Preview of when cheap oil runs out

[jk]

Re: Preview of when cheap oil runs out

gec, i remember the '70s energy/gasoline crisis and the lines, etc, but i also remember learning that there was never any shortage. the fear of shortage just led to stocks being moved from big, central tanks, to the many small gas tanks of the automobile fleet, i.e. people tended to keep their tanks topped up because of their fear of not getting more.

more to the point, however, i'm curious about your interest in a scenario in which energy is not available at any price [at least in liquid forms, perhaps] rather than just getting very, very expensive. petroleum elasticity in the developed world is significant, and developed world consumption has declined to accommodate the lower per-capita but less elastic growing demand of the developing world. the examples of adaptations in heating/cooling, lighting, etc described in this thread illustrate some of the broader energy elasticity that exists, and remains, in the developed world. but the big issue is liquid fuel and transportation, and a car-centered infrastructure that is ill-adapted to high liquid fuel prices. we can expect bus services to thrive, and we can expect suburban, let alone ex-urban, development to shrink. and of course people who are unemployed don't need to commute. but all those changes will leave fuel still available to those who can afford to pay for it.

higher domestic fuel consumption in oil-exporting nations will reduce export availability, and so will eventual reductions in overall production once we come to the end of the production plateau that appears to have begun about 5 years ago. but why won't the market work to allocate supplies via price? i guess i could imagine the administration of all available supplies on national-security grounds- that would fit with your idea. or do you have some other model in mind?

[Starving Steve]

Re: Preview of when cheap oil runs out

Thank you, Ellen Z. for your post and finding the link to the Duke of Edinburgh's remarks at the windmill conference. When I read those remarks again, I almost wet my pants laughing, because he nailed-it correctly. Also, he was quite blunt about it. He issued these remarks directly to the proponents of windmills in the UK, right to their faces at their conference in London. ( I love it! )

http://www.dailymail.co.uk/news/arti...-disgrace.html

If this link doesn't work, may the reader just use Ellen's link above. Her link works. The Duke's remarks are a must-read for everyone.

Again, thanks Ellen for finding the Duke's remarks and the link to them.

[Thailandnotes]

Re: Preview of when cheap oil runs out

The Duke’s comments echo the views of his son Prince Charles, who has refused to have any built on his Duchy of Cornwall land.

However, while they are opposed to onshore wind farms, the Royal Family stands to earn millions of pounds from those placed offshore.

Last year, the Crown Estate, the £7 billion land and property portfolio, approved an increase in the number of sites around the coast of England.

The Crown Estate owns almost all of the seabed off Britain’s 7,700-mile coastline.

Experts predict the growth in offshore wind farms could be worth £250 million a year.

Buckingham Palace said it did not comment on private conversations.

Read more: http://www.dailymail.co.uk/news/arti...#ixzz1iHDkXINm

[globaleconomicollaps]

Re: Preview of when cheap oil runs out

Mini-nuclear is cost effective for small towns because mini-nuclear is used on ships and subs to-day. And then you supplement that with a back-up system such as nat-gas or coal, or maybe both nat-gas and coal. That would mean Hawaii could have 7cent electricity forever..... There would be no major start-up cost for such a system.

An island such as Kauai could install a back-up large central-system rather easily and cheaply. (It probably has such a system there already in-place.) And then the island could have mini-nuclear cells powering the island's small towns: one cell for each small town. It's rather simple, and General Electric would assist, just as GE did with Duke Energy Company in the South-eastern U.S. GE helped Southern Electric to go nuclear as well. Southern Electric serves Alabama and the Florida panhandle with dirt cheap electric power.

Within a year, Hawaiians could have 7cent electric power on each island, if they really want to. The conversion cost would be next-to-nothing.

Hawaiians do not have to use General Electric company. They could select Westinghouse, Babcock & Wilcox, Mitsubishi, or any electrical-engineering company that they choose...... But the point is: to get moving on this and to stop wasting time with the eco-bunch.

The Duke of Edinburgh had some choice words for the eco-bunch and their "green" solutions to the electric energy-crisis in the British Isles. He spoke in London a few weeks ago at a windmill conference. The British ( and the Hawaiians ) would do well to heed his remarks.

Interesting that you would bring this up.

