Economics Questions

Re: "Peak resources" a myth

marko331 — Thu, 24 Jun 2010 06:26:47 GMT

my own view on the peak theory is by the by a valid theory however i think that like many things in life it is used by people to justify other arguments with accounting for other factors such as substitutation and new technology. So i think that the theory is valid when making a prediction from a single point in time based on output at thta time. However i do agree that one cannot use the peak oil theory in isolation to justify some of the arguments that are being put forward by different groups of people.

Re: "Peak resources" a myth

Bogart — Wed, 23 Jun 2010 18:18:12 GMT

Peak Theory is silly. Peak Theory only marginally makes sense if there are not substitutes for the item. Gold has a huge number of substitutes. Gold money had the substitutes of silver and copper historically but the marketplace could determine a huge number of substitutes. Gold in jewerly had silver and other metals. Gold in circuits has substitutes in ceramic and synthetic materials.

And the other Peak Stuff like Oil is just as silly. In the 1950s Ford bult an automobile whose body was made of hemp. Allowing industrial hemp whose uses will grow as the supposed Oil Peak is achieved could conceivably take over what 20%, 30% even 60% of the petro chemicals industry.

The whole peak thing just gives more ammunition to the pop religion of environmentalism and allows doom and gloomers to worry about something.

Re: "Peak resources" a myth

Clayton — Wed, 23 Jun 2010 18:00:23 GMT

Again, we are in agreement. My point is that Hubbert peak theory and other peak theories are used as a "sky is falling" prophecy, to say that we've already reached peak production and it's all downhill from here. Maybe we have, maybe we haven't, but Hubbert's bell curve is of no use in deciding whether we have or haven't and in predicting what future oil (or other commodity) production will be in the future.

Clayton -

Re: "Peak resources" a myth

marko331 — Wed, 23 Jun 2010 08:15:54 GMT

the bell curve refers a single well or field that has been subjected to a form of production from a point A (the start) to point C (the end) the bell curve is affected when the well/field is capped or new technology is implmented however this dosent make the bell curve incorrect or unusefull it can act as a good tool in predicting production based on the manner that the well/field is used. I do not refer to prices and anything that can effect them such as supply wat im saying is from a practical extraction point of veiw it is useful prediction tool based on set usage patterns. THe main reason that the bell curve is not reflected is that it is very rare that people use a well in continuous way for its life they do as u say invent new technologies (and they have) and change extraction patterns due to demand, but by the by the bell curve is still valid as it is prediction of production based on usage patterns.

In any case a point will be reached where the economic cost of extraction will exceed that of other forms of energy such as wind and solar, the main posative of oil is the high investment in all economys in oil based infastructure by both firms and government.

Re: "Peak resources" a myth

Clayton — Wed, 23 Jun 2010 07:58:53 GMT

Well, obviously, the production of everything must have some peak. A few billion years from now, the Sun will die and engulf the earth as a red giant. Long before that time, all human production will have been at zero.

But the point of Hubbert peak theory - all these "peak theories" - is that there is a "bell curve", not just that there is a highest level of production that must at some point be reached and never exceeded. The peak theorists attempt to curve fit world oil production and production of other commodities to the bell curve without any causal theory for why production should follow a bell curve and then use this bell curve to predict that the peak is "imminent" or, in the case of oil, already surpassed. Even if a peak is reached, I see no reason the peak cannot be temporary, soon to be far surpassed by higher peaks.

Clayton -

Re: "Peak resources" a myth

marko331 — Wed, 23 Jun 2010 07:04:24 GMT

I would disagree,

the peak of production of any resource is possible though it is diffcult to predict due to any number of factors. You refer to the peaking of gold and how it is incorrect and that the majority of the "estimated" gold in the world has not been extracted. This is a misleading statement in itself external to the topic of peaking of resources. If i took all of the gold yet to be extracted and spread it out evenly throughout the earths total composition then it would be very difficult to extract as large amounts of mining would be needed to extract even a small amount. Furthermore an estimate does not mean the amount of gold in the ground it is an estimate.

With oil production will peak and decline eventually as it is a finate resource, oil sands and other production technologies will come on line in the short term which will increase the peroid before and overall peak however these do not represent competitive long term alternatives to "traditional" oil extraction. The use of other energy sources such as the sun (which for all intents and purposes is infinate) to make oil may be viable but it the cost will be high as if it is low why would you extract oil from the ground. As the cost of making oil this way is high people will turn to other forms of transportation and energy production.

