NYT article on PCO

[jneal3]

Just wondering whether this type of thinking has gone into EJ's analysis - I have to believe it has, but worth reading I thought:

http://dotearth.blogs.nytimes.com/20...mand/?src=recg

[c1ue]

Re: NYT article on PCO

I don't disagree with the concept of Peak Cheap Oil, but I do disagree with the characterization put forward by Revkin.

For one thing, what defines 'conventional' shifts over time. GRG55 should probably correct or confirm this, but the progress of oil extraction technology over the past several decades alone has shifted much of what once was 'unconventional' to 'conventional'.

As one example: the first oil wells were basically pulling oil out of the ground where it was seeping from. The logical progression from there was to drill - to create a seep (using a 20 foot drop steel bit) where there might not be one. Deep water, horizontal, hydro-fracking, ultra deep land, the litany of oil that was once unreachable - but which is now reachable and even economic seems to be a fairly significant list.

The second criticism is that using the post 2000 world economy as a measuring stick is more than a little bit of cherry picking. 2000 could be considered the low point for the affordability of oil - and similarly, the affordability of gold. If, for example, a point in the '70s or '80s were chosen, the conclusion is significantly weakened.

A longer term look, say since the start of oil as a primary energy source, would be a better perspective.

[EJ]

Re: NYT article on PCO

Just wondering whether this type of thinking has gone into EJ's analysis - I have to believe it has, but worth reading I thought:

http://dotearth.blogs.nytimes.com/20...mand/?src=recg

Sorry but this is shlock analysis.

Passive tense shlock analysis flag phrase: "If concerted effort is made to shift to oil alternatives and promote efficiency, a demand decline may arise even sooner."

Concerted effort made by whom? Governments? Consumers? Auto manufacturers?

Shlock analysis never bothers to define the process: who does what to whom over time and why.

PCO is my process theory of increasing oil scarcity that takes into account that oil has been and always will be produced in order of best and cheapest to worst and most expensive, and at a certain point the rate of improvement in oil production technology will fall behind the rate of decline in oil field quality and accessibility; producers will be unable to compensate and will cope with ever-rising costs which they then pass on to consumers.

PCO occurred around the year 2000.

Since then rising oil prices have and will continue to rise to throttle demand. Consumers adapt by driving less and demanding more fuel efficient vehicles and auto makers responded. A year 2000 Ford Taurus got 20MPG and a 2014 Ford Taurus gets 26MPG. That's a 23% improvement over a time period when gasoline prices increased 150%. As a result consumers have been buying fewer mid-sized and more compact cars and also driving less. In recent years the rate of fuel efficiency improvement has accelerated with investment in alternative drive platforms as auto makers begin to dial PCO into product roadmaps.

No "concerted effort" needed other than the adjustment of consumers and auto makers to the reality at the gas pump of perpetually rising oil production costs.

Within ten years when gasoline sells for between $6 and $8 per gallon auto makers will offer cars that get 70MPG and have a weight-to-power ratio as good or better than the average new car today that gets 25MPG, and at a similar price point. Consumers will drive less.

PCO occurred over ten years ago yet most analysts have yet to notice.

[jneal3]

Re: NYT article on PCO

I haven't gone through the technical paper and excel spreadsheet containing the model in much depth, and I agree the blogger didn't do any actual analysis, but it appears the authors of the technical paper the blogger refers to have done quite a bit of in-depth analysis of trends that appears to at least be worth contemplating. I'd note that they don't predict a fall off in demand until 2030 or so, plus high and low ranges based on their model - not really in time to ameliorate the effects of nearer-term PCO. But as a concept, peak demand of anything has to play a role in determining scarcity and should be studied. I think the group's opinion of the study would improve if you take a look at the excel spreadsheet...

[BK]

Re: NYT article on PCO

Americans (being eternal optimists) somehow believe that that high priced gasoline is not in our future and we can continue to live as always. I'm struck by the number of Railroad yards that are being converted into Real Estate development. Boy, its going to stink to have diminished railway yard capacity when fuel costs continue to rise. But, there s no money to be made or Politcal contributions to be gained by saying "hey, we might need those railyards".

