simply, the Alberta Tar sands have at least as much oil as the Middle East. The U.S. has a ridiculous supply of coal (like enough to last several hundred years even with increasing demand). The process to turn coal into gasoline or other petroleum products in mass quantities was worked out decades ago and has already been proved to be viable.
This isn’t to put a value judgment on such thing. Massive scale coal mining in the U.S. would not be environmentally friendly and may further retard investment in alternative energy sources but it is there. The price points that could make the tar sands and coal economically viable have likely already been passed. That is why Calgary is booming right now.
Making a simple graph that shows how crude oil will peak and then fall within the next few decades is likely true but that says very little about the petroleum products we know and love. There are other way to create them
IMHO, “Peak Oil” is NOT “Largely Garbage.” Just because we can burn our forests once oil gets scarce doesn’t change the fact that cheap oil is going away, never to return. The concept of Peak Oil production has to do with oil, not coal or nuclear. None of the proponents of Peak Oil production claim that oil is going to disappear, just that it will get increasingly expensive, and total production will fall. We’ll see.
This is exactly the point I was trying to make in my OP. There is no question that non traditional energy sources are abundant but they are also more expensive. At present we have oil at $100 a barrel. 10 years ago it was $30 a barrel. 10 years from now…???
I agree with that but that isn’t the way it is usually presented to the general public. If a combination of the Tar Sands and coal production get scaled way up, we could see gasoline and other petroleum product prices remain fairly stable at something equivalent to $90 a barrel crude oil (made up but reasonable number). The supply would be North American based as well.
I have no idea what will happen but the supply is readily available if that is the path things take.
More generally, a huge part of economics is making simplifying assumptions. They simplify some aspect of the economy to its absolute bare bones, then gradually, one by one, relax the unrealistic assumptions that were needed to do that. Don’t overlook that aspect of economics. Somewhere in his model he probably does have an assumption about oil supply. Or maybe not. Knowing an economic prediction without knowing its assumptions is like knowing nothing. Maybe less than nothing.
Nitpick: demand is limited by cost. Demand for oil at a million dollars a barrel would be zero. Demand for free oil may be pretty much unlimited. Demand at $90 a barrel is somewhere in between, and so on.
No, peak oil is the time when oil production is at its maximum (hence the peak part).
Here’s a CA collumn on the subject.
http://www.straightdope.com/columns/060224.html
I gather that everyone agrees that the oil will run out sooner or later, it’s just that it’s unlikely to produce a Mad Max type breakdown.
It would appear that right now, you can buy crude oil for delivery in the summer of 2015 for approximately $70/bbl.
So if you are confident that there will be a huge oil shortage, you stand to make a lot of money.
Southwest Airlines indeed locked in gas prices several years ago when none of the other airlines did. That is saving it billions of dollars in costs, and will for the next couple of years, which is how long their current contracts are for.
Economists ignore the idea of peak oil because it is not good economics, particularly the way it is explained by many proponents. As stated above, there is not a fixed demand for oil; demand is dependent on price. As oil prices rice, demand falls, so there won’t be a precipitous drop one day when “demand exceeds supply”.
There is a long term issue with all natural resources that gets worse as more parts of the world develop.
You seem to be on the same wavelength as me. Please elaborate further. I understand that it is all supply and demand but when peak oil hits, the rich will have enough money for fuel and the poor will not. The poor includes the people in our own countries (social service collapse) and the poor in developing countries (these are the guys who supply us with goods).
As I stated before, I am not an economist and I may be watching all the wrong documentaries but it does make a lot of sense to me.
In the end, it may be good for North America and bad for the rest of the world. Will this be the end of globalization?
Another broader issue that needs to be considered is that most economists simply refuse to consider social or technological developments in their models. On the surface there is a good reason for this, as such developments are explicitly unpredictable. But that doesn’t mean that they appear with no warning at all, and it is a poor excuse for ignoring data that might produce uncomfortable predictions.