Wheat is offered as a form of a resource that cannot peak as it is grown year after year this is true to a certain degree but one must take into account the impact of resources such as oil (haber process and machinary) on production of wheat and the efffect of continually growing food on the land in terms of erosion etc.

"Peak resources" a myth

Clayton — Tue, 22 Jun 2010 08:16:03 GMT

Peak oil. Peak water. Even peak copper and peak wheat. Here's a paragraph from Wiki's article on Hubbert peak theory:

The possibility of Peak Gold has emerged recently. Aaron Regent president of the Canadian gold giant Barrak said that global output has been falling by roughly one million ounces a year since the start of the decade. The total global mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run. "There is a strong case to be made that we are already at 'peak gold'," he told The Daily Telegraph at the RBC's annual gold conference in London. "Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," he said.

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970. Output fell a further 14 percent in South Africa in 2008 as companies were forced to dig ever deeper - at greater cost - to replace depleted reserves.

Now, this tells me there is something seriously wrong with the peak resource theory. Over 90% of all gold in existence today has been mined since the gold rush of 1849! It would seem to me that a "peak gold" theory after the discovery of the New World and the early exhaustion of surface gold deposits and major un-mined gold veins would be most plausible. Yet, such a theory would have been very, very wrong. Gold was discovered in large quantities in South Africa, Australia, Russia and other places around the world. Mining technologies and industrialization have greatly improved the productivity of gold mines since 1848. And, the vast majority of (estimated) gold in the planet is still un-mined.

Gold is, of course, unlike oil in that we do not burn it to produce energy. Yet, oil is surely much less renewable than wheat, to which the "peak theory" is apparently being applied.

I think that peak theory is the equivalent of the myth of "technicals" in stock market analysis... a bunch of post hoc, voodoo theories based on data-mining, selection bias and confirmation bias fallacies and then rolled into one big ball of self-affirmation. There is no reason why gold production, wheat production and oil production should all follow a bell-curve. If you say that "mathematics tells us that any finite resource recovered using a linear production process must follow the Hubbert curve" you are failing to take into account that wheat is not a finite resource*. You are also neglecting the order of magnitude difference between current production levels using current technologies and the absolute amount of the resource in existence. Also, you are neglecting that oil is a resource which can be produced using artificial means (energy from the sun can be used to produce oil artificially). A small variation in any one of these - or other - factors can lead to gigantic changes in the production and supply of these commodities. This means that even if we do see a "hump" or "bell curve" in the production of one or more commodities, this does not indicate that this is the result of exhaustion or impending exhaustion of the natural resource since a new technological discovery could alter supply and/or demand and quickly reverse the declining trend and send production skyward.

I think the Hubbert peak theory, in all its manifestations, is just a re-gurgitation of Malthus's crap. In the short term, I expect oil production to continue to fall - at least, in the United States (it's harder to say worldwide) - but for political reasons, not because of any underlying real increase in the cost of recovering oil. Jim Rogers is currently recommending to buy oil (I pretty much take his advice as gospel) but I think that needs to come with the caveat that oil is currently already at elevated price levels and that predictions of impending collapse in the oil supply due to real scarcity** are grossly exaggerated.

The anti-gold cartels have been waging a century-long war (maybe longer) against gold production. The same forces that oppose gold must oppose any highly liquid commodity which can act as a refuge from inflation and assist in the preservation of wealth. Peak theories are just an expression of the fantasies of these pro-paper/anti-commodity interests. There is no underlying causal explanation given for why there will be a single peak of production in each of these commodities followed by a long, inevitable secular decline other than that the amount of any given resource on the planet is finite. While this is true, humans are economizers and re-users by nature and we have been increasing the finite resource bounds of our planet for quite some time (through cultivation and other production-enhancement technologies). With the advent of the computer and other technological changes on the horizon - specifically, bio-technologies which are likely going to have a profound impact on how we produce things, even energy - it is the wrong bet that growth will finally start to plateau, at least, for natural causes***. Yes, the human population will not grow forever but it's not about to stop growing now and as long as the population continues growing, demand and supply will continue growing with it.

</rambling>

Clayton -

*Strictly speaking, it is, but not in the same sense that there exists a finite, theoretically measurable quantity of gold in the world, more than which cannot be produced

**As opposed to artificial scarcity created by political shenanigans

***Of course, there's always the possibility that Ted Turner and Prince Philip with the help of Professor Pianka release some deadly, engineered variant of the Ebola virus that wipes out 99% of the Earth's population... necessarily crippling growth