Peak Oil: non issue from affordability point of view?

[NCR85]

I don't think I've ever heard anyone make this argument but it's a pretty straightforward and powerful one. When you're trying to figure out whether oil prices will be a drag on economic growth, the price on it's own doesn't tell you anything relevant. Inflation adjustments give you a slightly more useful picture, but again, these are only relevant in an analysis of how many consumer goods each barrel of oil represents, something without an immediate bearing on economic growth. The ratio between prices and incomes on the other hand seems to be what really tells you what is going on: if it takes you a larger share of your income to get your oil needs met, that is a very real and quantifiable drag on what you can do.

Now here's the kicker: affordability, even at today's elevated prices, is, historically speaking, still at a very high level. Nominal GDP grows at a skyrocketing average rate of around 5% a year. I'm pretty sure the price of oil through most of history didn't rise at anywhere near a comparable speed. I don't know the exact figures, but this means that affordability should be many multiples of what it was in, say, the 1960s. If maintaining real GDP growth rates of 3% to 4% was perfectly possible in the 60s, why shouldn't it be now? It looks like the point at which oil by itself causes a breakdown of growth is very, very far off on that basis alone.

I'm not really sure how to find the relevant exact data on this, can anyone help?

caveat: the ratio of consumption ON oil inputs also fluctuates, but my guess is this effect is still dwarfed by GDP growth.

[NCR85]

Re: Peak Oil: non issue from affordability point of view?

OK, I may have pushed my own hunch on this as a conclusion a little bit too much. Let's just discuss issues of oil affordability in general in this thread.

This article seems to paint a gloomier picture than my intuition on it:



http://www.toledoblade.com/Energy/20...l-further.html

[c1ue]

Re: Peak Oil: non issue from affordability point of view?

I think you'd need to do a lot more than compare the price of a barrel of oil vs. GDP.

For example: how much of GDP is derived because of cheaper transportation? While the price of oil affects the cost of transportation, you cannot directly calculate the cost nor benefit of oil simply via oil prices themselves.

To extend your analogy in this direction: the price of oil in the entire pre-2000 period, minus the 1974 to 1985 period, and when adjusted for inflation, is roughly $20:

http://inflationdata.com/inflation/i...ices_table.asp

In 2011, the price of oil was $87.

The increase in cost by over 400% is misleading, however. If we look at transportation and specific use gasoline as a proxy:

The average MPG for passenger cars in the 1960s was probably 2/3rds, if not 1/2, of what it is today. On the other hand, today's gasoline is 10% ethanol - which means there is less energy in it vs. the relatively unadulterated gasoline in the 1960s. Of course, there were also lead additives to gasoline in the 1960s - highly leaded aviation fuel could reach 150 octane ratings, and similarly cheaper grades of refinery output could still perform as well as higher grades for high compression engines. The 4 grams of lead per gallon was replaced with 10% to 15% MTBE in many grades (MTBE is a methane derivative), which in turn was replaced by ethanol (E10).

Net net:

1) Ethanol cancels out MTBE cancels out lead, no net effect on performance (? I don't know if this is true) though there is some effect on cost
2) 2/3rds or 1/2 fuel efficiency = 1.5 times/twice relative cost or two thirds/half economic benefit in the 1960s vs. today
3) 4.35x cost is straightforward.
4) E10 gasoline is 0.97 as much energy as straight gasoline

Calculating this all out, present gasoline costs are 2.25x to 2.5x as much as in the 1960s. Seems like this would matter considerably - gains in efficiency are more than offset by increases in costs plus decreases in quality of product.

[bpwoods]

Re: Peak Oil: non issue from affordability point of view?

This is a very iffy matter. There are so many variables your head spins. I invented this Rule-of-Thumb: for a basic subsistence level (standard of living) each person needs 2 liters of liquid hydrocarbon fuel [LHF], per day; that is, [2l/pp/pd]. Please don't ask me for a plausible explanation of this. Its speculative. Anyone thinks its dopey - please put up a correction.

