While discussing the concept of 'Peak Oil' at work today, I offered that it made no sense to to invest in an expensive high mileage car (for example) in order to 'save oil'. Any oil you saved would just be used by someone else at today's low price and - in the meantime - you would put yourself at a competetive disadvantage by paying more for energy than you needed to.
The other person offered that this was an example of the "tragedy of the commons" since everyone was incentivized to use the oil and no one was incentivized to conserve it. Although I couldn't argue that it certainly looked the same, I always thought that the "commons" argument pointed to a problem with property rights - that common ownership was at the root of these sorts of problems. However, it doesn't look like oil supplies - in general - suffer from a common ownership problem.
So I'm confused with how to classify the whole situation, is it:
1) An example of the "commons" tragedy? But does that imply that "commons" is more than just property rights? or that oil supplies have ownership issues?
2) An example of something else with similar consequences? perhaps some sort of game theory?
3) A problem with the argument as a whole? (by assuming peak oil is true, am I putting some false constraint on the issue?)
Any help appreciated - even a link somewhere - I'm not sure if this is a "commons" issue or not.
This is not just a discussion for geology. Peak Oil is an interesting concept, but as with any resource, the key rationing device is the price. Conservation of oil can and will be dictated by the price alone. What seems very strange to me is that oil continues to be exclusively denominated by it's price relative to the US dollar. There are many countries throughout the world that have suggested oil be denominated relative to another currency.
What's also very interesting is that other forms of energy are denominated relative to a barrel of oil equivalent (BOE) and our friends at the IRS define BOE in terms of joules (J). But why does the IRS determine this and not a convention held by the market or at least the Department of Weights and Measures? The problem with defining oil in terms of joules is that it assumes the conversion rate of oil is constant and that there's no possibility for efficiency gains. Efficiency gains in the burn rate of oil would effectively increase the amount of oil by increasing the energy derived from converting it to another form of energy.
Peak Oil could be a construct of this thinking that the energy derived from oil is constant. But it is certainly not. So why does the government hold it constant?
Two theories:
(1) the government creates the Peak Oil myth to declare the supply of oil will run out in the short-run. Many DOE estimates over the past century have declared we will run out of oil, only to have to push the estimate back with new discoveries. Efficiency gains are like new oil finds. But the myth helps to drive the push for government interefernce in the energy markets: conservation efforts, taxes, and "investments" in back-end (consumer) efficiency technologies.
(2) the Peak Oil myth is a way of controlling the means of production. Declaring that if we running out of oil justifies the capture of land to prevent from being used for E&P operations. Preventing E&P limits the supply and increases the price of oil and the inputs costs to other production. Preventing input costs from falling prevents the efficency gains throughout the rest of the economy and the corresponding fall in wholesale prices (their dreaded deflationary event in Keynesianism).
Peak Oil is a Myth
Ask any proponent of the Peak Oil Theory what the exact amount of fossil fuels the earth contains. Without knowing this amount no rational claim of Peak Oil can be made and it is thus a Myth as currently proposed.
The only entity preventing further exploration and extraction of fossil fuels is the state and the only entity negatively effecting the actual cost of fossil fuels is the state through taxes and regulations. Only the state can cause shortages of resources and any energy "crisis". In a pure free energy market all land would be available for energy production at a free market price, thus availability would be limited by cost, technology and of course actual supply. Say a hypothetical obtainable limit to our demand was reached in actual supply, long before this was reached prices of fossil fuels would rise, once fossil fuel prices rose above what other competing free market energy sources were, these cheaper energy sources would be adopted on their own. All without government intervention. The government was not needed to switch away from horses to cars. But we have no such scenario since the state is artificially creating supply shortages by restricting land access through regulations. The state is also artificially increasing energy costs above free market rates with taxes and regulations. In essence the state is creating a Peak Oil scenario to benefit the green lobby. But no such thing exists even with known reserves:
Myth: The World is Running Out of Oil (5min)
