Forum Post: Peak Oil and the Challenging Years Ahead By Gail Tverberg | Thu, 25 October 2012 22:34 |
Posted 11 years ago on Oct. 26, 2012, noon EST by notaneoliberal
(2269)
This content is user submitted and not an official statement
We seem to hear two versions of the story of limited oil supply:
The economists’ view, saying that the issue is a simple problem of supply and demand. Substitution, higher prices, demand destruction, greater efficiency, and increased production of oil at higher prices will save the day.
A version of Hubbert’s peak oil theory, saying that world oil production will rise and at some point reach a plateau and begin to decline, because of geological depletion. The common belief is that the rate of decline will be determined by geological considerations, and will roughly match the rate at which production increased.
In my view, neither of these views is correct. My view is a third view:
- An adequate supply of cheap ($20 or $30 barrel) oil is no longer available, because most of the “easy to extract” oil is gone. The cost of extracting oil keeps rising, but the ability of oil-importing economies to pay for this oil does not. There are no good low-cost substitutes for oil, so substitution is very limited and will continue to be very limited. The big oil-importing economies are already finding themselves in poor financial condition, as higher oil prices lead to cutbacks in discretionary spending and layoffs in discretionary industries.
The government is caught up in this, as layoffs lead to more need for stimulus funds and for payments to unemployed workers, at the same time that tax revenue is reduced. There can be a temporary drop in oil prices (as there was in late 2008), as recession worsens, but eventually demand rises again, oil prices rise again, and the pattern of layoffs and increased governments financial problems occurs again.
Without substitutes at a price that the economy can afford, economies will adapt to lower amounts of oil they can afford by worsening recession, debt defaults, and reduced international trade. There may be tendency for international alliances (such as the Euro) to fall apart, for countries to break into smaller units (Catalonia secede from Spain, or countries break up the way the Soviet Union and Yugoslavia did).
At some point, probably not too many years in the future, the amount of oil extracted from the ground will drop, reflecting a combination of geological and economic factors. The fall may very well be quite steep. While we can’t expect to extract more than geology will allow, there is nothing to say that political and economic factors will allow extraction of this amount. If civil war breaks out in an oil producer, production may drop quickly. Or if oil prices drop because of severe recession, drilling of new fields and wells may drop off quickly, leading to lower production as existing wells deplete, and not enough new supply as added. There may also be disruption in international sales of oil. Read on; http://oilprice.com/Energy/Crude-Oil/Peak-Oil-and-the-Challenging-Years-Ahead.html
This always reminds me of something. If you take all the oil from a machine it rusts, or cracks and breaks. If you take all the oil from a frog it dies. If you do something to anything it causes something. So what happens if we take all the oil from Earth? I hope the people doing this have bothered to wonder, but i doubt it.
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Very good point. Both gold and oil are finite resources. I am trying to point out that both have risen in value simultaneously. Whether the oil price can increase beyond a certain point without driving the economy down to the point of causing greater demand destruction, (per capita oil consumption has already dropped in the US and the EU) remains to be seen.
This is actually completely wrong, and it's easy to prove with facts. It isn't a supply and demand issue...at all. It's a currency manipulation issue. If you adjust the cost of oil for the devaluation of the currency-oil is actually cheaper on average than it has been in like 60 years. This has everything to do with continued quantitative easing by the fed....and almost nothing to do with supply and demand. To prove my point all you have to do is take a look at this graph:
http://hmscoop.com/MoneySupplyvsCommodities.html
and easier overview of what i'm saying in video format with facts/data to back it up:
http://www.youtube.com/watch?v=Cdd4selSYE0
Or watch a video on this showing how you can buy 7 gallons of gas for 1$.....that is 1$ of a currency that can't be manipulated via printing of money:
http://www.youtube.com/watch?v=x9YJsLPd8No
The premise of the article is correct, but this isn't happening right now....in the future oil prices will have to rise drastically as the limited resource is used up.
I disagree. In the early 70s gasoline could be purchased for 25cents a gallon. It is now 14 times that. Currency devaluation can't explain that. Conventional oil production peaked at the end of 1970. Coincidence?
Currency devaluation absolutely can and does explain that...did you look at my graph? It explains your 1970 argument:
http://hmscoop.com/MoneySupplyvsCommodities.html
The problem with your argument is that the only stable currency in the world, gold, can buy more gas today than it could decades ago. The price of oil has nothing to do with a shortage today and everything to do with the expansion of the money supply...making all your goods, not just oil, more expensive.
There is no shortage of oil yet....i have extended family in the oil industry that have worked there for 30 years. I agree that eventually there will be a shortage....but that shortage has not hit yet. New natural gas reserves that have been discovered have pushed peak oil back 30-50 years.