The next level up is 5l/pp/pd. This gives you a modest/good standard of living. This is probably about half the current US/Canada daily consumption. Again, please correct these values if you have reliable updates.

Over 7l/pp/pd you have a good/v-good standard. Now, there are lots of 'ifs' and 'ands' about these and if anyone can straighten the matter out, that would be very useful.

Global LHF production is not in particularly good shape. Yes ,we can get more, but it costs more - barrels, not money! The nett global production available for export to consumers in non-producing countries may be flatlining.

[dummass]

Re: Peak Oil: non issue from affordability point of view?

Isn't GDP energy dependent? Since oil is a form of energy, the two should be highly correlated. I'm not sure if your test (GDP / price of oil) provides a useful gauge.

Oil gets too expensive when it requires more energy to extract it than the energy output derived from it. It also gets too expensive when you compare it to other sources of energy (i.e. coal and natural gas).

On a personal level, aggregate wages have been stagnant for the past ten years; meanwhile, fuel prices have gone from $1.50 a gallon to $4.00 a gallon. Cars are getting more fuel efficient, true, but they too are more expensive. Overall, we the people, have less purchasing power due to the price of oil.

Why is there no effort being made to convert cars to run on natural gas? I know it can be done. The infrastructure for natural gas already exists. How difficult would it be to expand?

[lektrode]

Re: Peak Oil: non issue from affordability point of view?

....
.....
Why is there no effort being made to convert cars to run on natural gas? I know it can be done. The infrastructure for natural gas already exists. How difficult would it be to expand?

would appear there is:

http://online.wsj.com/article/SB1000...910235090.html

• Updated May 23, 2012, 8:16 p.m. ET

Will Truckers Ditch Diesel?

Surplus of Natural Gas Prompts Some Fleets to Switch; Lack of Fueling Stations

Rising diesel costs last year forced Waste Management Inc. to charge customers an extra $169 million, just to keep its garbage trucks fueled. This year, the nation's biggest trash hauler has a new defensive strategy: it is buying trucks that will run on cheaper natural gas.
In fact, the company says 80% of the trucks it purchases during the next five years will be fueled by natural gas. Though the vehicles cost about $30,000 more than conventional diesel models, each will save $27,000-a-year or more in fuel, says Eric Woods, head of fleet logistics for Waste Management. By 2017, the company expects to burn more natural gas than diesel.
"The economics favoring natural gas are overwhelming," says Scott Perry, a vice president at Ryder Systems Inc., one of the nation's largest truck-leasing companies and a transporter for the grocery, automotive, electronics and retail industries.
The shale gas revolution, which cut the price of natural gas by about 45% over the past year, already has triggered a shift by the utility industry to natural gas from coal. Vast amounts of natural gas in shale rock formations have been unlocked by improved drilling techniques, making the fuel cheap and plentiful across the U.S.


Now the shale-gas boom is rippling through transportation. Never before has the price gap between natural gas and diesel been so large, suddenly making natural-gas-powered trucks an alluring option for company fleets, rather than an impractical idea pushed mainly by natural-gas boosters like T. Boone Pickens, the Texas oilman. Railroad operators also are being affected as coal shipments decline.
Many fleet operators, particularly long-haul truckers, remain concerned about a scarcity of refueling stations. Other challenges include the bulky tanks for compressed gas and the hazards of handling liquefied gas. In the past, the volatility of natural-gas prices also hampered wider use.
More