Years ago I had the pleasure of meeting Dr. Steven Salter inventor of the Salter Duck, who pointed out to me the hopelessness of the popular windmill plan. He had spent a long time looking at alternative energy and decided to concentrate on ocean wave power. He came up with a revolutionary new wave energy device that is capable of powering all of great Britain for less than the cost of the nuclear power plants it is intended to replace, but do so with less labor and a greater ability to handle surges in demand. He discovered that not only was is work being systematically buried in committees, but that agents of the nuclear power industry where deliberately sabotaging his work. The nuclear industry is like a mafia. It doesn't surprise me that the duke of edinburgh, One of the Richest men on earth would side with the nuclear industry.

By the way this is the price of uranium over time.

Notice the similarity to the oil price. This is doubtless the work of a Rothschild-Illuminati-ESF plot to give the impression that the world is running out of easily mined high grade ores of uranium.

Not to get all environmental on you or anything, but, like, you know that Uranium says "I love you" for hundreds of thousands of years? right? Right?


P.S.

One of the most fascinating branches of Dr. Salters work was his design for a desalination machine. This is of huge importance on remote islands. The machine used the motion of the "duck" to create air compression and rarefaction to boil the water and separate the salt.

[globaleconomicollaps]

Re: Preview of when cheap oil runs out

gec, i remember the '70s energy/gasoline crisis and the lines, etc, but i also remember learning that there was never any shortage. the fear of shortage just led to stocks being moved from big, central tanks, to the many small gas tanks of the automobile fleet, i.e. people tended to keep their tanks topped up because of their fear of not getting more.

more to the point, however, i'm curious about your interest in a scenario in which energy is not available at any price [at least in liquid forms, perhaps] rather than just getting very, very expensive. petroleum elasticity in the developed world is significant, and developed world consumption has declined to accommodate the lower per-capita but less elastic growing demand of the developing world. the examples of adaptations in heating/cooling, lighting, etc described in this thread illustrate some of the broader energy elasticity that exists, and remains, in the developed world. but the big issue is liquid fuel and transportation, and a car-centered infrastructure that is ill-adapted to high liquid fuel prices. we can expect bus services to thrive, and we can expect suburban, let alone ex-urban, development to shrink. and of course people who are unemployed don't need to commute. but all those changes will leave fuel still available to those who can afford to pay for it.

higher domestic fuel consumption in oil-exporting nations will reduce export availability, and so will eventual reductions in overall production once we come to the end of the production plateau that appears to have begun about 5 years ago. but why won't the market work to allocate supplies via price? i guess i could imagine the administration of all available supplies on national-security grounds- that would fit with your idea. or do you have some other model in mind?

The US gov. stepped in to regulate price and availability in the 70s because the public "demanded" it. People where upset about high gas prices and Nixon instituted rationing and price controls. It doesn't seem like much of a stretch to imagine the same thing happening again. The old bugaboo of "national security" will always be used as an excuse, but it was not required at the time. The only thing required was a sharp jump in price and politicians not willing to let the market clearing function take place. When I wish to drive to Sacramento and it is not my day to fill up, Gas is "unavailable and off market". This DID happen (to my father) it is not a figment of my imagination. If you are telling me there was plenty of gas ( at the right price ) I have to agree. That is what is implied by the rationing scheme.

I think the current crack down on civil right is leading somewhere. See these videos for an example:

http://globaleconomicanalysis.blogsp...g-bill-of.html

We may indeed see a "surprise" in 2012 but not a shock devaluation, but a sharp spike in oil, "requiring" rationing.

[Thailandnotes]

Re: Preview of when cheap oil runs out

I think 70 percent of the lighted, heated, or air conditioned space on earth is completely unoccupied and leaking like my grandmother’s attic.

[jk]

Re: Preview of when cheap oil runs out

If you are telling me there was plenty of gas ( at the right price ) I have to agree. That is what is implied by the rationing scheme.

even simpler. there was plenty of gas. period. however, because of the scare, everyone wanted to fill up all the time. the gasoline inventory at any one moment consists of gas in big tank farms, gas in buried tanks at service stations, and the gas in the tanks of individual vehicles. the inventory did NOT diminish in size. instead it was just partitioned differently. there was more in individual gas tanks, less in service station tanks.

