The curve's the thing

Interesting post on 'peak oil' at Cascadia Scorecard which links to a graph (in Global Peak in Oil Production: The Municipal Context) illustrating the heart of the matter: the rate at which oil production might decrease i.e. is it a "cliff" or a "gentle slope?"

Of course this graph is simply an illustration. Production might in fact peak in 2037 followed by a gentle slope; no one knows for sure when the peak will be, especially as the amount of recoverable oil is not simply a function of natural history but of technology & economics, and that's the problem. So what do you do?

It seems to me that the key is to make sure that the market signals -- fancy way of saying higher prices -- which follow from a fall-off in production, or even from the anticipation of a fall-off, get through to consumers as rapidly as possible. So at the national level, the idea of unleashing the strategic petroleum reserves to keep prices low, might be the very worst thing to do. Beyond that, I'm not sure which government policies to force conservation in advance of rising prices are wise. Yes, all sorts of energy use standards. But ultimately the only thing which will work to make people conserve is higher prices. But how much of those higher prices should be government taxes, I am not sure.

 

 

Comments

[TM Lutas]

Just as important as high prices are to moderate demand, they are also key to increasing supply. You can make diesel fuel out of coal using Fischer-Tropsch processes. At a certain price of oil and a certain availability level (ie, no supply overhangs that could ruin your capital investment), it makes sense to go F-T. That puts a long-term ceiling on price because we'll just be bidding up coal to fill our gas tanks when we can't get oil at a reasonable price.

[M1EK]

The primary reasons for pushing the price higher via taxes are:

1. make up for past and current subsidy (bring it up to 'natural' value)

2. signal to infrastructure builders that we expect gas to be more and more expensive in the future - today we have all sorts of artificial encouragement of suburban sprawl which, when built, isn't going to be easy to redevelop into transit-oriented development.

3. climate issues

To me, all are compelling, and all justify a much higher fuel tax than we have now. Unfortunately, opportunistic politicians have spent the last 20 years convincing suburban motorists that they're getting screwed (when the facts indicate that they're actually the ones doing the screwing), so chance this will happen: 0.

[kieth nissen]

It's hard for me to read what the graphic shows. I assume it's production and not dollar volume (it would make more sense if it were
dollar volume).

I agree with the previous comments. I am also surprised to see the graph "peak" with steadily increasing rate of production
up until the volume zenith. I would expect higher prices and diminishing resources to moderate the increase
in production volume leading to more of a convex curve rather than a peak. The problem with FT and tar sands and
many other avenues is that after the investment has been made oil can go back down to $30 and leave everybody under
water. The oil producing countries will still make money.

If a few of the major world economies start going flat or negative oil will drop a lot.

[Omri]

Kieth, the idea behind the graph is the fundamental theorem of calculus: because there is a finite amount of oil under the earth, the two graphs must have the same area under each. Which means the more you can extract now, the faster the graph will fall off later.

[TM Lutas]

Omri - The problem is that nobody cares about oil per se. What we really care about is energy that is compatible with the existing set of energy using machines in the global capital stock. By fixating on oil, you're taking real variables and assigning them as constants.

If 2020 sees us with $100/kg launch rates (space elevator) and solar power satellites beaming power down to earth to be converted to hydrogen for use in fuel cells, you'll see a radical change in how oil is going to be drilled irrespective of how fast you drill and extract oil up to 2020. The 2037 peak is just never going to happen in that scenario. Oil production will peak as it gets progressively replaced by new infrastructure and recoverable oil will be left in the ground just as whales were left in the sea after petroleum replaced whale oil for our illumination needs.

[Chris Burd]

TM Lutas:

Space elevator? Satellite-generated power? Full hydrogen economy? Surely you're talking about 2200, not 2020?

[Perry]

Chris,

Without refuting the odds that any given set of technologies will in fact exist by [insert date of supposed oil extinction here], I think that the larger picture point is this:

1 - Oil Prices Rise due to natural laws of supply and demand as we get closer to this graph top point.

2 - Increased Oil Prices incentivise technologies that extract oil from alternative methods and sources. (i.e. the sky above the Grand Central train tracks is worthless until real estate values are high enough such that putting a cap over it and creating Park Avenue south is cost beneficial)

3 - Increased Oil prices also make other technologies which were previously non price competitive to be price competitive. This also spurs research/development into those and other alternative energy sources, eventually replacing oil

4 - Wait until the 'sky is falling' for that resource as well.

Whatever happens with oil is irrelevant. People need energy to power the items that we use to live, work and play. Oil is the biggest bang for the buck that we've got and whenever thats done, I guarantee that something else will take its place.