One of the things that frustrated me most in school were the underlying assumptions in the economics textbooks. There were huge questions that the books tiptoed around, and central thesises were often pronounced without any explanation or supporting argument.
Voluntary exchange relies on differing perceptions of value. Jobs are created by employers. Economies must grow to remain healthy.
Keep in mind who employs economists, and what they are employed for. They are not paid to tell people they need to change their entire way of life; they are paid to tell people whether to buy or sell their stocks this week.
But it’s true right now that the rich have enough money for fuel and the poor do not, especially if you make the division rich=western nations; poor=non-developed nations. Peak oil won’t change the basic division.
Peak oil is more of a geologist’s term than an economist’s term anyway. Peak oil states that we know where the oil is, how much was contained there, and how much is left. Without those three basic numbers no determination of peak or the rate of decline is possible.
Even if we assume that we can know these three numbers - and that’s quite a leap of faith given that technology to change them gets better every year - it only applies to the easy stuff. Wiki says:
Man, that’s one hell of a fudge factor.
We can make guesses today, but no good estimate of the three basic questions is possible for these sources. We don’t know if new shales and sands are yet to be found, we don’t know what portion of them is convertible because we don’t know the costs or the technology or the value, things dependent on hundreds of future actions, and if we don’t know that we can have no idea how long they will last. The rest of the century, probably, but that’s a guess. Even so, peak oil as applied to liquid oil goes away fast.
And the need for oil is similarly unpredictable. We’re a couple decades away from true mass-sized alternative energy sources, fuel sipping vehicles, and a diminished use of petroleum in the manufacture of other goods. Nobody knows how these factors will interact as they play out. Could we turn away from petroleum so drastically that there wouldn’t be much of a need to dig it all up? That’s an optimistic scenario, but not impossible if everything goes right.
What then for the poor going without energy? Demand will be there but supply may be more than adequate and at affordable prices. This will occur in a social environment with less emphasis on oil. Therefore, peak oil doomsday predictions are no longer relevant.
And it could be as good for the not-yet-developed nations as for the west. After WWII Japan and Germany rebuilt their crushed economies with brand new factories using the very latest techniques, while the U.S. allowed its factories, most built before the Depression, to continue production. Japan and Germany quickly caught up and then moved ahead of us in many industries, like steel. Brand-new energy sources will be welcomed more easily and quickly into places where there is no energy infrastructure at all than in the U.S. where they have to displace things owned by people who don’t want to give them up.
“The future is uncertain, the end is always near.” Don’t get your energy advice from the Doors. The future is uncertain, true, but there’s no end in site. None. Not for any large segment of humanity, though small segments better watch out. Globalization is 99% certain to increase, with more capital and more capitalism and maybe even more democracy and freedom for all, but unquestionably for about 2 billions who don’t have it now. Peak oil is a sideshow compared to the real forces at work.
I find the future of oil and of other energy sources to be absolutely fascinating. It will be like fireworks going off all around us all night and day for decades. That’s kinda dangerous and may be real annoying. It might burn down all our houses. Ending the metaphor, we’ll hit a period of disruption soon and nobody likes living through a period of disruption. Afterward, the likelihood of something much better emerging on a large number of fronts is much higher, IMO, than the Saudis sucking all the oil out from under their deserts and freezing us all.
Leave the peak oil to the geologists. Never trust future modeling to an economist. This is one of the rare times in which I think the market will sort it out, given some government regulation so they don’t go all nuts on us.
Alternative sources of oil are generally more expensive, but not dramatically so. Not so much more expensive that they’ll wreck our economies. Hydro, nuclear, coal, natural gas, and even wind are well within the competitive reach of oil. We won’t be paying $500/bbl for oil, ever. Long before then, it becomes the most expensive energy source, and everyone stops using it.
It’s pretty easy to figure out what the worst-case effects will be from expensive oil:
Oil supplies a little less than 40% of the total energy consumption of the U.S. Last year, the cost of energy was about 8% of GDP. So the cost of oil accounts for only about 5% of GDP. The economy grows at an average rate of 2.5-3.5% of GDP per year. So even if the price of oil tripled to $300/bbl, the net cost to the economy would be about the same as the growth rate.