Despite Popular Belief, The World is Not Running Out of Oil, Scientist Says (Science Daily)It’s a myth that the world’s oil is running out (The Times, UK)Myth: The World is Running Out of Oil (ABC News)No Evidence of Precipitous Fall on Horizon for World Oil Production (Cambridge Energy Research Associates)Oil: Never Cry Wolf—Why the Petroleum Age Is Far from over (Science)Oil, Oil Everywhere... (The Wall Street Journal)The World Has Plenty of Oil (The Wall Street Journal)
Reserves:- 1.3 Trillion barrels of 'proven' oil reserves exist worldwide (EIA)- 1.8 to 6 Trillion barrels of oil are estimated in the U.S. Oil-Shale Reserves (DOE)- 986 Billion barrels of oil are estimated using Coal-to-liquids (CTL) conversion of U.S. Coal Reserves (DOE)- 173 to 315 Billion (1.7-2.5 Trillion potential) barrels of oil are estimated in the Oil Sands of Alberta, Canada (Alberta Department of Energy)- 100 Billion barrels of heavy oil are estimated in the U.S. (DOE)- 90 Billion barrels of oil are estimated in the Arctic (USGS)- 89 Billion barrels of immobile oil are estimated recoverable using CO2 injection in the U.S. (DOE)- 86 Billion barrels of oil are estimated in the U.S. Outer Continental Shelf (MMS)- 60 to 80 Billion barrels of oil are estimated in U.S. Tar Sands (DOE)- 32 Billion barrels of oil are estimated in ANWR, NPRA and the Central North Slope in Alaska (USGS)- 31.4 Billion barrels of oil are estimated in the East Greenland Rift Basins Province (USGS)- 7.3 Billion barrels of oil are estimated in the West Greenland–East Canada Province (USGS)- 4.3 Billion (167 Billion potential) barrels of oil are estimated in the U.S. Bakken shale formation in North Dakota and Montana (USGS)- 3.65 Billion barrels of oil are estimated in the U.S. Devonian-Mississippian Bakken Formation (USGS)- 1.6 Billion barrels of oil are estimated in the U.S. Eastern Great Basin Province (USGS)- 1.3 Billion barrels of oil are estimated in the U.S. Permian Basin Province (USGS)- 1.1 Billion barrels of oil are estimated in the U.S. Powder River Basin Province (USGS)- 990 Million barrels of oil are estimated in the U.S. Portion of the Michigan Basin (USGS)- 393 Million barrels of oil are estimated in the U.S. San Joaquin Basin Province of California (USGS)- 214 Million barrels of oil are estimated in the U.S. Illinois Basin (USGS)- 172 Million barrels of oil are estimated in the U.S. Yukon Flats of East-Central Alaska (USGS)- 131 Million barrels of oil are estimated in the U.S. Southwestern Wyoming Province (USGS)- 109 Million barrels of oil are estimated in the U.S. Montana Thrust Belt Province (USGS)- 104 Million barrels of oil are estimated in the U.S. Denver Basin Province (USGS)- 98.5 Million barrels of oil are estimated in the U.S. Bend Arch-Fort Worth Basin Province (USGS)- 94 Million barrels of oil are estimated in the U.S. Hanna, Laramie, Shirley Basins Province (USGS)For Comparison:- 260 Billion barrels of oil are estimated in Saudi Arabia (EIA)- 80 Billion barrels of oil are estimated in Venezuela (EIA)
"Anarchism misunderstands the real nature of man. It would be practicable only in a world of angels and saints" - Ludwig von Mises
No. Peak Oil is a tragedy of idiotic US government policies. First, they inhibit research in alternative fuels by draining credit away from productive private sector investments to the public sector via corporate taxes, capital gains taxes, income taxes, and borrowing that fuels government debt. Second, the government refuses to take actions that would reduce the burden of high oil prices on Americans, such as allowing offshore drilling and shale oil.
Political Atheists Blog
Peak oil seems to be a theory for geology, not economics. So long as new oil is being discovered and appropriated, the supply of oil is for all purposes limitless. Once oil discoveries stop, then oil preservation becomes a rational choice.
The fallacies of intellectual communism, a compilation - On the nature of power
Actually, the latest IEA and EIA reports show that the world's major elephant oil supplies (like Ghawar) are declining in production at a rate of 6.7% per year. In the next couple years Mexico won't be exporting oil. Neither will England's North Sea oil.
Matthew Simmons has done a lot of research on this. You should try to read some of his stuff.
Financial Sense Energy Round Table's: http://www.financialsense.com/Experts/roundtable/2008/0202.html
http://www.financialsense.com/Experts/roundtable/2008/1213.html
http://www.financialsense.com/energy/main.html
http://www.chrismartenson.com/crashcourse/chapter-17a-peak-oil
http://www.chrismartenson.com/crashcourse/chapter-17b-energy-budgeting
http://www.chrismartenson.com/crashcourse/chapter-17c-energy-and-economy
Matthew Simmons has no evidence for his claims, he just keeps repeating them over and over in any loony documentary that will have him. Mathew Simmons is the Al Gore of the Peak Oil Myth. His claims have been debunked:
Crop Circles in the Desert: The Strange Controversy Over Saudi Oil Production (PDF) (Michael C. Lynch)
I've watched half a dozen of these nonsense "documentaries" on peak oil and they all ignore facts and just repeat the hysteria.