I contrast Americans attitude to a friend from Germany - who just last night was saying "American drive too much" - he observed how many Americans leave car idling (still) while they run a quick errand, in Europe a Car left idling - is a car that is stolen - a car full of gasoline is precious - Its living with very High cost of Diesel/gasoline that have changed European attitudes - American's aren't there yet.

[EJ]

Re: NYT article on PCO

I haven't gone through the technical paper and excel spreadsheet containing the model in much depth, and I agree the blogger didn't do any actual analysis, but it appears the authors of the technical paper the blogger refers to have done quite a bit of in-depth analysis of trends that appears to at least be worth contemplating. I'd note that they don't predict a fall off in demand until 2030 or so, plus high and low ranges based on their model - not really in time to ameliorate the effects of nearer-term PCO. But as a concept, peak demand of anything has to play a role in determining scarcity and should be studied. I think the group's opinion of the study would improve if you take a look at the excel spreadsheet...

This review does a better job of summarizing the paper and in doing so reveals that the premise of the paper gets the question ass backwards.

For example, "We've seen explosive growth in car ownership in countries such as China," said co-author Adam Millard-Ball, an assistant professor in the Environmental Studies Department at UC-Santa Cruz. "However, those cars will be more efficient than those of the past, and travel demand will eventually saturate as it has in rich countries such as the United States."

Okay so why are the cars in China during its rapid industrialization phase more fuel efficient than cars during the USA's? Maybe because gasoline cost 35 cents a gallon in the 1960s and costs $3.60 today?

And why do so many Chinese ride scooters? This is a function of the structure of the economy. The U.S. economy during its rapid growth phase had relatively equal wage growth across income groups. China sports a 3rd world level of income disparity. If gasoline cost as much of average monthly U.S. income in 1965 as it does the average Chinese today we'd have been riding scooters, too.

Source: Econobrowser

And why has travel demand saturated peaked, maybe temporarily, in the U.S.? We cover this question in detail a thread titled Americans-cutting-back-on-gas-consumption but the short answer is higher fuel prices (PCO) over the past decade has produced two major consumer behavior changes: they are driving more high MPG cars and fewer low MPG trucks and SUVs and they are driving less.

It's all about oil prices and how consumers and manufacturers are responding to it yet, "The researchers did not try to forecast peak demand's impact on oil prices. But even if oil prices spend much time above the historical upper range of $140 a barrel, the peak in demand will only come sooner than they forecast."

That's backwards. First try to forecast the price then the impact on demand not the other way around.

Car registrations rise when oil prices are falling and fall when they are rising.

I suspect that as scientists and not economists they painted themselves into a corner trying to make a dubious argument about oil demand as being a function of something other than price. It isn't. "Saturation" doesn't exist in economics but a peak level of demand at higher prices over time does.

[vt]

Re: NYT article on PCO

http://fuelfix.com/blog/2013/07/10/t...84/?cmpid=hpts

Even through Texas has been able to pump more oil, thus only draining their reservoirs faster, the cost of gasoline is still very high. Plus the fact that Texas is producing more than some OPEC may only show those producers have not properly drilled their fields to achieve maximum production.

The meme keeps on pumping a gullible media and cheap energy hucksters.

[Mega]

Re: NYT article on PCO

http://news.sky.com/story/1114386/oi...ng-markets-iea
Mike

[BadJuju]

Re: NYT article on PCO

Set to grow strongly...record amounts of BS will be spewing. I wonder how many MPG you can get on BS.

[Polish_Silver]

PCO in nutshell

PCO is my process theory of increasing oil scarcity that takes into account that oil has been and always will be produced in order of best and cheapest to worst and most expensive, and at a certain point the rate of improvement in oil production technology will fall behind the rate of decline in oil field quality and accessibility; producers will be unable to compensate and will cope with ever-rising costs which they then pass on to consumers.

PCO occurred around the year 2000.

.

So well stated, and born out by oil price history. Yet so many refuse to believe . .!

[davidstvz]

Re: PCO in nutshell

I was discussing this on another website and mentioned the increasing cost of oil. Someone trotted out a chart showing that priced in gold, the cost of oil has been relatively flat. From there, by assuming that the value of gold is constant, they determined that oil has not been getting more expensive in real terms. They blamed the price increases purely on quantitative easing. It was entertaining.