• Natural Gas Filling Stations: Few and Far Between

But today, truck manufacturers are embracing natural gas for everything from bi-fuel pickup trucks like the Chevy Silverado HD to eighteen-wheelers that can burn natural gas either compressed, called CNG, or super-chilled, called LNG. Navistar International Corp., Cummins Inc. and General Motors Co. all are courting the market with new natural-gas powered trucks or engines.
Navistar's goal is to "expand to a full range of products using natural gas in the next 18 months," says Eric Tech, president of Navistar's engine business. This year, the Illinois company is introducing delivery trucks burning natural gas. Next year, it is adding long-haul trucks with its biggest engines.
Mr. Tech says in a couple of years, one in three Navistar trucks sold will burn natural gas. "This is not a subsidy-driven market," Mr. Tech says. "It's developing on its own because the economics are compelling."
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Companies like United Parcel Service Inc. and AT&T Inc. are buying the vehicles. AT&T recently ordered 1,200 Chevrolet Express cargo vans equipped to run on compressed natural gas, which GM said was its largest CNG vehicle order ever.
Ryder Systems began renting out natural gas trucks in California last yea. The response has been so strong Ryder is expanding the program to Michigan and Arizona. And it is introducing them in truck clusters it operates for big box retailers like Staples Inc. and manufacturers including carpet-maker Mohawk Industries Inc.
For years, a barrel of oil cost about as much as six units of natural gas and their prices moved in tandem, notes Don Mason, a gas-industry consultant in Ohio. Today, a barrel of West Texas Intermediate crude costs more than 33 times as much as a unit of natural gas in the U.S. At the pump, a gallon of diesel often costs more than twice as much as CNG, on a diesel-gallon-equivalent basis.
"I think we're at a turning point, even if it's a slow, wide turn," Mr. Mason says.
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Alison Yin for the Wall Street Journal Refueling a Waste Management truck in Oakland, Calif., with LNG.



Although the U.S. has loads of natural gas, adoption of natural gas vehicles has been spotty. Less than 0.1% of vehicles on American roads burn the fuel today and the percentage sagged slightly from 2005 to 2010, when federal policies encouraging their use waned. The number began edging up last year, lifted by market forces.
Meanwhile, in the Asia-Pacific region, natural gas vehicle sales have grown at an average annual clip of 42% during the past decade, according to NGV Global, a trade group formed in 1986 to promote gas-friendly policies. Pakistan led the list in 2010 with 2.7 million natural gas vehicles, though many are tiny tuk-tuks, out of a total of 13 million natural gas vehicles worldwide. The U.S. came in 14th with 112,000 natural gas vehicles.
Many people are trying to figure out whether natural gas really has legs as a transportation fuel. Greg Burns, chairman and chief executive of PLS Logistics Services Inc. in Pittsburgh decided this year to ask 100 trucking company executives. The result: eight in 10 respondents said natural gas in its densest form, as LNG, has potential for highway use. Nearly a third said they were actively researching it for their own companies. But 54% said current infrastructure is inadequate and 23% worried about the higher cost of the trucks.
Mr. Burns' conclusion: "If you have a long-enough time frame, it's a pretty bullish picture."
Some truckers soon will have the ability to hedge their bets. That is because the Environmental Protection Agency recently approved retrofit technology for big rigs that lets them burn LNG and diesel.Kathryn Clay, executive director of the Drive Natural Gas initiative of the American Gas Association, says "the new technology is really game changing because the trucker can run on either fuel, eliminating refueling anxiety."
The potential market is enormous. The 3.2 million big rigs on U.S. roads today burn some 25 billion gallons of diesel annually. Almost 7 million single-unit trucks, such as UPS or FedEx Corp. trucks, consume another 10 billion gallons of diesel.
Converting even a modest number of these trucks, which often get 5 to 8 miles a gallon, to natural gas could save significant amounts of money. Tailpipe emissions also would drop, since natural gas burns cleaner than diesel or gasoline.
If large numbers of fleet operators decided to embrace natural gas, it could rev up truck manufacturing, which slowed dramatically during the recession. North American heavy duty truck sales peaked in 2006 with 360,000 units, just ahead of tighter emission standards, and plunged to 110,000 units in 2009.
Noel Perry, principal at Transport Fundamentals Inc., a trucking research company in Lebanon, Penn., says one disadvantage of natural gas is that it isn't as dense as diesel. CNG is only 25% as dense and LNG is 60% as dense. That means trucks need more tanks or bigger tanks to go as far, or they must refuel more often. That's not a big deal for city buses or delivery trucks that go back to home base each night, where they can refuel. But it's a problem for trucks that drive unpredictable routes or venture out into the hinterland.
Ann Duignan, managing director at J.P. Morgan Equity Research, says "there's huge excitement" about natural gas but infrastructure immaturity will depress truck sales. She expects fastest adoption among fleets that can run on CNG and return home each night but is skeptical about long-haul trucking. "It will be slow, steady, one-fleet-at-a-time type growth," she says.