[c1ue]

Re: Preview of when cheap oil runs out

The main issue with peak oil globally is liquid fuels not electricity. As mooncliff points out a program of conservation and smart design can reduce most residential use to negligible levels. Hawaii is of note because the residential rates are higher than the mainland. I think that people have not adopted conservation policies yet because the electric bill is just not a significant fraction of their income. This might change, if the price goes up, leading to more availability and less need to import fossil fuels. Put another way, prices are not high enough in Hawaii ;-) . In San Francisco I was paying $0.42/kwh for "over baseline" electrical. This translated for me into about $100/month. I got off my duff and changed out the regular bulbs for CFLs. I saved about $20.

Mooncliff's assertion is that water heating is the source for most electricity consumption. My point was that this assertion is highly suspect; it might be true for him, but any household which uses air conditioning will have that as the highest source of electricity use. Secondly residential electricity consumption is a very, very distant 3rd in terms of overall electricity consumption. Surely no one is going to say that hot water heating is the source for the commercial and industrial usage?

Secondly liquid fuels may or may not be the issue, but Hawaii is using oil for electricity. This was true for the entire US 4 decades ago; it makes no sense why Hawaii continues to do so especially given the high cost to consumers. As I noted, even a mere $0.10 drop per kwh would equate to well over 1 billion dollars a year savings; the cost of a new power plant is far below that.

While I applaud conservation and my household uses less than 175 kwh in a given month, conservation doesn't replace capital investment apathy.

Here I expose myself as talking out of my ass, but I am trying to visualize a future where energy is expensive and just plain unavailable. This is the situation we had to deal with in the oil shock of the 1970s. High oil price doesn't just mean high gas price, it means gas is unavailable and off market. If you are old enough, you lived through this. Governments love rationing. It gives them an opportunity to reward their friends and punish their enemies. If prices continue to rise I guarantee that rationing will be back. The idea of turning Hawaii into an energy mecca doesn't just mean the lights stay on when everybody else has a blackout, it also means new industry and opportunities. For instance right now bauxite ore is imported via ocean going barge ( from the other side of the world) into Canada to be refined into aluminum because of cheap hydroelectric power.

As others have noted, even in the '70s the issue was more a supply chain shock than actual unavailability.

The rationing you speak of was a response to hoarding.

Thus while I can agree with sentiments on the increasing cost of energy, liquid fuels, etc etc, I cannot agree on any statement which posits short term unavailability of energy.

Reality as I see it is that energy is so cheap now that people squander it in all sorts of ridiculous ways. As cost goes up, this squandering declines. There certainly can be some point where there is simply insufficient energy, liquid fuels, or whatever to go around for vital needs, but I see zero evidence of this occurring in my or even my as yet unborn children's lifetimes.

Thanks for the link. I will read it later. Remember my thesis, high gas prices don't just mean expensive gas they mean no gas whatsoever. If cane harvesting returns to Hawaii, most likely it will use heavy automation and the same low labor techniques used in Europe. With this comparative competitive disadvantage over Brazil, it will still beat out Iowa corn as a source of ethanol.

Heavy automation requires input liquid fuels. This would seem counterproductive since your thesis posits the unavailability of liquid fuels.

Secondly Iowa ethanol - even ignoring its heavily subsidized nature - has nothing to do with electricity production or liquid fuels in Hawaii.

Brazil's cost of production due to low labor cost is what enables its export of ethanol - but even then said exports would not occur were it not for the mandated alternative energy quotas. The rollback of the combination tax subsidy and import tariff was not just due to the cost of this program, but also to the ongoing attempt by the US to try and split Brazil off from the BRICS. From my view, the US needs Brazil to at least counterweight against Chavez in order to try and resalvage its former economic and political dominance in South America.

[globaleconomicollaps]

Re: Preview of when cheap oil runs out

As others have noted, even in the '70s the issue was more a supply chain shock than actual unavailability.

The rationing you speak of was a response to hoarding.

Thus while I can agree with sentiments on the increasing cost of energy, liquid fuels, etc etc, I cannot agree on any statement which posits short term unavailability of energy.

