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
Yes I do agree that the long timers that have been developing in the oil sands since oil was $20/barrel are making profits today. Companies like Imperial Oil, Petro Canada, Syncrude, Suncore, Royal Dutch Shell, Huskey, and others are all still in business. Many of the other energy trusts like Pennwest, Enerplus, NAL and Baytex, Canadian Oilsands have cut back their distributions and they're still profitable - but many have hedged contracts at higher oil prices out until next year. It's the new developments with the inflated prices of capital goods and labor that required $70/barrel or so to be profitable. It's these new developing companies that have now shut down. A lot of people have been laid off in Calgary, Edmonton and Fort McMurray because of the shut downs. A lot of projects are on hold or canceled. This is to be expected in any market that has fluctuating prices where production changes to meet demand.
It is likely that with other commodity prices falling the cost of capital goods are getting cheaper and expansion more affordable. However, none of the oil sands projects are expanding anymore except for a couple of the old timers.
bearing01:Yes I do agree that the long timers that have been developing in the oil sands since oil was $20/barrel are making profits today. Companies like Imperial Oil, Petro Canada, Syncrude, Suncore, Royal Dutch Shell, Huskey, and others are all still in business. Many of the other energy trusts like Pennwest, Enerplus, NAL and Baytex, Canadian Oilsands have cut back their distributions and they're still profitable - but many have hedged contracts at higher oil prices out until next year. It's the new developments with the inflated prices of capital goods and labor that required $70/barrel or so to be profitable. It's these new developing companies that have now shut down. A lot of people have been laid off in Calgary, Edmonton and Fort McMurray because of the shut downs. A lot of projects are on hold or canceled. This is to be expected in any market that has fluctuating prices where production changes to meet demand. It is likely that with other commodity prices falling the cost of capital goods are getting cheaper and expansion more affordable. However, none of the oil sands projects are expanding anymore except for a couple of the old timers.
I agree that certain expansions and new projects may need higher oil prices to be viable but that is not what you originally said:
bearing01:All these forms of oil require high price like $70/barrel to be profitable.
The implication I got from that is oil sands are not profitable at all below $70/barrel, which is not true.
None of this changes the main point:
"once the price is high enough there will be enough of a demand for substitutes that people will invest in making those substitutes."
Which would mean renewed investment in the oil sands and their ridiculous potential (in Canada alone).
- 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)
Free-market economics makes fears of Peak Oil irrelevant unless of course the state intervenes.
Prices arent a good way to estimate how useful a particular energy source is since they depend on so many things. A more useful concept is EROEI.
http://www.theoildrum.com/node/3839 discusses it.
Also, oil shale & tar sands create huge amounts pollution. I live in a country with a population of 1.5 million that gets its electricity from oil shale and guess what? We are pretty much the world's biggest co2 producers on a per capita basis, even though our energy consumption is much smaller than some advanced countries'
nandnor:Prices arent a good way to estimate how useful a particular energy source is since they depend on so many things. A more useful concept is EROEI. Also, oil shale & tar sands create huge amounts pollution. I live in a country with a population of 1.5 million that gets its electricity from oil shale and guess what? We are pretty much the world's biggest co2 producers on a per capita basis, even though our energy consumption is much smaller than some advanced countries'
Are you sure you are at the right website?
Thermodynamics and Money (Peter Huber, Ph.D. Mechanical Engineering, MIT)
"The economic value of energy just doesn't depend very strongly on raw energy content as conventionally measured in British thermal units. Instead it's determined mainly by the distance between the BTUs and where you need them, and how densely the BTUs are packed into pounds of stuff you've got to move, and by the quality of the technology at hand to move, concentrate, refine and burn those BTUs, and by how your neighbors feel about carbon, uranium and windmills. In this entropic universe we occupy, the production of one unit of high-grade energy always requires more than one unit of low-grade energy at the outset. There are no exceptions. Put another way, Eroei--a sophomoric form of thermodynamic accounting--is always negative and always irrelevant. "Matter-energy" constraints count for nothing. The "monetary culture" still rules. Thermodynamics And Money"
You seemed to be confused about air pollution which has nothing to do with CO2. Carbon Dioxide (CO2) is NOT pollution.
"CO2 for different people has different attractions. After all, what is it? - it’s not a pollutant, it’s a product of every living creature’s breathing, it’s the product of all plant respiration, it is essential for plant life and photosynthesis, it’s a product of all industrial burning, it’s a product of driving – I mean, if you ever wanted a leverage point to control everything from exhalation to driving, this would be a dream. So it has a kind of fundamental attractiveness to bureaucratic mentality." - Richard S. Lindzen, Ph.D. Professor of Atmospheric Science, MIT
Air Quality in America - The United States has sharply reduced air pollution levels, despite large increases in nominally "polluting" activities (Source)- Air pollution affects far fewer people, far less often, and with far less severity than is commonly believed. (Source)- Areas in the United States with the highest pollution levels have improved the most (Source)- Air quality in the United States will continue to improve (Source)- Regulators and environmental activists exaggerate air pollution levels and obscure positive trends in the United States (Source)Air Quality in America (PDF) (AEI)
Leaving the CO2 issue aside(would go too off topic to debate it here), my claim of prices not giving a good idea about energy source usefulness is due to subsidies, heavy taxing, state ownership distorting the energy market quite a lot.