[bpwoods]

Re: Peak Oil: non issue from affordability point of view?

"Why is there no effort being made to convert cars to run on natural gas? I know it can be done. The infrastructure for natural gas already exists. How difficult would it be to expand."

Nat gas is a tricky substance. You have to cool it - a lot! And you have to pressurize it - a lot! That's trouble. Know what a BLEVE is? Gaseous nat gas is hazardous, but the liquid stuff is real bad news.

[jk]

Re: Peak Oil: non issue from affordability point of view?

all of the income growth in the last n years has gone to the top 1%. [n is at least 10]. affordability was never an issue for the top 1%. therefore gdp is the wrong measure. i would suggest you look at the median income.

[bpwoods]

Re: Peak Oil: non issue from affordability point of view?

"... ... therefore gdp is the wrong measure. i would suggest you look at the median income."

G*P is a statstically massaged metric. They are next to useless, except you have access to the required data and can sort out the dross.

Energy is a cost on income, hence my use of the 2 liter of liquid fossil fuel per person per diem [2l/pp/pd] as a metric to give some indication of that individuals living status. Those 2l will cost different amounts in local currency - so you have to know which country you are referring to. Anyway, at less than 2l/pp/pd that individual is effectively squatting at, or close to, Coffin Corner in terms of life expectancy. So what proportion of your income is the local cost of those 2l? In the US each person needs (at a minimum - but this is a personal quesstimate) not less than 5l/pp/pd. What's that? $15? (1 bll = 144 l: 1 USG = 4 l). So if you have a NETT income of $100 p/d you are OK. But how many US folk have that level of income (nett of all state and fed taxes etc)?

You could of course attempt to work out the 'Food Miles' of a basket of basic domestically produced food (and I mean basic stuff) - and back-convert those miles into liters of LHF - that might wake up a few folk.

[bpwoods]

Re: Peak Oil: non issue from affordability point of view?

Typo error in barrel -> litre conversion; (Monday am without my coffee!!). Should be 160 liter per 40 US gallon drum.

[c1ue]

Re: Peak Oil: non issue from affordability point of view?

Anyway, at less than 2l/pp/pd that individual is effectively squatting at, or close to, Coffin Corner in terms of life expectancy.

Perhaps you could elaborate on this statement.

What precisely is the Coffin Corner in terms of life expectancy?

And perhaps you could explain why Cuba has a life expectancy of 78.8, but an oil consumption per capita of well under the 2 liters per person per day you note above.

So what proportion of your income is the local cost of those 2l? In the US each person needs (at a minimum - but this is a personal quesstimate) not less than 5l/pp/pd. What's that? $15? (1 bll = 144 l: 1 USG = 4 l). So if you have a NETT income of $100 p/d you are OK. But how many US folk have that level of income (nett of all state and fed taxes etc)?

So where does FIRE and financialization fit into this? It would seem that the cost per day for housing is the single largest expense for Americans; what is the cost per day for housing in California vs. say, Nebraska?

What about the nations where the cost of oil is subsidized, like Venezuela?

[bpwoods]

Re: Peak Oil: non issue from affordability point of view?