Reality as I see it is that energy is so cheap now that people squander it in all sorts of ridiculous ways. As cost goes up, this squandering declines. There certainly can be some point where there is simply insufficient energy, liquid fuels, or whatever to go around for vital needs, but I see zero evidence of this occurring in my or even my as yet unborn children's lifetimes.

So we had a "supply chain shock", but not a shortage of oil. The price went up, but if everybody had just stayed home and not filled up their tanks then the price would not have skyrocketed causing a need to rationing? I hope you realize how moronic this sounds. My car has a 10 gallon tank. Is this the "hording" you are referring to?


I'm going to hunt up some books on the subject. Maybe I will make a post about it, but in the mean time FOFOA has a more extensive ( and accurate ) writeup on this.

http://fofoa.blogspot.com/2010/10/its-flow-stupid.html

Leaving aside the suggestion that the public was hording the gas in their cars, this is not the first time that rationing of gas was instituted in the US. I think it will not be the last.

Heavy automation requires input liquid fuels. This would seem counterproductive since your thesis posits the unavailability of liquid fuels.

Farmers and farm equipment will get a pass on the rationing plan, especially if they are growing fuel crops.

Secondly Iowa ethanol - even ignoring its heavily subsidized nature - has nothing to do with electricity production or liquid fuels in Hawaii.

Now this is where you are dead wrong and I think this is the critical issue for Hawaii. Oil price spike will be accompanied by shortages that will lead to rationing. Oil has a interesting property that turning it into something you can use in your car ( or a power plant ) requires a refinery that typically costs in the billion dollar range. This leads to centralization and it is easy for the government to control the tap. Fuel crops by their nature are distributed, and it is easy for a private individual to make enough ethanol to run a car for a year on as little as 2 acres of sugar beets or sugar cane. This is the kicker. The government cannot effectively control production of ethanol. See this doc for some figures:

http://www.fapri.missouri.edu/outrea...onversions.pdf

Hawaii can in an emergency ( and possibly forever ) run it's industry on locally produced sustainable energy sources.

Brazil's cost of production due to low labor cost is what enables its export of ethanol - but even then said exports would not occur were it not for the mandated alternative energy quotas. The rollback of the combination tax subsidy and import tariff was not just due to the cost of this program, but also to the ongoing attempt by the US to try and split Brazil off from the BRICS. From my view, the US needs Brazil to at least counterweight against Chavez in order to try and resalvage its former economic and political dominance in South America.

As I pointed out earlier, I support the introduction of ~10% ethanol in gas as a substitute for lead. Very soon we will see ethanol being cost competitive with gasoline without subsidies.

[jk]

Re: Preview of when cheap oil runs out

gec, you say your car has a 10 gallon gas tank. how much gas does it actually contain, on average? is it, on average, perhaps half full? and what if you, and every other driver on the road suddenly became anxious about the availability of fuel, and never let it go much below 3/4 full? do you think that would have any effects on, e.g, the availability of fuel at gas stations, and the waiting time to use a pump? in 1973, nixon imposed price controls, which of course led to shortages. in 1979, people remembered that, and acted to "protect" themselves from the risk of running short of fuel.

the wikipedia article on the 1973 oil crisis contains the following delightful passage on "secondary effects":

Various secondary effects occurred, notably toilet paper panics in Japan and the United States; these were unfounded panics which became self-fulfilling prophesies, and are classic examples of the Thomas theorem. Price rises and unfounded rumors of a toilet paper shortage – based on oil being used in paper manufacturing – caused a panic and hoarding of toilet paper in late October and early November in Osaka and Kobe, among other cities.^[35][36] In the US, Johnny Carson inadvertently caused a three-week panic when, on December 19, 1973, he read a news item regarding the US government falling behind on bids for toilet paper and quipping that the nation faced a toilet paper shortage on the Tonight Show.