I guess the debate over existing huge reserves and their usefulness comes down to how much the coming fossile fuel EROEI drop will influence the economy and the feedback.
There is nothing to debate - CO2 is not pollution by any stretch of the imagination. The fact that it is constantly brought up as such is a sign of scientific ignorance. CO2 is a naturally occurring trace gas in our atmosphere that is necessary to support life on this planet, if there was no CO2 we would all be dead.
Subsidies are a legitimate concern and they should all be abolished but that does not change the fact that prices are still what drives energy production and consumption.
Actually the debate over the existing huge reserves comes down to the price as it always has.
"In the real world, however, investors don't care a fig whether they earn positive Eroei. What they care about is dollar return on dollar invested. And the two aren't the same--nowhere close--because different forms of energy command wildly different prices. Invest ten units of 10-cent energy to capture one unit of $10 energy and you lose energy but gain dollars, and Wall Street will fund you from here to Alberta."
Personally, I couldn't care less whether all oil ends or not. I will simply react to market prices as they develop. What those prices depend upon is not any consideration of mine, since I am a simple consumer of oil, not a producer or trader in it.
Btw, didn't we already see peak oil in the shape of the sudden $140 price peak last year? It sure looks like a peak on all price charts, and just about when all prophets had warned us for that "comet". Or was that too just another an act of "trrrsm"?
It's not fascism when the government does it.
“We must spend now as an investment for the future.” - President Obama
Peak oil doesn't really have anything to do with TotC. It's not like the oil is unowned, and everyone is consuming because there are no property rights.
More to the point, peak oil is a bogey. If we're running out of oil, then the price will rise, which creates incentives to conserve the resource, invent new technology to increase supply, and discover substitutes. Supply and demand. Society isn't going to collapse because a resource is scarce.
AnalyticalAnarchism.net - The Positive Political Economy of Anarchism
Statistics on the supply of oil are irrelevant (except to speculators). The point is that the price system automatically regulates the supply of resources.
Peak oil theory sounds to me like some Marxists stumbled upon the concept of scarcity.
If liberty means anything at all, it means the right to tell people what they do not want to hear. - George Orwell
I think the flaw with this analysis is that assumes there is no difference between light sweet crude, heavy crude and shale.
If you go to valero energy's website (the nation's largest oil refiner) they have an excellent analysis of the different grades of oil and the differences in both cost and quantity of gasoline produced by refining the various oil grades.
http://media.corporate-ir.net/media_files/NYS/VLO/presentations/Lehman_011007.pdf
Light sweet crude, the stuff thats near the surface, you convert 30% per barrel to gasoline. Heavy crude or deep sea crude its only 16%. Shale while being abundant below the ground is the least efficient, its basically tar that has to go through an expensive refining process before you can get something useful out of it.
Peek Oil refers to the loss of light sweet crude. the stuff that is near the surface of the earth that is under pressure that can be cost effectively drilled. The other forms of oil involve mining. Mining and drilling are two different animals.
This lack of understanding about the various grades of oil is what obfuscates the oil debate.
cloudslicer:This lack of understanding about the various grades of oil is what obfuscates the oil debate.
No there is not a misunderstanding of the different grades of oil. If light crude gets expensive then heavy crude is used, if heavy crude gets expensive then oil sands are used, if oil sands get expensive then oil shale is used. Efficiency is irrelevant, Market pricing drives everything. The only thing that can cause an energy crisis is government interference with worthless green regulations preventing the building of refineries to process heavy grades of crude, worthless green taxes on the use of heavier grades of crude or the restriction of access to the energy reserves by the state. All of the heavy grades of crude are profitable below $80 a barrel. And when that gets to expensive you can make it from garbage:
Thermal Depolymerization:Thermal Depolymerization (Video) (7min)Anything Into Oil at $80 a Barrel (Discover Magazine)
Correct! I was just pointing out the that 'Peek oil' is one of the most misused terms out there. There are many people who are running around thinking that the world is running out of oil. That is not what the data is saying. its saying that the days of the Beverly Hillbillies Jeb Clampet shooting the ground with a shotgun and out gushes oil are at an end. The cheap surface oil is all but exhausted, what is increasingly left requires a higher cost structure to extract and process that must be passed on to consumers. This will of course, result in more efficient machines to use less energy but that too requires capital outlays. So, as usual there is no free lunch.
Good info poptech, thanks.
Peak Oil is simply when the world's oil production will reach a peak and decline. I have heard them try to change the argument to cost of the oil but that has never been what the theory is. It has always been a production peak. Peak Oil is impossible to predict without knowing how much fossil fuels are in the earth how oil is created and irrelevant for energy concerns due to the price mechanism. Efficiency is also largely overrated as a solution.
The Efficiency Paradox (Peter Huber, Ph.D. Mechanical Engineering, MIT)
I agree that a society following the principles of free market would have every chance of readjusting well to a less oil-dependent economy. The problem is, the more necessary this becomes and the more expensive oil becomes, the more incentive states have to go to conflict, whether economical or physical for that oil, since it will postpone the economic shrinkage for someone who achieves success at it. And middle east, being a hot spot for both conflicts and the only area still not declining in oil production, could suffer wars and due to the resultant rapid decrease of oil available for the rest of the world, panic, unrest and anarchy could set in.