I am not using this as an argument not to go the direction of clean energy...I have a degree in engineering focused in green design. But unfortunately peak oil is not here....and it's not causing the spike in prices.
When you say there is no shortage, I would point to the per capita reduction in consumption in the US and EU. It is not so much a shortage of oil , as a shortage of cheap oil. I agree that peak oil, if you include "all liquids" has not yet occurred. edit; Nat gas isn't oil though is it.
If you look at median income as a standard, a 1970 dollar is worth $4-$5 now. That is more a realistic measure than gold imo. http://buylikebuffett.com/making-money/why-your-grandparents-made-more-money-than-you/
The reason that gold is such a good indcator is that it can't be manipulated, it's impossible because government can't recreate it.
When you look at the dollar you could do what you're saying...adjust for inflation. That isn't as accurate however....as it's anyones guess what the value of oil should be in dollars because of how much it has been tampered with (expansion of the money supply). You could adjust for inflation using the gov's CPI over the years....I've seen that done...that's basically what you're doing with the median household income in a roundabout way...but that's not as accurate as using gold because it has been manipulated and in order to get a precise answer you have to be 100% certain that your inflation numbers are right.
If you take the only currency that hasn't been tampered with (gold) you can buy just as much gas with it as you could 100 years ago....showing that consumption issues aren't the real reason for rising prices.
That's the whole point of that second video of mine....the guy in it claims you can buy 7 gallons of gas for 1$ like you could many years ago. How does he do it? He uses 4 silver quarters (used to be the official currency) which was equal to a dollar many years ago and trades in the silver for 20 something dollars which he then buys 7 gallons of gas with. It's the fiat currency at the root of rising prices.
In the last 24 months, gold has fluctuated between 800 to over 1900. Do you realy believe that the value of the US dollar has changed in value to that exent? http://data.cnbc.com/quotes/GCZ2/tab/2 The value of gold is subjective. It has as much to do with fear and emotion as anything.
Absolutely....have you seen what we've been doing the last 24 months? Just take a look at the data on our M2 money supply...graph it...close to exponential growth.
http://www.federalreserve.gov/releases/h6/current/
What do investors do when you devalue a currency? Go to a safe haven...gold....silver etc....bidding up its price like crazy (its price in dollars). The price of gold over the last 24 months has nothing to do with golds stability and everything to do with the dollars stability...or lack there of.
Seriously..next time bernanke has a meeting in washington about quantitative easing just sit down and watch it and have your computer going right next to you...when he agrees to more easing...watch gold skyrocket. I've traded this a number of times. i think last month M2 increased over 100 billion.
No, the value of gold doesn't have to do with fear and it isn't subjective....if you're talking about the dollars value to gold as in todays terms..then yes...you're right. Look at the stability of prices before 1971..this proves my point...there wasn't fear before 1971? WW1....WW2?? A silver dollar 100 years ago buys as much oil as it does today....case and point.....stability. If you took a paper dollar from 100 years ago, it would be worth 4 cents...instability
In 1980, on Jan 3, gold jumped 13.3% in a single day. On Jan 22, it dropped 13.2 in a single day. Stable?
In dollars....goods value in gold did not jump 13.3%
lol, i wish the people down voting this stuff would actually counter with something (notaneoliberal, i'm not claiming it was you...i'm just making a broad statement). But it really bothers me people will down vote something that is accurate...and if they think it isn't...they won't post anything to back up their claims. Some people don't like to see facts i guess.
Well, lets see. You say "in dollars". True, on the day gold jumped 13%, you could then buy 13% more goods with a given amount of gold, (by first converting it to dollars). So that would mean that everything that could be purchased would have lost 13% in value since you are contending that gold is "stable", or it means the value of goods didn't really change, but the value of gold changed. I'm leaning toward the latter. I think the facts show that both gold and oil have gone up, relative to most everything else. I go back to what I said earlier. It is what something costs relative to an hour of labor that counts.
So by that analysis, you believe the true value of gold remained the same, but the value of everthing else, including oil, suddenly dropped, since oil has remained at about 100 a barrel. So by that formula, oil is now half the price it was 24 months ago. Sorry, not logical. As an engineer, you should be able to understand the concept of EROEI, and the fact that the marginal cost of an average barell of oil is steadily increasing. A deepwater well is not as cheap as spindletop. The real cost of oil has indeed gone up. It had to.
Here, this should direct you to the meat of the info.....should start at minute 2:50
http://www.youtube.com/watch?v=4AQhJTxo688&t=2m50s
This should be obvious from the graphs i posted earlier though.....price of oil is completely stable for 50 years before gold was decoupled from the dollar...afterwards is when the price became unstable....but whatever...video explains it in more detail.
Yes, I understand EROEI.