What precisely is the Coffin Corner in terms of life expectancy?

Ghostly Estate. Depends on the infrastructure: clean fresh water and sanitation would be essential for any level of wellbeing. 40 -50 years at the low end. Trouble is most folk in poor environments are also malnourished (food insecure). Rural based folk have to do a lot of manual labour. That's difficult if you are undernourished, have dodgy water to drink and you have to dig dry latrines, have poor medical services and adult literacy is low. Crowded urban locations are (absent well developed infrastructures) - unhealthy.

And perhaps you could explain why Cuba has a life expectancy of 78.8, but an oil consumption per capita of well under the 2 liters per person per day you note above.

"You picked a right one there." Cuba is the statistical economic Black Swan of the west. They are a left-wing dictatorship. Like to try what the admin did in Cuba after they 'lost' their USSR oil supply? - in a regular democratic state? Revolution comes to mind. They also have sunshine and a developed, if somewhat dilapidated economic infrastructure. A healthcare system that makes the US and some European states look Medieval by comparison. Very high level of adult literacy. Self-sufficient in foods (basic stuff). They will survive - if left alone.

So where does FIRE and financialization fit into this? It would seem that the cost per day for housing is the single largest expense for Americans; what is the cost per day for housing in California vs. say, Nebraska?

That's my point: you need to get a properly representative sample of a 'basket of costs' and be very careful how you make comparisons. Estimates are useful, but can be very misleading for ill-informed folk. FIRE only applies in western states where the governments have decided that fiancial institutions are more important than the non-financialized citizens, have outsourced their productive industry, then imported all sorts of grot from you-know-where. CA needs neither AC or winter heating (well, some winter stuff for the sensitive souls). Nebraska is a mite chilly in mid-winter. Except down those deep excavations. "Location, Location, Location" as they say in the RE sector.

What about the nations where the cost of oil is subsidized, like Venezuela?

They will experience a steep increase in domestic use. Followed by a sharp fall in nett exports. Then it's TSHTF time!

Thanks for comments.

[c1ue]

Re: Peak Oil: non issue from affordability point of view?

Ghostly Estate. Depends on the infrastructure: clean fresh water and sanitation would be essential for any level of wellbeing. 40 -50 years at the low end. Trouble is most folk in poor environments are also malnourished (food insecure). Rural based folk have to do a lot of manual labour. That's difficult if you are undernourished, have dodgy water to drink and you have to dig dry latrines, have poor medical services and adult literacy is low. Crowded urban locations are (absent well developed infrastructures) - unhealthy.

Thank you for the clarification.

I'd suggest you look some more at the reasons why the really poor nations have lower life expectancies. A lot of it has to do with disease, violence, and malnutrition rather than energy use. Of course, when you have zero government or infrastructure, all of the above are so much more prevalent.

"You picked a right one there." Cuba is the statistical economic Black Swan of the west. They are a left-wing dictatorship. Like to try what the admin did in Cuba after they 'lost' their USSR oil supply? - in a regular democratic state? Revolution comes to mind. They also have sunshine and a developed, if somewhat dilapidated economic infrastructure. A healthcare system that makes the US and some European states look Medieval by comparison. Very high level of adult literacy. Self-sufficient in foods (basic stuff). They will survive - if left alone.

Given that your 'coffin corner' is 40 or 50 years, there is still a wide disparity between oil consumption per capita and life expectancy. Brazil, Hungary, Poland, and Uruguay are some other examples of very low oil consumption coupled with over 70 year life expectancy. Uruguay's consumption in particular is only 2/3rds of Cuba's.

And while several of the above are ex-communist, none of them are dictatorships a la Fidel, and several have never been communist.