[leegs]

Re: Preview of when cheap oil runs out

gec, you say your car has a 10 gallon gas tank. how much gas does it actually contain, on average? is it, on average, perhaps half full? and what if you, and every other driver on the road suddenly became anxious about the availability of fuel, and never let it go much below 3/4 full? do you think that would have any effects on, e.g, the availability of fuel at gas stations, and the waiting time to use a pump? in 1973, nixon imposed price controls, which of course led to shortages. in 1979, people remembered that, and acted to "protect" themselves from the risk of running short of fuel.

the wikipedia article on the 1973 oil crisis contains the following delightful passage on "secondary effects":

Various secondary effects occurred, notably toilet paper panics in Japan and the United States; these were unfounded panics which became self-fulfilling prophesies, and are classic examples of the Thomas theorem. Price rises and unfounded rumors of a toilet paper shortage – based on oil being used in paper manufacturing – caused a panic and hoarding of toilet paper in late October and early November in Osaka and Kobe, among other cities.^[35][36] In the US, Johnny Carson inadvertently caused a three-week panic when, on December 19, 1973, he read a news item regarding the US government falling behind on bids for toilet paper and quipping that the nation faced a toilet paper shortage on the Tonight Show.

JK I don't know that I buy your premise. Firstly a disclaimer - I don't know how long the gas 'shortages' in the 70's lasted. I'm assuming that they went on for a matter of months. Referring to your example - one could presume that a tank of gas represents a week of usage. Let's assume the the hoarding behavior you describe caused the average gas tank level to increase from 25% full to 90% full. This would represent a one time increase demand for gasoline representing (0.9-0.25)x 7 days = 5 days of demand. If the shortages went on for say 6 months, this would represent an increase in demand over that period of 3%. Hardly enough IMO to be a primary factor in lines at the gas pump.

[jk]

Re: Preview of when cheap oil runs out

JK I don't know that I buy your premise. Firstly a disclaimer - I don't know how long the gas 'shortages' in the 70's lasted. I'm assuming that they went on for a matter of months. Referring to your example - one could presume that a tank of gas represents a week of usage. Let's assume the the hoarding behavior you describe caused the average gas tank level to increase from 25% full to 90% full. This would represent a one time increase demand for gasoline representing (0.9-0.25)x 7 days = 5 days of demand. If the shortages went on for say 6 months, this would represent an increase in demand over that period of 3%. Hardly enough IMO to be a primary factor in lines at the gas pump.

the question then is whether the delivery and refining system can "catch up" with the extra 5 days of demand. i.e. does the delivery and refining system have enough spare capacity to that gas stations are able to get back to their normal level of supply within a relatively short time. from my reading in the past, the answer was no, but i don't have references on hand to document that. what i recall is what i said originally, i.e. that total stocks were unchanged over the period, but a larger percentage of the stock was in individual gas tanks.

[c1ue]

Re: Preview of when cheap oil runs out

So we had a "supply chain shock", but not a shortage of oil. The price went up, but if everybody had just stayed home and not filled up their tanks then the price would not have skyrocketed causing a need to rationing? I hope you realize how moronic this sounds. My car has a 10 gallon tank. Is this the "hording" you are referring to?


I'm going to hunt up some books on the subject. Maybe I will make a post about it, but in the mean time FOFOA has a more extensive ( and accurate ) writeup on this.

http://fofoa.blogspot.com/2010/10/its-flow-stupid.html

Leaving aside the suggestion that the public was hording the gas in their cars, this is not the first time that rationing of gas was instituted in the US. I think it will not be the last.

Your attempt to attack me would be a lot more credible if you actually had some facts as opposed to beliefs.

Just as no industrial society is ever more than 2 weeks away from starvation - equally so the gasoline supply is just as vulnerable to supply chain shocks.

Some mechanisms by which an available supply of oil would fail to be translated into gasoline due to an extremely rapid increase in price:

1) fixed price contracts. Oil importer to refinery. Refinery to regional distributor. Regional distributor to local distributor. Local distributor to gasoline station.

If any part of this chain used a fixed price contract, the counterparty would simply not deliver because otherwise bankruptcy would quickly ensue

2) operating capital requirements. When you're a gasoline station, or refinery, or distributor with gasoline at $0.50/gallon, you need 'x' operating capital to function. When oil increases from under $20 in 1972 to over $60 by 1976, operating capital must increase in proportion. If you don't have it, then you can't operate.

3) flow. As your flow article doesn't speak to - the typical flow in a large volume distribution operation is easily disrupted by consumer behavior or key supplier disruption. When salmonella or E. Coli is found in tomatoes, or spinach, or whatever in Mexico, there were shortages of said vegetables within days in California. Thus while the flow as you describe it might only be the accelerating filling of 20 gallon fuel tanks - i.e. 5 or 10 days supply, the supply chain doesn't expect it and cannot quickly compensate.