I did not say the value of everything else, including oil, suddenly dropped....i'm saying your fiat dollars are being devalued like crazy (that is what is dropping in value)...causing rising energy prices to "appear" to rise...and the proof in that is that the only currency you can't devalue (gold) buys the same amount of oil it did 100 years ago.
Great video to explain in more detail:
http://www.youtube.com/watch?v=4AQhJTxo688
OK, I'm really going back to your previous response here. Yes the price of oil was (relatively) stable before Nixon ended the gold standard. I think you are, to certain extent, confusing the chicken and the egg. It was at this time that the control of oil price fell from the Railroad Commission of Texas, and fell into the hands of OPEC, due to the fact that US oil production peaked at this time. If your point is, the price of commodities is harder to manipulate than fiat dollars, of course, I agree, but I believe that both oil and gold have increased in value.
and why have oil and gold increased in value (by increase in value i assume you mean in dollars).....because the currency has been devalued. Of course they've increased in value in dollars...i'm not questioning that. I'm talking about the relationship with each other....gold to oil. How many oz's of gold does it take to purchase a barrel of oil....that's what i'm looking at. I just did this for roughly the last 100 years.
Average cost of oil in gold oz's for the last 100 years = .0622 oz's/gold to buy 1 barrel of oil.
Current cost of of oil in gold = .0588 oz's/gold to buy 1 barrel of oil.
Now lets look at the fiat dollar
100 year average = 11.9$ to buy 1 barrel of oil
Current Price = 95$ to purchase 1 barrel
I took the data from 2010 as this s where the historical data i was looking at stopped. Notice the difference?
"It was at this time that the control of oil price fell from the Railroad Commission of Texas, and fell into the hands of OPEC, due to the fact that US oil production peaked at this time."
No...that is not the reason the price of oil went up....if you look at the price of oil in gold during this time period...it actually declined (1971). This isn't specific for oil either....we're talking many other areas of the economy expanding in price right at this time period.
This is the fiat dollar causing rising prices...i don't know how to provide more evidence than this...its blatantly obvious. I can send you my spreadsheet if you want to look at it.
What you and Ron Paul are missing- CORRELATION IS NOT CAUSATION. Unless other items went up in concert with gold and oil, your theory, which amounts to claiming it is just about the devaluation of the dollar through inflation,doesn't hold water. Take a look at this. http://www.fao.org/docrep/006/Y4344E/y4344e0g.htm
This is misleading....for one the average person looking at this might not catch that certain tables are nominal vs real....second they're taking averages over a decade...third they only go up to 90's.
Take a look at my site i showed you before....it graphs a bunch of commodities in question (many of which were included in the site you sent me);
http://hmscoop.com/MoneySupplyvsCommodities.html
I don't have the time to do this...but if you question what i'm saying you should sit down and graph gold verse these same commodities.....prices will be stable or decline like the do for oil.
reply to; Yes.. and the more..;I wasn't using CPI numbers. I was using average income as a metric. Average income in 1970 was 1/4-1/5 the current avarage. The price of gasoline was 1/14 what it is now. I don't dispute that inflation played a part in that increase, but it nowhere near explains the whole change. If you loof at other commodities, some have risen, some have dropped. They have NOT tracked gold OR oil.
I will repeat myself one more time. The most relevent measure of value to the average person is; how many hours do I have to work to obtain it. Since the 70s, the dollar has inflated 4-5 times / gasoline/ 14 times. The relation to gold value has no importance at all compared to these facts.
Yes...and the more the currency is inflated the longer a person must work to purchase goods. Inflation hurts the late receiver of the money (the average joe and the poor) the most.
Great explanation:
http://www.youtube.com/watch?v=hx16a72j__8&feature=player_embedded
Your dollar inflated 4-5 times is debatable....as i will repeat myself one more time-to judge that you have to be completely certain your CPI numbers are accurate...the government has changed the way it calculates the CPI a number of times over the years, and some call into question its accuracy, as do I. How do you protect against this? Have a currency that can't be manipulated.
But this is off topic....the root of what we were discussing is that oil prices are high because of the devaluation of the dollar....that is the root cause.
I understand what you're saying. I don't agree that the value of gold is particularly stable or beyond manipulation. I don't think that the wage earner who now makes 4 or 5 times the amount, numerically, but pays 14 times the price for gasoline, even if the inflation rates are not precice, is really that affected by the price of gold. I would contend that gold has not been that stable. http://dailybail.com/home/chart-inflation-adjusted-gold-price-1970-2011.html
You can't adjust the price of gold to dollars to determine if gold is stable....in dollars the price of gold has been nowhere near stable....i agree with you on that....but that's not saying that gold isn't stable...that's sayin the dollar isn't stable...as that is what you're looking at when you take golds value in dollars.