In other words, if the most alarmist scenario of the Peak Oil crowd comes true, we could be looking a period of slower growth or a mild recession until the markets adjust and recover. Or, we might borrow to build the infrastructure now, which would strengthen the short-term economy and cause larger debts and deficits down the road, which in turn will eventually slow growth until they are paid off or the economy grows out of them.
Much more likely is that you’ll see an acceleration of what we’re seeing today - renewed interest in alternative vehicles, energy sources, and lower energy technologies on the consumption side. The U.S. only uses half as much in economic resources per BTU of output as it did in the 1970’s. Energy has never been cheaper than it is right now, and we’ve never been so efficient in using it than we are now. So any effects of high oil prices wiill have far less impact than they would have iin the 1970’s.
We will see an acceleration of mining in the oil sands, the opening of ANWR and other local fields, a huge market boom for plug-in hybrid and electric vehicles, etc. On the demand side we’re seeing new lighting technology like LED and compact flourescent bulbs, smart appliances etc. Nuclear power is much more advanced now than it was in 1970’s. It’s much safer and cheaper. It’s ready to go. Wind is getting cheaper all the time, and so is solar.
We’ll be fine. 100 years from now our energy infrastructure will probably be radically different. But the change will happen gradually and in the end the newer, more efficient economy will be growing even faster than it is now.
If the energy supply is horribly mismanaged, we might see some brown-outs and wild gasoline price spikes and such which could be moderately painful, but if you do you’ll see rapid widespread acceptance of nuclear, and we’ll rapidly accelerate construction of plants to meet demand.
Modern reactors have a 3-4 year typical construction time. We can ramp these things up pretty quickly. And I’ll bet if there was real need, we’d find a way to build them quicker.
Assuming we have a decent infrastructure for using electric power to power vehicles in some way, we already have an energy source in the wings that can provide all the energy we need for roughly the same cost or just a little higher. The world’s economy simply isn’t going to continue to burn expensive oil when nuclear is sitting there. Countries that build nuclear plants will have clear advantages over the ones that don’t. Once that becomes clear, there will be a stampede for nuclear power.
As you note, it’s an issue of relative costs. Nobody is predicted we’ll run out of oil and nobody is predicting we’ll run out of energy. The modern world has a number of different energy sources - but oil is considerably cheaper than all of the others. The other sources of energy are not close seconds. Oil cost two dollars a barrel in 1947; it costs a hundred dollars a barrel now - and it’s still being used because it’s relatively cheap compared to the alternatives. If alternatives like coal or hydro or wind were approximately comparable in cost to oil then oil would have priced itself out of the market decades ago.
Our modern economy is based on this supply of cheap energy - which nobody disputes is finite. Our modern economy might be like one of those lottery winners we hear about - they develop an expensive lifestyle supported by a large but finite amount of money. If anyone tries to point out to them that their winnings cannot maintain their lifestyle indefinitely, they’ll just wave it off and claim that when they spend all their lottery money, they’ll just support themselves with some other equivalent form of income without making any specific plans for obtaining it. When they eventually run low on lottery money, the likely outcome is not that they will now finally develop a new source of income - the likely outcome is that they will revert back to their pre-lottery lifestyle. And our economy may do the same; we may end up reverting back to a 19th century pre-oil world economy.
The french were widely criticised (a few years ago) for “over investing” in nuclear power. I read now that France gets about 87% of its electricity from nuclear reactors-is this proving out? Is France more competitive because of it? Germany wants to phase out nuclear reactors-are they reconsidering this? 
Here are a couple snippets from the Wikipedia article on tar sands:
So it sounds like Shagnasty is right about Calgary booming. And it seems like Peak Oil is ocurring, and mankind is working around it just like other resource issues have been worked around. Not that there’s no pain, but it does seem like a Mad Max type breakdown is not coming.