That's my point: you need to get a properly representative sample of a 'basket of costs' and be very careful how you make comparisons. Estimates are useful, but can be very misleading for ill-informed folk. FIRE only applies in western states where the governments have decided that fiancial institutions are more important than the non-financialized citizens, have outsourced their productive industry, then imported all sorts of grot from you-know-where. CA needs neither AC or winter heating (well, some winter stuff for the sensitive souls). Nebraska is a mite chilly in mid-winter. Except down those deep excavations. "Location, Location, Location" as they say in the RE sector.

I'd say you haven't lived or at least traveled much in California.

Central California sees summer temperatures of 100 degrees Fahrenheit for months on end. Northern California - which comprises a very large part of California's area though not population - is positively chilly with lows in the 40s for most of the year.

Even Los Angeles has very high temperatures - it is nice in the winter but gets into the 90s+ in the summer.

As for FIRE - you're going to have a hard time convincing me that FIRE is a western state phenomenon given New York, Chicago, Miami/Florida, Georgia, and so forth.

[thriftyandboringinohio]

Re: Peak Oil: non issue from affordability point of view?

"Why is there no effort being made to convert cars to run on natural gas? I know it can be done. The infrastructure for natural gas already exists. How difficult would it be to expand."

Nat gas is a tricky substance. You have to cool it - a lot! And you have to pressurize it - a lot! That's trouble. Know what a BLEVE is? Gaseous nat gas is hazardous, but the liquid stuff is real bad news.

You can buy a Civic from Honda that runs on natural gas http://automobiles.honda.com/civic-natural-gas/
Many conversions are available.


Centrally fueled fleets are the only truly successful applications thus far.

[bpwoods]

Re: Peak Oil: non issue from affordability point of view?

I'd suggest you look some more at the reasons why the really poor nations have lower life expectancies. A lot of it has to do with disease, violence, and malnutrition rather than energy use. Of course, when you have zero government or infrastructure, all of the above are so much more prevalent.

Yep! No question about those causes. My thesis is that you need a min amount of liquid energy per person per day to sustain yourself above subsistence AND move up beyond that level. I picked 2l/pp/pd as a 'random shot'. Its meant to get a debate and discussion going about our use (and misuse) of fossil fuels. So thanks for your comments and questions.

Given that your 'coffin corner' is 40 or 50 years, there is still a wide disparity between oil consumption per capita and life expectancy. Brazil, Hungary, Poland, and Uruguay are some other examples of very low oil consumption coupled with over 70 year life expectancy. Uruguay's consumption in particular is only 2/3rds of Cuba's. And while several of the above are ex-communist, none of them are dictatorships a la Fidel, and several have never been communist.

Yeah? Left or right are not a causal variable. Its more complicated than that. You are correct about infrastructure. Someone might do a Multiple Regression for us (with life ex as the dependent variable). Hungary and Poland are closer to home. Must be something interesting there. Both ex-socialist states. Hmmmm. If Uruguay has that level of consumption then it would be instructive to run a comparison with a similar state to see what the causal variables might be.

I'd say you haven't lived or at least traveled much in California.
Central California sees summer temperatures of 100 degrees Fahrenheit for months on end. Northern California - which comprises a very large part of California's area though not population - is positively chilly with lows in the 40s for most of the year.

True. But what did folk do before they had electric AC? And urban sprawls are heat traps. Very unpleasant. Why is Nth CA so chilly? Its highest lat is 45N? That's south of France (Bordeaux area). I do note the high ground inland; that will be cold. But they have a lot of timber. And they surely know how to build cozy homes.

Even Los Angeles has very high temperatures - it is nice in the winter but gets into the 90s+ in the summer.

Massive urban sprawls are very unpleasant in high summer. So AC is the price we have to pay to live and work there. Fine as long as the electricity works.

As for FIRE - you're going to have a hard time convincing me that FIRE is a western state phenomenon given New York, Chicago, Miami/Florida, Georgia, and so forth.

Opps! Sorry, I meant FIRE was a problem in many western nations (not US states).

Thanks again for the thoughtful comments.