The problem is that government has been declaring that the world's oil supply will run out ever since the 1940s. It's constantly been used as an excuse for more government intervention. In either case, market signals (prices) would serve as a signal for conservation and investment in alternatives.
Thats wrong: Hubberts theory was laughed at when he published it in the 50s, until the US peaked in early 70s.
Prices are indeed hard to use indicators as how the oil situation is due to credit bubbles and crunches distorting the market. But if we look at production numbers we get a pretty good idea: OPEC is still increasing in production it seems(but cant be for long since their big discoveries were a couple of decades ago), while the rest of the world is declining. Oil discoveries have been decreasing since the 60s(they also had a peak), all the new fields are either low quality oil like tar sand or shale, or they are in hard to access places like deep ocean floors
http://europe.theoildrum.com/node/5006
Forgot to add: world crude oil production has been stagnant at 73-74 Mbarrels a day for 4 years now so there is a high likelyhood that we are in fact at the peak.
nandnor: Forgot to add: world crude oil production has been stagnant at 73-74 Mbarrels a day for 4 years now so there is a high likelyhood that we are in fact at the peak.
That is primarily because people are being restricted from investing in new oil production and refinement capital. Could be that we are running out of oil, but once the price is high enough there will be enough of a demand for substitutes that people will invest in making those substitutes.
The EIA & IEA reports state that we need to invest $350 Billion per year for the next 20 years just to keep producing at the rate we are at now. We are clearly cutting back on capital expenditures in such areas. Also, there are no new elephant oil field discoveries like those found back in the 19th century. Most of the oil now is in little pockets, deep see drilling and oil sands. All these forms of oil require high price like $70/barrel to be profitable.
To all who replied - thanks for your thoughts. As i read the replies and thought further, I'm beginning to think that this is not an example of a tragedy of the commons. While there are problems with government interference and questions about whether or not the theory is even valid, let's assume for the moment that peak oil DOES exist and there is no government interference in the situation. You could then say that the market is a normal market which balances the need and expectation of buyers and sellers. Could the sellers have wrong information and are making dumb decisions by selling oil too cheap? Sure. Could the buyers be oblivious to the effect of diminishing oil supplies in the near future and instead should allocate money to oil with both fists? Sure.
But in both of these cases, the results are not an example of the "tragedy of the commons" (where folks take advantage because they don't bear the responsibility of their decisions) - but simply the uncertainty of the future (by 'assuming' peak oil was true, I was just wiping away all that uncertainty that exists and entrepreneurs try to exploit). I'm voting (for the moment) that my confusion was because of a poor argument.
As to whether peak oil exists or not - the engineer training in me says "well of course it does!" (everything breaks or runs out of gas eventually...) - but I don't think you can look to the price for affirmation or disproval. Thanks again to everyone who supplied reference as well - guess I've got some reading to do...
Doug:As to whether peak oil exists or not - the engineer training in me says "well of course it does!" (everything breaks or runs out of gas eventually...)
Quite true but I would like to reiterate that you must first know two things - 1. What is the exact amount of fossil fuels on the planet and 2. How are fossil fuels created. Which leads me to...
The Monkey Wrench - What if fossil fuels were created different then we thought and what if we could create them cheaply:
Abiotic Theory:Fuel's Paradise (Wired)Gas and oil may exist in miles-deep wells (The Times, UK)Petroleum From Decay? Maybe Not, Study Says (The New York Times)
Thermal Depolymerization:Thermal Depolymerization (Video) (7min)Anything Into Oil at $80 a Barrel (Discover Magazine)
bearing01:We are clearly cutting back on capital expenditures in such areas. Also, there are no new elephant oil field discoveries like those found back in the 19th century. Most of the oil now is in little pockets, deep see drilling and oil sands. All these forms of oil require high price like $70/barrel to be profitable.
You just missed the point:
"In either case, market signals (prices) would serve as a signal for conservation and investment in alternatives."
"once the price is high enough there will be enough of a demand for substitutes that people will invest in making those substitutes."
Oil Sands do not require $70 oil to be profitable:
Oil sands still viable at $60 a barrel: Suncor (Financial Post, Canada)Oil sands 'viable below $60 per barrel' (SRI Consulting)Shell Says Oil Sands Expansion Would Remain Viable With $30 Oil (Bloomberg)
"Suncor Energy Inc., which last week rolled out massive spending cuts because of the credit crisis and slumping oil prices, said it will earn C$28 for every barrel of oil it produces should crude trade at US$60/barrel"
Which means the oil sands need oil to be at about US$40/barrel or more to make a profit.