To see how stable gold is as a currency..look a tthe cost of goods before we went off the gold standard...as we know the dollar was tied to gold:
http://hmscoop.com/MoneySupplyvsCommodities.html
Unfortunately pre-1971 wasn't even really a pure gold standard....there was manipulation with the dollar back then, although nowhere near what it is now...but that's the closest example you can get to to view the stability of gold on prices of the goods you buy every day.
QEing is responsible for the dollars devaluation.
yes....and artificially lowering interest rates which has been in effect for even longer.
Sure, and investors are seeking commodities that will rise as a result.
bingo...why are we being down voted for telling the truth?
Because all is a ruse - this is an Obama support group and they will stop at nothing. I've been banned from this site four times, and my PC's been bombed twice, not for being confrontational but for disagreeing with Leftist politics and their agenda. Which let's face, is extremely dated - to the early 1900s - and borders on pure insanity.
What "right" wing political agenda is even worth considering?
It's mostly absurd sewage, so why waste time taking it seriously?
http://www.youtube.com/user/IronicNewsReport
I'm not spewing right wing political agendas....i'm spewing facts.
"QEing is responsible for the dollars devaluation"
Find me an economist in the world that disagrees with this.
"Investors seeking commodities that will rise as a result of QE"
Again...find me an economist in the world that disagrees with this.
These are facts...not conjecture or right wing propaganda....why do you down vote facts????? That's as childish as the right; "lets disagree with evolution because we believe in our little fairy tail...and ignore all the facts that back up evolution." Orrrrr "lets disagree with global warming because it doesn't fall in line with our love of oil". That kind of crap disgusts me...can't stand it. Put your petty left vs right aside.
Economist? I wonder who pays them?
There's always MMT.
Besides, it's always been WallStreet at the head of extracting money from the economy, without ever putting a net gain back in.
They wouldn't exist as we know them, if they had too.
Not to mention entities like Romoneys, Baincapital and others of that ilk, who every time they outsource to another country are extracting even more capital from America.
It's when they extract the money, that more needs to be printed to make up for it.
It's the part you always seem to miss, and by that measure you are pushing a right wing agenda, not facts, as you intimate.
Shooz you're ridiculous:
"It's when they extract the money, that more needs to be printed to make up for it."
That's about the most absurd argument i've heard in awhile. Completely inaccurate. If you knew the first thing about economics you wouldn't have said that.
"Economist? I wonder who pays them?"
Again...ridiculous. There is not some mass conspiracy theory to claim that QE's cause devaluation of the dollar. You can literally sit and watch it happen in real time when the Fed talks about a decision for more stimulus.
You're the one who believes the very "economists" that got us in this mess.
Me? Not so much.
You never did answer who's paying them for their "opinion".
You're the one with the conspiracy theory, so I don't know what you are expecting.
A capitulation to the same asinine policies.and economic theories that got us here?
That's where you live, not me.
WallStreet is the original and still the best, hidden pyramid scheme that's ever been and you like it that way.
Such scams can only result in an extraction of wealth and value.
"It was obvious to me that the WallStreet pyramid is always destined to fall."
The problem is that wasn't the reasoning behind the predictions he made.
He made the prediction he was paid to make.
I just used my head.
I don't believe the economists that got us into this mess...are you kidding me? I believe the one's who talked about it years before it happened...the Peter Schiffs of the world....
I bet my bottom dollar you're the one who supports the one's that got us into this mess...like Krugman for instance.
You still haven't answered the question on how its a conspiracy theory if you can literally sit in your own office and watch the dollar fall when the news of another QE hits. Seriously, that's insanely ridiculous. Its empirical fact that you can literally watch occur in real time.
That's just one more of those that brought us here.
Look into MMT.
At least it's a new way of looking at it.
You never did bother to explain away the simple fact of WallStreet induced inflation.
REAL inflation, not that esoteric crap economists talk of.
The stuff that affects you every single day.
Schiff warned about the impending collapse for years....and wrote a book explaining exactly how it would happen....he was spot on.
WallStreet induced inflation? Fractional reserves? Or just the expansion of wallstreet in general?
Hell, I knew it was coming back in '71'.
I just don't get published.
It was obvious to me that the WallStreet pyramid is always destined to fall.
There are a lot of people here with common sense...but i agree - there are 4-5 in the obama parade here that will not pay attention to anything that might make their man look bad....and they seem to be the one's trolling the site 24/7 down voting everything (even if it's factual) that doesn't fall in line with their guy.
Maybe they're getting paid. Kind of a strange job. "Hey, go bother the people at that OWS site."
The thought has crossed my mind....or the fact that it's 1 or two people posing as more.
Could be. I know people were doing that like crazy on Youtube in 2008. Kind of funny actuallly.
Thank you for post.
Thanks for noticing. I don't think many people realize how much this has to do with the condition we're in.