However, in a purely abstract world, it's hard to prove that EJ's perspective is right. Now, if you actually look at the techniques used to recover oil and how they have changed over the years, it should be blindingly obvious that the real cost has gone up dramatically.

[Polish_Silver]

PCO vs gold price, GAGFO is covert.

I was discussing this on another website and mentioned the increasing cost of oil. Someone trotted out a chart showing that priced in gold, the cost of oil has been relatively flat. From there, by assuming that the value of gold is constant, they determined that oil has not been getting more expensive in real terms. They blamed the price increases purely on quantitative easing. It was entertaining.

However, in a purely abstract world, it's hard to prove that EJ's perspective is right. Now, if you actually look at the techniques used to recover oil and how they have changed over the years, it should be blindingly obvious that the real cost has gone up dramatically.

The "constant" oil price in gold is mentioned in Turk's book "The coming collapse of the dollar." If you start out with gold bug assumptions such as "gold is real money" then gold is the only valid price index, and sure enough, oil has not gone up much in gold terms.
(Oil and gold have gone up in terms of median wages, or apartment rental prices, of course.)

To put such a person on the spot, you can ask "Does gold ever gain purchasing power?"

Pure "money" would not gain purchasing power except during deflation.

It's a good point you made that the oil extraction methods are getting more costly. People sometimes say this is "technological advance". Well sort of. But drilling deep undersea is more a matter of nowhere else to go than "more technology".

GAGFO is covert. The people doing it cannot go public. Why they cannot is a very interesting question. There are a host of other questions, some mentioned by other i-tulipers, such as, why do some countries get more gold than others, in terms of oil budget? EJ has given a partial explaination, that it depends on the nations political clout and and stance vis a vis the US.

Russia is an oil exporter, so they don't need gold to buffer oil imports. But they do not have to play along with US organized gold rationing either. But I wonder about places like Taiwan. They import oil. But their gold is not very big. Lack of Clout? Pressure from China?

[aaron]

Re: PCO vs gold price, GAGFO is covert.

The Chinese people love gold. If you are a master of the universe in China, you may just consider all "private" gold held by citizens as Chinese Central Govt Gold. You just take it if you need it either by fiat or guns. Easy peasy

Taiwan likely has a lot more gold than they claim. The Chinese citizens have been brainwashed into believing that Taiwan was only successful because the Nationalists took all the Chinese gold with them when they fled to Taiwan. It makes little sense to brag about gold when the big guns are a few miles away and the people are very sensitive about it.

[Polish_Silver]

Re: PCO vs gold price, GAGFO is covert.

The Chinese people love gold. If you are a master of the universe in China, you may just consider all "private" gold held by citizens as Chinese Central Govt Gold. You just take it if you need it either by fiat or guns. Easy peasy

Taiwan likely has a lot more gold than they claim. The Chinese citizens have been brainwashed into believing that Taiwan was only successful because the Nationalists took all the Chinese gold with them when they fled to Taiwan. It makes little sense to brag about gold when the big guns are a few miles away and the people are very sensitive about it.

What you are saying makes a lot of sense. However, I am not so sure that the Chinese CB could get it's hands on privately held gold so easily. Because gold needs no paper trail, historically, it has been the way that people protected wealth from government confiscation.

I didn't know how Taiwan's development was described within the PRC. Taiwan actually had a gold mine until the early 1970's.

[Fiat Currency]

Re: PCO vs gold price, GAGFO is covert.

If you are a master of the universe in China, you may just consider all "private" gold held by citizens as Chinese Central Govt Gold. You just take it if you need it either by fiat or guns. Easy peasy

It could happen. I prefer to look at what HAS happened regarding confiscation.

USA - 1933 - lifted in 1975
Germany - 1939 - steals gold from Czechs assisted by UK
Australia - 1959 - lifted in 1976
UK - 1966 - 4 coins max - lifted 1979

There are numerous examples of countries where the people voluntarily turned in their gold to re-boot their nation's currencies ... and that includes lesser known examples in Italy & France.

But the West is BEST at protecting property rights, right?