The exact same shortages due to hoarding existed in Weimar Germany after each payday as people rushed to convert their money into goods. Ditto in hyperinflationary eras in Brazil, Argentina, and so forth.

Now this is where you are dead wrong and I think this is the critical issue for Hawaii. Oil price spike will be accompanied by shortages that will lead to rationing. Oil has a interesting property that turning it into something you can use in your car ( or a power plant ) requires a refinery that typically costs in the billion dollar range. This leads to centralization and it is easy for the government to control the tap. Fuel crops by their nature are distributed, and it is easy for a private individual to make enough ethanol to run a car for a year on as little as 2 acres of sugar beets or sugar cane. This is the kicker. The government cannot effectively control production of ethanol. See this doc for some figures:

http://www.fapri.missouri.edu/outrea...onversions.pdf

Hawaii can in an emergency ( and possibly forever ) run it's industry on locally produced sustainable energy sources.

Uh, sorry, but your ethanol fantasy is completely contrary to reality.

Sure, in Kentucky people would burn wood to distill corn mash into moonshine, which in turn could be used for fuel but generally was drunk.

That process is extremely inefficient, however, both in manpower and in overall energy efficiency.

Growing a mere 2 acres of sugar cane might seem simple to you, but it seems the people of Hawaii aren't interested in doing that. I'd further add that there's only about 1 acre of farmland in Hawaii per person even assuming every single one of them wanted to become sugar cane farmers and ethanol producers.

As I pointed out earlier, I support the introduction of ~10% ethanol in gas as a substitute for lead. Very soon we will see ethanol being cost competitive with gasoline without subsidies.

Ethanol is already 10% of the gasoline supply.

As for cost competitiveness: http://www.cbo.gov/doc.cfm?index=11477

The incentives that the tax credits provide to producers of biofuels differ among the fuels. After adjustments for the different energy contents of the various biofuels and the petroleum fuel used to produce them, producers of ethanol made from corn receive 73 cents to provide an amount of biofuel with the energy equivalent to that in one gallon of gasoline. On a similar basis, producers of cellulosic ethanol receive $1.62, and producers of biodiesel receive $1.08.

The costs to taxpayers of reducing consumption of petroleum fuels differ by biofuel. Such costs depend on the size of the tax credit for each fuel, the changes in federal revenues that result from the difference in the excise taxes collected on sales of gasoline and biofuels, and the amount of biofuels that would have been produced if the credits had not been available. The costs to taxpayers of using a biofuel to reduce gasoline consumption by one gallon are $1.78 for ethanol made from corn and $3.00 for cellulosic ethanol. The cost of reducing an equivalent amount of diesel fuel (that is, a quantity having the same amount of energy as a gallon of gasoline) using biodiesel is $2.55, based on the tax policy in place through last year.

$1.78 to $3.00 a gallon in cost to taxpayers to substitute for gasoline? Seems like ethanol is a long, long way from being cost competitive.

[ProdigyofZen]

Re: Preview of when cheap oil runs out

Hey CharlieBrown, The Bakken shale wells in North Dakota are very very deep and horizontal so it is expensive to drill but there are large pools in that area. It might cost about 8-10 million to drill for a well there. EOG Resources is one of the largest drillers in ND. You can check out their pitch book here. They dont specifically state how much the cost per barrel is but I assume around 20$ dollars a barrel. I could be wrong. Page 21 has the Bakken oil play on it.
http://www.eogresources.com/investor...vPres_1211.pdf

Northern Oil & Gas spent 227 million to drill 36 net wells on its land at an average cost of 6.3mil

http://shale.typepad.com/bakkenshale...al-budget.html

Let me know if you want any other energy info. I think I have the pitch books for almost every energy play in the US and Canada for any company you want.

[ProdigyofZen]

Re: Preview of when cheap oil runs out

CB some more info on the Bakken Shale and ND.

http://www.oilandgasevaluationreport...ence-pays-off/

Economics of Oil Wells. http://english.pravda.ru/business/fi...cs_oil_well-0/